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FISCAL YEAR 2003

BUDGET

OF THE U.S. GOVERNMENT

THE BUDGET DOCUMENTS
Budget of the United States Government, Fiscal Year 2003
contains the Budget Message of the President and information on
the President’s budget and management priorities, including assessments of agencies’ performance.
Analytical Perspectives, Budget of the United States Government, Fiscal Year 2003 contains analyses that are designed to highlight specified subject areas or provide other significant presentations
of budget data that place the budget in perspective.
The Analytical Perspectives volume includes economic and accounting analyses; information on Federal receipts and collections; analyses
of Federal spending; detailed information on Federal borrowing and
debt; the Budget Enforcement Act preview report; current services
estimates; and other technical presentations. It also includes information on the budget system and concepts and a list of Federal programs by agency and account, as well as by budget function.
Historical Tables, Budget of the United States Government,
Fiscal Year 2003 provides data on budget receipts, outlays, surpluses or deficits, Federal debt, and Federal employment over an
extended time period, generally from 1940 or earlier to 2007. To
the extent feasible, the data have been adjusted to provide consistency with the 2003 Budget and to provide comparability over time.
Budget of the United States Government, Fiscal Year 2003—
Appendix contains detailed information on the various appropriations and funds that constitute the budget and is designed primarily
for the use of the Appropriations Committee. The Appendix contains
more detailed financial information on individual programs and appropriation accounts than any of the other budget documents. It
includes for each agency: the proposed text of appropriations language, budget schedules for each account, new legislative proposals,
explanations of the work to be performed and the funds needed,
and proposed general provisions applicable to the appropriations of

entire agencies or group of agencies. Information is also provided
on certain activities whose outlays are not part of the budget totals.
Budget System and Concepts, Fiscal Year 2003 contains an
explanation of the system and concepts used to formulate the President’s budget proposals.
Budget Information for States, Fiscal Year 2003 is an Office
of Management and Budget (OMB) publication that provides proposed
State-by-State obligations for the major Federal formula grant programs to State and local governments. The allocations are based
on the proposals in the President’s Budget. The report is released
after the budget.
AUTOMATED SOURCES OF BUDGET INFORMATION
The information contained in these documents is available in
electronic format from the following sources:
CD-ROM. The CD-ROM contains all of the budget documents and
software to support reading, printing, and searching the documents.
The CD-ROM also has many of the tables in the budget in spreadsheet format.
Internet. All budget documents, including documents that are
released at a future date, will be available for downloading in several
formats from the Internet. To access documents through the World
Wide Web, use the following address:
http://www.whitehouse.gov/omb/budget
For more information on access to electronic versions of the budget
documents (except CD–ROMs), call (202) 512–1530 in the D.C. area
or toll-free (888) 293–6498. To purchase a CD–ROM or printed documents call (202) 512-1800.

GENERAL NOTES
1.
2.

All years referred to are fiscal years, unless otherwise noted.
Detail in this document may not add to the totals due to rounding.

U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON

2002

For sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov

Phone: (202) 512–1800

Fax: (202) 512–2250

Mail: Stop SSOP, Washington, DC 20402–0001

TABLE OF CONTENTS
The Budget Message of the President...........................................................................................
A Note to Readers .....................................................................................................................................
Budget Highlights.....................................................................................................................................

3
5
7

Securing America’s Future ..................................................................................................................
Protecting the Homeland ......................................................................................................................
Winning the War on Terrorism Abroad ............................................................................................
Returning to Economic Vitality ...........................................................................................................
Budget Implications of the War ...........................................................................................................

13
15
25
31
35

Governing with Accountability ........................................................................................................
Department of Agriculture ....................................................................................................................
Department of Commerce ......................................................................................................................
Department of Defense ...........................................................................................................................
Department of Education .......................................................................................................................
Department of Energy.............................................................................................................................
Department of Health and Human Services ..................................................................................
Department of Housing and Urban Development........................................................................
Department of the Interior ....................................................................................................................
Department of Justice .............................................................................................................................
Department of Labor ...............................................................................................................................
Department of State and International Assistance Programs ................................................
Department of Transportation .............................................................................................................
Department of the Treasury .................................................................................................................
Department of Veterans Affairs ..........................................................................................................
Corps of Engineers—Civil Works .......................................................................................................
Environmental Protection Agency .....................................................................................................
Federal Emergency Management Agency .......................................................................................
National Aeronautics and Space Administration .........................................................................
National Science Foundation ...............................................................................................................
Small Business Administration...........................................................................................................
Smithsonian Institution .........................................................................................................................
Social Security Administration ............................................................................................................
Federal Drug Control Programs..........................................................................................................
Other Agencies ...........................................................................................................................................

43
55
73
87
103
119
137
171
185
203
215
229
255
267
279
291
303
315
323
337
349
357
363
375
381

Summary Tables .........................................................................................................................................

395

Glossary ...........................................................................................................................................................

419

List of Contributors and Image Credits ......................................................................................

423

THE BUDGET MESSAGE OF
THE PRESIDENT

THE BUDGET MESSAGE OF THE PRESIDENT
To the Congress of the United States:
Americans will never forget the murderous events of September 11, 2001. They are for us what
Pearl Harbor was to an earlier generation of Americans: a terrible wrong and a call to action.
With courage, unity, and purpose, we met the challenges of 2001. The budget for 2003 recognizes
the new realities confronting our nation, and funds the war against terrorism and the defense of our
homeland.
The budget for 2003 is much more than a tabulation of numbers. It is a plan to fight a war we did
not seek—but a war we are determined to win.
In this war, our first priority must be the security of our homeland. My budget provides the
resources to combat terrorism at home, to protect our people, and preserve our constitutional
freedoms. Our new Office of Homeland Security will coordinate the efforts of the federal government,
the 50 states, the territories, the District of Columbia, and hundreds of local governments: all to
produce a comprehensive and far-reaching plan for securing America against terrorist attack.
Next, America’s military—which has fought so boldly and decisively in Afghanistan—must be
strengthened still further, so it can act still more effectively to find, pursue, and destroy our enemies.
The 2003 Budget requests the biggest increase in defense spending in 20 years, to pay the cost of war
and the price of transforming our Cold War military into a new 21st Century fighting force.
We have priorities at home as well—restoring health to our economy above all. Our economy
had begun to weaken over a year before September 11th , but the terrorist attack dealt it another
severe blow. This budget advances a bipartisan economic recovery plan that provides much more
than greater unemployment benefits: it is a plan to speed the return of strong economic growth, to
generate jobs, and to give unemployed Americans the dignity and security of a paycheck instead of
an unemployment check.
The plan also calls for maintaining low tax rates, freer trade, restraint in government spending,
regulatory and tort reform, promoting a sound energy policy, and funding key priorities in education,
health, and compassionate social programs.
It is a bold plan—and it is matched by a bold agenda for government reform. From the beginning
of my Administration, I have called for better management of the federal government. Now, with all
the new demands on our resources, better management is needed more sorely than ever. Just as the
No Child Left Behind Act of 2001 asks each local school to measure the education of our children, we
must measure performance and demand results in federal government programs.
Where government programs are succeeding, their efforts should be reinforced—and the 2003
Budget provides resources to do that. And when objective measures reveal that government programs
are not succeeding, those programs should be reinvented, redirected, or retired.

THE BUDGET MESSAGE OF THE PRESIDENT

By curtailing unsuccessful programs and moderating the growth of spending in the rest of
government, we can well afford to fight terrorism, take action to restore economic growth, and
offer substantial increases in spending for improved performance at low-income schools, key
environmental programs, health care, science and technology research, and many other areas.
We live in extraordinary times—but America is an extraordinary country. Americans have risen
to every challenge they have faced in the past. Americans are rising again to the challenges of today.
And once again, we will prevail.

George W. Bush

February 4, 2002

A NOTE TO READERS
Once in a long time, an established publication presents itself in a new format, and the occasion
requires an explanation to readers grown accustomed to the old form. The President’s 2003 Budget
represents such a change.
The first differences you may notice are merely presentational, all aimed at enhancing
readability. This budget attempts to simplify information, to reduce the use of jargon, and to
illustrate its contentions more liberally with charts, tables, and real-life examples. Color and
photographs appear for the first time.
But these changes are incidental compared to a fundamental difference in emphasis. The
President’s Budget for 2003 seeks to inaugurate an era of accountability in the conduct of the
nation’s public business. It takes the first step toward reporting to taxpayers on the relative
effectiveness of the thousands of purposes on which their money is spent. It commences the overdue
process of seriously linking program performance to future spending levels. It asks not merely “How
much?”; it endeavors to explain “How well?”
These changes have been called for by good government advocates for decades. A 1949 commission
headed by the 31st President, Herbert Hoover, first introduced the term “performance-based
budgeting.” Subsequent Presidents launched efforts to get better results from government. During
the 1990s, the Congress passed several statutes aimed at enhancing government’s attention to
performance. The Government Performance and Results Act (GPRA) in 1993 directed the executive
branch to undertake the measurement of effectiveness and to reflect the answers in budget choices.
As Senator John Glenn said several years later, “The ultimate goal of GPRA is to use program
performance information to guide resource allocation decisions. I repeat that. Use program
performance information to guide resource allocation decisions. That is the important connect.”
In an initial and admittedly exploratory way, this document responds to these longstanding
demands, proposing to reinforce provably strong programs, and to redirect funds in many cases
from programs that demonstrably fail, or cannot offer evidence of success.
Real scrutiny of results and real accountability in government were long overdue, in any case.
But they are absolutely essential at a time when national security requirements mandate significant
new spending. Defeating international terrorism and defending Americans in our homeland are
imperative duties of the federal government, above and beyond all its other activities. We must
provide for these increases and fund other necessary programs without letting total spending rise
unacceptably. We must demand proof of value from programs of lesser priority.
The information on which program ratings are based is far from perfect, and some conclusions
may prove erroneous over time. The Administration invites a spirited discussion and welcomes
additional data, as well as suggestions about how to measure performance better throughout the
federal government.

A NOTE TO READERS

Bringing accountability to government goes beyond performance-based budgeting. President
Bush has ordered that his appointees take responsibility for improving the day-to-day management
of the government with which they are entrusted.
To that end, the President directed the creation of a reform agenda, aimed at attacking the worst
shortcomings of the government he inherited. This budget includes the first agency report cards,
assessing the starting point of each department in these problem areas. Reports on the progress of
each agency in improving from these baselines will be provided regularly to the President and to the
public.
Finally, the 2003 Budget parts ways with Washington’s six year experiment with 10 year
forecasting. Previous budgets’ attempts to look out a decade in the future have varied wildly from
year to year. But 2001 showed finally how unreliable and ultimately futile such estimates are.
The economic slowdown was already well underway, but its severity could not be known when
the last budget was transmitted. The tragic events of September 11th ensured that the downturn
became a recession, and added the inescapable new spending requirements of a two-front war.
Unemployment rolls at home rose at the same time that long-neglected military needs required
attention to begin what will be an ongoing campaign against terror.
Revised economics alone knocked 30 percent from the hoped-for 10 year surplus. Recognizing the
uncertainty of long-term projections, the Administration in its 2002 Budget had set aside $1 trillion,
or 18 percent, of the estimated surplus as a contingency reserve, but even this precaution was not
enough to cover the drop in forecasted revenue caused by the poor economy.
For continuity purposes, the 2003 Budget updates 10 year estimates at the overall level, but puts
the appropriate focus on five year figures. Beginning with this budget, agency totals and supporting
details are projected for the five years that the law requires.
Taken together, the above changes produce a very different sort of budget, one the Administration
hopes will inform its readers in new ways, while broadening the healthy debate that always attends
this document. Going forward, let the question we debate be not just “What will the federal
government spend?” but also “What will the federal government achieve?”

BUDGET HIGHLIGHTS

A Budget to Fight War and Recession:

• Places highest priority on war against terrorism overseas and at home;
• Incorporates the bipartisan approach to economic stimulus that assists
unemployed workers and fosters job creation;
• Reforms the budget to focus on results instead of dollars spent; and
• Funds high-priority initiatives while moderating growth in the rest of government.

Protecting the Homeland

• Equips
•

•
•

and trains first responders (firefighting, law enforcement, emergency medical
personnel) to respond to potential future threats ($3.5 billion in grants).
Counters the threat of bioterrorism with enhancements in hospitals and other public health
systems ($1.2 billion), research and development ($2.4 billion), pharmaceutical and vaccine
stockpile ($400 million), and a national information network for better detection of biological
attacks, as well as natural disease outbreaks ($392 million).
Secures our borders through improved tracking of the entry and exit of non-U.S. citizens
(+$350 million), more than doubles the number of Border Patrol agents on the northern
border, and enhances Customs Service and Coast Guard operations and equipment.
Meets aviation security requirements by continuing the renewed commitment to federal
air marshals, hiring 30,000 new federal airport security workers, and installing explosive
detection equipment ($4.8 billion).

Winning the War on Terrorism Abroad

• Supports
•
•

250,000 forward-deployed troops and the 1.1 million here at home with a total
defense budget of $369 billion (a 12 percent increase), plus $10 billion more if the war against
terrorism requires it.
Meets new threats by making investments in transformational activities such as unmanned
combat aerial vehicles ($146 million), precision munitions ($1.2 billion), and intelligence
enhancements.
Aids countries fighting terrorism abroad ($3.5 billion), expands anti-terrorism and security
training for other countries ($121 million), and expands efforts to diminish the threat of the
proliferation of nuclear and biological weapons ($1.5 billion).

BUDGET HIGHLIGHTS

Returning to Economic Vitality

• Re-proposes a bipartisan approach to economic stimulus that assists unemployed workers and
•
•

provides tax incentives to boost economic growth.
Moderates the growth of discretionary spending, excluding national and homeland security
requirements, to two percent.
Balances the budget by 2005 without endangering the war against terrorism and homeland
security efforts and without raising taxes.

Governing with Accountability

• Incorporates
•
•
•
•

the President’s five management reforms into agencies’ budgets and plans:
strategic management of human capital, competitive sourcing, E-Government, financial
management, and budget and performance integration.
Includes a Management Scorecard to measure progress on these five management reforms.
Shifts the budget’s focus from how much is being spent to what is being accomplished.
Begins integration of performance measures in the budget process, rates programs based on
their effectiveness, and shifts resources to more effective programs.
Incorporates the President’s Freedom to Manage Initiative and seeks reprogramming and
reorganization authority to better align programs and resources.

Funds Other Priority Initiatives while Moderating the Growth in Spending

• Education.
•
•
•

•
•
•

Funds the No Child Left Behind Act, including $1 billion for the Reading First
Initiative and a $1 billion increase to help low-income students meet new reading and math
standards. Also funds a historically high level of funding for special education ($8.5 billion).
National Institutes of Health (NIH). Meets commitment to double funding from 1998 levels,
proposing $27.3 billion in 2003.
Community Health Centers. Funds 1,200 new or expanded sites to serve an additional 6.1
million patients by 2006.
Medicare Prescription Drugs. Provides a prescription drug benefit in a modernized Medicare
program, and takes immediate steps to begin improving Medicare benefits, including
assistance with prescription drug costs and better coverage options for seniors (+$190 billion
over 10 years).
Health Insurance. Initiates a refundable tax credit to subsidize up to 90 percent of the cost
for low and middle income Americans who do not have employer coverage ($89 billion over 10
years).
Breast and Cervical Cancer Screening. Includes a $9 million increase for the Center for Disease
Control and Prevention’s breast and cervical cancer program to expand screening services for
low-income women.
Compassion. Funds the President’s Compassion and Faith-Based Initiatives ($6 billion
annually when fully phased-in of new charitable giving tax credits, $100 million for the
Compassion Capital Fund, $10 million for Maternity Group Homes, $25 million for Mentoring
Children of Prisoners, and $20 million for a Responsible Fatherhood Initiative).

THE BUDGET FOR FISCAL YEAR 2003

• WIC.
•
•
•
•
•
•
•
•
•
•

•
•
•
•

Serves 7.8 million women and children through the Special Supplemental Nutrition
Program for Women, Infants, and Children (WIC) program ($4.8 billion in 2003).
Food Stamps. Restores eligibility for many legal immigrants.
Low-income weatherization. Assists an additional 18,000 low-income families ($277 million in
2003—a 20 percent increase).
Job Corps. Supports 122 residential training centers ($1.5 billion in 2003).
Housing. Includes a new tax credit for low and middle income Americans for up to 50 percent
of the cost of constructing a new home or rehabilitating an existing home.
USA Freedom Corps. Funds the President’s new USA Freedom Corps Initiative.
Stewardship. Fully funds the Land and Water Conservation Fund (over $900 million) and
maintains commitment to eliminate the National Park Service maintenance backlog by 2006.
Provides record high funding for National Wildlife Refuges (+$54 million).
Environmental Protection. Provides record funding levels for the Environmental Protection
Agency’s operating budget and its state program grants.
Science and Technology. Provides a record high request for science and technology efforts at
$57 billion (a nine percent increase).
Agriculture. Funds a farm bill that will provide a solid safety net for all farmers and ranchers,
expand markets abroad, and increase resource conservation to enhance our environment
(+$73.5 billion over 10 years).
Energy. To reduce dependence on imported oil, funds a new Freedom CAR and a new Coal
Research Initiative and proposes $9.1 billion in tax incentives over 10 years to develop
alternative technologies, including renewable electricity generation, residential solar energy
systems, and hybrid and fuel cell vehicles.
International Drug Control. To destroy the crops and labs that produce cocaine at its sources,
funds the Andean Counterdrug Initiative ($731 million).
Drug Treatment. Supports 52,000 additional drug abuse treatment slots.
Election Reform. In line with the recommendations made by former Presidents Carter and
Ford, provides $1.2 billion over three years to assist states with the acquisition of new voting
machines, voter education, and poll worker training.
Tax-Filing. Improves the convenience and eliminates the cost of electronic filing for citizens
with simple tax forms.

SECURING AMERICA’S FUTURE

SECURING AMERICA’S FUTURE
The war against terrorism is a war unlike any other in American history. It is a war that must be
fought at home as well as abroad, a war waged on the financial, diplomatic, and intelligence fronts
as much as on the battlefield. We did not choose this war—but we will not shrink from it. And we
will mobilize all the necessary resources of our society to fight and to win.
Fortunately, our resources are great. Yet the challenge before us is great, as well. The terrorists
threaten us not with mighty armies or fleets, but with unpredictable attacks on our civilian
population and critical infrastructure. Therefore, we must protect our nation by defending our
homeland against new dangers from new sources. We will win the war at home and abroad by
destroying terrorist organizations and discrediting their ideology of terror.
Our new war will be costly. Some of those costs will not show up on the government’s books.
Terrorism has already inflicted considerable losses on the private economy, and now entrepreneurs
and employers will have to shoulder the expense of still-tighter security at points of vulnerability.
These are real and heavy burdens for our society. The Administration’s tax reductions adopted by
the Congress in the spring of 2001 will help lighten the load—but more compensatory tax relief will
be needed if our economy is to grow as rapidly as it could.
Government, too, will have new bills to pay. Since the end of the Cold War, defense has been a
dwindling priority in our national budget. By the end of the 1990s, the United States was spending
less of its national income on defense than at any time since the attack on Pearl Harbor. That
will have to change—and the 2003 Budget reflects the new reality. Future budgets will need to
do likewise.
We have new duties, and we will be judged by how we meet them. We are at war, and we must
pay the price to fight a war.
President Bush has called the war against terrorism a “new kind of war.” The lessons of history
are clear, and we are not immune to old mistakes. In the mid-1960s, the United States government
refused to adjust its spending to account for the costs of the war in Vietnam. It insisted on having both
“guns and butter” and got instead inflation that lasted through almost two decades and contributed
to four recessions, including two of the most severe in modern times.
President Franklin Roosevelt made wiser choices during World War II. As war approached, he
husbanded the resources of the nation—and concentrated them upon the nation’s supreme priority:
victory. In fact, President Roosevelt’s 1944 Budget noted that expenditures not related to the war
effort were reduced by more than 20 percent between 1939 and 1942.
President Roosevelt’s vision preserved freedom, and prepared the way for almost a
quarter-century of robust economic growth in the United States and throughout the world. We can
show ourselves worthy of that accomplishment by following that example.

PROTECTING THE HOMELAND

Together, we will confront the threat of terrorism. We will take strong precautions aimed at preventing
terrorist attacks and prepare to respond effectively if they might come again. We will defend our country;
and while we do so, we will not sacrifice the freedoms that make our land unique.
President George W. Bush
October 8, 2001

Overview
Our nation learned a terrible lesson on September 11th —America has evil, cold-blooded enemies
capable of unprecedented acts of mass murder and terror. The characteristics of American
society that we cherish—our freedom, our openness, our great cities, our modern transportation
systems—make us vulnerable to terrorism of catastrophic proportions. This vulnerability will exist
even after we bring justice to those responsible for the events of September 11th. Indeed, the threat
of mass-destruction terrorism has become a reality of life in the 21st Century. It is a permanent
condition to which not just America, but the entire world must adjust.
The federal government has an absolute obligation to secure the homeland from future terrorist
attacks. This will involve major new programs and significant reforms by the federal government,
several of which are described in this budget. But it will also involve new or expanded efforts by state
and local governments, private industry, non-governmental organizations, and ordinary citizens. The
higher priority we all now attach to homeland security has already begun to ripple through the land.
Homeland security is a challenge of monumental scale and complexity. It will not be cheap, easy,
or quick. Achieving our homeland security objectives will require vast sums of money, strenuous
labor, and many years. Our work has already begun, and it will continue. The American people
should have no doubt that ultimately we will succeed in weaving a proper and permanent level of
security into the fabric of America.
This budget reflects not just our absolute commitment to achieving a much more secure homeland,
but also our determination to do so in a manner that preserves liberty and strengthens our economy.

September 11 th and Our Response
The September 11th terrorist attacks on the World Trade Center and the Pentagon have presented
an unprecedented challenge to our nation. The response has been, and must continue to be, equal to
that challenge.

The President’s Budget devotes a total of $38 billion to a host of federal agencies that will develop a new level of security to protect
Americans at home. Throughout this volume, this Minuteman appears at the bottom of pages where a discussion on homeland
security begins.
15

PROTECTING THE HOMELAND

In the immediate aftermath of the attacks, Congress swiftly appropriated $40 billion to aid
reconstruction, wage war against terrorism, and strengthen our defenses at home.
In the months since September 11th, the $10.6
billion of the $40 billion dedicated to homeland
security purposes has helped to:

• dramatically
•
•
•

•

increase the number of sky
marshals riding on our airlines;
support the largest criminal investigation in
U.S. history;
acquire enough medicine to treat up to 10
million more people for anthrax or other
bacterial infections;
investigate the sources of terrorist funding, and
then freeze the financial assets of more than
150 individuals and organizations connected to
international terrorism;
deploy hundreds of Coast Guard cutters,
aircraft, and small boats to patrol the
approaches to our ports and protect them from
internal or external threats;
acquire equipment for certain major mail
sorting facilities to find and destroy anthrax
bacteria and other biological agents of terror;
Aftermath of terrorist attack on the World Trade Center.
and
station 8,000 National Guards troops at baggage-screening checkpoints at 420 major airports.

Now we will take the next step. When the President established a new Office of Homeland
Security, under the leadership of Governor Tom Ridge, he directed the Office “to develop and
coordinate the implementation of a comprehensive national strategy to secure the United States
from terrorist threats or attacks.”
This strategy will meet four key tests:

• The strategy for homeland security will be comprehensive and will integrate the full range of
•
•
•

homeland security activities into a single, mutually supporting plan.
The strategy will be a national strategy, not a federal government strategy. The threat posed
by terrorism does not fall neatly within the jurisdiction of the federal government. To defeat
terrorism, the federal government must work with states and localities and the private sector.
The strategy will commit the federal government to a long-term plan and a long-term budget
to improve homeland security.
Finally, the strategy will include benchmarks and other performance measures by which we
can evaluate progress and allocate resources. These objectives will set the goals for federal
departments and agencies. They will also give guidance to state and local governments and
the private sector.

THE BUDGET FOR FISCAL YEAR 2003

At the same time as we craft our national strategy, we will begin work immediately on four urgent
and essential missions for the defense of our homeland:

• ensuring state and local first responders (firemen, police, and rescue workers) are prepared
•
•
•

for terrorism;
enhancing our defenses against biological attacks;
securing our borders; and
sharing information and using information technology to secure the homeland.

The President’s Budget for 2003, including Department of Defense spending, provides $21 billion
to fulfill these four missions. Including other programs, total spending for homeland security would
rise to $38 billion in 2003—an $18 billion increase over 2002, a virtual doubling of the pre-September
11th levels.
The task of homeland security, however, is extraordinarily broad. The national strategy, therefore,
will go well beyond these four initiatives. The nation’s response to the terrorist attacks, although
impressive in many respects, revealed substantial shortcomings in our ability to prevent, mitigate,
and investigate such events. The sheer size and wealth of America means that we present many
targets to terrorists. Similarly, our freedom and openness makes our society vulnerable. Terrorists
can strike at any place, at any time, with virtually any weapon. But America’s free and open society
has been challenged before and we can meet this new threat without abandoning these fundamental
American principles.

Mission One: Supporting First Responders
When disaster strikes, the first people
on the scene are our “first responders”—
firefighters, local law enforcement, rescue
squads, ambulances, and emergency medical
personnel. These brave and dedicated men
and women, many of them volunteers, are our
first line of defense when terrorists attack.
More than 300 first responders were killed
in the September 11th attacks on the World
Trade Center and the Pentagon. While others
ran out of burning, collapsing buildings, they
charged in, risking their own lives to save
others.
Local fire, police, and rescue workers are the first to arrive at
In this war on terrorism against our
catastrophes, such as the September 11th attacks.
homeland, first responders are the infantry,
protecting our lives and freedoms 24 hours a
day. What they do in the first minutes after an attack can mean the difference between life and
death for the terrorist’s victims. We ask much from them, and they always deliver. Now it’s time
to come through for them.

The President’s Budget provides $3.5 billion to support first responders, a more than twelvefold
increase over 2002. The funds would be used to buy personal protective equipment, emergency
medical equipment, biological and chemical detection equipment, communications, and other items

PROTECTING THE HOMELAND

that local first responders tell us they need. It would help first responders acquire the latest
technology and training that can shave critical minutes or hours off of response time, but due to
the cost may have been out of reach for many localities. For example, this funding could be used to
acquire diagnostic test equipment that can reduce the time required to test for anthrax from 40
hours to a matter of minutes.

In the hours and days that followed the terrorist
attacks on September 11 th, communications
between local police, fire, and rescue units
and federal agencies providing assistance
was extremely unpredictable, and in some
cases, virtually impossible. The collapse of
the two World Trade Center buildings knocked
out antennas used for cellular telephones,
threatened emergency communications
systems, and damaged landline switches in
nearby buildings. The limited interoperability
of emergency responders’ communications
equipment, and the inherent complications for
line-of-sight communications in densely built-up
Manhattan, caused further problems. If rescue
workers cannot talk to one another, they cannot
do their jobs.

The funds will also be used to conduct
more frequent regional terrorism drills and
rehearsals, enabling first responders to
work together and identify gaps in their
responses.
The funds would be used to
upgrade emergency communications systems
throughout the nation, enabling more first
responders and their agencies to talk with one
another in “real time.” Finally, a portion of this
funding will be dedicated to a new Homeland
Security Corps that will be coordinated by
the Federal Emergency Management Agency
(FEMA) and be a key component of the USA
Freedom Corps.

The role of first responders, who are largely
under state or local control, is a reminder
that our war on terrorism is a national, not
a federal, effort. Under the budget, first
responders will have increased freedom to
determine their own needs and how best to
meet them. FEMA will work closely with state and local officials to ensure their planning, training,
and equipment needs are addressed. FEMA will also be charged with improving the federal
government’s coordination with state and local governments and reducing duplication within
federal agencies.

Mission Two: Enhancing Our Defense Against Biological Attacks
On October 4, 2001, a Florida man named Robert Stevens was diagnosed with inhalation anthrax.
The source of the anthrax attacks is still unknown. But the effects of the attacks are clear: five
people murdered; hundreds treated; thousands tested; and a new American vulnerability laid bare.
The consequences of new, larger, more sophisticated attacks could be much worse. We must have no
illusions about the threat of germ terror.
We learned that we must strengthen effective means to detect and react quickly to
bioterrorism—and that a failure to do so endangers our people and our nation. So the President’s
2003 Budget requests $5.9 billion to enhance our defenses against bioterrorism, principally in the
following four major areas:

THE BUDGET FOR FISCAL YEAR 2003

• First,

•

the President proposes spending
$1.2 billion in 2003 to increase the
Disease has long been the deadliest enemy
capacity of state and local health delivery
of mankind. Infectious diseases make no
systems to respond to bioterrorism
distinctions among people and recognize no
attacks.
The largest share of this
borders. We have fought the causes and
funding, $591 million,
would be
consequences of disease throughout history
provided to hospitals for infrastructure
and must continue to do so with every available
improvements such as communications
means. All civilized nations reject as intolerable
systems and decontamination facilities,
the use of disease and biological weapons as
comprehensive planning on a regional
instruments of war and terror.
basis to maximize coordination and
President George W. Bush
mutual aid, and training exercises
November 1, 2001
that will help the public health and
emergency response communities work
together better. The budget also includes
$210 million for states to assess their existing ability to respond to such attacks, and then
strengthen their capacity to do so. An additional $200 million would be used to increase
state laboratory capacity and related systems to permit rapid collection and identification
of potential biological agents.
Second, the President’s Budget includes an aggressive $2.4 billion research and development
program to develop technologies that will strengthen our bioterrorism response capabilities
in the mid- and long-term. Almost $1.7 billion would be provided to the National Institutes of
Health to perform fundamental research leading to the development of vaccines, therapeutics,
diagnostic tests, and reliable biological agent collection, rapid identification and monitoring
technologies, and to create a safe and reliable anthrax vaccine. Another $420 million
is proposed for the Department of Defense (DoD) to study the technology and tactics of
bioterrorists and devise countermeasures to the use of biological agents as weapons. The
budget also includes $100 million to improve security at the nation’s biological research
laboratories and $75 million for the Environmental Protection Agency to develop improved
techniques and procedures to cope with future biological or chemical incidents.
Third, the President’s bioterrorism initiative includes $851 million to improve federal
capabilities to respond to bioterrorist events. The National Pharmaceutical Stockpile will
contain a sufficient amount of antibiotics to provide treatment for 20 million people by the
end of 2002. The budget includes $300 million to manage this stockpile, increase the supply
of chemical antidotes, and conduct the proper planning and training to ensure that states
can effectively receive and distribute stockpile allotments. It also includes $100 million to
improve our ability to distribute and effectively use the nation’s supply of smallpox vaccine
and $99 million for the Food and Drug Administration to enhance the safety of the nation’s
food supply.
Fourth, the budget proposes spending $392 million to strengthen our ability to detect and
react quickly through improved communications to a biological attack. A key component of
this ability is information management and exchange. The budget includes $202 million to
create a national information management system that links emergency medical responders
with public health officials, enables early warning information to be distributed quickly, and
permits emergency medical care and public health care providers to share diagnostic and
treatment information and facilities. The budget also includes $175 million to assist state

PROTECTING THE HOMELAND

and local public health providers begin to acquire the necessary hardware and assistance to
access this information.

Mission Three: Securing Our Borders
America’s borders must be made secure—and they must remain open. To achieve both these goals,
the border system of the future must gain a new ability to identify low- and high-risk traffic, speeding
low-risk traffic on its way, while focusing the attention of border security personnel on high-risk
traffic. Accomplishing this separation in a quick and reliable manner is an enormously difficult task.
It will require more sophisticated use of data and close cooperation with private industry and other
governments, especially Canada, Mexico, and our other large trading partners.
As it is, nearly a dozen federal agencies are charged with patrolling or inspecting along
the border. The State Department issues visas. The Justice Department’s Immigration and
Naturalization Service (INS) inspects them. The Treasury Department’s Customs Service checks
any bags the visa-holder may bring with him. DoD and the National Guard patrol our skies. The
Coast Guard, which reports to the Secretary of Transportation, patrols our seas. The Department of
Agriculture regulates imports of food, the Commerce Department monitors imports of manufactured
goods, the Food and Drug Administration polices imports of legal drugs, and the Drug Enforcement
Administration tries to halt imports of illegal ones. The intelligence agencies and the new
Transportation Security Administration have important roles as well.
This complex arrangement has evolved over many years, but thanks to the dedicated professionals
who staff it, often produces superb results—including the thwarting of al Qaeda’s Millennium plot
against American targets in 2000.
Although border security has been
strengthened as a result of the terrorist
All of the 19 September 11 th hijackers had
attacks, the INS must do a better job of
entered the United States legally but three
targeting illegal traffic while welcoming
had overstayed legal visas. The Immigration
legitimate travelers.
Therefore,
the
and Naturalization Service estimates that
President’s
Budget
includes
$380
million
approximately 40 percent of persons currently
to establish a reliable system to track the
in the United States illegally have overstayed
entry and exit of immigrants, particularly
legally obtained visas.
those who might pose a security threat to the
United States. The new system will leverage
advanced technology and construction funding to ensure timely and secure flow of traffic. The
Administration’s goal is to complete implementation of this new, comprehensive initiative by the
end of 2004.
Additional funds will be spent to make passports and other documents of North American nations
more compatible with one another and more easily read by one another’s computers—and to develop
other identification techniques to halt illegal entrants and speed and smooth the way for lawful
travelers and cargoes.

THE BUDGET FOR FISCAL YEAR 2003

The northern border, in particular, has
become an attractive route for potential
terrorists. Until very recently, many northern
entry points into the United States were not
staffed around the clock; entry into the United
States was sometimes controlled by no more
than orange cones in the middle of the road.
Such measures stop only honest people.
Ending this vulnerability is an urgent
priority that must build on the long history
of cooperative border management between
the United States and Canada, partners in
the largest trading relationship in the world.
A car waits at an unattended northern border point of entry,
In December 2001, the United States and
blocked only by orange traffic cones in the middle of the road.
Canada declared a mutual commitment to
create a “smart border” that could safeguard
against terrorist activity while ensuring the free flow of people and goods. The President’s Budget
provides funds to implement this agreement.
The President’s Budget would more than double the number of Border Patrol agents and
inspectors across the northern border. It supports deployment of force-multiplying equipment,
including remote operated infrared cameras, to monitor isolated areas where illegal entry may have
once occurred. The budget also provides resources to integrate once-separate information systems
to ensure timely, accurate, and complete enforcement data is available in the field.

Mission Four: Sharing Information and Using Technology to Secure the
Homeland
After September 11th , it became evident that important information about the hijackers’ activities
was available through a variety of federal, state, and local databases. It also became clear that there
is no comprehensive system for sharing information relevant to our security across jurisdictional
lines.
The President’s Budget proposes $722 million for improvements to information-sharing within
the federal government and between the federal government and other jurisdictions.
These improvements are often highly technical—and yet are crucial to the successful protection of
our society from terrorist attack. Technology investments will improve the performance of agencies
in preparing for, detecting and responding to homeland security threats. So we will:

• ensure
•
•

that federal agencies with homeland security responsibilities have needed access to
threat information throughout the federal government;
establish a process to provide for appropriately secure communications with state and local
officials so they may receive homeland security information in a timely manner;
ensure that crisis communications for federal, state, and local officials is reliable and secure;
and

PROTECTING THE HOMELAND

• unify federal government security and critical infrastructure protection initiatives, and make
strong security a condition of funding for all federal investments in information-technology
systems.
Sheikh Omar Abdel Rahman, the “blind sheikh” involved in the 1993 car bombing of the World
Trade Center, not only entered the United States legally but was granted permanent resident alien
status despite a terrorist past that dated to the assassination of Egyptian President Anwar Sadat.
Improved information-sharing could make a repeat of such tragic mistakes unlikely.

Other Initiatives
These four missions lead our homeland security agenda—but they are not the whole of it. We must
also finish the job of securing our airways. In 2003, the new Transportation Security Administration
(TSA) will strive to meet the tight deadlines and rigorous aviation security requirements set by
Congress. The TSA is responsible for screening passengers and baggage at each U.S. airport with
commercial air service. The budget requests $4.8 billion for TSA, a 210 percent increase on aviation
security over 2002. It includes funds to:

• complete
•
•

the hiring of approximately 30,000 new federal airport security workers to check
passenger identities and inspect carry-on and checked baggage;
accelerate the installation of explosive detection technology so that all baggage loaded in
aircraft is safe; and
implement other measures to enhance passenger safety and facilitate air travel.

We also propose a robust expansion in domestic law-enforcement work. The Attorney General has
instructed all department bureaus to shift their primary focus from investigating and prosecuting
past crimes to identifying threats of future terrorist acts, preventing them from happening, and
punishing would-be perpetrators for their plan of terror. The 2003 Budget requests enhancements
to the capabilities of the FBI and other law enforcement/intelligence agencies. These enhancements
will:

• enable the FBI to add more than 300 agents and other investigative staff to the surveillance
•
•

of terrorists and collection of information about their activities;
add more than 15 investigators to the Foreign Terrorist Asset Tracking Center (FTAT), to
identify and close down the sources of money that supports the terrorist cells. FTAT and the
Office of Foreign Assets Control work together to seize the terrorists’ assets; and
add approximately 150 FBI special agents and investigative staff to the task of protecting
our banking, finance, energy, transportation, and other critical systems from disruption by
terrorists, including by cyber attack.

We face new kinds of threats from new kinds of enemies. Defeating those threats will be the great
challenge and the great achievement of this generation of Americans.

THE BUDGET FOR FISCAL YEAR 2003

The Homeland Security Budget
To develop the homeland security budget, the Office of Homeland Security and the Office of
Management and Budget (OMB) identified those activities that are focused on combating and protecting
against terrorism and occur within the United States and its territories. Such activities include efforts to
detect, deter, protect against and, if needed, respond to terrorist attacks.
As a starting point, funding estimates for these activities are based on data that has been reported
since 1998 in OMB’s Annual Report to Congress on Combating Terrorism, and include combating
terrorism and weapons of mass destruction (WMD), critical infrastructure protection (CIP), and
continuity of operations (COOP).
In addition, homeland security includes funding for border security (i.e., Immigration and
Naturalization Service’s enforcement and detention activities, Customs’ enforcement activities, Coast
Guard’s enforcement activities, the Agricultural Quarantine Inspection Program, and State’s visa
program) and aviation security.
Since homeland security focuses on activities within the United States, estimates do not include
costs associated with fighting terrorism overseas; those costs are captured within the war on terrorism
abroad category.
The budget uses the Combating Terrorism Report’s definitions for combating terrorism and WMD
preparedness, CIP, and COOP. Combating terrorism includes both antiterrorism (defensive measures
used to combat terrorism) and counterterrorism (offensive measures used to combat terrorism), and
includes the following five categories of activities as they directly relate to such efforts:

•
•
•
•
•

law enforcement and investigative activities;
preparing for and responding to terrorist acts;
physical security of government facilities and employees;
physical protection of national populace and national infrastructure; and
research and development activities.

CIP is defined as efforts associated with enhancing the physical and cybersecurity of public
and private sector infrastructures, especially cyber systems that are so vital to the nation that their
incapacitation or destruction would have a debilitating impact on national security, national economic
security, and/or national public health and safety.
COOP refers to the capability of federal agencies to perform essential functions during any
emergency or situation that may disrupt normal operations.
As the Office of Homeland Security develops a comprehensive national strategy to secure the United
States from terrorist threats or attacks, it may refine the definition used to establish the boundaries
of this category.

WINNING THE WAR ON TERRORISM ABROAD
Terrorism is a direct threat to our homeland, but in most cases it is a threat that originates
overseas. U.S. efforts must assure there are no safe havens for terrorists anywhere in the world.
The 2003 Budget provides the resources for that effort.
Fortunately, we do not undertake this struggle alone. As President Bush has said, “[t]he vast
majority of countries are now on the same side of a moral and ideological divide. We’re making
common cause with every nation that chooses lawful change over chaotic violence—every nation
that values peace and safety and innocent life.” The United States is working with traditional allies
and new partners to achieve the goal of eliminating global terrorism. Many of these willing partners
are only beginning to strengthen counter-terrorism capabilities to assure our common success. This
budget requests assistance to support friends who join this global cause.
Terrorism has many faces and takes many forms around the world. The war on terrorism will not
end with the capture of Osama Bin Laden or the destruction of the al Qaeda network in Afghanistan.
Al Qaeda has many widely distributed cells that will not cease their efforts against the United States
simply because we capture or kill Bin Laden. Nor will the destruction of the al Qaeda network
eliminate the threat of international terrorism against the United States. Other terrorist groups
who wish to harm or intimidate the United States will remain. Therefore, even after the combat
operations in Afghanistan wind down, we will still have a great deal more work to do. And this work
will differ in important ways from the wars the United States has waged in the past.

• The war will not be short.
•

•

The Administration is committed to supporting this effort over the
long-term—we do not expect a quick victory.
It will follow a different pace. This war will not follow a steady, predictable course. There
are likely to be intense bursts of activity, like the recent action in Afghanistan, followed by
intervals of seeming quiet, though our efforts will not cease until the threat is eliminated.
Americans will be asked for their patience—and their trust as the war proceeds from phase to
phase.
It will take more than the military to defeat terrorists. We must employ every element of
national power—diplomatic, economic, intelligence, law enforcement, public information, and
the military—to defeat terrorism.

Element One: Diplomatic Power
Following the strong leadership of the President, the State Department created and strengthened
a broad-based international coalition to combat terrorism, not just in Afghanistan, but around the
world. The NATO nations and other allies such as Japan and Australia swiftly offered their help.
We revitalized long-standing relationships with countries such as Pakistan and India, and found
common ground with newer partners like Russia, Uzbekistan, and Tajikistan. The United States is
also leading the international community’s efforts to assist the people of Afghanistan to create a new,

WINNING THE WAR ON TERRORISM ABROAD

better future for their nation and region. At the same time, we have begun to work with our partners
globally, regionally, and on a bilateral basis to forge new mechanisms and capabilities to fight the
scourge of terrorism not just today, but in the years to come.
Many of our friends need our help to contribute to the war on terrorism. And the 2003 Budget
makes that help available. It asks for:

• Approximately $3.5 billion for economic assistance, military equipment, and training for states
•

•

on the front line in the war against terrorism.
$121 million for anti-terrorism assistance, training, and equipment to help other countries
fight global terror. As part of this commitment, the President is requesting $52 million to
establish a Center for Anti-terrorism and Security Training (CAST) to provide a consolidated
tactical training capability. Once it is fully operational, the CAST will train 7,500 American
and coalition partners’ law enforcement personnel annually in advanced anti-terrorism and
security measures, thereby enhancing the security of U.S. interests abroad.
$4 million for the Treasury Department’s Office of Technical Assistance to provide training
and other needed expertise to foreign governments’ finance ministries and offices to combat
terrorist financing.

Another critical step in reducing the potential capability of terrorists is to reduce the likelihood
that they can acquire weapons of mass destruction. The United States continues to support and
strengthen multilateral arrangements that work to prevent sensitive technologies and knowledge
from falling into the wrong hands. An important element of this policy is helping Russia and the other
states of the former Soviet Union to control and dispose of the massive quantities of weapons of mass
destruction and missile materials inherited from the Cold War era. Specifically, the Departments of
Defense (DoD), Energy (DoE), and State manage a set of integrated programs with a combined 2003
funding request of nearly $1.5 billion for Russia and the other states of the former Soviet Union,
including:

• $549 million for ongoing programs to secure, dismantle,
•
•
•

and destroy nuclear, chemical, and
biological weapons and their components so that we can avoid the potentially catastrophic
results of these weapons falling into the wrong hands;
$235 million, an increase of $62 million over 2002, for DoE’s program to secure and better
control dangerous fissile materials to reduce the risk of them falling into the hands of
terrorists;
$101 million for ongoing programs to engage weapons scientists in peaceful research and help
prevent the spread of the expertise required to build these weapons; and
$55 million, an increase of $38 million over 2002, for DoD’s biological weapons proliferation
prevention program.

This funding is in addition to over $1 billion in already-appropriated funds currently available for
these programs.
Aggressive public diplomacy is key to eliminating support and safe haven for terrorists and
maintaining the political will to sustain the broad international coalition to fight terrorism over
the long haul. The Voice of America and Radio Free Europe/Radio Liberty are increasing media
broadcasts in and around Afghanistan and throughout the Middle East to help inform local public
opinion about the true nature of terrorist organizations and the purposes of the United States’
war on terrorism. This effort combined with the establishment of civil society and an elected,
representative, post-Taliban government in Afghanistan will encourage support for our efforts to

THE BUDGET FOR FISCAL YEAR 2003

end an era of terror. To help make these initiatives a reality, the budget includes $60 million for
continued international broadcasting efforts in this critical region.
We
must
provide
economic
and
humanitarian aid as well. President Bush has
made clear that our concern for innocent life
extends to the nations in which the terrorists
base themselves. The President stated that we
were "at war with the Taliban regime, not with
the good, innocent people of Afghanistan,"
and he committed $320 million of emergency
funds in 2002 for humanitarian assistance
for vulnerable Afghans. The UN World Food
Programme identified 7.5 million vulnerable
Afghans. The United States has now provided
50 percent of the resources required to meet
their needs through the end of March. We will
continue to provide food and other aid to the
people of Afghanistan, as they build a stable,
post-Taliban government.
Relief workers deliver food aid by raft.

By assisting democratic aspirations or by
funding education programs to create economic opportunity, the United States can broaden efforts
to discredit terrorism’s appeal.

Element Two: Disrupting The Financing Of Terrorism
On September 23, 2001, the President signed Executive Order 13224, which expanded the
Treasury Department’s power to freeze the assets of terrorist financiers. Since then, the Treasury
has worked assiduously to detect and disrupt terrorist fundraising activities. Between September
11, 2001, and the end of the year, the U.S. government froze $33 million in assets belonging to
supporters of al Qaeda, the Taliban, Hamas, and other well known Middle Eastern terrorist
organizations.
More than 140 countries worldwide are helping to track and block terrorists’ access to money,
and as a result, millions more of al Qaeda and bin Laden assets have been seized. And with U.S.
support, twenty leading industrial nations have adopted a comprehensive action plan to deny
terrorists and their associates access to, or use of, financial systems, both formal and informal. This
budget supports these efforts and will provide the means to promote new international standards to
shut down terrorist financing and stop terrorist money laundering.

Element Three: Intelligence and Law Enforcement Power
Improving our Intelligence Collection, Sharing, and Analysis. Our intelligence agencies
collect vital information on terrorist groups and their activities. The information they gather provides
indications and warnings to law enforcement and military authorities of potential terrorist attacks
against U.S. interests, either at home or abroad. The 2003 Budget provides funding for several

WINNING THE WAR ON TERRORISM ABROAD

initiatives now underway to enhance intelligence sharing among federal, state, and local entities.
These include:

• The establishment of a center that will strengthen cooperation between the law enforcement
•

and intelligence communities; and
Improved sharing through the Interagency Intelligence Committee on Terrorism, an
organization comprised of more than 60 diverse members, including the CIA, FBI, FEMA,
and the Coast Guard. A key example of the Committee’s efforts is its new relationship with
the State Department to access the Department’s existing databases, which will allow certain
classified intelligence information to be de-classified and released in a timely, useful manner
to a wider audience.
Improving Law Enforcement Cooperation Overseas.
The Department of Justice, through the FBI, is responsible
for the criminal investigation into terrorist acts overseas
involving U.S. citizens or interests.
The FBI objective is
to develop sufficient evidence to support criminal charges
against the terrorists. The FBI also maintains offices in key
overseas locations. In these locations, FBI agents work with
their police counterparts to exchange information that may be
helpful in preventing criminal acts affecting the United States,
including acts of terrorism. In addition, the State Department
maintains a presence of Diplomatic Security agents at every
embassy worldwide. Their established liaison with foreign law
enforcement officials provides a proven platform to further
efforts to prevent and respond to terrorist attacks.

U.S. Marines raise the flag as they set up
a base in Afghanistan. The U.S. military
established a substantial presence in
Afghanistan in an extremely short period
of time.

Protecting U.S. Personnel Overseas. Good intelligence
and police work safeguards not only Americans at home, but also
Americans abroad. More than 210,000 U.S. military personnel
and DoD civilian employees are stationed overseas at any one
point in time, and we have embassies and consulates in all but
a few countries around the world. The attacks on the Khobar
towers in Saudi Arabia, on the USS Cole in port in Yemen,
and on U.S. embassies in Kenya and Tanzania have heightened
our awareness of our vulnerabilities abroad. The President’s
Budget, therefore, includes $2.4 billion for physical security
measures to protect our military and diplomatic personnel
overseas, an increase of over $300 million from 2002.

Element Four: Military Power
Winning the War in Afghanistan. On less than a month’s notice, American and British
forces joined with local anti-Taliban troops in an assault on the al Qaeda network and the Taliban
regime that gave it safe harbor. The United States committed several hundred aircraft to Operation
Enduring Freedom. Initially, we inserted small numbers of lightly armed British and American
Special Forces into Afghanistan to support air operations and conduct reconnaissance missions.
They were followed and supported by a Marine Expeditionary Unit and elements of the Army’s 10th
Mountain Division. Relatively small numbers of light troops were able to prevail in Afghanistan. We

THE BUDGET FOR FISCAL YEAR 2003

could achieve decisive victories by integrating real time intelligence with sophisticated technologies
in cooperation with indigenous forces.
U.S. military forces were well organized and ready for the initial phase of the war on terrorism.
They are superbly trained, equipped with advanced military technology, and armed with new
tactical and operational approaches. While it would be a mistake to conclude that all future military
operations will look like Afghanistan, it is clear that the President’s ambition to transform our
armed forces has been validated by new missions and requirements defined in Afghanistan.

A U.S. Marine hunkers down as Marines prepare to conduct a cordon and
search raid at a suspected al Qaeda hideout in the Helmand Province of
Afghanistan on January 1, 2002.

Securing the Future. The rapid
success of our forces in Afghanistan
validates America’s strategy of forward
deployment. However, we may not
always be able to rely on local allies
to contribute to our operations. We
also need the capability to conduct
operations on our own. To support
this capability, the U.S. has as many
as 250,000 troops forward-deployed
around the globe at any given time.
These troops conduct important
missions year-round, such as providing
a stabilizing influence on the Korean
peninsula and in the Balkans and
carrying out air operations over Iraq.
At the same time, they stand ready to
serve on the frontline of the current
war against terror.

Another 1.1 million troops on active duty are back in U.S. territory engaged in critical support
missions and maintaining a high state of readiness. The forces at home are frequently rotated
overseas. In addition, forces at home provide critical support functions to make rapid deployment
for combat possible. The U.S. Transportation Command, for example, fields fleets of tanker and
heavy lift aircraft, in many cases operated by National Guard personnel, which give the United
States the flexibility to respond to attacks anywhere around the globe. Logistics units make sure
that we can move weapons, ammunition, equipment, and food rapidly where it is needed—including
humanitarian rations for local populations in cases like Afghanistan.
We must protect our current readiness and operations. Therefore, the President’s Budget provides
a 12 percent increase to bring defense spending to $369 billion, reflecting the President’s commitment
to a sustained, long-term investment in the nation’s security. The budget provides an additional $10
billion, if necessary, for the operational costs of the war against terrorism.
We must also transform our military to meet the new challenges of the 21st Century. This
transformation effort involves not just new technology, but also a new doctrine, new ways of
organizing forces, and new ways of doing business. In order to transform the way our armed forces
fight, this budget sustains funding for operational training activities, upgrades to training facilities,
and other transformational efforts that will make the armed forces more flexible and responsive

WINNING THE WAR ON TERRORISM ABROAD

to unanticipated missions.
including:

The 2003 Budget includes a number of transformation initiatives,

• unmanned combat aerial vehicles;
• a substantial increase of precision munitions; and
• additional funding to strengthen our ability to

collect and disseminate information to

warfighters in a useful and timely way.
The Department of Defense chapter provides more details regarding the military’s
transformational activities.

The U.S. flag, bearing the signatures of rescue workers, friends
and family of victims of the terrorist attacks in New York,
Washington, D.C., Pennsylvania, and the USS Cole, waves in
the breeze.

Conclusion
Again and again throughout this century, the world’s tyrants have made the same error:
underestimating America’s character, resolve, and strength. They have sought war with the United
States to enhance their own power, but they have instead caused their own destruction. This budget
provides the United States with the resources to fight terrorism with diplomacy—with economic
and humanitarian assistance—with police and intelligence work—and with military power. The
challenge is great. With the necessary resolve and resources, the result is certain.

RETURNING TO ECONOMIC VITALITY
America’s power rests on our economic strength.
terrorists targeted on September 11th.

And it is precisely this strength that the

The attacks on the World Trade Center and the Pentagon inflicted serious short-term harm on
the U.S. economy. The terrorists’ hopes of doing more lasting damage, however, will be disappointed.
The American economy is the most productive and most innovative on earth. Free market domestic
policies, free trade, sound monetary policy, moderate regulatory burdens, and declining tax rates will
soon restore growth and employment.
We can achieve an even speedier recovery by adopting the economic-recovery and job-creation
principles proposed by President Bush on October 4th, nearly one million lost jobs ago.

Signs of Economic Slowdown
The economic impact of the terrorist attacks was magnified by the fact that growth had already
begun to slow in the middle of 2000. In March 2000, stock market indices peaked. Over the following
year, household equity wealth fell by over $4 trillion. After expanding at a double digit pace for
eight years, business equipment investment slowed markedly in the third quarter of 2000 and turned
negative in the fourth quarter. At about the same time, energy prices jumped to painful new levels.
Manufacturing was hit particularly hard: in the five quarters starting in the summer of 2000, the
manufacturing sector lost some 1.4 million jobs.
The Administration addressed the looming
recession as soon as it took office, and the
Congress quickly passed a bipartisan tax
relief package. The June tax package reduced
marginal tax rates across a wide spectrum,
including for lower income citizens earning
their way out of poverty. It also doubled the
per-child tax credit, lightened the marriage
penalty, and put $36 billion directly in
consumers’ hands through immediate rebates.

Economy Slowed Beginning in Mid-2000
Real GDP growth, percent annual rate

6
1st half

2nd half

5
4
Recession
began in
March

3
2

1
Q2

0
-1
Q3

-2
1998

1999

2000

2001

RETURNING TO ECONOMIC VITALITY

Chronology of the Recession
The economy weakened beginning in 2000:

•
•
•
•
•
•

The stock market fell after March 2000.
Manufacturing output decreased after June 2000 and manufacturing jobs after July 2000.
Real GDP growth slowed sharply from the second half of 2000 onward.
Consumers became less confident after September 2000.
The unemployment rate rose after October 2000.
Overall jobs fell after March 2001, the official start of the recession.

September 11th deepened the contraction:

•
•
•

The stock market dropped 12 percent by September 21 st.

•

Real GDP growth fell at a 1.3 percent rate in the third quarter.

Consumer confidence plummeted 26 percent by October.
Overall jobs fell by 943,000 in the last three months of 2001, and the unemployment rate jumped by
0.8 percentage points.

Besides allowing Americans to keep a greater portion of what they have earned, these policies
deliver both short-term and long-term benefits. Tax relief allows taxpayers to keep more of their
own money, supporting consumption in the near-term. Meanwhile, the nation’s long-term outlook is
brightened by improved incentives for work, entrepreneurship, and investment.
Before September 11th, there were signs that the economic slide had begun to slow. Retail sales
picked up in July and August. Steep declines in nondefense capital goods orders appeared to have
ended in August, and the National Association of Purchasing Managers Index of manufacturing
activity improved sharply.
The terrorist attacks cut short these promising developments. Business and consumer confidence
plunged after September 11th . Airlines were grounded. Travel and tourism were devastated. The
finances of the world’s insurance industry were damaged. And firms and individuals throughout
the economy were forced to make heavy new investments in security. These events drove the
economy into a recession. Indeed, The National Bureau of Economic Research—the designator of
recessions—said, “Before the attacks, it is possible that the decline in the economy would have been
too mild to qualify as a recession. The attacks clearly deepened the contraction and may have been
an important factor in turning the episode into a recession.”1
The terrorist attacks imposed heavy new costs on government as well. The economic shock
combined with unexpected new expenditures for defense, homeland security, and domestic
reconstruction pushed the federal government back into deficit. However, if we make the right
choices by stimulating growth and controlling spending, deficits will be small and temporary.
The Administration and the Congressional Leadership agreed in principle that further fiscal
stimulus was needed to prevent a worsening of the recession. The House passed a stimulus plan
1 National Bureau of Economic Research, “The NBER’s Business-Cycle Dating Procedure”, December 13, 2001, page 7.

THE BUDGET FOR FISCAL YEAR 2003

and a bipartisan majority for a similar plan coalesced in the Senate. Regrettably, the Senate chose
not to act.

Need for Economic Security Plan
There have been some encouraging trends in the latest economic releases. Yet the number of
unemployed workers continues to rise, incomes are stagnating, business investment remains soft,
and the global economy is weak. The Administration therefore believes that additional measures
must be taken to promote economic growth, create jobs, and avert future economic weakness. The
Administration urges quick passage of an economic security plan modeled along the lines of the recent
bipartisan compromise and has set aside resources for that purpose in this budget.
To both create new jobs and assist
dislocated workers, this package should
include:

• Speeding

•

•
•
•

The Dignity of a Paycheck

It’s important to help workers who’ve lost their jobs.
It’s even more important to help workers find new
jobs. In tough times, people need an unemployment
check; but what they want is a paycheck. Americans
want the independence of a job, and the satisfaction
of providing for their families themselves. A job is
more than a source of income; it is a source of dignity.

up the tax reductions the
Congress passed last year. The faster
tax rates come down, the faster the
economy will grow.
Giving tax refunds to lower- and
moderate-income
individuals
and
President George W. Bush
families.
This will put money in
January 5, 2002
the hands of people with children to
support and bills to pay.
Providing immediate assistance to laid-off workers, both by extending their unemployment
benefits, increasing resources available for job training, and by helping them retain their
health insurance coverage.
Reforming prospectively the alternative minimum tax on businesses. This will ensure
that employers no longer see their tax rates rise as their profits shrink. In tough times,
entrepreneurship should be encouraged, not punished.
Offering better tax treatment for employers and entrepreneurs who invest in new equipment.
This will help both the people who use the equipment and those who manufacture it.

The Council of Economic Advisers has estimated that the Administration’s economic security plan
could boost 2002 GDP growth by 0.5 percent and lead to the creation of 300,000 more jobs.
The Administration has built its economic forecasts around the assumption that an economic
stimulus package will be enacted. If this does not occur, our growth estimates would be overstated
by the above amount. Unless economic growth can be restored, it will mean fewer jobs, smaller
growth in incomes, and smaller budget surpluses.
Quick action on an economic security plan makes sense. It will speed up the economic recovery
and will help bring laid-off workers back into the job market more quickly.
While the primary emphasis of this budget is the quick recovery from the terrorist attacks
on the United States, the President’s Budget outlines a plan that also provides the fundamental
underpinnings for long-term economic growth. The federal government does not create economic
growth. However, it should foster an environment to allow entrepreneurs, small business, and

RETURNING TO ECONOMIC VITALITY

others in the private sector to generate economic growth. Such economic opportunity comes through
promoting free trade, restraining costly regulatory burdens, maintaining low tax rates, simplifying
the tax code, promoting a sound energy policy, controlling federal spending and increasing the
efficiency of government operation. By taking action to reinvigorate growth in both the short- and
long-term, we can thwart the terrorists’ efforts to undermine our economy and our well being.

BUDGET IMPLICATIONS OF THE WAR
The nation faces significant challenges in the near-term in prosecuting the war on terror abroad
and defending our homeland from attack, in addition to rejuvenating economic growth. These efforts
will require substantial budgetary resources. Fortunately, the United States has abundant resources
to tap. However, in order to ensure that the fiscal outlook remains positive over the longer-term,
tough fiscal choices must be made to direct funds toward priority endeavors and away from poorly
performing government programs. New budget process reforms are needed to expedite this process.

Overview

Budget Position as Share of GDP
Budget
Surpluses
as a
percent
of GDP

The response to the terrorist attacks, both
at home and abroad, and the onset of recession
have caused a notable shift in the near-term
fiscal outlook. Deficits now look likely over at
least the next two years. However, assuming
the government pursues pro-growth policies
and controls spending, the budget should be
back in surplus by 2004 or 2005.

3
2
1
0
-1
-2

Budget
Deficits
as a
percent of
GDP

-3
-4

The overall fiscal position remains strong
even
with this temporary move into deficits.
-6
The 2003 deficit is projected to be less than
-7
one percent of GDP—this compares with a
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Shaded areas show fiscal years with recession troughs.
4.5 percent deficit during the last recession.
Indeed, despite simultaneous war, recession,
and emergency spending, 2002’s fiscal position will be better than that recorded in any year between
1975 and 1996.
-5

Impact of Recession
One would expect the fiscal picture to deteriorate as the economy goes into recession, even absent
the multi-front war on terror. Tax receipts decline as activity slows, while expenditures rise for
cyclically sensitive programs like unemployment insurance. Furthermore, it is good economic policy
to reduce tax burdens explicitly during a recession, in order to limit the economic slide and hasten
recovery. While such policy actions may worsen the deficit in the near-term, they will improve the
fiscal outlook in the long run since it is growth that ultimately generates any surpluses.

BUDGET IMPLICATIONS OF THE WAR

Evolution of the 2002 Fiscal Projection

Economic weakness has been the
largest source of erosion in the current
year’s fiscal projection,
followed
next by spending stemming from the
Economic
September 11th attacks.
changes accounted for two thirds of the
deterioration in the projected baseline
fiscal position since the last year.
Spending accounted for an additional
20 percent of the decline.

(In billions of dollars)
2002

Debt and Interest Savings

2002 Budget Baseline Projection .................

283

Weaker Economy ...........................................

−197

Enacted Spending .........................................

−54

June Bipartisan Tax Relief Package ............

−40

2003 Budget Baseline Projection ................

–9

The combined effects of recession
and war have interrupted progress in paying down our publicly held debt. Nonetheless, debt will
continue to diminish as a factor in our fiscal affairs. The ratio of publicly held debt to GDP will
decline steadily from 2002 onward. After hitting 50 percent in the mid-1990s, the debt/GDP ratio
will be 33 percent in 2003 and is projected to fall to 25 percent by 2007. Further evidence of this
constructive backdrop can be seen in the Treasury Department’s decision last fall to discontinue
issuance of the 30 year Treasury bond.

Publicly Held Debt as a Share of GDP

Interest Costs Continue to Fall

Percent

As a percent of outlays

50
15

45
40
10

35
30

25
0

20
1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

As the share of publicly held debt to GDP declines, interest costs will continue to fall as a share of
total outlays. After totaling 15 percent of federal outlays in the mid-1990s, this burden will be only
nine percent in 2002, dropping to eight percent by 2007.

Debt Limit
The federal government issues debt to the public in order to finance its budget deficits. As noted,
this debt is expected to be broadly stable in dollar terms over the next five years, while declining
as a share of GDP. However, the government also issues special Treasury debt to the federal trust
funds that generate surpluses, including Social Security. While debt held by the public is a more

THE BUDGET FOR FISCAL YEAR 2003

meaningful measure of the government’s effect on private financial markets, Congress tracks the
sum of publicly held and governmentally held debt, and imposes a limit on the amount of total debt
outstanding. Since governmentally held debt rises steadily over time, the debt limit must be raised
periodically even if debt actually owed to the public is not growing. In fact, debt subject to limit
continued to rise during 1998–2001 even as the publicly held debt decreased.
The current limit on total debt is set at $5.95 trillion. In the Mid-Session Review for 2002, total
debt was expected to breach this limit by 2004, due to ongoing trust fund purchases of Treasury
securities. Given the deterioration in the near-term fiscal picture due to the war and recession,
however, the debt limit now looks likely to be hit in early 2002.

The Need for a Realistic Budget Window
The events of last year underscore the difficulty of making reliable budget estimates even one year
ahead. No one expected the economic and fiscal fall-out that resulted from last September’s terrorist
attacks and the onset of recession. Similarly, no one knows what types of economic or political shocks
will arise in the future. The uncertainty surrounding such events should make us cautious as we
attempt to formulate our budget projections.
Indeed, over the last six years, the 10 year fiscal projections have varied to a stunning degree.
In the 1997 Budget, rising deficits were forecast totaling $1.4 trillion over a 10 year horizon. By the
2002 Budget steadily rising surpluses were projected over a 10 year period, totaling $5.6 trillion. Due
to the events of last year, the latest projections are in between these wildly divergent estimates. Such
enormous swings over a short period of time raise doubts about the usefulness of 10 year projections
and lead one to conclude that the recent experiment with 10 year budget projections has been a
failure. Consequently, the Administration intends to phase out the use of 10 year budget projections
completely by the 2004 Budget. This year’s budget will still provide aggregate 10 year projections
for those who follow and still find value in such numbers (see Summary Tables). However, agency
totals and supporting detail will be limited to five year projections.

Recent Experience
It is easy to forget that 10 year budget forecasts are a relatively new phenomenon. The 1996
Mid-Session Review was the first budget document to use 10 year projections. In the prior 25 years,
five year budget windows were the norm. (In fact, prior to 1971, three year budget windows were
used.)
Indeed, even five year estimates are fraught with uncertainty. The average absolute errors in
projecting the surplus or deficit since 1982 have been large, and they increase in each year of the five
year budget window. There has been a $75 billion average absolute forecasting error for the budget
year alone (i.e., 2003 for this budget). This rises steadily to $205 billion by the fourth year following
the budget year (i.e., 2007 for this budget). Since the experiment with 10 year budget projections
has been brief, data are not yet available to assess the average miss beyond five years. However,
the rising average absolute errors over the first five years point to steadily rising errors over the
subsequent five years as well. (For more information on the historical record of differences between
estimated and actual surpluses, see Chapter 18 of the Analytical Perspectives volume, Comparison
of Actual to Estimated Totals.)

BUDGET IMPLICATIONS OF THE WAR

Average Absolute Miss in Budget Projections: 1982 to 2001
(In billions of dollars)
Budget Year

Budget Year Plus
One

Budget Year Plus
Two

Budget Year Plus
Three

Budget Year Plus
Four

109

147

179

205

History suggests that the current projections could be off by an enormous margin. A 90 percent
confidence range around the current projections stretches from plus $480 billion to –$480 billion
around the 2007 surplus estimate. Based on the trend seen in the first five years, this confidence
range would be expected to widen further beyond 2007.
The Congressional Budget Office (CBO) has made similar calculations and has estimated even
larger uncertainty bands.

Responses to Uncertainty
There is widespread recognition of the
difficulties involved in making multi-year
projections. For instance, the Administration
and CBO only attempt to forecast the economic
cycle for the 18–24 month period following
the budget submission.
Thereafter, both
simply assume that the economy returns to
its long-run sustainable rate of growth. Most
private economic forecasters do not project the
economy beyond a one to two year horizon.

Possible Range of Fiscal Outcomes
Surplus(+)/deficit(-) in billions of dollars
600
Potential Upper Bound

400
200

Current Estimate

0
-200

In light of the remarkable swings over the
-400
last several years, it is time to acknowledge the
-600
limitations of 10 year budget forecasts. Rather
2002
than continue to assign false confidence to
these numbers, the Administration will begin
shifting back to a maximum time horizon of five years.

Potential Lower Bound

2003

2004

2005

2006

2007

Budget Reforms
It is critical that the increased funding for the war on terrorism and restoring economic growth be
matched with restraint in other areas. This is necessary in order to avoid a worsening of the nation’s
long-term fiscal and economic outlook. Budget reforms are needed to enforce such restraint.

THE BUDGET FOR FISCAL YEAR 2003

Recent Experience
The current budget process is flawed. Instead of coming to agreement on the broad outlines of
the budget at the beginning of the year, there is often lengthy debate on spending levels that often
culminates in an explosion of spending in a disorderly process of stop-gap funding measures and
enormous omnibus bills, late and over budget.
Last year was an extraordinary year, and the Congress moved swiftly to send the President a $40
billion emergency appropriations bill within three days of the terrorist attacks. Thereafter, spending
threatened to spin out of control until the President stated he would veto any appropriations bill
that exceeded the funding levels he had worked out with the Congress. Ultimately, the President
succeeded in keeping spending within the agreed-upon levels.
However, this achievement came at the cost of an extended delay in the enactment of the 13
regular appropriations bills that fund the government, with the last three bills being signed into
law on January 10, 2002, over three months past the October 1, 2001 deadline. Two of the nation’s
departments with the highest priorities, the Departments of Defense and Education, had to wait
over three months to get their budgets. Such delays are unfortunate during ordinary times, but are
intolerable when the nation is fighting a war both at home and abroad.

Need for Legally Enforceable Mechanisms
Last year’s success in staying within preset budget limits should be institutionalized through the
use of legally enforceable mechanisms. These mechanisms include making the budget resolution a
law and extending statutory limits on spending. Such action is necessary if we are to maintain overall
spending discipline, while allocating resources to our defense, homeland, and economic priorities in
a timely fashion.

Conclusion
Despite the simultaneous impact of the war on terror and a recession, the nation’s fiscal outlook
remains positive. The 2003 deficit is expected to be less than one percent of GDP. Furthermore, if
growth-promoting policies are pursued and spending restraint is exercised, deficits will be both small
and temporary.
As the nation addresses its defense, homeland, and economic priorities, however, growth in the
rest of government must be restrained to prevent an explosion in spending. To achieve this goal,
budget process reforms are needed. Greater efficiencies must also be demanded from government.
This is a good idea at any stage, but is imperative in the current environment. By highlighting good
and poor performers, this budget attempts to set such a process in motion.

GOVERNING WITH
ACCOUNTABILITY

GOVERNING WITH ACCOUNTABILITY

Just as the No Child Left Behind Act of 2001 asks each local
school to measure the education of our children, we must
measure performance and demand results in federal government
programs.
President George W. Bush

Overview
The President has called for a government that focuses on priorities and executes them well.
Securing the homeland, waging war on terrorism abroad and revitalizing the economy are the most
important priorities but even they will not be addressed by simply devoting money to them.
This budget tells the American people how the President proposes to spend their taxes in
2003. People are often most interested in how much the President proposes to spend on particular
issues compared to the previous year. Increases in spending are assumed to reflect high priorities
and reductions to reflect low priorities. This is because everyone takes for granted that more
government spending will translate into more and better government services. For example, the
premise frequently is that more spending on a housing program translates into more houses for
more people or more spending on a science program will provide more and better science.
The assumption that more government spending gets more results is not generally true and is
seldom tested. It is potentially wrong for two reasons. First, the program may not actually achieve
the results everyone expects. Second, it ignores the fact that improvements in the management
of programs can result in greater results for less money by realizing the same productivity gains
commonly expected in the private sector. By focusing on performance we can achieve the desired
results at limited additional cost or, in some cases, a reduction in spending. We can and should get
more for less.
Rather than pursue an endless and disconnected array of initiatives, the Administration has
elected to identify the government’s most glaring problems—and solve them. The President has
ordered the pursuit of five government-wide initiatives that together will help government achieve
better results.
The first initiative aims to attract talented and imaginative people to the federal government in
order to improve the service provided to our citizens. A second exposes parts of the government to
competition so that they may better focus on what customers want while controlling cost. A third
project improves how the government manages its money—reducing, for instance, the billions in
erroneous payments the government makes every year. A fourth project harnesses the power of the

GOVERNING WITH ACCOUNTABILITY

Internet to make the government more productive. The fifth starts the process of linking resource
decisions with results—the underlying information needed to hold government accountable.
This chapter describes the five initiatives in greater detail. It then discusses a scorecard that we
are using to hold ourselves accountable for progress on these initiatives. Next, the Administration
lays out proposals to remove barriers and give the executive branch the tools and flexibility it needs to
get the job done. Finally, this chapter explains how all these matters are shared responsibilities that
must involve Congress, and introduces readers to the department and agency chapters that follow.

The President’s Management Agenda
Released in August 2001, the President’s Management Agenda was designed to “address the most
apparent deficiencies where the opportunity to improve performance is the greatest.” The President’s
vision is guided by the principles that government should be: results-oriented, not process oriented;
citizen-centered, not bureaucracy-centered; and market-based, promoting competition rather than
stifling innovation.

The best organizations in the world are
40 to 50 percent better than their closest
competitors—they set their goals by what is
theoretically possible, not as a small improvement
over last year’s performance level. We need to
apply this same thought process to our leadership
responsibilities in all of the departments and
agencies of the federal government, so that
we deliver value to the American people. The
President’s Management Agenda sets us on this
course.
Paul O’Neill
Secretary of the Treasury

The President’s Management Agenda is a
coordinated and coherent strategy to reform
federal management and improve program
performance.
It tackles long-neglected
management problems and offers specific
solutions to fix them.
The five government-wide initiatives apply
to every department and agency. Together
they form a strategy to achieve breakthrough,
not simply marginal, improvements in
program performance.
For example, the
expansion of E-Government will transform
not only the agency’s work and its people
but deliver greatly improved services to the
citizen.

The President’s Management Agenda
commits the Administration to achieving
immediate, concrete, and measurable results in the near term. It not only focuses on remedies to
problems generally agreed to be serious, but, more importantly, commits to implement them fully.
The five government-wide goals are described below.

Strategic Management of Human Capital
Fifty percent of the federal workforce is projected to retire over the next 10 years. In addition,
federal employee skills are increasingly out of balance with the needs of the public. Federal
personnel policies exacerbate these problems. Compensation tends to follow a “one-size-fits-all”
approach; excellence often goes unrewarded; and mediocre and poor performance rarely carries any
consequences.

THE BUDGET FOR FISCAL YEAR 2003

As 2001 began, many federal agencies did
not know much about the characteristics of
their workforce. For example, few agencies
knew what skills they already had on board;
what skills they needed to meet future
demands; and how to address the increasing
number of management layers. This year, each
agency will prepare a five year restructuring
plan as part of its 2003 budget based upon the
first government-wide workforce analysis in
decades.

Percent of the 2000 Civilian Federal
Workforce Projected to Retire
Percent of workforce
60
Non-Supervisor
50
Supervisor
40
30
20
10

Agencies must reshape their human capital
0
strategies and organizations to attract and
2001
2002
2003
2004
2005
2006
2007
2008
2009
retain the right people, in the right places, at
Source: Office of Personnel Management, excluding postal employees.
the right time; make high performance a way
of life in the federal service; and deliver the high-quality services the American public deserves.

2010

Competitive Sourcing

Competitive Sourcing: Old-Fashioned Common Sense

Sir, I had the honor to receive your letter of Decr. 28th 1812 requesting any information I might possess,
which might expose the present causes of mismanagement in the naval establishment, and suggestions
as to the best means of reform...The employment of more artificers, workmen and labourers in the Navy
Yards, than can be employed to advantage, is another source of great expence. On this subject I can only
say, that, comparing the expence of labour in some of the yards, with the service performed, induces
me to believe that it is at least injudiciously directed. And I am disposed to believe that, many articles
might be attained by contracts, of equal quality and at much less expence, than by having them made
by artificers employed in the yard on daily pay.
Lieutenant Charles Morris in a letter to Congressman Langdon Cheves on
January 9, 1813

The competitive sourcing initiative strives to create a market-based government unafraid of
competition, innovation, and choice. Public-private competition creates significant improvements in
performance and cost savings exceeding 20 percent. Although half of all federal employees perform
tasks that are readily available in the private sector, these positions have rarely, if ever, been
subject to the pressures of the marketplace.
The Administration is aggressively encouraging market-based competition throughout the
government, and simultaneously working with the private sector and federal employees unions to
find long-term solutions to reform the currently cumbersome process governing competitions.

GOVERNING WITH ACCOUNTABILITY

Several agencies are now setting up
significant competitive sourcing programs.
Work Available in the Yellow Pages?
For example, the Department of the Interior
The Department of Veterans Affairs employs over
plans to compete 3,500 federal employee
18,000 medical technicians and pharmacists,
positions that perform functions that are
11,000 lawn maintenance workers, dry-wall
commercial in nature and easily competed
hangers, janitors, and contractors, and 10,000
with the private sector.
Many of these
cafeteria workers.
positions include cutting grass, picking up
trash, drawing maps and performing basic
engineering duties.
The Department of
Commerce may compete the work of some positions, such as personnel administration, information
technology, and publication. Whether the federal government or private industry does the job,
competition ensures that the taxpayer ultimately wins.

Improved Financial Performance
Improving financial management is critical to ensuring accountability. Federal managers need
accurate and timely information for sound decision-making, but have neither. On average, it
takes agencies almost five months of heroic efforts to close their books. And even then the overall
government has been unable to pass its audit.
To improve the quality and timeliness of financial information, the Administration is accelerating
financial reporting deadlines and requiring quarterly and comparative reporting of information.
Tightening deadlines will force agencies to re-engineer their business and financial management
processes, while at the same time developing systems capable of delivering information more useful
to management. Particular attention is being directed to troubled agencies already on the GAO
high-risk list.
In another problem area, federal agencies have identified almost $20 billion in annual erroneous
benefit and assistance payments in just 13 federal programs. The Administration has launched an
aggressive initiative to determine and track error rates, and to implement strategies and controls to
bring the rates down in programs covering over $1.2 trillion in annual expenditures.

Expanded E-Government
Fifty-five percent of Americans that use the Internet went online to interact with the government
last year, according to a report released by the Center for e-Service at the University of Maryland in
January 2002. The electronic government, or “E-Gov,” initiative focuses on ways to make government
simpler, more effective, and less costly from the citizen’s point of view. The federal government has
only scratched the surface of its E-Gov potential. Today, there are more than 31 million federal web
pages available at 22,000 websites, and citizens often find more than a thousand government sites
when they use a search engine to try to get service. At least 6,600 transactions can either be put
online or eliminated.

THE BUDGET FOR FISCAL YEAR 2003

Why Not Use the Internet?

Currently, Americans applying for a government
loan can, at best, download the forms and
submit them by mail or fax. All citizens would
be better served if they could see and apply for
the full range of government loans, similar to
the way college students find financial aid at the
Department of Education’s website. Why not use
the Internet?
American businesses have come to rely on
the Internet, but not when dealing with the
federal government. The paperwork burden
on the economy exceeds $300 billion annually,
because computerized records often are printed
onto reams of paper to comply with antiquated
government filing requirements. Why not use
the Internet?

In February 2002, the E-Gov initiative will
relaunch the FirstGov.gov website.
We will make the government a "click
and mortar" enterprise, more accessible,
effective, and efficient. Instead of roaming
around thousands of websites, Americans will
need only two or three clicks to get service
on-line.
The Administration has selected
24 E-Gov initiatives directed at improving
services to citizens, businesses, and other
units of government.
These initiatives
will provide easy access to services at the
consolidated point of service: FirstGov.gov.
An example would be to ensure that major
agencies involved in rulemaking can put their
dockets on-line, where the public can see
the comments filed on proposed rules that
affect them and participate in the rulemaking
process. Individual agency chapters and the
Analytical Perspectives volume of the budget
provide further details on E-Gov.

Budget and Performance Integration
The initiative to integrate budget and performance has an important purpose—to improve
programs by focusing on results. Dollars will go to programs that work; those programs that
don’t work will be reformed, constrained, or face closure. As measures improve, dollars will go to
programs that yield the best results for each dollar spent. The Administration has started to apply
these principles, using existing data to make performance the focus of decision-making. Examples
are visible throughout this budget.

• Shifting

•

Resources to More Effective Programs. Support for technology innovation in the
Department of Commerce has increased funding for the more effective National Institute of
Standards and Technology and the Patent and Trademark Office, drawing on funds from the
Advanced Technology Program and the Manufacturing Extension Partnership. The budget
proposes to eliminate the Technology Opportunities Program and shift resources to more
effective programs in the Department.
Setting Performance Targets. The National Weather Service, a demonstrably effective
program, received an increase in funding and specific targets to double tornado lead times by
2015, improve aviation forecasting accuracy by 13 percentage points by 2007, and improve
temperature forecasts and river forecasts for a pilot region by 2004.
Adding Incentives for Achieving Goals. Vocational Rehabilitation State Grants are often
effective, but there are wide variations among states. The budget includes an incentive grant
program to provide increased resources to the states that do a better job helping individuals
with disabilities obtain competitive employment.

GOVERNING WITH ACCOUNTABILITY

An essential element of evaluating performance is understanding program costs. To compare
programs, their cost must be calculated clearly and consistently. The 2003 Budget takes an important
step toward clarity. For years, employee retirement costs have been tabulated inconsistently. The
2003 Budget shows employee costs, including those relating to retirement, in the appropriate agency
budget.

Keeping Score

We are not here to mark time, but to make
progress to achieve results, and to leave a record
of excellence.

Good intentions and good beginnings are
not the measure of success. What matters
in the end is completion: performance and
results.
Not just making promises, but
making good on promises.

President George W. Bush
October 15, 2001

In order to ensure accountability for
performance and results, the Administration
is using an Executive Branch Management
Scorecard. The Administration will use this
scorecard to track how well departments and agencies are executing the management initiatives,
and where they stand at a given point in time against the overall standards for success.
The scorecard employs a simple “traffic light” grading system common today in well-run
businesses: green for success, yellow for mixed results, and red for unsatisfactory. Scores are
based on five standards for success defined by the President’s Management Council and discussed
with experts throughout government and academe, including individual fellows from the National
Academy of Public Administration.
The standards for financial management,
for example, were reviewed by the Secretary
of the Treasury, the Comptroller General, and
the Director of the Office of Management and
Budget. Under each of the five standards,
an agency is “green” if it meets all of the
standards for success, “yellow” if it has
achieved some but not all of the criteria,
and “red” if it has even one of any number
of serious flaws. For example, in financial
management, an agency is “red” if its books
are in such poor condition that auditors
cannot express an opinion on the agency’s
financial statements.

It’s not easy being green.
Kermit the Frog
The National Science Foundation (NSF) received
the only “green” score. NSF did so in financial
management because it has embraced advanced
information technologies, and operates in a
paperless environment. Its grant workload more
than doubled from $2.1 billion in 1990 to $4.4
billion in 2000, yet the number of employees
actually decreased.

The initial scorecard shows a lot of poor scores, reflecting the state of the government this
Administration inherited. This was to be expected since, as the President indicated when selecting
the Management Agenda items, the areas are “targeted to address the most apparent deficiencies
where the opportunity to improve performance is the greatest.” The marks that really matter will
be those that record improvement, or lack of it, from these starting points.

THE BUDGET FOR FISCAL YEAR 2003

Executive Branch Management Scorecard
2001 Baseline Evaluation

AGRICULTURE

COMMERCE

DEFENSE

EDUCATION

ENERGY

EPA

HHS

HUD

INTERIOR

JUSTICE

LABOR

STATE

TRANSPORTATION

TREASURY

Human
Capital

Competitive
Sourcing

Financial
Management

E-Gov

•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Budget/
Performance
Integration

•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

GOVERNING WITH ACCOUNTABILITY

Executive Branch Management Scorecard
2001 Baseline Evaluation

AID

CORPS OF ENGINEERS

FEMA

GSA

NASA

NSF

OMB

OPM

SBA

SMITHSONIAN

SSA

Human
Capital

Competitive
Sourcing

Financial
Management

E-Gov

•
•
•
•
•
•
•
•
•
•
•

Budget/
Performance
Integration

•
•
•
•
•
•
•
•
•
•
•

Over time, the scores should improve as departments and agencies correct the problems. The
Administration will update this report twice a year and issue a mid-year report during the summer.
This Administration will not indulge in grade inflation; we will hold ourselves responsible and report
honestly when progress is too slow.

THE BUDGET FOR FISCAL YEAR 2003

Freedom to Manage
At a time of national emergency, it is
critical that the government operate effectively
and spend every taxpayer dollar wisely.
Unfortunately, federal managers are greatly
limited in how they can use financial, human,
and other resources to manage programs;
they lack much of the discretion given to their
private sector counterparts to get the job done.
Government is ineffective under these
conditions. During wartime, turf protection
cannot dictate the national interest.
The
Congress should remove barriers and give the
Administration the tools to do the job that
must be done.

Many departments are tied-up in a morass of Lilliputian do’s and
dont’s

The Freedom to Manage Act
In October 2001, the Administration submitted to Congress two pieces of legislation to give
federal managers the freedom they need to manage programs more effectively. In transmitting
the Freedom to Manage Act, the President asked the Congress to join with the Administration
in making a commitment to reform the federal government by eliminating obstacles to efficient
operation. The Freedom to Manage Act would establish a procedure under which the President
would identify structural barriers imposed by law, and the Congress would quickly and decisively
act to remove those obstacles.
Here are just a few illustrations:

• For
•
•

years, NASA has been expressly prohibited from relocating aircraft based east of the
Mississippi River to the Dryden Flight Research Center in California.
The Department of Defense is prohibited from outsourcing more than 50 percent of major
maintenance and repair of planes, tanks, and vehicles, regardless of the cost savings to the
taxpayer.
The Department of Agriculture (USDA) is barred from closing or relocating even a single state
Rural Development Office. Taxpayers are paying for 5,600 USDA county field offices (more
than one per county), many located near one another.

The Managerial Flexibility Act
The second Freedom to Manage measure is the Managerial Flexibility Act, a three-part bill to
reform various personnel, budgeting, and property management and disposal laws to give federal
managers tools and flexibility to better manage federal programs and meet the new challenges of the
21st Century.

• Reform Personnel Management: This proposal gives federal agencies and managers increased
latitude in attracting, managing, and retaining a high quality workforce.

GOVERNING WITH ACCOUNTABILITY

• Budgeting and Managing for Results—Full Funding for Federal Retiree Costs:

•

This proposal
would assign employee costs, including those relating to retirement, as charges to the
programs themselves. These costs have been included in salary and expense accounts
throughout this budget (as well as historically for 2001 and 2002) as they are in modern
accounting systems. Under the current archaic system, agency managers have no incentive
to control these costs, as they are unaffected by any improvement.
Reform Federal Property Management: The federal government owns or controls 3.2 billion
square feet of office buildings, military installations, housing, storage, hospitals, schools,
and other facilities and millions of acres of land. The proposal would give federal agencies
authority they lack to finance the renovation or replacement of obsolete facilities by using
the equity in their property holdings, providing incentives for better property management.
These incentives for better property management would permit a manager to sell an
unneeded piece of property and reinvest the proceeds in improving property the government
does need.

Enhanced Management Authority
The President will seek additional authority to organize and manage programs for improved
results, including expanded authority to transfer funds to meet higher priority needs, based on
unforeseen requirements.
The protection of turf and jurisdiction should no longer stand in the way of more effective
government. The Administration will seek to re-institute permanent reorganization authority for
the President to permit expedited legislative approval of plans to reorganize the Executive Branch.
This time-tested management tool was available to Presidents for 50 years until the law expired
in 1984. For example, the Environmental Protection Agency and the National Oceanographic and
Atmospheric Administration were formed after President Nixon submitted a reorganization plan to
the Congress in 1970. The Bureau of the Budget was reorganized into the Office of Management
and Budget the same year.

Program Transfers
The budget proposes to transfer a number of programs littered across the government
in sometimes very disorganized ways. In addition, the budget also recognizes the need for
organizational reform within departments. For example, the Department of Health and Human
Services chapter details efforts to eliminate unnecessary layers of bureaucracy and consolidate
duplicative functions.

THE BUDGET FOR FISCAL YEAR 2003

Inter-Agency Program Transfers

Homeland Security:
State/local terrorism programs ..................................................................................

Justice to FEMA

Transfers to the National Science Foundation (NSF):
Sea grant program ......................................................................................................

Commerce/NOAA to NSF

Toxic substances hydrology program .......................................................................

Interior/USGS to NSF

Environmental education program ...........................................................................

EPA to NSF

Other proposals:
Nutrition services incentive program ........................................................................

Agriculture to HHS

Radioisotope generator research .............................................................................

Energy to NASA and DoD

Natural gas infrastructure program ...........................................................................

Energy to Transportation

Veterans employment grants .....................................................................................

Labor to Veterans Affairs

Emergency food and shelter program ......................................................................

FEMA to HUD

United Nations world food program ..........................................................................

State to USAID

Another example is within the Executive Office of the President (EOP). Although the dollars are
tiny relative to the department budgets, there are 20 accounts for 11 entities within the EOP that
directly serve the President. The President cannot move even $100 between the Council of Economic
Advisors and the Council on Environmental Quality without getting the Congress’ permission in the
next budget. The President seeks to fund EOP agencies with a consolidated, shared account and for
common acquisition-related goods and services. This will enable the EOP to eliminate redundant
staff and improve managerial efficiency.

A Shared Responsibility
Federal programs are responsible for providing services that are critical to the people’s welfare.
The public deserves at least the same commitment to results from its government that it expects
from businesses. We will know we are successful when conversations no longer focus on how much
we are spending on a program compared to last year but rather how the results of the program will
change. Will we feed more people per dollar, educate more children per dollar, conserve more land
per dollar, and so on?
The Administration cannot improve the federal government’s performance and accountability on
its own. It is a shared responsibility that must involve the Congress. The Congress’ agenda is a
crowded one, and there is an understandable temptation to ignore or block management reforms in
favor of higher levels of spending or new programs.
The Administration rated the effectiveness of programs throughout the federal government to
identify strong and weak performers. It consulted with government performance experts at the
Mercatus Center at George Mason University to externally review each rating and its justification
for internal consistency, based on the principles of accountability and transparency.

GOVERNING WITH ACCOUNTABILITY

Scholars at the university’s Government Accountability Project have helped improve the U.S.
government’s funding and policy decisions since 1997, most notably by publication of the Annual
Performance Report Scorecard, a comparison of federal agencies’ disclosures under the Government
Performance and Results Act.
Moreover, a number of changes have been made to this year’s budget to attempt to make
agencies more accountable for results. First, the President’s proposals are now presented through
the agencies charged with carrying them out. Past budgets presented various proposals across the
government with little connection to accountability. This budget integrates performance measures
into its presentation. To the extent possible, the President’s proposals are presented in terms
of priorities and goals. To facilitate citizen contact, a profile of each major agency includes the
department’s website address as well as its main phone number.
Each chapter’s narrative section describes what the Administration hopes each agency will
achieve in the coming year. Each agency chapter also contains a status report on select programs to
display the highs, lows, opportunities, and pitfalls among the programs that the agency administers.
Agencies are not solely responsible for the problems they experience serving the public. Congress
enacts laws that contribute and restrain agencies in many ways. Every success story in this budget
was the result of the Congress’ passing a law to establish the program and fund it. On the other hand,
the Congress often burdens agencies with numerous restraints that diminish their effectiveness and
inhibit innovation.
Since the Congress controls the purse, each major agency chapter includes a discussion on how
the practice politely called congressional earmarking mars merit-based processes for distributing
the American people’s resources. The proliferation of congressional earmarking comes at a cost, in
wasted dollars and in unfairness, as when a grant applicant who played by the rules and earned a
place at the front of the funding line gets shoved backwards.
Each agency is also graded on the five government-wide goals spelled out upon the release of the
President’s Management Agenda in August 2001. A forthright accounting of progress, or the lack of
it in management areas of weaknesses, accompanies the rankings. Finally, the President’s overall
request for 2003 closes each agency’s chapter.

DEPARTMENT OF AGRICULTURE

The President’s Proposal:

• Fulfills commitments to
fully fund the Special Supplemental Nutrition Program for Women, Infants, and
Children enabling 7.8 million at-risk pregnant and post-partum women, infants,
and young children to receive supplemental foods, nutrition education, and
access to preventative health care each month in 2003;
• maintain a safety net for farmers and foster trade expansion for the long-term
prosperity of American agriculture;
• provide record support for food safety programs to protect American agriculture
and consumers against unanticipated events;
• simplify rules, support of working families, and improved incentives for state
performance in the Food Stamp program; and
• focus on housing, infrastructure, and other economic assistance to rural
communities.
• Provide better service to farmers and others at less cost by modernizing field office
structure and processes; and
• Improve stewardship of our soil, water, and forestry resources by making more
resources available for conservation with less spent on overhead.
•

Department of Agriculture

The United States Department of
Agriculture (USDA) provides assistance
to farmers and ranchers. The Department
promotes agricultural trade and production,
works to assure food safety, protects natural
resources, fosters strong rural communities,
and fights hunger in America and abroad.

Ann M. Veneman, Secretary

www.usda.gov

202–720–3631

Number of Employees: 131,385
2002 Spending: $76.6 billion
Field Offices: Eighteen separate program
agencies organized under seven mission areas,
with a total of 7,400 field, state, or regional offices
outside of the Washington, D.C. headquarters.

DEPARTMENT OF AGRICULTURE

Overview
USDA not only carries out its mission of helping America’s farmers but, as the number of American
farmers has shrunk, USDA serves essentially all of the American public at some level. Currently,
there are over 346,000 farms whose operators make roughly 40 percent or more of their income
from farming, and 70,000 USDA employees that support the farming community. This represents
approximately one USDA employee for every five such farms. The Department, by itself, provides
many of the same functions provided by other federal agencies. For example, the Department:

• Performs a security function, with over 3,000 USDA inspectors searching bags at airports and
•

•
•
•
•

cargo at major ports of entry for compliance with animal and plant import restrictions;
Provides assistance to businesses, housing authorities, electric companies, water supply and
sewage treatment facilities and other utilities. At over 5,600 county offices, USDA employees
distribute farm commodity support payments, housing and community loans, and offer
conservation technical advice to land owners;
Protects public health daily at 6,000 meat, poultry, and egg product plants to ensure
compliance with food safety standards;
Fights fires. In an average year, 832,000 acres of fires on national forests are battled by 10,000
USDA firefighters;
Conducts research through its own laboratories and at over 200 institutions of higher
education in areas ranging from human nutrition to new crop technologies that, for instance,
allow farmers to grow more food using fewer chemicals; and
Provides food to the needy and schools. An estimated $19 billion in food stamps will be
distributed to approximately 20 million needy people in 2002, and on average, 28 million
school children will receive school lunches through USDA each day.

The long list of programs USDA now operates demonstrates how society’s view of agriculture and
our demands on food systems have changed over the last two centuries. The President’s Budget
meets the challenges posed by these changes.
Unlike previous budgets, this budget reflects a review of the performance of USDA and
how performance can be improved. This chapter addresses five primary areas for improving
performance: 1) aid to farmers; 2) safeguarding the food supply; 3) stewardship on farms and in
forests; 4) feeding people in need; and 5) supporting rural America. The chapter provides examples
of specific programs that are rated effective or ineffective.

Homeland Security
Before September 11th, most USDA facilities, including laboratories, were not considered likely
targets of terrorists. A subsequent review of USDA facilities throughout the United States and
the world determined that some, including several laboratories that perform research on infectious
diseases and food supply contamination, need greater protection.
To address the heightened risk, USDA will spend an additional $328 million for improvements
in security of personnel, laboratories, and information technology infrastructure in 2002. These
funds will provide research and training in the detection of biological and chemical agents, and an
integrated emergency response and communications network to respond to food contamination. The
funding will also provide for research facility planning, design and construction, for the enhancement

THE BUDGET FOR FISCAL YEAR 2003

of border inspections, and for animal and plant disease monitoring. USDA will continue reviewing
the security needs of its facilities and equipment. Continued funding is included in the 2003 Budget
for these activities.
In addition to these activities, USDA works to ensure the safety and security of the nation’s
food supply and agricultural systems through its inspection, monitoring, research, and enforcement
activities. These activities are discussed later in the chapter.

Status Report on Select Programs
The accompanying table is a selection of effective and ineffective programs in USDA. While
the specific budget proposals for these five areas are too detailed to present in this chapter, this is
illustrative of how programs were rated. This budget is the first to explicitly rate certain programs
and tailor resources and other proposals to improve their performance.
Program

Assessment

Explanation

Special
Supplemental
Nutrition Program
for Women, Infants,
and Children (WIC)

Effective

WIC is a successful and cost-effective early intervention program that
saves lives and improves the health of nutritionally at-risk women,
infants, and children. The budget fully funds WIC, allowing service to
all eligible persons seeking benefits.

USDA County
Offices

Ineffective

Even though USDA has worked on improving efficiency since 1992,
enormous duplication and inefficiencies remain.

Forest Service
Operating Program

Ineffective

The Forest Service’s administrative and decision-making system,
along with confusing and inadequate regulations, has led to gridlock.
Currently, according to the National Academy of Public Administration,
40 percent to 60 percent of the money spent on this program goes to
planning and litigation rather than projects.

Agricultural
Quarantine and
Inspection Program

Effective

The program conducts inspections of people and cargo entering the
country by land, sea, and air. Inspections indicate that at least 95
percent of international air passengers are in compliance with federal
regulations.

Rural Water and
Wastewater Grants
and Loans

Effective

The program alleviates health hazards and encourages economic
growth in rural areas by providing support to build sewage treatment
plants and other water infrastructure. Funds are effectively targeted to
the most needy communities including those with major wastewater
problems that pose health concerns.

Congressional Earmarks
The process of identifying and selecting which projects will be funded by the budget involves
high levels of subject matter expertise and administrative support. Hence, when non-priority

DEPARTMENT OF AGRICULTURE

projects, those not requested by experts, are funded directly by the Congress in what is referred to
as “earmarks,” there is no assurance that funds will be used to support projects and activities that
have the greatest prospects for success. While earmarks may be good projects, they divert limited
funds from programs that have competed fairly in the systematic budget development process and
are of higher national priority. USDA programs receive many earmarks—most of which fall in
USDA’s research programs. The budget proposes to eliminate funding for over 400 USDA earmarks.
Earmarking of research projects is an especially bad idea, because it enables special interest
pressure to end-run the competitive selection of proposals through scientific peer review. From 2001
to 2002, research earmarks increased in dollar amount and number, with earmark funding rising
by 39 percent (from $228 million to $317 million) and the number of earmarks increasing by seven
percent (from 414 to 444 earmarks).

Aid to Farmers

There are approximately 346,000 farms that provide the majority
of their operators’ incomes.

Does federal aid target farmers most in
need? How efficient is the government at
delivering aid to farmers? These are the
measures against which USDA effectiveness is
judged. Most of USDA’s aid is funded outside
of the President’s annual budget request.
USDA provides direct and indirect subsidies
for the production and export of U.S. crops
using funds provided in farm bills that the
Congress enacts every five years. For 2000 and
2001, the government has provided a total of
over $40 billion in direct farm income support.
In calendar years 1999 and 2000, government
payments accounted for roughly 49 percent
of net farm income; they are projected to be 40
percent of net farm income in 2001.

Summary of Farm Income
(In billions of dollars)

1999
Actual

Estimate
2000

2001

2002

2003

Farm income from product sales ........................

189

194

206

204

208

Total net farm income 1 ........................................

Percent of net income from direct government
payments 1 ........................................................

Percent of eligible crops insured ........................

Total net farm income and percent of net income from direct government payments for 2002 and 2003 include additional

funding under a new farm bill, which is estimated to provide an additional $4 billion and $7 billion in 2002 and 2003,
respectively.

THE BUDGET FOR FISCAL YEAR 2003

Farm income has held steady over recent years, but has become more dependent on government
support. This support is neither targeted well, nor efficiently delivered. The 2003 Budget seeks to
improve aid to farmers by focusing on: increased agricultural trade, improvements in the delivery of
farm aid, addressing risk management on the farm, and supporting agricultural research.
The 1996 farm bill expires at the end of 2002, and Congress is currently working on a new
farm bill. Funding in USDA’s annual budget request as described in this chapter for 2003 is in
addition to, and coordinated with, the farm program funding provided in the 1996 farm bill. The
Administration supports, and the budget reflects, an additional $73.5 billion over a 10-year period,
for a farm bill that will provide a strong safety net for all farmers and ranchers, expand markets
abroad for American agricultural products, and increase resource conservation in ways that
enhance the environment. This funding will provide additional farm support payments; increase
funding for conservation programs; improve the food stamp program; enable the establishment of
risk management savings accounts for farmers and ranchers; and increase support for other USDA
programs, including trade, research, and rural development.

The Critical Issue of Trade
A key way to increase farm income is to
increase
trade. The President is committed
Twenty-five percent of farm receipts are generated
to
expanding
overseas agricultural markets
by exports. One quarter of all the revenues
by
lowering
trade
barriers and strengthening
coming into the farm economy are generated
USDA’s ability to identify potential new
as a result of a farmer in America, or a rancher
foreign market opportunities. Recent trade
in America, selling that product overseas. Our
statistics indicate that these efforts are
farmers and ranchers are the most efficient
working—U.S. agricultural exports for 2002
producers in the world. This is an area where
are forecast to be $57 billion, up $4.2 billion
our country has a competitive advantage. We’re
from 2001. If these forecasts are realized,
really good at it. And the job of this Administration
the 2002 export level will be the highest since
must be to open up more markets for ag products.
1997 and represent three straight years of
President George W. Bush
sustained agricultural export growth. U.S.
June 18, 2001
exports of high-value products, currently at
$24 billion, $1.8 billion more than last year,
are increasing the U.S. farm trade surplus. At
the upcoming multilateral trade negotiations, the Administration will work to expand opportunities
for agricultural exports by lowering trade barriers utilizing Trade Promotion Authority (TPA). The
TPA authority gives U.S. trade negotiators the ability to negotiate trade agreements with our
current trading partners and open new markets under future trade agreements.
The Foreign Agricultural Service (FAS) represents U.S. agricultural interests overseas and plays
a critical role in gathering market intelligence, which provides expertise in resolving technical
trade issues and developing international commodity standards. FAS activities are fully funded
in the budget. USDA also has a wide range of trade promotion programs that expand overseas
market opportunities and develop long-term trade relationships with foreign countries. These
include subsidies to export firms that face unfairly subsidized overseas competitors and credit
guarantees for the commercial financing of U.S. agricultural exports. USDA also provides outreach

DEPARTMENT OF AGRICULTURE

and exporter assistance activities that are designed to assist businesses in identifying opportunities
overseas and entering export markets for the first time.
Agricultural Exports Grow
While U.S. Share Holds Steady
In billions of dollars

Percent

U.S. Exports
U.S. Share of World Exports

20
50
15

40
30

The budget proposes to reform the delivery
of American food aid through USDA, USAID,
and the Department of State. As part of
those reforms, the budget includes a $335
million increase for P.L 480 Title II food aid.
A discussion of these reforms is included in
the Department of State and International
Assistance chapter.

Efficient Delivery of Farm Aid

20
5
10

Why do the more than 28,000 USDA
employees
working in 5,600 county field
0
0
1981
1984
1987
1990
1993
1996
1999
2002
offices across the country, wear different
Source: Department of Agriculture.
“hats” depending upon the category of service
provided? The answer is rooted in history.
USDA’s Natural Resources and Conservation Service (NRCS), Farm Service Agency (FSA), and
Rural Development (RD) offices evolved over time, with the Congress, by law, giving them separate
mandates and organizational hierarchies.
Today, these USDA agencies act as separate franchises, with offices often located adjacent to
each other. Prior efforts to improve the efficiency of USDA’s county-based offices have resulted in
significant co-location, with 2,600 service centers now operating. New information technology has
been introduced to simplify customer transactions and to share information among USDA agencies.
However, the separate hierarchical structures at state, regional, and headquarter levels are set in
law, and this hinders further attempts to achieve additional efficiencies.
For example, USDA personnel located in the same county office location operate three separate
payroll, procurement, computer, and travel support systems. Similarly, county office personnel
cannot “help each other out” with workload. For instance, a conservationist visiting a farm cannot
verify the farmer’s land unit to qualify for certain commodity support programs—a separate trip
must be made by a USDA employee in a different “hat.”
Congress has impeded efficiency improvements by: 1) not allowing USDA to combine
administrative support offices and 2) not allowing the relocation of offices without congressional
approval. The Administration has proposed legislation that seeks to remove roadblocks to efficient
management (the Freedom to Manage Act). This budget proposes changes that will allow the
agencies to operate together more efficiently within the current organizational constraints.
Specifically, the Administration proposes that the FSA and NRCS field offices seek improvements
by:

• Restructuring
•

the administrative support offices to improve efficiency of information
technology, personnel, travel, payroll, and procurement;
Reviewing the field office structure to determine the most efficient level of offices necessary to
provide services, with the goal of co-locating at least 200 additional offices in 2003;

THE BUDGET FOR FISCAL YEAR 2003

• Beginning to centralize loan servicing functions that do not need to be performed at the field
•
•

level;
Evaluating pilot projects and developing guidance to strengthen NRCS’ process for
emphasizing local involvement in setting national priorities; and
Implementing competitive sourcing and cross servicing.

Improvements undertaken that will improve efficiency and increase the number of employees
available to provide services directly to the U.S. citizen will be evaluated based on:

• Reducing the number of office visits and reporting burden for clients of FSA and NRCS. A 10

•

percent reduction in reporting would reduce the number of hours spent filling out forms by
1.7 million hours or 46 minutes per farm (currently 17 million hours spent, 7 hours and 44
minutes per farm); and
Increasing the provision of core customer services, including technical assistance visits and
eligibility determinations, while maintaining or reducing the number of personnel and/or the
cost associated with the provision of service.

Managing Risk on the Farm
What can farmers do to lessen the risk their crop may be lost due to drought or other natural
disaster? USDA’s Risk Management Agency (RMA) administers a crop insurance program through
the Federal Crop Insurance Corporation (FCIC). These insurance policies insure a farmer against
crop losses from natural disasters or market price reductions, and are delivered through private
insurance companies. In 2003, it is expected that 80 percent of the total amount of crop acreage
eligible for crop insurance will be covered. FCIC now subsidizes over half the cost of farmers’
insurance premiums to encourage farmer participation. As more farmers participate, this should
reduce the need for ad-hoc supplemental federal funding for crop losses due to natural disasters.
FCIC also reimburses private insurance companies’ administrative costs, and pays a share of the
indemnities on insurance policy claims, which provides an incentive for the companies to sell the
policies. The program was revised in 2000 thorough the Agricultural Risk Protection Act (ARPA).
ARPA increased the estimated annual cost of the program from $1.7 billion to $3 billion, largely
due to its increases in insurance premium subsidies. However, the changes have made the program
more attractive to farmers and significantly increased participation. Since 1993, the crop insurance
program has grown from $700 million in gross premiums insuring $10 billion in crop value, to $2.4
billion in premiums insuring over $32 billion in crop value in 2000.
The Administration believes that improvements should be made in the risk sharing arrangements
between the government and the private insurance companies. To achieve this, the 2003 Budget
proposes amending the Federal Crop Insurance Act. The proposal continues to provide incentives to
the insurance companies to participate in the crop insurance program but establishes constraints on
windfall profits. The proposal would cap the underwriting gains to 12.5 percent of each company’s
retained premiums for the year. The dollar volume of total underwriting gains went from $201 million
to $378 million (an 88 percent increase) between 1999 and 2001. The change will save $89 per policy
sold to participating farmers in the crop insurance program in 2003.

DEPARTMENT OF AGRICULTURE

Assisting Farmers through Research
Agricultural
research
can
lead
to
discoveries that result in increases in
farm income through better management,
improvements in production and processing
techniques, development of new and improved
seed, and technologies to achieve the
maximum use of agricultural products.
Research also helps achieve other objectives,
such as food safety.
The challenge is to
target research funding to the highest
priorities—those that are most likely to
boost farm income, or address other national
Wheat is susceptible to natural disaster and diseases, such as
concerns.
Priority research projects are
karnal bunt.
identified through competitive merit-based
processes and peer review.
As mentioned
above, congressional earmarks can hinder the ability to focus funding on priority research.
The 2003 Budget proposes an increase of $58 million for in-house research for a number of
high priority initiatives of key national importance, such as: bio-based products; biotechnology;
counter-terrorism; invasive species; genomics; and upgrades to the National Agricultural Library.
The Administration had agencies re-evaluate all their programs, to ensure that taxpayer dollars
fund the highest priority activities that meet national needs. The 2003 Budget does not propose to
fund numerous unrequested projects added by the Congress in 2001 and 2002, and also reallocates
$15 million from lower priority programs to fund priority initiatives.
The 2003 Budget also proposes providing a significant increase in funds for the National Research
Initiative (NRI), USDA’s major discretionary competitive grant program. To date, the NRI has never
received more than $120 million. In 2003, the budget proposes to double funding for the NRI, to $240
million. Under this proposal, funding for competitive research would increase from seven percent to
12 percent of all research funding, or from 16 percent to 28 percent of research grant programs in
2003.

Safeguarding the Nation’s Food Supply
The United States has the safest food supply in the world. USDA has a prominent role in
protecting the security of the national food supply, along with the Department of Health and Human
Services, the Environmental Protection Agency, and state and local health agencies. Working
together, these agencies share information and coordinate food safety activities from farm to table.
According to the Centers for Disease Control and Prevention, the incidence of reported foodborne
illnesses under surveillance in the United States has declined in recent years; however, foodborne
diseases still cause over five million illnesses and up to 9,000 deaths annually. Government food
safety agencies are committed to a goal of reducing by 25 percent, from 2000-2005, the incidence of
foodborne illness in this country.
While existing public health data do not allow specific linkages between the prevalence of
foodborne hazards, and the level of foodborne illnesses, USDA’s Food Safety and Inspection Service
(FSIS) has several performance standards in place to address product safety. These include

THE BUDGET FOR FISCAL YEAR 2003

pathogen reduction performance standards for salmonella. Monitoring establishment performance
data indicates that the prevalence of salmonella on meat and poultry products has declined.
While FSIS has been moving in recent years to a science-based food safety regulatory system, the
underlying meat inspection laws, put in place in the early 1900s, have not been updated to reflect
modern risk knowledge. Efforts to implement inspection processes that are more risk based currently
face legal challenges. For example, in October 1999, FSIS began testing a new slaughter inspection
model. Independent testing of the new inspection procedures showed superior food safety benefits
over the traditional inspection system. However, the expansion of the new system outside of several
pilot plants has not occurred due to ongoing litigation that challenges the statutory basis of FSIS to
implement procedures that differ from traditional inspection.
The budget proposes increased funding for risk prevention activities and improved risk
management systems to maximize food safety. In addition, the budget includes a proposal to replace
the existing overtime fee structure with a revised structure that would reduce existing overtime
rates, while also charging fees for inspection services currently provided without reimbursement
for second and third shifts. The budget also contains a new annual licensing fee proposal that will
make funds available, in subsequent years, for FSIS to invest in food safety inspection technology.

Pest and Disease Outbreaks
USDA recently released an independent risk assessment on Bovine Spongiform Encephalopathy
(BSE), or Mad Cow Disease, which showed a very low risk of BSE in the United States. Early
protection systems to safeguard against BSE, put into place by USDA and the Department of Health
and Human Services, have been successful. The BSE risk assessment will be helpful in identifying
additional steps that government and industry should take to keep the risk at a very low level.
The Animal and Plant Health Inspection
Service (APHIS) is the primary agency
involved in the BSE plan—APHIS is
responsible for protecting the United States
from pests and diseases of plants and animals.
APHIS programs represent a continuum of
actions that include: working with foreign
nations to set agreed upon standards of
purity; inspecting people and cargo entering
the country for prohibited articles; monitoring
plant and animal health; and actively
responding to infestations that threaten farms
and ranches. Besides working with foreign
governments to reduce the risk of the entry
Quincy, a USDA beagle, inspects passenger baggage.
of pests and diseases, APHIS has over 3,500
inspectors, working closely with the U.S. Customs Service, to prevent the entry of prohibited
(potentially dangerous) agricultural products. USDA continually monitors plant and animal health
to detect and respond to exotic disease introductions, and to combat ongoing infestations, such
as the Asian Longhorned Beetle and Citrus Canker. APHIS also enforces the humane treatment
and care of animals covered under the Animal Welfare Act. APHIS programs have demonstrated
success in many of these areas, such as: minimizing the number of fruit fly outbreaks established

DEPARTMENT OF AGRICULTURE

in the United States (by an almost 10 fold reduction in square mileage); and increasing the area
eradicated of boll weevil by about 700,000 acres.
The 2003 Budget proposes an increase of
$75 million in pest and disease exclusion and
monitoring programs to guard against the
threat of foreign animal diseases, such as
Foot and Mouth Disease (FMD), entering the
United States.

Growth in Emergency Funding to Combat
Agricultural Infestations
Spending in millions

350
300
250
200
150
100
50
0
1981

1985

1989

1993

1997

2001

The 2003 Budget also proposes to fund
the ongoing costs of combating infestations
through the annual budget request to the
Congress—and proposes a $175 million
increase for these activities—rather than
through emergency funding authority.
In
addition, the budget proposes to establish
criteria for cost-share rates for these programs,
to be published for public comment in 2002.

Stewardship on Our Farms and in Our Forests
Farmers, ranchers, and private forest landowners own and manage two-thirds of the nation’s land
and are stewards of much of our soil, air, and water. USDA provides these landowners with technical
and financial assistance needed to effectively conserve natural resources. Efforts to improve and
implement conservation technologies over the past two decades have reduced soil erosion on crop
land and pasture by 1.2 billion tons (40 percent), and those gains are spread widely across all major
farming regions. These natural resources are critically important for keeping our nation’s economy
competitive and for solving challenges we face in agriculture, energy production and use, and the
environment. As a result, federal conservation and forestry dollars must be invested as effectively
as possible. This budget proposes to improve the quality, effectiveness, and efficiency of the federal
government’s investments in conservation and forestry by improving management at USDA and
refocusing resources to “on the ground” efforts. To meet this commitment, key performance measures
in conservation and forestry are identified.

Clean Water
Agriculture has a significant impact on the nation’s water. While, overall, water quality has
dramatically improved, the application of fertilizers, manure, and pesticides have degraded the
quality of streams and shallow ground water in some agricultural areas. Commercial fertilizers
and animal manure are among the primary nonpoint sources of nitrate and phosphorus in surface
water and groundwater.

• High
•

concentrations of phosphorus lead to nuisance plant growth in nearly 80 percent of
streams sampled by the Environmental Protection Agency, leading to low levels of dissolved
oxygen that harm fish and other aquatic life.
At least one pesticide was found in more than 95 percent of stream samples.

THE BUDGET FOR FISCAL YEAR 2003

• A Natural Resources Conservation Service (NRCS) study found that the number of counties
where manure nutrients exceed potential plant uptake and removal has doubled in the last
15 years.
Water quality improvements and wetland protections can be achieved through voluntary
measures. The Administration, working with states, is seeking to achieve voluntary environmental
improvements by targeting its technical and financial assistance to farmers and ranchers who
operate in the watersheds with the greatest needs. In 2003, the NRCS will spend $118 million,
an increase of $48 million, to provide animal feeding operation owners with technical assistance
to develop voluntary nutrient management plans designed to protect water quality to the extent
possible.
Part of this effort in focusing assistance on the areas and activities of greatest need is to reduce
or eliminate under-performing or ineffective programs. USDA’s Watershed and Flood Prevention
Operations program provides technical and financial assistance to plan and install small dams and
other watershed-based projects for purposes of flood prevention, irrigation water management, and
sedimentation control. Data show that the Army Corps of Engineers’ flood damage reduction program
returns 50 cents more per dollar invested than the USDA program (see the Army Corps of Engineers
chapter). Consequently, the budget closes out USDA’s flood mitigation projects, which struggle to
achieve the required cost-benefit ratio.

Restructure the Forest Service to Improve Performance
Americans cherish national forests and national grasslands for the values they provide—clean
water, clean air, natural scenic beauty, protection of rare species, and opportunities for unparalleled
outdoor adventure. However, the burden of too many organizational layers and a cumbersome
decision-making process have reduced the amount of funds available to professionals who work
in our national forests. This has reduced the level of conservation work at the national forests to
exceedingly low levels. The budget includes significant management reforms for the Forest Service
that will improve service to citizens and increase administrative efficiencies by putting more
foresters in the forests. These reforms include:

• “One-stop shopping” for the public and reduced federal overhead expenses by co-locating 22
•
•
•

Forest Service and Bureau of Land Management offices by the end of 2005;
An increase of resources to the field by reducing Forest Service indirect expenses in half by
2005;
Placement of Forest Service personnel closer to the resource by relocating or reassigning
Washington Office and regional office employees; and
Development of a model forest office by increasing the amount of resources available for
contracting out to local communities and significantly increasing the amount of cost-share
assistance for leveraging projects on federal lands.

To overcome inertia and an excessive decision-making structure, USDA will develop legislation
in 2003 to establish “charter forests.” This proposal would establish certain forests or portions of
forests as separate entities, outside the Forest Service structure, that report to a local trust entity
for oversight. Like charter or magnet schools, this proposed structure would avoid the central
bureaucracy and thereby reduce organizational inefficiencies, while emphasizing local involvement,
and focusing upon specific programmatic goals, such as forest ecological restoration or hazardous
fuels reductions.

DEPARTMENT OF AGRICULTURE

Wildfire Management

Decades of Limiting Wildfires
Average acres burned in millions

The long history of controlling wildfires
has an unfortunate side effect—successful
suppression of fires in the past has led to
larger and more intense fires today. At the
same time, more people are moving into areas
that have traditionally been wildlands. With
larger, more intense fires threatening more
homes and businesses, the costs of wildfire
suppression have risen dramatically.

400
350
300
250
200
150
100
50

Wildfires are a natural occurrence that
help to maintain forest health and wildlife
1930-39
1940-49
1950-59
1960-69
1970-79
1980-89 1990-99
habitat. However, as the accompanying chart
Source: Department of Agriculture.
shows, the acreage burned from wildfires has
declined sharply over the years, as the Forest
Service and other land management agencies have emphasized fire suppression. This approach has
exacerbated the risks from damaging catastrophic wildfires, since woody undergrowth that would
have burned away in smaller, less-intense fires now has grown into thickets across the West.
0

Costs for suppression have also risen as
the other chart shows. In 2001, the Forest
Service spent $1,300 per acre in suppressing
fires on 573,000 acres of forests, an increase
in cost per acre of almost 300 percent over
2000. In comparison, wildfire suppression
costs for the Department of the Interior (DOI)
averaged about $235 per acre, although much
of DOI’s lands are grasslands, which burn less
intensely than forests. In some western areas,
the government pays more in suppressing fires
than the fair market value of the structures
threatened by those fires. It would literally
be cheaper to let the fires burn and pay 100
percent of the rebuilding cost.

Federal Wildfire Suppression
Expenditures Have Risen Dramatically
In billions of dollars
1.4

1.2
1.0
0.8
0.6
0.4
0.2
0

1995

1996

1997

1998

1999

2000

2001

Source: Department of Agriculture.

The Forest Service is looking at a variety of
ways to control the costs of fire suppression. For example, the Forest Service will work with state
and local governments to identify areas to pilot test “fire plain easements” as a way to protect lives
while ensuring that taxpayer funds are used wisely.
Another way to protect communities and lower fire-fighting costs is to reduce the amount of brush
and small trees, especially in areas adjacent to human populations. The President’s Budget funds
the Forest Service Hazardous Fuels Treatments program at $229 million, with over 70 percent of
funds directed to the wildland-urban interface. This will result in the completion of buffers at eight
percent of eligible vulnerable communities by the end of 2003.

THE BUDGET FOR FISCAL YEAR 2003

This budget also emphasizes improvements
in fire management planning, and will
incorporate the results of several ongoing
program reviews, so that better decisions can
be made regarding when and how to fight
fires, and fire program performance and cost
effectiveness. The budget anticipates the cost
of fighting fires in a typical year. Accordingly,
wildfire suppression is funded at a 10-year
average of $423 million.

Fulfilling a Commitment to Land
Protection

On average, 832,000 acres burn in national forests annually.

National forests and grasslands support
the richest variety of habitats of any land management system in North America and a great
variety of plants and animals depend upon them. To protect these resources, the President’s Budget
includes $15 million to expedite endangered species consultations to ensure careful management of
food, water, space, and shelter for these species. The budget also includes an increase of $9 million
to expand recreation, heritage, and wilderness management, while also focusing upon improving
the ecological integrity of the forests, both in terms of forest health and forested areas restored.
The budget includes full funding of the Forest Service portion of the Land and Water Conservation
Fund (LWCF), and increases funding to $70 million in the Forest Legacy program to protect against
the loss of forests from development. LWCF funds provide clean water, maintain contiguous forests,
preserve wildlife habitat, and protect archaeological and historical sites. The budget promotes
the protection of environmentally sensitive acres targeted at conservation needs that foster better
cooperation among the land management bureaus and between the bureaus, states, and local
interests. Over $51 million is provided to address a backlog in repair and maintenance of existing
facilities.
The budget proposes to establish incentives for cost-effective, non-regulatory, market-based
approaches to conservation, including a more business-like approach for timber sales by stimulating
competition. This proposal will allow conservation and recreation groups and others to bid on
timber sales. In addition, to provide an incentive for private, voluntary land protection, the budget
includes a 50 percent capital gains tax exclusion for private landowners who voluntarily sell land or
water to a government agency or qualified conservation organization for conservation purposes.

Feeding People in Need
The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) saves
lives and improves the health of nutritionally at-risk women, infants and children. Numerous
government and private studies show that WIC is one of the nation’s most successful and
cost-effective early intervention programs. Research documents the success of WIC in improving
birth outcomes and saving health care costs. In addition, studies have demonstrated that WIC
improves: diet and diet-related outcomes; infant feeding practices; immunization rates; access to
health care; and cognitive development.

DEPARTMENT OF AGRICULTURE

The budget reflects this demonstrated success by increasing the program’s funding by $364 million
in 2003, making certain that all eligible people who seek services receive them. The budget provides
almost $4.8 billion in 2003, including a $150 million contingency fund. The request is sufficient to
serve 7.8 million people monthly and the contingency fund will ensure that the program can expand
to serve an increasing number of eligible persons should that be necessary for any reason.

Food Stamps
Why W IC Works

More than a decade ago, the high cost of infant
formula threatened to limit the number of people
WIC could afford to serve. Fortunately, two WIC
state agencies discovered an innovative way to
trim the program’s costs without reducing its
benefits.
Understanding that the large quantities of infant
formulas the program was purchasing gave it
a unique bargaining position, WIC agencies in
Tennessee and Oregon negotiated contracts that
offered infant formula manufacturers exclusive
rights to the WIC market in return for discounted
prices. The agreements, which saved the two
states more than a dollar on each can of formula,
were quickly replicated by other states eager to
expand WIC’s reach without increasing its costs.
Today, all WIC’s state agencies are required
by law to negotiate discounted infant formula
contracts. The result: WIC will save $1.5 billion
in 2002, allowing the program to reach nearly two
million individuals who would otherwise not have
been served at the program’s current funding
level.

The budget proposes to reauthorize and
improve the Food Stamp program.
Food
stamps alleviate hunger and malnutrition
among low-income individuals. In 2003, the
program will provide approximately $20.3
billion in benefits to 20.6 million people. The
federal government will provide an additional
$3.7 billion for state administrative costs, job
training programs for food stamp recipients,
and the Puerto Rico Nutrition Assistance
block grant.
Complex Food Stamp rules create a
program that is highly targeted to the
neediest individuals but at the same time,
administratively burdensome for states
and recipients. Other program rules pose a
barrier to supporting working families. The
President’s Food Stamp proposal greatly
simplifies program rules, encourages work,
and improves program accountability. The
package standardizes the medical and
dependent care deductions,
eliminates
exceptions to the standard utility allowance,
and excludes interest and dividend income
from income tests. At the same time, the
budget phases in a higher standard deduction
to improve benefits for large households.

The budget restores benefits to legal immigrants five years after entry to the United States,
ensuring adequate nutrition among children and other vulnerable individuals, while requiring
recent arrivals to support themselves through earnings. To lower transportation barriers to work,
the budget excludes one vehicle per adult from program asset rules, allowing a low-income worker
to own a reliable car for getting to work without losing benefits.
The budget improves performance incentives for states by reforming the quality control system,
replacing enhanced funding with performance bonuses, and removing the federal cost cap for
electronic benefit transfer systems. The budget also tightens overly broad waivers from eligibility
criteria and reduces, but provides greater flexibility for, the use of employment and training funds.
The budget maintains a strong focus on improving program integrity with a goal of reducing the
national average error rate from 8.91 percent for 2000 to 8.7 percent for 2002. This improvement is

THE BUDGET FOR FISCAL YEAR 2003

projected to save $40 million in 2002. With an additional $4 million for food stamp payment accuracy
initiatives in 2003, FNS will redouble its efforts to reduce erroneous payments, especially in states
with the highest error rates.
The budget also improves federal oversight of meals programs for the elderly by transferring
USDA’s Nutrition Services Incentive Program to the Department of Health and Human Services
(HHS) and consolidating it with HHS elderly meals programs.

Supporting Rural America
Since the 1930s, USDA has been in the business of promoting economic development in rural
America through a variety of loan and grant programs that assist rural communities in addressing
their infrastructure, housing, and economic development needs. On average, USDA annually
provides over $10 billion in grants and direct and guaranteed loans, and has an outstanding direct
loan portfolio of over $70 billion.

2003 Rural Development Budget Highlights

•

1.4 million rural residents will have access
to clean, safe drinking water.

•

44,000 jobs will be created or saved
through RCAP business and community
programs.

•

51,000 low to moderate income rural
families will have a new opportunity for
homeownership.

• The needs of rural areas are so different

that no single approach can meet the
needs of all rural communities. To
•
address that, the Rural Community
Advancement
Program
(RCAP)
• Provide distance learning facilities to over
provides
flexible
funding
to
the
300 schools, libraries, and education
states
for
water
and
wastewater
centers and telemedicine equipment to
infrastructure, community facilities,
150 health providers.
such as fire stations and medical
• Develop innovative ways to fund new
centers, and business development.
multifamily housing projects. Ensure
The budget provides a total (loan level
allocation processes target the most
plus grants) of $2.7 billion.
needy areas and state-identified priority
provides
subsidized,
• USDA
locations.
means-tested
loans
and
loan
guarantees to individuals for homes,
and makes subsidized financing
available to developers who offer housing to elderly, disabled, migrant farm workers, or
low-income rural residents of multi-unit housing buildings. All the programs are limited to
areas with populations of 20,000 or less. In 2003, the direct and guaranteed single family
housing programs will fund $3.7 billion in loans and loan guarantees.
USDA provides loans to cooperatives and private companies for electric and
telecommunication service throughout rural America. The electric and telecommunications
Upgrade 225 rural electric systems,
benefiting over 3.4 million customers.

•

Thirty percent of rural counties have a
declining population, according to recent
census data, and nearly a quarter of
non-metro households pay 30 percent or more
of their income for housing costs. Smaller
rural communities often have fewer sources
of credit than their urban counterparts, and
“patient” capital for start-up businesses, in
particular, is more scarce in rural areas.

DEPARTMENT OF AGRICULTURE

programs are not targeted to needier areas and even serve areas that are no longer rural. In
the budget, USDA will review the electric and telecommunications programs to determine
and implement methods for better targeting of these funds.

Strengthening Management
USDA has been working for some time on improving service through increasing the efficiency of
the network of county offices that are located throughout the United States. In addition, USDA has
been improving financial management and information security. However, the Department has a
lot of work to do to meet existing management requirements. These initiatives are contained in the
President’s Management Agenda, discussed below.

Initiative

2001 Status

Human Capital—There are skill gaps/imbalances across USDA, and USDA is not using
existing personnel flexibility. USDA provided a plan detailing how it is going to take advantage
of the current skills, improve weak skill areas, and reallocate its workforce to increase frontline
service provision. The plan will be modified to reflect adjustments prompted by a new farm bill.

•
•

Competitive Sourcing— The goal is to compete 15 percent of the commercial positions by
the end of 2003. Despite a wide array of possibilities, such as administrative personnel, data
collectors, groundskeepers, janitors, and veterinarians, USDA has completed no competitions.
USDA has recently prepared a plan detailing how it is going to meet the President’s goal.
USDA has indicated that it will begin competitions later in 2002 and continue into 2003.
Financial Management —Some USDA financial systems do not comply with federal financial
management systems requirements or applicable federal accounting standards. A significant
Anti-Deficiency Act violation occurred in the Forest Service in 2000. Such a violation of
law occurs when an agency spends more money than is given to it by Congress. Auditors
have been unable to express an opinion on the combined USDA financial statement and the
Forest Service’s stand alone financial statement. While improvements have been made, this
audit outcome has not substantively improved since 1996. USDA is close to implementing a
Department-wide compliant financial system, and continues to work with the Inspector General
and OMB on improving the processes and procedures used to estimate and re-estimate loan
subsidy costs. Finally, USDA is working with the Forest Service on improving the control
of property, plant, and equipment.

•

THE BUDGET FOR FISCAL YEAR 2003

Initiative

2001 Status

E-Government —Many, but not all, major USDA system investments have been adequately
justified and supported by well-drawn business cases. Many, but not all, of the projects are
operating within 90 percent of cost, schedule, and performance targets. USDA is deploying
Geospatial Information Systems and participates in Firstgov.gov. USDA is taking steps to
more effectively plan and manage its information technology investments and has recently
developed an enterprise architecture plan.

•

Budget/Performance Integration —The goal is to provide greater focus on performance.
USDA’s performance measures are only imperfectly tied to the budget. Performance measures
did not accompany the budget submission, and do not drive any budget requests. There are
no clear performance targets to achieve. Sporadically across USDA, performance measures
describe outputs generated by the budget after budget levels are determined. USDA needs
to align processes and budget accounts to track the full cost of programs and measure
achievement of program goals. USDA needs to develop a plan to better integrate performance
measures into the budget process.

•

Department of Agriculture
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Spending:
Discretionary Budget Authority:
Commodity and International .................................................
Rural Development ..................................................................
Forest Service ..........................................................................
Conservation .............................................................................
Food and Nutrition Service .....................................................
Research, Education, and Economics ..................................
Marketing and Regulatory Programs ....................................
Legislative proposal ............................................................
Central Activities .......................................................................
Subtotal, excluding changes to mandatory programs ....
Mandatory savings proposals .......................................
Subtotal, discretionary budget authority adjusted 1 ........
Remove contingent adjustments ..................................
Total, Discretionary budget authority .....................................

2,545
2,725
4,589
1,072
4,491
2,164
1,751
—
472
19,809
—
19,809
−425
19,384

2,679
2,600
4,274
1,019
4,811
2,353
1,621
—
481
19,838
—
19,838
−452
19,386

3,143
2,601
4,099
1,059
5,078
2,284
1,720
−34
549
20,499
−688
19,811
−463
19,348

Emergency Response Fund, Budgetary Resources:
Research, Education, and Economics ..................................
Marketing and Regulatory Programs ....................................
Food and Nutrition Service .....................................................
Departmental Administration ..................................................
International Food Aid .............................................................
Total, Emergency Response Fund, Budgetary resources .....

—
—
—
—
—
—

113
134
39
81
95
462

—
—
—
—
—
—

DEPARTMENT OF AGRICULTURE

Department of Agriculture—Continued
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Mandatory Outlays:
Food and Nutrition Service .....................................................
Legislative proposal ............................................................
Commodity Credit Corporation ..............................................
Legislative proposal ............................................................
Farm Loan Programs ...............................................................
Crop Insurance .........................................................................
Forest Service ..........................................................................
Animal and Plant Health Inspection Service ........................
International Programs ............................................................
Rural Development ..................................................................
All other programs ....................................................................
Subtotal, Mandatory outlays adjusted 1 .....................................
Remove contingent adjustments ......................................
Total, Mandatory outlays ...............................................................

28,620
—
22,095
—
−1,413
2,463
432
149
−443
−2,415
903
50,391
−30
50,361

33,083
—
17,310
4,200
446
2,883
−68
146
−358
−2,741
824
55,725
−30
55,695

35,015
29
11,621
7,271
−767
2,900
−104
329
−428
−2,823
801
53,844
−20
53,824

Credit activity:
Direct Loan Disbursements:
Farm Loans ..........................................................................
Commodity Credit Corporation ..........................................
Rural Utilities Service ..........................................................
Water and Wastewater .......................................................
Rural Housing ......................................................................
Rural Community and Economic Development ..............
Rural Business and Industry ..............................................
P.L. 480 .................................................................................
Total, Direct loan disbursements ................................................

1,141
8,267
2,263
694
1,212
219
27
262
14,085

1,168
10,624
2,577
800
1,290
328
30
119
16,936

1,042
8,844
2,788
779
1,160
333
6
107
15,059

Guaranteed Loans:
Farm Loans ..........................................................................
Commodity Credit Corporation ..........................................
Rural Utilities Service ..........................................................
Rural Housing ......................................................................
Water and Wastewater .......................................................
Rural Community and Economic Development ..............
Rural Business and Industry ..............................................
Total, Guaranteed loans ...............................................................

2,200
2,183
35
2,171
—
15
809
7,413

2,988
3,926
120
2,817
43
155
1,777
11,826

3,025
4,225
229
2,751
72
179
1,294
11,775

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives .

DEPARTMENT OF COMMERCE

The President’s Proposal:
Focuses resources on core Commerce services, including:

• Strengthening the nation’s statistical and trade information to help meet the needs
of a growing economy and international trade;
• Developing state-of-the-art technology standards and increasing issuance
of patents and trademarks, to meet the needs of high-technology and basic
industries;
• Improving weather and climate forecasting, to benefit public safety, the economy,
and quality of life; and
• Improving marine fisheries management, to better meet commercial, recreational,
and conservation objectives.
To enhance these core capabilities, resources are shifted from unwarranted corporate
subsides and lower priority programs.

The Commerce Department provides
information,
technology services, and science
Department of Commerce
that assist American business and society.
Donald L. Evans, Secretary
It makes possible the weather reports heard
every morning; it facilitates technology
www.doc.gov 202–482–2112
that Americans use daily in the workplace
Number of Employees : 37,000
and at home; it supports the collection
and development of statistical information
2002 Spending : $5.5 billion
essential for competitive business and our
Field Offices : 10 bureaus with offices across the
representative democracy; it helps American
United States and 86 countries.
firms and consumers benefit from open
and fair international markets; it seeks to
manage our marine fisheries; and it supports
environmental and economic health in the communities where we live.
This array of activities is reflected in Commerce’s three strategic goals:

• Provide
•

the information and economic framework to enable the U.S. economy to operate
efficiently and equitably, both nationally and globally;
Provide the infrastructure for innovation with cutting-edge science and technology to enhance
American competitiveness; and

DEPARTMENT OF COMMERCE

• Observe and manage the Earth’s environment to promote sustainable growth.
Homeland Security
The President’s Budget provides an additional $30 million for homeland security and critical
infrastructure protection activities at the Bureau of Export Administration (BXA). BXA regulates
exports of critical goods and technologies that could be used to damage national interests, while
furthering the growth of legitimate U.S. exports to maintain our economic leadership. The funding
increases in 2003 strengthen BXA activities that inhibit the global spread of dual-use goods and
technologies that could be used in biological, chemical, and nuclear weapons of mass destruction. To
reduce the risk of proliferation, beginning in 2003, BXA will post attaches in China, Egypt, India,
Russia, Singapore, and the United Arab Emirates to reduce risks of trans-shipments through these
countries to terrorist states. Also, BXA’s Critical Infrastructure Assurance Office will work with
the Office of Homeland Security to ensure that information technology systems and procedures are
in place to provide broad access to relevant homeland security information for appropriate federal,
state, and local government agencies.
Homeland security investments will also be made in the National Oceanic and Atmospheric
Administration (NOAA) and central departmental management offices. Specifically, the 2003
Budget addresses vulnerabilities in weather and satellite systems to ensure NOAA is able to
maintain critical operations in crisis situations. The 2003 Budget also will strengthen physical and
information technology security at the Department.

Status Report on Select Programs
The Administration proposes a variety of measures to address Commerce Department
performance issues, including increasing funding where needed for core activities, reducing funds
for low-priority or unnecessary programs, and instituting management reforms where necessary.
Below are summary ratings and explanations for major Commerce bureaus and programs. The
summary ratings were developed by the Office of Management and Budget based upon Commerce
performance data and evaluations conducted by the General Accounting Office (GAO), Commerce’s
Inspector General, and groups such as the National Academy of Sciences.

Program

Assessment

Explanation

Census Bureau

Effective

Census 2000 was the most accurate decennial census ever, with a
net undercount of 0.06 percent. Controlling costs per household while
maintaining accuracy is a major challenge for 2010 Census planning.

International Trade
Administration (ITA)

Unknown

Although ITA trade-promotion services are generally positively
regarded, assisted firms currently pay little of the program’s cost.
Commerce will study fee options in 2002 to develop an appropriate
cost-recovery framework.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

Explanation

National Institute
of Standards and
Technology (NIST)

Effective

NIST Laboratories are world leaders in high-tech and basic industrial
standards.

Advanced
Technology Program
(ATP)

Unknown

ATP has been associated with some technical successes, but in some
of those cases federal support was probably not necessary. Others
clearly represented unwarranted corporate subsidies. Proposed
reforms will enable the program to better address current conditions
and needs.

National Weather
Service (NWS)

Effective

NWS continues to improve forecasts for extreme weather by
modernizing systems and has reduced the number of its offices
nationwide from over 250 prior to 1990 to 122 in 2002.

National Marine
Fisheries Service
(NMFS)

Unknown

Less than 40 percent of major ocean fish stocks are known to be
at sustainable levels, 20 percent of stocks are over fished, and the
remaining 42 percent of stocks have unknown population levels.
Legislative reforms and reduced congressional earmarking of funds
will help NMFS maintain sound fisheries.

Congressional Earmarks

Congressional earmarks for non-competitively awarded projects divert resources
that could more effectively meet the mission
NOAA’s oceans and fisheries programs in the
of the Department. For example, projects
2002 appropriations include over $13 million for
steering money to particular universities
environmental remediation activities in an inland
or localities sometimes draw funds from
state far from the ocean. Since 2000, NOAA
programs with far different purposes.
has been required to provide over $45 million for
Moreover, the dollar value of earmarks
these activities. The program may have merit, but
has been increasing in recent years.
In
it harms NOAA’s performance in managing the
2000, there were about 100 unrequested
nation’s marine fisheries and oceans by cutting
projects costing about $170 million in the
resources available for those purposes.
Department of Commerce. The Department’s
NIST’s construction account has been repeatedly
2002 appropriations include over $225
earmarked to support projects unrelated to NIST
million for 96 unrequested projects. NOAA
activities.
has over two-thirds of the Department’s
congressionally
directed
earmarks—74
projects costing over $160 million. The 2003
Budget cuts many of these unrequested projects and redirects funds to activities that can most
effectively meet the Department’s three strategic goals.
Earmarks and Unrequested Projects

DEPARTMENT OF COMMERCE

Congressional Earmarks
Projects

Commerce Total .......................................
NOAA ........................................................
NIST ..........................................................

100
92
4

2000
BA in millions
of dollars
170
143
14

Projects

96
74
12

2002
BA in millions
of dollars
228
161
48

Besides reducing earmarks, the 2003 Budget proposes to rescind $96 million provided for loan
guarantees to bankrupt and other financially troubled steel firms. This funding was provided in 1999,
and was intended to support federal guarantees of up to 85 percent on loans by private lenders. While
several applications for loan guarantees have been approved, only one of these loans has actually
closed since the program was established. Virtually all funding was rescinded last year from a related
program intended to benefit the oil and gas industry.

Strengthening Economic Information and Framework
The President’s Budget proposes to strengthen core Commerce activities in areas such as
statistical programs and international trade compliance.
The Bureau of Economic Analysis (BEA) supplies the nation’s key economic statistics, including
gross domestic product (GDP), which are crucial ingredients for business and government decision
making. An additional $10 million in 2003 will enable BEA to improve the statistical processing
systems for its economic data, accelerate the release of major economic estimates, and incorporate
new international economic data classification systems. Although the U.S. GDP statistics are widely
regarded as among the best in the world, they require continued improvements to keep pace with the
nation’s rapidly changing economy.
This budget proposes a $223 million
increase for the Bureau of the Census
for a variety of activities, including the
Cost per home in 2001 dollars
Net undercount percentage
2.0
60
Department’s efforts to reengineer the 2010
$56
1.6%
Census. As a major part of this work, Census
50
will launch the American Community Survey,
1.5
which will provide detailed demographic data
40
on an annual—rather than decennial—basis.
$32
30
1.0
During 2003, Census also will be collecting
data for two other cyclical censuses, the
20
Economic Census and the Census of
0.5
Governments. The Economic Census paints
10
0.06%
a detailed portrait of the national and local
0
0
economies every five years, with information
1990
2000
Source: Department of Commerce.
on the nearly 23 million businesses and
establishments in the nation. Funding in 2003
also supports dissemination of Census 2000 data, including detailed results from the census long
form. The challenge for the Department will be to retain a highly accurate decennial census in
2010, while avoiding per capita real cost growth.

Census Cost Per Home
vs. Net Undercount

THE BUDGET FOR FISCAL YEAR 2003

This budget also proposes $177 million
for the first of two new buildings for the
Census Bureau in Suitland, Maryland.
Census’s current facilities are among the
worst in the inventory of the General
Services Administration and have decayed
beyond the point where renovation would be
cost-effective.

Census 2000 was the most accurate census
in history. The net undercount, or how many
people the Census Bureau missed minus the
number of people erroneously included, dropped
to the lowest level ever. However, Census 2000
was also the most expensive census in history,
with average costs of $56 per housing unit. In
planning for the 2010 Census, the Administration
hopes to continue to improve accuracy, while
avoiding cost growth with early planning and
implementation of the American Community
Survey, which will replace the decennial long
form.

The International Trade Administration
(ITA) is responsible for assisting the growth
of export businesses, enforcing U.S. trade
laws and agreements, and improving access to
overseas markets by identifying and pressing
for the removal of trade barriers. The 2003
Budget provides increased funding for ITA’s
trade compliance activities. In addition, ITA
will be undertaking a study of fee options in 2002 to develop an appropriate model for cost recovery
from firms that receive trade promotion services.
The budget proposes a small reduction
in funding for the Economic Development
Administration (EDA) to bring resources
in line with congressionally authorized
levels and program needs. EDA is supposed
NAFTA
to help communities across the nation
35%
NAFTA
$59
billion
create economic opportunity by promoting
24%
$26 billion
a favorable business environment to attract
private capital investments and high-wage
Rest of the world
Rest of the world
jobs,
principally through infrastructure
76%
65%
$80 billion
investments
and capacity building.
While
$110 billion
the 2003 Budget streamlines EDA programs,
it increases Trade Adjustment Assistance to
1992
1999
firms, which provides technical assistance
Source: Department of Commerce. Small businesses defined as companies with less than 500
employees. All data are in constant 1999 dollars.
to U.S. manufacturers injured by increased
imports. EDA is reviewing its performance
measures to ensure that it can evaluate its effectiveness in creating sustainable employment in
distressed communities.

Small Business Exports to
Canada and Mexico Have
Grown Sharply

DEPARTMENT OF COMMERCE

The Minority Business Development
Agency (MBDA) works to facilitate access
to resources for the minority business
community in order to help grow minority
businesses. MBDA is seeking to transform
from an administrative agency to an
entrepreneurial organization. The budget
proposes that MBDA work more closely
with the Small Business Administration
(SBA), to take advantage of SBA’s very
large network of offices (including over
1,000 Small Business Development Centers)
and extensive programs for minority and
disadvantaged firms.
This strengthened
cooperation and other MBDA efforts are
intended to help the agency meet its mission
to deliver high-quality services nationwide.
In 2000, MBDA exceeded its target for the
dollar value of contracts received by assisted
minority businesses, but fell short of its
targets for the number and dollar value of
loans received by assisted businesses.

ITA’s export-promotion and trade-negotiation
activities help U.S. companies take advantage
of markets around the world. For example,
ITA’s export counselors, in offices throughout
the United States and in Canada and Mexico,
provide U.S. businesses with market information
and one-on-one counseling on selling in the
Canadian and Mexican markets. The Trade
Information Center— www.trade.gov/td/tic —has
extensive information on the North American Free
Trade Agreement (NAFTA), including how to take
advantage of NAFTA tariff preferences and meet
NAFTA rules of origin. NAFTA, and open trade in
general, have had real benefits for the average
U.S. family. NAFTA and the Uruguay Round trade
agreements have resulted in higher incomes and
lower prices for goods—benefits estimated to be
$1,300 to $2,000 a year for a family of four.

Providing Infrastructure for Technological Innovation
The 2003 Budget strengthens key Commerce programs that provide infrastructure to enable U.S.
businesses to maintain their technological edge in world markets, while reducing two programs that
have provided subsidies in the past.

A NIST researcher, Eric A. Cornell, shared the
2001 Nobel Prize in Physics for creating an
entirely new state of matter called Bose-Einstein
condensate (BEC). The accompanying picture
depicts the range of speeds and directions of atoms
being cooled. As the temperature drops, the peak
grows representing all the atoms nearly standing
still in space, at a temperature only billionths of
a degree above absolute zero. BECs, the coldest
substance known to man, will lead to a greater
understanding of atomic behavior. The discovery
of the BEC established a new branch of atomic
physics. Dr. Cornell is the second NIST Nobel Prize
recipient; William Phillips, a NIST Fellow, shared
the 1997 Nobel Prize in Physics.
A new state of matter created by a university/NIST
partnership.

THE BUDGET FOR FISCAL YEAR 2003

The budget provides increased funding for the laboratories of the National Institute of Standards
and Technology (NIST), which works with industry to develop and promote measurement standards
that support technological innovation. NIST laboratories specialize in electronics, manufacturing
engineering, chemical science, physics, materials science, building and fire research, and information
technology. The 2003 Budget provides $50 million to make the Advanced Measurement Laboratory,
a new facility designed to meet state-of-the-art research requirements, fully operational. The budget
also provides $17 million for NIST’s Boulder, Colorado facilities.
Consistent with the Administration’s emphasis on shifting resources
to reflect changing needs, the 2003
Budget also proposes to significantly
reduce federal funding for the
Manufacturing Extension Partnership
(MEP). MEP’s original legislative
design called for a phase-out of federal
monies to each center after six years of
funding, with the goal of making each
center self-sufficient. The 2003 Budget
restores the program’s original design;
most MEP centers are now far more
than six years old.
MEP was designed to provide
information and consulting services
to help businesses adopt more
advanced manufacturing technologies
and business practices.
To the
extent that evaluations demonstrate
that MEP-assisted firms are more
productive and competitive, firms
should be able to pay for the services
that help increase their profits.

Private Capital and the Advanced Technology
Program

The Advanced Technology Program (ATP) was created
in 1988 to bolster high-technology research and
development. Since the program’s founding, the
environment in which ATP operates has changed
dramatically. Concerns about the competitiveness of the
U.S. economy have diminished, while annual venture
capital investments have skyrocketed from approximately
$6 billion in 1995 to $104 billion in 2000, according to
one estimate. Even with the decline in 2001 activity,
the overall growth in venture capital suggests sufficient
private funding is available for high-technology projects.
While ATP has focused on supporting activities of small
firms that have more difficulty accessing capital, some of
the nation’s largest corporations have also benefited from
the program. For example, ATP innovations reportedly
helped large automotive firms realize savings on the
order of a hundred million dollars annually. In an effort
to minimize unwarranted subsidies, the 2003 Budget
recommends reducing ATP funding and instituting
several reforms, including requiring firms to reimburse
the government for up to five times its investment in
successful projects.

The budget also reduces funding
for the Advanced Technology Program
(ATP) from $185 million in 2002 to
$108 million in 2003. In 2003, new
ATP awards will be reduced to $35 million. The rationale for ATP, which makes research and
development grants to commercial firms, has declined since it was first enacted in part to respond
to a belief that U.S. firms were being out-competed by foreign, and especially Japanese, firms. ATP
also will be modified in 2003 to address criticism that the program constitutes an unwarranted
corporate subsidy. Past GAO reports have criticized ATP, stating that the program was funding
projects similar to those already underway in the private sector. In addition, ATP monies have
gone to some of the nation’s largest corporations. The proposed changes will expand university
participation, limit large-firm involvement, and include a cost-recoupment mechanism to protect
American taxpayers.

DEPARTMENT OF COMMERCE

The budget strengthens the spectrum management capabilities of the National
Telecommunications and Information Administration by providing $3 million to begin the process of
spectrum management reform and to upgrade its radio quiet zone test facility in Colorado. In
addition, the Administration will propose legislation to streamline the current process for
reimbursing federal agencies that must relocate from spectrum auctioned to commercial users.
However, the budget proposes to terminate the Technology Opportunities Program, which
provides grants for applications of telecommunications technologies. With the expansion of the
Internet and related technologies into all sectors of society, federal subsidies are not justified to
prove the usefulness of such technologies.
The 2003 Budget funds a 21-percent increase (+$239 million) in resources available to the U.S.
Patent and Trademark Office (USPTO) to address the agency’s growing workload in the area of
intellectual property. USPTO issues patents and registers trademarks. It also works to promote
the protection of U.S. intellectual property rights around the world through international treaties.
With the passage of the American Inventors Protection Act of 1999, USPTO was designated as a
“performance-based-organization,” which provides the agency additional management flexibilities
while ensuring that senior managers’ tenure and compensation are at risk based upon their achieving
organizational performance targets.
After a few years of relatively flat patent
and trademark production, USPTO expects
to meet the following increased performance
targets with its 2003 funding:

• Complete
•
•

(i.e., issue or deny) 286,000
patents, a 20-percent increase over
2002;
Register
138,600
trademarks,
a
13-percent increase over 2002; and
Reduce total trademark pendency to
13.5 months, a 13-percent improvement.

PTO Funding vs. Performance
Thousands of applications processed

Millions of dollars

350

1,400

300

1,200

250

1,000

200

800

150

600
Program Funding ($)

100

Patent Applications

400

Trademark Applications

200

0
2000

0
2001

2002

2003

Source: Department of Commerce.

Observing and Managing the Nation’s Oceanic and Atmospheric Environment
The budget provides an additional $93 million for the National Oceanic and Atmospheric
Administration (NOAA) to improve forecasts of severe storms and the satellite infrastructure
needed to support weather and climate prediction and research. Funding is also provided to improve
fisheries management. However, many earmarks and funds that do not support NOAA’s core
stewardship missions have been redirected. In addition, funding will support critical infrastructure
and homeland security activities within NOAA.
The accuracy of NOAA’s National Hurricane Center hurricane “track” forecasts has improved by
about 50 percent over the past 30 years. Errors for three-day track forecasts decreased on average
from over 400 nautical miles in 1970 to about 200 miles today. In 2003, resources will be directed
to advanced observational systems and modeling to further improve hurricane intensity and track

THE BUDGET FOR FISCAL YEAR 2003

forecasts. NOAA expects these advances to provide more timely evacuations and to increase the lead
time for hurricane warnings from 24 hours in 2002 to 28 hours in 2005.
Similarly, following modernization investments, tornado warning lead times have almost
doubled—from six minutes in 1993 to more than 10 minutes today. The National Weather Service
aims to further increase lead times to 15 minutes by 2005.

The National Hurricane Center achieved its most recent
critical success when it correctly forecast the brunt
of dangerous Hurricane Michelle would just miss the
Florida peninsula. Accurate forecasts of hurricane
tracks translate to smaller areas required to prepare for
evacuation, saving approximately $1 million per mile for
coastal residents, businesses, and local governments.

Hurricane Michelle skirting the southern coast of
Florida.

As part of the Administration’s energy policy initiative for 2003, NOAA will implement a $6 million
pilot program in the southeastern United States. NOAA will provide more accurate temperature and
precipitation forecasts and additional river forecast products to help the energy industry improve
electrical load forecasting and hydropower facility management. Based on industry estimates, this
investment will result in savings of $10 million to $30 million annually in the pilot region after the
second year of the demonstration. Expanding the pilot nationwide could generate savings of over $1
billion per year.
NOAA has a lead role in climate measurement and prediction, and has conducted substantial
work in climate change and atmospheric modeling. In 2003, the Administration will institute a new
Climate Change Research Initiative, a multi-agency effort with a strong focus on outcomes addressing
major gaps in our scientific understanding identified in the June 2001 National Academy of Sciences
report, “Climate Change Science: An Analysis of Some Key Questions.” NOAA will receive an $18
million increase to advance climate-modeling capabilities, to develop a climate observing system, and
to improve understanding of aerosols, land and oceanic carbon sinks, and regional impacts of climate
change.
The Administration also proposes to transfer NOAA’s Sea Grant program to the National
Science Foundation (NSF) in 2003. The Sea Grant program would be administered as a NOAA/NSF
partnership. The transfer is part of a wider Administration effort to promote competitive funding
of scientific research, and to capitalize on the demonstrated excellence of the NSF and its program
management. NOAA’s participation as a partner in this program will ensure that research
objectives continue to reflect the agency’s marine resource management priorities.

DEPARTMENT OF COMMERCE

The Department’s Inspector General
and GAO have identified NOAA’s National
Marine Fisheries Service (NMFS) as an area
of management concern. While NMFS has
had significant budget increases over the
Insufficient Data
past few years—increasing by almost 40
42%
percent since 2000, and over 100 percent since
1995—fisheries’ management and stock levels
Over fished
have not seen corresponding improvements.
20%
Currently, about 20 percent of major fisheries
Sustainable
stocks are over fished, and stock levels are
38%
unknown for another 42 percent. While over 80
percent of the over-fished stocks are currently
under rebuilding plans, the challenges are
Source: Department of Commerce.
significant as rebuilding long-lived stocks
can take decades. Over the last few years,
fisheries collapses have occurred in the western Alaska salmon fishery, the West Coast groundfish
fishery, and the Gulf of Maine groundfish fishery. Such problems have led to increases in payments
for fisheries disasters, fishing moratoria, and lawsuits by both environmentalists and industry.

Status of 287 Major Fisheries
Stocks in 2000

The 2003 Budget addresses two causes of this problem. First, the budget redirects over $160
million in congressional earmarks and unrequested funding, much of which undercuts NOAA’s
mission. Funds are also provided for a new fishery research vessel that will be used to upgrade
fishery assessments—an area identified by GAO, the National Academy of Sciences, and others as
needing enhancement. Second, the budget proposes that the reauthorization of Magnuson-Stevens
Fisheries Conservation and Management Act include authority to establish transferable fishing
quota systems, under appropriate conditions, within the regional fisheries. Money alone will not
solve the management problems in U.S. fisheries. Providing market-based incentives to fishers,
redirecting funds to meet the highest priority fishery management needs, and enhancing science
and stock assessments tied to management decisions will.
With the management changes and funding proposed in the President’s Budget, NOAA expects to
be able to reduce the number of over-fished major fisheries by one in 2003 and by 10 in 2007. A greater
impact will occur in the number of sustainable fisheries, as stock levels improve and unknown stocks
are evaluated. Known sustainable stocks should increase by seven percentage points (19 additional
fishery stocks) in 2003.

Strengthening Management
Commerce’s leadership is making progress on management challenges. In particular, the status
of competitive sourcing and financial management is expected to improve over the next two years as
the Department’s plans in these areas are implemented.

THE BUDGET FOR FISCAL YEAR 2003

Initiative

2001 Status

Human Capital —Excess organizational layers remain in several bureaus, and existing
personnel flexibilities are not being fully utilized. Also, bureaus need to redirect staff
from supervisory and overhead positions to line functions. NOAA will establish a task
force to review its central-office administrative activities so that there is no unwarranted
duplication of activities, such as budgeting at line-office, bureau, and departmental
levels. EDA also plans to engage in workforce restructuring. The International
Trade Administration has taken useful steps to streamline its organization and office
structure, and reduce excessive supervisory positions in 2001.

•

Competitive Sourcing —Commerce has not yet completed significant public-private
or direct conversion competitions for positions listed as performing commercial
activities, such as data entry clerks, personnel office workers, information technology
specialists, and publications clerks. The Department has developed a strong, approved
competition plan to complete public-private or direct conversion competitions for five
percent of its commercial inventory in 2002 and an additional 10 percent in 2003,
which when implemented will meet the Administration’s two-year 15-percent goal.

•

Improved Financial Management —Commerce currently fails to fully meet federal
financial management systems requirements. However, the Department’s integrated
system is expected to be completely deployed by October 2003. Commerce has had
unqualified audit opinions for two years straight, a major improvement over the past.
E-Government —Commerce submitted sound justifications and plans for nearly
all major systems. Commerce bureaus are using the Internet to serve businesses
interested in international trade and minority contracting opportunities. Census uses
E-Government for its economic surveys of firms, and will use it more for the 2010
Census.
Budget/Performance Integration —Commerce performance measures in several
areas are under review to ensure they reflect plans and resource allocations. Budget
justifications are being strengthened to focus on programmatic outcomes. The
Department’s Chief Financial Officer is working to ensure maximum integration of
strategic planning and budget formulation work at both the departmental and bureau
levels.

•
•
•

DEPARTMENT OF COMMERCE

Department of Commerce
(In millions of dollars)
2001
Actual
Spending:
Discretionary Budget Authority:
Departmental Management:
Salaries and Expenses .............................................................................
Emergency guaranteed loan program accounts ...................................
Office of the Inspector General ...............................................................
Subtotal, Departmental Management .........................................................
Economic Development Administration ......................................................
Bureau of the Census ....................................................................................
Economic and Statistics Administration ......................................................
International Trade Administration ...............................................................
Bureau of Export Administration ..................................................................
Minority Business Development Agency ....................................................
National Oceanic and Atmospheric Administration (NOAA):
Operations, Research and Facilities (non-add).....................................
Procurement, Acquisition and Construction (non-add) ........................
Subtotal, NOAA ..............................................................................................
Patent and Trademark Office (PTO):
Program Level ............................................................................................
Offsetting Collections ................................................................................
Subtotal, PTO .................................................................................................
Office of Technology Policy ...........................................................................
National Institute of Standards and Technology (NIST):
Scientific and Technical Research and Services ..................................
Industrial Technology Services ................................................................
Construction of Research Facilities ........................................................
Subtotal, NIST ................................................................................................
National Telecommunications and Information Administration (NTIA):
Salaries and Expenses .............................................................................
Grant programs ..........................................................................................
Subtotal, NTIA ................................................................................................

Estimate
2002
2003

41
−115
21
−53
451
458
57
352
68
28

40
−5
21
56
368
514
66
355
72
29

50
−97
24
−23
350
737
76
377
103
30

2,240
751
3,188

2,388
846
3,321

2,359
812
3,200

1,039
−1,085
−46
8

1,126
−1,346
−220
8

1,365
−1,527
−162
8

323
252
35
610

332
293
62
687

402
121
54
577

13
90
103

15
59
74

18
44
62

Subtotal, Discretionary budget authority adjusted 1 .......................................
Remove contingent adjustments ..................................................................
Total, Discretionary budget authority ...............................................................

5,224
−122
5,102

5,330
−124
5,206

5,335
−143
5,192

Emergency Response Fund, Budgetary resources .......................................

—

Total, Mandatory outlays ....................................................................................

−69

115

THE BUDGET FOR FISCAL YEAR 2003

Department of Commerce—Continued
(In millions of dollars)
2001
Actual

Estimate
2002
2003

Credit activity:
Direct Loan Disbursements:
Fisheries finance direct loan financing account .........................................
Total, Direct loan disbursements ......................................................................

24
24

74
74

Guaranteed Loans:
Emergency oil and gas guaranteed loan financing account ....................
Emergency steel guaranteed loan financing account ...............................
Total, Guaranteed loans .....................................................................................

3
110
113

2
236
238

—
—
—

Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more
information, see Chapter 14, "Preview Report," in Analytical Perspectives.

DEPARTMENT OF DEFENSE

The President’s Proposal:

• Wages war on terrorism—terrorism both at home and abroad;
• Transforms American armed forces for the future as part of a comprehensive
long-term effort to adapt the U.S. military to new security challenges;
• Assures military readiness by keeping our “first to fight” forces trained and
equipped to adapt to emerging threats;
• Enhances the quality of life of military personnel and their families by improving
pay, living and working conditions, and health care; and
• Commits to streamlining the Department, supporting war fighting, modernizing
the Department’s approach to business and financial information, and applying
private sector standards to infrastructure.

Department of Defense

The primary mission of the Department
of Defense (DoD) is to defend the United
States of America and advance its interests
around the globe. In peacetime, DoD trains
and equips military forces needed to deter
aggression while protecting U.S. interests
and promoting U.S. security objectives. Now
that we are at war, DoD’s goal is to defeat the
terrorists and their supporters who threaten
our freedom. DoD is the largest federal agency
and the largest corporate entity of its type in
the world.

Donald H. Rumsfeld, Secretary

www.defenselink.mil

703–697–5737

Number of Employees : 2.3 million Military
(Active, Reserve, and Guard) and 667,750
Civilian
2002 Spending : $330.6 billion
Organization : Four Armed Services (Army,
Navy, Marine Corps, and Air Force); 15 Defense
Agencies; nine Unified Combatant Commands;
and over 30 million acres of bases/facilities
worldwide.

DEPARTMENT OF DEFENSE

Overview
New Challenges in the National Security Environment
Shortly after his inauguration, President Bush called
for a review of all U.S. military capabilities setting the
goal of how best to achieve the necessary transformation
to meet the new challenges of the 21st Century. Over
the past year, the Secretary of Defense has led efforts to
transform the way U.S. military forces defend the country
while also addressing long-standing management problems
at DoD. The terrorist attacks on the United States on
September 11, 2001, underscored the urgency of Secretary
Rumsfeld’s effort. The new security environment requires a
military force that is balanced to counter both conventional
and unconventional threats and is armed with strong
intelligence gathering and analysis capabilities. Even so,
intelligence gaps will persist, so innovation must be factored
into our defense planning and response.

A Tomahawk Cruise missile is launched from
a ship.

The need for military transformation was clear before the conflict in Afghanistan and before September 11 th.
What’s different today is our sense of urgency—the need to build this future force while fighting a present
war. It’s like overhauling an engine while you’re going at 80 miles an hour. Yet, we have no other choice.
President George W. Bush
December 11, 2001

The future, both near- and long-term, presents numerous challenges and great opportunity.
When President Bush took office, he inherited a defense program that needed to be strengthened.
As a percentage of the nation’s gross domestic product, defense expenditures had shrunk to 2.8
percent. Inadequate funding strained both equipment and people. Recognizing these deficiencies,
President Bush provided significant increased resources for defense in 2002. Much remains to be
done. In a post-Cold War world, where freedom and democracy remain imperiled, this budget lays
the groundwork for a sustained, long-term investment in the nation’s security. The United States
must strengthen its defense posture to protect the nation’s interests and to assure its lead role in
global affairs. A war on terrorism has begun, and while there has been success in achieving specific
military objectives, the shape and dimension of the subsequent phases of the campaign will remain
a work in progress for some time to come.

THE BUDGET FOR FISCAL YEAR 2003

The President’s 2003 Budget for DoD and the intelligence community reflects the
Administration’s strong commitment to winning the war on terrorism, sustaining current military
readiness, transforming the way the nation defends itself, and enhancing American intelligence
capabilities. To address these needs the President’s Budget proposes $369 billion in 2003 for DoD
and an additional $10 billion, if needed, to fight the war on terrorism.
Winning the War at Home—Homeland
Security.
The growing importance of
Defense Against Ballistic Missiles
homeland security raises a host of challenges
Successful flight tests over the past year
in the post-September 11th environment.
represent a step forward on the road to deploying
These issues include policy and resource
effective defenses to protect the American
allocation decisions to improve homeland
people, its friends, allies, and troops abroad.
security.
More than ever, coordination
DoD plans to pursue more aggressive exploration
among defense and non-defense agencies
and realistic testing of key technologies to
will be critical to success.
DoD plays
counter ballistic missiles in all phases of their
an important role in homeland security,
flight. The missile defense program is designed
providing assistance to law enforcement at
so that needed capabilities can be deployed as
the state and federal level when authorized
technologies are proven ready.
by law, enhancing airport and border
security, sharing intelligence information,
and marshaling resources to respond to new
attacks. Hand-in-glove with the domestic war on terrorism, Air National Guard, Air Force Reserve,
and active Air Force aircraft serving in Operation Noble Eagle began providing combat air patrols
over major U.S. cities starting on September 11th. Shortly thereafter, the National Guard helped
provide security at the nation’s airports. Similarly, Navy Reserve and Coast Guard units are helping
to protect our waterways and harbors, and Army National Guard troops will provide assistance to
Customs Service and Immigration and Naturalization Service personnel on our northern border.
Waging the War on Terrorism—Winning the War Abroad. The U.S. military responded
rapidly to the terrorist attacks, initiating major combat operations 7,000 miles from the United
States in less than one month. By November 2001, the Air Force and Navy had flown 40,000 hours
in support of Operation Enduring Freedom. The Navy has had as many as four aircraft carrier battle
groups in the region supporting flight operations and special operations forces. Almost 400 fighter,
tanker, and airlift aircraft and more than 50,000 troops have recently been engaged in this mission.

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The accompanying table shows some selected DoD programs and their
effectiveness.

DEPARTMENT OF DEFENSE

Program

Assessment

Explanation

Military Readiness

Effective

The speed of American deployment in the war on terrorism has
demonstrated improved readiness. The budget sustains this gain and
builds on it by funding improvements in training facilities.

Military
Compensation

Effective

Recent increases in pay have helped improve the recruitment and
retention of top-caliber men and women for our military.

Family Housing

Army/Navy:
Effective

DoD has started to rely on private sector expertise to improve the
quality of housing for military families − a Presidential initiative. Also,
the Secretary of Defense has established a goal to eliminate DoD’s
inventory of 159,000 inadequate housing units for military families
by 2007. The Army and Navy plan to achieve the 2007 goal; the Air
Force will not achieve the goal until 2010.

Air Force:
Ineffective

Cooperative Threat
Reduction

Moderately
Effective

Since it began in 1993, the Cooperative Threat Reduction program has
funded the deactivation of 5,336 nuclear warheads, the destruction
of 422 intercontinental ballistic missiles in the former Soviet Union,
and helped secure vast quantities of material that could be used in a
weapon of mass destruction. Taking such steps dramatically reduces
the likelihood of terrorists obtaining the means to do harm to the
United States and its allies. However, the program has been slow to
spend funds provided in prior years.

Science and
Technology (S&T)

Moderately
effective

DoD is working aggressively to develop more effective technologies.
Projects mostly performed by the private sector or academia
are generally handled well. However, each military service and
defense agency generally determines its own S&T plan with little
Department-wide coordination. To reduce potential duplication of
efforts, the Under Secretary for Acquisition Technology and Logistics
should develop a better integrated and coordinated funding plan for
these efforts.

Infrastructure

Ineffective

The Department maintains a large inventory of old buildings that
need to be replaced. Right now, DoD is on a path to replace old
buildings approximately once every 120 years. DoD had planned to
accelerate the pace at which it replaced facilities, but allocated funds
to other, more pressing needs. Another round of base realignment
and closure, approved by Congress for 2005, is essential to achieving
faster replacement and improvement of unsatisfactory DoD facilities.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

Explanation

Weapons Systems
Cost Control

Ineffective

While DoD develops and builds the most capable weapons systems
in the world, these programs continue to exceed cost and schedule
targets. Between 2000 and 2003, cost growth for major weapons
rose by an estimated 15 percent on average. Part of that increase is
due to more realistic cost estimating. DoD has begun to establish
initiatives to enhance its ability to monitor and to control cost growth
and schedule delays.

Chemical
Demilitarization

Ineffective

The Army’s program to destroy the U.S. stockpile of chemical weapons
is behind schedule. Costs have increased over 60 percent, from $15
billion to $24 billion. These delays are the result of various difficulties,
including unrealistic schedules, site safety and environmental
concerns, and poor planning.

DoD-VA
Coordination

Ineffective

The Departments have historically lacked genuine commitment to
coordinate systems. Many areas for integration exist. For example,
VA and DoD could better serve mutual constituents by developing an
integrated enrollment system. There has, however, been progress in
some areas. VA and DoD have begun discussions on how to better
coordinate and share patient medical information. For significant
and rapid progress to be made in this area, both VA and DoD must
focus their efforts on developing common business processes that are
supported by fully integrated information technology standards and
architecture.

Congressional Earmarks
Congressional earmarks add funding for programs that are not requested by the Defense
Department, diverting funds from higher priority and more effective programs. The 2002 Defense
and Military Construction Appropriations Acts earmarked funds for 963 DoD projects totaling
$5.4 billion. The DoD budget process thoroughly reviews all programs to determine the optimal
cost-effective mix of programs for national defense. Earmarking disrupts this balance of programs
and crowds out other important projects.
For example, the Congress has added funds for aircraft the Air Force does not require and
thereby limits resources for war fighting needs. In addition, funding has been directed for military
construction projects that the services do not want to build. Some earmarks have little relationship
to an agency’s mission. For example, the 2002 Defense Appropriations Act included over $600
million for a variety of unrequested medical research projects. These projects include research on
breast cancer, ovarian cancer, prostate cancer, diabetes, and osteoporosis. While research on these
diseases is very important, it is neither the mission nor the core competency of the U.S. military.
Rather, these functions can be carried out and coordinated more effectively by other medical
research agencies, such as the National Institutes of Health.

DEPARTMENT OF DEFENSE

Intelligence
The intelligence community is adapting to the changed environment of the 21st Century.
Advances in encryption, denial and deception techniques, and information technology create
enormous challenges for intelligence gathering and analysis. Policymakers need timely, accurate
and insightful information on the capabilities and intentions of foreign powers. The armed forces
also need real-time battlefield data furnished with a significant level of detail. The intelligence
community meets the full range of U.S. intelligence needs from the national level to the tactical
level.
The 2003 Budget strongly supports these efforts and makes a substantially increased investment
in our intelligence capabilities. This budget also makes major investments to transform the
intelligence community to meet the challenges of the 21st Century.

Transforming Our Armed Forces

This revolution in our military is only beginning, and it promises to change the face of battle.
Afghanistan has been a proving ground for this new approach. These past two months have
shown that an innovative doctrine and high-tech weaponry can shape and then dominate an
unconventional conflict. The brave men and women of our military are rewriting the rules of war with
new technologies and old values like courage and honor … This combination—real-time intelligence,
local allied forces, special forces, and precision air power—has really never been used before. The
conflict in Afghanistan has taught us more about the future of our military than a decade of blue
ribbon panels and think-tank symposiums.
President George W. Bush
December 11, 2001

One of the President’s key defense priorities is to transform America’s armed forces to perform
their missions more effectively and to meet emerging security challenges. The Defense Department
began the process of transformation with its 2001 Quadrennial Defense Review. The review shifted
to a “capabilities-based” defense strategy that focuses on capabilities of potential adversaries and
the tools that America’s armed forces will need to deter and defeat adversaries employing those
capabilities. Both the terrorist attacks of September 11, 2001, and the subsequent conduct of
Operation Enduring Freedom in Afghanistan underscore the urgency of military transformation.
They illustrate the need for America’s military to prepare for different types of conflict and execute
missions with new tactics and new technologies. The growing use of unmanned aerial vehicles, the
effective utilization of real-time intelligence, and the coordination among special operations and
allied forces all demonstrate the cutting edge of what military transformation can achieve and offer
a glimpse of a future transformed joint force. To shape this effort, DoD has recently established an
Office of Force Transformation to coordinate all of the military service transformation efforts and
advise the Secretary of Defense.

THE BUDGET FOR FISCAL YEAR 2003

In 2003, the Department will invest
over
$9 billion in science and technology.
New
efforts
include:
easy-to-wear
chemical/biological
protection
masks,
chemical, biological, and nuclear weapons
detectors, bunker and cave-defeating weapons,
intelligence systems to detect assembly of
weapons of mass destruction, and unmanned
air, land, and sea surveillance and combat
vehicles. In addition, DoD will invest $7.8
billion in ballistic missile defense with the
objective of developing the capability to defend
the forces and territories of the United States,
its allies, and friends against ballistic missile
threats.

A Predator unmanned aerial vehicle in flight and an aircraft
carrier at sea.

Besides continuing the development of highly capable fighter aircraft such as the Joint Strike
Fighter and new ships, the Defense Department’s 2003 budget invests in technologies that will
transform the military and fundamentally change the American way of warfare. These systems
include:

• four Trident ballistic missile submarines converted to submarines equipped with long-range
•
•
•
•
•
•

cruise missiles which will dramatically increase the range and precision of strikes and our
capability to insert Special Forces;
unmanned aerial vehicles such as those used in the war against terrorism, which provide
greater, longer-endurance intelligence and combat capabilities directly to the war-fighter at
far less cost and risk to military personnel than manned aircraft;
unmanned underwater vehicles that can greatly extend the range and capabilities of
submarines and surface ships at less cost and without risk to sailors;
the Army’s Land Warrior technology, which digitizes the communications and intelligence
capabilities of the individual infantry soldier to enhance situational awareness and combat
capability;
small precision bombs, which increase the quantity of targets that each individual aircraft can
strike;
bunker-defeating munitions to target the growing threats of deeply hidden weapons of mass
destruction; and
space-based radar and space control systems, which enhance our surveillance capabilities and
our capabilities to collect and utilize information from space.

Other emerging areas of defense investment focus on America’s ability to conduct information and
space operations.

DEPARTMENT OF DEFENSE

Eliminating Poor Performers: Navy Area Theater Ballistic Missile Defense

Delays in the development schedule and large projected cost increases caused DoD to cancel a
multi-billion dollar Navy missile defense program. The program, known as Navy Area Theater
Ballistic Missile Defense, was designed to give Navy cruisers and destroyers the ability to shoot
down short- and medium-range ballistic missiles. DoD previously thought that the Navy’s system
would cost about $6.2 billion to develop and deploy. However, in December 2001, DoD announced
that "unit costs" would grow by more than 50 percent. The Administration still plans to pursue
sea-based terminal missile defenses, but this Navy program was too costly to continue.

Assuring the Readiness of Our Armed Forces
The cuts to procurement spending and
investment in the immediate years following
the end of the Cold War, combined with an
increase in overseas contingency operations,
put a strain on both equipment and people.
Frequent deployments meant strains on
military readiness because of missed training
and strains on families because of more
frequent separations from loved ones. The
President has pledged to solve this problem.
Despite these strains, the U.S. armed forces
remain the most capable in the world and
have demonstrated their readiness with their
U.S. Marines on a CH-46E Sea Knight helicopter on their way to
rapid response to the events of last September.
Afghanistan.
Soldiers, sailors, air force crews, and marines
have routed enemy forces in Afghanistan,
while also keeping the peace in the Balkans, patrolling the no-fly zones of Iraq and maintaining a
strong forward presence around the globe.
Readiness relies upon three main factors. First, we must recruit and retain personnel with key
skills and talents. Second, we must provide high quality training to give troops the expertise and
skill to fight and win our nation’s wars. Third, we must maintain equipment and facilities that our
forces use to accomplish their missions.
These three factors are a high priority in this budget.

• First,
•

a 4.1 percent across-the-board pay increase supports the Services’ recruiting and
retention goals.
Second, the adage “you fight the way you train” remains true. This budget robustly funds
the Services’ training goals, as measured in aircraft flying hours, ship steaming days, and
ground vehicle miles. Without these crucial training and operating activities, the safety and
well being of our troops and their ability to accomplish their missions successfully will be at
risk.

THE BUDGET FOR FISCAL YEAR 2003

• Third,

this budget adds significant resources for maintaining military equipment and
the facilities where our troops work and train. DoD can not afford any further growth in
maintenance backlogs. With scarce resources, the Department has been forced to delay
needed maintenance. If equipment and real property maintenance needs are not met,
training opportunities and readiness erode, and costs rise.

As the attacks have demonstrated, U.S.
military facilities are terrorist targets.
The budget will enhance force protection
for our armed forces and the facilities
where they work and live. It also ensures
that transportation, communications, and
information systems are strong enough to
cope with terrorist attacks when they occur.
Just as important, these activities protect and
support our troops’ families.
President Bush and Secretary Rumsfeld look over the scene of
destruction at the Pentagon on September 12, 2001.

Enhancing the Quality of Life of Military Personnel and Their Families
Military quality of life is crucial to retaining
service members and their families.
The
military services have long recognized that
while they recruit the service member, they
must retain the family.
No matter how
advanced the technology or what strategy
is developed, having imaginative, highly
skilled, and motivated military and civilian
personnel is essential for America to address
the challenges of the future. To recruit and
retain these people, the Department has
increased funding and will work to enhance
a number of quality-of-life efforts, including
compensation, housing, and health care,
among other community and family work-life
support programs.

A Service Member from McGuire Air Force Base embraces a
loved one.

DEPARTMENT OF DEFENSE

Military Compensation
In 2002, the President proposed and Congress authorized the largest military pay raise in two
decades. That raise included both an across-the-board 4.6 percent increase in basic pay and the
President’s $1 billion initiative which proposed targeted raises based on rank and length of service
to help retain skilled, experienced personnel. Other benefits have recently been offered to our troops
and their families. The President signed an executive order authorizing hazardous duty pay and tax
exemptions for troops conducting operations in the Afghanistan theater. The President proposed,
and Congress authorized, significant increases in reimbursement for permanent change-of-station
costs, again putting more money into the pockets of service members. Pay and benefit levels have
never been higher, with average enlisted compensation nearing $36,500 per year. Army captains
with 10 years of experience will see their basic pay increase almost $3,000 a year to $50,788, and
their overall compensation reach the mid-$70,000 range.
Building on this record, the 2003 Budget contains another pay boost of 4.1 percent with the
option of selected targeting of larger raises to mid-grade non-commissioned officers and officers.
This continues the President’s commitment to take care of our men and women in uniform and
their families and ensures that pay continues to be competitive. This commitment is working: DoD
is meeting its goals for recruiting talented young people and retaining experienced, highly-trained
military personnel.

Housing
About 20 percent of all service members
have inadequate housing on military bases.
The definition of inadequate housing is unique
to each Service. While some houses are old
and in need of improvement, other houses
are simply inadequate to meet the needs of
today’s military family, which has changed
since on-base housing was first constructed
decades ago. The Administration is committed
to eliminating 159,000 inadequate housing
units (out of a total of 275,000) by 2007.
DoD is tackling the problem of inadequate
housing by demolishing dilapidated units,
A privatized duplex housing two military families.
renovating existing houses, and building new
homes. Increasingly, DoD relies on the private
sector, which has expertise to manage real property and can increase the quality of DoD-owned
housing at less cost and faster than the government. In 1996, the Congress gave DoD authority to
privatize DoD-owned housing. Since 1996, DoD has privatized 16,817 units, or about six percent
of the current inventory. While privatization began slowly, DoD is accelerating its efforts. Two
public-private partnership launched in 2001:

• The

Army, in partnership with private developers, initiated a $260 million family housing
privatization project at Fort Hood in Killeen, Texas, the largest Army base in the country.

THE BUDGET FOR FISCAL YEAR 2003

•

This project will construct 973 new housing units and renovate 4,939 housing units. Over
4,000 units eventually will be replaced.
The Navy, in partnership with the private real estate companies and developers, initiated a
$262 million family housing privatization project at the Naval Complex San Diego, California.
This partnership will construct 519 units and operate a total of 3,248 housing units.

By the end of 2002, DoD plans to privatize an additional 12,970 units. In 2003, DoD plans to
privatize 35,600 more housing units to eliminate inadequate housing by 2007. Currently, the Navy
and the Army are on track to eliminate inadequate housing by 2007. The Air Force does not plan to
eliminate its inventory of inadequate housing until 2010.
The Administration plans to reduce the average out-of-pocket expense of military families living
in private housing in local communities to zero by 2005. In 2003, out-of-pocket expenses will drop
to 7.5 percent from 15.0 percent in 2001. This will enable more military families to afford quality
private-sector housing located in the local communities around DoD’s installations. This initiative
improves the quality of life for our military families, and makes a contribution to the local economies
and real estate markets.

Strengthening Management
The President and Secretary of Defense have made management improvement at DoD a key
goal. DoD will transform its business processes and infrastructure to enhance capabilities and
creativity of its employees and free up resources to support war fighting and transformation of
military capabilities.

Controlling Costs of Constructing Navy Ships

The costs associated with constructing new
Navy ships have increased dramatically over the
past few years. More funding will be required to
complete construction of several types of ships.
One ship in particular, the LPD–17 amphibious
ship has experienced excessive cost increases.
In 2001, DoD estimated that to build 12 ships it
would need a total of $10.6 billion. Now DoD
believes it will require $15.1 billion to build these
same 12 ships, a 42 percent increase. DoD has
begun a number of initiatives to enhance its
ability to monitor and take action on cost growth
and schedule delays in the ship construction
program.

To support 2.3 million men and women
in uniform effectively, the Department’s
efficiency must improve.
DoD’s business
practices and financial infrastructure must be
overhauled; they are outdated and have not
kept pace with today’s business environment.
The Department is working to streamline
its organization and infrastructure, adopting
new business models to react to rapid
changes in technology, and implementing
financial management strategies to repair the
outmoded and poorly connected accounting
and auditing processes. DoD has over 600
different management systems that provide
financial information, few of which are truly
compatible.

One significant management challenge
is the Defense Health Program (DHP). DoD
supports an internal health care network, as
well as private contractors who provide health care. The core mission of DHP is to provide health
support for the full range of military deployments and to sustain the health of military personnel,
retirees, and their families. DoD is effective at maintaining a health care system supportive of

DEPARTMENT OF DEFENSE

day-to-day operations, stays ready to perform its wartime mission, and provides its beneficiaries
with the highest quality health care available.
The cost of DoD health care contracts, however, has increased over the past three years to its
current level of almost 50 percent of the health budget. Despite various risk-sharing provisions in
the current versions of the contracts, there is still a need for greater incentives in the internal system
and the private contracts to control escalating costs. High contract costs are caused by a combination
of factors including the national health care market, enhancements to the benefit package offered to
beneficiaries, effects of downsizing and closures of military health care facilities, the Department’s
inability to manage where patients are treated, and ineffective cost incentives. Additionally, DoD
has historically underestimated the funding needs of its own medical care system, which has forced
beneficiaries into the private sector at a higher cost to the Department. All of these factors resulted
in the government paying an additional $655 million in cost overruns to DoD health care contractors
in 2001, and DoD receiving over $1.3 billion in emergency supplemental appropriations in both 2000
and 2001.
DoD has made progress in better projecting its funding needs for health care contracts and
military pharmaceuticals. More work, however, is necessary to strengthen its projections for health
care growth in the future. The Department is committed to redesigning health care contracts and
administrative policies to create incentives that preserve the ability of DoD to meet its mission and
control costs effectively.
The table that follows illustrates how the entire Department fares on the President’s Management
Agenda.

Initiative

2001 Status

Human Capital —DoD has completed its civilian personnel workforce analysis that identifies:

•
•

current skill imbalances; and
potential personnel shortfalls due to the large increase in retirement-eligible employees
starting in 2003.

DoD identified difficulties with staffing critical technical personnel such as scientists, engineers,
acquisition specialists, and medical personnel—occupations that are critical now and in the
future. These difficulties are expected to worsen because of the spike in the retirement-eligible
population. DoD wants its future workforce to have better problem-solving skills and have more
advanced technical knowledge and skills. DoD needs to develop a workforce-restructuring
plan that fully addresses these challenges.

•

THE BUDGET FOR FISCAL YEAR 2003

Initiative
Competitive Sourcing —DoD’s inventory of commercial activities represents more than
half of the government-wide potential. DoD’s competitive-sourcing program has been
historically active compared to other federal agencies, but has declined in recent years.
Since the President’s Management Agenda ultimately calls for competing 50 percent of the
inventory, DoD’s role in this initiative is important to its overall success. DoD could compete
such commercial services as laundry, food, grounds-keeping, transportation, and libraries.
Dedicating soldiers to these activities detracts from DoD’s war fighting competency.

2001 Status

•

At this time, the Services and Defense Agencies are projecting actual competitions below
levels projected for 2001. DoD needs to compete 15 percent of its commercial inventory in
2003, as required by the President’s Management Agenda. DoD should work to improve the
current rate of competitions to meet the President’s goal.
Financial Management —With over 600 systems providing financial data, DoD has several
serious failings in financial management:

•
•
•

it is not substantially compliant with federal financial management standards;
it cannot provide a clean assurance statement about its internal controls; and
it has consistently received a disclaimer by its auditors on its financial statements.

The DoD Inspector General and the GAO have issued a series of reports critical of DoD’s
financial management. For example, a recent GAO report criticized DoD’s excessive use of
funds in “canceled accounts” to pay contractor bills.
Until adequate progress is made at DoD, the financial statements of the entire government will
not receive an opinion from GAO.
DoD has launched a major initiative to improve business and financial processes and systems.
The Department is working closely with OMB to develop an enterprise architecture and
systems that will support efficient operations, and provide accurate, timely, and useful financial
information. This will take a number of years, but the Department has documented a clear
commitment to improvement and is moving forward.

•

100

DEPARTMENT OF DEFENSE

Initiative

2001 Status

E-Government —For its information technology programs, DoD fails to comply fully with the
Clinger-Cohen Act, the key statute that establishes standards for federal information systems.

•

Clinger-Cohen Act— Enterprise Architecture: DoD must strengthen its capital
planning and investment control processes and integrate it with the Program Planning
and Budget System (PPBS). The current DoD Enterprise Architecture (EA), the
Global Information Grid (GIG), is an important first step to building a comprehensive
EA and data layers. There is no clear link between information technology (IT) and
performance of core mission.

•

Clinger-Cohen Act—Reporting Requirements: Clinger-Cohen and DoD regulations
require DoD to justify major IT investments. DoD has begun to implement this
requirement and complete the necessary analysis. However, DoD has failed to submit
business cases for a number of its major IT investments. In addition, many of the cases
that were submitted require improvement to meet Clinger-Cohen standards.

Budget/Performance Integration —DoD has two major systems for budget and performance
that will provide Spring 2002 reports:

•
•

Program, Planning and Budget System (PPBS)
Government Performance Results Act (GPRA).

However, these systems are not linked in any meaningful way. DoD does not completely factor
in performance information when making budget decisions and is unable to correlate its budget
request with GPRA goals and performance plans.
DoD has taken some initial steps toward integration. The 2003 Budget includes additional
performance information linked to budgetary resources. DoD is also implementing the
Administration’s plan to accrue the cost of health benefits for retirees and dependents over
65. Finally, DoD is working on a plan to implement the Administration’s proposed budget
integration legislation.

•

THE BUDGET FOR FISCAL YEAR 2003

101

Department of Defense
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Spending:
Discretionary budget authority:
Military Personnel .....................................................................
Operation and Maintenance ...................................................
Procurement .............................................................................
Research, Development, Test, and Evaluation ....................
Military Construction ................................................................
Family Housing .........................................................................
Revolving Funds/Other ............................................................
Subtotal, Discretionary budget authority adjusted 1 .................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

76,889
113,886
61,672
41,735
5,457
3,685
2,234
305,558
−2,979
302,579

81,970
126,145
61,117
48,554
6,484
4,053
2,515
330,838
−3,150
327,688

94,242
140,232
68,709
53,857
4,767
4,219
3,255
369,281
−3,302
365,979

Emergency Response Fund, Budgetary resources .................

4,284

13,168

10,000

Mandatory Outlays:
Military Personnel .....................................................................
Operation and Maintenance/Health .......................................
Revolving, Trust and Other DoD Mandatory ........................
Offsetting Receipts ...................................................................
Total, Mandatory outlays ..............................................................

—
—
581
−1,369
−788

26
—
328
−1,572
−1,218

52
−1,099
565
−903
−1,385

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

DEPARTMENT OF EDUCATION

The President’s Proposal:

• Increases Title I Grants to local educational agencies to help students in
•
•
•
•
•
•

high-poverty schools meet tough new accountability requirements for improved
performance in reading and math;
Boosts funding for Reading First to help ensure that all children can read by the
end of the third grade;
Enhances teacher recruitment and retention through Teacher Quality State Grants
and supports new teacher training initiatives to address reform in professional
development;
Reforms the process for collecting information from states on federal elementary
and secondary education programs to reduce administrative burden and improve
accountability for results;
Increases Special Education Grants to States to help states and localities meet
the special needs of students with disabilities;
Creates a new Vocational Rehabilitation incentive grant to strengthen incentives
for states to improve their performance in helping individuals with disabilities obtain
competitive employment; and
Increases research funding to support important new programs, focuses on
scientifically based research, and lays the foundation for a significant overhaul of
the office that conducts education research, statistics, and assessment activities.

The Department of Education seeks
to
ensure equal access to education and
Department of Education
promote educational excellence for all
Rod Paige, Secretary
students throughout the nation. It promotes
educational excellence and access in
www.ed.gov
800–USA–LEARN
elementary and secondary education by
Number of Employees : 4,710
providing formula and competitive grants
to states and local educational agencies in
2002 Spending : $47.6 billion
areas of national priority. Through its student
Field Offices : 10 regional and 11 field offices.
financial assistance and higher education
programs, the Department helps ensure that
postsecondary education is affordable and
attainable for all students. The Department of Education conducts research and disseminates

103

104

DEPARTMENT OF EDUCATION

information on the best educational practices, and produces statistics on the condition of education
in the United States.

Status Report on Select Programs
President Bush and I are especially concerned about the persistent gaps in achievement between poor and
minority students and their more advantaged peers. … Simply spending more money in the same way is not
the answer. We need to do things differently, to adopt a culture of achievement in our schools and school
systems, and to demand results for our growing investment in education.
Secretary Paige
April 2001

Education funding has skyrocketed over the last decade. Since 1997, appropriations for
Department of Education programs have increased an average of 13 percent per year, despite an
almost total absence of evidence that the programs were effective. The Department has almost
no programs with evaluations reflecting overall positive performance, and very few of its nearly
200 separate grant programs have objective data to gauge their effectiveness. In most cases, the
approach to funding education has been funding for its own sake, rather than funding based on
results benefiting students. The President and Secretary Paige are committed to stopping the cycle
of funding decisions based on wishes rather than on performance information, and to ensuring that
taxpayer dollars are directed to the activities known to be effective in improving student outcomes.
Program performance was a key consideration in developing this year’s Department of Education
budget. The budget redirects resources away from education programs that evaluations have found
to be ineffective. The President proposes to terminate 35 programs entirely, thus freeing up nearly $1
billion for high-priority activities more likely to yield positive and measurable results. Major reforms
are underway for two other activities that have historically fallen short in meeting their objectives:
Title I and Education Research. Increases are proposed for these high-priority activities because
reforms in these areas show promise for a positive impact in education. Increases also are sought
for programs that have been effective and support high priorities: Vocational Rehabilitation, Special
Education Grants to States, Pell Grants, and Statistics.
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The budget seeks to redirect funds from lower-performing programs to
higher-performing or more-effective programs.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

105

Explanation

Statistics and
Assessment

Effective

National Center for Education Statistics releases numerous paper,
electronic, and web-based statistical products that have a reputation
for high quality.

TRIO Student
Support Services

Effective

Evaluation of the Student Support Services program showed that
it had a large impact on four-year college graduation rates and a
small but significant impact on students’ grades, credits earned, and
retention in higher education.

Title I Grants to Local
Education Agencies

Ineffective

Despite an investment of billions of dollars, reading scores among
disadvantaged students on national tests have remained stagnant.
Dramatic changes enacted this year focus on accountability and
parental choice reforms designed to significantly improve program
performance.

TRIO Upward Bound

Ineffective

Evaluation of Upward Bound found that the program had no overall
impact on participants’ grades, credits earned, high school graduation
rates, or college enrollment rates.

Safe and Drug-Free
Schools—State
Grants

Ineffective

The program cannot be associated with a demonstrable change in the
incidence of youth violence or drug-abuse. A recent RAND study
questioned the program’s effectiveness and stressed that its future
hinges on the ability to demonstrate results.

Even Start

Ineffective

National and local evaluations have shown no conclusive evidence
that this program is improving outcomes for children or adults.

Research and
Dissemination

Ineffective

Past investments have not yielded consistent research quality;
however, the Administration plans significant structural and
grantmaking reforms.

GEAR UP

Unknown

Though this program’s evaluation is not complete, the program was
modeled on local projects that have been successful in increasing
academic achievement and college-going rates among participating
students.

106

DEPARTMENT OF EDUCATION

Elementary and Secondary Education
When the President introduced his reforms
for elementary and secondary education last
February, he pledged to leave no child behind.
Far too many of our students are being left
behind; national reading tests show nearly
70 percent of inner-city fourth graders cannot
read at a basic level. The accompanying chart
shows that dramatic increases in education
spending in recent years have not improved
students’ reading ability.
At the federal
level, Congress has, over the years, created
hundreds of programs supporting education
without asking whether the programs produce
results or knowing their impact on local needs.
Having spent hundreds of billions over the
past two decades, the nation has fallen short
in meeting our goal of educational excellence.

Do accountability reforms work? The facts
speak for themselves. Texas and North Carolina
pioneered a number of education accountability
reforms and, as a result, posted significant and
sustained achievement gains. A 1999 report
showed that these gains were NOT due to
increased per pupil funding, reductions in class
sizes, or having more teachers with advanced
degrees or more years of experience. Instead,
their key reform policies read like a blueprint
for the revised ESEA: annual assessments
in grades three through eight, rewards for
success and sanctions for failure, flexibility to
allocate resources to best meet local needs,
and computerized systems for gathering and
analyzing student achievement data.

Education Spending Soars
While Reading Scores Stay Static
In billions of dollars

NAEP reading scores

500
Advanced
268

Total expenditures
Reading scores

400

300
Proficient
238

260

240

200
220
100

211

212

209

211

212

212
Basic
208

200

1984

1987

1990

1993

1996

1999

2002

Source: Department of Education.

Clearly change is needed. Early last year,
the President proposed an ambitious reform
agenda supporting accountability for results,
enhanced parental choice, and increased
local flexibility.
Based on the President’s
proposal, Congress recently passed and the
President signed revisions to the Elementary
and Secondary Education Act (ESEA), the
No Child Left Behind Act. First passed in
1965, ESEA spells out the federal role in
K-12 education. It has traditionally directed
additional resources to needy communities
and supported some innovations. It will now
help ensure that disadvantaged children
receive the same educational opportunities as
all children.

While most of the President’s objectives
were
met in the new Act, some were not.
The result? These two states made greater gains
Congress has continued about two dozen
in reading and math on national tests between
programs that the Administration sought to
1992 and 1996 than any other states.
eliminate because they were narrowly focused
or ineffective, and added a half dozen more
programs that the Administration did not
think were necessary. These restrictive, special interest-driven programs could drain away nearly
$1 billion from more effective or flexible programs.

THE BUDGET FOR FISCAL YEAR 2003

107

Accomplishments of the President’s No Child Left Behind Act

Signed into law in January 2002, the No Child Left Behind Act is a major accomplishment of the Bush
Administration. The new Act will help make schools more effective by:
Strengthening
Accountability

Enhancing
Parental
Choice

In the past, schools could fail to improve student achievement for years. Now:

•

For the first time, by 2005 states will test all students in reading and math in grades
three through eight every year so that parents, teachers, and communities will
know whether students are learning.

•

Annual state and local report cards will show test results, including results for major
subgroups of students, so that schools and districts will have a strong incentive to
use funds effectively.

•

Schools that receive Title I funds, which are targeted to high-poverty communities,
must show academic progress each year, both for students overall and for each
student group, to ensure that all groups of students are proficient in reading and
math within 12 years.

•

Failing schools that receive Title I funds will face consequences so that they can no
longer ignore poor performance.

•

Consequences could ultimately include replacing school staff or reopening as
a charter school.

•

Schools that exceed their student achievement goals will be rewarded.

In the past, students in failing schools were trapped, with no real alternatives for a better
education. Now:

•

Students in low-performing schools can transfer to better public schools, with
transportation provided by the school district.

•

If a school that receives Title I funds does not improve for three consecutive years,
parents can use federal funds for outside educational assistance from a public
or private tutor of their choice.

•

The 21 st Century Community Learning Centers after-school program will
permit a wider variety of providers, including faith-based and community-based
organizations, to give parents more choices.

108

Increasing
State And Local
Flexibility

Focusing on
What Works

DEPARTMENT OF EDUCATION

In the past, states and districts had to adopt reforms dictated from the federal level in
order to receive certain funds. Now:

•

Many narrow, categorical programs have been consolidated into state-run grants
for bilingual education, teacher training, educational technology, and education
innovation, thereby freeing states and districts from restrictive federal requirements.

•

For the first time, states and school districts will have the flexibility to move funds
from one federal program to another, so they can allocate resources to best meet
local needs.

In the past, funds have been spent on programs that are ineffective or for which there is
little or no evidence of effectiveness. Now:

•

Program performance is a top priority, and the effectiveness of academic programs
will be measured by student achievement data.

•

The President’s literacy initiative, Reading First, will support only reading practices
that have been proven to be effective, so that all children can read at grade level by
the end of third grade.

Funding for Major Programs
The following programs will provide critical resources to states and localities to implement
education reform.
Title I Grants to Local Educational Agencies. The budget requests $11.4 billion for Title I
to help raise student achievement in the nation’s most impoverished communities. At this level,
funding will have increased 85 percent since 1993. Historically, Title I has done little to raise
student achievement as measured by test scores of low-income students. For instance, reading
scores of at-risk students have remained flat over this period. However, in light of this year’s
legislative reforms, the program now holds promise for improving performance by the schools and
for the students who face the most challenges.
Reading First. Reading is the foundation skill for all other learning. The President’s goal is to
ensure that all students can read at grade level by the end of third grade. The Reading First program,
initiated through the No Child Left Behind Act, will provide funds to states to support only the most
proven reading practices. The budget provides $1 billion for this program, a $100 million increase
over 2002. The budget also includes $75 million for Early Reading First, the same level as 2002, to
develop model programs to help children in high-poverty communities prepare for school.
Assessments. The budget proposes $387 million for the second year of federal support of states’
development of annual reading and math assessments for grades 3 through 8. These assessments
will be used to monitor schools’ yearly progress under the new requirements of the No Child Left
Behind Act.
English Language Acquisition. The budget proposes $665 million for this redesigned program
that provides performance-based grants to states to educate students with limited English skills.

THE BUDGET FOR FISCAL YEAR 2003

109

Under the new law, students served by this program must also show adequate yearly progress, thus
giving states a strong incentive to improve student performance on annual assessments.
21st Century Community Learning
Centers. This program supports before- and
after-school projects that extend learning
time and offer enriching activities such as art,
music, and recreation. Early reports indicate
that 21st Century Community Learning
Centers opens access to after-school programs,
improves student behavior, and possibly
boosts achievement. The budget retains this
large program at the 2002 level of $1 billion.

Despite generally flat performance in the
last decade, the federal role and the federal
investment in education expanded dramatically
during the 1990s. Put another way, most of
the federal funds expended for elementary and
secondary education were spent in the nineties,
after the progress had ended and scores had
stagnated. That is meaningful information for
policymakers at the national level.

Choice Demonstration Fund. Choice
Secretary Paige
is a primary component of the President’s
May 2001
elementary and secondary education reforms.
The Choice Demonstration Fund will award
$50 million to fund school choice research and
demonstration in order to study the effects of expanded educational options for low-income parents,
including opportunities to send their children to private schools.
Teacher Programs. The budget proposes $2.9 billion for the Teacher Quality State Grants
program to recruit, train and retain qualified teachers. This funding should assist states in ensuring
that all new teachers in schools receiving Title I funds are highly qualified as required by the new
ESEA. In addition, the budget proposes $15 million for new teacher quality initiatives to address
reform in teacher professional development and $50 million for competitive grants to school districts
for activities that promote the teaching of traditional American history.
Safe and Drug Free Schools. The Safe and Drug Free Schools and Communities (SDFSC)
program was created in response to increases in youth violence and drug use, but has been ineffective
in fighting these problems, in part because SDFSC funds are spread thinly across many schools
and because the program lacks incentives for schools to institute high-quality projects. Although
the budget maintains a commitment to the program and its purpose, future budgets will weigh its
effectiveness before funding recommendations are made. Over the next year, every effort will be
made to determine if this program is effective.
Even Start. The budget reverses the growth of this well-intentioned program that has failed to
produce results. Even Start funds family literacy services. Unfortunately, two national evaluations
and a multitude of local appraisals have not shown conclusively that this program has had a positive
impact. The budget therefore provides enough funds to continue supporting current Even Start
grantees but does not expand the program to fund new projects. These funds are shifted to support
programs expected to improve reading achievement, such as Title I and Reading First.

110

DEPARTMENT OF EDUCATION

Improving Programs Through the Smart Use of Data
As a companion to the President’s
elementary and secondary education reforms,
the budget includes a fundamental reform of
how the Department of Education and states
cooperate to collect and analyze data on school
performance.
For the federal government
and states to hold schools accountable for
educational results, they must measure
student progress yearly.

Data management reform will significantly reduce the local,
state, and federal paperwork swamping this employee.

The federal government’s old approach
of issuing and collecting voluminous reports
that had little utility for decision-makers or
the public will be replaced by a new system
that uses the latest technology to make
performance information readily available to
federal, state, and local decision-makers and
the public.

The
new
Performance-Based
Data
Management Initiative will involve: 1) electronic collection of timely data on student achievement
and educational outcomes; 2) elimination of existing reporting burden that diverts state and local
school resources from their educational mission; and 3) analysis of data on educational results to
identify performance trends and inform management, budget, and policy decisions. The budget
includes $10 million to develop, in collaboration with states, the electronic data system.

Special Education
An Expert’s Report on Reports

“The bottom line is …I don’t think it’s really used,” said
a state employee about a “massive” survey distributed
by the Department of Education on elementary and
secondary education programs. “Every state reports
the information differently,” added the employee, who
also explained that 14 full-time professional staff and
two temps worked for three weeks to complete the form.
“Our response [to the US Department of Education]
is an inch-and-a-half thick,” the civil servant stressed,
concluding that despite the survey’s comprehensiveness,
“The report just isn’t used.”

Children with disabilities are
among those at greatest risk of being
left behind.
The Individuals with
Disabilities Education Act (IDEA)
establishes the right of children with
disabilities to a free, appropriate public
education.

Through this legislation, which the
Congress passed in 1975, the federal
government plays an important role
in helping children with disabilities
meet high academic standards and
participate fully in American society.
The 2003 budget provides $8.5 billion
for the Special Education Grant to
States program, a $1 billion increase over 2002. The budget also provides $437 million for states to
identify and serve infants and toddlers with disabilities, a $20 million increase. In many cases, this
early intervention can reduce or even eliminate the need for special education as children grow up.

THE BUDGET FOR FISCAL YEAR 2003

111

Who Is in Special Education?

About six million school-aged children, roughly 10 percent of the total population, receive special
education. Many of these children have easy-to-identify disabilities, like mental retardation and blindness.
However, an increasing proportion of children in special education have disabilities that are more
subjectively determined and difficult to diagnose. About half of all special education children are diagnosed
as “learning disabled,” and Department of Education data suggest the number of children with Attention
Deficit/Hyperactivity Disorder has skyrocketed. These disabilities lack clear criteria for identification, and
are applied inconsistently across schools.
Many people are worried that some children are inappropriately referred to special education. For instance,
many children may be referred to special education not because of a real disability but because they were
never properly taught how to read. Also, Department data show that minority children are disproportionately
represented in special education. The President’s Commission on Excellence in Special Education will pay
particularly close attention to these issues and report its recommendations to the President.

While the President supports the principles embodied in the IDEA, the law needs reform. The
Administration plans to develop its reform proposal in the coming year. To support this effort, the
President has formed a Commission on Excellence in Special Education, which will report back to
the President this year.

Job Training Programs in the Department of Education
The 2003 Budget will launch a multi-year effort to reform job training programs across the federal
government, target resources to programs with documented effectiveness, and eliminate funding
for ineffective, duplicative, and overlapping programs (see the Department of Labor chapter). This
crosscutting reform includes three programs in the Department of Education whose primary mission
is to help individuals prepare for the labor market and lead productive lives.
Vocational Rehabilitation. State Vocational Rehabilitation (VR) agencies help individuals
with disabilities prepare for and obtain employment to the extent of their abilities. VR also supports
the President’s New Freedom Initiative to help people with disabilities lead independent lives.
People with disabilities are less likely to be employed than those without disabilities; one of VR’s
main purposes is to offer job training to help people with disabilities obtain competitive jobs. In
addition, persons with disabilities can more effectively participate in the integrated workforce with
the special accommodations and supports afforded to them through the VR program. State VR
agencies, for instance, also offer adaptive technologies to individuals with physical impairments and
other disabilities, as well as job coaches and personal assistants for those with the most significant
disabilities.
While nationwide state VR agency performance has improved in recent years, there is still wide
variation among states. As a result, VR is an area the Department will highlight in the President’s
initiative to tie budget decisions to program performance. As part of this initiative, the budget
proposes a new $30 million incentive grant which will be allocated to state VR agencies based on
their performance in helping individuals with disabilities obtain competitive jobs.

112

DEPARTMENT OF EDUCATION

Vocational and Adult Education. The Department of Education provides grants to states to
support programs that develop the academic, vocational, and technical skills of students in high
schools and community colleges. Vocational education is primarily a state and local responsibility.
Federal funds account for only about seven percent of total vocational education spending. The
Department also awards grants to states to help adults become literate, obtain a high school diploma
or its equivalent, and learn skills necessary for work and self-sufficiency. Research shows that there
is a strong relationship between education and earnings; adult education programs often provide the
foundation for further job training and workforce preparedness.
The federal laws that authorize vocational and adult education programs will expire at the end
of 2003. The 2003 Budget maintains funding at the 2002 level while the Administration examines
what reforms—including fundamental changes to the federal role in vocational education—may be
needed in these areas.

Postsecondary Education
The Administration’s strategy for postsecondary education is to focus resources on student aid
programs that help needy students pay for college, higher education programs that help students
prepare for postsecondary education, and institutional development programs that provide support
for colleges which serve low-income and minority students.
Pell Grants. Pell Grants help increase college enrollment rates among disadvantaged students.
In 1999, only 49 percent of high school graduates from the poorest families went to college, compared
to 76 percent of students from the wealthiest families. Research has shown that increases in grant
aid result in significant increases in enrollment, particularly for low-income students.
The 2002 appropriations bill created a serious fiscal problem for 2002 by underfunding the Pell
Grant program. The Congress mandated a Pell Grant maximum award of $4,000, but provided only
enough funding to pay for a maximum award of $3,600, creating a shortfall of nearly $1.3 billion.
To rectify this problem, the budget proposes to redirect resources from unrequested earmarks and
low-priority programs in 2002 to the Pell Grant program. The Administration will propose $10.9
billion for Pell in 2003 to help over four million students afford college.
Historically Black Colleges and Universities (HBCUs) and Hispanic-Serving
Institutions (HSIs). Federal resources help these institutions, which provide opportunity for
some of the most disadvantaged students in the nation, improve their educational programs. The
President has committed to increasing funding for HBCUs and for HSIs by 30 percent between
2001 and 2005. The budget proposes $213 million for HBCUs, $51 million for Historically Black
Graduate Institutions, and $89 million for Hispanic Serving Institutions to keep these institutions
on track to achieve the President’s goal.
TRIO and GEAR UP. These two programs, which help disadvantaged middle- and high-school
students prepare for college, share similar goals but use different approaches. As part of the
President’s initiative to tie budget and performance, the Administration will assess the programs’
effectiveness and develop strategies for 2004 to improve the performance of both and direct
resources to the most effective strategies. Funding for these programs in 2003 is held steady at the
2002 level pending the results of this review.
Teacher Loan Forgiveness. Under current law, teachers who work in high-poverty schools for
five years may have up to $5,000 of their federal student loans forgiven. The budget proposes to

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113

expand this program to allow the math, science, and special education teachers who qualify for this
program to have up to $17,500 of their student loans forgiven.
Student Loans. The guaranteed and direct student loan programs provide $50 billion in aid
each year to students and parents. The Administration is in the process of developing revisions
to the method of calculating the cost estimates for these programs. The new method, when fully
implemented, is expected to produce better cost estimates necessary for policy decisions and
program management. While the budget reflects amounts calculated using the existing method, the
Administration will complete work on a new estimation method for use in the Mid-Session Review
of the 2003 Budget. In the interim, the Administration will adopt Congressional Budget Office
estimates for purposes of the Budget Enforcement Act scoring of legislative proposals.

Educational Research
This year, the Administration will propose legislation to reform the Department’s research office,
the Office of Educational Research and Improvement. The budget includes a $53 million increase
for research activities to support important new programs and emphasizes scientifically based
research. A major focus will be placed on identifying the most effective strategies for improving
reading comprehension.

Improving Student Financial Aid Operations
Eliminating Fraud and Error in
Student Aid Programs.
Through the
Student Aid Fraud
Department of Education,
the federal
Last March, the Department of Education’s
government supports approximately $60
Inspector General uncovered a student aid fraud
billion in student financial aid annually.
ring in Chicago. Eight financial aid advisers and
Programs in that portfolio are vulnerable
18 parents were charged with fraud for obtaining
to fraud and error because the Department
more than $2.6 million in undeserved grants
cannot verify students’ income effectively.
and loans by lying about family income on the
Students are awarded Pell Grants and loans
student aid application. As many as 600 people
based on the financial resources they report
are still under investigation. Many of the parents
on their aid applications.
The Education
continued to file accurate tax returns with IRS
Department
currently
verifies
income
even while they provided fake documents to
information on applications by asking 30
support their student aid applications.
percent of applicants to provide copies of their,
and in the case of dependent students, their
parents’ tax returns to their schools’ financial
aid offices. Students easily can receive more funding than they are entitled to by changing their
returns or claiming they did not file. The President proposes a legislative change to allow IRS to
match the income reported on student aid applications with tax return data. An estimated $138
million would be saved in 2003.
Reducing Costs. Reducing administrative costs was one of the key purposes of 1998 legislation
that established a performance-based organization to administer student financial assistance
programs. Although the Department of Education has made some progress, weak accounting
practices and an overly complex budget structure have made it difficult for the Department’s

114

DEPARTMENT OF EDUCATION

management to measure progress in reducing costs. Furthermore, of the more than $900 million
provided annually for administrative funding, more than four-fifths has not been subject to annual
review in the congressional appropriations process.
Beginning with the 2003 Budget, accountability for these funds will be strengthened. Funding
from four sources will be consolidated into a single discretionary account for student aid
administrative costs. The account will be subject to annual appropriations by Congress. Annual
budget requests will be tied to unit cost targets for major business processes (e.g., application
processing, loan origination, loan servicing) and to annual estimates of participation in the various
loan and grant programs.

Strengthening Management
In April 2001, the Secretary of Education established a Management Improvement Team to
develop an agency plan for management excellence. The Department of Education faced particularly
significant challenges in financial management and student financial assistance programs, which
have kept the Department on the General Accounting Office’s list of high-risk programs since 1990.
The Secretary set two goals: earn a clean financial audit, and eliminate fraud and error in student
aid programs.
The Department of Education’s Blueprint for Management Excellence spelled out robust plans to
address longstanding financial management problems, such as high risk of waste, fraud, and abuse
in student financial aid programs, and information technology security. Overall, some 140 action
items were put into play. Areas still lacking detailed or adequately defined plans include human
capital, competitive sourcing, budget and performance integration, and some e-government projects.
However, the Department has established deadlines for developing these plans.
In addition, Education is actively implementing the President’s Faith-Based and Community
Initiative in order to improve the delivery of social services by drawing on a wider range of service
providers. Education has identified barriers to participation in its programs and has developed a
strong plan for eliminating those barriers.
The following management scorecard reflects the Department of Education’s September 30,
2001, status on each of the initiatives in the President’s Management Agenda. The Department’s
management during the coming year will closely track progress on the President’s Management
Agenda and the Department’s Blueprint for Management Excellence.

THE BUDGET FOR FISCAL YEAR 2003

115

Initiative
Human Capital —Education has not completed an inventory of its staff’s current skills or a
workforce restructuring plan to align its workforce with its mission and goals.

In the year ahead, Education will give high priority to identifying areas in which its staff needs
to develop skills, developing training strategies to ensure employees have the necessary
knowledge to meet changing work demands, and taking advantage of recruitment tools so the
Department can attract high-quality employees.
Competitive Sourcing —Education has not completed its plan permitting the private sector
to compete to perform tasks that are done by the government workforce but are commercial
in nature. The 2002 goal calls for competing 43 commercial positions. Education’s existing
inventory of commercial positions excludes many activities that could appropriately be
reclassified as commercial, such as human resource clerks and administrative assistants.

In 2002, the Department will develop a competitive sourcing plan and reevaluate its inventory
of commercial positions. Education expects to meet or exceed the 2002- 2003 target to
competitively source 15 percent of its commercial positions.
Financial Management—For 2000, the Department of Education received a “qualified”
opinion on its financial statements. The auditors continued to cite material weaknesses from
prior audits, including failure to reconcile financial data from different sources and inadequate
internal controls. In 2000, the general ledger was not compliant with federal requirements.

The Department is taking aggressive steps to fix past problems. This year, it will implement
Oracle Federal Financials (an accounting package), prepare quarterly instead of only annual
financial statements, and reconcile transaction-level data with summary balances in the
general ledger. Because of these changes, the Department of Education expects to achieve a
clean audit opinion for the 2002 financial statements.
E-Government —Performance has been mixed. Capital asset plans justifying information
technology expenditures have improved but some still do not address statutory requirements.
There has been success in using new technologies to simplify students’ access to financial
aid, such as using electronic signatures for aid applications and promissory notes. Yet the
Department’s failure to implement mandated planning requirements could lead to unwise
investments or the use of obsolete technologies.

2001 Status

•
•
•
•

Plans to reform data collection for elementary and secondary programs, as well as student
loans are under development.
Budget/Performance Integration —While recognizing the importance of linking public
education investments to evidence of program effectiveness, the Department of Education
has not yet put in place administrative actions to implement this policy. The Department has
decided to modify significantly the program performance goals developed by the previous
Administration but has no alternative method for measuring and reporting on performance. For
2003, performance measures and evaluation strategy will be developed for key programs.

•

116

DEPARTMENT OF EDUCATION

Department of Education
(In millions of dollars)
2001
Actual
Spending:
Discretionary Budget Authority:
Elementary and Secondary Education
Title I Grants to LEAs ..........................................................
Even Start .............................................................................
Reading Excellence/Reading First and Early Reading
First ...................................................................................
Impact Aid .............................................................................
Educational Technology State Grants ..............................
Teacher Quality State Grants ............................................
Safe and Drug Free Schools State Grants ......................
21st Ctry. Community Learning Centers ..........................
State Assessments .............................................................
Choice Demonstration ........................................................
English Language Acquisition ...........................................
IDEA Part B State Grants ...................................................
Job Training

Estimate
2002

2003

8,763
250

10,350
250

11,350
200

286
993
872
2,225
439
846
—
—
460
6,340

975
1,144
700
2,850
472
1,000
387
—
665
7,529

1,075
1,141
700
2,850
472
1,000
387
50
665
8,529

2,400
—
1,804

2,481
—
1,934

2,616
30
1,898

Vocational Rehabilitation State Grants (non-add) ..........
Vocational Rehabilitation Incentive Grants ......................
Vocational and Adult Education ........................................
Higher Education
Pell Grants 1 .........................................................................
Historically Black Colleges and Graduate Institutions ...
Hispanic-Serving Institutions .............................................
TRIO Programs ....................................................................
GEAR UP .............................................................................
Education Research, Statistics and Assessment
Research and Dissemination .............................................
Statistics and Assessment .................................................
All other programs ....................................................................
Subtotal, Discretionary budget authority adjusted 1, 2..............
Remove contingent adjustments .......................................
Discretionary modification of a mandatory account .......
Total, Discretionary budget authority ........................................

8,756
230
68
730
295

10,314
255
86
802
285

10,863
264
89
802
285

186
120
6,461
40,124
−21
—
40,103

189
197
8,136
48,520
−20
—
48,500

243
190
8,042
51,125
−20
795
50,310

Emergency Response Fund, Budgetary resources .................

—

Mandatory Outlays:
Federal Direct Student Loans .................................................
Federal Family Education Loans ............................................
Legislative proposal .................................................................
All other programs ....................................................................
Subtotal, Mandatory outlays adjusted 2 .....................................
Remove contingent adjustments ..........................................
Total, Mandatory outlays ..............................................................

255
−2,404
—
2,006
−143
–2
−145

−26
2,584
—
2,139
4,697
–3
4,694

212
3,023
45
2,462
5,742
–2
5,740

THE BUDGET FOR FISCAL YEAR 2003

117

Department of Education—Continued
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Credit activity:
Direct Loan Disbursements:
Federal Direct Student Loans (FDSL) ...................................
FDSL Consolidations ...............................................................
Subtotal, FDSL disbursements ...................................................
Other direct loans .....................................................................
Total, Direct loans .........................................................................

10,764
7,402
18,166
−12
18,178

11,162
8,643
19,805
−39
19,844

11,972
5,307
17,279
−35
17,314

Guaranteed Loans:
Federal Family Education Loans (FFEL) ..............................
FFEL Consolidation .................................................................
Total, Guaranteed loans ...............................................................

23,582
6,955
30,537

25,920
8,335
34,255

27,855
6,877
34,732

The 2002 estimate does not include $1,276 million requested in supplemental funding to cover a
shortfall in the Pell Grant program.
2
Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

DEPARTMENT OF ENERGY

The President’s Proposal:

• Fulfills the President’s commitments to increase conservation and clean power
•
•
•
•

through the Weatherization Assistance Program and the Coal Research Initiative;
Invests in a new, fuel-efficient automotive technology venture—Freedom CAR—to
develop technologies, such as hydrogen-based fuel cells that will reduce reliance
on imported oil;
Strengthens the security of the United States through the military application of
nuclear energy and reduces the global threat from terrorism and weapons of
mass destruction;
Accelerates the cleanup of nuclear waste and advances reforms that will result
in more cleanup at less cost while protecting workers, the public, and the
environment; and
Provides a new tax credit for the purchase of hybrid and fuel cell vehicles.

The Department of Energy (DOE) has
four major functions. These are: 1) national
Department of Energy
security; 2) environmental quality; 3) science
Spencer Abraham, Secretary
and technology; and 4) energy resources. In
the area of national security, the National
www.energy.gov
202-586-8100
Nuclear Security Administration maintains
Number of Employees : 15,000 Federal and
the nation’s nuclear weapons stockpile
100,000 Contractor
and
manages
non-proliferation
efforts
to
reduce
threats
from
weapons
of
mass
2002 Spending : $19.1 billion
destruction.
The environmental quality
Facilities : Twelve operations and field offices
function is largely conducted by the Office of
oversee four Power Marketing Administrations,
Environmental Management, which cleans up
26 laboratories, and 24 other facilities.
the environmental contamination resulting
from over 50 years of nuclear material
production. The Office of Science sponsors a
broad range of basic research that supports other DOE programs and operates a suite of scientific
facilities for the benefit of the entire U.S. research community. Finally, the Offices of Fossil Energy,
Nuclear Energy, and Energy Efficiency and Renewable Energy conduct applied research aimed
at improving energy conservation and supply. Recently, Secretary Abraham declared that the

119

120

DEPARTMENT OF ENERGY

Department’s single overarching mission is supporting national security, which includes energy and
economic security. This mission provides direction to all four functions as described below.

Overview
The Department faces some of the most daunting technical challenges of any federal agency. For
instance, DOE must certify the safety and reliability of the nation’s nuclear stockpile—and do so
without nuclear testing. It must clean up sites contaminated by over 50 years of weapons testing
and production—an area equal in size to Rhode Island and Delaware combined. The Department
must design, site, build, and operate a 10,000-year repository to safely store the nation’s nuclear
waste. DOE also sponsors an extensive research portfolio encompassing issues ranging from the
universe’s earliest matter to how to make homes more energy efficient. It carries out most of these
tasks using a contractor workforce operating both an aging infrastructure and many large, expensive,
one-of-a-kind research facilities. In all these areas, careful planning, rigorous prioritization, and
management reforms are particularly important for improving DOE’s performance.
Secretary Abraham announced national security as DOE’s primary mission in October 2001. He
established the following priorities:

• Supporting homeland defense with a focus on the threat of weapons of mass destruction and

•

emphasis on nonproliferation efforts abroad; guaranteeing the safety and reliability of the
nuclear stockpile, and ensuring that research and development (R&D) and production plans
support the Administration’s nuclear strategy; and providing safe, efficient, and effective
nuclear power for Navy ships;
Assuring energy security through infrastructure protection; implementing the President’s
National Energy Policy; exploring new energy sources and technologies with dramatic
environmental benefits; and directing R&D budgets to innovative new ideas while ensuring
application of mature technologies; and
Accelerating the cleanup and closure of sites where there is no longer a national security
mission.

Improving management and performance is the unifying theme of the 2003 President’s Budget.
The Administration’s proposals to return value to the taxpayer and address performance issues are
organized along the four main “functional areas”: National Security; Environmental Management;
Science and Technology; and Energy Resources. Nonetheless, safeguarding national security remains
the paramount objective.

National Security
Created by Congress in 1999, the DOE’s National Nuclear Security Administration’s (NNSA)
mission is to strengthen the security of the United States by: 1) applying nuclear science and
technology to military purposes; and 2) reducing the global threat from weapons of mass destruction.
To accomplish this mission, NNSA manages defense-related programs to:

• maintain
•
•

and enhance the safety, security and reliability of the nation’s nuclear weapons
stockpile;
provide the Navy with safe and effective nuclear propulsion plants for ships; and
prevent the spread of weapons of mass destruction and their components.

THE BUDGET FOR FISCAL YEAR 2003

121

Stockpile Stewardship
Since 1993, DOE has developed and is operating the Stockpile Stewardship program to certify
the safety and reliability of the U.S. nuclear stockpile in the absence of underground testing. NNSA
achieves this goal by relying on improved science, technology, and computational techniques to
detect and predict problems in the aging nuclear stockpile. NNSA is also charged with effectively
maintaining and refurbishing existing nuclear warheads, as well as sustaining the design and
manufacturing base to produce a new weapon if required.
To maintain a safe and reliable nuclear
deterrent, NNSA’s federal workforce of about
1,700 oversees a vast complex that includes
Los Alamos, Sandia, and Lawrence Livermore
national laboratories; the Nevada Test Site;
and extensive production facilities in Amarillo,
Texas, Kansas City, Missouri, Aiken, South
Carolina, and Oak Ridge, Tennessee. These
facilities have a combined contractor workforce
of approximately 25,000. This complex carries
out four kinds of activities:

• Directed

•

•
•

Stockpile Work programs
support
DOD’s nuclear
weapons
The B-61 bomb, undergoing refurbishment, has approximately
requirements by maintaining and
6,000 component parts.
refurbishing warheads to ensure their
safety, reliability, and performance.
Programs include research, development, and production associated with weapons
maintenance, life extensions, and certification of continued reliability. For example, NNSA
is in the process of refurbishing an aircraft-delivered weapon, the B-61 bomb, which first
entered the stockpile in 1979.
Science Programs develop and maintain capabilities needed to certify the reliability of the
nuclear stockpile into the future. One example is the Inertial Confinement Fusion Ignition
Campaign that includes construction and operation of the National Ignition Facility at
Lawrence Livermore Laboratory in California. This is a technically challenging effort that
has led to significant cost growth and delays. However, because this facility is important to
understanding the physics of nuclear explosions, DOE continues to place a high priority on
allocating a significant amount of resources to it. DOE laboratories also operate some of the
world’s largest and fastest computers to perform advanced simulations of nuclear weapons
explosions. The size and speed of these computers enable DOE to perform calculations and
simulations that, previously, were impossible to perform because of their complexity.
Infrastructure Programs operate and maintain existing facilities and construct new facilities
that underpin the stockpile work. Since the end of the Cold War, some of these facilities have
decayed, and NNSA is beginning to improve conditions.
Security Programs protect the nuclear warheads and their supporting facilities, whether
mobile or stationary.

Managing the Stockpile Stewardship program without nuclear testing has proven to be
challenging, because much of the work requires DOE to use new and untested techniques.
Throughout the Cold War, DOE maintained a viable nuclear stockpile by designing and producing

122

DEPARTMENT OF ENERGY

new weapons every 15 to 20 years.
effectiveness of the weapons.

New production and underground testing ensured the

However, the United States last produced a new weapon in 1991, and last conducted a nuclear
test in 1992. Now, DOE must develop new tools to manage the stockpile without the type of design
and testing that has supported the stockpile since 1945. This work will remain critical even as DOD
draws down the number of operationally deployed warheads to between 1,700 and 2,200 over the
next 10 years.

Stockpile Stewardship and Related
In billions of dollars
Funding
7
6
5
4
3
2
1
0
1995

1996

1997

1998

1999

2000

2001

2002

2003

For those reasons, NNSA’s stockpile
stewardship program is a fast-growing effort.
Funding has grown by 88 percent since
1995. The accompanying graph shows the
growth in funding since 1995 for stockpile
stewardship work, the infrastructure that
underpins that work, and the associated
security requirements.
The 2003 Budget
requests $6.1 billion for Stockpile Stewardship
and associated administrative activities, $455
million above the 2002 level. Beyond 2003,
the Administration will work with DoD to
provide resources to meet DOE’s requirements
outlined in the Nuclear Posture Review.

Naval Reactors
One true success story of the nuclear age
is the development and operation of safe and
In 2003, the Naval Reactors program will add to
reliable nuclear-powered warships. DOE’s
its record of 124 million miles steamed without
Naval Reactors Program is responsible for
a reactor accident or a significant release of
all naval nuclear propulsion work, beginning
radioactivity into the environment.
with technology development, continuing
through reactor operation and, ultimately, to
reactor plant disposal. The program ensures the safe operation of the reactor plants in operating
nuclear-powered submarines and aircraft carriers (comprising about 40 percent of the Navy’s
major warships), and develops new nuclear propulsion plants to meet evolving national defense
requirements. By the end of 2003, the goal is to complete 99 percent of the design of the next
generation of submarine reactors and to continue work on the design of the next generation of
aircraft carrier.

Preventing the Spread of Weapons of Mass Destruction
Preventing the spread of weapons of mass destruction around the world is vital to the nation’s
security. The importance of this was made clearer after the September 11th terrorist attacks. This
Administration is fully committed to a comprehensive nonproliferation effort that will reduce the
threat of weapons of mass destruction and stop the flow of the materials and expertise required to

THE BUDGET FOR FISCAL YEAR 2003

123

build such weapons. The President’s Budget includes a significant funding increase to step up efforts
in these programs.
The NNSA will manage over $1 billion in nonproliferation programs in 2003 aimed largely at
securing or eliminating materials in states of the former Soviet Union. NNSA focuses its efforts on
those activities that do the most to minimize the potentially catastrophic results of these weapons or
materials falling into the wrong hands. For example,

• NNSA

•

•
•

operates a program, known
as International Nuclear Materials
… And almost every state that actively sponsors
Protection and Cooperation, to secure
terror is known to be seeking weapons of mass
nuclear materials in the former Soviet
destruction and the missiles to deliver them at
Union.
These programs include
longer and longer ranges … Working with other
upgrading security at Russian nuclear
countries, we will strengthen nonproliferation
sites, securing fissile materials that
treaties and toughen export controls. Together,
could be used to build weapons, and
we must keep the world’s most dangerous
improving security at Russian borders.
technologies out of the hands of the world’s most
By the end of 2003, NNSA will have
dangerous people.
supported completion of comprehensive
Remarks at the Citadel
security upgrades to 54 of 95 identified
President
George W. Bush
former Soviet nuclear sites and will
December
11, 2001
have begun work to secure roughly 80
percent of the weapons-grade nuclear
material at these sites.
NNSA manages international security programs aimed at limiting the production of
weapons-usable fissile material, facilitates retrieving and securing radioactive spent nuclear
fuel, helps engage Russian scientists in non-weapon-related projects, and assists Russia in
downsizing its nuclear weapons complex.
NNSA’s Nonproliferation Research and Development program develops technologies needed
to detect and deter nuclear proliferation abroad, and to detect and respond to chemical and
biological attacks in the United States.
NNSA’s Fissile Material Disposition Program covers activities in both the U.S. and Russia to
dispose of weapons-usable fissile materials such as enriched uranium and plutonium. The
2003 Budget supports the first year of a newly-revised program for plutonium disposition.
Beyond 2003, the Administration is committed to providing the resources necessary to fully
support this new plan.

While the nonproliferation programs are critical to national security, DOE in previous years has
been slow to spend the funds the Congress provided. A key impediment has been timely access to
Russian sites, which sometimes requires lengthy negotiations. The Administration is committed to
resolving problems and accelerating its nonproliferation effort.

124

DEPARTMENT OF ENERGY

more effective or higher priority programs. The following ratings of selected DOE programs are
illustrative. Some programs are discussed in more detail in this chapter.

Program

Assessment

Explanation

National Nuclear
Security
Administration—Naval
Reactors

Effective

Outputs are identifiable and make key contributions to national
security. Delivery schedules are consistently met. Contracts
have positive and negative incentives, and include performance
requirements.

National
Nuclear Security
Administration—
Weapons Activities

Moderately
effective

Certifies safety and reliability of nuclear weapons stockpile and
maintains a high-quality scientific capability. However, it needs to
improve its long-range planning and resource allocation process and
better link stockpile requirements to available resources.

Defense
Environmental
Restoration and
Environmental
Management

Ineffective

Many sites are behind schedule for cleanup. Completion costs are
escalating. “Compliance agreements,” signed before the breadth
of problems was known, make it difficult to effectively manage the
program.

Office of Science

Effective

Supports world-class basic research. Effectively operates a large
suite of scientific user facilities.

Fossil Energy R&D

Ineffective

Broad mission, lack of investment criteria and unmeasurable
performance goals allow for funding of virtually any project. This leads
to corporate subsidies. Program has contributed little to improving the
prospects for new energy technology.

Nuclear Energy,
Science and
Technology

Ineffective

Resists competitive, peer-reviewed research awards. Resource
allocation does not support priorities identified by external experts.

THE BUDGET FOR FISCAL YEAR 2003

125

Environmental Quality
Environmental Management

Number of Environmental Management
Sites Cleaned Up

Decades of nuclear weapons production
Number of sites completed
80
and energy research have generated vast
71
69
66
70
74
amounts of hazardous waste and radioactive
61
contamination.
The
Environmental
60
51
Management (EM) program is responsible
50
45
for cleaning up 114 sites where the Energy
40
34
Department and earlier government agencies
26
30
24
tested and produced nuclear weapons or
21
20
16
20
conducted nuclear energy research. In 1998,
the EM program published Accelerating
10 12
Cleanup: Paths to Closure, which outlined a
0
plan to complete the 53 sites remaining (one
Pre-1989
1990
1992
1994
1996
1998
2000
site was added to the list after Accelerating
Source: Office of Environmental Management, DOE.
Cleanup was published), at an estimated cost
of $147 billion during the period 1997 to 2070.
The current cost estimate for cleaning up this set of 53 sites is $220 billion, an increase of 50 percent
in just three years. As of 2001, DOE has completed 14 of those 53 sites.
What accounts for these delays and cost increases? Some result from technical uncertainties. But
another problem is that the program has become less focused on cleaning up sites and has instead
turned into a local “jobs” program. The Administration finds 2070, well beyond the life span of most
Americans alive today, as an unacceptable deadline to complete the cleanup of existing sites.
For more than a decade, the General
Accounting Office has designated DOE’s
Progress vs. Payroll
contract administration and management of
In 2000, DOE reallocated $30 million from
its EM projects as a high-risk area, vulnerable
priority cleanup projects at Savannah River, S.C.,
to fraud, waste, and abuse. Problems in
Hanford, Wash., and Idaho National Lab. The
this area include cost and schedule overruns
Department decided to use these funds instead
and DOE’s inability to hold contractors
to revive the EM laboratory-directed research
accountable. At the Savannah River site in
and development program suspended by the
South Carolina, for example, the EM program
Congress and to employ workers displaced when
selected a process to separate radioactive
the Congress terminated the DOE Office of Field
waste from liquids in storage tanks. In 1985,
Integration.
EM estimated it would take three years and
$32 million to construct the necessary facility.
In 1999, after more than a decade of delays
and spending about $500 million, the EM program terminated the project because the facility could
not operate within required safety margins. Problems of this type persist. The accompanying figure
shows the change since 1989 in estimated costs to clean up the five major sites. Some of the variance
is due to more complete information regarding the extent of contamination, but the program has
also failed to meet cost, schedule, and performance goals.

126

DEPARTMENT OF ENERGY

Change in Cost at Major Sites
Since Original Estimate
Percent change

-40%

-20%

Hanford

20%

40%

60%

+$6.8 Billion

Savannah
River

+$6.0 Billion
Idaho
+$10.4 Billion

Oak Ridge
Reservation
Rocky
Flats

-$3.4 Billion

Costs Less

+$1.0 Billion

Costs More

Today, the Department recognizes the
significant management challenges facing the
EM program and is moving to meet them.
In March 2001, Secretary Abraham ordered
the Office of Environmental Management
to do a top-to-bottom review and identify
ways to improve performance. Management
improvements instituted by the Department
will accelerate cleanup and lower costs. The
program is scheduled to complete cleanup of
Missouri’s Weldon Spring site in 2002, and
Kentucky’s Maxey Flats Disposal site in 2003.
The total number of EM sites completed by
the end of 2003 will be 76 of 114.

Source: Office of Environmental Management, DOE.

Environmental Management Performance
Geographic Site

Idaho National Lab, ID

Savannah River, SC

Hanford, WA

Rocky Flats, CO

Oak Ridge Reservation, TN

Rating Criteria

Overall

Mission

Performance

Reform

•
•
•
•
•

The EM scorecard above presents the Administration’s baseline assessment of performance
at the five largest EM sites as of early 2001. These sites account for roughly 60 percent of
EM’s total resources, or about $3.8 billion a year. This evaluation is based upon the following
criteria: “mission” assesses whether plans and resources are adequately focused on completing site
cleanup; “performance” evaluates whether cleanup activities are consistent with cost, schedule, and
performance baselines; and “reform” indicates whether sites recognize performance problems and
are attempting to improve performance.

• Even

though the Idaho National Engineering and Environmental Laboratory receives
substantial earmarked funding through the EM Office of Science and Technology, it is unable

THE BUDGET FOR FISCAL YEAR 2003

•

•
•
•

127

to complete projects on time and within budget. The Administration proposes accelerating
the completion date from the current date of 2050 and closing the lab.
The Savannah River Site spent $500 million on a radioactive waste treatment plant that
could not operate as required, yet DOE rewarded the contractor with a contract extension
in 2000. The site resists project management improvements, and it too should be placed on an
accelerated cleanup track.
Hanford appears to be improving its management, despite a history of significant problems
managing large capital projects and a cleanup that is behind schedule and over budget.
Rocky Flats has generally performed well, but recent schedule slippage for critical-path
nuclear material stabilization raises concerns about attaining the primary goal of closure by
December 2006.
Oak Ridge has performed reasonably well. The site has focused on the easy work, not on higher
risk reduction activities. This misdirection of effort accounts for the mediocre rating for the
site.

The President proposes $6.7 billion for the Environmental Management program. This amount
includes $800 million in a new “reserve” fund to implement fundamental program changes, with the
expectation that the proposed reforms will improve cleanup efficiency by completing construction
projects within baselines, reducing the cost of waste treatment and disposal, and integrating cleanup
strategies across different sites. The proposed EM budget focuses resources on sites with better
performance, while the Department implements reforms identified by the Secretary’s top-to-bottom
review at those sites with poor performance. The budget adds funding for higher priority, better
managed activities such as waste treatment at Hanford, closure of the Fernald site, and cleanup
at the Oak Ridge National Lab, by reducing funding for congressional earmarks, poorly performing
projects in the EM Office of Science and Technology, and excess administrative staff.

Radioactive Waste Disposal
Growing quantities of spent nuclear fuel and high-level radioactive waste have been accumulating
at commercial nuclear reactor sites and storage facilities across the country for half a century. As
required by law, DOE has investigated the suitability of a storage site at Yucca Mountain, Nevada,
100 miles northwest of Las Vegas, for over 20 years.
Based on sound science and compelling national interest, the Secretary of Energy has informed
the Governor of Nevada of his intent to recommend the Yucca Mountain site to the President for
development as a geologic repository for the nation’s nuclear waste. Should the site be formally
designated this year, current plans call for the repository to open in 2010.
The Budget provides sufficient funding for DOE to prepare a license application to meet that
deadline. If the site is designated, the Administration will seek additional funding to begin
construction of essential transportation facilities and infrastructure within Nevada, and provide
a long-term management and financing plan for the entire licensing and construction effort. The
Administration is committed to ensuring the environmentally sound and safe disposal of the
nation’s radioactive waste.

128

DEPARTMENT OF ENERGY

Congressional Earmarks
The President’s Budget generally allocates funding for specific programs, such as research and
cleanup programs, based on an analysis of objective factors including the results of peer review and
engineering capabilities. Congressional earmarks skew these determinations and divert funds from
higher priority and more effective programs. For instance, in 2002 the Congress earmarked 134 DOE
projects totaling $300 million. Unfortunately, this trend is getting worse. Earmarks in the Office of
Science increased 60 percent over the previous year, to $72 million, and 400 percent more than 1999.
One adverse effect is that during 2002, DOE will only be able to operate its scientific user facilities at
approximately 75 percent of the optimally available hours. Had these funds been allocated to facility
operations as needed, a broader segment of the research community could have benefited, and the
return on the federal investment would have been higher.
In other programs, earmarking is having an even more damaging effect. In 2002, the Congress
earmarked almost one-fourth of the funding for applied research in renewable energy technologies.
For example, the Congress earmarked $3 million “for the Winona, Mississippi, biomass project,
where the current investment in the plant shall count as the required demonstration project cost
share.” Although the National Energy Policy promotes applied research in biomass to help the
nation utilize its resources, congressional earmarks such as this one bypass the competitive awards
process that results in better, more relevant science to advance national goals. This earmark is
particularly troubling because the project had previously failed to win a funding award in a DOE
competitive solicitation, and the earmark circumvents the cost-sharing requirements prescribed
by the Energy Policy Act. The budget supports the President’s commitments and tackles the
most pressing energy issues by increasing resources for high priority programs by wasting less on
ineffective ones or earmarked projects.

Science and Technology
Redirecting earmarked funds to the frontiers of science where DOE is working is one good place
to invest. The Department performs a broad array of basic research in fields from applied math to
physics to biology. It is the primary federal agency supporting research in particle physics, nuclear
physics, fusion energy sciences, and chemistry of the radioactive elements. The Department’s basic
research programs are generally effective, with Office of Science-supported researchers winning
numerous awards and honors. In the past decade, seven Nobel Laureates won Nobel Prizes in
Chemistry or Physics for work that DOE sponsored.
The Office of Science also operates a suite of 27 scientific user facilities—such as x-ray light
sources, fusion devices, particle accelerators and colliders—used each year by over 18,000 university,
industry, and government scientists. Researchers traveling to use these facilities expect that the
photon, neutron, proton, electron, or other beams will be provided for their experiments on schedule.
DOE facilities delivered 99 percent of scheduled operating hours over the period 1997–2001. More
importantly, these facilities deliver scientifically. As just one example, 11 of the 12 irreducible
building blocks of all known matter were discovered at particle physics facilities the Department
has run over the last 50 years. The only one not discovered at a U.S. high-energy physics facility
was the electron, discovered in England in 1897.
Access to DOE facilities is allocated by peer-review to the most scientifically promising of the
proposed experiments. Awarding research funds through a peer-reviewed, competitive process is
the preferred method to improve chances for higher quality results. Agencies, and programs within

THE BUDGET FOR FISCAL YEAR 2003

129

them, vary in the degree to which they award funds competitively. Overall, only 24 percent of DOE
research funds are competed, while another 49 percent are subject to limited competition. For the
Office of Science, 45 percent of the research funds not spent on facility operations are fully competed;
55 percent are subject to merit review with limited competition.

Agency

Percent of
Research
Competed
in 2001

National Science Foundation ..............................................

Department of Health and Human Services .....................

National Aeronautics and Space Administration ..............

Department of Commerce ...................................................

Department of Energy ..........................................................

The Office of Science spends 37 percent of its research funds on facility operations. To maintain
operations of its user facilities at the highest level possible, Office of Science advisory committees
periodically review both the operational efficiency and scientific productivity of DOE’s user facilities.
These reviews have teeth. In 1997, the Basic Energy Science Advisory Committee undertook a
review of the Advanced Light Source (ALS) at Lawrence Berkeley Laboratory. Finding the facility’s
performance wanting, DOE cut its budget, the director resigned, and the facility embarked on
a path to recovery. Last year, the advisory committee revisited the facility and re-evaluated its
scientific output. Noting that none of the criticisms in the earlier report were still valid, the review
panel found that the ALS had established areas of excellence in a number of important scientific
areas. It singled out for special mention the unique capabilities of the ALS to study ultrafast
processes in solids and gases, which have application for chemical reactions, phase transitions,
surface dynamics, and a wide variety of critical biological processes.
The budget proposes $3.3 billion for DOE Science programs. Consistent with the Administration’s
emphasis on shifting funds to higher priority programs, the budget redirects funding for the particle
physics fixed target program at Brookhaven to operations at Fermi National Accelerator Laboratory.

Energy Resources
DOE performs research and development on energy production, use, and conservation over a wide
spectrum of technologies such as nuclear, solar, wind, fossil, and many others. Other programs in
this area include energy security activities of the Strategic Petroleum Reserve and the Northeast
Heating Oil Reserve.

Presidential Initiatives
The budget continues to fulfill the President’s commitments to increase funding for the
Weatherization Assistance Program over the next 10 years to assist 1.2 million low-income families
while improving the nation’s energy conservation. The program’s energy conservation construction

130

DEPARTMENT OF ENERGY

measures for homes help save each low-income family an estimated $218 annually on utility bills,
at an average one-time cost of $2,000 to $2,500 each. With an average life span of 20 years, the
improvements generate more than $4,000 in total utility bill savings per home. The budget proposes
to weatherize 123,000 homes in 2003, a 17 percent increase over 2002.
The budget also continues to fulfill
the President’s commitment to search for
technology that will allow us to burn coal
cleanly and more efficiently.
Last year’s
budget added $150 million to existing coal
research towards the President’s commitment
to spend $2 billion over 10 years on clean coal
research. In this budget, all coal programs are
brought under one umbrella—the President’s
Coal Research Initiative.
This approach,
using a more transparent budget structure,
will improve the management and oversight
of this $326 million program. Funds from
the earlier, much-criticized demonstration
program of the 1980s will be redirected to the
Coal Research Initiative, freeing up almost
$500 million that has languished unexpended
and unproductive for years.

Old Clean Coal

The old Clean Coal program was intended to
demonstrate technologies that could reduce
acid rain-producing emissions from coal-fired
power plants. Projects required a minimum 50
percent cost-share from industry. Commercially
successful projects were supposed to reimburse
the federal investment. Less than $2 million
of the $1.6 billion expended—about one tenth
of one percent—has been repaid. Of the 50
projects funded, 12 costing $97 million were
terminated or withdrawn prior to completion.
The General Accounting Office examined 13
projects: six were behind schedule by two to
seven years, and two were bankrupt.

Getting More for Each Research Dollar
The federal government needs to spend each dollar carefully, recognizing it is the taxpayers’
money, not its own. In an effort to better prioritize research and development spending, the
Administration, in consultation with the National Academy of Sciences and many others, developed
investment criteria for applied R&D programs. The Administration is using the specific R&D
criteria to recommend funding levels for the Department’s applied R&D programs that support the
President’s National Energy Policy.
This is the first application of these criteria to specific programs to ensure that programs fulfill
an essential federal role, have well-developed plans to achieve objectives, and achieve results that
benefit the nation. Next year, the Administration will develop investment criteria for basic research
programs and extend the application of applied R&D criteria throughout the government for use in
development of the 2004 Budget.
Application of the criteria indicated that data on the expected performance of many R&D projects
are not readily available. For instance, some of the 19 fossil energy R&D programs failed to report
any performance data at all, and those that did tended to report goals rather than the current
cost performance of technologies under development. The Department is addressing this lack of
performance data. In addition, the grading method needs to be improved to distinguish between
programs more carefully. For instance, about 80 percent of the programs graded by DOE achieved a
maximum score.

THE BUDGET FOR FISCAL YEAR 2003

131

R&D Investment Criteria at Work
Despite these initial problems, the criteria
supplied enough guidance to determine some
higher and lower performing programs.
For example, ideas about a concept called
“whole-house design” show significant promise
for reducing the cost of solar water heating
and developing a “zero-net energy home.”
While the Concentrating Solar Power program
succeeded in lowering the cost of power
produced by solar collectors, the price tag
for this technology still cannot come close to
competing with conventional power sources.
Therefore, the budget increases funding to the
Solar Building Technology Research program
by shifting funding from the Concentrating
Solar Power program.
The R&D investment criteria also directed
funding shifts in the Department’s wind power
programs. Due in part to DOE’s historical
support for wind R&D, wind energy capacity
in the United States increased 50 percent
in 2001, to about 4,200 megawatts—enough
electricity to meet the needs of one million
households each year.
Wind technology
can compete on cost in some areas of the
country with high average wind speeds.
Now, the Department will turn its focus
toward developing wind power technologies to
compete in lower wind-speed areas.

Improving R&D Investment Criteria

The National Academy of Sciences recently
reported that from 1978 to 2000 the Department
of Energy’s energy efficiency and fossil energy
R&D programs produced a return of $40 billion
off an investment of $13 billion. Dampening this
piece of otherwise good news was the fact that
three-quarters of these benefits were attributable
to three projects that cost only $11 million. What
happened to the rest of the money? Good
question.
Many projects that set taxpayers back billions of
dollars generated little or no economic benefit.
Take the Coal Liquefaction program, which has
spent more than $2 billion on improving the
conversion of coal to liquid fuels. Despite its
technical success, the program has made little
progress toward manufacturing economical
coal-derived fuels. For the effort to be profitable
at the current level of development, oil prices
would have to reach a sustained level of $45
per barrel, more than twice what the commodity
currently trades for.
The R&D investment criteria developed in the
President’s Management Agenda will help
agencies select broadly beneficial projects that
individual firms would be unlikely to undertake.
Achieving the greatest possible return on
each taxpayer dollar is an essential part of the
Administration’s performance-based focus.

Even high-performing R&D programs
may conduct research that could or should
be funded by industry. For example, the
fossil energy program proposed an expansion
of research efforts into offshore drilling
techniques. Yet, this area carries a great incentive for industry to invest its own resources, and
industry has a long history of doing just that. So there is little reason for taxpayers to help them
out. The budget proposes reductions to programs that are poorly performing, misdirected, or are
corporate subsidies. Some of this funding is redirected to programs recommended by the National
Energy Policy, such as hydrogen and superconductivity research and other programs performing
particularly well.
Following the lead of the National Energy Policy, the budget accelerates commercialization of
stationary fuel cells in the next three to four years. It adds a $54 million capstone to the more than
$1.2 billion spent developing this technology over the last two and half decades. Also in keeping with

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DEPARTMENT OF ENERGY

the National Energy Policy, the budget furnishes $50 million to research fuel cells for transportation
technologies.

Remodeling a Public-Private Partnership
The National Energy Policy also recommends funding R&D programs that are
“performance-based and are modeled as public-private partnerships.” The Administration proposes
a new venture with the auto industry called Freedom CAR (Cooperative Automotive Research). The
partnership aims to develop technologies, such as hydrogen-based fuel cells, that solve many
of the problems associated with the nation’s reliance on oil.
Freedom CAR replaces the Partnership for a New Generation of Vehicles (PNGV), which had a
misguided focus and insufficient accountability due to its multi-agency structure. The new joint
effort will build on some of the PNGV’s technical successes and address the program’s shortfalls,
including its poor management structure. Partners will include DOE and the U.S. Council
for Automotive Research (USCAR), an umbrella organization of major U.S. automakers. The
automakers will provide technical experts to conduct peer-review of project proposals, but direct
federal support of automakers will be limited.
This new venture will have clear goals. DOE will develop performance measures and assess
research projects annually, and independent technical experts will peer review the program
biennially. The venture will be funded solely through DOE, and will be managed by one accountable
DOE program manager. The new venture will embrace the President’s Management Agenda’s
investment criteria for applied R&D programs, including a strict adherence to the cost-sharing
guidelines.

Renewable Tax Incentives
The budget proposes significant tax incentives primarily targeted at encouraging energy efficiency
and use of renewable resources. These total $9.5 billion over 10 years. The budget includes several
new energy tax incentives and extensions of existing ones, including incentives recommended by the
National Energy Policy. Specific proposals would:

• Extend
•
•
•
•
•
•

and modify the tax credit for producing electricity from environmentally friendly
sources, such as biomass and wind ($1.9 billion);
Provide a tax credit for residential solar energy systems ($75 million);
Provide a new tax credit for the purchase of certain hybrid and fuel cell vehicles ($3.0 billion);
Provide a tax credit for energy produced from landfill gas ($1.1 billion);
Extend the ethanol tax exemption;
Provide a tax credit for investment in combined heat and power ($1.2 billion); and
Modify the tax treatment of costs associated with decommissioning nuclear power plants
($2.1 billion).

The Administration also proposes $51 billion to permanently extend the Research and
Experimentation tax credit for all sectors of the economy.

THE BUDGET FOR FISCAL YEAR 2003

133

Legislative Proposals
The Administration proposes opening a small part of the Arctic National Wildlife Refuge (ANWR)
to oil and gas exploration. The Administration would devote $1.2 billion of the bonus bid receipts, paid
for the right to explore in a small part of ANWR, to increasing renewable energy R&D. This research
will help the nation reduce its dependence on fossil fuel. Another portion of expected receipts from
future royalties will be devoted to increasing land conservation and reducing maintenance backlogs
on public lands in the Department of the Interior.

Power Marketing Administrations
The Western, Southwestern, Southeastern, and Bonneville Power Marketing Administrations
(PMAs) market electricity generated at 133 multipurpose federal dams and related facilities.
Overall, they manage more than 33,000 miles of federally owned transmission lines. The 2003
Budget provides $183 million in new discretionary budget authority for Western, Southwestern,
and Southeastern. The PMAs will continue to meet their performance goal of providing safe and
reliable service. To do that, each PMA must achieve a "pass" rating each month under the North
American Electricity Reliability Council’s industry-wide performance standards.
The National Energy Policy report directs federal agencies to remove constraints on the
interstate transmission grid to help ensure that the nation’s electricity can flow more freely. The
Administration has made considerable progress this past year working with the state of California
and private utilities to secure private-sector financing for construction of transmission facilities
that will relieve the transmission bottleneck in northern California.
PMAs receive their power from hydroelectric dams operated by the Corps of Engineers and Bureau
of Reclamation. In 2003, Southeastern, Southwestern and Western will begin to directly finance the
Corps of Engineers’ power-related operating and maintenance expenses. In past years, the Corps
obtained appropriations to pay these expenses, and the PMAs repaid the costs to the U.S. Treasury.
The Bonneville Power Administration (BPA) finances its $3 billion annual cost of operations and
investments from its annual power revenues and through borrowing from the U.S. Treasury. The
budget proposes to increase BPA’s current borrowing authority ceiling of $3.75 billion by $700 million
to enable BPA to finance transmission system, conservation, and hydropower improvements. BPA
will encourage non-federal or joint financing of all its future investments in transmission system
upgrades and other investments. It will report its evaluation of these financing opportunities to
DOE before using its borrowing authority.

Strengthening Management
DOE is making progress in addressing the President’s Management Agenda and anticipates
much improvement through 2002. For example, DOE is making strides in improving its financial
management and has received an unqualified audit opinion on its financial statements in four of
the last five years. DOE is working with OMB to integrate budget and performance. However,
E-Government, especially management of its Information Technology (IT) investments, is DOE’s
weakest link. Previously, DOE failed to prioritize and report on its IT investment portfolio or
manage IT strategically. The Department is currently consolidating its IT portfolio under the Chief
Information Officer (CIO), who reports directly to the Deputy Secretary.

134

DEPARTMENT OF ENERGY

One additional management area particularly important for DOE is contract reform and project
management. DOE spends more than 90 percent of its budget through contracts. It is essential that
DOE integrate cost and performance standards down to the project level into the competitions for
large contracts. DOE traditionally competes large contracts first and then negotiates performance
and cost standards after the award. DOE plans to enhance and improve contract and project
management by increasing the technical skills and resources it needs to make its managers
accountable for achieving project and contract cost, schedule, and performance goals.

Initiative

2001 Status

Human Capital—DOE has two main problems: an aging workforce and imbalances in core
skills needed to carry out its missions. The Department has not effectively used existing
statutory and regulatory flexibility as part of an overall strategy to address workforce issues.
DOE’s Workforce Restructuring Plan lacks a vision of the staffing needed for its scientific and
technical missions. It does not include a proposal for streamlining headquarters and field
offices to reduce management layers. DOE’s 100,000-plus contractors are not included in the
scope of its workforce restructuring plans. With one of the highest contractor-to-federal staff
ratios (7:1), DOE must have skills necessary to provide substantive oversight and management
of its contracts. DOE will revise its workforce-restructuring plan to:

•

•
•
•
•

Address skill gaps in contract administration and project management;
Develop and maintain science and technical staff;
Eliminate headquarters and field office redundancies; and
Integrate human resources into budget and strategic plans.

Competitive Sourcing —The Department prepared a 2000 inventory of 9,941 commercial
positions performing tasks that are commercial in nature, more than a third of which are within
the Power Marketing Administrations. The Department’s competitive sourcing plan must meet
the President’s Management Agenda goal to compete 15 percent of the agencies’ commercial
positions through 2003, in an effort to eventually compete 50 percent of all commercial
activities.
Financial Management —DOE was one of only six agencies to receive an unqualified audit
opinion on its first consolidated financial statement. It has continued to receive unqualified
opinions every year, except 1998 because of its environmental liabilities. DOE was also one of
four agencies whose financial systems met the Federal Financial Management Improvement
Act requirements. Despite these successes, DOE is still reporting material management
control weaknesses. DOE will continue to work on resolving these issues and will:

•

Develop a financial management plan that includes a schedule and addresses system
integration, especially with its contractor systems;

•

Integrate financial, budget, and program information in its systems in order to provide
cost information related to performance; and,

•

Ensure implementation of its Business Management Information System (BMIS) is on
track and that it will correct managerial accounting issues as planned.

•
•

THE BUDGET FOR FISCAL YEAR 2003

135

Initiative
E-Government —DOE reports only 10 percent of its IT investments as “major,” which excludes
too many relevant projects from oversight and justification of continual investment. DOE has
significant weaknesses in its capital planning and investment control process, use of enterprise
architecture in decision making, and the effectiveness of its security policies. Because of a
lack of information or business case for its IT investments, it is impossible to evaluate DOE’s
compliance with e-government standards. Its financial management system does have some
enterprise resource planning management capabilities. DOE must make much more progress
in this area by providing complete, accurate, and timely submissions that are justified by a
good business case for all of its major IT investments. The Department needs to implement the
capital planning and investment control process, and should:

•

Redefine its major IT investments to include a majority of the $1 billion in annual IT
investments;

•
•

Consolidate the IT portfolio and manage it at a departmental level; and

2001 Status

•

Provide strong leadership from the CIO.

Budget/Performance Integration —Historically, planning and budgeting have been separate
activities that were not sufficiently coordinated. Strategic and performance plans tend to be
submitted after the budget, rather than informing budgets. There has been little attempt to tie
resources to results. Although DOE has been working to correct some of these problems,
there is still a long way to go. Use of R&D investment criteria should reduce “justification
by anecdote”, helping DOE to focus on outcomes and how programs influence them. The
Department needs to capture meaningful data on performance. Each program should develop
performance metrics for all priority programs that will inform and justify budget request
decisions.

•

136

DEPARTMENT OF ENERGY

Department of Energy
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Spending:
Discretionary Budget Authority:
National Security
National Nuclear Security Administration ........................
Other Defense Activities .....................................................
Energy Resources ...................................................................
Science and Technology .........................................................
Environmental Quality .............................................................
Corporate Management and all other programs .................
Subtotal, Discretionary budget authority adjusted 1 ...............
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

6,950
601
2,468
3,227
6,803
138
20,187
−70
20,117

7,249
548
2,704
3,248
7,137
80
20,966
−73
20,893

8,039
472
2,669
3,293
7,269
176
21,918
−71
21,847

Emergency Response Fund, Budgetary Resources:
Weapons Activities ...................................................................
Defense Nuclear Nonproliferation ..........................................
Defense Environmental Management ...................................
Other Defense Activities ..........................................................
Total, Emergency Response Fund, Budgetary resources ......

5
—
—
—
5

131
226
8
4
369

—
—
—
—
—

Mandatory Outlays:
Existing law ...............................................................................
Legislative proposal .................................................................
Total, Mandatory outlays ..............................................................

−766
—
−766

−1,326
—
−1,326

−1,253
149
−1,104

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives .

DEPARTMENT OF HEALTH AND HUMAN SERVICES

The President’s Proposal:

• Strengthens capacity to prevent, identify, and respond to incidents of bioterrorism;
• Advances the President’s Management Agenda by consolidating buildings and
•
•
•
•
•
•
•
•
•
•
•

facilities management and other administrative offices;
Continues implementation of the President’s Faith-Based and Community Initiative;
Completes the commitment to double funding for the National Institutes of Health;
Builds on the 2002 Community Health Centers and National Health Service Corps
Presidential Initiatives;
Invests in activities to educate students on preventing unintended pregnancies
and sexually transmitted diseases through abstinence;
Enhances drug treatment to narrow the treatment gap;
Enhances public health by investing in patient safety, food safety, and
community-based disease prevention;
Fully funds the President’s child welfare initiatives;
Reauthorizes major welfare programs maintaining funding for the Temporary
Assistance for Needy Families program;
Dedicates resources for immediate steps to improve and modernize Medicare
benefits, consistent with the President’s framework for strengthening Medicare,
including a prescription drug benefit;
Increases coverage and efficiency in the Medicaid and State Children’s Health
Insurance Program by giving states more flexibility to meet health care coverage
goals; and
Supports the President’s health insurance tax credit by allowing states to use their
health insurance purchasing pools to provide affordable private health insurance
options.

137

138

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Department of Health and Human Services

Tommy G. Thompson, Secretary

www.hhs.gov

202–619–0257

Number of Employees : 65,000
2002 Spending : $459.4 billion
Divisions : Food and Drug Administration;
Health Resources and Services Administration;
Indian Health Service; Centers for Disease
Control and Prevention; National Institutes of
Health; Substance Abuse and Mental Health
Services Administration; Agency for Healthcare
Research and Quality; Centers for Medicare and
Medicaid Services; Administration for Children
and Families; Administration on Aging; Office of
the Secretary; Office of the Inspector General;
and Program Support Center.

The Department of Health and Human
Services (HHS) is one of the largest federal
departments, the nation’s largest health
insurer, and the largest grant-making agency
in the federal government. The Department
is charged with promoting and protecting
the health and well-being of all Americans,
and provides world leadership in biomedical
and public health sciences. HHS addresses
these objectives through an array of programs
in basic and applied science, public health,
income support, child development, and the
financing of health and social services.

HHS Priorities
Fighting Bioterrorism
No HHS activity is now more important
than its role in national bioterrorism
preparedness.
By Presidential directive,
HHS is the lead federal agency in preparing
to combat bioterrorism.
HHS prevents,
identifies, and responds to incidents of
bioterrorism through the Office of the
Secretary, the Centers for Disease Control
and Prevention (CDC), the Food and Drug
Administration (FDA), the Health Resources
and Services Administration (HRSA), and the
National Institutes of Health (NIH).
Through the CDC, HHS provides assistance
to state and local entities to build increased
laboratory capacity for quick and accurate
National Pharmaceutical Stockpile supplies are stored
identification of dangerous agents, and to
strategically in secure locations around the country to ensure
enable rapid and secure communication. The
swift mobilization to the site of a disaster.
CDC also maintains laboratory facilities to
hold and study dangerous biological agents and works with the states to confirm the identity of such

THE BUDGET FOR FISCAL YEAR 2003

139

agents in the event of a potential attack. Existing and new funding will help improve and update
these laboratories. HHS trains and maintains federal public health emergency response teams to
be rapidly deployed in the first stages of a bioterrorist incident. HRSA works with states and the
nation’s hospitals to ensure their preparedness on a regional basis.
HHS also maintains the National
Pharmaceutical Stockpile, which is increasing
its capacity to cover over 20 million individuals
during 2002. To ensure that medicines and
supplies can be quickly delivered to the site
of an emergency, HHS is acquiring a national
supply of antibiotics and smallpox vaccine, and
is working to develop and approve innovative
new drugs and therapeutics.
HHS is taking a new approach to managing
and distributing funds for state and local
bioterrorism preparedness.
This process
will ensure that public health departments,
hospitals, emergency medical services, and
other first responders develop integrated
detection and treatment systems to provide
a seamless response to potential acts of
bioterrorism.

Secretary Thompson and New York State Health Commissioner
Dr. Antonia Novello speak with rescue workers on September
13, 2001, at the site of the World Trade Center terrorist attacks.

The FDA works to ensure the safety of the nation’s food supply. The budget supports a substantial
increase in the amount of safety inspections of FDA-regulated products imported into the country.
In an effort to protect public health, the FDA will conduct three times the current inspections of
imported foods to keep them from being used as a conduit for terrorism. The FDA will also improve
blood screening processes to assure availability of a safe national supply of blood and related products
in the event of an attack or its aftermath.
These HHS efforts were brought to national attention by the speedy delivery of medical supplies to
New York on September 11th , and in the assistance provided to state and private parties involved in
the subsequent anthrax attacks. The threat of bioterrorism is now a reality, and the budget includes
resources to respond at HHS and across the government.
Measuring effectiveness is extremely difficult in this rapidly evolving area. So it is essential that
assessments are conducted, planning procedures are established, and rigorous standards are lived
up to. Under the leadership of the President, these steps will be taken at all levels of government.

A Citizen-Centered HHS: Streamlining Bureaucracy
A key objective of the President’s Management Agenda is a more responsive, more
“citizen-centered” federal government. In few federal agencies is the need for organizational reform
more acute than at HHS, where a long history of decentralized decision-making has produced a
Department with 13 operating divisions functioning with relative autonomy. As a result, a complex
web of ever-proliferating offices has distanced HHS from the citizens it serves, and has produced
a patchwork of uncoordinated and duplicative management practices that hinder its efforts to
accomplish its mission efficiently.

140

DEPARTMENT OF HEALTH AND HUMAN SERVICES

This Administration is committed to solving this problem through Secretary Thompson’s One
Department initiative, which will eliminate unnecessary layers of bureaucracy and consolidate
duplicative functions into unified offices. Streamlining efforts in 2003 will focus on HHS’ human
resources, public affairs, legislative affairs, and building and facilities management functions.
Talent Agencies

Currently, the Department does not leverage itself
with respect to bringing on new talent by combining
the resources of all of its agencies. The most recent
example occurred at a recruiting fair in Puerto Rico
the Program Support Center attended—along with
several other HHS agencies, all with different booths
and HR personnel, and all looking and appearing as
separate government entities. The costs [were] all
being borne individually by the different agencies.

Human Resources.
HHS today has
40 different human resources offices, all
of which conduct independent—and often
competing—recruitment, hiring, and training
activities. In 2003, that number will be cut to
four, as HHS consolidates personnel matters
into offices in Baltimore, Rockville, and
Bethesda, Maryland, and Atlanta, Georgia.

Public Affairs and Legislative Affairs.
Currently, HHS has more than 50 public
affairs offices and more than 20 legislative
affairs offices.
Spread throughout 13
HHS Workforce Analysis
operating divisions and dozens of bureaus,
June 2001
these offices deliver separate—and sometimes
conflicting—messages. In 2003, this structure
will be streamlined to create one office for public affairs and one centralized legislative affairs office.
Buildings and Facilities Management.
HHS agencies seek to make certain the
nation’s biomedical research and health
care services are conducted in safe labs
and hospitals. In the past, NIH, CDC, and
HRSA each administered their own building
maintenance and construction projects.

Which Of These Projects Would You Fund?

NIH Parking Facility: NIH is planning to construct
a new $14 million on-site parking facility to
accommodate its employees, visitors, and patients.
Since 1996, over 1,500 parking spaces have been
lost because of new construction projects, including
the Clinical Research Center and the East Child Care
Center.

HHS’ performance in building construction
can be improved.
One challenge facing
the federal government’s main social
Indian Health Service Sanitation Facilities: Investment
service agency is uneven project planning
in sanitation facilities projects has contributed to
and oversight.
HHS does not have a
improvements in American Indian/Alaska Natives
department-wide performance measure that
(AI/AN) health status. However AI/AN homes are still
articulates national priorities for health care
seven times more likely to be without clean water than
facilities. As a result, construction projects
all other U.S. homes. One of IHS’ most important
often get selected for reasons other than
missions is to construct sanitation facilities for AI/AN
merit, including congressional earmarks. The
homes. IHS has identified a backlog of $1.8 billion in
President’s Budget addresses this challenge
sanitation construction projects but, within the overall
by: 1) concentrating leadership, programmatic
IHS budget, is able to fund only two percent annually.
expertise, and project oversight in the HHS
Office of the Secretary; 2) instituting a
comprehensive framework that prioritizes all capital projects across HHS; and 3) implementing a
department-wide measure linked to program outcomes.

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141

The budget consolidates facilities construction and maintenance activities for NIH, CDC, and
HRSA in the Office of the Secretary so that HHS can manage buildings competitively across the
Department. In 2004, FDA and IHS will be included in this consolidation. This consolidation will
give HHS tremendous flexibility in allocating funding to the highest priority projects and is fully in
line with the Secretary’s vision for a unified HHS.

Promoting the President’s Initiatives

The paramount goal is compassionate results, and private and charitable groups, including religious ones,
should have the fullest opportunity permitted by law to compete on a level playing field, so long as they achieve
valid public purposes, like curbing crime, conquering addiction, strengthening families and overcoming poverty.
President George W. Bush
January 29, 2001

Faith-Based and Community Initiative
On January 29, 2001, the President announced the Faith-Based and Community Initiative and,
at the same time, created a White House office dedicated to this issue along with parallel offices
at five key Departments: HHS, Justice, Housing and Urban Development, Labor, and Education.
This initiative aims to enrich social services by drawing on the strengths of religious and community
groups. These organizations have long played a critical role in furnishing their own aid, but have
been unfairly or unwisely excluded from playing a more direct role in delivering federally supported
services.
The initiative expands the access of community and faith-based organizations on a
non-discriminatory basis to existing federally funded programs.
Last summer, the White House Office on Faith-Based and Community Initiatives and the five
departmental centers reviewed artificial regulatory or administrative barriers to full participation
by faith-based organizations. The results were published in the August 2001 report, Unlevel Playing
Field: Barriers to Participation by Faith-Based and Community Organizations in Federal Social
Service Programs. The report found that many of the barriers to fuller participation were needlessly
burdensome administrative creations. The Faith-Based and Community Initiative’s part of the
President’s Management Agenda will measure the progress of the five Departments in removing
these barriers. In addition, the budget funds the following four competitive grant programs,
targeted at faith- and community-based organizations that can provide innovative services at the
grassroots level.
Compassion Capital Fund: To build on the efforts of community-based, charitable organizations,
the budget provides $100 million to help small charities increase their capacity to deliver services
and grants by financing the start-up costs of charitable organizations.

142

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Mentoring Children of Prisoners: The
President recognizes that, as a group, the
more than two million children with parents
in prison have more behavioral, health, and
educational problems than the population at
large. Mentoring by caring adults serving as
positive role models can brighten the outlook
for these children. Therefore, the budget
includes $25 million for competitive grants
to faith and community-based groups for
programs providing mentors to children of
prisoners.
Promoting Responsible Fatherhood: Over
25 million children live in homes without
fathers. To assist non-custodial fathers to
become more involved in their children’s lives,
the budget provides $20 million in competitive
grants to faith-based and community
organizations.

Unlevel Playing Field

•

A funding gap exists between the government
and the grassroots. Smaller groups,
faith-based and secular, receive little federal
support relative to the size and scope of
services they provide.

•

A widespread bias against faith- and
community-based organizations in federal
social service programs exists.

•

There are some legislative restrictions,
but many of the restrictive regulations are
needlessly burdensome administrative
creations.

•

Charitable Choice legislation has been almost
entirely ignored by federal administrators who
have done little to help or require state and
local governments to comply with new rules
for faith-based service providers.

Maternity
Group
Homes:
The
Unlevel Playing Field: Barriers to Participation
Administration
also
increases
support
by Faith-Based and Community Organizations
to community-based maternity group homes
in Federal Social Service Programs
by providing young, pregnant, and parenting
White House, August 2001
women with access to community-based
coordinated services such as childcare,
education, job training, and counseling. The budget includes $10 million in competitive grants to
meet the needs of these women and their children.
Partnering with Faith-based and Community
Organizations

The San Antonio Weed & Seed Coalition consists of
120 community, neighborhood, and law enforcement
organizations whose mission is to reduce drug-related
crime and victimization. The coalition has helped to
reduce crime in San Antonio by 43.5 percent from
1992–2000. One of the coalition partners, Love
Demonstrated Ministries (LDMI), is a faith-based
organization which focuses on youth offenders, gang
members, and high risk youth. Over the past three
years, 135 of 165 young offenders entering its Life
Skills and Parenting Camp have graduated from
LDMI, a success rate of 82 percent.

Charitable
Tax
Provisions:
The
Administration favors a charitable deduction
for taxpayers who don’t itemize their
deductions on their tax returns of up to $100
for singles and $200 for joint returns in 2002,
increasing in stages to $500 for singles and
$1,000 for joint returns in 2012. This proposal
would also permit tax-free distributions from
IRAs for charitable contributions, increase the
percentage limitation on corporate charitable
contributions, and make several changes
related to trusts and foundations. The effect
on federal receipts would be $2 billion in 2003,
and $41 billion for 2003–2012.

Individual Development Accounts (IDAs):
The Administration also supports the
establishment of additional IDAs, a savings vehicle designed to encourage assets development and

THE BUDGET FOR FISCAL YEAR 2003

143

help participants enter the financial mainstream. Program participants can withdraw accrued
savings, matched contributions, and investment earnings for qualified expenses, such as higher
education, homeownership, and business start-up.
The IDA initiative creates a tax credit available to financial institutions to generate matching
contributions to participants’ savings accounts. A 100 percent IDA tax credit would allow a bank to
reduce its federal tax liability on a dollar-for-dollar basis for matching participant savings up to $500
per year. For example, if a participant deposits $500 into an IDA account, the bank would match
this amount and claim a $500 tax credit on their federal tax return. This initiative will create up to
900,000 accounts over the next six years.

The National Institutes of Health
Begun in 1887 as a one-room laboratory
within the Marine Hospital Service, the
National Institutes of Health has become
the world’s leading research institution for
biomedical and behavioral research. NIH now
supports more than 50,000 scientists working
in 2,000 institutions across the United States.
These scientists, with the help of federal grant
support, have been making great advances
in the prevention, diagnosis, and treatment
of diseases. As we look to the future, medical
science stands at the threshold of profound
research advances that were unthinkable a
decade ago. Researchers are identifying the
Research is the lifeblood of NIH work.
genes responsible for the abnormalities that
cause many diseases. What researchers learn could help bring us closer to a cure for Alzheimer’s,
Parkinson’s, cardiovascular disease, AIDS, diabetes, and other diseases.
During the presidential campaign, the President promised to double the budget of NIH by 2003
to $27.2 billion, from the 1998 level of $13.6 billion. The Administration is committed to fulfilling
that promise. The budget includes the final installment of $3.9 billion over 2002 needed to achieve
doubling. With this increase, NIH will further its efforts to support research on diseases affecting
the lives of Americans.
2003 Budget Completes Doubling of the NIH Budget
(Discretionary budget authority in million of dollars)

1998 NIH Budget ...........................................................................................................................................

13,622

2003 NIH Budget—Doubles 1998 Funding Level .....................................................................................

27,244

Adjustments for Accrual of Employee Pension and Annuitant Health Benefits ....................................

+91

2003 NIH Budget with Accrual Adjustments .............................................................................................

27,335

144

DEPARTMENT OF HEALTH AND HUMAN SERVICES

This NIH funding increase will also finance important research needed for the war against
terrorism. Over its history, NIH has been an important contributor to the nation’s wartime efforts.
During World War II, NIH was instrumental in developing the oxygen mask to prevent pilots from
blacking out at high altitudes. Now, as the country faces new bioterrorism threats, NIH is prepared
to research the effects of bioterrorism and develop treatments in the event of attack. The budget
includes $1.8 billion for bioterrorism research, including development of an improved anthrax
vaccine, and laboratory and research facilities construction and upgrades related to bioterrorism.
Public/Private Partnership: A Major Step to an
HIV Vaccine

The National Institute of Allergy and Infectious
Diseases (NIAID), one of the National Institutes of
Health, has entered into an agreement with Merck
& Co. to collaborate on human testing of promising
HIV vaccines developed by the company. Under
the agreement, the vaccines will be evaluated in
collaboration with NIAID’s International HIV Vaccine
Trials Network (HVTN). To date, 30 potential HIV
vaccines have been evaluated in NIAID-supported
clinical trials. With an estimated 5 million new HIV
infections worldwide this year—about 14,000 each
day—developing a vaccine against HIV is a top
biomedical research priority. In the U.S., collaboration
between the biomedical, pharmaceutical, medical,
and public health communities have contributed to
the steep decline in HIV/AIDS deaths and HIV/AIDS
acquired through childbirth. By combining the
laboratory strengths of NIAID’s HVTN with Merck,
rapid progress in evaluating the safety, immune
response, and effectiveness of these vaccines is
expected.

While the nation fights the war against
terrorism, it also continues to fight the war
on cancer. Each day more that 1,500 people
in the United States die from this disease;
the annual death toll from cancer exceeds
fatalities from all wars fought by the United
States in the last century. Thirty years ago,
when the war on cancer was declared, many
scientists believed that cancer was one disease
that would have a single cure. Recent research
indicates that cancer is actually hundreds
of diseases, all of which require different
treatment regimens. Promising research is
leading to breakthroughs in treating various
forms of cancer. The budget includes a $5.5
billion investment in cancer research at the
National Cancer Institute and other NIH
Institutes.
The
President
recognizes
research
will advance the health and well being of
Americans and those living beyond our
borders. The budget continues to invest in the
Global Fund to Fight HIV/AIDS, Malaria, and
Tuberculosis by allocating $100 million of NIH
funds for this effort.

NIH is composed of 25 institutes and centers with an overall mission to sponsor and conduct
biomedical research and training that leads to better health for all Americans. While the NIH
conducts research in its own laboratories, the vast majority of its funding supports researchers
through grants to them and to their universities, hospitals, and research institutions. Panels of
scientists review grant requests and then fund them for their scientific merit. New knowledge
often leads to the development of medical advances to treat and cure diseases. The budget expands
scientific discovery by increasing the number of research grants funded. In 2003, NIH will support
35,920 grants, an increase of more than 8,800 from those underwritten in 1998.

THE BUDGET FOR FISCAL YEAR 2003

145

NIH Research Grants
Actual

Estimate

1998

1999

2000

2001

2002

2003

All Research Project Grants .......

27,073

28,715

30,669

32,546

34,686

35,920

New Grants ...................................

7,578

8,566

8,880

9,186

9,377

9,854

Continuing Grants ........................

19,495

20,149

21,789

23,360

25,309

26,066

Community Health Centers
Community health centers (CHCs) provide family-oriented, preventive and primary health care
to over 11 million patients at over 3,400 sites. CHCs seek to improve the health status of underserved
populations and provide access to critical health care services for the uninsured.
The budget builds on the 2002 Community
Health Centers Presidential Initiative to
increase and expand the number of health
center sites by 1,200 in order to serve another
6.1 million patients by 2006. This expansion
complements the President’s proposals to
increase health insurance coverage in private
and public insurance programs, to help
ensure that all Americans have access to
health care. The professional care provided
at health centers reduces hospitalizations and
emergency room use and helps prevent more
expensive chronic disease and disability. For
example, while health center patients typically
Doctor helping patient at a Community Health Center.
have high blood pressure rates far exceeding
that of comparable racial, ethnic and socioeconomic groups, they are more than three times as likely
to report that their blood pressure is under control compared to non-health center patients.
Increasing and Expanding
Com munity Health Care
Sites

New C om munity Health Care
Sites Since 2001

2001 .............................................

3,307

—

2002 .............................................

3,559

+252

2003 .............................................

3,737

+430

2004 .............................................

3,967

+660

2005 .............................................

4,237

+930

2006 .............................................

4,507

+1,200

146

DEPARTMENT OF HEALTH AND HUMAN SERVICES

National Health Service Corps
Community Health Centers often work with the National Health Service Corps (NHSC), the goal
of which is to provide safety net support for the uninsured and underserved by directing health care
professionals into medically underserved areas. The NHSC funds scholarships and loan repayments
for health professionals who serve for a minimum of two years in areas suffering shortages of health
professionals.
The 2002 President’s Budget launched a management reform initiative to place NHSC clinicians
in the neediest, underserved areas. This management reform initiative better defines areas of the
country that have a shortage of health professionals. The budget increases funding for the NHSC
and its sister program, the Nursing Education Loan Repayment Program, so that more health care
providers will practice in underserved areas.

Promoting Abstinence
Teen pregnancy and out-of-wedlock sexual activity remain a major problem. In 1999, half of all
high school students engaged in sexual activity, including eight percent before age 13. To ensure
that more children receive the message that abstinence is the best option for avoiding unintended
pregnancies and sexually transmitted diseases, the budget makes a substantial investment in
abstinence education. The budget’s more targeted performance measures also will evaluate
abstinence education’s effectiveness.

Drug Treatment Initiative
Research has consistently shown that
drug abuse treatment can be effective in
reducing drug use and the consequences of
addiction. Yet many people go untreated. The
Administration is committed to narrowing the
drug treatment gap.
According to a national survey by the
Substance Abuse and Mental Health Services
Administration (SAMHSA), an estimated
129,000 people report that they were unable to
obtain treatment for a drug problem, despite
making an effort to get treatment. In the 2003
Budget, SAMHSA will support an estimated
52,000 additional drug abuse treatment slots
to help narrow the treatment gap.

Negative Effects of Drug Use Fall
Following Treatment
Percent of reduction

100
80
60
40
20
0
Primary
Drug Use

Related
Medical
Visits

Criminal
Activity

Youth Drug
Use

Source: National Treatment Improvement Evaluation Study, 1997, HHS.

Welfare
Recipients

Homelessness

THE BUDGET FOR FISCAL YEAR 2003

Narrowing the Treatm ent Gap Changes Lives

William Cope Moyers began experimenting with
marijuana and alcohol as a teenager in the quiet
suburbs of Long Island, New York. By the time he
was 30 he was addicted to hard drugs and living in
a crack house in Harlem. After his third treatment,
Moyers succeeded in overcoming his addiction.

Today I hold a job and pay taxes, own a home, raise a
family, and vote all because I got help in overcoming
the ravages of my addiction to alcohol and drugs. I
am living proof that comprehensive treatment works
and pays great dividends to all of society.

147

To capture the quarter-million people who
recognize they are in need of treatment but
are not seeking help, SAMHSA will work
to improve linkages among drug treatment
and mental health, healthcare, and criminal
justice systems. SAMHSA will use newly
available data on the drug treatment gap, by
state, to guide grants and other assistance.

Enhancing Public Health

The 2003 Budget will make other targeted
investments in public health improvement.
The Administration will invest in patient
William Cope Moyers,
safety and health care quality improvement,
Hazelden Foundation, Saint Paul, Minnesota
eliminating costly medical errors and
encouraging more effective use of up-to-date
methods of treatment. HHS will also increase FDA food safety inspections of high risk and imported
foods. Finally, HHS will initiate innovative community grants to prevent and treat diabetes,
asthma, and obesity.

Taking the Next Step in Reforming Welfare

The Adm inistration’s Welfare Reform Reauthorization Agenda

The budget includes a proposal that pursues the following three goals:

•

Continue Moving People to Self-Sufficiency. The budget retains the approach of the 1996 legislation,
which helped millions of people move from welfare dependence toward self-sufficiency. It builds upon
this success by strengthening the work components while simplifying program administration.

•

Strengthen the Goals of Work and Independence. The budget strengthens the requirements to
work while providing more support to low-income workers. The proposal phases in stronger work
participation requirements in Temporary Assistance for Needy Families. In the Food Stamp program,
low-income workers would be able to own reliable transportation for getting to work. More former
welfare recipients would receive the full child support payment.

•

Simplify Program Administration. Complex program rules are administratively burdensome for both
agencies and recipients. The budget would simplify complicated Food Stamp rules, and simplify the
calculation of child support payments for families who have left welfare.

Additional Food Stamp provisions are described in the Department of Agriculture chapter.

148

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Welfare Reform Reauthorization
In 1996, the Congress passed legislation
to create the Temporary Assistance for Needy
Families (TANF) program, replacing Aid
to Families with Dependent Children and
related welfare programs. TANF is a $16.7
billion a year block grant with bonuses for
high performance and reduced nonmarital
births. States were given significant flexibility
in designing the eligibility criteria and benefit
rules for their TANF programs, which require
and reward work in exchange for time-limited
benefits.

Number of People Receiving Welfare Has
Dropped Dramatically
In millions

14
Families

Recipients

12
10

56% Reduction in
TANF Recipients

8
6
4
2

53% Reduction in
TANF Families

0
TANF is probably the most successful
Aug 96
Jan 97
Jan 98
Jan 99
Jan 00
June 01
federally funded domestic program in decades.
Source: Administration for Children and Families.
Nationally, the TANF caseload (number of
cash recipients) has declined 56 percent since
the program’s inception, while the percentage of welfare recipients working has increased threefold.
Due to state flexibility, an increasing portion of welfare dollars is now spent on services to help
individuals retain and advance in their jobs.

Building on its success, the Administration proposes to reauthorize TANF. Specifically, it
maintains block grant funding, provides for supplemental grants to address historical disparities
in welfare spending among states, strengthens work participation requirements, retains state
maintenance of effort requirements, and continues a system of high-performance bonuses. In
addition, the budget proposes to reauthorize a modified contingency fund to assist states in times
of severe economic downturns. Also as part of welfare reform reauthorization, the Administration
will work across agencies to identify opportunities to better coordinate programs, simplify
administration and support work.
The budget eliminates the current illegitimacy reduction bonus as there is no evidence that it
encouraged states to develop initiatives to reduce out-of-wedlock births. The Administration is
committed to encouraging the development of effective programs to reduce out-of-wedlock births
and to promote family formation. The budget redirects the funds through a combination of grants,
research, and technical assistance to develop a more effective approach to achieving this goal.
Reviewing the way child welfare services are structured and financed: Often criticized as
complex and inflexible, the Administration will review federal child welfare programs to ensure
an appropriate balance between flexibility and accountability that promotes the best outcomes for
vulnerable children and families. In the year ahead, the Administration will have discussions with
interested parties about this issue.
Child Support Enforcement: To benefit families who once received welfare, the budget allows
states the option to provide them with the full amount of child support collected on their behalf. For
current welfare recipients, the budget includes, also as a state option, federal matching for states
to provide up to $100 per month in child support collections to the family. These policies are offset
by proposals that strengthen child support collection tools, collect a $25 user fee from non-TANF

THE BUDGET FOR FISCAL YEAR 2003

149

families that benefit from the child support enforcement program, and require states to review child
support orders more frequently.
Child Support Enforcem ent Successes

Sometimes the true value of automation gets forgotten amid its speed and efficiency. In the Child Support
Enforcement Program, federal automation projects have revolutionized local governments’ whole way of doing
business. In Pennsylvania, for example, "Sylvia" and her 13-year-old daughter received welfare. Unfortunately,
a wage attachment couldn’t be used to collect child support from the noncustodial father, because he was
self-employed. He neither paid child support regularly nor in full. Over time, because of his sporadic payments,
outstanding child support payments grew to $9,000. The father made payments of $2 a week toward the back
support, telling the judge that was the best he could do. But with the advent of the Financial Institution Data
Match (FIDM) program, the county child support agency located about $9,000 of his assets and seized them
to pay off the entire amount of back support owed.
In another Pennsylvania case, the National Directory of New Hires was used to identify the new employment of
an absent parent who had not paid any support since 1983. The parent skipped out on his new employment
immediately, but the employer gave the local child support agency his forwarding address. Now, he pays
$100 in support every two weeks.

Promoting Safe and Stable Families
To strengthen states’ ability to promote child safety, permanency, and well-being, the budget would
increase funding for the Promoting Safe and Stable Families program to $505 million, $130 million
over the 2002 level. These additional resources will help children remain with or return to their
biological families if safe and appropriate, or to place children with adoptive families.

Education Assistance for Older Foster Children
The budget includes $60 million in the Independent Living program to help older foster youth
transition to adulthood and self-sufficiency after leaving foster care. Approximately 16,000 young
people leave foster care each year. This initiative would provide vouchers of up to $5,000 for education
or vocational training to help youth aging out of foster care develop the skills to lead independent
and productive lives.

Providing Health Care to Disabled, Elderly, and Low-Income Citizens
Through the Medicare, Medicaid, and SCHIP programs, the federal government spends over
$400 billion to increase access to high quality health care for nearly 80 million disabled, elderly,
and low-income individuals. These programs face serious challenges, however, in furnishing
affordable, efficient, and up-to-date benefits for these vulnerable groups. Through the budget, the
Administration proposes to improve these programs so that they give beneficiaries the care they
need today, and continue to do so tomorrow.

150

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Medicare
Medicare will spend over $230 billion in 2003
on about 40 million senior and disabled citizens.
Medicare was established in 1965 to address a
serious national problem in health care: the elderly,
especially those with limited incomes or costly health
needs, often could not afford to buy health insurance.
The program was later expanded to address similarly
situated people with disabilities.
Medicare thus
improved access to quality health care. However,
while the private health insurance market has made
dramatic strides to update coverage and improve
health outcomes over the last 40 years, Medicare has
lagged behind.
The program’s outdated benefit package does not
cover prescription drugs, provide consistent coverage
The Administration proposes to increase beneficiary
for many preventive treatments, support coordinated
access to prescription medicines.
management of chronic diseases, or, for that matter,
protect beneficiaries against the high cost of treating
serious illnesses. Moreover, Medicare is not financially secure for the retirement of the Baby Boom
generation. The Administration is committed to modernizing Medicare and addressing its financial
security. In July 2001, the President announced the following framework:
The President’s Principles for Strengthening M edicare

•

All seniors should have the option of a subsidized prescription drug benefit as part of modernized
Medicare.

•
•

Modernized Medicare should provide better coverage for preventive care and serious illnesses.

•

Medicare should make available better health insurance options, like those available to all federal
employees.

•
•
•

Medicare legislation should strengthen the program’s long-term financial security.

•

Medicare should encourage high-quality health care for all seniors.

Today’s beneficiaries and those approaching retirement should have the option of keeping the
traditional plan with no changes.

The management of the government Medicare plan should be strengthened to improve care for seniors.
Medicare’s regulations and administrative procedures should be updated and streamlined, while the
instances of fraud and abuse should be reduced.

While nearly three-quarters of beneficiaries had prescription drug coverage in 1998, just over 10
million had no drug coverage at all. About one-half, or 5 million of these beneficiaries, had incomes
below 175 percent of the poverty level—roughly $19,000 for a family of two. Two million of these
beneficiaries had incomes below the poverty level. Many of these beneficiaries do not qualify for
Medicaid—which provides prescription drug coverage to low-income beneficiaries—because their
incomes or assets are too high. Yet, their incomes are not high enough for them to afford to purchase
drug coverage on their own.

THE BUDGET FOR FISCAL YEAR 2003

151

A prescription drug benefit is part of the
President’s framework for strengthening
Medicare, but this will take time. So, the
Administration is taking steps now to assist
beneficiaries with the greatest need. This year,
HHS seeks to implement a Medicare-endorsed
prescription drug card to give beneficiaries
immediate access to drug discounts and other
valuable pharmacy services. Medicare will
endorse prescription drug cards that meet
high standards for managing pharmacy
services and providing discounts, and will give
seniors the information they need to find the
President George W. Bush
card that offers the best services and discounts
July 2001
for their needs. Medicare beneficiaries will be
able to select one card that will grant them access to discounts on medicines, including rebates from
manufacturers, and assistance from their neighborhood drugstores. Through the ability of cards to
move market share, this program will give beneficiaries access to the same tools widely available
to Americans with private insurance to get discounts from manufacturers. The Medicare-endorsed
prescription drug card is neither a drug benefit nor a substitute for one. But it will give both
beneficiaries and the Medicare program needed experience with competitive choices for prescription
drug assistance so that a competitive drug benefit can be implemented more efficiently.
Medicare’s most pressing challenge is the lack of
coverage for prescription drugs. … Frank Van der
Linden was a newspaper reporter, and a good
one. Now he’s being squeezed behind Medicare
premiums and drug costs. Or Bob Cherry, he’s a
senior coordinator at the Florida Avenue Baptist
Church, right here in Washington. He pays close to
40 percent of his income for prescription drugs and
Medicare co-payments. Or Gwendolyn Black, who
spends $2,400 a year to put four healing drops a day
into each of her eyes.

The budget builds upon the President’s
… [W]hen it comes to health care, 1965 is not the
framework. It dedicates $190 billion over
state of the art. We need to bring Medicare into the
10 years for targeted improvements and
21 st Century, to expand its coverage, improve its
comprehensive
Medicare
modernization,
services, strengthen its financing, and give seniors
including a subsidized prescription drug
more control over the health care they receive.
benefit, better insurance protection, and
better private options for all beneficiaries. To
President George W. Bush
pave the way, the budget proposes immediate
July 2001
steps to begin to improve Medicare benefits,
including an infrastructure for a prescription drug benefit and incentives to expand and maintain
private health plan options. In addition to proposing some new funding to improve Medicare
benefits, the budget also proposes new Medigap plans, a full view of Medicare solvency, and other
program improvements. The budget also proposes efforts aimed at addressing Medicare’s financial
status, such as ensuring that Medicare payments are efficient and appropriate.
Providing Access to Prescription Drug Coverage. While drugs were not a standard part of health
insurance coverage at Medicare’s creation, today they are integral to modern medicine. Not only
do they relieve pain and speed recovery, they may reduce health care costs by avoiding more costly
treatments, hospitalizations, and complications.
With few exceptions, however, Medicare does not cover outpatient prescription drugs. Thus, many
beneficiaries must get prescription drug coverage from other sources or pay out of pocket for medicine.
In 1998, 73 percent of Medicare beneficiaries had some form of supplemental insurance with a drug
benefit for at least part of the year.

152

DEPARTMENT OF HEALTH AND HUMAN SERVICES

The Administration also proposes to begin to phase in comprehensive drug coverage for
lower-income Medicare beneficiaries up to 150 percent of poverty, as envisioned in all major
prescription drug proposals. This proposal would allow states to expand drug coverage to Medicare
beneficiaries up to 100 percent of poverty—about $12,000 for a family of two—at current Medicaid
matching rates, much like existing programs that subsidize Medicare premiums and cost-sharing
for low-income Medicare beneficiaries. Further, as an added incentive for states to expand coverage
up to 150 percent of poverty—about $17,000 for a family of two—the federal government would pay
90 percent of the states’ costs of expansion above 100 percent of the poverty level with states being
responsible for the remaining 10 percent. This policy eventually would expand drug coverage for up
to 3 million beneficiaries currently without prescription drug assistance.

Funding for Strengthening Medicare
(In billions of dollars)
2003

2004

2005

2006

2007

2008

2009

2010

2011

2003– 2003–
2012 2007 2012

1.2

2.6

3.9

5.5

7.5

8.9

10.0

11.2

12.4

13.9

20.7

77.1

Medicare+Choice ..................

0.6

1.2

1.5

–

3.3

Coordinated Care Plan
Incentive Payments 2 ..........

0.1

0.2

–

0.4

Medicare Premium
Assistance for Low-Income
Seniors ..................................

0.1

–

0.1

New Medigap Plans .................

0.1

0.2

0.6

–1.3

Competitive Bidding
for Durable Medical
Equipment ............................

–0.2

–0.3

–0.4

–0.5

–1.5

–3.8

Medicare Secondary Payer ....

0.1

0.4

–1.0

Graduate Medical Education ..

–

–*

–0.1

–0.5

M edicare Modernization ...........

–

12.6

15.6

16.0

16.6

17.6

18.3

19.3

28.2 116.0

Total M edicare Costs ................

1.7

3.4

5.1

17.5

22.5

24.3

25.9

27.9

29.8

32.2

50.1 190.2

Steps Toward Modernization

Low-Income Drug Assistance
1

Medicare+Choice pricing reform sunsets when competitive reform is implemented.
These payments continue when competitive reform is implemented as part of Comprehensive Medicare Modernization.
*
$50 million or less.
2

Prescription Drug Waivers. Medicaid is the source of drug coverage for approximately four million
Medicare beneficiaries, those whose incomes are low enough for them to be eligible for both programs.
A number of states would like to use the Medicaid program to extend drug-only coverage to senior
citizens and individuals with disabilities, who are not otherwise eligible for Medicaid.
States are also concerned about rising drug costs in Medicaid. Net of manufacturer rebates,
prescription drug spending in Medicaid is expected to reach $26 billion ($15 billion federal share) in

THE BUDGET FOR FISCAL YEAR 2003

153

2003 and to grow to almost $62 billion ($36 billion federal share) by 2012. States have been exploring
common private-sector cost-control mechanisms like preferred drug lists and prior authorization
to moderate drug spending, but Medicaid law and federal regulations make using these types of
management tools more difficult.
The Administration will develop model drug waivers to allow states to both reduce drug
expenditures and expand drug-only coverage to more Medicare beneficiaries. States would
have the flexibility to use competitive approaches to provide drug benefits, including through
Medicare-endorsed drug cards. These changes are a part of the Administration’s overall strategy to
provide Medicare recipients with access to prescription drugs and to take steps toward a universal,
competitive Medicare drug benefit as envisioned in drug benefit proposals sponsored by members
of Congress from both parties. Because several states have already expressed interest, waivers
will increase significantly the number of Medicare beneficiaries with access to prescription drug
coverage before a universal benefit can be fully implemented.
Sustaining and Enhancing Medicare+Choice. The absence of prescription drug coverage is not
the only serious gap in the Medicare benefit package: beneficiaries who obtain coverage through
Medicare+Choice do not feel secure that this benefit will continue to be available. Established
in 1997, Medicare+Choice was intended to offer beneficiaries comprehensive private plan options
for their health insurance coverage—and those private health plans that still participate in
Medicare+Choice do just that. Such plans offer additional benefits, such as prescription drug
coverage, vision and dental care, and usually at a price well below that of a comparable supplemental
policy. However, the program faces significant challenges that threaten beneficiary choice. Few new
types of plans, such as preferred provider organizations, have entered Medicare+Choice, and many
have withdrawn.

Plans Exiting M edicare+Choice, 2000–2002

2000

2001

2002

Contract Terminations .....

Affected Enrollees ...........

327,000

934,000

536,000

As plans exit, hundreds of thousands of beneficiaries must switch to a different Medicare+Choice
plan or return to Medicare’s Fee-For-Service program, which is usually more expensive for them. As
a result, enrollment in Medicare+Choice has fallen dramatically.
The most important reason that private plans are withdrawing from Medicare, even as they
continue to provide reliable and up-to-date coverage for other Americans, is that federal payments
to Medicare+Choice have not kept pace with rising health care costs in many areas of the country.
The pricing system that controls payments to Medicare+Choice plans has artificially held down
payment increases to plans as health care costs have steadily risen. So, plans find it increasingly
difficult to continue to provide beneficiaries with additional benefits and choices.

154

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Preserving
choice
for
Medicare’s
beneficiaries
requires
fixing
40
Medicare+Choice’s
payment
system
so that existing plans remain in the
30
program and new plans are encouraged to
join.
The budget proposes reforming the
20
current payment system, which is failing
Medicare beneficiaries.
This includes
10
tying plan payments to the health care cost
increases plans are actually experiencing.
0
It also includes adjusting payments to
Percent of Medicare beneficiaries enrolled
better reflect beneficiaries’ health status.
Percent growth in enrollment
In addition, the budget gives managed
-10
1993
1995
1997
1999
2001
care plans more flexibility in designing
Source: Centers for Medicare and Medicaid Services. Data represent Section 1876 Risk Plan
enrollment through 1998, then Medicare+Choice enrollment from 1999.
their plans and proposes bonus payments
for new types of private plans that enter
Medicare+Choice. The bonuses will encourage new managed care plans, such as PPOs, to
enter Medicare+Choice, and will increase enrollment up to 400,000 people by 2007—more than
seven percent of Medicare+Choice enrollment.
Percent

Beneficiary Enrollment in
Medicare+Choice Drops

Modernizing Medigap. Medicare does not sufficiently protect beneficiaries against the high cost
of medical care, particularly catastrophic medical expenses. Sicker beneficiaries generally pay a
greater share of their health care costs. So, in contrast to private plans which might charge only $100
per admission, Medicare charges beneficiaries over $800 for each hospital stay. Then, there are the
added deductibles and co-payments patients must absorb for physician and outpatient visits. In fact,
on average, Medicare beneficiaries spend nearly $3,000 a year out-of-pocket for medical expenses.
Due to Medicare’s benefit limits, more than 85 percent of beneficiaries in traditional Medicare
enroll in a plan to supplement its coverage gaps. Some beneficiaries receive supplemental coverage
through Medicaid or an employer, but more than one-quarter purchase Medigap coverage that
typically has higher premiums.
Medigap plans are antiquated and poorly tailored to meet the health care needs of today. Unlike
many private plans, they provide coverage for up-front deductibles, but offer only very limited
prescription drug coverage. This first-dollar coverage drives up Medicare costs and beneficiary
premiums. Premiums for plans that do not offer drugs have increased by 25 percent to 45 percent
over the past three years, and premiums for plans with drugs have increased at an even greater rate.
As we move toward more comprehensive Medicare modernization, the 2003 Budget proposes to
add two Medigap plans to the existing 10. These plans improve upon the existing ones by offering
prescription drug coverage, protecting beneficiaries against catastrophic illness, and including
nominal beneficiary cost sharing at a lower premium cost than the most popular Medigap plans
today.
A Full View of Medicare’s Solvency. The Medicare Hospital Insurance (HI) Trust Fund, which
provides hospital insurance to seniors, will collect $189 billion through payroll taxes and spend $150
billion on benefits in 2003, yielding a $39 billion surplus. Medicare’s trust fund for the other half
of the program, the Supplemental Medical Insurance (SMI) Trust Fund, is financed mainly from
general revenue transfers and premiums. Currently, the best known measure of Medicare solvency
considers only the HI Trust Fund.

THE BUDGET FOR FISCAL YEAR 2003

155

Using this approach to solvency, the
Medicare Trustees project that HI expenses
will exceed new revenues (excluding interest
income) by 2016, and the HI Trust Fund will
head rapidly toward insolvency by 2029.
However, there is no comprehensive
solvency measure accounting for the finances
of both trust funds. This current view of
solvency only tells half the story. The SMI
program also is also running a large shortfall,
since premiums collected from beneficiaries
cover only about 25 percent of program costs.
A comprehensive analysis of both trust funds
reveals that the program is actually running a
shortfall of $553 billion over the next 10 years,
not a surplus.

Medicare Outlays Exceed Dedicated Tax
Receipts and Premiums
In 2001 constant dollars, trillions

3.0
2.5
2.0
1.5

Outlays

Shortfall

1.0
0.5
Dedicated Tax Receipts
and Premiums

0
2000

2010

2020

2030

2040

2050

2060

2070

Source: 2001 Medicare Trustees Report.

The singular focus on HI solvency underestimates the magnitude of Medicare’s financial
problem. The Medicare Trustees acknowledged this disconnect in their 2001 Trustees report
when they stated, “Although this report focuses on the financial status of the HI Trust Fund, it is
important to recognize the financial challenges facing the Medicare program as a whole and the
need for integrated solutions.”
Thus, the budget proposes new comprehensive measures of solvency accounting for both the HI
and SMI Trust Funds. This larger view of Medicare’s finances facilitates more careful planning for
the future.
M easures of Medicare Solvency

Current M easure

New Com prehensive
M easure

Hospital Insurance ..........................................................

-1.97

Supplemental Medical Insurance .................................

—

-3.37

Total ..................................................................................

-1.97

-5.33

$4.7 trillion

$12.9 trillion

Total needed to balance the program in 75 years

The current measure of Medicare solvency looks only at the status of the HI Trust Fund. Under this measure of solvency, the
HI Trust Fund has a deficit equal to 1.97 percent of taxable payroll, or $4.7 trillion, over the next 75 years. This measure of
solvency does not address the fact that the SMI Trust Fund is also running a shortfall, and the SMI Trust Fund will remain
solvent only because of a growing infusion of general revenue funds. Thus, this measure does not provide a complete picture of
Medicare’s overall budgetary impact. The Administration is proposing additional measures of solvency that provide a more
comprehensive view of the program’s financial status by looking at both the HI and SMI Trust Funds. This measure of solvency
acknowledges that SMI actually has a deficit equal to 3.37 percent of taxable payroll over the next 75 years. In combination,
both trust funds have a deficit equal to 5.33 percent of taxable payroll, or $12.9 trillion, over the next 75 years.

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Additional Medicare Improvements:

• Medicare pays too much for medical equipment such as hospital beds and oxygen as well as for

•

•
•

prosthetics and orthotics. The budget proposes a nationwide competitive bidding system for
this equipment to encourage suppliers to provide quality services and supplies at lower prices
than what Medicare currently pays.
The Administration recognizes that Medicare’s extremely complex provider payment systems,
based on regulated prices, do not always function smoothly and equitably over time. For
example, while the system Medicare uses to pay physicians has been working as intended,
recent short-term adjustments have been large. At the same time, provisions that have held
down growth of other payment systems toward historical growth rates are set to expire. The
Administration is willing to work with the Congress to smooth out such payment adjustments
through reforms in payment policy that, in both the short and long term, are budget neutral
across provider payment updates.
Medicare and the Federal Employees Health Benefits Program (FEHBP) finance health
insurance for 2.1 million federal retirees and their dependents, yet the programs are
neither formally coordinated nor offer insurance plans tailored to the federal retiree. The
Administration will work with stakeholders to develop additional FEHBP options for retirees
that improve choice by making available a full range of private health insurance options.
Medicare sometimes pays too much in health insurance claims because it mistakenly pays
when another insurer should have paid most or all of the claim. But Medicare rarely collects
on these overpayments. To correct this, the budget proposes a requirement that insurers and
those sponsoring group health plans periodically report those beneficiaries for whom Medicare
could be the secondary payer.
While Medicare pays for only a few outpatient drugs, the current Medicare payment
mechanism results in the program overpaying billions of dollars, according to the HHS
Inspector General, the General Accounting Office, and other witnesses who testified at recent
hearings before the House Energy and Commerce Committee. Congress has expressed a
clear bipartisan interest in addressing this issue while ensuring providers are adequately
compensated for the cost of caring for patients. The Administration this year intends to
improve the payment system for these drugs consistent with quality care.
The budget proposes to extend the subsidy of Medicare premiums for certain qualified
individuals.
In addition, the budget proposes to continue steps already underway to address variations in
graduate medical education payments.

THE BUDGET FOR FISCAL YEAR 2003

157

Medicaid and the State Children’s Health Insurance Program (SCHIP)
Medicaid. Almost 37 million individuals
were enrolled in Medicaid in 2001. Medicaid
covers one-fourth of the nation’s children and
is the largest single purchaser of maternity
care and nursing home/long-term care
services. The elderly and disabled comprise
one-third of Medicaid beneficiaries but account
for two-thirds of Medicaid spending.
SCHIP. SCHIP was established in 1997
to make available approximately $40 billion
over 10 years for states to provide health care
coverage to low-income, uninsured children.
SCHIP gives states broad flexibility in
program design while protecting beneficiaries
through federal standards.
Approximately
4.6 million children were enrolled in SCHIP
programs in 2001.

Medicaid Spending and Enrollment
250
Enrollment in person-years (millions)

200

Expenditures, State & Federal, in 1999 dollars (billions)

150

100

0
1980

1983

1986

1989

1992

1995

1998

2001

Source: Centers for Medicare and Medicaid Services.

Both Medicaid and SCHIP rely on state and federal sharing of program expenditures, with the
federal contribution based on state per capita income. The federal share of Medicaid ranges from
50 percent to 77 percent, with an average match rate of 57 percent. Medicaid spending will be an
estimated $280 billion ($159 billion federal share) in 2003. SCHIP matching rates vary from 65
percent to 85 percent. About $3.2 billion is available to states for SCHIP programs in addition to
almost $11 billion in unspent funds from previous years. According to HHS, more than 1 million
additional people have gained Medicaid or SCHIP coverage since January 1, 2001.
The budget proposes several initiatives for the Medicaid and SCHIP programs. The first set gives
states greater ability to expand health insurance coverage to targeted populations, while the second
set promotes fiscal integrity.
Medicaid/SCHIP Reform. While there is considerable discretion under Medicaid, many states
and other stakeholders have complained that the web of Medicaid laws and administrative
guidelines are confusing, burdensome, and serve to limit state flexibility. The creation of the
SCHIP program added further complexity to the already intricate rules for expanding coverage to
low-income Americans. States frequently request additional flexibility through waivers to tailor
their public programs to their specific insurance markets or to expand eligibility to the uninsured
beyond mandatory populations. Additionally, many states have requested that the Administration
grant the same flexibility in their Medicaid programs through waivers of Medicaid law and
regulation that they have in their SCHIP programs. As a first step, the Administration introduced
the Health Insurance Flexibility and Accountability (HIFA) demonstration initiative, which gives
states the flexibility they need to design innovative ways to increase access to health insurance
coverage for the uninsured.
The Administration will continue to build on the HIFA initiative by developing proposals that
will give states: a) the statutory authority to provide broader coverage to low-income uninsured
Americans; and b) the flexibility to design innovative programs without seeking waivers. States will

158

DEPARTMENT OF HEALTH AND HUMAN SERVICES

be encouraged to use current resources to extend coverage to more of their neediest residents and
reduce the number of people without health insurance coverage.
Health Insurance Flexibility and Accountability Dem onstration Initiative

In August 2001, the Administration announced the Health Insurance Flexibility and Accountability (HIFA)
Demonstration Initiative. The HIFA initiative:

•

Encourages states to develop comprehensive health insurance coverage approaches that utilize
available Medicaid and SCHIP funding to address insurance coverage for individuals with incomes less
than twice the official poverty level, who comprise most of the uninsured;

•

Gives states the flexibility to increase health insurance coverage through support of private group
health coverage;

•
•

Simplifies the waiver application process by providing clear guidance and data templates; and
Increases accountability within the state and federal partnership by ensuring that Medicaid and SCHIP
funds are effectively being used to increase health insurance coverage.

On December 12, 2001, the Administration approved the first HIFA waiver for Arizona. The state plans to
expand health coverage to parents of children enrolled in Medicaid or KidsCare (Arizona’s SCHIP program)
with family incomes between 100 percent and 200 percent of poverty. Arizona expects ultimately to provide
health insurance to more than 25,000 currently uninsured adults. Arizona’s HIFA waiver will explore ways to
improve coordination between public and private coverage options for the uninsured using employer-sponsored
insurance.

Extending the Availability of Expiring SCHIP Funds. The Balanced Budget Act of 1997 made
funds available for state use in a two-step process. The first allows states three years to use their
allotment. For the second step, HHS redistributes unused funds among the states. A year later
remaining funds return to the U.S. Treasury. According to current estimates, $3.2 billion in funds
will return to the Treasury at the end of 2002 and 2003.
Medicaid/SCH IP Reform
(In millions of dollars)
2003–

2003–

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2007

2012

New Freedom Initiative ...................

100

107

115

120

207

741

Extension of Expiring SCHIP Funds ....

–10

250

450

510

Extension of Transitional Medicaid ......

350

—

350

Payments ...............................

–290

–650

–1,090

–1,620

–1,800

–1,990

–2,200

–2,420

–2,660

–2,920

Effects of SSA and other proposals ....

–

–4

–20

–43

–69

–96

–126

–154

–184

Total .....................................

–528

–797

–1,516

–1,702

–1,947

–2,196

–2,429

–2,689

–2,964

Rationalizing Prescription Drug
–5,450 –17,640
–42

–671

–4,485 –16,710

* 500 thousand or less.

The Administration proposes to extend the availability of these expiring funds until 2006.
According to current estimates, this extension will allow every state to retain enhanced-match
funds. This proposal will provide additional support for their current coverage levels as well as

THE BUDGET FOR FISCAL YEAR 2003

159

provide additional health insurance coverage to more Americans under the Administration’s HIFA
initiative.
Transitional Medicaid Assistance (TMA). TMA was created to provide health coverage for former
welfare recipients after they entered the workforce. TMA extends up to a year of health coverage
to families who lose eligibility for welfare-related Medicaid due to earnings from employment. This
provision will expire September 30, 2002; however, the Administration proposes a one-year extension.

Program Integrity
Strengthening the fiscal integrity of Medicaid while ensuring that its beneficiaries have access
to care remains a top Administration health priority. The joint federal-state nature of the Medicaid
program promotes ownership and mutual investment in its activities. The complexity of Medicaid
funding rules, however, has also made ensuring program integrity both more difficult and more vital.
As program spending has grown over the years, so too have concerns that Medicaid dollars are not
being used to provide services to eligible beneficiaries.
Upper
Payment
Limits.
The
Administration
proposes to
build on
past efforts to curb the costly Medicaid
Upper Payment Limit (UPL) loophole
by strengthening the management and
enforcement of federal payment policies.
School-Based Health Services. Medicaid is
authorized to pay for health services provided
to Medicaid-eligible children pursuant to the
Individuals with Disabilities Education Act
(IDEA). In past years, billing inconsistencies
have plagued the program because the federal
government has never articulated clear
guidance. In 2002, the Administration will
release guides that will address all aspects of
school-based Medicaid billing.
After
issuing
the
guides,
the
Administration will address problematic areas
within school-based health services. Often,
school districts are not familiar with the
Medicaid program and they do not have the
administrative capacity to properly submit
claims to the government. As a result, schools
hire private consulting firms to assist them,
paying them on a contingency fee basis for
their services.

Underm ining Medicaid’s Program Integrity

Over the past year, HHS has been working to
close a controversial Medicaid payment loophole
that permits states to pay some public nursing
homes and hospitals more than the actual costs
of providing medical services. Through the
loophole, health facilities may be required to
return the excess payment to the state. States
then get reimbursements from Uncle Sam beyond
those intended under federal Medicaid law.
During 2000, one state made $76 million in
excess payments to 14 public nursing homes.
Of the $76 million, the nursing homes returned
$66 million to the state treasury and the state
was able to use the money for non-Medicaid
purposes. Now facing a budget crisis, the state
in question seeks to expand this program to
obtain more than $250 million from the federal
government to match additional payments made
to nursing homes and subsequently returned to
the state for non-Medicaid purposes.
The HHS Inspector General stated in September
2001, that unless curbed, this financing loophole
threatens the financial stability of the Medicaid
program.

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

School-based Claim s in M edicaid

Medicaid is authorized to reimburse schools for medical services including physical, occupational and
recreational therapies as well as related administrative costs and transportation costs for many children
enrolled in special education. Many school districts do not have the administrative capacity to submit
Medicaid claims. As a result, school districts have come to rely on national consulting firms that help them
claim Medicaid funds from the federal government.
In some cases where schools pay firms on a contingency fee basis, federal investigators have found
evidence that consulting firms have advised school districts to overcharge the Medicaid program. A
contingency fee is a form of payment in which a consulting firm retains a percentage of the federal
Medicaid claim reimbursement. The General Accounting Office and the HHS Inspector General have
found that Medicaid costs can be unsubstantiated and, in some cases, unallowable under consultants’
guidance when a contingency fee is involved.
Ultimately, contingency fees divert money from school districts and create a financial incentive for
consulting firms to submit questionable claims. This practice undermines the integrity of the Medicaid
program and its ability to provide health care to Medicaid children.

Evidence from the General Accounting Office suggests that consulting firms incorrectly profit
from Medicaid overpayments. The Administration believes that these practices should stop and is
proposing a regulation to ban contingency fees in the area of school-based health services and will
take strong action to end abuses.
Improving Medicaid Drug Payment Integrity. The drug rebate is currently one of the primary
cost-control mechanisms in Medicaid. The rebate, which is the greater of the difference between
a drug manufacturer’s best price and its Average Manufacturer’s Price (AMP) or a percentage
specified in statute, has not changed substantially since its inception in 1990. The Administration
proposes to improve the drug rebate system and more explicitly link state payment to pharmacies
with the manufacturer rebates. The HHS Inspector General estimates that the disconnect between
manufacturer rebates and pharmacy reimbursement is costing the states and federal government
billions of dollars. In addition, the Administration proposes to ensure that all necessary price
information is reported, and that states collect all rebates owed to them. States and the federal
government will work together to ensure that Medicaid does not pay for prescription drugs that
third parties, like private insurers, should cover.
Enhancing Medicare, Medicaid and SCHIP Program Integrity. HHS has realized early success
in reducing Medicare payment errors, as evidenced in part by the declining Medicare error rate.
Medicare’s estimated error rate was 6.8 percent in 2000, roughly half of the 14 percent rate estimated
in 1996, the first year that the Inspector General conducted an audit to estimate Medicare’s overall
error rate. Future successes will depend on further refinements and actions on Medicare program
integrity measures. The budget proposes developing a Medicare fraud yardstick that will measure
the magnitude of Medicare overpayments made in error and those that result from fraud.
HHS has not, however, devoted the same attention to Medicaid and SCHIP. In 2003, HHS will
devote more resources to Medicaid and SCHIP program integrity. To that end, the budget proposes
to strengthen federal oversight of states’ financial practices and Medicaid program integrity efforts.
This effort will include increasing the number of audits and evaluations of state Medicaid programs,
reestablishing and elevating the importance of financial management oversight at Centers for

THE BUDGET FOR FISCAL YEAR 2003

161

Medicare and Medicaid Services (CMS), and outsourcing appropriate activities to private firms. The
budget proposes to allocate $10 million in Health Care Fraud and Abuse Control funding in 2003 to
help finance this Medicaid and SCHIP program integrity initiative.

Other Expansions of Health Coverage
New Freedom Initiatives. On February 1, 2001, the President announced the New Freedom
Initiative as part of a nationwide effort to further integrate people with disabilities into society.
The President followed up on this commitment by asking federal agencies to work together to
identify barriers to community living and propose solutions to eliminate them. As part of this effort,
the Administration proposes a number of new initiatives, including: the Direct Service Worker
National Demonstration, in which HHS and a limited number of states will address shortages of
community service direct care workers; a 10-year demonstration allowing states to set up home- and
community-based alternatives for children currently receiving services in psychiatric residential
treatment facilities; and two new national demonstrations allowing states to provide respite care
services for adults, and respite care services for children with substantial disabilities.
Tax Credits for Health Insurance Coverage. Federal tax laws help finance private health insurance
coverage. Most notably, employer contributions for health insurance premiums are excluded from
employees’ taxable income, a tax incentive of $99 billion in 2003 and $581 billion from 2003 to 2007.
In addition, starting in 2003, self-employed individuals may deduct 100 percent of what they pay for
health insurance for themselves and their families. All current law health-related tax incentives,
including other provisions, will cost an estimated $118 billion in 2003, and $692 billion from 2003 to
2007.
To encourage private health insurance coverage, the budget proposes a new refundable tax credit
for low- and moderate-income individuals and families who are neither covered by an employer plan
nor enrolled in public programs, and who may have the most difficulty finding affordable health
insurance today. To improve the tax credit’s purchasing power, the Administration also proposes
a health insurance tax credit buy-in as part of the 2003 Budget. This would permit certain tax
credit recipients, at state option, to purchase private insurance through private purchasing groups,
state-sponsored insurance purchasing pools, and high-risk pools. Additional details about the
refundable health insurance tax credit can be found in the Federal Receipts chapter of Analytical
Perspectives, as well as forthcoming Treasury Department publications.
The budget also includes new tax provisions to improve and permanently extend Medical Savings
Accounts (MSAs), a new deduction for long-term care insurance premiums that will help those with
long-term care costs, and an additional personal exemption to caretakers of family members in need
of long-term care services. In addition, the budget would improve flexible spending accounts (FSAs)
by allowing up to $500 in unused benefits to be distributed as taxable income, rolled over into an
MSA, or invested in a 401(K) or similar plan.

Congressional Earmarks
In 2002, the Congress earmarked funding for 690 projects in HHS, totaling $532 million. The
practice of earmarking grants bypasses the competitive peer and grant review processes. Further,
earmarks undermine the Department’s ability to reward effective programs by diverting resources
to unrequested, non-competitive projects. For example, in 2002, 100 percent of the $312 million

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

appropriated for health facilities construction was earmarked by the Congress, leaving HHS with
no discretion in deciding which construction projects would be funded. To eliminate the impact of
earmarks, the Administration will consolidate facilities construction and maintenance activities to
be managed competitively across the Department. This consolidation will also give HHS flexibility
to set priorities and allocate funding accordingly.

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The accompanying table displays selected HHS programs and their ratings.
Program

Assessm ent

Explanation

Health Resources
and Services
Administration
(HRSA)—Community
Health Centers

Effective

CHCs are effective at providing primary health care services and
increasing health care access to uninsured and underserved patients
regardless of their ability to pay.

HRSA—National
Health Service
Corps (NHSC)

Effective

Through scholarships and loan repayments, NHSC has placed over
22,000 health care providers in underserved areas over the last 29
years.

HRSA—Health
Professions

Ineffective

Discussion appears below in the Improving Performance section of
this chapter.

HRSA-Community
Access Program
(CAP)

Ineffective

CAP was initiated in 2000 to assist health care providers in integrating
health care systems. CAP has yet to develop clear goals or
performance measures.

Centers for
Disease Control
and Prevention
(CDC)—Childhood
Immunizations
Program

Effective

The CDC and Medicaid Vaccine for Children programs together
largely reach CDC’s stated goal of reducing the number of
vaccine-preventable cases of disease among children and ensure that
children are appropriately immunized, although some management
improvements are needed.

CDC—Chronic
Diseases

Unknown

There is limited nationwide data on the impact of CDC-funded
activities and health outcomes in the area of chronic diseases.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessm ent

163

Explanation

Administration
for Children
and Families
(ACF)—Temporary
Assistance for Needy
Families (TANF)

Effective

Performance has exceeded expectations.

Indian Health
Service (IHS)

Moderately
Effective

IHS is moderately effective at providing health care services to
Native Americans, reducing health disparity, constructing new and
replacement hospitals, and managing self-governance activities.

Improving Performance
Health Resources and Services Administration
The mission of the Health Resources and Services Administration (HRSA) is to ensure access to
health care for all Americans in partnership with states, universities and colleges, and other entities.
HRSA has identified four broad strategies to guide its diverse grant portfolio: 1) eliminate barriers to
care; 2) eliminate health disparities of minority populations; 3) assure quality of care; and 4) improve
public health and health care systems.
The budget reflects the Administration’s commitment to ensure the efficient and effective use of
resources to improve overall health and access by including funding increases to support new and
expanded health care access points for those who lack any form of health care. The budget funds
placement of more doctors, nurses, and other health care professionals in underserved areas. The
budget also streamlines and phases out activities that lack clear goals, have not proven to be effective,
or could be accomplished through existing activities.
Health Professions Training Grants. The health professions training grants, awarded to
institutions and individuals, were established over 40 years ago to address the supply and
distribution of health professionals and the recruitment and retention of minorities in health
professions schools. However, rather than improving the supply and distribution of health providers,
the program has splintered into numerous small grants that address more than 40 objectives—some
completely unrelated to the core intent of the training grant program. It is virtually impossible to
measure the national impact of the grants and the annual multi-million dollar investment that
funds them.

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Professions Funding and Health
Profession Shortage Areas
Primary care HPSAs

Health professions funding in millions

500

3,000

Health Profession Funding
Primary Care HPSAs

2,500

400

2,000
300
1,500
200
1,000
100

500

0
1978

1981

1984

1987

1990

1993

1996

1999

Despite 40 years of funding, most of the
health professions grants have not proven to
be effective because they do not accurately
address current health professions problems.
For example, since 1993, the number of
residents enrolled in primary specialties
has grown, but the demand for primary care
physicians is still acute in health professional
shortage areas. Over the last two decades,
almost $7 billion has been invested in health
professions training grants and during this
time the population of areas with shortages
of primary care health professionals has
increased by 140 percent.

Source: Department of Health and Human Services.

Health professions training grants as
currently administered do not provide an incentive for grant recipients to work in underserved
areas. Most of those who receive federal health professions training support do not practice
in underserved areas. As a result, health professions training grants effectively subsidize the
education of students who do not help address the distribution problem. Of the roughly 20 percent
who do serve in shortage areas, there is no data on how long they actually remain. For the size of
this investment, totaling over $375 million in 2002, more of our health professional shortage areas
should be filled. In contrast, community health centers, subsidies for health insurance coverage, and
other policies are more cost-effective approaches to improving access to care in underserved areas.
The 2003 Budget reforms health professions grants by eliminating those that are not the most
efficient way to address health care workforce problems. The budget makes investments in two key
areas: 1) increasing opportunities for minority and disadvantaged populations to enter in the health
professions; and 2) warding off a potential future nursing shortage.
Minority enrollment in health professions programs has declined in recent years. Since 1996,
the number of individuals from minority groups enrolled as first year medical students has dropped
eight percent. The budget increases funding to finance scholarships for health professions students
from disadvantaged backgrounds. These grants will be awarded to schools that have a successful
program for recruiting and maintaining students from disadvantaged backgrounds. Students who
receive these grants must demonstrate a commitment to serve in a public or non-profit health care
site after graduation. The Administration is committed to ensuring equal opportunity for minority
and disadvantaged Americans in the health professions.
The nation’s nursing corps is aging, and, unfortunately, few young people are considering nursing
careers. The total number of full-time registered nurses per capita is expected to peak around 2007
and decline steadily thereafter as the largest groups of nurses retire. The situation will likely worsen
due to a steady decline in nursing school enrollment and reasonable predictions of a growing demand
for nursing services. The budget includes $99 million to help boost the supply of nurses by providing
grants to schools of nursing to help attract and educate the next generation of American nurses.

THE BUDGET FOR FISCAL YEAR 2003

165

Substance Abuse and Mental Health Services Administration
The Substance Abuse and Mental Health Services Administration (SAMHSA), in partnership
with states and local communities, aids the nation’s effort to prevent and treat mental illness and
substance abuse. The budget funds the treatment of mental illness and the prevention and treatment
of substance abuse.
A recent evaluation of SAMHSA’s Projects for Assistance in Transition from Homelessness (PATH)
found that the formula grant is effective in helping states expand community mental health services,
alcohol and drug treatment, and support services for homeless individuals facing a serious mental
illness. Building on this success, the budget includes additional funds for PATH to reach out to
163,000 homeless individuals to help them recover from mental illness and substance abuse, find
housing, and gain meaningful employment.

Administration for Children and Families
The Administration for Children and Families (ACF) runs programs that seek to promote the
economic and social well-being of children, youth, and families. ACF focuses particular attention on
low-income children, refugees, Native Americans, and the developmentally disabled.
Social Services Block Grant. The Administration funds the Social Services Block Grant (SSBG)
at $1.7 billion. This program provides flexible funds to states for social services for low-income
individuals and families.
Head Start. The President has proposed to reform Head Start and return it to its original focus −
getting children ready to learn. The budget provides an increase of $130 million in 2003 to maintain
participation and program quality. HHS and the Department of Education are forming a task
force to assess ways to improve Head Start and lay the groundwork for its proposed transfer to the
Department of Education as part of the program’s reauthorization.
Low-Income Home Energy Assistance Program (LIHEAP). In response to Department of Energy
forecasts of lower fuel costs, the budget contains $1.7 billion to help low-income households cover
home heating and cooling costs. This amount includes a contingency fund of $300 million for
unanticipated needs that may arise. The legislatively established formula currently used to
distribute LIHEAP block grant funds to states is based on 20-year old population and winter heating
cost data. The Administration is interested in options that would make block grant allocations
more equitable by basing the formula on current home energy expenditures paid by low-income
households.
Child Care. Child care is funded through both the Child Care and Development Block Grant ($2.1
billion) and the Child Care Entitlement to States ($2.7 billion).
Community Services Block Grant. The budget proposes to fund the Community Services Block
Grant (CSBG) at $570 million, a reduction of $80 million from the 2002 level of $650 million. The
CSBG program provides a small fraction of the budget to a largely static group of organizations. Very
little performance data exists on the outcomes from the CSBG funding. Consequently, this reduction
was used to fund other high-priority, high-performing programs.

166

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration on Aging
The budget proposes $1.3 billion for Administration on Aging (AoA) programs. The budget
proposes to merge the smaller Department of Agriculture Nutrition Services Incentive Program
with AoA’s nutrition programs. Although funding for home and other meals programs for the elderly
is now provided through both HHS and the Department of Agriculture, HHS is the lead agency and
has greater interaction with the states and service providers. This merger will improve program
oversight and streamline reporting requirements.

Strengthening Management
[T]he biggest challenge to HHS is the relative independence of all of the operating agencies. In other words,
we are our own worst enemy.
HHS Program Support Center Workforce Analysis
June 2001

HHS will intensify its management reform efforts substantially in order to meet the ambitious
objectives of the President’s Management Agenda. Because of the relative autonomy enjoyed by
each of its 13 operating divisions, the Department currently finds itself with numerous different
policies and practices in areas such as personnel management, information technology (IT), financial
management, and program performance measurement.
The “Citizen-Centered HHS” section of this chapter (see above) describes the proliferation of
duplicative personnel, public affairs, and legislative affairs functions within HHS, and outlines how
the Administration will consolidate them into more efficient and effective offices. The Department
also faces serious problems in several other management areas. HHS’ inadequate financial
management systems failed to prevent $12.5 billion in overpayments for services in its Medicare
Fee-for-Service program in 2000. In the increasingly critical area of IT management, HHS faces
numerous challenges created by an unnecessarily complicated infrastructure. The Department
currently maintains seven separate networks using 10 different operating systems, and has as
many computer servers as computer professionals—about 2,900 of each at last count.
Talking Past Each Other

Soon after his swearing in as head of HHS, Secretary Thompson experienced firsthand the Department’s
chaotic computing environment. He discovered that he could not send an e-mail from his desk on the sixth
floor of HHS’ Washington headquarters to another office in the same building just one floor away! The
incompatibility of his own computer with others in the building forced the Secretary to resort to having
important papers carried from office to office rather than sent instantly with just a “point and click.” This
startling experience highlighted the need for dramatic change in HHS’ inadequate, uncoordinated IT
systems. Today, the Secretary’s agenda includes more rigorous control of IT investment decisions, better
coordination of IT systems, and a more streamlined deployment of IT personnel throughout the Department.

Finally, HHS has lagged in implementing bold, innovative ideas for opening federal positions
that are commercial in nature to private competition. In 2003, HHS will compete some positions
that could have been performed by the private sector long ago, such as locksmithing, plumbing,

THE BUDGET FOR FISCAL YEAR 2003

167

printing, TV studio production, web design, and facility security. The Department has begun to
implement reforms by drafting a workforce restructuring plan, instituting performance-based
contracts for all senior managers, leading federal government efforts on E-government projects,
consolidating financial management systems, and identifying federal positions it will open up to
private competition. Still, much more remains to be done.

Initiative

2001 Status

Hum an Capital —HHS has not implemented the comprehensive restructuring reforms needed
to create a citizen-centered department. Excessive organizational layers persist, and planning
for redeployment of managers to the front lines is incomplete. Workforce restructuring plans
reflect a decentralized Department in which few operating divisions consider coordinating
reform efforts. In 2003, HHS will consolidate 40 personnel offices into four, and more than 70
public affairs and legislative affairs offices into single offices for each function.

•

Com petitive Sourcing —Though HHS has identified 1,621 positions that may be put up for
competition, it has not yet met the President’s goal to conduct public-private competitions
for 15 percent of its commercial positions by 2003. HHS will implement a competition plan
that meets the President’s 15 percent goal, and will conduct competitions involving selected
facilities, security, and fire protection functions.

•

Financial M anagem ent —HHS’ financial management systems have been non-compliant
with federal laws and regulations since 1996, and its systems remain inadequate to produce
reliable financial information. To solve these problems, HHS will begin implementation of a
seven-year Unified Financial Management System project. The Department will also measure
the level of erroneous federal payments to social programs administered by the states, and will
work with the states to decrease these levels.

•

E-Governm ent —HHS must assert central control of IT decision-making by coordinating IT
development efforts across operating divisions and emphasizing elimination of duplicative IT
projects. The Department must strengthen IT planning and address IT security issues, and
must focus on converting paper transactions to computers to improve customer service and
reduce private sector burden. To address IT management problems, HHS will consolidate IT
staff, develop a comprehensive E-Gov strategy, and lead the federal government’s E-Grants
and Health Informatics initiatives.

•

Budget/Perform ance Integration —HHS’ annual performance plan, containing 15 volumes

and nearly 750 performance measures, reflects a decentralized process with little value for
making budget decisions. Rather than setting national health outcome goals, HHS reports
narrowly on specific program outputs. HHS will link its budget with Departmental priorities and
national health outcome goals; describe how program activities support each priority; and
outline strategies and resources.

•

168

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Department of Health and Human Services
(In millions of dollars)
2001
Actual

Estim ate
2002

2003

Spending:

Discretionary Budget Authority:
Food and Drug Administration ...............................................
Program Level ......................................................................
Health Resources and Services Administration ..................
Program Level ......................................................................
Indian Health Service ..............................................................
Centers for Disease Control and Prevention ........................
Program Level ......................................................................
National Institutes of Health ....................................................
Substance Abuse and Mental Health Services Admin .......
Agency for Health Research and Quality .............................
Program Level ......................................................................
Centers for Medicare and Medicaid Services: 1
CMS Program Administration ............................................
Program Level .................................................................
MedPAC/OCR/GDM/AHRQ Administration .....................
Legislative proposal ............................................................
Administration for Children and Families:
Existing law ..........................................................................
Legislative proposal ............................................................
Administration on Aging ..........................................................
Buildings and Facilities ............................................................
Office of the Inspector General ..............................................
Office of the Secretary ............................................................
Program Level ......................................................................
Public Health and Social Services Emergency Fund .........
Subtotal, Discretionary budget authority adjusted 2 ................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

1,144
1,315
5,603
5,603
2,690
3,817
4,069
20,447
2,968
107
272

1,270
1,453
6,141
6,141
2,824
4,177
4,382
23,333
3,142
3
300

1,432
1,727
5,395
6,014
2,884
4,011
5,696
27,335
3,197
–
252

2,293
2,355
13
–

2,466
2,528
17
–

2,538
2,599
18
−130

12,399
–
1,104
175
42
354
439
241
53,397
−320
53,077

12,939
131
1,201
250
45
382
539
243
58,564
−343
58,221

13,028
30
1,342
184
50
422
612
2,295
64,031
−357
63,674

Emergency Response Fund, Budgetary Resources:
Bioterrorism ...............................................................................
Response and Recovery .........................................................
Total, Emergency Response Fund, Budgetary resources ......

5
121
126

2,638
179
2,817

–
–
–

Total HHS Bioterrorism Spending ...............................................

300

2,830

4,329

THE BUDGET FOR FISCAL YEAR 2003

169

Department of Health and Human Services—Continued
(In millions of dollars)
2001
Actual

Mandatory Outlays:
Medicare:
Existing law ..........................................................................
Legislative proposal ............................................................
Medicaid/SCHIP:
Existing law ..........................................................................
Legislative proposal ............................................................
All other programs ....................................................................
Existing law ..........................................................................
Legislative proposal ............................................................
Subtotal, Mandatory outlays adjusted 2 .....................................
Contingent adjustments ..........................................................
Total, Mandatory outlays ..............................................................
1

Estim ate
2002

2003

214,061
–

222,723
–

228,951
1,680

133,073
–
–
29,497
–
376,631
–
376,631

148,440
–
–
29,817
–
400,980
–
400,980

163,054
58
–
31,014
−6
424,751
104
424,855

Amounts appropriated to SSA from HI/SMI accounts are included in the correspondng table in
the Social Security Admininstration chapter.
2
Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives .

DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT

The President’s Proposal:

• Increases housing opportunities by providing a tax credit for developers of
•
•
•
•
•
•

affordable single-family housing;
Helps to increase minority homeownership rates by expanding homeownership
opportunities;
Strengthens and reforms public housing;
Strengthens housing assistance programs and promotes self-sufficiency efforts;
Seeks to end chronic homelessness over the next decade;
Reforms the Community Development Block Grant program and eliminates poor
performing community and economic development programs; and
Improves agency management by setting aggressive short- and long-term goals to
overcome chronic weaknesses.

The Department of Housing and Urban
Development
(HUD) subsidizes housing costs
Department of Housing and Urban Development
for about five million low-income households
Mel Martinez, Secretary
through rental assistance, construction
grants, and loans. It also helps revitalize
www.hud.gov
202–708–1112
over 4,000 localities through community
Number of Employees : 10,300
development programs and provides housing
and services to help families and the
2002 Spending : $30.9 billion
homeless toward self-sufficiency. HUD also
Field Offices : 80, including most major cities.
encourages homeownership by providing
mortgage insurance for over six million
homeowners, many of whom otherwise
might not qualify for loans, and by managing billions of dollars in both guarantees of mortgages
and mortgage-backed securities.

171

172

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Overview
The budget proposes to maintain or
increase support for housing assistance and
other programs to help low-income families
and communities achieve their goals.
It
provides 34,000 new housing vouchers
targeted to ensure they provide assistance
to those most in need and increases other
effective programs to help meet HUD’s
strategic objectives.
In some cases, however, HUD programs
have trapped families in poor quality buildings
or neighborhoods with safety concerns and
with limited educational and economic
opportunities. Requiring families to accept
these conditions in order to receive housing
assistance is unacceptable.

HUD Strategic Objectives

•

Reduce complexity, paperwork, and costs
of the homebuying process.

•

Help families move from rental housing
to homeownership.

•

Improve the quality of public and assisted
housing, and help families find affordable
housing.

•

Strengthen and expand faith-based and
community partnerships.

•

End chronic homelessness and increase
housing opportunities for other homeless
households.

•

Embrace a new sense of ethics and

This budget, therefore, proposes to improve
accountability.
housing quality and choice for the people HUD
• Ensure equal opportunity and access to
assists. It will strengthen public housing
housing.
using an "asset management" approach
• Support community development efforts.
modeled on private sector practices to address
the large backlog of capital needs and provide
better incentives for sound local management.
It will provide subsidized families with increased ability to move when their needs or conditions
warrant, without giving up their subsidy.
Helping families with their shelter costs is an important goal, yet HUD would fail in its mission if
families were not moving toward eventual self-sufficiency. An important measure of HUD’s success
should be the number of families that no longer need to reside in assisted housing because they have
moved to safe, decent, and affordable private housing. To that end, the Administration will propose
changes and work with the Congress to ensure that HUD programs support self-sufficiency efforts.
The budget also proposes reforms to the Community Development Block Grant (CDBG)
program to return its focus to low-income communities by redirecting funds from the wealthiest,
highest-income communities to lower-income areas. Requiring that more CDBG funds be provided
to those communities with the greatest need will make the program truer to its intended purpose
and less like a general revenue sharing program.
The budget includes proposals addressing other ambitious goals for HUD, such as increasing
homeownership rates among minority households and ending childhood lead poisoning in 10 years.

THE BUDGET FOR FISCAL YEAR 2003

173

Status Report on Select Programs
The budget seeks to redirect funds from poorly performing programs to higher priority or more
effective ones, while working to improve the management of ineffective programs.

Program

Assessment

Explanation

Public Housing

Ineffective

Serves 1.2 million low-income households, but properties are too
often of poor quality and in high poverty or isolated locations.

Housing Vouchers

Effective

Cost-effective, market-driven portable rental assistance. Serves over
1.8 million low-income households.

Federal Housing
Administration

Moderately
effective

Increases homeownership opportunity. But inadequate, out-dated
systems and controls hamper ability to monitor private partners.

Homeless Program

Unknown

Provides flexibility to serve homeless families and individuals through
coordinated local planning and consolidated funding. Lack of data
makes it difficult to measure progress toward achieving nationwide
objectives.

Community
Development Block
Grant

Unknown

Designed to boost low-income communities, its effectiveness is
diluted by the inclusion of some of the richest cities in the country. Its
flexibility permits use for a wide variety of community and economic
development activities. Because each community has different needs
and goals, it is difficult to assess performance, despite over $100
billion in grants since 1974.

Lead Hazard Control
Grants

Effective

Program has clear, measurable objectives, and use of efficient
technology is emphasized.

174

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Congressional Earmarks
The County Sheriff’s Department of Ashland,
Wisconsin, received $80,000 as a congressional
earmark to purchase an Ice Angel Windsled, similar
to the one shown here. Windsleds have been used
during the winter for rescue activities. Ashland’s
gain was Wisconsin’s loss, however, because if
earmarked funds had been distributed through
the CDBG formula, Wisconsin would have received
an additional $2.5 million. That’s enough for 30
windsleds, if you believe windsleds are the best
possible use of community development funds.

The Administration objects to the Congress’s traditional practice of funding unrequested earmarks.
In 2002, the $336 million that might have been used for HUD’s programs was earmarked instead
for 831 congressional projects. These earmarks avoid the competitive process and often come at the
expense of more urgent needs. For example, Carmel, Indiana, with a poverty rate of one percent and
median household income over $77,000, received $1 million for its parks. On the other hand, Gary,
Indiana, with a 26 percent poverty rate and a median income less than a third of Carmel’s, did not
receive a project grant. Since 1998, the Congress has siphoned off over $1.2 billion for unrequested
earmarks in HUD appropriations.

Notable Congressional Earmarks

$2,250,000 for the city of Fairbanks, AK to provide
winter recreation opportunities at the Fairbanks
North Star Borough Birch Hill recreation area;
$1,000,000 for the Southern New Mexico Fair and
Rodeo;

Funds Misallocated by Earmarks
In millions of dollars
20
WV

15
10
5

NY
MO
AK
MD

$2,450,000 to restore six zoos; and
0

$340,000 to restore opera houses in Connecticut,
Michigan, and Washington.

-5
NC

-10

-15

-20

2002

Moreover, many states do not receive their share of earmarked funding—that’s a natural
consequence of earmarking. The accompanying chart shows each state’s earmarked dollars less the
amount of funds they would have received if the $336 million had been distributed through the
congressionally authorized state CDBG formula.

THE BUDGET FOR FISCAL YEAR 2003

175

Reform Community Development Block Grants and Eliminate Poor Performing
Community and Economic Development Programs
Under a two decade old formula, over 1,000 cities, urban counties, and the states (for
non-metropolitan areas) receive about $4.3 billion of CDBG funds annually. CDBG supports
various community development activities that are supposed to be directed primarily at low- and
moderate-income persons. Several smaller programs are also funded within CDBG. A three-fold
increase for the Self-Help Homeownership Opportunity Program will provide $65 million for
competitive grants to non-profit faith-based and community-oriented organizations that support
homeownership.

Reform CDBG
While it favors poorer communities, the current distribution of CDBG formula funds includes
many grants to higher income cities and counties. The budget proposes a legislative change to
reduce grants to the wealthiest one percent of eligible communities, defined as those with per
capita income two times the national average. The savings from this proposal will fund a regional
initiative to enhance the availability of affordable housing, economic opportunity, and infrastructure
in the Colonias. Colonias are communities within 150 miles of the U.S.-Mexican border that lack
adequate infrastructure and other basic services. These communities have greater needs and fewer
resources, and are better targets for such funds.
In addition, the CDBG formula program grows by $95 million in 2003, giving communities an
increase in their annual allocations. As 2000 Census data become available, HUD will develop
proposals for a new CDBG allocation formula and process, to allocate more to those who need these
funds and will use them effectively.

Tale of Two Cities
Newton, MA*

Compton, CA

Population .........................................

83,829

93,493

Per capita income ............................

$28,840

$7,842

Average home sale price ................

$512,000

$120,000

CDBG dollars per resident .............

$31.76

$31.16

Annual CDBG funds 2002 ..............

$2.663 million

$2.914 million

Proposed CDBG funds 2003 .........

$1.359 million

$2.987 million

* Newton allocated $30,000 of its CDBG funding to design a traffic signal and $80,000 to fund a historic
lighting project.

176

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Wealthiest CDBG Entitlem ent Communities
Community

Per capita income
as a multiple of the
national average

2002 CDBG Funds

Greenwich, CT ...........................

3.2

$1,157,000

Newport Beach, CA ...................

3.2

$490,000

Colorado Springs, CO ...............

3.1

$3,199,000

Lower Merion, PA .......................

2.9

$1,407,000

Naples, FL ..................................

2.9

$149,000

Penn Hills, PA .............................

2.8

$849,000

Virginia Beach, VA .....................

2.6

$3,012,000

Palo Alto, CA ..............................

2.3

$808,000

Malden, MA ................................

2.2

$1,780,000

Westchester County, NY ...........

2.1

$7,004,000

Santa Monica, CA ......................

2.0

$1,787,000

Brookline, MA .............................

2.0

$1,872,000

Newton, MA ................................

2.0

$2,663,000

Eliminate Poor Performing and Duplicative Community and Economic
Development Programs
To stem mission creep, this budget proposes to streamline HUD’s efforts to promote community
and economic development by eliminating two community planning and development programs,
Rural Housing and Economic Development grants and Round II Empowerment Zones grants. Since
1999, these two programs have received over $430 million. Evaluations and other performance
information provide no convincing evidence that adding grants to the tax benefits of Empowerment
Zones increases that program’s effectiveness. Moreover, HUD’s CDBG program lets localities meet
the same needs. For example, through CDBG, smaller communities will receive $1.3 billion in 2003
for locally designed programs that meet their own housing and economic development needs. The
savings from eliminating these programs will be reinvested in the CDBG program.

Reinvigorating Renewal Communities and Empowerment Zones
To help develop the economies of distressed urban and rural areas, HUD has just designated
40 Renewal Communities (RCs) and seven additional Round III urban Empowerment Zones (EZs).
Private investors in both RC and EZ areas are eligible for tax benefits over the next 10 years tied to
the expansion of job opportunities in these locations. Like CDBG, these programs allow communities
to design and administer their own economic development strategies with a minimum of federal
involvement.

THE BUDGET FOR FISCAL YEAR 2003

177

Strengthen Public Housing
HUD low-income housing assistance programs, including public housing, other project-based
subsidies, and housing vouchers, help approximately five million low-income families pay the rent.
They do much good, but the Administration is committed to improving their operation.
The budget will improve the physical condition and financial management of the 1.2 million public
housing units subsidized by HUD, and give new choices to the families who live there. As a whole,
these properties have approximately $20 billion in modernization needs. While most are inhabitable,
30 percent fail HUD’s physical quality standards.
The reform of public housing introduces a way to end the practice of subsidizing substandard
housing. More specifically, the reforms, introduced on a voluntary basis in 2003, will contribute to:

• Meeting two goals stated in the President’s Management Agenda—that 84 percent of public

•
•
•
•

housing units will meet HUD’s physical standards by 2005; and that HUD, working with the
Congress, will ensure families are not required to live in substandard housing as a condition
of retaining their subsidy;
Providing better management of public housing with less intrusive federal
micro-management;
Using the market to test projects’ viability and guide local investment decisions;
Introducing choice and competition in public housing; and
Substantially reducing, and within a decade eliminating, an estimated $20 billion of
accumulated capital needs.

Local housing authorities will be able to employ real estate management and financing practices
that are standard in the private sector. This approach to public housing will treat each property as a
separate real estate investment. Housing authorities will finance the capital needs of their individual
properties with private mortgages, while the federal government will continue to subsidize operating
and debt service costs not covered by rent collections. Properties that cannot support a private
mortgage but are deemed worthy investments by local communities can use other local resources
to make mortgages affordable and finance capital improvements.
The Administration also proposes to extend choice to families living in public housing properties
that are refinanced and rehabilitated under this model. As the program operates now, low-income
families are required to reside where public housing exists as a condition of receiving rental
assistance—even if properties fail HUD’s physical standards. The Administration’s plan would
allow families to move after the initial one year lease period and retain their subsidy, giving
them choice in the selection of their housing and creating parity among HUD’s assisted-housing
programs. When residents have the option to leave a property, housing authorities must do a good
job serving them or they will move out. Competitive market forces are thereby introduced and a
property is more likely to be well managed and stay in good condition. This model corresponds to
the existing project-based voucher program.

Strengthen Housing Assistance to Increase Affordable Housing and Promote
Self-Sufficiency
The budget includes both funding increases and management reforms to create a full "toolbox" of
options for overcoming particular obstacles to affordable housing. HUD will measure performance

178

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

against the goals for assisted housing, including a new measure to keep a count of the number of
families moving from subsidized housing assistance to self-sufficiency.

• The number of households leaving assisted housing and achieving housing self-sufficiency will
•
•

increase from 2002 to 2003.
The number of households with worst case housing needs will drop three percent between 2001
and 2003.
The share of assisted multifamily units that meet HUD-established physical standards will
rise by 1.5 percentage points between 2002 and 2003.

The number of households assisted is
maintained by renewing all subsidy contracts
that expire in 2003. The budget also expands
assistance with over 34,000 new housing
vouchers that will give families the financial
power to choose from a variety of housing
options in the private rental market. The
Administration favors vouchers because they
are proven to provide greater benefits at
lower cost than older subsidy approaches. By
relying on the private market and competitive
forces, vouchers allow families to choose the
best available housing. Vouchers also relieve
HUD of the difficult management burden of
overseeing numerous housing properties.

Vouchers Have Lower Costs and Greater
Benefits

On average, the cost per unit of public housing
exceeds the voucher program by 18 percent.
All HUD subsidy programs target low-income
households. However, 26 percent of all voucher
recipients live in neighborhoods with poverty
levels below 10 percent, while only about eight
percent of public housing residents live in such
areas. Vouchers give low income families a
better chance of residing in a more economically
diverse neighborhood.

Comparison of Housing Assistance Approaches
Public
Housing

Housing
Vouchers

Project-based
Subsidies

Choice and Mobility

Low

High

Low

Cost Effectiveness and
Avoidance of Federal Liability

Low

High

Low

The budget supports other approaches for increasing affordable housing, by including a $100
million increase for the HOME block grant, a flexible program that localities can tailor to their
particular housing needs. This program will produce about 23,000 new affordable rental units in
2003 and rehabilitate another 23,000. Other programs in the budget that support the supply of
affordable housing are CDBG and the low-income housing tax credit. The budget increases CDBG
formula funds, about 30 percent of which goes to housing, by $95 million. The tax credit was recently
increased by 40 percent and now supports the production of about 100,000 units of moderate-rent
housing a year. HUD is working to ensure that tax credit and HOME units are available in all cases
to voucher families.

THE BUDGET FOR FISCAL YEAR 2003

179

End Chronic Homelessness in 10 Years
The Administration has made ending chronic homelessness in the next decade a top objective.
The chronically homeless number perhaps 100,000 to 200,000 persons who are without a home for
long periods of time, or on many occasions. They typically have many difficult-to-treat disabilities or
mental health problems that lead to severe personal suffering. Serving this group consumes a large
share of all resources dedicated to the homeless. HUD will work to move more of the chronically
homeless from the dangerous streets to safe, permanent housing.
HUD will establish a baseline measure in 2003 of the chronic homeless population in communities
with Homeless Management Information Systems. The performance measure for those communities
will be achievement of a reduction in the number of chronically homeless persons by up to one-half
over five years.
HUD’s homeless assistance programs, along with those of the Department of Health and Human
Services (HHS) and five other Departments, will all contribute to this result. Federal spending for
the homeless will increase in 2003 to $2.2 billion, including $1.1 billion in HUD.
The budget proposes consolidating HUD’s largest homeless programs into one. It also transfers
two homeless programs from departments with other missions to departments with major
responsibility for aiding the homeless. The result of the new structure will consolidate program
administration into five agencies rather than the current structure that includes seven. The Federal
Emergency Management Agency’s Emergency Food and Shelter program will be shifted intact to
HUD, where it will continue to operate with its non-profit, private sector partners. The Department
of Labor’s Homeless Veterans Reintegration program will be moved to the Department of Veterans
Affairs. Both transfers will allow agencies to focus on the mission of reducing chronic homelessness
without reducing programs that are vital to the homeless population.

Expand Homeownership Opportunity
Families took advantage of strong economic conditions in recent years, increasing the national
homeownership rate to a record level of 68.1 percent in 2001. The homeownership rate among
minority households also increased over this period, reaching 47.8 percent in 2001. HUD’s
goals for 2003 are to increase the homeownership rate for minority households and protect the
recent homeownership gains nationwide. HUD’s homeownership efforts will seek to increase the
homeownership rate among minority households to 50 percent.
The Administration will use several means to reach these objectives:

• To promote the development of affordable single-family housing in low-income urban and rural

•

neighborhoods, the budget proposes a tax credit of up to 50 percent of the cost of constructing
a new home or rehabilitating an existing property. Eligible homebuyers would be required to
have incomes of not more than 80 percent of area median income.
The budget quadruples the President’s Down Payment Assistance Initiative from its 2002
level to $200 million. Through HUD’s HOME program, this initiative provides state and local
governments with matching grants to provide down payment assistance to first-time home
buyers.
The budget triples funding to $65 million for the Self-Help Homeownership Opportunity
program, which helps families realize their homeownership dreams through sweat equity.

180

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Neighborhood Reinvestment Corporation

Continued support for the Neighborhood
Reinvestment Corporation is another element
of the Administration’s homeownership
strategy.
The Corporation is a non-profit
organization outside of HUD and chartered
by the Congress. It is primarily funded by
Secretary Martinez
the American taxpayer. The Corporation’s
December 13, 2001
Campaign for Homeownership enabled over
34,000 low-income families to become new
homeowners since 1998 by using $155 million in public funds to generate $2.3 billion in private
investment (a 15–to–1 ratio).
I look forward to the day when we measure
compassion not by the number of families living
in assisted housing, but the number of families
who have moved into a home of their own.

Meet the Simpsons

Dimple Simpson, a single mother of three
living in Nashville, Tennessee, yearned
to own a home, but thought she faced
overwhelming odds. As a cook and cashier
at an area high school, her income plunges
during the summer break, making it a
challenge to save for a down payment. She
had received HUD housing assistance for
the last 16 years, but did not know how she
could afford to purchase a home or find her
way through an unknown process.
Through an innovative programmatic
partnership among HUD, the Neighborhood Reinvestment Corporation and a private lender, Ms. Simpson’s
dreams became a reality. She purchased the home she longed for by using her HUD voucher as part of
the financing structure, and relying on the Neighborhood Reinvestment Corporation and local partners to
guide her through the process.
After building home equity for a few years, Ms. Simpson will be self-sufficient, thereby freeing up her
housing subsidy to help another needy family. "I have proved to my girls that [their] Mom … can do
ANYTHING,” Simpson says. “This was a hand up, not a hand out."

Other HUD Programs
Lead Paint Hazards
HUD is committed to eliminating childhood lead poisoning by 2010, working with other federal
agencies, including HHS and the Environmental Protection Agency. HUD’s primary role in keeping

THE BUDGET FOR FISCAL YEAR 2003

181

children from lead exposure is through grants to localities for control of lead paint hazards in
low-income housing. HUD promotes the use of new, low-cost technologies that can be replicated
across the nation. For 2003, the budget proposes a 15 percent increase (to $126 million) for this
program.

Faith-Based and Community Initiatives
HUD is one of the five agencies that has established an Office of Faith-Based and Community
Initiatives in response to the President’s Executive Order published in January 2001. Expanding
the opportunities and success of faith-based and community development organizations is a HUD
strategic goal. More information on the coordinated effort across the federal government regarding
faith-based and community initiatives appears in the HHS chapter.

Strengthening Management
HUD is one of the nation’s largest financial guarantors, with large mortgage obligations and
exposure. It is responsible for managing more than $500 billion worth of insured mortgages,
more than $700 billion in outstanding mortgage-backed securities, and about $120 billion in
still-to-be-outlayed funds from past appropriations. To meet its commitments, HUD must improve
its management capability and performance.
HUD’s chronic management weaknesses are well documented. The General Accounting Office
labeled HUD at high risk of waste, fraud, abuse, and mismanagement from 1994 to 2000. HUD’s
weaknesses harm those whom the agency was created to serve. For example, subsidized families
are sometimes trapped in substandard, poorly maintained housing; homebuyers are exposed to
fraudulent practices; and some families receive excessive rental subsidies that could have been
used to aid others in need. HUD has resolved to fix these problems as part of the President’s
Management Agenda. HUD will adopt a rating system to objectively measure subsidized housing
performance with mandatory remedies for lack of performance. HUD will greatly reduce fraudulent
practices in FHA by holding lenders accountable for the performance of brokers and appraisers.
HUD will develop an expert system to help lower the 60 percent error rate in calculating the rents
of subsidized tenants.

182

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Initiative

2001 Status

Human Capital —HUD has the oldest workforce of any Cabinet department. After many
years of downsizing, HUD faces a potential retirement wave and loss of experienced
staff. HUD’s managers for many years have been hindered by a lack of workforce
measurement tools to evaluate how long tasks take or determine staff productivity. In
addition, after several reorganizations, HUD workers are not all in the right places with
the right skills to do priority work. The Department is taking actions to correct these
deficiencies. HUD is expanding recruitment programs, including a new intern program to
help replace those who could retire soon. The Department is delegating more hiring
to the field offices to accelerate the filling of vacancies. The Department’s new work
measurement system will complete its first full year of data collection in December.
Managers then will create a staffing plan based on needs to better align work effort
with priority tasks.

•

Competitive Sourcing —HUD works primarily through intermediaries or grantees
to deliver its programs to recipients, seeking to maintain a proper balance between
in-house expertise and oversight capacity and outsourcing. The General Accounting
Office and the HUD Inspector General have repeatedly found long-standing deficiencies
in HUD’s program oversight. HUD has failed to analyze regularly its tasks to determine if
competition of functions identified as commercial would result in better performance and
value for the government. However, given HUD’s significant downsizing over the past
decade, opportunities for additional outsourcing may be limited. In an effort to eventually
compete 50 percent of all commercial activities in accordance with the President’s
Management Agenda, HUD will need to compete at least five percent, or 290 positions,
in 2002 and an additional 10 percent, or 580 positions, in 2003.

•

Financial Management —HUD’s financial systems have been plagued with deficiencies
for many years. HUD’s financial statements improved last year to merit an unqualified
audit opinion, albeit with citations for 10 reportable conditions and four material
weaknesses. In 2002, the Department will continue progress by maintaining an
unqualified audit opinion and eliminating at least three of its material weaknesses or
reportable conditions. The Department will revamp its funds control system in 2002 to
overcome internal control deficiencies that led to overspending of its appropriation in
2000. The Department will improve the inadequate FHA accounting system with a new
FHA general ledger by October 2002. A Departmental task force has been working with
HUD’s intermediaries and clients for several months on plans to reduce the overpayment
of rent subsidies; HUD will set aggressive interim targets to reduce overpayments in
each of the next three years.

•

THE BUDGET FOR FISCAL YEAR 2003

183

Initiative

2001 Status

E-Government —HUD has encountered chronic implementation problems in delivering
information technology (IT) systems. Often HUD’s IT investments start well but then
experience problems and start to lag, and some projects are never completed. Recently,
HUD made improvements. It installed a capital planning process for all major IT
systems. HUD now requires a business case to make better investment decisions. HUD
stages projects in modular increments that can be more carefully tracked for success or
failure. The challenge is to deliver IT systems on time and within budget.

•

Budget/Performance Integration —HUD has too little focus on outcomes, or how
programs influence them. Some programs do not measure important outcomes, only
inputs. For example, HUD measures the amount of money spent to subsidize housing
for a low-income household. However, HUD does not measure if that subsidized
household now does better in terms of employment, earnings, children’s education,
or stability of the family, nor does it track the length of time the household continues
to receive housing assistance. This lack of performance information inhibits HUD’s
ability to compare different types of programs and strategies. HUD is also hindered by
inconsistent collaboration between performance planning and budgeting. Recently,
though, HUD has made progress in simplifying its budget to a more understandable
presentation. In the coming year, HUD will integrate its performance planning into the
2004 budget process in the proper sequence, i.e., to determine the outcomes it aims
for first and then the program and resources required.

•

184

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Department of Housing and Urban Development
(In millions of dollars)
2001
Actual

Estimate
2002
2003

Spending:
Discretionary Budget Authority:
Community Development Block Grant:
Existing law .................................................................................
Legislative proposal ...................................................................
HOME Investment Partnership .....................................................
Homeless Grants
Existing law .................................................................................
Legislative proposal ...................................................................
AIDS Housing Grants .....................................................................
Housing Certificate Fund (Housing Vouchers) ...........................
Public Housing .................................................................................
Revitalization of Severely Distressed Housing (HOPE IV) ........
Housing for Special Populations (elderly and disabled) ............
Federal Housing Administration (FHA) .......................................
Fair Housing and Equal Opportunity ............................................
Lead Hazard Reduction .................................................................
All other programs ...........................................................................
Subtotal, Discretionary budget authority adjusted 1 ........................
Remove contingent adjustments ...................................................
Total, Discretionary budget authority ................................................

5,112
—
1,796

5,000
—
1,846

4,716
16
2,084

1,123
—
257
13,941
6,228
574
994
−2,702
46
100
943
28,412
−55
28,357

1,123
—
277
15,641
6,338
574
1,024
−2,066
46
110
−443
29,470
−55
29,415

1,130
153
292
17,527
5,956
574
1,024
−2,285
46
126
138
31,497
−56
31,441

Emergency Response Fund, Budgetary Resources:
Community Development Block Grant .........................................
Inspector General ............................................................................
Total Emergency Response Fund, Budgetary resources ..............

—
—
—

2,700
1
2,701

—
—
—

Mandatory Outlays ..............................................................................

921

−3,445

−1,607

2
24
26

129
17
146

54
1
55

122,687
335
21
123,043

150,584
400
47
151,031

141,566
400
59
142,025

Credit activity:
Direct Loan Disbursements
FHA ...................................................................................................
Other loans .......................................................................................
Total, Direct loan disbursements .......................................................
Guaranteed Loans
FHA ...................................................................................................
Community Development Loan Guarantees ...............................
Other Guaranteed Loans ...............................................................
Total, Guaranteed loans ......................................................................
1

Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For
more information on these items, see Chapter 14, "Preview Report," in Analytical Perspectives .

DEPARTMENT OF THE INTERIOR

The President’s Proposal:

• Fulfills commitments to
fully fund the Land and Water Conservation Fund;
• eliminate the backlog of repairs in our National Parks by 2006; and
• replace and repair Bureau of Indian Affairs schools and improve the quality of
education for American Indian children.
Launches the Cooperative Conservation Initiative to protect and conserve the
environment through partnerships;
Supports, at record levels, major upgrades to our National Wildlife Refuges;
Fully funds Indian trust reform efforts in the Office of the Special Trustee and
the Bureau of Indian Affairs;
Significantly advances the protection of threatened and endangered species and
their habitat through cooperation and partnerships; and
Encourages the establishment of a Royalties Conservation Fund to devote
royalties from energy production to land conservation and the reduction of
maintenance backlogs on public lands.
•

•
•
•
•
•

The Department of the Interior (DOI)
manages over 507 million acres of land
(roughly one-fifth of the land area of the
United States), 700 million acres of subsurface
minerals, and the nation’s Outer Continental
Shelf. DOI protects much of the nation’s
natural and cultural resources, including
providing for their responsible use, and serves
as the largest supplier and manager of water
in the 17 western states. DOI is responsible
for meeting many of the government’s
trust responsibilities to Indian tribes and
affiliated island communities. The agency also
disseminates U.S. earth science information
and research findings to the public.

Department of the Interior

Gale Norton, Secretary

www.doi.gov

202–208–7351

Number of Employees : 69,718
2002 Spending : $10.3 billion
Organization : Eight bureaus: National Park
Service, Bureau of Land Management, Fish and
Wildlife Service, Bureau of Indian Affairs, Minerals
Management Service, Office of Surface Mining, U.S.
Geological Survey, and Bureau of Reclamation.

185

186

DEPARTMENT OF THE INTERIOR

Overview
The nation’s vast lands, waters, minerals, fish and wildlife, and other natural and cultural
resources provide both social and economic benefits to our population. Careful management of these
resources is required to ensure they are used in an environmentally responsible manner.
DOI’s activities largely fall within four broad categories:

• Conservation (such as wilderness protection, habitat conservation, and historic preservation);
• Recreation (such as hiking, hunting, bird-watching, and camping);
• Energy and Other Resource Development (such as development of oil, gas, coal, and other
•

minerals, as well as cattle grazing and timber production); and
American Indian programs (including Indian education and trust fund management).

Major units include the 385 National Parks, 538 National Wildlife Refuges, 70 National Fish
Hatcheries, 406 hydroelectric facilities and reservoirs, and 264 million acres of Bureau of Land
Management (BLM)-administered public lands. DOI also manages trust funds and assets for more
than 300 of the 558 American Indian tribes.
Improving management and performance is a common theme throughout the 2003 President’s
Budget. This chapter explains how the 2003 Budget will help improve management and performance
within DOI. It begins with a status report on select DOI programs and identifies strong and weak
performers. A short section on congressional earmarks discusses how these unrequested mandates
have a tendency to detract from agency performance. The chapter then discusses how the President’s
Budget helps to address performance issues in key DOI programs. The programs discussed are
separated into the four main categories that reflect the main thrust of the agency’s work as identified
above. The chapter concludes by identifying how DOI will address the specific government-wide
management and performance initiatives included in the President’s Management Agenda.

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The budget seeks to redirect funds from lesser performing programs to higher
priority or more effective ones. In limited cases, the answer to fixing less effective or ineffective
programs is increased funding (e.g., increases for national park maintenance). In such cases, plans
are underway to improve program performance. In other cases, an effective program—like the
National Wildlife Refuge System—gets rewarded with additional funding offset by a reduction in
funds from ineffective programs, such as the National Fish Hatchery System. The accompanying
table illustrates specific programs that have been rated by the Administration, most of which are
discussed in this chapter.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

187

Explanation

National Wildlife
Refuge System

Effective

Effectively prioritizes identified needs; better performance measures
are still needed.

Offshore Minerals
Management

Effective

Leases for offshore development are awarded competitively and
managed efficiently.

Wildland Fire
Management

Unknown

Lacks clear direction and adequate performance measures; program
objectives have become muddled.

National
Park Service
Maintenance and
Construction

Unknown

Lacks clear implementation plan and schedule for tracking facility
maintenance progress.

National Fish
Hatchery System

Ineffective

Lacks clear direction and adequate performance measures. State or
private programs may be more effective.

Bureau of Indian
Affairs School
Performance

Ineffective

Academic performance of many students at BIA schools is far below
public school counterparts.

Congressional Earmarks
DOI has, or is developing, systematic methods for determining priority projects for funding. For
instance, the Fish and Wildlife Service (FWS) has established its Refuge Operations Needs System
to monitor, manage, and prioritize operational staffing, resource conservation, and public use needs
on refuges. The President’s Budget largely reflects the results of such analysis.
Unfortunately, congressional earmarks divert funds from these high priority and effective
programs. For example, in 2002, DOI received funding for 284 unrequested projects, totaling $323
million. Of this amount, $154 million in earmarks were for construction and land acquisition
projects alone, representing 24 percent of all funding in these two categories (see accompanying
table). While the Congress reduced its earmarking in 2002 of construction and land acquisition
projects, more still needs to be done.

188

DEPARTMENT OF THE INTERIOR

Over the past 10 years, more than 40 percent
of National Park Service (NPS) construction
project funding was earmarked for lower
priorities, at a time when national parks were
BA in
struggling with a deferred maintenance backlog.
millions of
Percent of
Important projects that will be further deferred
dollars
Total
Number
in 2002 due to earmarks include utilities and
campground upgrades in Acadia National Park,
2001 .......
105
180
36
preservation work on the Lincoln Memorial,
and rehabilitation of the park headquarters
2002 .......
101
154
24
building at Yellowstone National Park. For
some unrequested projects, park construction funds are not even spent on park facilities—they are
simply passed through to others; such is the case with the state-owned Palace of the Governors in
New Mexico.
Congressional Earmarks
DOI Construction and Land Acquisition Projects

The following sections discuss how the Administration is working to improve the performance of
DOI’s programs, in part by redirecting earmarked funds to more effective uses.

Conservation
DOI plays a key role in protecting
and preserving some of the nation’s most
remarkable natural areas and is responsible
for conserving and protecting threatened
and endangered species.
The President
is committed to the conservation and
stewardship of our lands, watersheds, and
other natural resources.
To that end, this budget addresses
a long-ignored problem by refocusing
environmental stewardship on achieving
results. For example, in 2003:

•

• FWS

will restore 125,000 acres of
wildlife habitat on refuges;
help
prevent three species from being added
to the Endangered Species list; work to
remove five more species from the list; and increase wildlife refuge visitation to 40 million
visits.
NPS will restore over 13,500 acres of targeted parklands that have been disturbed by
development; contain or restore 102,600 acres of land impacted by invasive plants; and
rehabilitate 270 park historic structures, bringing the total amount of park historic structures
in good condition up to 46 percent.
BLM will conduct 50,000 acres of proactive resource inventories; restore and protect 230
“at-risk” cultural and paleontologic sites; implement water quality improvement projects in
14 watersheds within priority areas; remediate 60 abandoned mines; and plug or reclaim 15
orphan wells.

With one million visitors each year, BLM’s Red Rock National
Conservation Area near Las Vegas, Nevada is one of the many
unparalleled sites managed by DOI.

THE BUDGET FOR FISCAL YEAR 2003

189

• The U.S. Geological Survey (USGS) will expand data collection and management with 15 new

•

terrestrial and aquatic biodiversity studies to inform land and resource management; add two
more decision support systems for ecosystem restoration in the Everglades; and develop a new
web-based information system to inform local urban development decisions in coastal areas.
The Bureau of Reclamation (BOR) will provide approximately 2.5 million acre feet of water to
conserve threatened or endangered species and preserve, restore, or establish over 9,776 acres
of wetlands habitat and 15 miles of instream or riparian habitat to offset project impacts.

The agency will increasingly rely on these and other performance measures to guide conservation
and resource management on DOI lands. In many cases, performance measures for DOI programs
are scarce or inadequate, however, the agency has accepted the difficult task of better defining and
tracking relevant indicators.
For example, performance measures for the Wildland Fire Management program have
traditionally focused on achieving all-out fire suppression goals, regardless of effectiveness or the
impact on long-term ecological health. DOI is working to improve its measures for this program,
with a significant focus on cost effectiveness and integration of the various parts of the fire program.
(See the Department of Agriculture (USDA) chapter for further discussion of the DOI/USDA
Wildland Fire Program.)
Complementing this renewed emphasis on
performance is an increased focus on utilizing
partnerships. By partnering with states, local
governments, conservation organizations,
tribes, and interested private parties, DOI can
leverage non-federal resources to achieve more
conservation for each federal dollar spent.
The federal government has a broad array of
tools and programs to fulfill its conservation
responsibilities, including the Land and Water
Conservation Fund, the National Wildlife
Refuge System, and the Endangered Species
Act. The following sections discuss, in greater
detail, a number of these important programs
and initiatives and how the Administration
is emphasizing partnerships within these
programs.

Partnering for Conservation through Better
Science

The Department’s National Biological Information
Infrastructure (NBII) increases access to data and
information on the nation’s biological resources
in order to promote the use of science as a basis
for determining local, regional, and national
conservation strategies. The NBII website
(www.nbii.gov) links the diverse, high-quality
biological databases, information products,
and analytical tools maintained by this growing
network. Federal funding of $6 million in 2003 is
expected to be matched many times over by the
more than 200 partners in the NBII network. The
amount of data accessible on the NBII site will
more than double by 2003.

Land and Water Conservation Fund
The Land and Water Conservation Fund (LWCF) was established in 1965 to support natural
resource conservation and outdoor recreation at the federal, state, and local levels. LWCF funding
in recent years has focused on acquiring land. This past year, however, the LWCF funded two of the
President’s priorities, both of which recognize that federal acquisition is not always the best or only
way to conserve land and other natural resources. These programs—Landowner Incentive Grants
and Private Stewardship Grants—provide new ways to cooperate with private landowners to enhance
habitat for imperiled species and encourage conservation efforts on private lands.

190

DEPARTMENT OF THE INTERIOR

Conservation easements represent
another tool in the effort to protect
and conserve land. Easements provide
flexibility for landowners who are
interested in conserving their land
but want to retain ownership (see
accompanying box). In some cases,
conservation easements can also be
more cost effective than outright land
purchases. For example, two recently
acquired conservation easements at
the Fish and Wildlife Service’s Dakota
Tallgrass Prairie Wildlife Management
Area in North and South Dakota were
less expensive than outright purchase
of the land by 43 percent and 78
percent, respectively.

Innovation in Conservation

Conservation easements can benefit fish and wildlife as
well as agriculture. David Mannix of the Mannix Brothers
Ranch in Montana put it best when he said, "Agriculture
and wildlife have much in common in that agriculture
needs open space to stay in business and wildlife need
open space to stay alive." The Fish and Wildlife Service
purchase of easements from the Mannix Brothers
Ranch provided the money necessary for expansion of
their ranch, allowing future generations to stay on the
land. Since the land remains in private ownership, local
property taxes still flow to the local government, creating
a winning scenario for fish, wildlife, agriculture, and the
local community.

As promised, the President’s Budget
fully funds LWCF at over $900 million to promote conservation in a variety of ways. This includes the
programs funded out of LWCF last year, plus an additional four conservation programs designated
to receive funding through the LWCF:

Existing LWCF Programs

•
•
•
•
•

Federal land acquisition

Added LWCF Programs

•

Cooperative Endangered Species
Conservation Fund

•
•
•

North American Wetlands Conservation Fund

LWCF State Grants
State and Tribal Wildlife Grants
Landowner Incentive Grants
Private Stewardship Grants

Forest Legacy Program 1
Forest Stewardship Program 1

1 Programs within USDA’s Forest Service.

Each of these programs has a different emphasis, but they all recognize that partnerships
encourage the stewardship of our natural resources and can be more powerful and effective than
traditional land acquisition or litigation. For example, a dollar spent acquiring land through the
North American Wetlands Conservation Fund could leverage anywhere from one to seven dollars in
additional funding from partners.
Especially important among these programs is $200 million for LWCF state grants, including $50
million as part of the Cooperative Conservation Initiative discussed below. States often have a better
sense than the federal government of areas that are locally or regionally important, so the President
is proposing a 39 percent increase in these grants—the highest funding level since 1980.

THE BUDGET FOR FISCAL YEAR 2003

191

Conservation Tax Credit
The President’s Budget also includes an incentive for private, voluntary land protection through
a 50-percent capital gains tax exclusion. Private landowners who voluntarily sell land or water to a
government agency or qualified conservation organization for conservation purposes are eligible for
the exclusion. This incentive is another example of a cost effective, non-regulatory, market-based
approach to conservation.

Cooperative Conservation Initiative
We are all stewards of the land. Yet problems arise when national leaders dictate decisions from
afar, rather than building partnerships with the states, local governments, and local citizens who are
closest to the land and best know the problems and how to fix them.
Partnerships achieve more conservation for the same investment. An excellent example of
this approach is the Cooperative Conservation Initiative (CCI). To leverage funds and promote
conservation, the CCI allocates $100 million in matching funds for natural resource conservation
projects. Projects can range from working with The Nature Conservancy to remove invasive species
from Channel Islands National Park, to working with local communities to reclaim abandoned mine
sites on public lands. Half of these funds would be allocated through cost-shared programs between
non-federal partners and DOI’s NPS, FWS, and BLM. The other half would be distributed to states
as part of the LWCF state grant program. However, as with other LWCF programs, all of the funds
have a common goal: to get more conservation results by working in concert with the people who
know the land.

NPS Natural Resource Challenge
This initiative establishes a framework for measuring the Park Service’s performance in
preserving natural resource conditions in national parks. The Natural Resource Challenge is
designed to collect and inventory baseline data on park resources and then identify and monitor the
“vital signs”—such as nitrogen levels in streams or populations of waterbirds—that most effectively
show changes in those resources. With an increase of $18 million in 2003, 52 parks will have
monitoring programs to measure park resource health, and NPS will establish vital sign measures
in 12 of 32 monitoring networks. Additionally, NPS will complete all resource inventories by 2008,
two years earlier than previously planned.

National Wildlife Refuges
In 1903, President Theodore Roosevelt wrote a new chapter in conservation when he set aside
land to protect pelicans and other birds on what is now called the Pelican Island National Wildlife
Refuge in Florida. Some 95 million acres later, the 538 refuges in the National Wildlife Refuge System
(NWRS) stand out as outstanding examples of efforts to effectively balance species conservation with
public access.

192

DEPARTMENT OF THE INTERIOR

But the NWRS is not without its problems.
Due to poor prioritization of funding in the
On March 14, 2003, Americans across the nation
past and continuous expansion over many
will celebrate the Centennial anniversary of the
years, the refuge system has developed a
National Wildlife Refuge System − a milestone
backlog of unmet operations and maintenance
in the history of fish and wildlife conservation in
needs. To address this backlog, the Fish
America.
and Wildlife Service has developed a
well-prioritized list of these needs. These
needs reflect an untapped potential for improving species protection and habitat restoration as well
as enhancing public use opportunities.
The refuge system’s centennial offers
an excellent opportunity to highlight this
effective program and improve the refuge
system’s performance. The President’s Budget
proposes an increase of $52 million for the
highest priority operations, maintenance, and
planning needs and provides an additional
$5 million for challenge cost share programs
on wildlife refuges through the CCI. In
future years, the Royalties Conservation
Fund proposed in the National Energy Policy
would provide additional funds to help reduce
maintenance backlogs for refuges as well as
other federal lands.
The increase for refuges in the President’s
Protecting songbirds, such as this endangered Golden-cheeked
2003 Budget will fund a variety of activities,
warbler, is part of the Department’s mission.
such as monitoring and protecting listed
species of the barrier beach ecosystem at Chincoteague National Wildlife Refuge in Virginia, and
constructing viewing decks at Balcones Canyonlands National Wildlife Refuge near Austin, Texas
to better observe endangered songbirds, such as the Golden-cheeked warbler. These and other
projects in the President’s Budget will help ensure that, in 2003, the top priority needs of the refuge
system are met, 125,000 acres of habitat are restored, and the system is capable of handling the
projected 40 million visitors.

Endangered Species
The Department of the Interior is also charged with conserving threatened and endangered
species and their habitat. Preventing species from becoming endangered as defined by the
Endangered Species Act (ESA), improving the status of listed species, and taking recovered species
off the list are key measurements of the success of the program. In 2001, DOI’s efforts helped to
keep five species from being listed; stabilized or improved 320 of 616 species listed for a decade or
more; and removed the Aleutian Canada Goose from the ESA list of “threatened” species.
The 2003 President’s Budget provides $126 million for the FWS’ Endangered Species program.
This funding supports the direct efforts of FWS to implement the ESA. The budget also includes $25

THE BUDGET FOR FISCAL YEAR 2003

193

million for DOI to help carry out the “reasonable and prudent alternative” of the Columbia River
Basin biological opinion.
The Administration’s main focus on imperiled species, however, involves working with partners
to prevent listings in the first place and to recover those already listed. The budget provides
over $200 million for such activities through various grant programs, including the Cooperative
Endangered Species Conservation Fund and the State and Tribal Wildlife, Landowner Incentive,
and Private Stewardship grant programs—the latter two of which are Presidential initiatives.
These and other programs emphasize working with and encouraging states and landowners to
protect a variety of species and their habitat, thereby garnering matching funds and support of
these conservation efforts.
In 2003, the President’s Budget will help prevent three species from becoming listed under the
ESA, maintain or improve the status of roughly 376 listed species, and remove five species from the
ESA list because of recovery efforts. Species that may be taken off the list include the Tinian monarch
flycatcher, the Gulf coast population of the brown pelican, and the Douglas County (WA) population
of the Columbian white-tailed deer.

Recreation
Protecting and preserving land and open space provides more than just environmental benefits: it
benefits our economy as well. Outdoor recreation has become big business in the United States, and
the public lands provide countless opportunities for many Americans to engage in healthy, wholesome
activities. Every year, more and more Americans turn to DOI’s public lands for a sense of peace and
solitude in an increasingly crowded and fast-paced world, and recent events have only heightened
this need. Much of the general public’s exposure to the Department of the Interior comes by way
of visits to national parks, wildlife refuges, and other public lands. The number of visits is a rough
measure of recreational use of DOI lands.

Recreation Visits on DOI Lands
Visits in millions

400
Bureau of Land Management

350

Fish and Wildlife Service

300

National Park Service

250
200
150

Visitation to DOI sites is steadily
increasing. While over 90 percent of visitors
to DOI’s public lands rated their experience as
good or very good, the quality of visits can be
further improved.

In particular, national park facilities are
buckling under the weight of heavy use,
while funding is stretched by the continuous
50
addition of new parks. Our national parks
0
have a backlog of billions of dollars in deferred
1970
1975
1980
1985
1990
1995
2000
Source: Department of the Interior.
maintenance, as evidenced by the broken
toilets, washed out trails, and crumbling roads
found in many parks. Eliminating this backlog will improve the quality of visits and encourage
more visits while protecting natural resources.
100

194

DEPARTMENT OF THE INTERIOR

Recreation and user fees have greatly helped to reduce backlogs in national parks and other public
lands, now that agencies can retain fee receipts and spend them on priority needs. The amount of
fee receipts available to agencies has gone from less than $15 million in 1996 to nearly $200 million
in 2000, principally due to the Recreation Fee Demonstration program, which the budget proposes
to make permanent.

National Park Service Maintenance Backlog
The President’s Budget will make visiting our national
treasures better than ever. First, the President committed
to eliminating the current deferred maintenance backlog
in national parks by 2006. This budget keeps that promise
on track.
NPS funding for facility maintenance and
construction is at an all-time high (over $660 million,
compared to $354 million as recently as 1996). In the
future, the proposed Royalties Conservation Fund would
also provide funds to reduce the maintenance backlog in
our national parks.

Fort Yellowstone jail is slowly crumbling from
lack of maintenance.
Water intrusion and
subsequent freezing and thawing have caused
half of this historic structure to erode.

But more money does not always mean the parks will get
fixed faster. Therefore, the President’s proposal also takes
the first step to identify and prioritize what needs fixing
and figure out a way to measure progress for getting the job
done. The Service will complete initial assessments of park
facility conditions by the end of 2003. As assessments are
completed, NPS will compile a Facility Condition Index to
evaluate the status of facilities and, starting with the 2004
Budget, measure agency performance in improving those
conditions.

Energy and Other Resource Development
In addition to scenic vistas, wildlife habitat, and recreation, our public lands also provide critical
resources such as oil, coal, minerals, and timber for the general welfare of our nation. DOI manages
these natural resources for a strong economy, while balancing these needs with the need for a healthy
environment.

Oil and Natural Gas
The United States currently consumes about 19 million barrels of oil a day and almost 7 billion
barrels every year, of which over half is imported. Of the oil and gas that is domestically produced, 29
percent and 35 percent is produced on federal lands, respectively. However, over the last five years,
production on federal lands has leveled off.
The National Energy Policy proposes to expand and diversify our nation’s energy supplies.
Diversity is important not only for energy security, but also for national security. To carry out

THE BUDGET FOR FISCAL YEAR 2003

195

the National Energy Policy, DOI’s Minerals Management Service (MMS) and BLM are issuing or
proposing leases on federal offshore (Outer Continental Shelf) and onshore tracts with known or
probable petroleum deposits and where safe and environmentally sound mineral development can
occur, consistent with current drilling moratoria. After review of the bids submitted to ensure fair
market value, the company with the highest bid wins the lease and is encouraged to develop the
resource as quickly as possible or risk losing the lease.

Oil and Natural Gas Production On
Federal Lands
Millions of barrels

Trillions of cubic feet

800

8
Gas

Oil
700

600

500

400

300

200

100

To ensure environmentally sound OCS oil
and gas development, the MMS seeks to limit
oil spilled to 10 barrels spilled per million
barrels produced. In 2000, the actual oil
spill rate was 5.35 barrels per million barrels
produced. MMS estimates naturally occurring
oil seeps introduce 150 to 175 times more oil
into U.S. marine waters than do OCS oil and
gas activities.

0
1996

1997

1998

1999

2000

2001

Source: Department of the Interior. Includes offshore and onshore production.

DOI is carrying out the National Energy Policy by:

• working
•
•
•
•

with the Congress to authorize exploration and, if resources are discovered,
environmentally responsible development of the most promising reserve areas within the
coastal plain of the Arctic National Wildlife Refuge;
moving forward with Outer Continental Shelf oil and natural gas leasing and approving
exploration and development on predictable schedules;
considering additional oil and natural gas development in the National Petroleum
Reserve-Alaska (NPR-A), which the Congress established in 1976;
promoting enhanced oil and natural gas recovery from existing wells through new technology;
and
implementing economic incentives for offshore oil and natural gas development.

Renewable Resources
DOI also manages the use of renewable resources such as rangeland forage, timber, and renewable
energy sources such as hydroelectric, wind, solar, biomass, and geothermal power. The Bureau of
Land Management administers over 21,000 grazing allotments, covering 161 million acres of public
rangeland, and manages over 49 million acres of forested land for multiple uses, including supply of
timber and other forest products. For several years, BLM has struggled with a grazing permit backlog
resulting from insufficient planning and a spike in the number of expiring permits. In 2003, BLM
will process approximately 1,500 expiring grazing permits, allowing the backlog to be completely
eliminated by 2004.

196

DEPARTMENT OF THE INTERIOR

The Bureau of Reclamation operates 58 hydroelectric
plants that produce over 10 percent (or 42 billion
kWh) of the electricity in 17 states, while the Bureau
of Land Management administers geothermal leases
in several high resource areas such as Nevada and
Southern California.
The National Energy Policy
places a high priority on developing alternative energy
sources that may reduce our dependence on foreign
oil and eventually replace fossil fuels. Working closely
with the Department of Energy, DOI is doing its part
to evaluate and remove unnecessary impediments to
the development of alternative energy on DOI lands,
while ensuring that the environment is protected in
the process. The two departments recently held a joint
renewable energy summit to discuss opportunities to
expand the use of renewable energy on our public lands.
(See the Department of Energy chapter for additional
discussion of renewable energy issues).

Coal

With development costs declining, wind farms–like
this one on BLM land near Palm Springs,
California–increasingly offer a clean, affordable
alternative to fossil fuels.

As America’s most abundant fuel source, coal is
expected to remain the dominant fuel in meeting
increasing
electricity
demand
through
2020.
Recognizing this, the National Energy Policy also calls for increased domestic coal production. New
clean coal technologies show that air pollution can be reduced and energy efficiency increased. DOI
plays a large role in domestic coal production. In 1999, coal mined on lands controlled by DOI’s BLM
accounted for about 35 percent of domestic coal production. However, unnecessary delays in lease
application processing can be costly to businesses and may even result in missed opportunities.
Currently, the average processing time for a coal lease application is 18 months. DOI is examining
ways to expedite permits and other actions necessary for energy-related project approvals. The
agency is also actively working to resolve disputes between coal and natural gas producers in one of
the country’s largest coal-producing regions, the Powder River Basin in Wyoming and Montana.

American Indian Programs
DOI is responsible for fulfilling the federal government’s trust responsibilities to Native
Americans and promoting self-determination on behalf of tribal governments, American Indians,
and Alaska Natives.

THE BUDGET FOR FISCAL YEAR 2003

197

Enhancing Educational Opportunities for American Indian Children
Through treaty requirements and federal
statutes, the federal government has a
Gila Crossing Day School in Laveen, AZ,
responsibility to ensure American Indian
serving 241 students in grades K through 6, is a
children have access to quality educational
success story for tribally operated schools. Gila
opportunities
through
specific
Indian
Crossing’s reforms include: standards-based
education programs. The Bureau of Indian
math, after-school tutoring, guided reading, and
Affairs (BIA) operates, either directly or
an extended school year.
through tribal grants and contracts, 185
Over a period of three school years, student
schools serving more than 48,000 students
proficiency in math skills jumped from 33 percent
(approximately 10 percent of all Indian
to 63 percent, while language skills proficiency
students in the country in elementary and
soared from 26 percent to 90 percent. Enrollment
secondary schools) in 23 states.
While
increased by 73 percent, while daily attendance
there have been some success stories, such
also increased from 89 percent to 97 percent.
as the Gila Crossing Day School, a recent
General Accounting Office study found that
“the academic achievement of many BIA
students…is far below the performance of students in public schools.” The President’s 2003 Budget
places new emphasis on improving academic performance at BIA schools and continues the 2002
initiative to eliminate the school maintenance and repair backlog.

Academic Performance at BIA Schools
The President proposes to use competition to improve the worst performing BIA-operated
schools and to enhance the opportunities for American Indian children to succeed in learning.
The accompanying table illustrates the dramatic differences between student performance at BIA
schools and public schools in the critical skills of reading, writing, and math in the grades tested.
While external factors do contribute to poor academic performance, the time has come to reevaluate
BIA’s role in the education of American Indian children. Following tribal consultations, the BIA will
solicit private entities to manage those schools that the tribes do not elect to contract themselves
through self-determination grants.

198

DEPARTMENT OF THE INTERIOR

AVERAGE STUDENT PERFORMANCE
State Assessment Tests in 1999-2000 School Year
BIA Schools
State

Public Schools
Measure

Low

High

Low

High

North Dakota..............

Percentile Range

South Dakota .............

Percentile Range

Arizona......................

—

Percent

Source: General Accounting Office Report O1-934
1

North and South Dakota use average national percentile rankings while Arizona uses four categories—Falls

Far Below, Approaches, Meets, or Exceeds. For Arizona, only students meeting or exceeding standards
are represented here.

School Maintenance and Repair Backlog

Eliminating the BIA School
Maintenance Backlog
In millions of dollars

1,000

800

600

400

200

0
2001

2002

2003

2004

2005

2006

2007

In 2001, the backlog of BIA school
maintenance and repair work was pegged
at about $942 million.
The President is
committed to eliminating the backlog by the
end of 2006. The 2003 Budget provides a
second installment ($164 million) for school
maintenance and repairs. When it is not
feasible to repair an existing school, the entire
facility will be replaced. The budget also
provides $120 million to build six replacement
schools, leaving only three schools on the BIA’s
current priority replacement list.

Indian Trust Fund Management
The President’s 2003 Budget provides a significant increase of $84 million to remedy deficiencies
in trust programs and meet the mandates of a U.S. District Court in the Cobell v. Norton case. For
decades, Indian trust funds have lacked modern accounting systems, reliable management systems,
and effective financial control systems. In December 1999, a federal judge ordered the agency to
correct the breaches of trust responsibilities and file progress reports on trust reforms. Secretary
Norton has undertaken actions to strengthen DOI’s trust reform efforts.

THE BUDGET FOR FISCAL YEAR 2003

199

BIA manages 56 million acres of Indian
Funding for Indian Trust Reforms
trust lands owned by tribes and their members.
Budget authority in millions
Over 110,000 oil, gas, timber, and other leases
350
generate about $1.1 billion in annual income
Office of the Special Trustee
300
Bureau of Indian Affairs
for the Indian landowners. The Office of the
Special Trustee for American Indians (OST)
250
is responsible for the distribution of $800
200
million each year to 1,400 tribal trust accounts
and $300 million each year to about 285,000
150
individual trust accounts. The OST budget
100
includes $161 million, a $49 million increase,
to implement modern land title, leasing,
50
and accounting systems; address probate
0
backlogs and improve risk management
1996
1997
1998
1999
2000
2001
2002
2003
analyses; consolidate fractionated ownership
of trust lands; and undertake other related trust management improvements, such as improving
information technology (IT) security. BIA’s budget includes $153 million, a $35 million increase, to
further expand trust program operations and services at headquarters, regional, and tribal levels.
DOI is continuing to make changes to its trust reform strategy, organization and management, and
improvement projects in response to recent court reports and independent consultant reviews.

Strengthening Management
Consistent with the President’s Management Agenda, DOI intends to improve management and
performance in 2003. One of the first steps is to address the government-wide management and
performance initiatives identified in this agenda.
As DOI’s performance measures reflect, it is charged with diverse responsibilities. The agency
acts as steward for vast amounts of federal land, collects billions in oil and gas leasing revenues,
serves as the trustee for Native Americans and Territorial Island communities, and contributes to a
vast array of scientific disciplines.
Because of its large geographic domain and varied missions, DOI’s bureaus have tended to go
their own way—creating many management challenges for DOI as a department. Although DOI
has centralized some management systems such as time and attendance, financial accounting,
and contracting, the agency does not have standardized performance measures or program cost
definitions. DOI plans to centralize more of its administrative operations to gain cost savings
and increase the use of common standards. DOI will also develop an integrated financial and
performance system, and will revise its strategic plan so that it is based on priority management
goals and measures, rather than a loose collection of bureau plans.
The following table provides a snapshot of DOI’s 2001 status for each of the five government-wide
management initiatives along with descriptions of each initiative and the steps DOI is taking to
improve in these areas.

200

DEPARTMENT OF THE INTERIOR

Initiative

2001 Status

Human Capital —DOI, like most other federal agencies, faces human capital-related
challenges such as an aging workforce with retirements expected in critical skill areas. For
example, DOI’s Fish and Wildlife Service expects 40 percent of its 201 law enforcement
officers to retire by the end of 2005. The agency will develop a comprehensive five-year plan to
coherently guide human capital management decisions to address these challenges. The plan
will identify specific organizational changes to address competitive sourcing, skill-mix changes,
streamlining and other management objectives. In addition, DOI will pursue co-location of BLM
and USDA Forest Service field offices and conduct a Regional Office study for the FWS to help
assess potential areas where it can become more citizen-centered.

•

Competitive Sourcing —To meet the Administration’s goal of completing public-private or
direct conversion competition of federal employees performing commercial functions, DOI
plans to compete or directly convert no fewer than 1,015 positions (five percent) in 2002. An
additional 2,320 positions (10 percent) will be competed or directly converted in 2003 for a total
of 3,335 positions, or 15 percent of the agency’s commercial activities workforce. To provide
guidance, assistance, and oversight of this effort, the Department is launching a Center for
Competitive Sourcing Excellence in 2002 and has designated a senior coordinator for this
initiative. DOI’s plan has been offered as a model for other agencies to use in the development
of their competition plans.

•

Financial Management —Due to problems with its tribal trust accounting, DOI cannot provide
assurances that its trust management systems and internal controls meet federal standards.
All other DOI components, however, do meet these standards, and the department did receive
a clean audit opinion. DOI has developed a High Level Implementation Plan to complete the
trust accounting systems and implement the internal controls required to correct its trust
accounting weaknesses. Additionally, DOI will finish an enterprise architecture study to launch
a new financial system enabling it to better integrate performance and budget information.

•

THE BUDGET FOR FISCAL YEAR 2003

201

Initiative

2001 Status

E-Government —Historically, DOI has made major information technology (IT) investments
without thorough analysis of realistic cost, schedule, and performance goals for new
acquisitions. As a result, DOI puts large sums of public funds at high risk for failure and does
not comply with either the Paperwork Reduction Act or the Clinger-Cohen Act. For example,
the agency does not fully develop business cases for major IT investments and lacks an
enterprise architecture to make Department-wide IT investment decisions. However, DOI is
committed to improving its review and approval of IT investments centrally, and has already
hired a contractor to survey DOI’s IT environment and make recommendations, due in June
2002, that will guide future investment decisions. DOI’s Inspector General is reviewing the
Department’s IT investment process as well. DOI has taken a government-wide leadership
role as managing partner for an intergovernmental Recreation One-Stop project and a similar
One-Stop project for geospatial information.

•

Budget/Performance Integration —DOI cannot monitor with sufficient precision the cost and
effectiveness of many of its programs. For example, DOI does not know how much it costs
to house its park rangers or reservation school teachers. Many programs, such as wildland
firefighting and national park facilities maintenance, lack measures to evaluate interim progress
towards long-term outcomes. Performance measures for USGS are particularly weak. DOI’s
operating and financial systems are not linked, and the Department has few agency-wide
performance measures for program analysis. The agency is revising its Strategic Plan to use
DOI-wide measures and is pursuing activity-based costing to better track full costs.

•

202

DEPARTMENT OF THE INTERIOR

Department of the Interior
(In millions of dollars)
2001
Actual

Estimate
2002
2003

Spending:
Discretionary Budget Authority:
National Park Service ..............................................................
Bureau of Indian Affairs ...........................................................
Bureau of Land Management .................................................
Fish and Wildlife Service .........................................................
U.S. Geological Survey ...........................................................
Bureau of Reclamation/Central Utah Project .......................
Office of Surface Mining ..........................................................
Minerals Management Service ..............................................
Office of Special Trustee for American Indians ....................
All other programs ....................................................................
Subtotal, Discretionary budget authority adjusted 1 .................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

2,346
2,168
2,109
1,342
918
835
320
149
120
206
10,513
−248
10,265

2,388
2,245
1,911
1,308
950
891
311
167
112
220
10,503
−267
10,236

2,422
2,269
1,875
1,316
904
867
284
181
161
231
10,510
−274
10,236

Emergency Response Fund, Budgetary Resources:
National Park Service ..............................................................
Bureau of Reclamation ............................................................
All other programs ....................................................................
Total, Emergency Response Fund, Budgetary resources ......

3
—
—
3

57
30
2
89

—
—
—
—

Mandatory Outlays:
Oil and Gas Receipts from Outer Continential Shelf lands
All other programs ....................................................................
Legislative proposal (OST Trust deficiency payments) .......
Subtotal, Mandatory outlays adjusted 1 .....................................
Remove contingent adjustments ............................................
Total, Mandatory outlays ..............................................................

−7,195
−772
—
−7,967
−8
−7,975

−3,806
94
—
−3,712
−9
−3,721

−2,832
306
7
−2,519
−9
−2,528

Credit activity:
Direct Loan Disbursements:
American Samoa direct loan ..................................................
Bureau of Reclamation direct loans ......................................
Subtotal, Direct loan disbursements ..........................................

13
25
38

6
48
54

—
9
9

Guaranteed Loans:
Indian loan guaranteed program ............................................
Total, Guaranteed loans ...............................................................

52
52

65
65

55
55

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

DEPARTMENT OF JUSTICE

The President’s Proposal:

• Makes fighting terrorism and ensuring homeland security the Department’s top
•
•
•
•
•

priority;
Launches a new, bold Border Security Initiative that infuses enforcement personnel
with state-of-the-art technology to prevent illegal entry into the country;
Consolidates federal assistance to state and local “first responders” by transferring
the Office for Domestic Preparedness to the Federal Emergency Management
Agency;
Streamlines support of local law enforcement by consolidating duplicative
programs and eliminating congressional earmarks;
Promotes accountability in the nation’s detention services by centralizing policy
and financial oversight; and
Supports investments to modernize antiquated state elections systems.

The Department of Justice (DOJ) enforces
the nation’s laws, combats terrorism, protects
public safety, helps prevent and control crime,
provides just punishment for criminals, and
ensures the fair and impartial administration
of justice. The Department has six major
bureaus: the Federal Bureau of Investigation
(FBI), the Immigration and Naturalization
Service (INS), the Drug Enforcement
Administration (DEA), the Bureau of Prisons
(BOP), United States Attorneys, and the
United States Marshals Service (USMS).

Department of Justice

John Ashcroft, Attorney General

www.usdoj.gov

202–514–2000

Number of Employees : 129,679
2002 Spending : $23.1 billion
Six major bureaus : Federal Bureau of
Investigation, Immigration and Naturalization
Service, Drug Enforcement Administration,
Bureau of Prisons, U.S. Attorneys, and U.S.
Marshals Service.

203

204

DEPARTMENT OF JUSTICE

Defending the Nation Against Public Enemy Number One
Defending the nation and its citizens
against terrorist attacks and ensuring the
protection and security of our homeland under
the law is now the Department of Justice’s
first priority. The Department has promised
the American people that it will:

• disrupt and dismantle terrorist activity
•
•
Terrorists strike on American soil.

The September 11th attacks on the World
Trade Center, the Pentagon, and in the air over
Pennsylvania brought home the heightened
threats to the nation and illustrated tragically
the gaps in our counterterrorism efforts.
While many corrective actions have been
taken, such as the shutting down of financial
networks exploited by many terrorists, much
remains to be done. The President’s Budget
proposes a number of initiatives to address
these challenges and increases funding by
$2.0 billion to support these efforts.
As
shown in the accompanying table, most of this
funding goes to the FBI and INS.

and terrorist networks;
bolster homeland security by preventing
terrorist attacks before they occur; and
help bring to justice those who would
perpetrate terrorist acts
against
Americans.

2003 Counterterrorism Enhancements
(Budget authority in millions of dollars)
Immigration and Naturalization Service ..............

994

Federal Bureau of Investigation ............................

646

United States Attorneys .........................................

General Legal Activities .........................................

Counterterrorism Fund ..........................................

United States Marshals Service ...........................

All other ....................................................................

118

Total ..........................................................................

1,974

The Mission: Seek, Find, Destroy
Some of the major areas proposed for improvement are highlighted below.

• Timely and useful intelligence is a key to preventing terrorist attacks.

•

The budget provides
$155 million for the FBI and INS to improve their intelligence gathering and dissemination
capabilities. This funding would support additional intelligence analysts, surveillance staff,
and electronic surveillance equipment. It would also expand the use of Joint Terrorism Task
Forces, which combine the resources and talents of federal, state, and local law enforcement
agencies at locations throughout the country. This funding also includes $35 million for the
Attorney General to enhance other intelligence gathering capabilities, including those of the
Drug Enforcement Administration.
Cybercrime attacks against our critical infrastructure could result in major disruptions and
economic loss. The budget strengthens the FBI’s efforts to detect and prevent such attacks.

THE BUDGET FOR FISCAL YEAR 2003

205

• The northern border has become an

attractive gateway for potential terrorists. The budget
builds on 2002 initiatives for the northern border by adding enough resources to more than
double the number of Border Patrol agents and inspectors and design and construct new
Border Patrol and inspection facilities.

Putting Technology on the Beat
The 2003 Budget also expands ongoing efforts to correct the FBI’s seriously deficient information
technology infrastructure by providing $186 million for additional upgrades. While the FBI will
continue to face information technology challenges beyond 2003, the funding that has been provided
in 2002 and requested for 2003 will enable the FBI to enhance internal communications, upgrade
personal computers, and institute new security measures.

Out with the Old... In with the New
The FBI’s basic information technology
capabilities have fallen behind other
government agencies and the private
sector. Speedy personal computers are
not available to many FBI employees.
Inefficient sharing and searching of
information contained in the FBI’s
many databases hinder investigations.
Databases housing sensitive information
need to be better protected from
external attacks and internal misuse,
as evidenced by the loss of classified
information to convicted spy Robert
Hanssen. The FBI is aggressively
correcting this situation, using a large infusion of funds provided in 2002.

To be effective, law enforcement programs must be supported by a wide array of physical and
technical capabilities and infrastructure. The budget includes a number of initiatives to improve
current capabilities. For example, the INS will modernize and expand its systems to control aliens
entering and exiting the United States through visitors’, temporary workers’, and other visas. Also,
FBI and DEA will improve safeguards that protect critical information systems from unauthorized
access or misuse. Also, the FBI will replace older fleet aircraft with newer, more sophisticated
aircraft with advanced surveillance and investigative capability. The INS will increase its air
surveillance fleet to enable more thorough coverage of border areas. The FBI and DEA will
also improve protection for their personnel, facilities, and information from attack and the U. S.
Marshals Service will upgrade security at federal courthouses nationwide.

206

DEPARTMENT OF JUSTICE

Border Security
To address the gap in securing the nation’s borders, the budget proposes a bold, new initiative.
The Border Security Initiative brings additional law enforcement personnel together with advanced,
state-of-the art technology and systems to better prevent illegal entry into the country, target persons
who are a threat to homeland security, and assist with non-U.S. citizens entering and exiting the
country. Components of this initiative include:

• Implementing

•

a comprehensive entry/exit system to track the arrival and departure of
non-U.S. citizens while speeding entry of routine, legitimate traffic and dramatically
improving our ability to deny access to those that should not enter. The new system will
leverage advanced technology and construction investments to ensure a timely and secure
flow of traffic;
Deploying force-multiplying equipment, including remote operated infrared cameras, to
monitor isolated areas where illegal entry may have once occurred; and

• Integrating

now-separate information systems to ensure timely, accurate, and complete
enforcement data is available to the field.

The Honor System Gone Haywire

When Immigration inspectors close up shop, those
who wish to cross the border are on their honor
to either report to the unmanned video camera
or wait until morning.
Prior to the September 11 th attacks, many
northern border crossings were left unmanned
overnight. So persons wishing to enter the U.S.
legally were required to turn back and wait until
the next morning or proceed, often many miles,
to the nearest open port-of-entry.
No effective border enforcement was in place at
these locations. Today, as a result of emergency
funding to cover overtime pay, all official border crossings are manned 24 hours a day, seven days a week.

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The budget seeks to redirect funds from lesser performing grant programs or
those that have outlived their usefulness, to those programs that support the fight against terrorism
and ensure that our homeland is secure.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

207

Explanation

Immigration
enforcement

Moderately
Effective

Immigration enforcement activities have made progress in gaining
control along specific sections of the Southwest border, resulting in
a decrease in apprehensions. Yet, total illegal immigration, including
people overstaying their visas, remains high.

Immigration services

Ineffective

Unacceptably large application backlogs and lengthy processing
times frustrate those who wish to legally enter the United States,
unfairly disadvantaging them relative to undocumented immigrants.
The Department is, however, making progress toward eliminating the
backlog by the end of 2003, but needs to ensure a thorough screening
of all applicants for deficiencies.

Community Oriented
Policing Services
(COPS)

Unknown

COPS grants have contributed to the spread of innovative police
practices. However, the net effect on police hiring and national and
local crime rates is uncertain.

Other State and
Local Grant
Programs

Unknown

The overall effect on crime is unknown because of widely varying
program objectives, the lack of performance measures, and the
relatively small share of local criminal justice spending. Congressional
earmarks also limit the Department’s ability to target funding where
it is needed most.

Incarceration

Effective

Although the current supply of prison bed space is inadequate,
alternative solutions are being utilized to address the problem.
Additional prison capacity, either from new prison construction or the
purchase of private or other prison facilities, will reduce crowding levels
and continue to provide secure and humane confinement for inmates.

208

DEPARTMENT OF JUSTICE

Redirecting Funds from Outmoded, Underperforming Programs to New
Initiatives
To help offset the cost of increased funding for homeland security and counterterrorism in DOJ,
the budget proposes reductions in grant and other departmental programs that have accomplished
their mission, failed to demonstrate a clear impact on crime, or have been extensively earmarked by
the Congress.

State and Local Assistance Programs
As discussed in the Federal Emergency Management Agency (FEMA) chapter, the budget requests
$3.5 billion for FEMA to improve the terrorism preparedness of state and local first responders,
including police, fire and emergency personnel. This represents a shift in priorities and funding
from Department of Justice grants, which are reduced by $1.2 billion. However, total federal aid to
state and local law enforcement will increase.
In recent years, departmental state and
Sources of State and Local Law
local assistance programs have included the
Enforcement Funding
In billions of dollars
State Criminal Alien Assistance Program
Federal First
(SCAAP), Byrne formula grants, Local
160
Responder
Law Enforcement Block Grants, Juvenile
Federal Law
Grants
Enforcement
Accountability Block Grants, and COPS hiring
120
Grants
grants. Despite spending billions of dollars
since 1994, virtually no evidence exists proving
State
80
that these programs have had an impact on
the nation’s falling crime rate, and all lack
40
verifiable measures of performance. SCAAP is
Local
not even intended to reduce crime, but merely
to reimburse state and local government
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
expenditures. Nevertheless, the President’s
Source: State and local data from Bureau of Justice Statistics.
Budget continues to support flexible grant
funding for state and local law enforcement by merging several of these block grants into a new
Justice Assistance Grant Program with stronger emphasis on performance accountability. This
program will be funded at $800 million.

Alternatives to Prison Construction
Between 1993 and 2001, the federal government has spent over $4 billion constructing new
prisons. During that time, the federal prison population has grown by over 76 percent, from 88,565
in 1993 to 156,572 in 2001. In response to rapid inmate growth, federal prison facilities grew from
72 in 1993 to 100 in 2001, with 18 additional institutions now underway.
Purchase of excess private sector and other correctional facilities may offer an affordable
alternative to federal construction of additional prison space. The Department will evaluate the
feasibility of purchasing private facilities for use by BOP.

THE BUDGET FOR FISCAL YEAR 2003

209

Other Changes to Improve Program Performance
Congressional Earmarks
Crime rates remain at their lowest level in over 25 years, and the Department continues to spend
over $4 billion a year to help state and local governments prevent, investigate, prosecute, and punish
criminal behavior. While some programs that focus resources on high-crime areas have been effective,
most of the several dozen Justice grant programs has not demonstrated a clear impact on crime.
Their effectiveness and accountability have been further compromised by the congressional practice
of earmarking funds for unrequested, non-competitive projects.
In 2002, earmarked projects made up 15 percent of total grant funding and 32 percent
of non-formula funding. Some programs were hit especially hard: 100 percent of the COPS
Law Enforcement Technology Program; 42 percent of the Methamphetamine Enforcement and
Clean-Up Initiative; 75 percent of Crime Identification Technology Act Grants; and 99 percent
of the Safe Schools Initiative. The Edward Byrne discretionary grant program had 98 percent
of its appropriation earmarked, including $2 million for a Rural Agricultural Crime Program in
California; $1 million for a distance degree program at Excelsior College, N.Y.; and $3 million for
the Lewis and Clark Bicentennial Bi-State Public Safety Project in Idaho.
The budget consolidates these programs, eliminates earmarks, and, as part of the President’s
Homeland Security initiative, funds efforts where all levels of law enforcement entities can combat
the threat of terrorism.

Office of the Federal Detention Trustee
The need for federal detention bed space has more than doubled in the last five years, from
32,000 detainees in 1996 to 67,000 detainees in 2001. This dramatic rise has resulted in an
increased reliance on state and local governments and private contractors to provide bed space for
federal detainees. This year alone, the Department will spend $1.8 billion on federal detainees.
Currently, the INS, USMS, and BOP detain prisoners, with little department-wide coordination.
Previously, the Office of the Federal Detention Trustee was established to manage the rising
detainee population and exercise financial control and efficiency in federal detention operations.
For 2003, the Administration proposes consolidating detention funding from INS and the Federal
Prisoner Detention program under the Detention Trustee to improve financial accountability and
ensure coordination throughout the department. This is the first crucial step toward achieving the
Administration’s goal of centralizing federal detention policy-making and funding and redresses the
disconnect between the Department’s bureaus.

Office of Domestic Preparedness
The budget transfers the functions of the Office for Domestic Preparedness (ODP) to FEMA,
together with $235 million in funding. ODP has provided anti-terrorism equipment grants and
training for state and local first responders.

210

DEPARTMENT OF JUSTICE

Timely Citizenship
Bring Us Your Tired, Your Poor, Your Hungry
… A Promise of Better Service

Thousands of people endure long waits at INS
offices or at home for action on their immigration
application. Those waiting in line hope that
today they can talk with an INS official and file
an immigration application. Others wait at home
for months and even years to hear from the INS.
This is an unacceptable situation − the immigrants
to our country deserve better. By the end of 2003,
the INS expects to achieve a six-month average
processing goal for all applications.

In addition to securing the border, the INS is also responsible for processing immigration
applications and petitions, such as “green card” or citizenship applications. Currently it takes on
average 13 months for the INS to decide on an application for a green card. For someone to sponsor
their relative to immigrate to the United States, it can take the INS anywhere from 19 to 43 months
to process the request. Persons seeking citizenship wait 10 months on average.
The Administration is committed to building and
maintaining an immigration service system that ensures
integrity, provides timely and accurate services, and
emphasizes a culture of respect. Last year, the Administration
launched a five-year initiative to provide quality service
to all legal immigrants, citizens, businesses and other INS
customers. To support this commitment, the INS has developed
a five-year plan to eliminate the immigration benefit backlog,
a component of which is to ensure the thorough screening of
all immigration applicants for deficiencies prior to their being
admitted into the United States. The plan also provides for a
six-month processing standard for all applications. In 2002,
INS will implement several information technology initiatives
to improve customer service, including providing on-line filing
of multiple immigration applications.
In addition, to improve the efficiency and effectiveness
of the INS in achieving its mission, in November 2001 the
Attorney General unveiled a restructuring plan for INS that
will reform the agency’s structure by separating its service
and enforcement functions. The restructuring of INS fulfills
U.S. citizenship ceremony.
President Bush’s pledge to reform the agency by creating a
clear division between INS’ two vital missions—service and enforcement.

THE BUDGET FOR FISCAL YEAR 2003

211

Election Reform Grants
The budget includes $400 million in 2003 for a new DOJ matching grant program to enable
state and local jurisdictions to take advantage of improved voting technologies and administration,
including voting machines, registration systems, voter education, and poll worker training. This
new program is consistent with the recommendations of a report on election reform issued by a
national commission headed by former Presidents Ford and Carter.

Strengthening Management
In 2001, the Attorney General established the Strategic Management Council (SMC) to
provide direction and leadership on strategic planning, resource management, and performance
accountability. This “corporate board” now oversees the Department’s resources and provides
direction and leadership for long-range planning. The SMC evaluates and prioritizes funding
requests submitted by departmental bureaus and was instrumental in aligning the budget request
with the Department’s strategic goals and objectives. The Department is making progress in
addressing various President’s Management Agenda initiatives.

Initiative

2001 Status

Human Capital —The Department submitted a workforce-restructuring plan that was
developed prior to the attacks of September 11th . The plan did not address the following
core criteria: human capital planning; standards for internal accountability systems; or a
comprehensive citizen-centered, de-layered organizational structure.

On November 8, 2001, the Attorney General announced a comprehensive reorganization to
meet the counterterrorism mission. The Department’s human capital strategy will be revised to
address this new restructuring. The revised plan will ensure that the Department sustains a
high-performing workforce that is continually improving in productivity and strategically uses
existing personnel, tools, and technology. Specifically, the revised plan will: 1) identify skill
gaps and deficiencies; 2) describe strategies to reward high performers and address low
performance; and 3) develop an outsourcing strategy to accommodate the needs of displaced
employees.

•

Competitive Sourcing —The Department has not completed public-private or direct conversion
competition for 15 percent of the government positions performing commercial functions.

The Department has a competitive sourcing plan for achieving the five percent goal in 2002
and 15 percent by 2003, equating to 190 positions, based upon a 2000 commercial activities
inventory of 1,264. Justice has increased the size of its commercial activities inventory from one
percent in 2000, to over nine percent of its total workforce. The Department needs to continue
to identify additional positions that could be added to its commercial activities inventory.

•

212

DEPARTMENT OF JUSTICE

Initiative
Financial Management—The Department is not in compliance with the requirements of the
Federal Financial Management Improvement Act. The Department also does not meet federal
accounting standards related to property accounting. Since the Department has material
system non-conformances, it cannot provide a clean assurance statement about its controls.
Justice received a clean opinion on two of its financial statements (i.e., the balance sheet and
statement of custodial activity) and a qualified opinion on the remaining statements for 2000,
due to lingering accounting problems at the INS.

2001 Status

•

The Department has made progress in addressing issues identified by its auditor during the
course of its annual financial audit. Justice expects to receive an unqualified opinion for 2001.
In addition, DOJ will move forward to migrate its components from old financial systems to
new systems that meet applicable standards.
E-Government —The Department has a number of significant and pervasive information
technology security weaknesses. In spite of recent progress, significant work remains to carry
out a capital planning process fully. Justice’s timetable calls for all bureaus to have completed
plans by the end of 2002. To ensure system compatibility and improve information sharing
and security, Justice’s enterprise architecture efforts must be a high priority throughout the
Department.

•

Budget/Performance Integration —The Department does not have a performance plan that is
tied to specific outputs, outcomes, or activities. There is no clear linkage between resource
levels and outcomes.

On November 8, 2001, the Attorney General announced a series of goals and management
initiatives that reflect the changed priorities of the Department. These goals include revising the
Department of Justice Performance plan to include clear, consistent performance measures
that support the Department’s Strategic Plan. The Department will focus on revising its plan
and on improving the linkages between resources and outputs/outcomes in budget formulation
and execution. In addition, the Department will demonstrate how performance influences
budget decisions.

•

THE BUDGET FOR FISCAL YEAR 2003

213

Department of Justice
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Spending:
Discretionary Budget Authority:
Federal Bureau of Investigation .............................................
Drug Enforcement Administration ..........................................
Immigration and Naturalization Service 1 ............................
Federal Prison System ............................................................
U.S. Marshals Service .............................................................
U.S. Attorneys ...........................................................................
State and Local Assistance ....................................................
All other programs ....................................................................
Subtotal, gross discretionary budget authority adjusted 2 ......
Less Crime Victims Fund delay 3 ..........................................
Remove contingent adjustments ..........................................
Total, Discretionary budget authority .........................................

3,363
1,417
3,350
4,415
626
1,303
4,640
2,518
21,632
—
−440
21,192

3,641
1,517
3,596
4,744
670
1,397
4,263
2,098
21,926
—
−465
21,461

4,324
1,582
4,132
4,605
737
1,551
3,071
3,069
23,071
−1,261
−492
21,318

Emergency Response Fund, Budgetary Resources:
Federal Bureau of Investigation .............................................
Immigration and Naturalization Service ................................
Office of Justice Programs ......................................................
All other programs ....................................................................
Total, Emergency Response Fund, Budgetary resources ......

37
—
—
4
41

785
584
19
103
2,191

—
—
—
—
—

Mandatory Outlays:
Immigration and Naturalization Service ................................
September 11 th Victims Compensation ................................
All other programs ....................................................................
Subtotal, Mandatory outlays adjusted 2 ....................................
Less mandatory receipts .........................................................
Remove contingent adjustments ............................................
Total, Mandatory outlays ..............................................................

1,497
—
1,117
2,614
−1,998
−45
571

1,687
1,080
1,667
4,434
−2,576
−51
1,807

2,091
2,700
2,536
7,327
−2,605
−54
4,668

1 In 2003, $615 million is transferred from INS to the Detention Trustee, and is included in the "All Other Programs" total.
2 Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more information, see

Chapter 14, "Preview Report," in Analytical Perspectives.
3 Savings from the Crime Victims Fund were $525 million in 2001 and $1,033 million in 2002.

DEPARTMENT OF LABOR

The President’s Proposal:

• Provides for reform of Unemployment Insurance and Employment Service
•
•
•
•

administration to strengthen state control and improve customer service;
Includes over $9 billion in budgetary resources for federal job training and other
dislocated worker services, and redirects funds from poorly performing programs
to effective ones;
Strengthens the integrity of worker compensation and benefit programs by cutting
excessive and frivolous payments;
Advances non-bureaucratic methods to improve safety in the workplace; and
Eliminates backlogs in the permanent alien labor certification program.

The Department of Labor (DOL) runs
unemployment insurance, job training and
employment, and workers’ compensation
programs. It collects, analyzes, and publishes
labor and economic statistics.
DOL also
is responsible for the administration and
enforcement of laws that: protect workers’
wages, health and safety, and employment,
pension, and other benefit rights; promote
equal employment opportunity; and ensure
free collective bargaining.

Department of Labor

Elaine L. Chao, Secretary

www.dol.gov

1–866-4–USA–DOL

Number of Employees : 17,432
2002 Spending : $58.6 billion
Field Offices : 568 field offices with locations
in 50 States, plus Puerto Rico, Guam, and the
Virgin Islands.

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The budget generally seeks to redirect funds from poorly performing programs
to more effective ones. The table that follows shows the status of some DOL programs.

215

216

DEPARTMENT OF LABOR

Program

Assessment

Explanation

Job Corps

Effective

Residential program for disadvantaged youth is a
cost-effective investment, despite its high cost per
participant-slot ($31,700 per year). It increases
their lifetime earnings.

Bureau of Labor Statistics

Effective

Produces accurate, timely, and pertinent data and
has considerably improved the accuracy of its price
indexes.

Pension Benefit Guaranty Corporation

Effective

In insuring certain pensions against company
bankruptcy, between 2000 and 2002, it shortened
the time it takes to calculate affected workers’ final
benefits by almost two years.

One-Stop Career Centers

Unknown

Grant program helps fund local one-stop
employment centers nationwide but has not been
evaluated.

Employment Service

Unknown

Currently rates its performance only in terms of
services provided to job seekers, but is developing
measures based on whether job seekers find work.

Veterans’ Employment and Training
Service

Ineffective

Unnecessary overhead. Duplicative bureaucracy
monitors another employment program, rather than
helping veterans find and retain jobs.

H-1B Technical Skills Training Grants

Ineffective

Does not raise skills of U.S. workers in specialty
and high-tech jobs so that employers’ demand
for temporary alien workers with H-1B visas will
decline.

Alien Labor Certification

Ineffective

Processing employer applications for permanent
certification is labor intensive and takes up to six
years. Federal and state reviews are redundant.

Prevailing Wage Determination
Systems (Davis-Bacon and Service
Contract Acts)

Ineffective

Paper-intensive, user-unfriendly processes require
modernization.

THE BUDGET FOR FISCAL YEAR 2003

217

Comprehensive Reform of Unemployment Insurance and Employment Service
The Unemployment Insurance (UI) and Employment Service (ES) system needs reform. The
Administration proposes short- and long-term reforms that promote flexibility and strengthen the
critical unemployment insurance and employment services that states provide to America’s workers
and employers.
Near-term reforms are designed to meet the immediate needs of unemployed workers during the
current economic slowdown. The Administration supports an economic security package in 2002 that
includes:

• Extended Unemployment Benefits. A temporary extension of up to 13 weeks of unemployment
•

benefits would be available in all states.
Immediate distribution of billions in Reed Act funds. States would receive $9 billion in excess
funds in the U.S. Treasury’s Unemployment Trust Fund, some of which are scheduled to be
distributed on October 1, 2002. These funds could be used to expand benefits and services,
shore up low reserves in state trust funds, or allow a cut in employer payroll taxes.

Consistent with these immediate reforms, the Administration’s long-term vision will make
unemployment insurance benefits and employment services more responsive to the needs of workers
and employers, give states needed flexibility, and promote economic growth. This long-term reform
connects the principles articulated in the President’s economic security package with the long-term
reforms needed for workers, employers, and states, which have clamored for change for the past
decade. For example:

• Workers argue that it is currently too difficult for states to “trigger” extra weeks of UI benefits
•
•

during a recession.
Employers complain that their federal unemployment taxes are too high, and that too few of
those funds go back to states to run the UI and ES programs.
States are frustrated that current funding arrangements have hampered their ability to
provide timely, accurate benefits and effective reemployment services.

The Administration’s long-term reforms will address these concerns by:

• Enabling
•
•

more workers to receive Extended UI Benefits, by making the program more
responsive to unemployment swings.
Reducing employers’ federal payroll taxes, spurring economic expansion.
Allowing states to control their own administrative funding, which will help improve the
timeliness and accuracy of benefit payments, and target more resources on preventing and
detecting overpayments.

The Administration’s reform proposal includes five components. They are:
1. Reforming Extended Benefits (EB). In many states, it is currently very difficult to “trigger
on” EB during a recession. The Administration’s proposal would make EB more responsive
to unemployment swings, while continuing to pay half the cost of EB.
2. Cutting FUTA taxes. The Administration proposes to cut the Federal Unemployment Tax
Act (FUTA) payroll tax by 25 percent in 2003, with gradual reductions over the next four
years. Beginning in 2007, FUTA will be maintained at 0.2 percent of the first $7,000 in wages,
compared with 0.8 percent currently.

218

DEPARTMENT OF LABOR

3. Allowing states to finance UI and ES operations. Currently, state taxes pay for unemployment
benefits. The federal government pays the cost of administering the UI and ES programs.
Under the Administration’s proposal, states would use their existing UI taxes to finance
UI and ES administration, and tailor unemployment and employment services to meet the
unique needs of their workers and employers.
4. Ensuring a smooth transition. During the five-year transition, the Administration would
help states implement the funding changes by providing billions from the U.S. Treasury’s
Unemployment Trust Fund. In addition, phased implementation would allow states ample
time to enact any necessary legislation.
5. Continuing loans to states. To ensure that no worker would be denied UI benefits because of
funding shortfalls, the federal government would continue to provide loans to any state that
runs short of funds to pay unemployment benefits.
With the Administration’s short- and long-term reforms, states will be well positioned to respond
immediately to changing economic conditions and better serve workers through a strengthened
unemployment insurance and employment service system.

Reform of Federal Job Training Programs
The President’s commitment to providing employment and training services to dislocated
workers is reflected in the Administration’s bipartisan support of a economic security plan, through
which $4 billion would be available in 2002–2003 through the National Emergency Grants (NEG)
program. Besides providing job training and reemployment services, states could also use these
funds to provide targeted assistance for dislocated workers with distinctive needs, including
additional assistance with health care costs. The flexible, targeted NEG program will provide
customized assistance to help dislocated workers make the transition through a difficult period and
return to work as quickly as possible.
Although the Administration is committed to providing the services for dislocated workers as soon
as they are needed, estimates indicate that about $3 billion of the NEG funds from the bipartisan
economic security plan will be carried forward into 2003. In addition, $1.3 billion in unspent resources
will be carried forward from state formula grant training and employment programs, and the 2003
Budget includes $5 billion for the programs authorized by the Workforce Investment Act (WIA). As
a result, more than $9.3 billion will be available for investments in job training and other dislocated
worker services in 2003. This is 36 percent more than is expected to be spent through these programs
in 2002. (See table on unexpended resources and the bipartisan economic security plan.) As a result,
total available resources could support approximately 500,000 to 800,000 more participants than the
2.2 million participants expected in the WIA programs in 2002.

THE BUDGET FOR FISCAL YEAR 2003

219

Unexpended Resources and the Bipartisan Econom ic Security
Plan Allow Large Increase in Investments in Job Training and
Other Dislocated Worker Services

Budgetary Resources
(In millions of dollars)
2001

Amount Spent ...............................................................................

4,525

2002

New Budget Authority ..................................................................
Unspent from prior years ............................................................
National Emergency Grants (NEGs)—Bipartisan Economic
Security Plan ............................................................................

5,631
1,532

Total ......................................................................................

11,163

Amount expected to be spent 1 ...................................................

6,827

Amount expected not to be spent ..................................................

4,336

4,000

2003

4,976
4,336

Total that Can be Spent .......................................................
(36% more than expected to be spent in 2002)

9,312

Assumes that $1 billion of the $4 billion in NEGs will be spent in 2002.

While the Administration is supporting a large near-term increase in funds for dislocated
worker assistance, the 2003 Budget is launching a long-term reform of the federal government’s
overlapping training and employment programs. The federal government has at least 48 training
and employment programs scattered around 10 agencies. Although the programs vary considerably,
their common goal is to improve participants’ employment and earnings. However, no consistent
measure exists to compare results across these programs. Definitions vary, data quality is uneven
and collected using different statistical techniques. Many federal training programs tend to adopt
easy performance measures (such as participants served) rather than outcomes like landing and
keeping a job or earnings increases.

220

DEPARTMENT OF LABOR

The Federal Government’s Multiple Job Training Programs
Agency
(and selected programs)

Department of Labor ...........................

Number of
Program s

Target Group

2002

2003

9
Laid-off workers

Adult Employment and Training .......

All adults

Youth Activities ...................................
Job Corps ............................................
10

1,383

$1,800

900

$2,500

Low-income youth

1,001

$2,530

Low-income youth

1,532

$31,700

4,503

Adult Education ..................................

Adults and U.S.
immigrants

Vocational Education .........................
Vocational Rehabilitation Grants to
States ..............................................
Department of Health and Human
Services

575

$493

High-school, college
students

1,180

Unavailable

People with disabilities

2,616

$2,042

1,618

Temporary Assistance to Needy
Families ..........................................

Low-income families

Refugee Assistance ...........................

Newly-arrived
refugees

Department of Veterans Affairs ........

Cost Per
Participant

6,892

Dislocated Workers ............................

Department of Education ...................

2003
(In millions
of dollars)

1,515

Unavailable

779

Vocational Rehabilitation and
Employment Services and
Benefits ...........................................

Unemployed
veterans with
service-connected
disabilities

602

$10,050

Grants for Veterans Employment .....

Veterans

177

Not Applicable
(transfer)

Other

Department of Agriculture ................

Food Stamp recipients

259

$175

Department of the Interior ................

American Indians and
Alaska Natives

Various
programs; no
single estimate

Department of Housing and Urban
Development ..................................

High-school dropouts

$20,000

Department of Defense .....................

High-school dropouts

$15,609

Appalachian Regional Commission

Low-income
Appalachians

Unavailable

Denali Commission ............................

Low-income Alaska
Natives

$2,770

Total ................................................

14,199

THE BUDGET FOR FISCAL YEAR 2003

221

The 2003 Budget will launch a multi-year effort to reform job training programs, target resources
to programs with documented effectiveness, and eliminate funding for ineffective, duplicative, and
overlapping programs. The proposed reforms would reduce the number of job training programs from
48 to 28 (see table on federal job training programs). Reforms include:

• Expanding

•

an effective program. The
2003 Budget proposes $1.5 billion for
Job Corps, a residential vocational
training program for disadvantaged
youth. Although Job Corps is DOL’s
costliest program, with a unit cost
of roughly $31,700 per service year,
research has demonstrated that it is a
cost-effective federal investment. The
2003 Budget provides a five percent
increase above 2002, increases funding
for teacher pay and new centers, and
supports 122 residential training
centers—an increase of four centers
The Job Corps provides students with skills that help them
over 2001–2002.
secure jobs such as electrical technician.
Reauthorizing WIA. In 2003, the WIA’s
authorization expires, providing the Administration an opportunity to evaluate critically the
current program structure, financing, and performance. The Administration will undertake
that work in the coming year, and the 2004 Budget will outline a proposal to further consolidate
training programs.

• Transferring

•

veterans’ employment
programs to the Department of Veterans
National Skill Standards Board
Affairs (VA). The 2003 Budget will
The National Skill Standards Board (NSSB) is
transfer $197 million to VA that DOL
intended to help industries develop voluntary skill
currently uses to finance three veterans
standards for occupations in 15 industry clusters.
employment programs. This proposal
Since its inception in 1995, NSSB has spent $45
would implement a recommendation
million to help create standards in occupations
of the 1999 Congressional Commission
that include bellboys, bus boys, and waiters.
on Servicemembers and Veterans
The 28-page standard for bus boys includes
Transition Assistance, which concluded
detailed instructions for clearing tables. The
that DOL’s programs do not serve
manufacturing industry standard includes as a
veterans well. With VA demonstrating
skill “be depended on not to steal equipment and
its
commitment
by
demanding
materials.” The 2003 Budget terminates funding
employment results, the programs will
for the NSSB.
better serve veterans’ employment
needs.
Closing ineffective programs.
The
2003 Budget will end funding for several training programs that have a history of poor
performance, or where the federal role is inappropriate. For example, no funding is
requested for the Migrant and Seasonal Farmworker program, which has demonstrated
little success in helping these low-income workers secure good jobs outside of agriculture.
Roughly three-fourths of this program’s participants never enroll in training. The population

222

DEPARTMENT OF LABOR

previously served by this program is eligible for the WIA Adult Activities program, the
Migrant High School Equivalency Program (HEP) and College Assistance Migrant Program
(CAMP), which help migrant students complete high school and succeed in college. The
budget also ceases funding for the National Skill Standards Board, whose funding for
industry skill standards has not been a cost-effective use of taxpayer dollars.

Reform of Worker Benefit Programs
Through the Office of Workers’ Compensation Programs (OWCP), DOL provides benefits to
individuals who are unable to work due to occupational injury or illness. The Federal Employees’
Compensation Act (FECA) and Black Lung Benefits Act (Black Lung) programs provide cash and
medical benefits along with rehabilitation services to disabled federal employees and coal miners,
respectively.
DOL’s Inspector General and others have proposed reforms for the FECA program to identify and
prevent fraud, reduce the number of frivolous claims, and improve customer service. The Black Lung
Disability Trust Fund, from which Black Lung benefits are paid, faces a mounting $8 billion debt.
In 2002, the Trust Fund’s interest payments on its debt alone will not only surpass the program’s
benefit and administrative costs, but also its total excise tax revenues.
FECA improvements.
In 2003, the budget proposes four reforms to improve FECA’s
management. They include changes to:

• Strengthen

•

•
•

program integrity. In 2003, OWCP will continue efforts to review claimants
periodically to: determine if claimants still are unable to work; prevent overpayments to
individuals and medical providers; and review the appropriateness of medical services.
Periodic claims reviews have saved an estimated $500 million since 1992.
Implement “full cost” budgeting for FECA. The budget amends FECA to allow DOL
to add an administrative surcharge to the amount billed to federal agencies for their
FECA compensation costs. This change requires that federal agencies bear the full costs
(administrative as well as benefit) of their employees’ FECA claims, bolstering their incentive
to improve workplace safety.
Discourage frivolous claims. The budget proposes to amend FECA to move the waiting period
for benefits to immediately following an injury, and apply it to all claims in line with every
state workers’ compensation system. This change would deter illegitimate claims.
Promote benefit equity. Because FECA benefits are tax-free, they are, on average, about 25
percent more generous than an individual could receive under the federal retirement system,
possibly providing an incentive for individuals to remain on the FECA rolls past when they
would otherwise have retired. The budget does not propose to reduce the benefits of any
current FECA beneficiaries. However, for future FECA beneficiaries, the budget proposes to
change the program so that individuals over age 65 receive the same benefits as are available
under federal retirement programs.

THE BUDGET FOR FISCAL YEAR 2003

Black Lung reforms. The 2003 Budget
will attack two longstanding problems in the
Black Lung program. The Administration will:

223

Black Lung Disability Trust Fund Debt
In billions of dollars

• Restructure

•

the debt. In the program’s
10
early years, Black Lung’s excise tax
8
revenue was not enough to fund the
program, so DOL borrowed from
6
the Treasury to cover the shortfall.
Although excise tax revenue has
4
generally been sufficient to cover
medical and income support costs
2
since 1990, the revenue has not been
0
sufficient to cover the interest payments
1990
1992
1994
1996
1998
2000
2002
2004
2006
due on Treasury borrowing dating from
Source: Department of Labor.
1978. To date, DOL has repaid none
of the principal and has been forced to borrow additional funds just to meet its interest
payments on what has grown to be an $8 billion debt (see accompanying chart). The
Administration will propose legislation to restructure the Trust Fund’s debt, prevent further
growth, and eventually retire it.
Consolidate administration. The budget proposes to consolidate administration of all Black
Lung benefit cases in DOL, relieving the Social Security Administration of the duty to
administer claims filed prior to 1974 and improving administrative efficiency.

Promoting Voluntary Compliance with Labor Laws

Easing DOL’s Regulatory Burden

A key part of helping employers comply with regulatory
requirements is ensuring that the regulations are reasonable
and comprehensible. OSHA’s “means of egress” rule sets
requirements for emergency exits but is filled with jargon only
an attorney could love. The rule warns employers that no
“furnishings, decorations, or other objects shall be so placed as
to obstruct exits, access thereto, egress therefrom, or visibility
thereof,” rather than saying simply that emergency exits must
not be blocked. OSHA is simplifying its rules to cut out jargon
and make them understandable to small businesses. Also,
DOL is reviewing all regulations it planned to impose on
small and large businesses, states and localities, community
organizations, and the public to remove rules that are outdated
or overly burdensome. As a result, DOL has reduced by 25
percent the number of regulatory actions it has planned for the
next year.

DOL enforces more than 180
worker protection laws. However,
its “cop on the beat” activities have
their limits.
The Occupational
Safety and Health Administration
(OSHA), for example, can conduct
about 36,000 inspections per
year.
Although the number
looks impressive, it also means
that the agency can reach each
workplace only once every 167
years.
Through its electronic
compliance
assistance
tools,
however, OSHA can help millions
of employers assess and improve
the safety of their workplaces.
Helping employers to comply with
workplace laws and regulations
is DOL’s most cost-effective way
to protect workers from on-the-job
injuries and illnesses.

224

DEPARTMENT OF LABOR

Compliance assistance tools, such as self-audits, are designed to encourage employers to
voluntarily correct violations before employees are hurt. If given clear, timely, and accurate
information on legal and regulatory requirements, the vast majority of employers will comply
voluntarily. On-line tools, as well as training and technical assistance, help employers and workers
understand labor laws and requirements. For example, “eTools” are Web-based, menu-driven
modules designed to help employers put occupational safety and health regulations into effect.
The 2003 Budget request includes an estimated $188 million for compliance assistance efforts of
OSHA, the Mine Safety and Health Administration (MSHA), and the Pension and Welfare Benefits
Administration (PWBA).

Improving Performance
Wide-ranging reforms proposed in the 2003 Budget are designed to improve performance of many
of DOL’s existing programs and attack longstanding problems.
DOL’s program to certify foreign workers as eligible for permanent employment in the United
States can take employer applicants up to six years to navigate as they complete the paperwork
that allows prospective workers to petition for work-based visas. While this complex, labor-intensive
process drags on, applications pile up and many foreign workers awaiting certification are employed
in violation of U.S. laws. The Administration is taking action to overhaul this broken program and
proposing legislation in the 2003 Budget to redirect certain existing employer application fees to
eliminate the large backlogs. The new application process is expected to take three weeks for most
applications and a maximum of six months’ processing time for certification applications that are
audited.
The Administration proposes a two-pronged solution that would:

• Introduce

•

regulatory
reform.
During 2002, DOL will propose
regulations
to
reform
the
permanent alien labor certification
program and prevent future
backlogs by automating application
processing and reducing the
state workload after 2003. DOL
staff would assume processing
responsibilities,
and
most
determinations would be made
within 21 days of the date an
application is filed.
Redirect H–1B fees.
Legislation
would redirect the portion of
DOL’s revenues from the existing
H-1B fee that currently supports
an ineffective training grant
program. The $138 million grants
program—which
has
proven

H–1B Training Grants

The H–1B Training Grant Program is supposed to train
U.S. workers for jobs in which labor shortages have
caused employers to hire foreign workers through the
H–1B visa program. These highly educated workers
typically work in the high-tech and health care industries.
Unfortunately, DOL’s $138 million H–1B Training program,
which is financed through a $1,000 fee paid by employers,
never has filled and has no prospect of filling these labor
shortages. At times, funds wind up training workers for
decidedly low-tech jobs. One grant financed training
for cable installers; another trained licensed practical
nurses; while a third was open only to union members
in the entertainment industry. The budget will take the
program’s H–1B fees funding and redirect it to eliminate
large backlogs in the permanent alien labor program,
thereby better serving workers and employers alike.

THE BUDGET FOR FISCAL YEAR 2003

225

ineffective—would be redirected to clear the backlog for the permanent certification program
at the state and federal levels.

Strengthening Management
In 2003, DOL will continue to address
its management challenges to further its
Erroneous Unemployment Insurance Benefit
contributions to a strong U.S. workforce.
Payments
Secretary Chao is aggressively implementing
In 2001, the Unemployment Insurance system
the President’s Management Agenda.
In
paid $27 billion in benefits to unemployed
August 2001, the Secretary created the
workers. DOL estimates that benefit
Management Review Board (MRB) to
overpayments were about $2.3 billion—or
combat agency decentralization and ensure
approximately $200 per beneficiary. An IG
a coordinated, Department-wide approach
investigation found that a Las Vegas man created
to promoting management reforms. MRB’s
13 fictitious companies and submitted UI claims
accomplishments include an overhaul of DOL’s
for 36 fictitious claimants. He was sentenced to
performance appraisal system for managers
prison and ordered to pay $230,500 in restitution.
and executives to evaluate personnel against
progress on management agenda items.
In addition, MRB is consolidating DOL’s
disparate e-mail systems to improve efficiency and customer service.
Stewardship of taxpayer funds requires systematic policies and procedures to ensure sound
financial management of federal programs. In the UI program, DOL and the states operate
programs to detect and pursue recovery of overpayments, but more work must be done. The 2003
Budget includes two proposals to cut UI waste and fraud. First, $2 million is requested for the
Inspector General to uncover fraudulent benefits schemes and train states to detect and reduce
overpayments. Second, $10 million is requested to finance state efforts to use existing databases to
eliminate fraudulent payments to employed workers, illegal aliens, and fictitious employers.
DOL is actively implementing the President’s faith-based and community initiative. It aims to
improve delivery of social services by drawing on the strengths of faith-based and community groups
and ensuring that these organizations compete for federal grant funds on a level playing field. To
encourage greater competition and participation in DOL’s grant programs by these organizations,
DOL scrutinized its program applications to strip away barriers. For instance, DOL discovered that
under the Women in Apprenticeships and Nontraditional Occupations (WANTO) program, applicants
were required to demonstrate a “history of commitment to economic and social justice.” DOL dropped
this ambiguous and restrictive language, and received 37 applications, more than twice the average
received in recent years. Of the 11 grant recipients, four were new applicants who never had received
a WANTO grant. One of the new grantees is the Access Agency of Willimantic, Connecticut, which
is connecting Spanish-speaking women to language programs and employers for career-ladder job
opportunities.

226

DEPARTMENT OF LABOR

Initiative

2001 Status

Human Capital—DOL has completed a Workforce Restructuring Plan that demonstrates its full
awareness of certain skills and performance gaps, and is taking action to address its needs.
DOL has overhauled the performance appraisal system for its 2,100 managers and senior
executives. Also, DOL effectively uses succession planning, and retention and recruitment
bonuses to retain and hire effective employees. In 2003, DOL will implement significant
restructuring to better align its workforce with its mission. It will eliminate 373 positions that
are unnecessary, resulting in savings of $31 million. It also will consolidate five duplicative
public affairs offices in DOL’s agencies into the Secretary’s Office, eliminating nine positions at
savings of $1 million.

•

Competitive Sourcing —DOL has not effectively examined its workforce to determine
all the tasks that its employees perform that are available commercially, including certain
administrative and financial activities. Further, DOL has not identified activities necessary
to meet the Administration’s 2002 or 2003 competitive-sourcing targets. Possible areas to
consider include training specialists, administrative personnel, and claims processing clerks. To
get on track and take advantage of competitive sourcing, DOL will reevaluate all of its positions
and reclassify some so that only those positions that are truly “inherently governmental” are
removed from consideration for competitive sourcing. DOL also will finalize its plan to compete
or directly convert at least 140 positions in 2002 and 280 in 2003 to meet the Administration’s
two-year 15 percent goal, in an effort to eventually competitively source 50 percent of its
commercial activities.

•

Financial Management —Although DOL has received “unqualified” opinions from independent
auditors on its financial statements since 1997, it has identified two small systems in its Wage &
Hour Division that do not comply with accepted federal standards for financial management and
internal controls. Recognizing the importance of financially sound systems, DOL will correct
these problems in 2002. DOL will improve its oversight of the performance of its grantees and
contractors and increase its auditing and technical assistance to states to identify fraud and
reduce erroneous payments in Unemployment Insurance.

•

E-Government —DOL’s information technology (IT) is built on a strong enterprise architecture
and planning process. DOL is the only federal agency with Department-wide IT financing to
ensure that its investments are cost-effective and serve the entire organization mission. DOL
has used IT to serve citizens better. For example, OSHA accepts health and safety complaints
over the Internet; individuals can use the Internet to discover lost pensions; and a pilot project
allows people to calculate approximate retirement benefits on line. In 2003, DOL will continue
to lead a government-wide project for Eligibility Assistance On line, which provides citizens
easier access to information on benefits and services for which they are eligible. DOL also will
increase opportunities for citizens, businesses, and unions to electronically file claims, reports,
and other documents for programs and benefits administered throughout much of DOL.

•

THE BUDGET FOR FISCAL YEAR 2003

227

Initiative

2001 Status

Budget/Performance Integration —The data that DOL collects are often of poor quality and
reliability. Also, often data are not available soon enough to tie funding to performance. Much
of the data come from states and localities, and the challenges that DOL faces are due in
part to problems there. Starting in 2002, DOL will integrate planning and budgeting in its
annual performance plan. It will demonstrate significant progress toward aligning programs’
funding with their performance. In that spirit, DOL will work with other agencies, including the
Department of Education, to develop a crosscutting performance measure for all federal job
training programs. Current job training measures vary widely among programs, and some
programs are better than others in managing based on performance data.

•

Department of Labor
(In millions of dollars)
2001
Actual
Spending:
Discretionary Budget Authority:
Training and Employment Services 1 ..........................................................

Bipartisan Economic Security Plan National Emergency Grants
(non-add) ...............................................................................................
Unemployment Administration 2 ..................................................................
Employment Service/One-Stop Career Centers .......................................
Community Service Employment for Older Americans ............................
Occupational Safety and Health Administration ........................................
Mine Safety and Health Administration .......................................................
Employment Standards Administration .......................................................
Pension and Welfare Benefits Administration ............................................
Bureau of Labor Statistics .............................................................................
Veterans’ Employment and Training
Existing Law ...............................................................................................
Legislative proposal 3 ...............................................................................
Bureau of International Labor Affairs ..........................................................
Information Technology .................................................................................
Office of Disability Employment Policy ........................................................
All other programs (non-add) .......................................................................
Office of the Inspector General ...............................................................
ETA Program Administration ....................................................................
Departmental Management .....................................................................
Pension Benefit Guaranty Corporation ..................................................
Subtotal, Discretionary budget authority adjusted 4 ..................................
Remove contingent adjustments .............................................................
Total, Discretionary budget authority ...........................................................

Estimate
2002
2003

5,635

5,457

4,981

—
2,434
1,016
440
438
259
384
111
464

4,000
2,788
987
445
457
268
393
114
489

—
2,728
958
440
449
264
313
121
511

213
—
148
37
23
418
58
167
181
12
12,020
−92
11,928

214
—
148
50
38
432
60
169
190
12
12,280
−95
12,185

212
−197
55
74
47
455
65
179
197
13
11,411
−82
11,329

228

DEPARTMENT OF LABOR

Department of Labor—Continued
(In millions of dollars)
2001
Actual

Emergency Response Fund, Budgetary Resources:
National Emergency Grants (Dislocated Workers) .........
New York State Workers’ Compensation .........................
Other .....................................................................................
Total, Emergency Response Fund, Budgetary resources .
Mandatory Outlays:
Unemployment Insurance/Employment Service 5 ...............
Black Lung Disability Benefits Act:
Existing Law .........................................................................
Legislative proposal (debt refinancing) ............................
Legislative proposal (transfer from SSA) .........................
Federal Employees’ Compensation Act (FECA):
Existing Law .........................................................................
Legislative proposal ............................................................
H-1B Training and Administration:
Existing Law .........................................................................
Legislative proposal ............................................................
Pension Benefit Guaranty Corporation 6 ..............................
All other programs ....................................................................
Subtotal, Mandatory outlays adjusted 4 ................................
Remove contingent adjustments .......................................
Total, Mandatory outlays .........................................................
1

Estimate
2002

2003

25
—
5
30

—
175
45
220

—
—
—
—

27,989

44,594

40,795

1,016
—
—

1,039
—
—

1,038
1,606
420

124
—

145
—

209
−3

24
—
−1,080
781
28,854
−3
28,851

165
—
−1,330
1,464
46,077
−6
46,071

156
80
−1,383
1,093
44,011
−6
44,005

Training resources shown in 2003 exclude additional, significant, carryover funds from prior
years’ appropriations, including an expected $3 billion of Bipartisan Economic Security Plan
National Emergency Grants funding that will be carried into 2003. New budget authority, plus these
unexpended balances—estimated at over $9 billion—will support a substantially higher level of job
training services in 2003 compared to 2002.
2 2001 and 2002 include estimated use of workload contingency funds triggered on during economic
slowdown.
3
Transfer all but one grant program to the Department of Veterans Affairs; $14 million covers the
retention of 51 FTE to oversee USERRA and veterans’ preference requirements and the Veterans
Workforce Investment Act program.
4
Adjusted to include the full share of accruing employee pensions and annuitants’ health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.
5 Unemployment insurance reform proposal has only outyear effects on outlays.
6 Net outlays are negative because offsetting collections (e.g., insurance premiums) exceed gross
outlays.

DEPARTMENT OF STATE AND INTERNATIONAL
ASSISTANCE PROGRAMS

The President’s Proposal:

• Targets military and economic assistance to sustain key countries supporting the
•
•
•
•
•
•
•
•
•
•

United States in the war on terrorism;
Trains foreign law enforcement and armed services to improve their
counter-terrorist capabilities;
Attacks narcotics trafficking in source countries through training, equipment and
law enforcement cooperation;
Provides employees at U.S. diplomatic missions with safe, secure, and functional
facilities;
Promotes democracy and protection of human rights throughout the world;
Maintains strong U.S. leadership in funding the international HIV/AIDS prevention
and care campaign;
Affirms America’s tradition of international humanitarian relief for refugees,
displaced people and victims of disasters;
Increases the U.S. commitment to preserving the world’s tropical forests and
promotes environmental sustainability;
For the first time, links U.S. support for international financial institutions to
performance;
Ensures continued U.S. leadership in responding to threats to international peace
and stability through peacekeeping activities; and
Strengthens global broadcasting and public diplomacy to communicate American
ideals and beliefs to vital audiences in countries in conflict and transition,
especially in the Middle East.

The foreign affairs functions of the U.S. Government are carried out through a complex
structure of agencies—with foreign policy and diplomatic relations led by the Department of
State; development assistance led by the U.S. Agency for International Development (USAID);
international finance led by the Department of the Treasury; international trade and investment
finance by the Export-Import Bank, the Overseas Private Investment Corporation, and the Trade
and Development Agency; international broadcasting by the Broadcasting Board of Governors; and
other functions carried out by a number of other agencies, including the Peace Corps. The Secretary
of State is responsible to the President.

229

230

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

For 2003, the President’s Budget includes $24.3 billion for these functions, a $1 billion increase
over the $23.3 billion appropriated for 2002. Increased funding has been allocated based on three
broad goals: 1) to support our highest priority foreign policy objectives, especially the war on
terrorism; 2) to enhance security for American personnel and facilities; and 3) to advance the effort
to connect resources to performance. In pursuing the first objective, the budget includes $5.2 billion
for programs that are essential in pursuing the war on terrorism.
The President’s Budget also addresses the management challenges of our complex foreign affairs
structure to eliminate redundancies, improve the delivery of foreign assistance, and strengthen
the administration of foreign affairs. As examples, the budget launches an initiative to assure
that the money taxpayers contribute to pay the high cost of stationing employees of more than 30
government agencies overseas is well managed. The budget seeks to deploy the right agencies with
the most efficient number of people serving overseas advancing U.S. interests. The budget also
consolidates most food aid programs under USAID, in order to ensure that U.S. food aid is delivered
as efficiently and effectively as possible to feed hungry people. And, as with other agencies in the
federal government, it sets forth a comprehensive agenda for strengthening management in the
Department of State and USAID.

DEPARTMENT OF STATE

Department of State

Colin Powell, Secretary

www.state.gov

202–647–4000

Number of Employees : 28,967
Number of Embassies and Posts Abroad : 260
2002 Spending : $15.9 billion

The State Department represents the
United States in 180 foreign countries and 43
international organizations, operating a total
of 260 embassies, consulates, and other posts.
The past year has been a period of significant
foreign policy achievement for the Bush
Administration. The Administration has a
broad, comprehensive foreign policy agenda
for the future. In addition to the President’s
specific proposals, the State Department will
emphasize efforts to:

• Maintain and strengthen the international coalition to fight global terrorism in all its forms;
• Maintain our core alliance relations with the North Atlantic Treaty Organization (NATO),
•
•
•
•
•

Japan, Australia, and the Republic of Korea;
Integrate Russia and China into cooperative frameworks to improve our relations and thereby
help prevent the revival of destructive great power rivalries;
Prevent conflict and promote reconciliation in Africa, the Balkans, the Middle East, Northeast
Asia, and South Asia;
Combat the proliferation of weapons of mass destruction;
Enlist new support from Pakistan and other countries in the region for our efforts in
Afghanistan, and assist the Pakistani government through diplomatic support and economic
assistance;
Help open markets, encourage investment, promote environmentally sound development, and
expand economic opportunities around the world; and

THE BUDGET FOR FISCAL YEAR 2003

231

• Promote human rights and democracy and further basic American values, including freedom
of religion.

Overview
The State Department is the lead agency in formulating and implementing U.S. foreign
policy. Since September 11, 2001, the Department’s top priority has been the war on terrorism.
The Department has led the effort to build and manage the broad-based international coalition
that helped defeat the Taliban in Afghanistan and is now destroying the al Qaeda terrorist
network around the world. The Department also diplomatically supported the creation of a
post-war government for Afghanistan in 2001 and continues to lead the international community
in developing programs to provide humanitarian relief, security, and economic reconstruction
assistance to help the Afghan people create a more peaceful, prosperous, and free future.
While the war on terrorism is our top foreign policy priority, the President has stressed that
it cannot be our only one. We live in an age of tremendous opportunities to advance America’s
interests. The Department will continue to promote the Administration’s broad foreign policy agenda.
In addition, the Department administers some foreign aid programs, such as the counternarcotics
program in Colombia. To help preserve America’s essential openness, the State Department also
plays a critical role in facilitating safe travel to and from the United States. Every year the State
Department issues seven million passports to U.S. citizens so they can travel abroad, and it processes
over 10 million visa applications submitted by those wishing to visit our country.
Some of the Department’s core programs, such as issuing visas or passports, are tangible and
measurable. In government-wide customer satisfaction surveys, the Department’s services to
passport applicants score high in all of the areas measured, with an overall score of 76 on a scale of
1–100, which is five points higher than the national American Customer Satisfaction Index score
for private sector services. Other programs, however, are intrinsically more difficult to evaluate,
such as those that promote democracy and human rights. For these programs, successes—such as
support for the transition from authoritarian to democratic rule in Serbia and Peru—are the best,
but admittedly infrequent, measures of effectiveness.

232

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

War on Terrorism
Funding in 2003 for the Department
of State, USAID, the Department of the
Treasury, and other agencies with foreign
relations responsibilities concentrates on
sustaining current partnerships and building
new relationships as the war against terror
expands around the globe.
As the front
shifts, the United States must be prepared
to help countries strengthen their internal
counter-terrorism capabilities. We must tailor
programs to meet specific local needs so that
terrorists can find no safe haven, no open
financial or geographic border.
This task
is both large and long term. It will require
President Bush addressing the United Nations, November 10,
support for a wide range of programs from
2001.
blocking terrorist assets and combating money
laundering to improving management of
border controls, including increased cooperation among border agencies to share data and guarantee
the integrity and reliability of visas used to enter the United States. The United States will seek to
improve the capabilities of those who agree to share our burden in the war against terrorism. This
budget provides roughly $3.5 billion for economic and security assistance, equipment, and training
for states on the frontline of this war.

We will defeat the terrorists by destroying their
network, wherever it is found. We will also defeat
the terrorists by building an enduring prosperity
that promises more opportunity and better lives
for all the world’s people.
President George W. Bush
October 20, 2001

Strengthening
counter-terrorism
capabilities alone will not be enough. As we
learned in Afghanistan, terrorists seek refuge
and build support where the rule of law and
democracy have been destroyed or failed. If
we are to succeed, our commitment to end
terrorism must integrate counter-terrorism
initiatives with programs that tackle the
desperate conditions which fuel violent,
transnational extremism in many countries.

In addition to offering our friends and allies
help, the United States must accelerate efforts to protect Americans serving and traveling abroad.
Al Qaeda bombings of American embassies in Kenya and Tanzania in 1998—which killed over 200
people and injured thousands—marked a new level of destructiveness in its terror campaign. In the
World Trade Center and other attacks, Americans lost their lives alongside people from dozens of
nations and ethnic and religious backgrounds.

THE BUDGET FOR FISCAL YEAR 2003

While the State Department continues
to conduct its normal diplomatic work, its
personnel and those of other U.S. agencies
now carry the added burden of serving in the
frontline of the war on terrorism. Accordingly,
the State Department is expanding its
investment in security with nearly $1.4 billion
provided in this budget. Of this amount,
$837 million is for the State Department and
USAID to continue to expand the worldwide
security upgrade program launched in the
wake of the 1998 embassy bombings. The
requested funding will construct nine new
embassies plus purchase armored vehicles,
communications gear and other equipment.
Some additional key elements from the
President’s anti-terrorism agenda are:

233

New U.S. Embassy in Nairobi, Kenya under construction after al
Qaeda bombing.

• Afghanistan

assistance: The United
States worked with our allies and the
Jordan
anti-Taliban Afghan groups to establish
Strategically located along the borders of both
a broad-based interim government
Iraq and Syria, Jordan will be provided substantial
in Afghanistan.
The United States
new resources in 2003 to strengthen its security
remains committed to helping the
capacity and enhance its economic potential.
people of Afghanistan rebuild and enjoy
The President is requesting $198 million in
long-term stability. We will continue
Foreign Military Financing (FMF) and $250 million
to provide food and development
in Economic Support Funds (ESF), increases of
assistance. At the January pledging
$123 million and $100 million respectively over
conference in Tokyo, the U.S. committed
2002. The money will be used to improve border
$296 million to support these efforts.
controls targeting the flow of weapons, including
As Secretary of State Colin Powell
weapons of mass destruction; and to support
stated, the United States has "an
financial training, trade and investment and to
enormous obligation to not leave the
strengthen educational opportunities.
Afghan people in the lurch, to not walk
away as has been done in the past."
• Anti-terrorism assistance: $121 million
is being provided for counterterrorism engagement programs, training, and equipment to
help other countries fight global terror. As part of this commitment, the President seeks $52
million to establish a Center for Anti-terrorism and Security Training (CAST). Once it is
fully operational, the CAST will train 7,500 American and coalition partner law enforcement
personnel annually in advanced anti-terrorism and security measures, thereby enhancing
security of U.S. interests abroad.

234

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Andean Counterdrug Initiative
All of the cocaine sold on America’s streets comes from South America. The Andean Counterdrug
Initiative (ACI) provides assistance to Colombia, Peru, Bolivia, Ecuador, Brazil, Panama, and
Venezuela for drug eradication, interdiction, economic development, and development of government
institutions. The President’s 2003 request for ACI is $731 million. This assistance boosts the impact
of U.S. domestic law enforcement and supports the Andean governments’ efforts to destroy local coca
crops and processing labs. Since 2000, U.S. assistance has provided 76 helicopters for the Colombian
national police and army, giving the Colombians airlift and reach into areas previously inaccessible.
In 2001, the Colombian army and police destroyed over 700 cocaine base labs, where the first stage
of cocaine processing occurs, and 20 cocaine HCl labs, where the final active ingredient in cocaine
is extracted. Data is not yet available to determine the program’s effect on overall coca cultivation
and flow of cocaine into the United States.
In addition to the State Department’s law
enforcement programs, USAID has launched
alternative crop development and voluntary
coca eradication programs with the goal of
eliminating about 37,000 hectares (91,000
acres) of illegal crops. USAID also has funded
its 18th casa de justicia. This program funds
community level legal services to Colombia’s
poorest people. In a country with significant
human rights abuses and gaps in the rule
of law, legal solutions are urgent everyday
requirements.

Reduction in Andean Coca Cultivation
Coca cultivation in thousands of acres
600

500

Colombia
400

300

Bolivia

200

Peru
100

0
In 2003, the budget will extend the reach
1995
1996
1997
1998
1999
2000
of counter-narcotics brigades in southern
Source: The Department of State.
Colombia while beginning training of new
units to protect the country’s economic lifeline, an oil pipeline. In 2001, Colombia was the source of
about two percent of U.S. oil imports, creating a mutual interest in protecting this economic asset.

The United States has devoted considerable resources to reducing coca cultivation in the Andes
and had achieved modest results by the end of 2000, the last year for which data is available (see
accompanying chart). The State Department is expected to define clear benchmarks for evaluating
the impact of U.S. assistance and the current strategy. The effectiveness of this strategy will
become clearer when the State Department releases its assessment of 2001 coca cultivation in the
International Narcotics Control Strategy Report in March 2002.

Congressional Earmarks
A large proportion of foreign assistance funding for programs implemented by the Department of
State or USAID are subject to Congressional earmarks, which are either specific requirements in the
appropriations bill itself or language in the report that normally accompanies an appropriations bill.
The majority of these earmarks set in law or report language the amounts and priorities that the
Administration requests. Only a small proportion require the Administration to fund projects that it
would otherwise not have implemented. While the number of these decreased somewhat in the 2002
Foreign Operations Appropriations Act, additional reductions in 2003 will be useful.

THE BUDGET FOR FISCAL YEAR 2003

235

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The budget seeks to redirect funds from lesser performing programs on an
objective to higher priority or more effective programs focused on that objective. The table below
rates the performance of some important State Department programs that are either effective or
targeted for rapid improvement.

Program

Assessment

Explanation

International Law
Enforcement
Programs

Unknown

Data does not exist to measure program impact. Program evaluation
methodology to be developed.

Humanitarian
Demining Program
(HDP)

Effective

To help evaluate how well the program is working, the HDP identified
outcome-based indicators, such as mines removed, area of land
declared mine-free and the percentage reduction in reported civilian
landmine casualties. This program also uses performance-based
contracting.

Passport
Modernization

Effective

State’s Bureau of Consular Affairs completely revamped passport
technology and systems in a short period of time. Regarding customer
service for passport services, the Bureau has scored well in American
Customer Satisfaction Index surveys in both 1999 and 2000.

Educational and
Cultural Exchange
Programs

Moderately
Effective

Surveys of changes in attitude and professional decisions made
by alumni demonstrate the program’s impact. For example, nine
independent external surveys of alumni indicate that the Exchange
Bureau programs succeed in conveying knowledge (88 percent),
building relationships with the United States (76–82 percent), altering
the behavior of participants (73 percent), and benefiting the larger
community or organization (76 percent). The Bureau’s competition
of grants, recruiting, tracking, and networking of participants and
solicitation of feedback on program effectiveness are worthy of
emulation. Despite its overall success, the Bureau needs more
detailed performance benchmarks for measurement and stronger
monitoring of expenditures by grant recipients.

236

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Program

Economic
Assistance to Russia

Assessment
Some
Moderately
Effective,
Some
Ineffective

Explanation

Since 1992, the United States has spent over $2.9 billion on
non-security assistance to Russia. The results have been mixed.
Progress in building the foundations of an efficient market economy
has been slower than anticipated. For much of the 1990’s
government-to-government technical assistance programs had
disappointing results. But when assistance was properly structured,
as in the cases of tax and judicial reform as well as local government
budgeting, it had important impacts. Also during the 1990’s, enterprise
funds and some training programs did not perform according to
expectations. High school and college student exchange programs
have had a positive impact, while shorter-term visitor programs have
had less effect. The amount of assistance we have provided could
only make a small contribution in dealing with Russia’s profound
economic problems. Without measurable performance indicators
for many programs, judging their effectiveness has been difficult.
For example, the impact of small and micro enterprise promotion
programs has not yet been demonstrated. A recent interagency review
recommended that U.S. assistance focus on areas such as promoting
civil society and improving the capacity of small business, while
eliminating funding for less effective programs. A comprehensive set
of benchmarks for use in management and funding decisions is being
developed for the Russia program.

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237

Improving Performance
U.S. international affairs agencies must respond quickly to changes in the global landscape. In
the past, the State Department’s necessary emphasis on rapid and flexible response to world events
reduced the attention the Department has given to critical management problems. Some of these
problems are laid out in the President’s Management Agenda, in the following sections.
To address these problems, the State
Department created a high-level internal
President’s Management Agenda (PMA)
council responsible for implementing all
PMA initiatives within State. Also, OMB
and the State Department are jointly leading
the Administration’s efforts to rightsize the
U.S. government’s presence abroad. It is too
early to assess the impact of initiatives on
improving the Department’s management
effectiveness, particularly with respect to
information technology and staffing.

Diplomatic Readiness

When Funding Arrives Before the Mission is
Clear: Kosovo Women’s Initiative

In 1999, the State Department provided $10
million to the United Nations High Commissioner
for Refugees (UNHCR) for the Kosovo Women’s
Initiative to ensure that women’s needs were met
as refugees returned home. UNHCR failed to
effectively target and manage the funds so that
resources promptly served the urgent needs of
hundreds of thousands of needy families. For
example, the Initiative funded sewing and aerobic
classes, while family health clinics and shelters
lacked resources.

The State Department has launched a
Diplomatic Readiness Initiative to foster a
high performing, well trained corps of professionals. This initiative will enable the Department
to have the personnel to carry out its mission and to improve professional training and career
development opportunities for every Department employee.
The Department’s Diplomatic
Readiness Task Force will continue to implement far-reaching measures to recruit well-rounded
professionals possessing the skills required in their career track, thereby reducing the amount of
time needed to train new hires in areas such as language, economics, and management. The Task
Force will also devise additional performance measurements to evaluate the Department’s progress
in recruitment, placement, training, career development, and retention.

Rightsizing Overseas Presence
In the spring of 2001, OMB and the State Department attempted to identify the number of
U.S. government employees serving abroad, which agencies they represented, their cost, and their
purpose. OMB determined there is no comprehensive resource available that can explain how
many people serve in embassies and posts overseas, let alone describe what they are doing. This
lack of information results in both cost and security problems. There is no basis on which to make
rational decisions. With estimates as high as 60,000 employees representing over 30 agencies,
with cost estimates per American overseas ranging from $250,000 to $550,000 per year, there are
major financial implications to maintaining a large U.S. overseas presence. In the wake of the 1998
embassy bombings in Africa and the heightened level of threat after September 11, 2001, there is
an urgency to understanding appropriate staffing patterns.

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DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

As a result, the Administration has
launched a rightsizing initiative with the goal
Who Knows W ho’s W here and Why?
of assuring that the right agencies and right
Recently, the Administration tried to get a better
number of people are serving U.S. interests
idea of how many federal employees have
overseas. As a first step, in the fall of 2001,
been posted abroad since the mid-’90s. It is
the Administration began to collect data from
no surprise that the State Department, the
all government agencies with staff overseas
Pentagon, the Peace Corps, and other agencies
between the years 1995 and 2001. The initial
have staff overseas. But who knew the Interior
evaluation found that most agencies report
Department had an average of 17 people posted
information to State with neither a thorough
overseas from 1995 to 2001? Or, furthermore,
justification of need for each staff position, nor
that NASA had staff in Paris?
an evaluation of costs per position, per agency,
nor where the position fits with current
United States foreign policy, agency mission
or skill requirements at a given post. Rarely do agencies examine whether vacant positions can be
done away with. The State Department must maintain the considerable cost of the infrastructure
to support this presence.
In 2002, the Administration will take another step forward to address these shortcomings
through an evaluation of the Bureau of European and Eurasian Affairs, which in 2001 included
more than 5,000 employees, 49 embassies, 23 consulates and 5 smaller offices. This evaluation
will examine the staffing and costs at each post and will help the Department to revise its Mission
Performance Planning (MPP) process to apply to all posts and agencies with overseas staffing. The
revised MPP will refine performance measures that can be used at all posts and applied across
all regions and agencies working overseas. It will also incorporate uniform performance measures
for each position and agency at each post. In addition, OMB and the Department of State are
developing a surcharge proposal whereby all U.S. government agencies with staff overseas will
examine staffing requirements in advance of new construction of an embassy and will pay part of
the construction costs of new buildings based on space they will use in embassy buildings.

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239

Strengthening Management
To implement the President’s Management Agenda the State Department’s Director of the Office
of Management Policy is coordinating an internal council to establish performance requirements and
provide regular reports to the Under Secretary for Management.
Initiative

2001 Status

Human Capital—State has begun to implement a Diplomatic Readiness initiative to address
certain long-standing management problems in the foreign service, such as training. It has
placed renewed emphasis on recruitment and human resource management, and has made
strides, but significant progress is still necessary. It also must develop a comprehensive
workforce plan to match organizational needs with the knowledge, skills, and abilities of its
Foreign Service, Civil Service, and Foreign Service National employees. More progress is
expected from State on reducing management layers and making administrative processes
more efficient.

•

Competitive Sourcing —While State has identified 39 percent of its global workforce as
performing activities that are commercial in nature, it has not completed public-private or
direct conversion competition for 15 percent of those identified commercial activities. State is
developing plans to increase the percentage of commercial positions that will be competed or
directly converted to reach the President’s goals.

•

Financial Management —State received an unqualified opinion on its 2000 financial
statements and submitted them on time. Nonetheless, State’s financial systems are not
compliant with federal requirements and have received only a qualified assurance statement.
State plans to fix these issues through office consolidation and installing a new system that will
meet the Federal Financial Management Improvement Act requirements. The new system will
be completed by the end of 2003.

•

E-Government —The Department has not completed an enterprise architecture to guide
information technology (IT) investments. Moreover, State’s central capital planning and
investment control process does not routinely scrutinize all IT investments. State intends to
complete its enterprise architecture and improve the scope and comprehensiveness of its
capital planning process.

•

Budget/Performance Integration —Except for the Embassy Security, Construction, and
Maintenance account, State’s budget and performance planning functions are not linked. The
Bureau of Resource Management should unite these functions under the leadership of the
new Chief Financial Officer. Although State has been simplifying bureau performance plans,
the 2003 State Performance Plan contains inadequate performance measures and sixteen
overly broad goals. State is working with OMB to improve the performance planning process
and has made progress since October 2001.

•

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DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

INTERNATIONAL ASSISTANCE PROGRAMS
We want our wealthy nation to be a decent, generous and compassionate nation. These are the goals that
unite our country. These are the goals that inspire my administration. And these are the goals, when achieved,
that will continue America’s greatness.
President George W. Bush
May 31, 2001

U.S. Agency for International Development

Andrew Natsios, Administrator

www.usaid.gov

202–712–0000

Number of Employees : 7,756
Number of Posts Abroad : 75
2002 Spending : $6.5 billion

The U.S. Agency for International
Development (USAID) advances U.S. foreign
policy through the implementation of
development and humanitarian assistance
programs to developing and transition
countries throughout the world. This includes
supporting the Middle East peace process and
the transition of the successor states of the
former Soviet Union to market economies.
USAID gives special attention to post-cold
war issues such as globalization and conflict
prevention.

The agency uses a variety of means to implement its programs, including “technical assistance”
(the transfer of knowledge and expertise), and the delivery of equipment, commodities and urgent
humanitarian assistance including food aid. The majority of USAID’s programs are initiated
by its overseas missions and implemented by U.S. or overseas private sector firms or non-profit
non-governmental organizations (NGOs), such as the Red Cross.
This year, USAID has reoriented its program structure into four “pillars.” The first is a new
business model, the Global Development Alliance, to better incorporate the knowledge and resources
of the public sector, corporate America, and NGOs into USAID’s development assistance programs.
In addition, three programmatic pillars incorporate the spectrum of development activities in which
USAID is engaged:

• Economic growth, agriculture and trade;
• Global health, including HIV/AIDS and other infectious diseases; and
• Democracy, conflict prevention, and humanitarian assistance.
The 2003 Budget requests funding for all general USAID development assistance activities,
including those aimed at health and population, in one Development Assistance program, rather
than funding the health and population assistance in a separate Child Survival program. The 2003
request for this consolidated account is $2.7 billion. Combining the programs will allow USAID
greater flexibility to respond quickly and effectively to changing development and foreign policy
priorities.

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241

Overview
The 2003 Budget enhances USAID’s ability to target its assistance in ways that best meet foreign
policy, development and humanitarian requirements. In 2003, USAID will:

• Increase its already significant efforts to combat the scourge of HIV/AIDS and other infectious
•
•
•
•
•

diseases in the developing world;
Support the economic and humanitarian assistance elements of the war on terrorism;
Strengthen its focus on helping countries develop their agriculture sectors, including
providing increased grants to non-governmental organizations to strengthen the “food
security” of developing countries;
Strengthen its focus on helping countries develop productive sectors that will increase trade
and investment in order that they might benefit more fully from the global economy;
Increase resources available to protect vulnerable tropical forests; and
Continue to provide swift and targeted humanitarian and other assistance that saves lives in
overseas disasters, or where possible prevents such disasters from occurring in the first place.

In 2002, USAID demonstrated its ability to address complex disaster situations with its quick
and effective provision of food aid and other humanitarian assistance to the Afghan people, helping
to avert what might otherwise have been a major humanitarian crisis. The 2003 Budget includes
funding for continued recovery and initial reconstruction assistance to Afghanistan.

Feeding Hungry People
The United Nations’ (UN) World Food Programme estimates more than 800 million people in the
world, or about 15 percent, suffer from hunger and malnutrition. About 24,000 people die every day
of hunger or related causes. The United States consistently provides about 50 percent of food aid
worldwide, far more than any other donor. The Administration remains committed to maintaining
U.S. leadership in supplying food aid to vulnerable people. Support for food aid is even more vital in
this new era of terrorist threats as hunger leads to desperation, and potentially, violence.
Currently, two federal agencies run six
programs to provide international food aid,
leading to inevitable inefficiencies and overlap
of functions. The Administration intends to
consolidate programs to improve performance.
The Department of Agriculture will continue to
furnish government-to-government programs
while USAID will take responsibility for all
programs run through private voluntary
organizations and the World Food Programme.
As a result, food aid will be better integrated
with the U.S. government’s overall assistance
programs.

Making Food Aid User Friendly

Private voluntary organizations (PVOs) are
eligible for grants of commodities for food security
programs in the former Soviet Union under four
of the six U.S. food aid programs, run by two
agencies. Each program requires a separate
application and is governed by different sets
of rules and regulations. The Administration’s
proposed reform of food aid will streamline the
bureaucracy so that virtually all food aid grants to
PVOs are administered under one agency with a
single set of rules and regulations.

242

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Top 10 Donors to the World
Food Program
In millions of dollars
1,200

USA
1,000

800

600

400

200

Japan

Germany

Netherlands
0

Canada

Denmark

Norway

Australia

France

2001 Contributions

Source: The World Food Programme.

Another reform will be to eliminate the
dependence of America’s food aid programs on
the availability of surplus U.S. commodities.
Dependence on surplus commodities means
little year to year predictability of supply
for hungry populations overseas and the
non-profit organizations that serve them.
A surplus donation program was virtually
non-existent in 1997; however, it rose to a level
of $1.2 billion in total program costs in 2001.
In part to reduce reliance on the availability
of commodity surpluses, the 2003 Budget will
request a 39-percent increase, or $335 million,
in USAID-run food assistance resources that
do not depend on surpluses.

The Administration intends to increase resources for direct food distribution programs to the
hungry and reduce programs that sell food, to generate revenue for more general development
assistance activities.
This approach will assure food aid serves our intended target—the
truly hungry and needy. Over time, USAID will reduce the proportion of commodities sold in
non-emergency programs to a target level of 30 percent as ongoing programs are completed. The
Administration also intends to make more Development Assistance program resources available
to support food security related development programs of non-governmental organizations. By
concentrating food aid on feeding programs, the U.S. government will continue to feed people at
similar levels as in recent years.

Fighting HIV/AIDS
As of December 2001, 40 million adults
and children worldwide were estimated to
be living with Human Immuno-deficiency
Virus/Acquired Immune Deficiency Syndrome
(HIV/AIDS), with five million new infections
and three million deaths occurring during
2001. Sub-Saharan Africa, which has only
11 percent of the world’s population and
one percent of the world’s income, has 70
percent of HIV/AIDS cases and 77 percent
of AIDS deaths: these numbers are fueled by
the rate of other infectious diseases, such as
tuberculosis (TB), the major cause of death
in those that are HIV positive. This pandemic
has effected every continent and is poised to
explode, especially in key countries in Asia.

As we enter the third decade of the AIDS
pandemic, our hearts go out to those who have
been afflicted with or affected by this deadly
disease. We resolve to stand together as a nation
and with the world to fight AIDS on all fronts.
We resolve to provide the resources necessary
to combat HIV/AIDS. And we resolve to ensure
that those suffering with HIV/AIDS receive
effective care and treatment, compassionate
understanding, and encouraging hope.
President George W. Bush
World AIDS Day, 2001 Proclamation

AIDS is not merely a health tragedy, but it also is destroying the economic and social fabric of many
countries, especially in sub-saharan Africa. AIDS related deaths decimate educators, administrators,
health workers, and the general population. The President has made fighting this pandemic and

THE BUDGET FOR FISCAL YEAR 2003

243

other key infectious diseases a major foreign policy objective of both U.S. bilateral and multilateral
assistance programs.
The 2003 Budget proposes total bilateral and multilateral assistance for HIV/AIDS, TB, and
malaria programs in developing countries of nearly $1.2 billion, up from $1 billion in 2002. The
U.S. commitments in these two years will account for more than a third of estimated international
donor funds. USAID is the single largest bilateral donor. The budget provides $200 million,
including $100 million from the Department of Health and Human Services, to the Global Fund
for HIV/AIDS, Malaria and Tuberculosis. The Administration is prepared to increase funding to
the Global Fund over the 2002-2005 period if appropriate burden sharing arrangements with other
donors are agreed to, and if the fund becomes an effective operation.
Recent HIV/AIDS trends in Uganda,
Thailand, and a number of other countries
In millions of dollars
have shown that focused resources to
1,400
implement comprehensive AIDS programs
Malaria & Tuberculosis
AIDS Research
1,200
can be successful in reversing the epidemic.
AIDS Prevention & Care
USAID has an approved strategic and focused
1,000
Global Trust Fund
plan, with emphasis on 23 country/regional
programs to fight against the HIV/AIDS
800
pandemic. Four countries (Cambodia, Kenya,
600
Uganda, and Zambia) have been identified
for rapid scale-up of their HIV/AIDS program
400
coverage.
USAID, with a new Office of
200
HIV/AIDS in recognition of this program’s
importance, and the Centers for Disease
0
2001
2002
2003
Control and Prevention (CDC) are expanding
these country programs in an effort to shorten the period needed to reach prevention and care goals.
By the end of 2003, USAID and CDC plan to meet the following goals in the four rapid scale-up
countries identified above:
Assistance for Global
HIV/AIDS, Malaria & Tuberculosis

• Reduce HIV prevalence in young adults by 30 percent;
• Increase care to 321,000 infected people;
• Increase orphans receiving community services to 168,000; and
• Increase HIV-infected pregnant women getting antiretrovirals to 21,000, in order to prevent
mother-to-child-transmission.

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DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Status Report on Select Programs
The Administration is reviewing programs throughout the Federal government to identify strong
and weak performers. The budget seeks to redirect funds from lesser performing programs to higher
priority or more effective programs. The table below rates the performance of a few important USAID
programs.
Program

Assessment

Explanation

Development Credit
Authority (DCA)

Ineffective

DCA is a credit tool for USAID to finance development assistance
in addition to or in lieu of grant funding where appropriate. Since
the inception of DCA in 1999, USAID has begun 16 credit projects
providing over $35 million. However, the program has obligated only
16 percent of their 2001 credit subsidy funding, due in part to the
length of time it has taken to develop effective credit budgeting and
credit subsidy calculation mechanisms. Because of the need for
continued improvements in these areas, as well as the $25 million
funding pipeline, additional credit subsidy funding is not requested
for this program in 2003 but authority to carry forward unused 2002
funding is requested.

Expanded Response
to HIV/AIDS

Effective

USAID programs emphasize HIV/AIDS prevention through
reproductive health programs to reduce risk behaviors and efforts to
prevent mother to child transmission. In the hardest hit countries,
USAID programs provide care and support for those infected and
to survivors, particularly orphans and other children affected by
AIDS. A revised USAID strategy now directs increased funding to
selected countries based on magnitude and severity of the disease,
and likelihood of success. Impact indicators have been finalized and
monitoring systems are being put into place in these priority countries.
The 2003 Budget requests a $115 million increase for USAID’s
HIV/AIDS programs.

Emergency Central
American and
Caribbean Hurricane
Reconstruction

Ineffective

Hurricane Georges hit the Caribbean in September of 1998 and
Hurricane Mitch ravaged Central America in late October and
November of 1998. In May of 1999, Congress approved an emergency
supplemental package that included $621 million for disaster recovery
for the countries affected by Hurricanes Georges and Mitch. The
emergency package was intended to provide timely assistance to the
hurricane victims, yet USAID had only expended 41 percent of the
funds by December 31, 2000, one and a half years after funds were
provided. By the end of 2001, USAID had completed approximately 93
percent of its programs. As testified to Congress by GAO, two factors
contributing to the delayed response were USAID’s lack of experience
in rapidly designing and implementing a large-scale infrastructure
program with short-term goals, and the need to coordinate with the 13
other federal agencies that helped to implement the program.

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245

Improving Performance
USAID has made progress in developing
a
systematic approach to performance
Despite USAID’s best efforts, some programs fail.
measurement,
although challenges remain.
For example, USAID commissioned an evaluation
The
agency’s
Annual Performance Plan
of school feeding programs in Haiti that showed:
has been updated to improve the ability
“There is no causal connection between school
to summarize performance. The structure
feeding and improved educational performance”.
includes agency level indicators of general
In addition, the report found that school feeding
performance, such as increased economic
programs are among the least cost-effective
growth and reduced hunger and poverty;
interventions in education. As a result, in Haiti,
reduced rates of HIV/AIDS and other
USAID’s Food for Peace Office will phase
infectious diseases; increased literacy; free
out these programs in favor of more effective
and fair elections; and lower mortality rates in
programs in health, nutrition, and agriculture.
disasters. It is often difficult to demonstrate
a direct causal link between USAID programs
and these outcomes, since in most cases, USAID programs are only a small factor promoting
development. Assistance from other countries, from the World Bank and other international
organizations, as well as the efforts of the developing countries themselves, play important roles
in achieving these outcomes. Therefore, in addition to monitoring performance related to these
higher level outcomes, USAID missions also track “intermediate results” that are more directly
linked to its programs. Examples vary, but can include the number of small businesses receiving
USAID-supported loans and how they fared with the loans, the number of new students attending
school because of USAID programs, the number of children receiving vaccinations because of USAID
funding, or the number of people receiving emergency food relief. However, numerical outputs do
not address or assess the quality of the program or how well it functions. USAID needs to improve
its ability to use this information for decision-making. Although USAID has used anecdotal program
results as a factor in allocating resources, the agency has yet to develop a systematic budget process
that fully and transparently bases decisions on performance considerations. USAID will continue
working to develop measures of performance to determine the extent to which programs succeed in
advancing U.S. foreign policy.

Strengthening Management
USAID’s ability to perform optimally has been seriously compromised for years by ineffective
and outdated management systems and structural shortcomings. Last year, it began a major effort
to strengthen its most critical systems both in Washington and overseas and to restructure its
operations. While progress has been made, particularly in financial management and workforce
planning, much remains to be done.

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DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Initiative

2001 Status

Human Capital—USAID is undertaking a comprehensive review of its workforce
and has submitted a workforce plan. USAID has committed to reducing the ratio of
supervisors to employees from 1:4 to 1:5 by the beginning of 2003 and limiting the
number of management levels for each bureau. Over the longer term, the agency must
confront recruitment issues since significant attrition due to retirement is expected.
USAID already has a detailed recruitment plan for the Foreign Service and is working
to complete a similar plan for the Civil Service.

•

Competitive Sourcing —No progress has been made on this initiative. USAID has
not completed public-private or direct conversion competition on 15 percent of its
functions identified as commercial, and it has not submitted an approved competition
plan. USAID intends to submit to OMB a competition plan detailing how it will meet the
administration’s two-year, 15 percent goal.

•

Financial Management —Although a core accounting system is in place in
Washington, it has not yet been deployed overseas. Therefore, almost 50 percent of
USAID-managed funds are not within the new system. Until its field systems are
modernized, USAID will be unable to gain the benefits of modern business practices
in accounting, finance, procurement, and e-government. Further, while the first full
audit of USAID’s financial statement is being conducted for 2001, it is not clear that
the Inspector General will be able to render an opinion. USAID will submit and
implement a targeted remediation plan for its financial systems. The agency study
of business practices will include strategies to accelerate deployment of the core
accounting system.

•

E-Government —The business cases for USAID accounting and procurement
modernization, as well as its operations and infrastructure upgrades, do not look
forward and define how the agency can deploy its new systems worldwide. USAID is
undertaking a study to address how it can make more effective use of capital planning,
enterprise architecture, and modern business concepts. The 2003 Budget includes a
capital investment account to segregate and better manage information technology
funding.

•

Budget/Performance Integration —Although USAID’s reorganization has placed
budget responsibility with the planning bureau, it is not yet clear how the agency will
further integrate performance with budget decision-making. While the Agency can
point to anecdotal examples of reallocating resources to higher-performing activities
within countries or countries within regions, a more comprehensive and consistent
process to tie agency-level planning and budgeting to performance needs to be
developed. USAID will submit its initial performance plan to OMB; coordinate with the
State Department in integrating performance factors into budget formulation; and
continue to refine performance indicators to improve usefulness to decision-makers.

•

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247

DEPARTMENT OF THE TREASURY

Department of the Treasury

Paul O’Neill, Secretary

www.ustreas.gov

202–622–1260

Multilateral Development Banks : The World
Bank Group, Inter-American Development
Bank Group, Asian Development Bank Group,
African Development Bank Group, European
Bank for Reconstruction and Development,
North American Development Bank, Global
Environment Facility, and International Fund for
Agricultural Development.
Other International Financial
Institutions/Mechanism : International
Monetary Fund and Exchange Stabilization Fund
Bilateral Programs : International Debt
Restructuring and Treasury Technical Assistance
2002 Spending : $1.7 billion

The Treasury Department is responsible
for a number of international programs,
including U.S. relations with the International
Monetary Fund (IMF) and administration of
the Exchange Stabilization Fund. Treasury
also is responsible for U.S. relations with
the World Bank and other Multilateral
Development Banks (MDBs), and administers
U.S. contributions to these institutions.
Treasury negotiates and manages U.S.
participation in multilateral debt reduction
initiatives, such as the Heavily Indebted
Poor Country (HIPC) initiative, and handles
funds for the U.S. portion of such initiatives.
Finally, Treasury operates a small technical
assistance program to help our partners in the
war against terrorism fight money laundering
and other financial crimes, as well as help
finance ministries in developing countries
implement fiscal and financial policy reforms.

Improving Multilateral Assistance to the Poorest Countries
Since its establishment in 1944, the World
Bank’s goal of post-war reconstruction in
Europe has broadened significantly.
The
World Bank and the regional development
banks now seek to encourage economic growth
and poverty reduction in developing and
transition countries, while the specialized
financial institutions like the Global
Environment
Facility
(GEF)
maintain
narrower, specific mandates.

Clearing U.S. Arrears

Outstanding U.S. arrears to all MDBs now
equal $533 million, $34 million greater than last
year’s total of $499 million. The President’s
Budget requests $178 million to help meet U.S.
international commitments under a plan to clear
all arrears, on a pro-rata basis by institution, over
the next three years.

Over the past 25 years, the United States
has consistently been the largest donor to
the multilateral development banks. While our contributions leverage other donor commitments,
it is important to insist that these institutions significantly improve conditions for their principal
constituency, the world’s poor. As recent World Bank data shows, more people today live in poverty
on less than $2 a day than did so a decade ago.

248

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

The President’s concerns about these institutions’ performance have caused a significant
change in the Administration’s policies. As proposed by the President, the United States is
working to negotiate a significant increase in the level of assistance provided to the poorest and
least creditworthy countries as grants rather than loans. The United States and other donors
are currently discussing replenishments for the International Development Association (IDA),
African Development Fund, and GEF. We are pursuing measures to increase the focus of these
replenishments on countries with sound policy environments and demonstrated performance, and
on operations that raise productivity. At the same time, the United States is emphasizing the need
for institutions to develop reliable performance and output indicators.
Recognizing the importance of demonstrating results, the United States is proposing a
performance-based financing framework for its contribution to the IDA replenishment. It provides
a base-level annual contribution of $850 million for each of the three years of the replenishment.
Additional contributions of $100 million in the second year and $200 million in the third year will
be made available if IDA meets specific measurable results, for example in the areas of education,
health, environment and trade capacity building. The Secretary of the Treasury will use measures
of performance to determine the extent to which U.S. participation in multilateral financial
institutions is effective.

Conserving the World’s Remaining Tropical Forests
Between 1980 and 1995, more than 540
million acres of tropical forests were cut
More than half of the world’s plant and animal
down, a loss with major implications for the
species lives in tropical forests, making them
world. Tropical forests provide a wide range
home to the world’s greatest amount of biological
of benefits, including harboring a major share
diversity.
of the Earth’s biological resources, protecting
soil and water, replenishing the Earth’s
atmosphere with fresh air, and providing timber, medicines, food, and jobs.
For these reasons, the Administration is committed to preserving the world’s remaining tropical
forests. Under the proposal contained in this budget, the United States will be able to better use
its resources to achieve this important environmental goal. The Administration’s new forestry
conservation proposal will improve forestry conservation by providing $50 million to USAID. Up
to $40 million of this amount may be available for the budget cost of debt reduction that is used
for forest conservation under the Tropical Forest Conservation Act (TFCA). The remainder will be
used for grants to non-governmental organizations engaged in forestry conservation in order to
accelerate support and improve effective implementation of TFCA agreements. The Administration
will develop specific criteria to determine which mechanism is most appropriate for each case.
Under TFCA, to date, debt reduction agreements have been concluded with four countries:
Bangladesh, Belize, El Salvador, and Thailand. In all, these countries will save over $60 million
in hard currency payments as a result of these agreements to swap external debt for forest
conservation.

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249

INTERNATIONAL AFFAIRS AGENCIES

Export Import Bank

John E. Robson, Chairman

www.exim.gov

800–565–EXIM

Number of Employees : 420
2002 Spending :

Program: –$263 million
Administrative: $62 million

The 2003 Budget will support an increase
in lending levels from an estimated $10.4
billion in 2002 to $11.5 billion in 2003 using
an appropriation of $541.4 million in program
resources.
The increase in lending levels is achieved
with the 2003 Budget request levels because
of the use of an entirely new credit risk
methodology for all international lending
programs that integrate market data with
long term market-wide default experience.

Lending Activity : $10.4 billion

The Export-Import Bank is also continuing
work on ways to focus its lending on cases
where the private sector does not provide
financing.
Such efforts are particularly
important to ensure the Bank does not
compete against the private sector, which is
becoming increasingly aggressive in providing
private export financing.
For example,
Export-Import Bank will consider higher
fees where it does not affect the Bank’s
competitiveness with other official lenders,
as well as applying more stringent tests for
whether Bank support is necessary to finance
specific transactions.

New Method for International Credit Risk

Until this budget, the U.S. Government (USG)
used the premium charged by private sector
lenders to other governments as a proxy for the
default costs of USG loans to these countries.
While this was the best available method, it
captured not just default risk, but also profits,
opportunity costs, tax effects and other factors
not relevant to the budget cost of USG credits.
The new method isolates just the default risk
portion of the private market premiums. In short,
the risk of new USG international credits has
not decreased, but budget costs are now based
only on this default risk, not on other extraneous
factors.

250

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Overseas Private Investment Corporation
The
Overseas
Private
Investment
Corporation
(OPIC)
offers
direct
loans,
Overseas Private Investment Corporation
investment guaranties, and political risk
Peter S. Watson, President
insurance to private U.S. companies investing
in the developing world. In recent years,
www.opic.gov
202–336–8400
OPIC lost sight of its development mission
Number of Employees : 202
and concentrated too heavily on serving
its corporate borrowers. To refocus on its
2002 Spending :
development mandate, OPIC has established
Program: –$262 million
a new Office of Investment Policy to evaluate
the developmental impact of its activities
Administrative: $39 million
on the host country.
OPIC will continue
Lending Activity : $739 million
to measure job creation in host countries
and will establish additional indicators of a
Insurance Activity : $2.2 billion
project’s development impact. In addition,
OPIC will focus less on large corporations
with alternative means of financing and increase the number of projects sponsored by American
small business from the current level of 51 percent to 60 percent in 2003. OPIC also will implement
new procedures to direct its activities toward filling important gaps in the private market and not
undercut private finance or insurance.

U.S. Trade and Development Agency
The U.S. Trade and Development Agency
(TDA)
facilitates American job creation by
U.S. Trade and Development Agency
connecting U.S. companies with overseas
Thelma J. Askey, Director
business opportunities.
Through the
funding
of
feasibility
studies,
orientation
www.tda.gov
703–875–4357
visits, specialized training grants, business
Number of Employees : 48
workshops, and technical assistance, TDA
enables American businesses to compete for
2002 Spending : $55 million
infrastructure and industrial development
projects in middle-income and developing
countries. The President’s Budget provides $45 million for TDA to maintain its current regional
portfolio while at the same time taking advantage of new opportunities in areas such as Africa,
China, and Russia.

THE BUDGET FOR FISCAL YEAR 2003

251

Peace Corps

Lloyd O. Pierson, Acting Director

www.peacecorps.gov

800–424–8580

Number of Employees : 1,170
Number of Posts Abroad : 69

In response to a greater interest in
volunteerism and to increase America’s
contribution to the people of the world, the
President’s Budget requests an increase in
2003 for the Peace Corps. The added funds
will open new programs and be targeted to
assist host countries and local communities
through business development and other
economic growth activities.

2002 Spending : $286 million

International Broadcasting
The Broadcasting Board of Governors
(BBG) directs all U.S.-funded, non-military
Broadcasting Board of Governors
international broadcasting (Voice of America,
Marc Nathanson, Chairman
Radio Free Europe/Radio Liberty, Radio Free
Asia, Radio/TV Marti). These broadcasting
www.ibb.gov/bbg
202–619–2538
services
provide
objective
news
and
Number of Employees : 2,505
information, and explain and provide context
for America’s policies to foreign publics
Comprised of four broadcasting entities :
around the world in their own languages.
Voice of America, Radio Free Europe/Radio
Through its annual comprehensive review
Liberty, Radio Free Asia, and Radio/TV Marti.
of the effectiveness of its broadcast services,
2002 Spending : $560 million
the BBG will continue to reexamine resource
allocations, placing special emphasis on
prioritizing its language services to reflect the
U.S. Government’s public diplomacy goals. The Administration has chosen the BBG’s Middle East
Broadcasting Initiative, launched in 2002, as a pilot project for performance budgeting. Specifically,
the BBG will measure how the 2003 funding provided for this initiative affects listenership rates
in the Middle East. The outcome goal for this pilot project is a rise in listenership rates from an
anticipated rate of 3.9 million persons in 2002 to 6.7 million in 2003.

252

DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS

Department of State and International Assistance Programs
(In millions of dollars)
2001
Actual
Spending:
Discretionary Budget Authority:
Department of State:
Andean Counterdrug Initiative ..................................................
Diplomatic and Consular Programs .........................................
Embassy Security, Construction, and Maintenance ..............
Other ............................................................................................
Subtotal, Department of State .......................................................
International Assistance Programs:
Foreign Military Financing .........................................................
Non-proliferation, Anti-terrorism, Demining, and Related .....
Economic Support Fund ............................................................

Estimate
2002

2003

—
3,220
1,081
3,505
7,806

625
3,713
1,277
3,265
8,880

731
4,019
1,308
3,176
9,234

3,568
311
2,300
(835)
2,124
1,145
267
2,885
12,600

3,650
344
2,214
(850)
2,474
1,174
278
3,005
13,139

4,107
372
2,290
(1,185)
2,740
1,437
320
2,620
13,886

907
526
1,433
21,839
−110
21,729

767
557
1,324
23,345
−118
23,227

600
590
1,190
24,310
−125
24,185

Emergency Response Fund, Budgetary Resources:
Department of State .......................................................................
International Assistance Programs ...............................................
Other International Affairs Activities .............................................
Total, Emergency Response Fund, Budgetary resources .............

49
5
—
54

380
985
47
1,412

—
—
—
—

Mandatory Outlays:
Department of State .......................................................................
International Assistance Programs ...............................................
Other International Affairs Activities .............................................
Total, Mandatory outlays .....................................................................

392
−1,688
−2,461
−3,757

468
−1,007
−782
−1,321

461
−989
−332
−860

Credit activity:
Direct Loan Disbursements:
Department of State .......................................................................
International Assistance Programs ...............................................
Export-Import Bank .........................................................................
Total, Direct loan disbursements .......................................................

1
665
1,788
2,454

1
389
1,997
2,387

1
101
570
672

USDA International Food Aid (non-add) .................................
Development Assistance 1 ........................................................
Multilateral Development Banks ...............................................
Peace Corps ...............................................................................
Other ............................................................................................
Subtotal, International Assistance Programs ..............................
Other International Affairs Activities:
Export-Import Bank ....................................................................
All Other .......................................................................................
Subtotal, Other International Affairs Activities ............................
Subtotal, International Affairs Activities adjusted 2 .........................
Remove contingent adjustments ...................................................
Total, Discretionary budget authority ................................................

THE BUDGET FOR FISCAL YEAR 2003

253

Department of State and International Assistance Programs—Continued
(In millions of dollars)
2001
Actual

Guaranteed Loans:
International Assistance Programs ...............................................
Export-Import Bank .........................................................................
Total, Guaranteed loan disbursements .............................................
1

508
7,504
8,012

Estimate
2002

707
6,965
7,672

2003

706
8,384
9,090

Includes Child Survival and Disease Programs in 2001 and 2002.
Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For
more information, see Chapter 14, "Preview Report," in Analytical Perspectives .

DEPARTMENT OF TRANSPORTATION

The President’s Proposal:

• Sets up the new Transportation Security Administration to improve aviation

•
•
•
•
•

security by accelerating deployment of explosive detection systems and other
airport security equipment, facilitating airport passenger and baggage inspection,
and hiring and deploying more Federal Air Marshals;
Improves the Federal Aviation Administration’s air traffic control and airline safety
performance through the reduction of runway incidents, and ties budget resources
to airspace modernization program performance goals;
Expands investment in the Coast Guard’s effort to replace aging ships, aircraft,
and related systems to increase its effectiveness in securing the homeland, saving
lives, and enforcing fisheries, immigration and drug laws at sea;
Continues to fund highway, bridge, transit and safety programs at the levels
guaranteed by the Transportation Equity Act for the 21st Century;
Supports the President’s commitment to expand transportation opportunities for
individuals with disabilities through the New Freedom Initiative; and
Discontinues federal subsidies in an effort to encourage a stronger private ship
construction financing market.

The Department of Transportation (DOT)
is responsible for the nation’s freedom of
movement—ensuring there are sufficient and
safe roads, rails, airways and seaways to
keep the country in motion and its economy
growing.
Established in 1967, DOT sets
federal transportation policy and works
with state, local, and private sector partners
to promote a safe, secure, efficient, and
interconnected
national
transportation
system.
DOT’s operating administrations
have wide-ranging duties related to operating
or overseeing various transportation sectors,
but they share a common commitment to
fulfill these national objectives.

Department of Transportation

Norman Y. Mineta, Secretary

www.dot.gov

202–366–4000

Number of Federal Em ployees : 118,447
(including military)
2002 Funding : $60.8 billion
Offices: 12 operating administrations, including
the Transportation Security Administration,
Federal Aviation Administration, Federal Highway
Administration, and U.S. Coast Guard.

255

256

DEPARTMENT OF TRANSPORTATION

Overview
The Transportation Security Administration (TSA), the newest DOT organization, was
established to enhance security for the traveling public. Other DOT agencies are organized
by mode of transportation, including two large and well-known agencies, the Federal Aviation
Administration (FAA) and the Coast Guard.
FAA’s responsibilities range from controlling the nation’s air traffic system to regulating the safety
and maintenance standards of U.S.-operated airlines. The Coast Guard acts as the fifth branch of
the armed services and its missions extend from enforcing the fisheries laws, to cleaning up oil spills,
to guarding the nation’s maritime borders from illegal migrants and drugs.
Several DOT agencies manage grant programs that will provide over $34 billion in 2003 to
state and local transportation agencies for airports, roads, highways and transit systems. These
infrastructure programs help reduce congestion and expand travel options. DOT also regulates
highway, rail, and pipeline safety to reduce accidents and fatalities.
The laws authorizing surface and aviation transportation programs will expire after 2003. The
Administration will work with various stakeholders and the Congress to develop legislative proposals
to continue the nation’s investment in air, highway and transit systems.

Ensuring Transportation Security
The events of September 11, 2001,
underscore the importance of transportation
…[T]he President has asked our Department to
security as part of America’s homeland
help protect the integrity of our nation’s entire
security.
Protecting airports, seaports,
transportation infrastructure. And that is what we
bridges, highways, and mass transportation
are doing … We will have to take precautions in
against the threat of terrorism is an
transportation that we have never taken before, and
imperative. In 2003, added emphasis on
we will have to do the same in virtually every aspect
this mission will be reflected in resources
of American life. … As we move forward from
for personnel, technology and equipment
September 11th, we must increase our vigilance,
to meet transportation security challenges.
and we must take new steps to move people and
The President signed the Aviation and
goods safely and efficiently, recognizing that the
Transportation Security Act, establishing
nature of the threat has changed.
the Transportation Security Administration,
Secretary Mineta
into law on November 19, 2001. TSA’s main
October 2001
mission is to increase airline and airport
security.
TSA will play a critical role,
coordinating with the White House Office of
Homeland Security, federal, state, local, and private partners, to enhance the safety of the nation’s
transportation infrastructure.

THE BUDGET FOR FISCAL YEAR 2003

257

The Aviation and Transportation Security Act
imposed tight deadlines and stringent aviation
Transportation Security
security requirements for DOT to implement. TSA
was created to be responsible for airport passenger
screening at every U.S. airport with commercial
Aviation Security .......................
4.8
air service. Its staff includes law enforcement
officers, Federal Air Marshals, and passenger
Maritime Security ......................
2.9
and baggage screeners. The TSA will continue
to improve baggage screening processes to enhance the safety of passengers, while facilitating
travel. In addition to aviation, TSA will be the focal point for the security of the entire national
transportation system; a system administered in large part by states and localities. This budget
meets these challenges, and the Administration has embarked on an aggressive effort to gauge
progress constantly.
Funding
(in billions
of dollars)

In 2003,
the TSA will continue
implementing a comprehensive aviation
security program. Funding is being provided
to accelerate deployment of an array of
explosive detection technology so that all
baggage loaded into aircraft is safe. The TSA
will continue efforts to improve security at
airport screening locations and speed the flow
of passengers at these checkpoints. During the
year, the TSA will complete the hiring of over
30,000 Federal airport security personnel,
including screeners, armed guards, and
supervisors for every screening checkpoint. To
Explosive detection systems are just one technology to ensure
upgrade aviation security, the TSA will hire,
that passenger bags are properly screened.
train, and deploy an enhanced team of Federal
Air Marshals. The budget provides $4.8 billion in funding for the TSA, with an estimated $2.2
billion of the 2003 costs to be raised through passenger and air carrier fees.
The TSA and the Coast Guard will
jointly develop and execute the maritime
component of homeland security. This work
is crucial because 95 percent of the nation’s
international trade moves by water.
The
Coast Guard will maintain the viability and
integrity of marine transportation security
by providing additional personnel to increase
port security and assess the needs of critical
seaports throughout the nation. The budget
provides $5.7 billion in discretionary funding
for the Coast Guard, including $406 million
for increased port security. The budget also
proposes a commercial navigational user fee
to help pay for increased port security needs.

The Coast Guard conducting a patrol to ensure port security in
San Francisco harbor.

258

DEPARTMENT OF TRANSPORTATION

Improving Transportation Safety

DOT’s mission is to promote the public health
and safety of the nation by working toward the
elimination of transportation related deaths and
injuries.
DOT Performance Plan

Most Americans rely on some combination
of car, transit, and airplane travel to carry
out daily personal and business activities.
Much of the effort of promoting and increasing
transportation safety centers on raising safety
awareness. The economic cost of motor vehicle
crashes alone is more than $150 billion
annually. The human toll on victims and their
families is catastrophic.

Just as important as transportation security is DOT’s goal to increase safety for the traveling
public. To achieve this, the Department works with communities to educate the public about safety
requirements and establishes safety standards for transportation industries. The 2003 Budget
proposes nearly $8 billion for transportation safety programs to meet the Department’s safety goals.

Aviation Safety
FAA aims to prevent aviation fatalities by preventing accidents. For example, accidents are
prevented by reducing air traffic controller and pilot errors and by minimizing aircraft incidents
(such as engine failures). Of particular concern is pilot or controller error resulting in “runway
incursions” on or near active airport runways. Runway incursions happen when aircraft on or
near runways do not maintain required distance from each other or from a vehicle or other object
on the ground. A resulting collision could mean a catastrophic loss of life, and there have been a
disturbing number of close calls in recent years. In 2001, there were 52 serious runway incursions,
an improvement from the 67 incidents in 2000. But continued vigilance is needed. The budget
provides $107 million for the development and use of new technologies and systems to help prevent
incursion-related accidents. An additional $122 million is provided to improve pilot and controller
training and increase visibility through improved runway surface markings.

Surface Transportation Safety

Highway Fatalities per 100 Million
Vehicle-Miles-Traveled
Fatality rate
2.5

2.0

1.5

1.0

0.5

Rate

Target

Projection

0.0
1988

1990

1992

1994

1996

1998

Source: National Center for Statistics and Analysis, DOT.

2000

2002

2004

2006

2008

Traffic crashes claimed a total of 41,800
lives in 2000, accounting for over 90 percent
of transportation-related deaths. Fatalities
declined from 47,100 in 1988, but have
remained relatively flat since 1992 despite
significant increases in the number of vehicles
on the country’s roads. The Federal Motor
Carrier Safety Administration (FMCSA)
and the National Highway Traffic Safety
Administration (NHTSA) are charged with
regulating highway safety under DOT’s
umbrella.

THE BUDGET FOR FISCAL YEAR 2003

259

FMCSA, created in 1999, oversees the safety of the commercial truck industry. It seeks to reduce
the number of highway deaths resulting from truck and bus crashes. The agency is committed to
helping reduce fatalities by 50 percent, from 5,380 in 1999 to less than 2,700 in 2009. To achieve
this goal, FMCSA will concentrate on improving its federal oversight program by increasing federal
and state inspections on the roadside and at motor carriers’ facilities, and improving the Commercial
Driver Licensing program. In 2003, $190 million will go to states to help them implement highway
safety programs.
In 2003, the Administration will pay special attention to FMCSA’s southern border safety
enforcement program. The United States will fulfill its commitment to Mexico under the North
American Free Trade Agreement and allow travel by Mexican trucks to begin in 2002. Some $68
million will be devoted to conduct on-site safety inspections in Mexico of motor carrier facilities
by U.S. inspectors. A renewable 90-day decal with monitoring systems to ensure compliance with
truck safety rules will be instituted. Another $47 million is provided in 2003 for border safety
infrastructure under a program to fund highway projects along the U.S. borders.
NHTSA aims to reduce highway fatalities and injuries by decreasing alcohol-related highway
fatalities from 17,219 in 1997 to 11,000 in 2005, and by increasing seat belt usage from 69 percent
in 1997 to 90 percent in 2005. To achieve these goals, the budget provides $200 million for NHTSA’s
safety research and information programs, and $225 million for grants to states for their highway
safety programs.

Maritime Safety
The Coast Guard aims to minimize boating accidents while striving to rescue as many people as
possible when accidents occur. Overall, recreational boating fatalities have declined since the 1970s.
In 2000, the Coast Guard recorded 742 fatalities—the lowest number of deaths to date. This marks
a 50 percent reduction from the 1970s, even as the number of recreational boats more than doubled.
In 2001, the Coast Guard answered more than 39,000 calls for help, saving 4,184 lives of mariners
in imminent danger. To improve on this in 2003, the Coast Guard will increase staff and modernize
equipment. The budget funds a $90 million initiative to modernize a “maritime 911” system. It will
improve existing Coast Guard capabilities through broader coverage, ensuring that emergency calls
get through and adding high quality location finding technology to speed Coast Guard response.

Intercity Passenger Rail Service
The Congress created the National Rail
Passenger Corporation (Amtrak) in 1971 as
Of the 41 train routes Amtrak ran in 2001, 14 lost
a for-profit corporation to provide a national
more than $110 per passenger and six lost more
rail passenger system. Although it initially
than $210 per passenger. Operating losses on
received federal subsidies, the intent was
the Sunset Limited, which runs between Orlando
for Amtrak to graduate from requiring
and Los Angeles, were $347 per passenger. Only
federal financial support. Amtrak has utterly
two routes turned an operating profit in 2001.
failed to meet this expectation. The federal
government has provided about $24.2 billion
to Amtrak since its creation (see accompanying table). Since 1979, Amtrak has failed to increase
significantly the number of passengers it carries. Currently, Amtrak’s share of the nation’s intercity

260

DEPARTMENT OF TRANSPORTATION

passenger market amounts to only one-half of one percent of all passenger miles, compared to more
popular means of transportation such as auto (50 percent), air (48 percent), and intercity buses (1.5
percent).

Federal Subsidies for Amtrak, 1971–2002
Type of Funding

Years Provided

Total Funding

Annual Average

Federal Operating Grants .....................................

1971-2002

$14.3 billion

$455 million

Federal Capital Grants .........................................

1976-2002

$3.7 billion

$127million

Northeast Corridor Improvement Program ........

1976-1998

$4.0 billion

$171 million

Taxpayer Relief Act Funds ...................................

1998-1999

$2.2 billion

$1.1 billion

Total ....................................................................

1971-2002

$24.2 billion

$760 million

On November 9, 2001, the Amtrak Reform Council (ARC), an oversight board set up by the
Congress, concluded that Amtrak would fail to achieve its statutorily mandated goal to run its
business profitably and without federal operating assistance by December 2, 2002. As a result,
the ARC will announce an Amtrak restructuring plan on February 7, 2002, in accordance with the
Amtrak Reform and Accountability Act of 1997.

Amtrak Operating Losses before
Federal Grants
In millions of dollars
0

-200

-400

-600

-800

-1,000

-1,200
1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

In its 31-year history, Amtrak has never
posted a profit. It has accumulated about
$20.4 billion in operating losses over that same
period, for an average annual operating loss of
approximately $660 million, excluding federal
grants. It recently mortgaged Pennsylvania
Station in New York over a 16-year period to
cover approximately three months of operating
expenses, a financial absurdity equivalent to
a family taking out a second mortgage on its
home to pay its grocery bills. Other recent
efforts to infuse new cash into this futile
system include:

Source: Department of Transportation.

• A $2 billion tax credit for Amtrak in 1997, although it has never paid income taxes; and,
• Legislative proposals to subsidize $12 billion in new borrowing through tax credits, provide
up to $28 billion in new borrowing through federal loan guarantees, and up to $36 billion in
state tax-exempt bonds.
Amtrak is clearly in desperate financial condition. In May 2001, Amtrak president George
Warrington stated that Amtrak could not continue indefinitely under current circumstances, a

THE BUDGET FOR FISCAL YEAR 2003

261

conclusion shared by the Amtrak Reform Council in its November finding. The Administration
agrees.
The
Administration
believes
that
passenger train service should be founded on a
partnership between the federal government,
the states, and the private sector. Such a
partnership would encourage the operation
of passenger trains offering high-quality,
cost-effective service on viable routes or where
the states have declared a public need they are
willing to fund. The Administration is eager
to work with the Congress to develop solutions
that result in a cost-effective, financially
stable system that can help meet the public’s
travel needs.
Pending development of a
new paradigm for passenger rail service, the
budget requests the same level of funding as
provided in 2002.

An Amtrak California train. The state of California owns the trains
and assists in their operation.

Improving Transportation Mobility
Another major DOT strategic priority is to enhance the free flow of passengers and goods. Over
the last 20 years, travel for all modes of transportation, especially highway and air, has increased
significantly.

Surface Travel
Between 1980 and 1999, highway passenger miles traveled increased almost 60 percent. Federal
spending on highway projects also increased significantly, from $15.5 billion in 1992 to $28.5
billion in 2003. Under the Transportation Equity Act for the 21st Century (TEA–21), highway
spending is adjusted each year according to a formula in law that reflects the most recent data on
highway-related receipts. In 2000, 2001, and 2002 highway spending was increased significantly
by these annual adjustments. However, for 2003 this formula will produce a reduction in the
amount of new commitments of highway spending, due in large part to a previous overestimate of
actual receipts in 2001. Even so, in 2003 actual spending on highway construction, including the
continuation of prior-year projects, will fall less than three percent from its all-time high in 2002.
2003 highway spending will be 40 percent higher than in 1998, the first year of TEA–21.
The downside of growth in travel is increased road congestion. For example, in 1987 a trip during
peak travel periods took 16 percent longer than it would have taken in uncongested conditions (about
10 minutes more for a one-hour trip). In 1999, a trip taken during peak travel period took 15 minutes
more for a one-hour trip. Traffic delays also lead to increased fuel consumption and higher levels of
vehicle emissions. In 1999, the nationwide cost of wasted time and extra fuel consumption alone was
estimated to be $78 billion.

262

DEPARTMENT OF TRANSPORTATION

Without efforts to reduce congestion, it is projected that congestion will increase by 0.5 percent
each year. DOT’s goal is to slow the projected growth of congested travel by 0.2 percent each year. The
Federal Highway Administration (FHWA) has implemented a range of strategies to address traffic
jams. These include development and deployment of Intelligent Transportation Systems (ITS), which
provide more information to drivers faster, enabling them to take the most efficient route of travel.
The 2003 Budget proposes $23.5 billion in federal funding for highways to identify and construct
a mix of locally preferred road projects to reduce congestion and add new capacity to the highway
system.
Transit also contributes to reducing road congestion. Transit passenger miles traveled increased
23 percent from 1980 to 1999. In 2000, transit ridership increased to 9.4 billion trips, the highest
ever. In 2003, the budget provides $7.2 billion for the Federal Transit Administration (FTA) to
help congested regions buy more buses and build new rail systems. Within this amount, the
Administration will seek authorization of $145 million for the President’s New Freedom Initiative
to make transportation more accessible for the disabled.

Air Travel
DOT has faced significant growth in demand for air travel, with air passenger miles increasing
123 percent from 1980 to 1999. As the aviation system adjusts to new security protocols, flight delays
could return to pre-September 11th levels. DOT must continue expanding aviation capacity by more
rapidly modernizing our airspace infrastructure and cutting red tape to speed construction of planned
airport runway projects. The budget provides over $1.3 billion in FAA system modernization to
improve mobility, and $3.4 billion for airport improvement activities. In 2003, FAA seeks to improve
airport efficiency rates (an indicator that gauges how many aircraft move through these airports
against capacity levels) for our busiest airports to 95 percent.
To create a business-like aviation environment, by 2003 the DOT and FAA intend to implement a
performance-based organization (PBO) that would focus on improved management and coordination
of air traffic services and capital investments. This organization will be headed by a Chief Operating
Officer and combine resources and staff from FAA’s air traffic control, research, and acquisition lines
of business, all of which contribute to FAA’s ability to provide efficient air traffic control services.
Current measures of performance—such as delays and runway incursions—point to management
challenges in improving the operation of the current air traffic system. The new organization is
intended to address some of these weaknesses by establishing performance goals for individual
staff, and the organization as a whole, so that progress and advancements can be measured. The
Administration plans to evaluate the effectiveness of the PBO after a year of operation. If significant
improvements in air traffic services are not achieved, the Department will look to other options,
including partial privatization and franchise operation of components of the air traffic system.

Status Report on Select Programs
The 2003 Budget provides a total $53.6 billion in discretionary resources, including a variety
of management initiatives, to improve the performance of DOT programs. The budget increases
funding for core programs, cuts unnecessary subsidies and proposes reforms to strengthen program
management. It seeks to identify weaknesses, showcase effective programs, and present and meet
performance goals.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessm ent

263

Explanation

Efficiency of Air
Traffic Control

Ineffective

FAA management needs improvement as evidenced by serious delays
in air traffic during periods of high demand.

Highway Grants
Project Management

Moderately
Effective

In the past, federal highway project oversight had been problematic
(e.g., Boston’s “Big Dig” which overran its cost estimates by 465
percent, or $12 billion, compared to the original 1985 proposal).
However, FHWA has taken several steps to improve management
oversight for large highway projects.

Public Transit Grants
Management

Effective

GAO has reported that FTA’s project management oversight program
improves quality controls, resulting in benefits for grantees and the
government. FTA has implemented a streamlined, web-based grants
program that permits 800 grantees to submit electronic requests and
FTA to electronically disburse payments.

Coast Guard
Deepwater Project

Unknown

This multiyear project begins to replace aging ships, aircraft, and
related systems. The Coast Guard is using an innovative approach
to replace its capital assets, aiming to enhance performance while
limiting total cost.

Hazardous Material
and Pipeline Safety

Moderately
Effective

The Research and Special Programs Administration continues to
increase oversight, inspection, and research to reduce the likelihood
of pipeline and hazardous material accidents.

Congressional Earmarks and Corporate Subsidies
Across the spectrum of transportation programs,
congressional earmarks undercut the Department’s
ability to fund projects that have successfully proved their
merits. In many cases, these earmarks divert funds to
lower priority projects. This can result in the disruption
of construction schedules for higher priority projects and
increase the financing costs for the sponsors of these
projects. In 2002, the Congress earmarked over 1,400
projects in the Department of Transportation, totaling
$3.2 billion.

Congressional Earm arks

2000 ............

over 700 earmarks
totaling $2.1 billion

2001 ............

over 1,100 earmarks
totaling $3.4 billion

2002 ............

over 1,400 earmarks
totaling $3.2 billion

264

DEPARTMENT OF TRANSPORTATION

Transit Projects
The FTA is authorized by law to provide
over $3 billion a year in competitive grants
For 2002, Congress earmarked $218 million for
for local transit projects, including new
44 transit rail new start projects that the President
bus purchase, new rail line construction,
did not recommend. Within this total, $40 million
and assistance to maintain existing rail
was earmarked for 18 projects that are in the
infrastructure in older systems. However, for
very early planning stage. Several do not appear
2002, the Congress earmarked every dollar
to meet eligibility requirements. For example,
of FTA’s bus and new rail starts programs. As
$2.5 million is allocated to the Northern Indiana
a result, worthy projects cannot compete on
South Shore commuter rail rehabilitation project,
their merits and funding does not go to areas
which may be ineligible because it is not for new
with the greatest needs. For example, in 2001,
construction. Consequently, Congress did not
DOT requested $50 million to assist the Los
provide sufficient funds to complete prior federal
Angeles County Metropolitan Transportation
commitments to three existing projects in St.
Authority (LACMTA) purchase 523 buses
Louis, Los Angeles, and Salt Lake City.
to relieve overcrowding and meet the
requirements of a consent decree. Instead,
LACMTA got only $4.5 million, delaying the purchase of the buses.

Highway Projects
Intelligent Earm arking?

Since 1998, the Congress has earmarked
100 percent of the funding for Intelligent
Transportation Systems (ITS) technology
deployment. These systems provide
technological solutions to congestion and safety
problems and improve operations on the nation’s
highways and transit systems. FHWA would like
to award this funding based on merit. Earmarks
include:

•

$1 million for ITS in Moscow, Idaho, a city
with a population under 25,000; and

•

$1.8 million over three years for a
research program in New Mexico that is
currently unable to comply with the law or
obtain required matching funds.

The FHWA administers over $300 million
in authorized competitive grant programs.
States submit applications for funding and
FHWA awards funding based on merit. Since
2000, almost all of the funds have been
earmarked for specific projects. This practice
eliminates the competitive aspect of these
programs and leaves aside many meritorious
projects that went through the application
process.

Elimination of Unnecessary
Corporate Subsidies
The Department’s Maritime Administration provides federally guaranteed loans
to U.S. shipyards and shipbuilding companies.
In many cases, these loan guarantees expose
taxpayers to substantial risk. For example, a
recent bankruptcy risks defaults on federally

guaranteed loans of over $350 million in 2002.
The Administration believes that this program represents an unnecessary federal subsidy. The
budget requests no funding for this program in 2003. Shipbuilders and shipyards could and should

THE BUDGET FOR FISCAL YEAR 2003

265

seek to improve their competitiveness without relying on federal subsidies or exposing taxpayers to
the costs of their failures.

Strengthening Management
In addition to the Administration’s focus on improving the performance of specific government
programs, the Department also seeks to make substantial progress on the five government-wide
management priorities.

Initiative

2001 Status

Hum an C apital—DOT is working on comprehensive workforce planning and

restructuring to reduce management layers, make DOT more citizen-centered, and
better match staff to the Department’s missions and goals. This work is particularly
critical since 45 percent of current senior executives in DOT and over 50 percent of
staff in many critical occupations are anticipated to retire by 2006.

•

Com petitive Sourcing —DOT has not completed public-private or direct conversion
competition on the government positions working in commercial functions. DOT
also has not demonstrated that support service agreements between agencies are
competed with the private sector on a recurring basis. DOT will meet the 2002 goal
and is moving forward with an overall competitive sourcing program.

•

Financial M anagem ent—DOT’s financial systems fail to meet financial management

requirements and standards. Auditors could only issue a “qualified” opinion on DOT’s
2000 financial statements. They cited material control weakness, primarily for FAA’s
property accounting. DOT also does not have integrated financial and performance
management systems. However, senior management is addressing these shortfalls,
has submitted a new plan to comply with financial management standards, and is
implementing a new, integrated financial system.

•

E-Governm ent —DOT needs to strengthen its business cases for major information

technology projects. In addition, some major projects, particularly those within FAA,
are not operating within cost, schedule, and performance targets. However, DOT is
implementing e-business process initiatives that will improve agency operations. The
Department has an e-government leadership role for on-line rulemaking management.

•

Budget/Perform ance Integration —DOT’s annual performance plan is clear and
sets forth annual goals. However, accounts, staff, and activities are not sufficiently
aligned with program targets, and resources are not requested in the context of past
results. Cost of program outputs is not integrated with performance and DOT lacks
a systematic performance management process to improve effectiveness. DOT is
working to improve its decision making process to base program management and
resource decisions on costs and results.

•

266

DEPARTMENT OF TRANSPORTATION

Department of Transportation
(In millions of dollars)
2001
Actual

Estim ate
2002

2003

Spending:

Discretionary Budgetary Resources:
Office of the Secretary ..................................................................................
Coast Guard ....................................................................................................
Federal Aviation Administration ....................................................................
Transportation Security Administration .......................................................
Federal Highway Administration 1 ................................................................
Federal Motor Carrier Safety Administration ..............................................
National Highway Traffic Safety Administration .........................................
Federal Transit Administration ......................................................................
Federal Rail Administration ...........................................................................
Research and Special Programs Administration .......................................
Maritime Administration .................................................................................
All other programs ..........................................................................................
User Fees ........................................................................................................
Subtotal, Discretionary budgetary resources adjusted 2 ...............................
Remove contingent adjustments ..................................................................
Total, Discretionary budgetary resources ........................................................

90
4,143
12,908
—
31,100
273
408
7,554
758
85
214
82
−37
57,578
−757
56,821

108
4,491
13,691
1,250
32,113
339
427
6,751
738
97
223
86
−1,301
59,013
−797
58,216

145
5,523
14,012
4,676
22,633
371
429
7,230
715
110
212
98
−2,510
53,644
−839
52,805

Emergency Response Fund, Budgetary Resources:
Coast Guard ....................................................................................................
Federal Aviation Administration ....................................................................
Transportation Security Administration .......................................................
All other programs ..........................................................................................
Total, Emergency Response Fund, Budgetary resources ............................

18
123
—
—
141

209
1,072
95
418
1,794

—
—
—
—
—

Mandatory Outlays:
Coast Guard ....................................................................................................
Federal Highway Administration ..................................................................
Office of the Secretary ..................................................................................
All other programs ..........................................................................................
Subtotal, Mandatory outlays ..............................................................................
Contingent adjustments ................................................................................
Total, Mandatory outlays ....................................................................................

807
1,218
2,386
−9
4,402
—
4,402

868
1,275
2,704
375
5,222
—
5,222

921
1,154
26
−292
1,809
310
2,119

Direct Loan Disbursements:
Transportation Infrastructure Finance and Innovation Program (TIFIA).
Railroad Rehabilitation and Improvement Program ..................................
All other programs ..........................................................................................
Total, Direct loan disbursements ......................................................................

—
—
11
11

430
150
10
590

830
100
10
940

Guaranteed Loans:
Transportation Infrastructure Finance and Innovation Program (TIFIA).
Maritime Guaranteed Loan (Title XI) ...........................................................
Minority Business Resource Center ............................................................
Total, Guaranteed loans .....................................................................................

—
729
7
736

160
800
18
978

183
—
18
201

Credit activity:

FHWA funding decreases by more than $9 billion between 2002 and 2003 due to a provision in the
Transportation Equity Act for the 21st Century that requires that highway spending be tied to highway receipts.
2
Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more
information, see Chapter 14, "Preview Report," in Analytical Perspectives.

DEPARTMENT OF THE TREASURY

The President’s Proposal:

• Increases efforts to combat terrorism by strengthening the Customs Service to
protect our borders, enhancing Secret Service efforts to protect government
officials and foreign dignitaries, and expanding anti-money laundering efforts to
thwart terrorists and their fundraising activities;
• Invests in Customs technology to allow importers to convert to a highly efficient
paperless, account-based processing system;
• Invests in IRS technology and staffing to improve customer service and ensure
fair tax compliance; and
• Supports breakthroughs in electronic government, including new options for
individual and business tax filing.

The Department of the Treasury collects
taxes, taking in 98 percent of the federal
government’s $2 trillion in revenue. Treasury
also helps the President make economic
policy by regulating financial institutions
and managing the government’s finances.
Its law enforcement bureaus protect citizens
from illegal drugs, financial crime, violence
and terrorism, and provide protection for
government officials and foreign dignitaries.

Department of the Treasury

Paul H. O’Neill, Secretary

www.ustreas.gov

202-622-2000

Number of Employees: 150,532
2002 Spending: $16.8 billion (debt financing
and tax credits account for another $365.8 billion)
Field Offices: 16 bureaus with field offices
nationwide.

267

268

DEPARTMENT OF THE TREASURY

Homeland Security and Law Enforcement
Treasury is redoubling its efforts to fight
terrorism while continuing to implement
critical programs to guard against other
threats, such as violent crime and illegal drug
use.

The first strike in the war against terror targeted
the terrorists’ financial support.
President George W. Bush
September 24, 2001

Financial Crimes and Terrorist Fundraising

Stopping Terrorist Financing

On November 7, 2001, with the help of
Treasury’s new counter-terrorism financial
task force—Operation Green Quest—Treasury
blocked the U.S. assets of 62 individuals
and organizations connected with two
terror-supporting financial networks—the al
Taqwa and the al Barakaat financial networks.
These networks raise, manage, invest, and
distribute funds for Osama bin Laden’s al
Qaeda terrorist organization. Senior al Qaeda
leaders are also senior leaders in other terrorist
organizations. Al Barakaat and al Taqwa have
a presence in over 40 nations, including the
United States, and the United States carefully
coordinates its actions with allies around the
world to defeat them.

units to extend its reach beyond U.S. borders.
operations.

Treasury leads the nation’s war against
the financing of global terrorism. Treasury’s
Financial Crimes Enforcement Network
(FinCEN) and Office of Foreign Assets
Control (OFAC) identify the numerous
methods used by terrorist networks to finance
their operations and move quickly to freeze
those assets and provide information to law
enforcement agencies.
Armed with suspicious activity reports
and financial transaction records maintained
by financial institutions and required by
the Bank Secrecy Act, FinCEN assists law
enforcement efforts to prevent and detect
money laundering and other financial crimes.
These data, along with other commercial and
law enforcement information, allow FinCEN
to link business associates, bank accounts,
property records, and other information to
form a more complete financial trail. FinCEN
also works with foreign financial intelligence
The budget provides $52 million for FinCEN’s

THE BUDGET FOR FISCAL YEAR 2003

269

The complex task of blocking transactions
Financial Institutions Reports of
and freezing assets held by terrorist and other
Suspicious Activities
In thousands
criminal organizations and individuals is
350
carried out by OFAC. OFAC uses information
from FinCEN and the law enforcement and
300
intelligence communities to identify terrorist
250
groups that threaten our national security
200
and to assess their methods of transferring
funds. This information is then used to deny
150
these groups access to international financial
100
systems, impair their fundraising capabilities,
50
and expose their financial backers. OFAC
also assists the nation’s allies in similar
0
1999
2000
2001
2002
2003
actions. Since September 11, 2001, OFAC has
Source: Department of the Treasury.
frozen $34 million in terrorist assets (Taliban,
Hamas, and al Qaeda) and assisted our nation’s allies in freezing $33.9 million. Prior to September
11th, OFAC successfully froze $236 million in Taliban assets. The budget provides $22 million for
OFAC’s operations.

Border Control

Homeland Security

Following the September 11, 2001, terrorist
attacks, the Customs Service threat level was
changed from Alert Level 4 (normal operations)
to the highest level, Alert Level 1 (Code Red).
The U.S.-Mexico and U.S.-Canada borders
remained open to traffic and commerce while
Customs maintained an Alert Level 1 status.
Land borders and all ports of entry into the United
States are subject to intensive anti-terrorism
operations. The fight against terrorism has now
become the number one priority of the Customs
Service. Customs is present at 301 ports of
entry into the country—international airports,
seaports, and land border crossings across the
country. Customs’ budget has been substantially
increased in 2002 and 2003 to provide more
staffing and technology to further improve border
security.

The U.S. Customs Service is one of the
primary enforcement agencies protecting the
nation’s borders, deploying an extensive air,
land, and marine interdiction force supported
by an investigative division. It enforces trade
and tariff laws (2001 tariff collections were
$20 billion) and interdicts illegal drugs and
contraband. On a typical day, the Customs
Service processes 1.3 million passengers,
51,000 trucks/containers, 590 vessels, 2,600
aircraft, and 355,000 vehicles. The budget
provides $3.2 billion for Customs operations.
Protecting our borders from illegal entry
of narcotics is a core mission of the Customs
Service. Drug trafficking often raises the
funds terrorists need to operate. American
demand for contraband unwittingly aids their
efforts. However, it is difficult to assess the
effect of Customs’ drug interdiction actions
on the war against drugs, since Customs
uses the amount of illegal drugs seized as a
performance measure.

270

DEPARTMENT OF THE TREASURY

In 2001, 191,000 pounds of cocaine, 3,600
pounds of heroin, and 1.5 million pounds of
marijuana were seized by Customs. However,
seizures do not tell how much contraband
gets through the nation’s borders. Customs
is working with the Office of National Drug
Control Policy to craft better measures to
evaluate effectiveness.

Percent of Imports Compliant with
Trade Laws
Percent
100

Customs’ mission includes both facilitating
40
trade and ensuring compliance with import
and export laws. Customs’ efforts have been
20
largely successful. In 2001, an estimated
91 percent of imports were compliant with
0
1999
2000
trade and tariff requirements. To cope with
Source: Department of the Treasury.
trade activity that it expects to double by
2005, Customs is modernizing its automation
systems and using risk management to target high-risk cargo.

2001

2002

2003

Customs’ current automation systems are outdated, often break down, and cannot dependably
handle an increasing volume of trade. The replacement system, the Automated Commercial
Environment (ACE), will enable Customs to convert to a paperless process for importers and an
account-based system. Customs is working with partners in the trade industry and government to
ensure that ACE is completed promptly and effectively. The budget supports this modernization
effort with $313 million for the third year of ACE investments.
The Customs Service is responsible for
collecting several user fees for services
1,500
provided by Customs and other agencies that
Passengers in millions
Trade volume in billions of dollars
aid the traveling and importing community.
The Administration proposes increasing two
of these Customs fees: the Air/Sea passenger
1,000
fee and the Cruise Vessel Passenger fee. The
costs incurred by Customs have increased due
to inflation, and the fees should reflect this
500
reality. The Air/Sea passenger fee has been in
place since 1986, but has not been increased.
The budget proposes to increase this fee from
$5 to $11 per passenger. The Cruise Vessel
0
1999
2000
2001
2002
2003
passenger fee would increase from $1.75 to $2
Source: Department of the Treasury.
per passenger. The increased receipts from
these fees will enhance Customs’ Homeland
Security efforts through payment of inspector overtime and related expenses.

Customs Workload

THE BUDGET FOR FISCAL YEAR 2003

271

United States Secret Service
Our country and its leaders live in a world of increasing domestic and global threats. The
Secret Service is incorporating new technology to accomplish more effectively its unique mission
of protecting the President and other public officials. In response to increasing homeland security
threats, the Secret Service now protects more people, and its protection workload has increased
significantly. To support the Secret Service’s expanding responsibilities during the war on terrorism,
the budget proposes additional funding for the travel and overtime of current Secret Service agents
and officers. Funding proposed in 2003 also supports over 400 new agents and officers being hired
in 2002.
While much of what the public knows
about the Secret Service relates to protecting
the President, the Secret Service also plays a
major role in protecting our nation’s currency
and financial integrity. Over the last several
years, the percentage of Secret Service
financial crimes cases adopted for federal
prosecution has remained relatively stable
at around 50 percent. The looming threat of
cyber-terrorists and increasingly sophisticated
counterfeiters makes it more critical that the
Secret Service make more efficient use of its
current resources to reduce the vulnerability of
our nation’s currency and financial networks.
Secret Service agents must remain vigilant at all times to protect
our leaders.

The budget provides $1 billion for the Secret
Service.

Alcohol, Tobacco, and Firearms
The Bureau of Alcohol, Tobacco, and
Firearms (ATF) enforces the federal laws and
collects revenue relating to alcohol, tobacco
products, firearms and explosives (2001
revenues were $14 billion).

Number of Firearms Traced
In thousands

250

200

ATF stands in the front ranks of the
150
nation’s battle against terrorism. Explosives
are a preferred terrorist tool, and ATF is in
100
the unique position of not only regulating
commerce in explosives, but also of having the
50
requisite expertise and authority to investigate
explosives-related crimes.
Through these
programs, ATF investigators are positioned
0
1999
2000
2001
2002
2003
to thwart terrorist activity at every level
Source: Department of the Treasury.
of the execution process—from the theft or
illegal purchase of explosives to the interdiction and neutralization of those explosives for terrorist
purposes at public events. The budget provides $913 million to support ATF.

272

DEPARTMENT OF THE TREASURY

The budget reflects the Administration’s strong commitment to use coordinated community
efforts to prevent youth and gang violence. This is epitomized by ATF’s Youth Crime Gun
Interdiction Initiative (YCGII), which provides ATF agents and technical support to work with local
law enforcement to develop firearms trafficking cases against those supplying guns to youths and to
initiate comprehensive tracing of firearms. In 2001, for example, the number of YCGII defendants
increased to 1,342 from a total of 535 in 2000. The initiative currently includes 50 participating
sites located in 32 states and the District of Columbia. The budget proposes to expand YCGII and
includes $96 million, an increase of $11 million above 2002 for ATF, to add 10 additional YCGII sites.

Tax Administration
The Internal Revenue Service (IRS) serves
as the principal revenue collector for the
government, collecting $1.9 trillion in 2001.
The budget provides $10.4 billion for IRS
operations.
IRS runs the tax filing process despite being
saddled with outdated and often ineffective
technology and an increasingly complex tax
code. In 2001, it processed 220 million tax
returns and over 1 billion information returns
(e.g., W-2 wage reports from employers),
and it delivered 97 million refunds. IRS has
successfully responded to recent challenges
by updating its systems to avoid the Year 2000
problem and collaborating with the Treasury’s
Financial Management Service to deliver 86
million tax rebate checks in 2001.

IRS workers process millions of tax returns by hand each year.

IRS has trouble providing minimally
acceptable customer service and ensuring that
Percent
all taxpayers pay what they owe under the law.
80
Due to outmoded technology and management
70
practices, IRS’s $775 million telephone service
60
program is unable to answer millions of phone
calls each year. IRS has worked hard in
50
recent years to improve this situation. The
40
percentage of calls answered was only 49
30
percent in 1997. Its goal is to improve to 76
20
percent in 2003 (see accompanying chart).
However, more progress is needed—what
10
business would survive for long if it failed
0
2000
2001*
2002
2003
to pick up the phone one time in four? In
Source: Department of the Treasury.
*Peformance decrease due to 24 million tax rebate calls.
addition, even when IRS answers, it often
provides incomplete or incorrect answers. In 2001, only 75 percent of tax law answers fully met
IRS’s strict quality standards.

Percent of Telephone Calls
Answered by the IRS

THE BUDGET FOR FISCAL YEAR 2003

Number of IRS Audits
Audits in millions

1.4
1.2
1.0
0.8

273

These technology and process shortcomings
also have reduced the effectiveness of IRS’s
compliance programs. Audit numbers have
fallen significantly in recent years, but there
have been no improvements in IRS’s ability
to target limited audit resources on the least
compliant taxpayers.

These problems burden honest taxpayers
in two important ways. First, taxpayers often
do not receive the help they need to accurately
0.4
file their returns. Second, honest taxpayers
0.2
bear a heavier financial burden because
noncomplying taxpayers are not paying what
0
1999
2000
2001
2002
2003
they owe. The Administration is committed to
Source: Department of the Treasury.
solving the problems at IRS and ensuring that
taxes are collected fairly, efficiently, and with minimum hassle for honest taxpayers.
0.6

IRS is in the midst of a major reform
effort required by the 1998 Restructuring
and Reform Act. IRS has reorganized around
operating divisions serving specific customer
groups, and is in the process of modernizing
its technology and management practices.
The budget supports these efforts by providing
$450 million for technology investments and
$102 million for new customer service and
compliance staffing. Modernization will yield
substantial improvements in IRS’s efficiency
and effectiveness because IRS staff will
have up-to-date, accurate information about
taxpayer accounts. Too often, IRS data is
incomplete and out-of-date. In addition, IRS
is now able to target services and employee
training to specific types of taxpayers. For
example, some groups of IRS employees
now specialize in earned income tax credit
issues while others specialize in helping
small businesses. Until the reorganization,
employees had to try to understand all areas
of the highly complex tax system.

Modernized Technology Will Im prove IRS
Service

Millions of taxpayers call IRS each year to ask
whether their returns have been received and
when they will get their refunds. The time it takes
to answer these calls diverts IRS away from
helping other taxpayers resolve more complex
problems. IRS modernization will help. For
example, starting in 2002 taxpayers will be able to
log onto a secure website and receive information
on their return status. If there is an issue with the
return, such as a math error or missing signature,
the taxpayer will be informed of the nature of the
problem and provided with information to help
resolve it expeditiously. IRS estimates that this
will result in a 50-percent reduction in calls from
people asking for information on the status of
their return.

274

DEPARTMENT OF THE TREASURY

Electronic Tax Return Filing

Today, individuals have to pay accountants, buy software, and pay fees just to file their tax return. It should
not be so hard to pay taxes. For example, electronic filers must purchase an electronic filing service from a
private vendor at an average cost of $12.50 − compared to 34 cents for a first-class stamp on a paper return.
The EZ Tax Filing E-Government initiative will reduce the cost and burden of filing taxes. Electronic filing is
quick, easy, and far less prone to error than traditional paper returns. The Administration proposes an
easy, no-cost option for taxpayers to file their tax return online. Further, legislation will be proposed to
extend the April filing date for electronic returns by at least 10 days.

IRS is also renewing its efforts to measure taxpayer compliance. This will allow it to focus
more effectively its enforcement resources on noncompliant taxpayers, and reduce the burden of
unnecessary audits on honest taxpayers. Finally, IRS will employ private sector contractors where
appropriate and where they can more efficiently provide services currently provided by federal
employees.

Fiscal Services
The Financial Management Service (FMS) serves as the central financial management office of
the government, disbursing nearly one billion payments each year ($1.2 trillion) and collecting $2
trillion in receipts (mostly IRS tax collections).
In 1996, FMS became the government’s
central debt collector. Agencies are required to
transfer non-tax debt over 180 days delinquent
to Treasury for centralized collection. Treasury
employs two tools to collect this debt: payment
offset and cross servicing. Offset involves
matching federal payments (e.g., tax refunds,
vendor payments) against debt owed to the
government. Cross servicing involves issuing
demand letters, referring debt to private
collection agencies, and a variety of other
methods. Treasury is working to ensure that
agencies refer their debt that is eligible for
cross servicing. Currently, they refer only 74
percent.

Financial Management Service Debt
Collection
Dollars collected in millions
3,000

2,800

2,600

2,400

2,200

2,000
1999

2000

Source: Department of the Treasury.

2001

2002

2003

THE BUDGET FOR FISCAL YEAR 2003

275

Treasury manages the $5.9 trillion federal debt, including $3.4 trillion held by the public and $2.5
trillion in Trust Fund balances (e.g., Social Security). Each year, the Bureau of Public Debt sells
approximately 43 million savings bonds and pays $360 billion in interest. Treasury also produces 23
billion coins and 7 billion currency notes per year.

Community Development Financial Institutions
The Community Development Financial Institutions (CDFI) Fund seeks to expand the
availability of credit, investment capital, and financial services in distressed urban and rural
communities through assistance to CDFIs. Since the Fund’s creation, it has made more than $539
million in awards to community development organizations and financial institutions. However,
the impact of these investments is difficult to measure. The key outcomes that the Fund monitors,
such as businesses or housing units financed, do not consider that CDFIs and traditional financial
institutions may have made some or all of these investments in the absence of government support.
In response to this concern, the Fund’s management plans to build a data repository on the CDFI
industry. The Fund can then use this information to measure the impact of its awards on low-income
communities and better target future assistance.

Status Report on Select Programs
Treasury has a diverse set of programs, including manufacturing (producing coins and currency),
financial management (managing public funds and borrowing), tax collection, and various law
enforcement functions. The table that follows evaluates the current performance of several of these
programs.

Program

Assessment

Explanation

Financial
Management
Service (FMS)
Collection and
Payment Processing

Effective

In 2001, FMS collected over $2 trillion in federal taxes and other
receipts, and disbursed more than $1.2 trillion in federal payments. By
volume, roughly 75 percent of collections and 72 percent of payments
were processed electronically, with 99.9998 percent of payments
made on time. Seventy-seven percent of payments to citizens and 60
percent to businesses were made electronically.

Customs Trade
Compliance

Effective

The Customs Service maintains a sound trade management system
that maximizes compliance with import and export laws and moves
cargo efficiently. In 2001, Customs achieved its goal of ensuring
that 91 percent of imports were compliant with trade and tariff
requirements.

Customs Drug
Interdiction

Unknown

The Customs Service seizes large amounts of drugs at the border.
However, the government does not know how much contraband gets
through our borders.

276

DEPARTMENT OF THE TREASURY

Program

Assessment

Explanation

IRS Customer
Service

Ineffective

Due to outmoded technology and management practices, IRS
provides poor service to taxpayers. However, technology investments
and improving work processes are gradually improving performance.

IRS Tax Compliance
Enforcement

Ineffective

Due to outmoded technology and management practices, IRS is
unable to ensure that all citizens pay the taxes they owe under the law.
IRS’s current modernization program will give it the tools to improve
performance in this area.

Strengthening Management
While Treasury faces challenges to improve management and implement the President’s
Management Agenda, the Department is committed to making improvements in these initiatives in
2002 and 2003.

Initiative

2001
Status

Human Capital—The Treasury Department is facing many human capital-related questions,
such as how to deal with an aging workforce (10 percent of Treasury’s workforce is eligible
to retire now; in five years this will rise to 30 percent) and make fundamental restructuring
changes to increase performance for citizens. While some bureaus have taken steps to
face these challenges, Treasury has not developed a coordinated strategy that addresses
skills imbalances in mission-critical occupations; succession planning; better use of existing
personnel management tools and technology; and how the agency rewards high performers
and addresses low performance. The Department will complete a comprehensive plan in
2002 to address these challenges.

•

Competitive Sourcing —Treasury has not yet completed public-private or direct conversion
competition on any of the positions that it has identified as commercial in nature. However, the
Department has committed to achieving the 15 percent goal by the end of 2003.

•

THE BUDGET FOR FISCAL YEAR 2003

277

Initiative

2001
Status

Financial Management —Treasury received an unqualified opinion on its 2000 financial audit.
However, substantial weaknesses in financial management systems and controls at Customs
and IRS, the two largest bureaus in Treasury, hamper effective management and make it
difficult for Treasury to sustain an unqualified opinion in the future. Improvements are also
needed to reduce the number of improper payments. An estimated 25 percent of Earned
Income Tax Credit payments were made incorrectly for tax year 1997. Treasury is working
to improve its financial systems and has a $154 million compliance program to reduce errors
in the Earned Income Tax Credit program. The Department is also moving aggressively to
accelerate the preparation of monthly financial statements and expects to set the standard for
the government in timely statements by the summer of 2002. In addition, the budget proposes
legislative change to allow IRS to match the income reported on student aid applications
with tax return data. This will help reduce errors in the Education Department’s student aid
programs and save an estimated $138 million in 2003.

•

E-Government —Treasury has made progress in recent years in improving its technology
investment planning and execution (i.e., using business cases and monitoring progress against
performance targets). However, improvements are still needed to ensure that all investments
are managed carefully to achieve maximum benefits. Treasury has also made progress in
implementing electronic government options for citizens (e.g., electronic tax filing and benefits
payments). The budget proposes to further expand electronic government, including new
taxpayer services and expanding the Treasury’s Pay.gov on line payment system.

•

Budget/Performance Integration —Treasury needs to continue to improve its performance
measures to include more outcome indicators and to make certain that all programs have
balanced measures of outputs, quality, and customer satisfaction. The Department has
committed to provide a full performance plan/review to the Congress in support of the budget,
and will work through 2002 to improve its measures in time for the 2004 Budget process.

•

278

DEPARTMENT OF THE TREASURY

Department of the Treasury
(In millions of dollars)
2001
Actual
Spending:
Discretionary Budget Authority:
Tax Administration ....................................................................
Customs Service:
Existing law ..........................................................................
Legislative proposal ............................................................
Other Law Enforcement ..........................................................
Fiscal Services .........................................................................
Management and Inspector General .....................................
Community Development Financial Institutions ...................
Subtotal, Discretionary budget authority adjusted 1 .................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

Estimate
2002

2003

9,442

9,927

10,416

2,642

2,785

3,185

2,024
377
492
118
15,095
−618
14,477

2,148
431
455
80
15,826
−659
15,167

2,316
432
479
68
16,646
−710
15,936

Emergency Response Fund, Budgetary Resources:
Customs Service ......................................................................
All other Treasury programs ...................................................
Total, Emergency Response Fund, Budgetary resources ......

36
12
48

429
251
680

—
—
—

Mandatory Outlays:
Payments Where Tax Credits Exceed Liability for Tax:
Existing law ..........................................................................
Legislative proposal ............................................................
Miscellaneous receipts and other mandatory spending .....
Subtotal, Mandatory outlays adjusted 1 .....................................
Remove contingent adjustments ............................................
Total, Mandatory outlays ..............................................................

27,105
—
−2,764
24,341
−5
24,336

35,672
—
−841
34,831
−5
34,826

38,077
774
−2,884
35,967
−5
35,962

Interest:
Financing the public debt and other interest .............................

352,033

330,998

345,595

Credit activity:
Direct Loan Disbursements:
Community Development Financial Institutions ...................

Guaranteed Loans:
Air Transportation Stabilization Board ...................................

—

5,000

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

DEPARTMENT OF VETERANS AFFAIRS

The President’s Proposal:

• Fulfills commitments to the nation’s veterans by
guaranteeing that veterans’ disability claims are processed accurately and
quickly; and
• improving health care delivery by coordinating the medical care systems of the
Departments of Veterans Affairs and Defense.
• Focuses medical care resources on treating disabled and low-income veterans;
and
• Funds major expansion in cemeteries to prepare for increased demands.
•

Department of Veterans Affairs

The Department of Veterans Affairs
(VA) operates the largest direct health care
delivery system in the country; administers
veterans’
benefits,
including
monthly
disability payments, education assistance,
life insurance, home loans, and vocational
rehabilitation; and runs a nationwide system
of veterans’ cemeteries while awarding other
burial benefits.

Anthony J. Principi, Secretary

www.va.gov

202–273–4800

Number of Employees : 207,028
2002 Spending : $51.5 billion
Organization : Veterans Health Administration,
Veterans Benefits Administration, and National
Cemetery Administration.

279

280

DEPARTMENT OF VETERANS AFFAIRS

Overview
Today, there are 25 million veterans,
Veterans Population Projections
but in the next 20 years this number will
In millions
30
decline by one-third, to 17 million (as shown
Number of Veterans
in the accompanying chart). Although VA is
Number Over Age 65
25
charged with providing services to the entire
veteran population, fewer than one in five
20
veterans participate in VA programs. The
decline in population ultimately will mean
15
that fewer veterans will seek medical care,
monthly disability benefits, and burials at
10
VA cemeteries. However, on the immediate
horizon, there will be increased usage of some
5
VA benefits and services, as veterans age and
0
more women draw on them. The imperative
1990
1995
2000
2005
2010
2015
2020
Source:
Department of Veterans Affairs.
of recognizing veterans’ contributions to the
nation means that VA’s strategy, business
plan, and infrastructure will need to adapt to ensure top-quality services and be flexible enough to
handle changing dynamics and waning population.

Status Report on Select Programs
The Administration is reviewing the management of programs throughout the government. Poor
performing programs that are not mission critical will be eliminated, cut back, or reconfigured so
that their funding can be redirected to be more effectively used. The accompanying table rates the
performance of some of VA’s most important programs. Those with ineffective ratings are targeted
for rapid improvement.

Program

Assessment

Explanation

Disability and
Pension Claims
Processing

Ineffective

VA systems and processes should be flexible to address an
ever-changing, demand-driven environment. VA is automating its
existing processes slowly but needs to identify and remedy the
underlying causes of sluggish processing. It must modernize its
information technology capabilities.

Care for Disabled
and Low-Income
Veterans

Ineffective

VA’s medical care system’s ability to provide timely and high-quality
care to its core disabled and low-income veterans is being jeopardized
by the rapid increase of other veterans receiving VA care.

Cemetery Benefits

Effective

The National Cemetery Administration strives to provide high quality,
courteous, and responsive service in all of its contacts with veterans
and their families. Of survey respondents, 92 percent rate the
services provided by the national cemeteries as excellent. However,
improvements can be made in cemetery system planning.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

281

Explanation

Health Care Quality

Effective

VA is a recognized leader in health care quality and has been at the
forefront of innovations such as bar coding of prescription drugs,
computerized patient records, and medical error reporting.

Medical Care
Infrastructure
Assessment
(CARES)

Unknown

VA has fallen eight months behind schedule on the first of 22 regional
studies, and it is yet unclear whether future studies will benefit from
correcting weaknesses identified in the first study.

Guarantee that Veterans’ Disability Claims are Processed Accurately and Quickly
One of the President’s top priorities is to
make
sure that when a veteran submits a
I must say that I think the VA has the necessary
claim
for
a disability, it is processed quickly
resources right now to do the job … the Agency
and
accurately.
Disability benefits provide a
can’t justify asking for more people right now.
monthly benefit to veterans who are disabled
Vice Admiral Cooper (retired)
as a result of their military service. Currently,
Government Executive ,
2.3 million veterans receive these tax-free
November 8, 2001
benefits. The amount awarded to a veteran
depends on the severity of the disability. For
2002, the basic monthly benefit ranges from
$103 for a 10 percent disability rating to $2,163 for a 100 percent disability rating. Roughly half of
veterans receiving compensation are less than 30 percent disabled.
Improving the quality of life of the disabled is a national responsibility. And yet, the time and
cost of processing disability claims have steadily increased. The average number of days to process
a claim has risen from 100 days in 1996 to 181 days in 2001, and the number of claims awaiting a
decision has jumped from 343,000 to over 644,000 during that same period. Meanwhile, the level
of benefits paid increased by 27 percent in the past five years, while the cost of administering these
benefits more than doubled.

282

DEPARTMENT OF VETERANS AFFAIRS

There are three main reasons for continued poor
performance. First, the complexity of the claims has
increased because veterans are requesting benefits
for more than one disability at a time. Second, laws
and regulations are passed with immediate start
dates—giving VA no lead time to handle the wave of
new work required. Finally, VA has failed to effectively
manage its nation-wide system of benefit offices.

VA benefits help veterans lead active lives.

To handle a growing backlog of claims,
VA has repeatedly turned to hiring more
and more employees.
Since 1998, nearly
2,000 people have been hired to help process
claims.
Success, however, will ultimately
depend not on hiring new employees, but on
the application of modern information tools
and, most of all, the establishment of true
organizational accountability.

Days
250

Average Number of Days to Process a
Disability Compensation Claim
Ultimate Goal is 74 Days

200

150

100

In October 2001, Vice Admiral Daniel
50
L. Cooper (retired), who led the 14-member
Department of Veterans Affairs Claims
Processing Task Force, presented a final
0
1996
1997
1998
1999
2000
2001
2002
2003
report to VA. The report concluded that, as
Source: Department of Veterans Affairs.
a result of basic flaws in organization and
communication, VA is unable to handle the effects of judicial decisions and legislative changes on
workload. Productivity is poor, and so far management has proven incapable of introducing change
and flexibility into the workplace.
VA should concentrate on radically changing the way it does business. These changes include
identifying practices that work best at VA and enforcing their use across the country; allocating both
work and funds to the best regional offices; creating specialized processing centers; and developing
a computer system that allows people throughout the country to work on individual claims at the
same time.

THE BUDGET FOR FISCAL YEAR 2003

283

The success of these initiatives must and will be measurable. Speed should not come at the
sacrifice of accuracy, or vice versa. VA will use the following two critical performance measures to
ensure that its efforts are balanced:

• Process
•

disability compensation and pension claims in an average of 165 days in 2003
(ultimate goal is 74 days—given the legal and medical complexities and VA’s responsibility
to help prepare claims); and
Attain an 88 percent national accuracy rate for core rating work in 2003 (ultimate goal is 96
percent)

To deliver services quickly and effectively, it is just as important to establish a relationship
between performance and resources, but VA has not done this. The Department cannot, for example,
say that for every $500,000 increase in funding, timeliness and accuracy improve by measurable
percentages. Until relationships like these are defined, it is impossible to figure out the optimal
amount of funding for veterans’ services.

Improve Health Care Delivery by Coordinating the Medical Care Systems of the
Departments of Veterans Affairs and Defense
Although VA and the Department of Defense (DoD) both operate very large medical care systems
with a combined cost of over $40 billion yearly, historically there has been little cooperation between
the Departments. The Departments assert that the most common barriers have been different
missions, patient populations, and cultures, as well as differing opinions on who would lead the
effort. However, both Departments describe sharing efforts. Only $100 million—or one-quarter of
one percent—of $40 billion in expenses passes from one to the other.

Unnecessary Paperwork

All veterans, by definition, were members of
the Armed Services. While on active duty their
(and their families’) information was tracked by
a system that covered everything from security
clearances, to health care entitlements, to
commissary privileges.
In an era of rapid high-tech changes, the minute
veterans want to apply for VA benefits, they must
provide pages of information on paper, that was
already on computers at DoD. Likewise, when
these same veterans later apply for other VA
benefits, they start the process all over again.

Sharing information and technology can
make a world of difference to the military
and veteran communities.
It can speed
up service, ensure veterans’ safety, and
inform veterans of entitlements that they are
due. In addition, information sharing can
transmit important knowledge through the
departments’ walls—replacing the myth that
they have little in common.

284

DEPARTMENT OF VETERANS AFFAIRS

In many communities, VA and DoD
hospitals are close to each other and offer
Failure to Communicate
similar services (e.g., primary care, surgery,
Military retirees can use both DoD and VA
or eye care). However, traditionally neither
medical care systems. Today, many selectively
has considered the other as an option in
use both. When a retiree goes to VA for services
determining construction or health delivery
one week and DoD the next, serious errors can
needs.
In light of the new emphasis on
result if the doctors do not know what others
sharing, the DoD and VA are working together
have done. Despite information sharing efforts
to solve mutual problems in the Greater
within VA, if drugs ordered in each system have
Chicago area, where currently there are five
adverse interactions, patients may become
VA hospitals and one DoD hospital as shown
gravely ill or die.
in the map. DoD needs more space and had
plans to build a new hospital within walking
distance of a near-empty VA hospital. Now
VA and DoD are planning to jointly share this hospital and save a significant amount of money by
reducing construction of new buildings.

Chicago Area VA/DoD Hospitals
WISCONSIN
Milwaukee

LAKE
MICHIGAN

MICHIGAN
North Chicago
Chicago

The lack of sharing resources and
information also results in a waste of the
taxpayers’ money. This has frustrated the
Congress, which has mandated experimental
programs for sharing buildings and people. In
addition, the Congress has asked VA and DoD
to work together to purchase drugs and other
medical supplies at a lower price, resulting in
savings to the government.

INDIANA

ILLINOIS
VA Hospital
DoD Hospital
Source: Department of Veterans Affairs.

Patient Transportation

If a veteran needs to be moved long distances
from one VA hospital to another, he is typically
transported via commercial airline. This is very
expensive. DoD routinely transports military
patients in planes with unused space. VA and
DoD are negotiating how to put VA patients on
DoD planes, thereby lowering the cost to both
departments.

President Bush made it one of his top
priorities to coordinate the two systems. Four
areas have been identified as high-priority
for coordination:
veteran enrollment;
computerized patient records; cooperation
on air transportation of patients; and facility
sharing instead of new construction. The
President established a task force that
will make recommendations this year to
improve the coordination between the two
Departments’ health care systems.

THE BUDGET FOR FISCAL YEAR 2003

285

Moreover, the President’s Management Agenda includes an initiative to increase coordination and
delivery by VA and DoD of veterans’ benefits and services. Over the past year, VA and DoD have
undertaken an effort to improve cooperation and sharing in several areas by a reinvigorated VA/DoD
Executive Council.

Focuses Medical Care Resources on Treating Disabled and Low-Income Veterans
A 1996 law, allowing VA to treat patients in
the most practical settings, changed the way
VA delivers care to veterans in very much the
same way as the private sector changed. For
example, the Department now provides most
of its care in clinics and homes instead of in
hospitals. This shift has allowed VA to spend
its resources more effectively and has provided
patients with more convenient service. At the
same time, patients have also benefited from
new innovative safety and quality systems.
Today, VA is recognized as a world leader in
quality medical care.

Disabled and Low-Income
Patients Decrease
As a percentage of veteran patients
100

1995
1997
1999
2001
2003
2005
The same 1996 law also required VA to
Source: Department of Veterans Affairs.
enroll veterans for medical care in one of seven
distinct priority levels. Veterans with military disabilities or low-incomes are in the higher priority
levels to preserve VA’s core mission. All other veterans fall into the lowest level. The enrollment
process requires VA’s Secretary to announce, prior to the beginning of each fiscal year, what priority
levels of veterans are eligible to receive care given the level of funding enacted into law. Each year
since, VA has announced that all veterans are eligible to receive care. When eligible for care, a
veteran is entitled to receive the full basic benefits package of services.

Prior to the 1996 law, veterans in the lowest priority level were only treated on a space-available
basis, and were restricted as to what care they could receive and where they could receive it. However,
since the law took effect, these veterans have grown from two percent to over 21 percent of VA patients
as shown in the chart above. They have always been required to pay for a minor portion of their care
by the use of co-payments. But given their rapidly escalating numbers, these veterans will consume
a critical portion of VA resources at the expense of the disabled, poorer veteran population unless
they are required to pay a greater portion of their care. The budget proposes a new $1,500 annual
deductible amount for these veterans, whereby they would pay 45 percent of the charge until their
out-of-pocket expenses total $1,500.
Although VA has changed the way it provides care to veterans, its buildings are relics of the past.
VA’s buildings are not located where most veterans live. Although many veterans have moved to
the South and Southwest (where waiting times for appointments have grown), VA still maintains
underused hospitals throughout the North and East regions of the country (where few seek such
services). The General Accounting Office (GAO) reported that VA was wasting up to $1 million a day
in keeping these hospitals operating. VA should be expanding the number of clinics where disabled
and low-income veterans are living and converting many of its massive hospitals to more efficient
clinics, where needed. To do this, VA began a review process in the first of its 22 regions in the
fall of 2000. This process is known as Capital Asset Realignment for Enhanced Services (CARES).

286

DEPARTMENT OF VETERANS AFFAIRS

The contractor’s recommendations were completed June 2001, but VA has not yet decided how to
proceed in the other 21 regions. In addition, VA has not modified its contract methods to correct some
deficiencies identified in the first study. Savings identified will be used to provide care to veterans
in the same or other geographical areas.

Funds Major Expansion in Cemeteries to Prepare for Increased Burial Demands

Over 90 percent of family members and funeral directors
who have recently received services from a national cemetery
rate the quality of VA’s burial services as excellent. By the
end of 2002, VA will operate 120 national cemeteries and over
40 VA-funded state cemeteries providing burial services for
almost 100,000 veterans and eligible family members per
year. VA’s goal is to ensure compassionate and good service,
while searching for more efficient ways of doing business.
For example, kiosk information centers are being placed in
cemeteries to assist visitors in finding exact gravesite locations.
In addition, VA orders almost all headstones by computer to
shorten the waiting times for families.
Soon, VA will have a major challenge in determining the
appropriate number, location, and mix of national and state
cemeteries as the veteran population continues to decline and
as deaths peak over the next decade (see accompanying chart).
VA cemeteries are rated excellent by
almost all.

One of VA’s key goals is to ensure that most
Veteran Mortality
veterans have a national or state veterans’
In thousands
800
cemetery within 75 miles of their home. The
recent opening of several new cemeteries, with
700
more on the way, has helped improve veteran
access to burial to 73 percent in 2001. Planned
600
performance for 2003 is 76 percent. VA will
never be able to accomplish 100 percent, nor
500
should it. It is not cost-effective to construct
Challenge: How to manage the cemetery
new national cemeteries in regions with few
system to meet the increasing needs
400
veterans. Therefore, VA must reevaluate how
over the next five years, followed by the
declining requirements thereafter.
best to economically maximize caring for the
largest number of deceased veterans and their
300
1980
1990
2000
2010
2020
2030
families. To date, though, VA has not defined the
Source: Department of Veterans Affairs.
minimum number of veterans that national and
state cemeteries should serve before construction is justified. Nor has the department suggested
substitute benefits that might be appropriate for veterans in under-populated areas.

THE BUDGET FOR FISCAL YEAR 2003

287

Strengthening Management
Although VA has made some progress in addressing its financial performance shortcomings, it has
made little progress elsewhere. The Department is working to develop a satisfactory plan to achieve
the President’s goals for competitive sourcing, E-Government, and human resources. The scorecard
below shows VA’s 2001 status on the President’s management initiatives.

Initiative

2001 Status

Human Capital— VA, like most other federal agencies, faces human capital challenges
when its aging workforce retires and leaves gaps in critical skills such as disability claims
adjudicators (where it takes several years to train new employees in complex medical and legal
skills). The Department will revise its current plan to incorporate more detailed methods of
tackling this challenge with clear deliverables and deadlines. In addition, VA will examine the
different pay options it has available in order to ensure that geographic shortages of critical
medical care providers can be addressed.

•

Competitive Sourcing— Nearly half of all federal employees perform tasks that are readily
available in the commercial marketplace. The Department is developing a plan to meet the
Administration’s goal of allowing the private sector to compete commercial functions currently
done by the government.
Financial Management— VA has persistent problems with internal controls, which include nine
material weaknesses, all of which have been carried over from prior years. However, VA has
developed a financial management plan to address its problems, and is now moving towards
implementing an acceptable financial system.

•
•

E-Government— Historically, VA has made major information technology (IT) decisions
without thorough analysis. For example, the Department does not coordinate its planning
and investment processes, and does not fully develop its justifications for major IT projects.
It also lacks an enterprise architecture to make IT investment decisions. In early 2002, VA
will produce a timetable for completion of its enterprise architecture. The department also is
committed to providing qualified business cases by March 2002.

•

Budget/Performance Integration— VA cannot monitor with sufficient precision the cost and
effectiveness of many of its programs. For example, VA used the Hepatitis C crisis to argue
for, and receive, $0.7 billion of additional funding specific to this cause for the three years
beginning with 2000. However, VA has been unable to track the expenditure of this amount
to Hepatitis C care, to determine how and if the funding changed performance, or report
on how veterans have been served nationwide. While VA is working on a comprehensive
patient Hepatitis C tracking system, no plans to link this performance with budget have been
addressed. VA will present a timetable and plan to link key performance goals throughout the
Department with funding levels by June 2002.

•

288

DEPARTMENT OF VETERANS AFFAIRS

Department of Veterans Affairs
(In millions of dollars)
2001
Actual
Spending:
Discretionary budget authority:
Medical Programs:
Medical Care ..............................................................................................

Estimate
2002
2003

21,352
20,920
771
69
363
361
66
170
125
1,049

22,529
22,071
1,051
74
384
523
183
211
129
1,166

24,023
23,537
1,489
77
409
536
194
211
132
1,408

883
—
166

998
—
168

1,039
20
172

—
—
401
235
4
48
114
23,164
−789
22,375

—
—
439
253
5
55
126
24,657
−831
23,826

—
177
479
278
5
58
138
26,447
−891
25,556

Emergency Response Fund, Budgetary resources .......................................

—

Mandatory Outlays:
Veterans Benefits Administration:
Compensation and Pensions ...................................................................
Montgomery GI Bill Benefits ....................................................................
Insurance ....................................................................................................
Credit ...........................................................................................................
All other programs and receipt accounts ....................................................
Subtotal, Mandatory outlays ....................................................................

21,420
1,623
1,231
333
−1,923
22,684

24,905
2,235
1,287
704
−2,181
26,950

26,421
2,569
1,315
342
−368
30,279

Credit activity:
Direct Loan Disbursements:
Veterans Benefits Administration:
Native American Direct Loans and Transitional Housing for
Homeless Veterans Loans ..................................................................

Medical Collections (non-add) .................................................................
Medical Administration .............................................................................
Medical and Prosthetic Research ...........................................................
Construction:
Major Construction ....................................................................................
Minor Construction ....................................................................................
Other Construction ....................................................................................
Veterans Benefits Administration:
Benefits Administration:
Existing Law ..........................................................................................
Legislative Proposal .............................................................................
Credit Administration .................................................................................
VETS State Grant Awards:
Existing Law ..........................................................................................
Legislative Proposal .............................................................................
Other:
General Administration .............................................................................
General Administration (credit) ................................................................
Inspector General ......................................................................................
National Cemetery Administration ..........................................................
Subtotal, Discretionary budget authority adjusted 1 ..................................
Remove contingent adjustments .............................................................
Total, Discretionary budget authority ...........................................................

THE BUDGET FOR FISCAL YEAR 2003

Vendee and Acquired Loans ....................................................................
Education and Vocational Rehabilitation Loans ....................................
Subtotal, Direct loan disbursements ..................................................
Guaranteed Loans:
Veterans Benefits Administration:
Veterans Home Loan Program ................................................................
Subtotal, Guaranteed loans ................................................................

289

2001
Actual
1,470
2
1,474

31,138
31,138

Estimate
2002
2003
1,815
1,922
3
3
1,821
1,940

32,067
32,067

32,665
32,665

Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more
information, see Chapter 14, "Preview Report," in Analytical Perspectives.

CORPS OF ENGINEERS—CIVIL WORKS

The President’s Proposal:

• Reduces the backlog of ongoing construction projects and completes those

•

•
•
•

projects in the budget sooner than possible under current spending trends,
primarily by not starting new projects—the budget completes 30 projects in 2003,
or 15 percent of the projects in the budget;
Increases funding for priority navigation projects—such as modernizing Olmsted
Lock and Dam, Illinois and Kentucky, and deepening the Port of New York/New
Jersey—and important environmental restoration efforts in the Florida Everglades
and Columbia River Basin;
Reduces the average time to process an individual wetlands permit by about 25
percent, or 40 days, by 2004, while strengthening protection of wetlands;
Provides a funding mechanism to reduce the unscheduled “downtime” of Corps
hydropower generation facilities by up to 40 percent over the next few years; and
Supports needed operation and maintenance of existing infrastructure.

The Army Corps of Engineers Civil Works
program is responsible for assisting the
development and management of the nation’s
water resources. Its main missions are to: 1)
aid commercial navigation; 2) protect citizens
and their property from flood and storm
damages; and 3) protect, restore and manage
environmental resources. The Corps carries
out most of its work in partnership with state
and local governments and other non-federal
entities.

Corps of Engineers— Civil Works

Mike Parker: Assistant Secretary of the Army for
Civil Works

www.hq.usace.army.mil/cepa/cepa.htm
703-697-8986
Number of Employees (2002) : 24,800
2002 Spending : $5.0 billion
Field Offices : Eight Divisions; 38 Districts; 15
laboratories and other offices.

291

292

CORPS OF ENGINEERS—CIVIL WORKS

Overview
The Civil Works program has seven primary business lines: 1) navigation; 2) flood control and
coastal storm damage reduction; 3) environment; 4) recreation management; 5) hydropower; 6)
regulatory; and 7) emergency management. Implementing these business lines involves the Corps
of Engineers in the planning, construction, operation or maintenance of over 8,000 civil works
projects. These include about 900 ports and harbors and over 275 locks and dams for navigation,
4,300 recreation areas, and 75 hydropower generation facilities. The Corps’ investments in new
construction projects are typically joint ventures with non-federal sponsors. With the exception
of navigation projects and multipurpose reservoirs, the local sponsor usually owns, operates, and
maintains the project once it is built.
Congress periodically directs the Corps to work in other areas that duplicate existing federal
programs or are activities that should be carried out by non-federal interests. This “mission
creep” diverts the Corps from its primary business lines, slows down completion of higher priority
construction projects, and postpones the benefits that completing these projects would bring.

Status Report On Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The accompanying table provides its assessment of program performance for
each of the Corps’ primary business lines. The budget for the Corps proposes to redirect funds from
the Corps’ lesser performing projects and programs to higher priority or more effective ones and to
improve performance in other areas.

Program

Assessment

Explanation

Navigation:
Deep-draft

Moderately
Effective

Planning is typically done project-by-project rather than considering
nationwide needs systematically.

Shallow-draft

Ineffective

Many projects provide recreational benefits rather than commercial
benefits.

Inland waterways

Moderately
Effective

Ohio and Mississippi River systems highly efficient, but some other
segments benefit few commercial users; traffic management system
needs improvement; heavily subsidized by the federal government.

Flood and Storm
Damage Reduction

Effective

Projects meet performance goals; concerns with inadequate local
cost-sharing of shore protection projects.

Environmental
Restoration

Unknown

Little data on environmental outcomes of completed restoration
projects and other environmental activities.

Recreation
Management

Moderately
Effective

Generally high customer satisfaction; many facilities are obsolete.

THE BUDGET FOR FISCAL YEAR 2003

Program

293

Assessment

Explanation

Hydropower

Moderately
Effective

Opportunities exist to reduce facility “downtime.”

Regulatory

Moderately
Effective

Opportunities exist to accelerate permit processing; little data on
environmental outcomes of permit actions.

Emergency
Response

Effective

Consistently high performance.

Congressional Earmarks
The 2003 Budget focuses Corps funding on the main Civil Works mission areas that benefit the
nation—commercial navigation, flood damage reduction, and environmental restoration.
In recent years, the Congress has authorized and appropriated funds for the Corps to undertake
an increasing number of projects that fall outside the scope of its historic missions, such as building
sewage treatment plants, revitalizing local waterfronts, and maintaining waterways primarily for
local recreation. Whatever the merit of these projects, they should be carried out by others. For
instance, the Environmental Protection Agency (EPA) provides funds specifically for building sewage
treatment plants. These ancillary projects divert resources and delay completion of economically
justified projects that are within the Corps’ primary mission areas.
Congressional Earmarks
Year

Number

BA in millions
of dollars

Percent of Total
Budget Authority

2001 ..................................

405

367

2002 ..................................

604

431

10%

294

CORPS OF ENGINEERS—CIVIL WORKS

Unrequested
earmarks
include
congressional directives that preempt the
Mission Creep
administrative allocation process for small
projects in the Corps’ “continuing authorities”
In 2002, the Congress earmarked $500,000
programs, and directives for larger projects
to start construction of the Florida Keys Water
outside the Corps’ mission areas. For example,
Quality Improvements project, a wastewater
in 2002, over three-fourths of the funding for
treatment initiative that would require about
congressionally added projects in the Corps’
$100 million to complete. Corps funding of
construction program were for projects that
such projects circumvents procedures in EPA’s
are inconsistent with long-established policies
Clean Water State Revolving Fund (CWSRF) for
for the Corps of Engineers, which should not
ensuring that these funds address the state’s
be part of the Corps program. These include
highest priority wastewater needs. Florida
over 30 of the 47 new construction projects
received nearly $46 million of CWSRF funding
started in 2002. It would require about $5
in 2002.
billion to complete all the projects added by
the Congress that are inconsistent with Corps
policies—that’s $5 billion diverted from nationally important navigation, flood damage reduction,
and environmental restoration projects already underway.

Flood Damage Reduction
The Corps estimates that its existing flood damage reduction projects prevent about $21 billion in
damages in an average year, and over time have returned $6 for every $1 invested (see accompanying
chart). These benefits vary greatly from year-to-year depending on flood events. Despite these federal
investments, flood damage nationwide is increasing. Federal, state, and local decisions can diminish
or increase flood risks and affect flood damages.
Corps Flood Damage Reduction Projects:
$6 Returned for Every $1 Invested
In billions of dollars

800
700

Cumulative Benefits

600

Cumulative Expenditures

500
400
300
200
100
0

1940

1947

Source: Corps of Engineers.

1954

1961

1968

1975

1982

1989

1996

Besides funding justified investments in
Corps flood damage reduction projects, the
2003 Budget will continue assistance to states
and communities to reduce flood risks through
planning and promoting better floodplain
management. The Corps is also increasingly
incorporating
environmentally
beneficial
designs into its flood damage reduction
projects. For example, the project to protect
the City of Napa, California, reestablishes
former marshes and floodplains along the
Napa River. These areas will provide wildlife
habitat as well as space to convey floodwaters
away from the city.

The Administration’s goal is to ensure that
the American people get the most flood protection for each dollar invested. The accompanying table
is a rough comparison of the estimated return that the Corps expects from each dollar it spends on
flood damage reduction projects with returns for selected federal programs with a similar objective.
As discussed in the Department of Agriculture chapter, the 2003 Budget proposes to reduce federal
funding for the Natural Resource Conservation Service’s Small Watershed Program, which has a

THE BUDGET FOR FISCAL YEAR 2003

295

lower economic return than both the Corps or the Federal Emergency Management Agency (FEMA)
programs. The budget also proposes to restructure FEMA’s 404 hazard mitigation program to
improve its effectiveness, as discussed in the FEMA chapter.
Benefits from Each Dollar Invested in Selected
Federal Flood Damage Reduction Programs

Corps of Engineers

Federal Emergency
Management Agency’s 404
Flood Risk Mitigation 1

Department of Agriculture’s
Small Watershed Program

$1.90

$2.30

$1.40

The Corps provides emergency assistance
during and after floods or coastal storms
to save lives and protect public facilities
and critical infrastructure. As part of its
emergency response mission, the Corps also
assists FEMA, states, and localities with
responses to natural and other disasters.
Corps personnel are often among the first
people on the scene in flood and other
emergencies, providing pumps, generators,
sandbags,
clean water,
and technical
assistance to search and rescue operations.
For example, the Corps assisted FEMA
Corps personnel are often among the first people on the scene
in responding to the terrorist attacks of
in flood emergencies.
September 11th , by providing the New York
City Fire Department interim communications
equipment to replace phone lines destroyed by the attacks, evaluating the safety of damaged
buildings, providing emergency power to the financial district, and assisting with debris removal
and disposal. With regard to homeland security, the budget provides $65 million for the continuing
costs of additional guard positions at critical Corps facilities.

1 Cost-benefit estimate is for flood-related projects in the 404 Mitigation program. FEMA cost-benefit comparisons are not strictly comparable due to
differences in methods used to measure costs and benefits. Also, some projects in the FEMA program were exempted from cost-benefit requirements
by law or regulation, because of presumed benefits.

296

CORPS OF ENGINEERS—CIVIL WORKS

Navigation
The Corps maintains nearly 11,000 miles of commercial waterways and hundreds of ports and
harbors, typically through lock operations and dredging. The Corps estimates that its navigation
activities provide about $20 billion in benefits every year. Each dollar it spends in 2003 to construct
commercial navigation projects will return an average of $3.30 in benefits upon project completion.
The 2003 Budget targets funds to those waterways providing the greatest economic return to
the nation, and limits funding for those with little commercial traffic. It includes $77 million for
construction of Olmsted Lock and Dam in Illinois and Kentucky, an increase of $37 million over
2002, to expedite completion of this important modernization project on the Ohio River. The budget
also provides $120 million, an increase of $31.5 million over 2002, to accelerate the transportation
cost savings and other economic benefits of deepening the Port of New York/New Jersey.
The Corps operates and maintains some
Corps of Engineers Costs to Operate and
harbors and segments of the inland waterway
Maintain Selected Inland Waterways
system that benefit few commercial users. The
Cents per
ton-mile
17.97
accompanying chart shows the wide variation
in cost to operate and maintain segments of
20
14.47
the inland waterway system in terms of cost
15
per commercial ton-mile, where the lower cost
8.43
is indicative of higher commercial benefits.
10
The 2003 Budget targets funds to those
waterways that provide the greatest economic
0.05
0.16
0.08
5
return, and substantially reduces funding
for those that provide minor commercial
0
Kentucky
Appala., Allegheny
Ohio
Average
navigation benefits. For two projects with
Mississippi
River
Chatt.,
River
of all
River
River
minimal commercial usage—the navigation
Flint
Waterways
Rivers
Source: Corps of Engineers.
features on the Fox River, Wisconsin, and
Locks and Dams 5 through 14 on the Kentucky
River, Kentucky—the Corps is in the midst of transferring ownership, operation, and maintenance
responsibilities to non-federal interests.

Environmental Restoration
Enhancing the environment is another Corps main mission. The 2003 Budget includes substantial
funding for Corps of Engineers environmental projects:

• The budget provides a total of $245 million for Everglades restoration.

This includes Corps
funding of $149 million, a $10 million increase over 2002, and $96 million for programs
within the Department of the Interior. The budget includes $46 million specifically for
implementation of the Comprehensive Everglades Restoration Plan, of which $37 million
is for the Corps and $9 million is for research, monitoring, and planning studies in the
Department of the Interior. Everglades restoration efforts may start to pay off as early as
September, 2003, when five of the 68 known federally endangered and threatened species in
South Florida are expected to be changed from “endangered” status to “threatened” status or
removed from the list of federally protected species.

THE BUDGET FOR FISCAL YEAR 2003

297

• The

budget ensures that the Corps will meet environmental requirements for salmon
conservation in the Columbia River Basin (WA, OR, ID). It provides $128 million for the
Corps’ salmon conservation efforts, a $19 million, or 17 percent, increase over 2002 funding.
This allocation includes $100 million for the Columbia River Fish Mitigation and Lower
Columbia River Ecosystem Restoration programs, $17 million for operation and maintenance
activities, and $11 million for studies and other activities needed to ensure compliance.

Many of the Corps’ ecosystem restoration projects are designed to improve the nation’s wetlands
resources. Other federal programs have a similar purpose. The accompanying table provides
a rough, first-order comparison of the Corps’ per-acre costs with two programs of other federal
agencies with a similar mission, the Department of the Interior’s North American Wetlands
Conservation Fund and the Department of Agriculture’s Wetlands Reserve Program. It is difficult
to draw definite conclusions about program performance because the underlying cost of the land
and the type and quality of resulting habitat can vary significantly by project and program. For
this reason, the Administration will work over the next year to refine these data and to determine
whether reallocating funds among the agencies would further improve the nation’s wetlands.
Average Cost to Establish an Acre of Wetlands
Corps of Engineers

Department of the Interior

Department of Agriculture

$3,900

$2,250

$1,200

Improving Performance
The Corps must work in a number of ways
Reducing the Construction Backlog
to improve its performance delivering services
Backlog in billions of dollars
25
to the public. The Corps estimates that the
balance of funding needed to complete all
active construction or pre-construction work
20
(including projects that are being studied,
but are not yet authorized for construction)
is over $40 billion. Of this, more than $21
15
billion of future federal funding is necessary
Status Quo
to complete the flood control, navigation, and
2003 Budget
10
environmental restoration projects funded in
the budget for the Corps’ primary construction
program. Therefore, its major challenge is
5
1998
2000
2002
2004
2006
2008
2010
to complete those projects already underway
in its primary construction program. This
backlog needs immediate and sustained attention. It is about 12 times the entire amount
appropriated in 2002 for the construction program ($1.7 billion). Put another way, it would take 12
years at the rate of funding the Congress provided in 2002 for the Corps just to finish funding the
ongoing construction projects supported in the budget. Unfortunately, as the accompanying chart
shows, this backlog of ongoing construction projects has increased in recent years, as the Congress
has added funds to start more new projects than can be afforded. The 2003 Budget proposes to
reverse this trend.

298

CORPS OF ENGINEERS—CIVIL WORKS

This increasing backlog also hurts the Corps’ overall performance, as each new project diverts
resources from completing ongoing construction efforts. This means the benefits the public
reasonably expects to receive from these projects are often delayed significantly. For example,
construction work on Olmsted Lock and Dam began in 1991 and was scheduled for completion by
2006. However, it may not be finished until 2011.
There are only three ways to shrink the backlog of ongoing, budgeted construction projects:

• provide more funding;
• defer or cease work on some ongoing projects; or
• stop adding new projects.
Recent experience demonstrates that
more funding alone does not cut this backlog.
During the last six years, funding for the
Corps construction budget has increased more
than 50 percent, but the backlog has grown by
43 percent. Backlog growth occurred because
more new projects were started than could be
funded efficiently.
Deferring or ceasing work is an option,
but it is difficult to stop a project already
underway. The Administration is reviewing
projects in the backlog to determine whether
any should be delayed in order to accelerate
completion of others, but this is unlikely to
dramatically change the situation because the
number of such projects appears to be small.
That leaves not starting new projects.
Stopping the flow of new commitments is
a logical step toward completing ongoing
projects sooner. To the extent that the need
for a particular new project is compelling, it
may be necessary to defer funding of one or
more ongoing projects.

Focus on Completing Projects

The budget reduces the backlog of ongoing
construction projects in the budget from $21
billion to $13 billion over the next five years by:
• providing $1.44 billion for the Corps’ ongoing
construction program in 2003 and comparable
levels in future years;
• providing no funds for discretionary new
construction in 2003;
• targeting funding to projects that fall within the
Corps’ primary missions; and
• dropping funding significantly for studies of
potential future construction projects.
These actions will allow the Corps to complete
30 projects in 2003, which is 15 percent of
the construction projects in the budget, and to
complete other ongoing projects in the budget
sooner than possible under current spending
trends.

Finally, an additional important challenge
confronts the Corps. If it is to improve its performance in its main missions, it must find ways
to prevent the diversion of resources away from these missions. As noted previously, many of the
unrequested Corps projects added by the Congress are either not a federal responsibility or should
be funded by other federal programs. The budget does not include funds for the Corps to continue
these projects.

THE BUDGET FOR FISCAL YEAR 2003

The 2003 Budget includes several other
initiatives to improve the Corps’ performance.
It proposes a $17 million, or 13 percent,
increase in funding for the Corps’ regulatory
program for activities affecting navigable
waters and wetlands. This increase would
allow the Corps to reduce the average time
for reviewing individual permit applications
to 120 days by 2004, compared to the estimate
of 160 days for 2002. The funding boost also
would allow the Corps to issue 70 percent of
individual permits within 120 days, compared
to the estimate of 54 percent for 2002. It
would strengthen protection of wetlands by
supporting watershed approaches in sensitive
areas and through improved oversight of
mitigation efforts.

299

Improving Hydropower Performance

In 1999, the General Accounting Office found
that the Corps’ hydropower facilities are twice
as likely to experience “unplanned outages”
as private-sector facilities, because the Corps
does not always have funds for maintenance
and repairs when needed. Such outages result
in lost power production. The budget’s proposal
for direct funding of the Corps hydropower
maintenance by Power Marketing Administration
customers should enable the Corps to cut its
unscheduled “downtime” by up to 40 percent over
the next few years and achieve a performance
level matching that of non-federal hydropower
facilities.

The budget also includes a proposal for
the Power Marketing Administrations to
provide direct funding from power sales revenues for the operation and maintenance costs of Corps’
hydropower facilities. This new financing arrangement will permit more timely maintenance of
hydropower facilities, which will enable the Corps to reduce facility “downtime” and increase power
generation.

Strengthening Management
The Corps of Engineers has made progress addressing certain parts of the President’s
Management Agenda. For example, the Corps expects to achieve a clean opinion on its balance
sheet for 2001. However, it has made little progress on other initiatives, and has failed to develop a
satisfactory plan to achieve the President’s goals for competitive sourcing and human resources. A
scorecard and summary of the Corps’ status is shown below.
In addition, the 2002 Budget Blueprint highlighted reforms needed in the Corps’ project planning
process to ensure higher quality, objective analysis of potential construction projects. The Army
Corps of Engineers has made some progress on these reforms. The Assistant Secretary of the Army
for Civil Works has established a new group to strengthen the policy consistency of Corps studies. The
Administration will soon release its proposal for independent review of significant projects, another
reform highlighted in the Blueprint.

300

CORPS OF ENGINEERS—CIVIL WORKS

Initiative

2001 Status

Human Capital—The Corps has reduced its staff and supervisory ratio over the past
eight years. However, its human capital plan does not adequately address competitive
sourcing, e-government, workforce skills, or field office workload and staffing
requirements. The Corps plans to complete a human resources plan by March 2002.

•

Competitive Sourcing —The Corps currently contracts out about 60 percent of
its work, but still has a significant inventory of commercial work performed by
governmental employees. It has agreed to complete its assessment of competitive
sourcing opportunities and its competitive sourcing plan by September 2002, to
achieve the Administration’s two-year 15 percent goal in an effort to eventually
compete 50 percent of all commercial activities.

•

Financial Management —Auditors were unable to give an opinion on the Corps’ 2000
financial statements because of unresolved issues with valuing property, plant, and
equipment, and a material weakness with computer security. The Corps expects to
achieve a clean opinion on its 2001 statements.
E-Government —The Corps failed to prepare adequate business cases for all of
its major information technology investments. It is developing business cases and
improving the planning and control processes that support these investments.
Budget/Performance Integration —The Corps’ 2003 Budget submission included little
integration of either outcome or output performance information to support proposed
resource levels. The Corps will improve performance information in several key areas
for the 2004 Budget (e.g., operation and maintenance and regulatory activities).

•
•
•

THE BUDGET FOR FISCAL YEAR 2003

301

Corps of Engineers—Civil Works
(In millions of dollars)

2001
Actual

Estimate
2002
2003

Spending:
Discretionary Budget Authority:
Construction, General .............................................................
Operation and Maintenance, General ...................................
General Investigations .............................................................
Flood Control, Mississippi River and Tributaries ..................
Regulatory Program .................................................................
All other programs ....................................................................
Subtotal, Discretionary budget authority adjusted 1 .................
Legislative Proposal, Operation and Maintenance ..............
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

1,736
2,046
166
366
131
350
4,795
—
−108
4,687

1,736
1,939
159
353
134
276
4,597
—
−111
4,486

1,440
1,979
108
288
151
323
4,290
−149
−115
4,026

Emergency Response Fund, Budgetary resources .................

—

139

—

Mandatory Outlays:
Operation and Maintenance, General:
Existing law ..........................................................................
Legislative proposal ............................................................
Total, Mandatory outlays ..............................................................

3
—
—

55
−6
49

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

ENVIRONMENTAL PROTECTION AGENCY

The President’s Proposal:

• Contains the highest funding level ever for regulatory, enforcement, and state
•
•
•
•
•

grant support (the Operating Program), a critical component of the agency’s
environmental protection efforts;
Assists 20 watersheds in restoration efforts under a new community-based
cooperative program;
Provides additional enforcement resources for states to more efficiently implement
national environmental policies;
Spurs clean up of abandoned industrial or commercial facilities known as
“brownfields”;
Keeps our water resources safe, including from terrorist attack; and
Supports strong science and innovation in regulatory approaches to controlling
water and air pollution.

The Environmental Protection Agency
(EPA) protects human health and the
environment. EPA is generally focused on
four areas: 1) air pollution; 2) water pollution;
3) solid waste; and 4) regulation of chemical
products. It also cleans up hazardous waste
sites and leaking underground tanks. States
are largely responsible for implementing
these programs. For example, approximately
one third of EPA’s funding is spent on
grants to states to build and maintain water
infrastructure, including sewage treatment
plants and drinking water facilities.

Environmental Protection Agency

Christine Todd Whitman, Administrator

www.epa.gov

202–564–4700

Number of Employees: 17,645
2002 Spending: $4.1 billion Operating Program,
and $7.8 billion in total
Organization: 17 labs and 10 regional offices
across the country.

303

304

ENVIRONMENTAL PROTECTION AGENCY

Overview
In the last 30 years, the United States has dramatically improved the protection of human
health and the environment by reducing pollution. The reversal of environmental degradation
to environmental improvement is one of this country’s greatest success stories. Few, if any other
nations have achieved such a turnaround on such a tremendous scale. For example:

• American drivers now emit 41 percent fewer pollutants from their cars despite now driving
•
•
•

143 percent more miles since 1970;
Since 1988, the human health risk index from chronic exposure to toxic chemicals decreased
by over two-thirds from 100 to 27 points;
Most of our lakes and rivers continue to get cleaner. For instance, the Bass Anglers Sportsman
Society rates the Potomac River—the river President Lyndon Johnson once called a “national
disgrace”—as one of the top 10 bass waters in the United States; and
Today, more than 265 million Americans who rely on public water systems enjoy some of the
safest drinking water in the world.

However, health and environmental problems remain. Unfortunately, many government policies
that achieved successes over the past 25 years need to be updated. The National Academy of Public
Administration and other experts who have reviewed the nation’s environmental protection system
conclude that today’s system is limited, uncoordinated, and inflexible. Because of the environmental
challenges that lie ahead and the inefficiencies of the current system, government policies must
evolve for progress to continue. The system must become as efficient and low cost as possible while
at the same time maintaining environmental progress. Preserving the gains we have made, it is time
to move to the next generation of environmental protection.
The Administration is implementing policies that support the next generation of environmental
protection. Approaches that will deliver significant additional health protection and greatly improve
the environment reflect five major themes: stewardship, sound science, state and local control,
innovation, and compliance. Ensuring continuous improvement toward effective implementation
of these themes requires preparing for terrorist attacks, funding projects based on merit rather
than earmarking, managing for performance, environmental federalism and ensuring that a strong
scientific basis undergirds the regulatory process.

Homeland Security
EPA has adjusted well to its new role of supervising the decontamination of anthrax infected
buildings. However, this experience has shown that better information and new technologies are
needed for this work. The President’s Budget includes $75 million in new research funding to help
develop technologies to clean up buildings attacked by bioterrorists. In addition, the President’s
Budget includes $20 million to continue assessing and addressing potential vulnerabilities of the
nation’s drinking water systems.

THE BUDGET FOR FISCAL YEAR 2003

305

Program

Assessment

Explanation

Acid Rain Program

Effective

By 2010, sulfur dioxide emissions from utilities will be reduced by
approximately 50 percent of the 1980 baseline. EPA estimates direct
costs to be around $2 billion annually, which, at around $200/ton,
is among the best performing air quality programs at EPA. This
cap-and-trade program enjoys almost 100 percent compliance.

Nonpoint Source
Grants to States

Unknown

Although nonpoint sources are the biggest remaining water pollution
problem, states have not focused sufficiently on eliminating nonpoint
source impairment of water quality.

Environmental
Education

Ineffective

This program has supported environmental advocacy rather than
environmental education. The budget transfers funding to the National
Science Foundation’s (NSF) math and science programs so that a
consolidated program can better serve educators and students.

Common Sense
Initiative (CSI)

Ineffective

The CSI was developed in 1994 to devise new approaches to
environmental protection. This program struggled to produce results
because of a lack of clear objectives and inflexibility. No legal authority
for CSI exists, so litigation and risk of failure are high.

Pesticide
Reregistrations

Ineffective

EPA worked for almost 30 years to reregister old pesticides on the
market based on updated toxicity tests. Congress rewrote the statute
twice to speed the process. Fees begun in 1987 to finish the process
by 1996 have been extended for seven years. The program has had
limited success identifying and reducing exposure to highest risk
pesticides.

Congressional Earmarks
The President’s Budget generally provides funding for specific projects and programs based on
an analysis of national interest, demonstrated needs, and statutory requirements. Unfortunately,
Congressional earmarks ignore these determinations and divert funds from higher priority and
more effective programs. During the past two years, Congress has earmarked over six percent
of EPA’s discretionary funds. This budget meets the President’s priorities and EPA’s needs by
eliminating earmarked projects and focusing EPA funding on activities needed to carry out its
missions. Congressional earmarks include research projects targeted to specific institutions that
bypass the normal competitive process; projects that benefit a limited geographic area with no

306

ENVIRONMENTAL PROTECTION AGENCY

national significance; and infrastructure projects that bypass the State formula allocation and
priority-setting process. Some Congressional earmarks have nothing to do with improving the
environment, such as $250 thousand to the County of Maui to remove seaweed from the beach.
Over $343 million in earmarks were made for drinking and wastewater projects alone.

Congressional Earmarks

Number

BA in
m illions
of dollars

Percent
of Total

2001 .............

397

493

6.3%

2002 .............

479

494

6.2%

EPA’s Performance
Air Pollution
Air in the United States is now the cleanest
it has been since EPA began tracking its
quality 20 years ago. National air quality,
measured at thousands of monitoring stations
across the country, has shown improvements
for each of the six principal air pollutants,
including carbon monoxide, lead, and nitrogen
dioxide. This means with each passing year,
people breathe a little easier, see a little better,
and the environment is a little cleaner.

Progress Toward Meeting Air Quality
Standards
Percent of days below air quality standard
100
90
80

Percentage of Total Days
Percentage of 1988 Violations

70
60
50
40
30
20
10

EPA sets air quality standards to protect
0
1988
1990
1992
1994
1996
1998
2000
2002
the health of sensitive populations such
Source: EPA.
as asthmatics, children, and the elderly in
accordance with the Clean Air Act. The agency
tracks trends through its pollution standards index. As the chart shows, the percentage of days
across the country that air quality violated a health standard has dropped from almost ten percent
in 1988 to three percent in 2000. On those relatively few days of noncompliance, the standard
generally was violated for only a few hours. Not only has the number of days of noncompliance
declined, the air is less polluted on those days when standards are exceeded.
EPA’s primary method for controlling air pollution is regulation. In 2003, EPA is expected to
spend almost $560 million on reducing emissions into our air. However, in terms of social costs, all of
us, mainly through increased prices, pay one hundred times that: approximately $50 billion to $60
billion annually for clean air. The challenge is to continue to reduce emissions into the air at the
same or even less cost.

THE BUDGET FOR FISCAL YEAR 2003

307

Although
the
next
generation
of
environmental protection relies on the
Markets Work for Environmental Protection
cooperation inherent in the marketplace,
The Administration believes that innovative
market-based
approaches
are
already
and market-based approaches can achieve
demonstrating cost-effective air pollution
clean air cost-effectively. The Administration is
control.
EPA has pioneered the use of
working on a legislative proposal for a flexible,
economic incentives and market based
market-based program to significantly reduce and
approaches that allow pollution sources to buy
cap emissions of sulfur dioxide, nitrogen oxides,
and sell emission allowances. For example,
and mercury from electric power generators. The
the Acid Rain program was established by the
program would be phased in over a reasonable
Clean Air Act Amendments of 1990 to control
period of time, provide regulatory certainty, and
power plant emissions of sulfur dioxide and
offer market-based incentives to help achieve
oxides of nitrogen, both of which contribute
required reductions.
to acid rain. Each utility must have sufficient
allowances to cover annual emissions. To
cover the necessary allowances, the utility
must either purchase allowances or reduce emission levels. Excess allowances can be banked for
later use. EPA conducts an annual auction for purchasing or selling allowances. One hallmark
of this program is its compliance rate, which is close to 100 percent. By one estimate, the saving
associated with this “cap-and-trade” program is 55 percent compared with costs for doing this
through traditional enforcement.

Water Quality and Safe Drinking Water
Like air quality, water quality has significantly improved since the Clean Water Act became law
in 1972. The gains are so large, in fact, that storm water runoff from homes, streets, and fields (called
“nonpoint source pollution”), now cause more water pollution than industrial sources.
Nearly all the improvements in water quality can be attributed to legislation enacted since
EPA’s formation in 1970 and the significant federal, state, local, and private investments in their
implementation. Under the Clean Water Act, EPA administers both regulatory and voluntary
programs in conjunction with the States. For example, 44 states and EPA regulate the discharge
of point source pollutants from factories and wastewater treatment plants. Since 1988, the federal
government has provided over $19 billion in grants to the clean water state revolving funds
(CWSRF), and these funds have made over $37 billion available for loans. Currently, approximately
99 percent of wastewater treatment plants provide secondary treatment or better, significantly
reducing pollutant loadings to the nation’s waterways. EPA’s goal is to increase by 100 (for a total
of 600) the number of the nation’s 2,262 watersheds that will have more than 80 percent of their
assessed waters meet all water quality standards by 2003.

308

ENVIRONMENTAL PROTECTION AGENCY

The drinking water program develops
Safer Drinking Water for America
regulations, conducts research to support
Thousands of cases
Percent of population
of waterborne disease
served by systems in compliance
regulations, and works with States to
450
405,319
implement them. For 2003, EPA aims to
96
400
Includes the anomalous 1993
have 92 percent of the population served by
episode
in
Milwaukee,
WI
350
community systems with water that meets
91
300
all health-based standards in effect by 1994.
250
The hurdle has been raised from 83 percent
86
200
in 1994. Actual reports of waterborne disease
150
outbreaks, compiled by the Centers for
Reported Cases
81
100
Disease Control and Prevention, have been
50
2,000
2,000
2,549
1,996
very low for some time except for an outbreak
0
76
in 1993 and are expected to stay level with
1993
1995
1997
1999
2001
2003
2005
Source: Centers for Disease Control and Prevention, EPA.
2001. Regulations have been put in place
Note: Waterborne disease outbreak data cover two years (e.g., 1993-1994 displayed as 1994).
to prevent outbreaks from microbes, such as
cryptosporidium outbreak that occurred during 1993 in Milwaukee, Wisconsin, which is shown in
the chart above.
In total, the 2003 President’s Budget for EPA would provide approximately $3 billion to support
its performance goal of clean and safe water, including $2 billion to improve local wastewater and
drinking water infrastructure through the CWSRF and drinking water state revolving fund.
Water quality is not free. Although the EPA will spend approximately $3 billion in 2003 on
restoring, maintaining and protecting water quality, all of us pay for clean water through taxes,
utility bills, and increased prices. These costs to society are estimated to be over $80 billion, or
almost 30 times EPA’s water budget. Once again the challenge is to continue to improve water
quality at the same or less cost.
The President’s Budget provides $20 million for a new watershed initiative. Twenty pilot projects
will be funded that will help stakeholders protect and restore their watersheds. EPA will work with
other federal agencies, states, tribes, communities and others to select watersheds primarily based
on community support and the likelihood of positive environmental outcomes. This collaborative
approach can provide more efficient and effective solutions to water pollution. The results of these
pilot projects will be measured and will be made available to the public. The budget also funds several
pilot projects on water quality trading. Trading to achieve water pollution reductions in a watershed
will improve water quality at less cost. Widespread use of incentive programs will substantially speed
progress toward cleaning up areas that do not currently meet water quality standards and help to
achieve this goal in a cost-effective manner.

Solid and Hazardous Waste
EPA runs the $1.3 billion Superfund program that aims to clean up contaminated sites and remove
substances that pose an immediate threat. Where groundwater is contaminated, wells are dug and
the water treated. Where soil is toxic, it is removed and safely disposed. The goal is to make the site
useful again. When EPA determines who is responsible for the contamination, it has the authority
to compel them to pay. But cleanups have often been delayed by litigation.

THE BUDGET FOR FISCAL YEAR 2003

309

As the accompanying chart shows, 804
hazardous waste sites have been cleaned up.
This is projected to rise to 884 by the end of
2003, or 60 percent of the current number of
Superfund sites.

Number of Hazardous Waste Sites Cleaned Up
Number of construction completions
1,600
Current Total Number
1,400
of Sites on National
Priorities List = 1,479
1,200
1,000
757

800

804

844

884

670
585

600
400

498
410

200

The improvement of a site can be dramatic,
as visually represented in these “before and
after” pictures of the Army Creek Landfill
Superfund site (see accompanying pictures).
Where once leaking barrels contaminated
water supplies, there is now an open wildlife
area.

0
1996

1997

1998

1999

2000

2001

2002

2003

Source: EPA.

The Army Creek Landfill of New Castle, Delaware before
being cleaned up under the Superfund program.

Now a wildlife area flourishes where the Army Creek
Landfill used to be.

After the Superfund program began, concern emerged about whether many abandoned industrial
sites were contaminated and who was responsible for cleaning them up. Developers worried about
liability and steered clear of these properties. To reinvigorate development of these fallow areas,
states and local communities, as well as the federal government created the brownfields program.
The program assesses sites for potential contamination to assure developers and where necessary,
clean sites to make them suitable for new development. The President’s brownfields program will
remove obstacles to cleanup and reform cleanup mechanisms. This budget keeps the President’s
commitment to clean up these sites by doubling current funding to $200 million, subject to the
authorizing legislation recently passed by the Congress.

Toxic Chemicals
EPA also works to reduce risks from toxic substances. EPA uses a wide range of tactics to
accomplish this. Activities include making available important chemical and hazard data to
workers and to the general public; reviewing commercial and industrial chemicals; and registering
pesticides to ensure adverse risks are not introduced to the public at large.

310

ENVIRONMENTAL PROTECTION AGENCY

Pesticides can pose risks to humans through food consumption. Thus, EPA administers programs
designed to reduce these concerns and promote a safe food supply. For example, EPA sets maximum
limits on the amount of pesticide residues on food and reviews limits set in the past to ensure that
they meet current scientific standards. By the end of this year, EPA expects to reassess a cumulative
66 percent of these limits and, by the end of 2003, EPA expects to reassess a cumulative 70 percent
of the total 9,721 that need to be reviewed by 2006. This includes 75 percent of the 893 that have the
greatest potential impact on dietary risks to children.
Also, EPA registers new pesticides to help ensure that they do not pose significant risks. Through
this program, EPA expedites the registration of safer pesticides to encourage the use of lower risk
products. New pesticides are judged to be “safer” if they pose less risk to human health and the
environment or have lower toxicity than current, conventional pesticides. Usage trends show that
the percentage of agricultural acres treated with safer pesticides increased from 1.8 percent to 4.3
percent between 1996 and 1998.

Sound Science
From air to water to toxic substances that persist in the environment, sound science plays a
pivotal role in adequately managing the risks involved. Many of the Agency’s priorities reflect this.
For example, in 2003, EPA will begin new biotechnology research. This is expected to result in an
improved capability to address three areas: the allergenicity risk from genetically modified foods,
the ecological risks from genetically modified organisms, and the management of gene transfers and
resistance issues. This research will help determine better metrics for meeting the goal of reducing
risks to human health and the environment. Sound science will also be enhanced through improved
human capital planning that addresses workforce issues such as retirements and skill gaps. Analysis
shows that 60 percent of the Agency’s physical scientists and chemists in the Office of Research and
Development will be eligible to retire by 2005. This potential skill shortfall needs to be addressed
now in order to ensure future scientific integrity of EPA programs; thus, EPA plans to complete a
workforce restructuring plan by May 31, 2002 to support its mission goals and strategic plan.
Chronic Human Health Risk Index for Pollution
and Managed Waste
Risk index, 1988 = 100
100

100

Air Emissions
Water Releases
Offsite Incineration
Offsite Landfill
72

83
80
68

60
50

0
1988 1989 1990 1991

1992 1993 1994

Sources: EPA and Florida State University; reflects latest data available.

1995 1996 1997 1998

Scientifically sound metrics must be used
when evaluating the success of efforts to
protect human health and the environment.
Measuring the impact of toxic chemicals on
human health is a difficult undertaking, but
EPA is developing indicators that measure
these relationships. The chart shows a rough
index of risk from chemicals by weighting
releases by toxicity and their fate in the
environment.
The Administration is fully committed to
ensuring that the rules it issues are based
on sound science, public health and safety,
and the needs of the economy, consistent with
applicable law.

THE BUDGET FOR FISCAL YEAR 2003

311

Improving Performance
Environmental Federalism
In many respects, EPA programs are models of federalism. Under most pollution control
statutes, EPA conducts research and promulgates national standards for protecting human health
and the environment. EPA has generally delegated implementation of these statutes to the states,
which take primary responsibility for monitoring pollution, permitting emissions, and enforcing
the permits. State enforcement of environmental laws has generally worked well, with states
conducting 90 percent of enforcement actions. Currently, 49 states run air pollution programs
and 48 run the core hazardous waste programs. EPA has delegated the management of water
pollution programs to 44 states. Thus, most facilities that discharge water pollution are regulated
by state governments. As an example of the excellent job states do in controlling such pollution,
most facilities discharge amounts of water pollution that are well below their permitted limits. For
example, in 1998, municipal and industrial sources actually discharged in total less than half of the
amount of organic water pollution that they were allowed to discharge under the law. Furthermore,
only a small amount of those discharges (three percent in 1998) exceeded legal permit levels (see
accompanying chart on five-day biological oxygen demand).
Water Pollutants Are Discharged Well Below
Permitted Limits
Millions of kg/yr of five-day biological oxygen demand
1,600
Permitted Limits
1,400
Actual pollutants discharged
Discharges with full compliance

1,200
1,000
800

Discharges
over limit

600
400
200
0
1995

1996

1997

Source: OMB compilation of EPA permit compliance data; reflects latest data available.

1998

Despite this degree of delegation, EPA still
maintains over 1,000 enforcement personnel
to assist the states with their workload.
The budget proposes to strengthen EPA’s
partnership with states by shifting more
enforcement responsibility and resources to
states through establishment of a new $15
million state enforcement grant program.
Such an approach properly recognizes that
states have the primary responsibility to
implement pollution control programs and
that increasing state resources would result in
more “cops on the beat,” more inspections, and
more enforcement, since state enforcement
costs are lower than federal costs.

Recognizing that the needs of interstate commerce may require uniformity in many circumstances,
EPA will work to ensure that patchwork regulatory activities by states under the federal program do
not burden interstate commerce.

312

ENVIRONMENTAL PROTECTION AGENCY

Improving the Regulatory Process
Better Regulation through Transparent
Analysis

In total, the benefits of EPA’s pollution control
efforts far exceed the costs. However, when
considered on a case-by-case basis, some
actions are more effective than others.
For example, overall benefits from air pollution
control are due mainly to reductions in lead and
particulate matter and not other air pollutants. In
1997, EPA developed new regulations for ozone
and particulate matter. EPA’s data show that the
new ozone standard results in a net cost (the
costs exceed the benefits) to society ranging
from $1.1 billion to $8.1 billion annually, whereas
the new particulate matter standards are likely to
result in significant net benefits.

The President’s Budget reinvigorates the
role of science at EPA by supporting funding of
a top-level policy office. The office will, among
other responsibilities, ensure that sound
science has been incorporated into decisions
and that the analysis behind decisions is
transparent to the public.
Environmental protection, like any major
undertaking, depends on performance. The
cost-effective delivery of this service demands
solid management, planning, and evaluation.
Using common metrics across government,
each agency, including EPA, has been rated
according to key resource management
initiatives.
These ratings are designed
to ensure better performance and tighter
linkages between management and budget.

Strengthening Management
Central to improving government performance is aggressive implementation of the President’s
Management Reform Agenda. EPA’s actions in each of the five initiatives will lead to improvement
of EPA’s programs.

Initiative

2001 Status

Human Capital—EPA does not have an up-to-date workforce strategy that supports mission
goals and its strategic plan. Significant skill imbalances exist in critical occupations important
to electronic government and sound science initiatives. For example, all statisticians and 53
percent of computer specialists in the Office of Environmental Information, and 60 percent of
the physical scientists and chemists in the Office of Research and Development will be eligible
to retire by 2005. EPA plans to complete a restructuring plan by May 31, 2002.

•

Competitive Sourcing —EPA has established an intra-agency-working group headed by the
deputy CFO to implement the President’s competitive sourcing initiative. EPA is in the process
of finalizing its plan to meet the two-year 15 percent goal on its way to eventually compete 50
percent of all commercial activities.

•

THE BUDGET FOR FISCAL YEAR 2003

313

Initiative

2001 Status

Financial Management—EPA is unable to provide an unqualified assurance statement
as to systems of management accounting and administrative controls because of material
weaknesses, including information security and NPDES permits. EPA is working to correct
these material weaknesses.

•

E-Government —Most of EPA’s capital asset planning for information technology (IT)
acquisition is well done and on average, major IT projects operate near cost, schedule, and
performance targets. EPA plans to make regulatory information including proposed rules
and comments on them more readily available on-line to the public through a consolidated
docket. The agency aims to improve capital planning and investment control; integrate its
enterprise architecture and budget process; implement a broad based network for efficient
electronic sharing of environmental information; develop an agency-wide security action plan;
and promote E-Government through central data exchange.

•

Budget/Performance Integration —EPA has integrated presentation of resources with
performance goals. The agency budget sets forth goals and output targets. Its budget
accounts were reorganized by the Congress to allow more flexibility in resource management.
The agency is working on continuing improvement in linking results and resources. As part
of this effort, EPA is expected to include social costs in each of its goals when revising its
strategic plan. The agency is studying reducing the number of strategic goals; delivering
flexibility in program missions; and establishing a budgetary accounting system for managerial
accountability.

•

314

ENVIRONMENTAL PROTECTION AGENCY

Environmental Protection Agency
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Spending:
Discretionary Budget Authority:
Operating program ...................................................................
Clean water state revolving funds (CWSRF) .......................
Drinking water state revolving funds (DWSRF) ...................
Brownfields cleanup funding 1 ................................................
Targeted water infrastructure funding ....................................
Requested ............................................................................
Unrequested .........................................................................
Superfund ..................................................................................
Other ..........................................................................................
Subtotal, Discretionary budget authority adjusted 2 ...............
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

3,940
1,347
823
—
465
(112)
(353)
1,286
73
7,934
−99
7,835

3,985
1,350
850
—
459
(110)
(344)
1,289
74
8,007
−104
7,903

4,056
1,212
850
121
123
(123)
(—)
1,293
69
7,724
−107
7,617

Emergency Response Fund, Budgetary resources .................

—

175

—

Mandatory Outlays:
Environmental services ...........................................................
Superfund recoveries ..............................................................
Reregistration revolving fund ..................................................
Other ..........................................................................................
Total, Mandatory outlays ..............................................................

−12
−202
3
4
−207

−11
−175

−11
−175
−44

—

−1
−187

—

−230

An additional $79 million in Brownfields funding for personnel costs and state program grants is
included in the operating program.
2 Adjusted to include the full share of accruing employee pensions and annuitants health benefits
For more information, please see Chapter 14, "Preview Report," in Analytical Perspectives.

FEDERAL EMERGENCY MANAGEMENT AGENCY

The President’s Proposal:

• Provides $3.5 billion for new equipment and training to enhance state and local
•

•
•
•

preparedness against terrorist attacks;
Improves federal assistance for credible and cost-effective disaster prevention
strategies by
• replacing the formula-based Hazard Mitigation Grant Program with a new
pre-disaster competitive grant program; and
• modernizing flood maps to better guide future development and flood prevention
efforts.
Provides the agency with over $1.8 billion in base resources to pay for disaster
relief efforts;
Reforms the National Flood Insurance Program to improve financial performance
and transfer greater financial responsibility to individuals who build in flood prone
areas; and
Transfers the agency’s Emergency Food and Shelter program to the Department
of Housing and Urban Development to consolidate services to the homeless.

When a disaster goes beyond state or local
capacity to respond, the President often
declares an emergency or a disaster. The
Joe M. Allbaugh, Director
Federal Emergency Management Agency
www.fema.gov 202–646–4600
(FEMA) then responds with disaster support
while coordinating the assistance of up to 27
Number of Employee : 5,009
other agencies and volunteer organizations.
2002 Spending : $5.8 billion
FEMA helps the nation prepare for and
reduce the impact of natural and technological
Field Offices : Atlanta; Boston; Bothell, WA;
hazards,
such as Y2K-related critical
Chicago; Denton, TX; Denver; Kansas City, MO;
computer
failures.
FEMA also responds
New York; Philadelphia; and San Francisco.
to the aftermath of terrorism, such as the
destruction wrought by the incidents of
September 11th. FEMA helps people protect themselves, their homes, and their communities from
hazards that can lead to emergencies or disasters. FEMA also manages a number of important
national security activities to ensure that the government is ready to meet its responsibilities in all
situations.
Federal Emergency Management Agency

315

316

FEDERAL EMERGENCY MANAGEMENT AGENCY

Status Report on Select Programs
The Administration is reviewing programs throughout the government to identify strong and
weak performers. Often, as in the case of FEMA, the budget seeks to redirect funds from lesser
performing programs—or programs with unknown performance—to higher priority or more effective
programs.

Program

Assessment

Explanation

Terrorism-related
Programs

Effective

Well established working relationships with first responders, including
firefighters, police, and emergency medical technicians, foster
well-targeted assistance.

Disaster Response
and Relief Programs

Effective

Effectively responds to meet the needs of victims and communities after
disasters; better performance measures are needed.

Flood Insurance
Program

Moderately
Effective

Processes flood damage claims quickly; however, many at-risk homes
and businesses are not insured.

Disaster Mitigation

Ineffective

Formula funding and lack of rigorous cost-benefit criteria for funded
projects limit program’s effectiveness; better performance measures
are needed.

Flood Map Program

Ineffective

Inadequate funding hinders program; maps are needed to assist
rebuilding after disasters and to steer future development away from
floodplains.

Enhance State and Local Terrorism Preparedness
The President recognized the need to increase our nation’s preparedness for terrorist attacks even
before the events of September 11, 2001. On May 8, 2001, he directed FEMA to establish an Office
of National Preparedness (ONP). The President wants FEMA to work closely with state and local
governments to ensure their planning, training, and equipment needs are addressed, and with other
agencies to ensure that the response to weapons of mass destruction threats is well-organized. As
demonstrated during the response to September 11th when more than 300 police and firefighters lost
their lives, first responders bear a unique burden. All Americans are grateful for their service and
FEMA will continue to work in support of their efforts.

THE BUDGET FOR FISCAL YEAR 2003

317

The budget provides FEMA $3.6 billion
to address these new priorities, an increase
of $3.2 billion over 2002.
Most of this
funding will be used for terrorism-related
equipment for states and localities, as well
as training grants for first responders,
including firefighters, police, and emergency
medical technicians. While state and local
jurisdictions will have discretion to tailor the
assistance to meet local needs, it is anticipated
that more than one-third of the funds will
be used to improve communications. It is
further assumed that an additional one-third
will be used to equip state and local first
responders and that the remainder will
be used for training, planning, technical
assistance and administration. More than
11,000 emergency response personnel could
be equipped and trained in 2003. The funding
Urban Search and Rescue Team uses canine at the World Trade
also would allow FEMA to provide grants to
Center site.
states to train 400,000 citizen volunteers for
Community Emergency Response Teams, which provide assistance and support to first responders
following terrorism incidents and other emergencies. The First Responder state/local preparedness
grant program would consolidate several existing programs, including a first responder grant
previously funded within the Department of Justice (funded at $635 million in 2002). As part of the
consolidation, FEMA will take over the functions of Justice’s Office of Domestic Preparedness. The
First Responder program also would encompass the recently created FEMA Fire Investment and
Response Enhancement (FIRE) grant program (funded at $360 million in 2002).
The budget also provides $50 million for
FEMA’s Office of National Preparedness to
work with states and localities on terrorism
preparedness, as well as to administer the
first responder grant program. In November
2001, FEMA completed work with each
of the states and territories to develop
plans for terrorism preparedness training
and equipment for chemical and biological
threats in 2002.
These plans are being
used to help allocate first responder grant
assistance provided in the 2002 Emergency
Supplemental Appropriations Act.

Today, numerous departments and agencies
have programs to deal with the consequences
of a potential use of a chemical, biological,
radiological, or nuclear weapon in the United
States. Many of these programs offer
training, planning, and assistance to state
and local governments. But to maximize their
effectiveness, these efforts need to be seamlessly
integrated, harmonious, and comprehensive.
President George W. Bush
May 8, 2001

318

FEDERAL EMERGENCY MANAGEMENT AGENCY

Improve Assistance for Credible and Cost-Effective Disaster
Prevention Strategies

Much of the devastation caused
by disasters can be minimized
through well-designed mitigation
programs. For example, properties
in flood-prone areas can be elevated
or moved. Homes and businesses
can be braced for better protection
FEMA Director Allbaugh
against earthquakes. And, storm
Congressional testimony, May 16, 2001
shutters and other features can be
added to buildings to reduce wind
damage. Having a significant, dedicated stream of funds for these programs is critical to FEMA’s
efforts to protect individuals and communities from future disasters.
... [M]itigation works. The Seattle-Tacoma area did not
suffer significant losses [following the February 28, 2001,
earthquake] because 20 to 30 years ago local leaders
invested in its future by passing building codes and issuing
municipal bonds that implemented solid protective measures.

Flooding stands out as the single most pervasive disaster hazard facing the nation. It causes an
estimated $6 billion in property damage annually. FEMA spends approximately 57 percent of its
disaster relief resources alleviating flood damage. Yet much of this after-the-fact spending can be
avoided with some up-front planning.
In the past, many of the nation’s efforts to avert flood disasters have focused on structural changes
to waterways—for example, building dams and levies. Focusing flood reduction efforts on identifying
the areas at risk for flooding and steering development away from those areas can be a less costly
long-term approach to mitigation.
Modernizing the nation’s flood maps is critical to that effort. Many of the nation’s Flood Insurance
Rate Maps (FIRMs) are out of date and inaccurate—63 percent of maps are more than 10 years old. A
third of maps are more than 15 years old. About 2,700 communities are not mapped at all. New and
updated FIRMs can provide crucial guidance for future building, development, and flood mitigation
efforts—determining how and where individuals, private developers, and local governments build.
In 2003, FEMA will invest $350 million to modernize flood maps. FEMA also will digitize its maps
and make them available over the Internet.
FEMA also will dedicate $300
million
to a new competitive grant
Effectiveness of Mitigation Programs
for predisaster mitigation. This new
From 1993 to 2000, 45 percent of projects funded from
program will replace the formula-based
FEMA’s Hazard Mitigation Grant Program were either
Hazard Mitigation Grant Program
minimally cost effective or not cost effective at all.
currently funded through the Disaster
Relief Fund. The new program will
FEMA data provided to the Congress in 2000
operate independently of the disaster
relief programs, assuring that funding
remains stable from year to year and is not subject to spikes in disaster activity. Awarding grants on
a competitive basis will ensure that the most worthwhile, cost-beneficial projects receive funding.

THE BUDGET FOR FISCAL YEAR 2003

319

Disaster Relief
When major disasters strike, FEMA
provides
disaster
assistance
to
meet
emergency needs of families and individuals,
and to help pay for the rebuilding and repair
of critical community infrastructure. In 2001,
FEMA responded to 50 major disasters and
15 emergencies, as well as funding continuing
needs from previous disasters.
Major
disasters in 2001 included the September
11th attacks, Tropical Storm Allison, and the
Seattle-Tacoma earthquake.

Disaster Relief Fund
Outlays in billions of dollars

Hurricane
Floyd

Northridge, CA
Earthquake

Tropical
Storm
Allison

Hurricane
Fran

The Administration has set a goal of
0
meeting the needs of disaster victims for
1991
1995
1997
1999
2001
1993
shelter, food, and water within 12 hours
after the President declares a major disaster.
FEMA has automated its core disaster information processing systems to improve its response time
for disasters.
The budget provides for a program level of $2.9 billion for FEMA disaster relief—a level consistent
with the five-year average of obligations. To fund the program, the budget provides $1.8 billion in new
budget authority and commits to an intensive review of unspent balances beginning with the 1994
California Northridge earthquake that is expected to result in $1.1 billion in grant recoveries over a
two-year period. Unspent balances often result from mitigation and other projects that appeared to be
needed in the aftermath of a disaster but were not pursued after public review or further examination.
The five-year average is a reasonable benchmark for the resources FEMA will need to respond to
disasters. It is not always possible, however, to anticipate extraordinary events such as the incidents
of September 11th.

Proposed Reforms

•
•
•
•

Phase out taxpayer subsidies of second homes and vacation properties.
Require that mortgage borrowers insure the full replacement value of their properties.
End state taxation of flood insurance policies.
Include the cost of expected coastal erosion losses in premiums for policies issued in coastal areas.

Reforms for the National Flood Insurance Program
The National Flood Insurance Program (NFIP) faces major financial challenges. In some
years, the program has expenses greater than its revenue from insurance premiums, preventing
it from building long-term reserves to handle the costs of flood insurance claims. A large portion
of policyholders—29 percent—pay only a portion of the cost of their premiums, with the Treasury

320

FEDERAL EMERGENCY MANAGEMENT AGENCY

subsidizing the rest. By law, FEMA is prohibited from charging full premiums for properties built
before adoption of NFIP building standards by local communities. A small number of these older
properties are poorly situated and are repeatedly flooded, accounting for a significant share of the
program’s losses. In contrast, FEMA charges true actuarial rates for newer properties and requires
that new construction comply with floodplain management guidelines.
The budget proposes several reforms to improve financial performance and transfer greater
financial liability to individuals building in flood prone areas, as shown in the accompanying box.
In 2001, FEMA paid out $1.5 billion to settle flood insurance claims. The Administration seeks to
aid the recovery of individuals, businesses, and communities after floods by increasing the number
of flood insurance policies in force. FEMA will increase the number of policies in force by five percent
in 2003—to 5.1 million policies.

Transfer the Emergency Food and Shelter Program
The Emergency Food and Shelter Program was created in 1983 to help meet the needs of
hungry and homeless people throughout the United States by providing funds for emergency food
and shelter. Funds are used to support homeless shelters and other organizations that provide
assistance for those who are homeless, facing eviction, or in need of food assistance. FEMA has not
demonstrated the effectiveness of this program and has no expertise in managing programs for the
homeless. The budget proposes to transfer this program to the Department of Housing and Urban
Development—permitting better coordination of services for the homeless.

Strengthening Management
Charged with managing the response to major disasters, as well as coordinating consequence
management for terrorism events, FEMA effectively coordinates direct assistance—principally cash
grants—as well as the relief activities of other agencies and volunteer organizations. Generally,
FEMA performs well in getting resources to stricken communities and disaster victims quickly. The
agency performs less well in its oversight role to ensure the effective use of such assistance. Further,
the agency suffers from an inability to clearly measure program performance, or to link resources
to performance information. FEMA has begun to address the President’s Management Agenda, but
has a poor starting point in all key areas.

THE BUDGET FOR FISCAL YEAR 2003

321

Initiative

2001 Status

Human Capital —FEMA lacks a strategy for linking human capital to fiscal resources and
agency goals. FEMA needs to develop a workforce-restructuring plan that addresses how
the agency will attract and retain personnel with the skills to perform core agency functions
including program oversight and analysis. FEMA needs to address managing a fluctuating
cadre of temporary staff that performs front-line disaster assistance functions. FEMA also
should develop a strategy for redirecting supervisory positions to citizen service delivery.
FEMA must produce an interim workforce restructuring report by mid-2002 that will address
many of these issues.

•

Competitive Sourcing —FEMA has not produced a plan for meeting the Administration’s shortand long-term competitive-sourcing goals. FEMA must develop a new competitive sourcing
and management plan, then complete public-private competitions or direct conversions on 15
percent of the jobs on its list of positions that are commercial in nature by the end of 2003.

•

Financial Management —Despite the fact that FEMA has received audit opinions for three
years that the financial statements as a whole are in conformity with generally accepted
accounting principles, the agency has had repeated material weaknesses in its financial
management system, which does not comply with standards. FEMA’s financial management
system is unable to generate timely and reliable financial statements. In addition, FEMA needs
to improve its disaster cost projections, oversight of state administration of public assistance
and mitigation grants, and monitoring of unspent funds. FEMA will develop an implementation
plan for system improvements and develop improved disaster cost projections by mid-2002.

•

E -Government —Although FEMA has documented processes for outlining its systems
and capital planning investment needs, FEMA has not provided adequate justification
or documentation of its information technology (IT) projects to OMB and the Congress.
Traditionally, little oversight has been given to FEMA’s IT spending, and FEMA reallocated
funds from its various accounts to pay for projects. This led to ineffective and costly IT projects,
such as the agency’s core information tracking system, NEMIS, or National Emergency
Management Information System, which cost $67 million. The system has a history of crashing
during disaster response operations and cannot be easily adapted to program design changes.

•

Budget/Performance Integration —FEMA lags other agencies in integrating budget and
performance information. FEMA needs to develop performance measures that better capture
the relative effectiveness of its programs. The agency should link program activities to strategic
goals, and clearly articulate output and outcome goals for use in subsequent budgets.

•

322

FEDERAL EMERGENCY MANAGEMENT AGENCY

Federal Emergency Management Agency
(In millions of dollars)
2001
Actual
Spending:
Discretionary Budget Authority:
Salaries and Expenses ...........................................................
Disaster Relief Fund ................................................................
Emergency Management Planning and Assistance ...........
Pre-disaster Mitigation Grant Program .................................
Emergency Food and Shelter:
Existing Law .........................................................................
Legislative Proposal (Transfer to HUD) ............................
Flood Map Modernization Fund .............................................
All other programs ....................................................................
Subtotal, Discretionary budget authority adjusted 1 .................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

Estimate
2002

2003

224
1,597
372
—

245
2,113
431
—

249
1,821
3,750
300

140
—
18
97
2,448
−13
2,435

140
—
32
109
3,070
−12
3,058

153
−153
300
143
6,563
−13
6,550

Emergency Response Fund, Budgetary Resources:
Salaries and Expenses ...........................................................
Disaster Relief Fund ................................................................
Emergency Management Planning and Assistance ...........
Total, Emergency Response Fund, Budgetary resources ......

—
2,000
—
2,000

25
4,357
220
4,602

—
—
—
—

Mandatory Outlays:
National Flood Insurance Program:
Existing Law .........................................................................
Legislative Proposals ..........................................................
Total, Mandatory outlays ..............................................................

172
—
172

−296
—
−296

−317
−43
−360

Credit activity:
Direct Loan Disbursements:
Disaster Assistance Direct Loan Programs ..........................
Total, Direct loan disbursements ................................................

31
31

25
25

1Adjusted

to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION

The President’s Proposal:

• Realigns science programs to focus on high priority planetary exploration, climate
•
•
•
•

change research, and biological sciences;
Enables new technologies for more effective access to space, and accomplishing
more capable planetary missions;
Gets the massive cost overruns in NASA’s Human Space Flight development
programs under control while maintaining the U.S. core Space Station and the
necessary Space Shuttle flights to safely assemble it;
Reduces NASA’s operational and institutional burdens by pursuing activities like
Space Shuttle competitive sourcing, while furthering research goals in areas like
Space Station-related research and development; and
Promotes cost management reforms to ensure ongoing projects meet
performance, cost, and schedule plans.

The National Aeronautics and Space
Administration (NASA) pushes the frontiers
of discovery in space and aeronautics. It
supports science, technology, and exploration
in four areas: 1) Space Science to better
understand the origin and evolution of
the universe; 2) Earth Science to better
comprehend environmental forces including
the Earth’s climate; 3) Biological and Physical
Research that studies living and physical
systems in the environment of space; and 4)
Aeronautics Technology to improve aviation
safety, reduce air traffic congestion, and
enable breakthrough aircraft design.

National Aeronautics and Space
Administration

Sean O’Keefe, Administrator

www.nasa.gov

202–358–0000

Number of Employees : 19,005 Federal and
140,000 Contractor
2002 Spending : $14.5 billion
Field Offices : Nine federal centers and one
federally funded research and development
center.

NASA’s work in science, technology, and
exploration would not be possible without its pursuit of supporting capabilities such as space launch
vehicles (e.g., the Space Shuttle) and orbiting platforms (e.g., the Space Station). Supporting
capabilities currently consume about two-thirds of NASA’s $15 billion budget.

323

324

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Status Report on Select Programs
The Administration is reviewing programs throughout the federal government to identify strong
and weak performers. The budget seeks to redirect funds where appropriate from lesser performing
programs to higher priority or more effective programs. Particularly, when low performing programs
are in priority areas, deficiencies will be addressed through reforms to improve performance. The
following table presents the ratings of selected programs for illustrative purposes. Some of these
programs will be improved by proposals described in this chapter.
Program

Assessment

Explanation

Discovery and
Explorer Programs

Effective

Space science missions competitively selected from researcher
proposals. Successful cost/risk management and science results.

Mars Exploration
Program

Moderately
Effective

Robotic exploration of Mars. Completed major restructuring in wake of
spacecraft failures. Recovery from failures successful so far.

Space Launch
Initiative

Moderately
Effective

Preparation for competition to replace the Space Shuttle with lower
cost vehicles. Need to better understand key requirements and
manage risks.

Earth Observing
System Program

Moderately
Effective

Satellite remote sensing to understand global climate change. Need
improved integration with federal climate change and applications
efforts.

Aeronautics
Research

Moderately
Effective

Technology research to improve the nation’s aviation system and for
breakthrough aircraft. Need to better transfer technology to users.

Outer Planets
Program

Ineffective

Major planetary science missions. Large cost increases and schedule
delays. Budget proposes program restructuring.

Space Shuttle Safety
Upgrades

Ineffective

Need to address large cost overruns and schedule delays to improve
shuttle safety through effective investments.

International Space
Station

Ineffective

Supports space-based biological and physical research. Effective
technically, but need much better management controls to eliminate
huge cost overruns.

THE BUDGET FOR FISCAL YEAR 2003

325

NASA Development Projects Experience a
Range of Cost Growth
Percent growth

59%
50
40
30
20

NASA Goal

10
0

Number of Projects
Original Estimate

To Be
Determined

22%

11%

12%

Space
Science

Earth
Science

$3.6B

$1.4B

Aerospace
Technology
3
$437M

Human
Space
Flight
4

Biological
& Physical
Research
6

$14.2B

TBD

Source: NASA.

The accompanying chart shows total cost
growth for ongoing development programs
in each of NASA’s five enterprises or
organizational divisions.
Although ideally
no NASA enterprise would demonstrate
any cost growth, a goal of not exceeding 10
percent cost growth across all development
programs within an enterprise would be
realistic. NASA’s Space Science and Earth
Science enterprises nearly meet this goal.
Through management reforms and cost-saving
initiatives, NASA will increase the proportion
of its budget that goes directly towards
science, technology, and exploration activities
as described in the following section.

Science, Technology, and Exploration
In making investments in the nation’s
future, NASA must set priorities and establish
an integrated portfolio of research and
technology investments. One foundation of
ensuring quality science is the competitive
selection of merit-reviewed research. In most
areas NASA does this well. Its three science
enterprises will competitively award in excess
of 80 percent of their research in 2002—with
Space Science at 99 percent. The integrity
of NASA’s merit-based research is seriously
eroded by the practice of congressionally
directed spending known as earmarks. NASA
has suffered from a surge in both the number
and cost of earmarks.

NASA Earmarks Have Risen Dramatically
Total cost in
millions of dollars

Number of congressional
earmarks

600

140

500

120
100

400

80
300
60
200

100

0
1996

Source: NASA.

1997

1998

1999

2000

2001

2002

Earmarks Disrupt NASA’s Science Activities

Many earmarks in NASA’s budget have little to do with the agency’s mission in scientific research, technology
development, and exploration. For example, the Congress earmarked NASA’s current budget to fund
corporate jets, college dormitories, libraries, and museums. Some especially damaging earmarks divert funds
from critical NASA needs and reverse good cost management decisions at NASA. For example, after costs
had doubled, NASA cancelled its Pluto-Kuiper Belt mission last year, but the Congress earmarked funds to
put the mission back in NASA’s budget. However, the Congress only provided $30 million, while over $400
million more is needed to finish the mission. Congress also redirected $40 million from the Space Station
2002 budget to an unaffordable space test vehicle at a time when NASA is trying to get Station costs under
control. Finally, the Congress earmarked funds for a low priority propulsion lab by cutting the very research
the lab it is meant to support.

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NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

While the Congress adds partial funding to pay for some earmarks, funding often must be diverted
from higher priority activities. Unfortunately, the number and cost of earmarks have increased more
than fivefold in recent years (see accompanying chart). This detracts from the important science,
technology, and exploration activities described below.

Space Science
NASA is the sole federal agency that conducts planetary exploration, and is a major contributor to
studying the universe beyond our solar system. NASA develops and operates a wide array of space
probes and telescopes to answer fundamental questions about the evolution and structure of the
universe, galaxies, and stars including: how our own star—the sun—affects our planet; the origins
and development of planets and life; and the existence and distribution of life beyond Earth.
Overall Performance. NASA now routinely launches multiple missions in place of the
once-a-decade, multi-billion dollar missions that previously dominated Space Science research.
NASA currently has over 30 Space Science missions in operation, over 20 missions under
development, over 40 missions under study, and participates in many other international missions.
For Space Science missions under development, total cost overruns average 11 percent, and 60
percent of missions are within 10 percent of their planned development schedule.
In recent years, research sponsored by NASA and the
National Science Foundation identified approximately 80
new planets outside our solar system, and last year the
Hubble Space Telescope obtained the first chemical data on
the atmosphere of one of these planets. Future NASA space
telescopes will search for smaller planets, with the intent
of eventually finding and characterizing planets similar
to Earth. NASA planetary probes have also found that
water, a key ingredient in the development of life: existed
on Mars in the distant past; may still be present under the
surface of Mars (see accompanying image); and may exist
as underground oceans on one or more moons of Jupiter.
Future planetary missions will attempt to confirm these
water-bearing environments and search for evidence of life.
Despite these successes, NASA’s largest and most
technically challenging Space Science missions still suffer
from poor cost and schedule estimates. The Outer Planets
Images of gullies on Mars taken by NASA’s
program, whose goal was to uncover clues about the origins of
Mars Global Surveyor mission indicate
and potential for life on Jupiter’s moons and beyond, cannot
that large amounts of liquid water may be
be implemented as planned because some mission cost and
erupting from the surface today. This image
schedule estimates have nearly doubled. For example, NASA
shows an area of nearly seven square miles.
proposed to cancel the Pluto-Kuiper Belt mission because
of its skyrocketing costs. The Outer Planets program is also seriously hindered by the long time
needed to travel to key targets in the outer solar system and by a lack of adequate power sources.
Improving Performance. The Administration proposes to improve Space Science by:

• Improving Planetary Exploration. Given continued growth in cost and schedule estimates, the
President’s 2003 Budget redirects funding to a reformulated New Frontiers program driven by

THE BUDGET FOR FISCAL YEAR 2003

•

327

four key principles: clear science prioritization; frequent and affordable missions; competitive
innovation; and advanced technology. The budget redirects funds to this program by canceling
NASA’s existing Outer Planets Program. The revamped program will set science priorities
that support key goals for understanding the origins and existence of life beyond Earth. These
priorities will be flexible enough to allow NASA to maintain regular and affordable missions.
NASA will also select missions through open competitions instead of assigning development
to a NASA field center. NASA’s highly successful Discovery program will serve as the model
for this competitive selection process.
Greatly Expanding the Science Capability of Future Missions.
The budget proposes
investments in safe and reliable nuclear-electric propulsion and nuclear power technologies
that will enable much faster and more frequent planetary investigations with greater
science capabilities. In this decade, nuclear power technology will enable NASA to land
a rover on Mars to conduct experiments over several years, instead of several months,
thereby expanding scientific returns many fold. With nuclear-electric propulsion, affordable
planetary missions: could reach targets in half the time it would take now; would not be
limited by the power and mass constraints of today’s spacecraft; and could conduct long-term
observations of multiple planets or moons.

Why Study the Stars?

Astrophysical research sponsored by NASA and other federal research agencies tells a lot about where
we come from, whether we’re alone in the universe, how the fundamental laws of the universe work, and
how events beyond Earth may influence our future.
NASA’s Chandra X-ray Telescope mission, launched in 1999, can observe neutron stars, black holes, and
quasars, allowing physicists to see how the physical laws of the universe operate under conditions that
cannot be replicated on Earth. Another recently launched mission will create a baseline for observing how
future changes in the Sun’s energy output work as a major driver of change in the Earth’s climate. Other
space telescopes to be launched later this decade will be capable of detecting Earth-like planets that may
harbor life around other stars, and seeing how the earliest stars and galaxies formed in our universe.

Earth Science
NASA’s Earth Science program seeks better scientific understanding of Earth’s environmental
system, thus enabling improved prediction of climate, weather, and natural hazards.
Overall performance. In the past three years, Earth Science has successfully launched 11
missions. Current missions under development have cost overruns averaging 12 percent and most
are experiencing launch delays, as only 15 percent of missions are within 10 percent of their planned
development schedule.
Earth Science funds and performs the scientific inquiries to explain satellite observations and
improve climate predictions. For example, NASA’s Earth observing satellites and research: provided
advance warning of the last El Nino; aided control of major forest fires in the Western states
by providing near-real time data to the U.S. Forest Service; improved NOAA’s marine weather

328

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

forecasting; and collected the first high resolution data on global land cover and topography for
both basic research and applications such as agriculture and civil engineering. NASA has improved
climate-modeling speed tenfold since 2000, matching the best capabilities in Europe, and expects
another fourfold improvement by the end of 2002. Such improvements permit Earth scientists to
dramatically improve climate projections.
Nonetheless, significant challenges confront NASA’s Earth Science enterprise. Several of its
Earth Observing System missions now in development are facing costly delays in completion. Also,
NASA must demonstrate the ability to transfer responsibility for data collection from research
satellites at NASA to the operational satellites at the agencies that use them. NASA will be
undertaking two such demonstrations—the National Polar-orbiting Operational Environmental
Satellite System Preparatory Project and the Jason follow-on—which will measure key variables
that are needed to provide long-term, quality data to understand how the Earth’s climate is
changing.
Improving Performance. The Administration proposes to improve Earth Science by:

• Focusing

•

Science.
The President’s
Budget proposes a multi-agency
Why the Increasing Uncertainty About Global
Climate Change Research Initiative
Change?
(CCRI), which will focus on providing
Although increased knowledge usually reduces
useful information and understandable
uncertainties, sometimes the opposite can be
climate products in the near term (two
true. Take the question of global climate change.
to five years). In 2003, NASA will
Since 1990, many billions of dollars has been
participate in CCRI but will not initiate
devoted to research on climate change, yet
development of new follow-on satellite
predictions regarding the range of possible
missions until a government-wide
changes in temperature due to increasing carbon
review of the interagency United
dioxide concentrations has become broader,
States
Global
Change
Research
rather than narrower. This is not a failure of the
Program determines the best means for
research community. Scientists have gained a
achieving CCRI goals.
great deal of knowledge over the past decade. A
More Science at Less Cost. NASA has
big part of that new knowledge has been that the
traditionally owned and operated the
Earth’s atmosphere is much more complex − and
satellites it needs to provide scientific
unpredictable − than originally thought.
data. However, with the development
of commercial satellites that sell
Earth images to customers, NASA will
now purchase data from commercial sources to sustain the 30-year set of images of the
Earth’s surface, rather than building and flying an eighth Landsat satellite. NASA will
share its remote sensing capabilities with other federal agencies, as well as state and local
governments seeking to achieve their own objectives.

Biological and Physical Research
NASA uses space to accelerate scientific progress and to understand and control the health risks
to humans in space. Space provides a unique environment to focus on the fundamental biological
processes that are masked by the presence of gravity here on Earth.

THE BUDGET FOR FISCAL YEAR 2003

329

Overall Performance.
The Space
Space Station Significantly Increasing
Station is the primary means to conduct
Crew-Hours for Research
Annual crew-hours
high-quality biological and physical research
2,000
for the foreseeable future. The accompanying
Station Research
chart illustrates how the Space Station has
Shuttle Research
significantly expanded the number of hours
1,500
that astronauts spend conducting research
in orbit. Forty-seven distinct experiments
1,000
have already begun on the Space Station.
One discovery revealed growth patterns
500
in microscopic crystals that could lead to
No
improved manufacturing for pharmaceuticals
Research
and other materials. However, NASA’s science
Missions
0
strategy does not adequately prioritize among
1998
1999
2000
2001
2002
Source: NASA.
the many disciplines interested in the Space
Station and their multiple objectives, thus
impeding significant progress. Moreover, the development of research equipment for the Space
Station has suffered from multiple design changes, repeated delays, and insufficient oversight. Poor
cost controls have been the result.
Improving Performance. The Administration proposes to improve Biological and Physical
Research by:

• Establishing and Pursuing Science Priorities. This year, NASA will be working with the White

•

House Office of Science and Technology Policy (OSTP) to engage the scientific community and
establish clear high-priority, affordable science objectives with near-term focus on improving
scientific productivity. The results of this review will help set the science agenda for Biological
and Physical Research that will in turn drive how the Space Station is used. It should increase
the efficiency and output of research at the Station, and realign NASA’s research portfolio to
reflect current priorities.
Diversifying Research Platforms. While the Space Station will be the focus of biological and
physical research, alternative space platforms are needed to fill gaps in research the Station
cannot do. Examples include conducting radiation experiments on probes beyond the Van
Allen belts—where the near-Earth environment no longer provides shielding from solar and
galactic cosmic radiation. This budget provides increased funding for the Space Radiation and
Space Biology Generations programs to launch multigenerational research both in low-Earth
orbit and beyond the Van Allen belts, that could uncover the effects of those environments on
evolutionary processes.

Aeronautics Technology
NASA develops aeronautics technologies to address long-term issues in the nation’s air system.
NASA works with the Federal Aviation Administration (FAA) to advance technologies that can
improve aircraft safety, alleviate airport congestion, and reduce air and noise pollution from aircraft.
Overall Performance. NASA assesses its progress in aeronautics research by measuring the
potential impact of new technology developments on the aviation system. For example, NASA

330

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

investments in engine technology have the potential by 2005 to reduce the pollution from jet engines
to half of what they were in 1999.
Although NASA’s aeronautics programs generally demonstrate good progress, there is no way to
ensure that NASA is developing technology that will actually be incorporated into the national air
system. NASA also conducts the majority of its aeronautics research itself, rather than opening up
competition that could take advantage of skills and innovation in the private sector and academia.
Improving Performance. The Administration proposes to improve Aeronautics Technology by:

• Improving the Likelihood Technology Gets Used. To ensure that NASA technology investments

•

are incorporated into the national air system, NASA will strengthen its ties with the FAA.
Also, OMB and OSTP will be working with major research agencies to develop new criteria
for evaluating applied research, like NASA’s aeronautics research, in preparation for the 2004
Budget.
Expanding Quality Reviews and Competitive Opportunities. NASA will have the National
Academy of Sciences undertake reviews of its aeronautics technology program (as well
as space transportation and fundamental technology) every three years. These reviews
will provide independent quality assessments of NASA’s technology research and program
planning, whether the research can be performed by universities or corporations outside
NASA, and how well NASA’s technology research integrates with customer needs. NASA will
also seek to reduce institutional costs at its field centers so more funds can be invested in
technology research through openly competed NASA research announcements and through
university and industry partnerships.

Supporting Capabilities
NASA has had many technical successes,
but is hampered by the high cost of access
to space—nearly a third of its budget—and
struggles to achieve a management capability
that matches its technical capability. There
has been significant cost growth in several
areas, and a lack of competition to help spark
innovation. Needed reforms are beginning
to improve NASA’s ability to manage its
long-term, complex and challenging programs
within cost and schedule plans.
NASA
will build a new foundation to prepare its
capabilities for the future, while reducing the
cost of supporting capabilities—now nearly
two-thirds of the agency budget.

Only About a Third of the NASA Budget
Is for Science & Technology
Science &
Technology
$6 Billion

Supporting
Capabilities
$9 Billion

Space Launch
NASA provides transportation to and from space for humans and cargo using the Space Shuttle,
and uses commercial expendable rockets for the launch of many science spacecraft.

THE BUDGET FOR FISCAL YEAR 2003

Overall Performance. The Space Shuttle
is the only U.S. vehicle that can launch
humans into space and return experiments
from orbit. Since the Challenger tragedy,
NASA has been improving the safety of the
Space Shuttle, from an estimated risk of
catastrophic failure during launch for each
mission of one in 78 in 1986 to one in 556 now.
This improvement took place even as staffing
for the Space Shuttle has dropped significantly
(see chart on Space Shuttle reliability). NASA
continues to invest in improving Shuttle
safety, but some of the planned investments
are experiencing significant problems (see
chart on cost overruns). For example, the
electric auxiliary power unit was the highest
priority safety upgrade last year, but delays,
technical difficulties,
decreasing safety
benefits, and a tripling of its projected cost
led NASA, with the support of its advisory
committee, to cancel the project.
While the safety and schedule record of
Shuttle operations has been very good, and
costs have come down considerably in the last
decade, the Shuttle remains a very expensive
vehicle to operate.
Moreover, in the last
few years, Shuttle costs have been rising
considerably, due to personnel costs, aging
infrastructure, growing vehicle obsolescence,
and a shrinking industrial base. A comparison
of the cost to orbit for the Shuttle relative
to other space launch systems is provided in
the accompanying chart, which underscores
the need to quickly develop a new system for
space launch.

331

Space Shuttle Reliability Improved while
Staffing Levels Decreased
Staffing level

Expected launches before failure

35,000

700

30,000

600

25,000

500

20,000

400

15,000

300

Potential Range
with Competitive
Sourcing

10,000
5,000

200
100

1991

1996

2001

2006

Source: NASA.

Cost Overruns of Shuttle Safety Upgrades
Percent cost overrun from 2001 to 2003

250

200

Cancelled
150

Cancelled

100

NASA Goal: 10%
50

Main Engine
Health Monitoring
Phase II
Source: NASA.

Electric
Auxiliary Power
Unit

Cockpit
Avionics
Phase I

Improving Performance. The Administration proposes to improve space launch by:

• Improving

•

Shuttle Safety. This budget continues to invest in safety improvements for the
Space Shuttle and increases investment in repairing aging Shuttle infrastructure. Planned
safety upgrades will enhance safety during launch by 12 percent, to a one in 620 risk of
catastrophic failure. Delays in the planned implementation of these upgrades continue to be
a concern, so funding will be set aside specifically to accelerate the availability of planned
upgrades.
Pursuing Shuttle Competitive Sourcing. Competitive sourcing will enable the full transfer of
Shuttle operations and possibly some portion of infrastructure ownership to a private entity,
based on criteria in the accompanying box. The benefits of pursuing competitive sourcing are:

332

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

1) greater flexibility to recruit and retain the skilled personnel necessary to safely operate
the Shuttle; 2) avoiding potential continued cost growth for Shuttle operations by moving to
a private organization that has greater flexibility to make business decisions that increase
efficiency; and 3) significant culture change in Human Space Flight at NASA by making it a
purchaser of services rather than an operator of infrastructure. Adapting such an approach
will let NASA focus on advancing the state of science, technology, and exploration. NASA will
release competitive sourcing plans this year that will address important issues such as how
to effectively transfer critical skills from the federal workforce to a private entity.

Shuttle Competitive Sourcing Criteria

1) Safety . Maintain safety over operating life for at least the next 10 years. Provide for appropriate
government role to ensure essential safety features.
2) Competitive Sourcing . Transfer appropriate NASA personnel, assets, and facilities needed for Space
Shuttle operations to a private entity. Enable NASA to focus on advancing the state of science, technology,
and exploration.
3) Competition . Ensure a competitive environment to satisfy government space launch requirements
and maintain a robust U.S. space launch industry.
4) Cost. Establish a baseline and conduct cost comparisons based on the full cost (operations,
maintenance, upgrades, infrastructure, personnel) of the Shuttle program, not to exceed the President’s
2003 five-year budget for the Shuttle.
5) Business Base . Enable pursuit of other government and commercial business opportunities consistent
with principles of a level playing field and international trade policy. Business risks from dependence on
outside business will be borne by a private entity, not the government.
6) Future Plans. Ensure consistency of Shuttle launch commitments, upgrades and infrastructure
investments with future decisions on development of new launch systems.

• Controlling

Shuttle Cost Growth. As
recommended by the International
Space Station Management and Cost
Evaluation task force, reducing Space
Shuttle flights to four per year appears
sufficient to meet Station needs.
However, NASA will be reviewing this
decision to determine whether any
additional flights are necessary. Other
adjustments are being pursued as well,
such as the size of the astronaut corps
and the period of time between Shuttle
overhauls.

Goal to Reduce Launch Costs
Dollars in thousands per pound of cargo to orbit

Actual

Goal

10
8
6
4
2
0

Space Shuttle

U.S.
Commercial
Rockets

Sources: NASA and Federal Aviation Administration.

Space Launch
Initiative

THE BUDGET FOR FISCAL YEAR 2003

333

• Pursuing

Space Launch Initiative.
Reduced Launch Costs Create
Another major investment in space
Opportunities
transportation is the Space Launch
Initiative (SLI) which could pave the
Launch Costs Reduced
way for replacing the Space Shuttle
NASA Budget
early in the next decade with much safer
and less costly vehicles. Investments
in SLI will reduce the huge burden on
SLI
NASA’s budget from the high cost of
access to space. Reducing the nearly $5
New Opportunities
billion annually that NASA spends on
access to space will free up billions for
Current
Future if Space
future opportunities (see accompanying
Situation
Launch Initiative
chart). To minimize costs across NASA’s
(SLI) is Successful
programs, NASA will coordinate and
potentially integrate emergency crew return capabilities for the Space Station with SLI
vehicle design efforts. To most efficiently use government resources, NASA will also increase
coordination with the Department of Defense on launch technologies, and improve cost and
risk management capabilities.

Space Station
NASA is building the International Space Station
to create a laboratory for scientific research in the
unique environment of space.
Overall Performance. With the second phase
of Space Station construction now complete, a fully
functioning orbital research laboratory circles the
Earth every 90 minutes. Astronaut crews aboard the
Station have been exceeding expectations by devoting
an increasing amount of time to science activities.
In spite of these technical successes, the Space
Station has not succeeded at staying within planned
costs. Last year, NASA determined that it needed
a 50 percent funding increase to its remaining $8.3
billion budget to finish the planned Space Station.
The request marked the latest chapter in a history
of cost growth. To keep the Station within planned
budgets, the Administration scaled it down to a core
Station. The Space Station’s Management and Cost
Evaluation (IMCE) task force called on the space
agency to undertake management changes to achieve
the core Station’s goals.

Research on the Space Station has already
made important discoveries that could improve
manufacturing processes for pharmaceuticals and
other materials on Earth.

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NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Improving Performance. The budget adopts many of the key recommendations of the IMCE
task force, including:

• Improving

•

Science Efficiency. NASA is exploring how to increase the amount of time
available for research, to achieve the maximum scientific benefit from the investment in the
Space Station. One option involves creating a non-governmental organization (NGO) as soon
as possible to more efficiently manage research aboard the Space Station. NASA created
a similar organization in 1981 to support the Hubble Space Telescope, and the availability
for research time rose by a factor of two. NASA is exploring many other options to increase
science efficiency such as easing the maintenance burden on the orbiting crew and increasing
automation of research facilities.
Demonstrating Needed Reforms within Two Years. NASA must demonstrate over the next two
years that it has made the necessary management reforms and changes in the human space
flight program to get the Space Station costs under control. For example, NASA must give
the Station program more authority over contractors and civil servants working on the Space
Station. Less than half the Space Station’s contractors and only a sixth of the civil servants
working on it report directly to the program. The Administration is developing criteria to
judge NASA’s success. If NASA is successful, the Administration will address the resource
requirements to expand the capability of the Station, based on research priorities. If NASA
is not successful, U.S. assembly of the Space Station will end with the completion of the core
Station, expected sometime in 2004.

Field Centers
NASA relies on nine field centers and one federally funded R&D center for implementation and
day-to-day management of its programs.
Overall Performance.
Although
all NASA field centers have room for
improvement, performance varies widely.
Lean field centers unburdened by institutional
needs are more agile and thus more
capable of pursuing future directions in
science, technology, and exploration.
The
accompanying chart shows that NASA’s Ames
Research Center in California has begun to
reduce institutional and in-house activities to
expand opportunities for competitive, external
research.
Such dedication to institutional
reform ensures that research per federal dollar
is maximized.

NASA Ames Research Center Spending
More on Outside Research
In millions of dollars

800
Outside Research
700
600
500

In-House Research and Support

88
526

355

135
514

400

352

300
200
100
0
1994

2000

2006

Source: NASA.

Improving Performance.
To improve
program and institutional management, NASA will take the following actions this year:

• Strategic Resources Review. NASA will begin outsourcing and consolidation efforts to improve
the ability of its field centers to respond to future challenges in science, technology, and
exploration. One pathfinder effort would transfer a portion of NASA’s Ames Research Center
activities to a University-Affiliated Research Center organization, in order to greatly improve

THE BUDGET FOR FISCAL YEAR 2003

•

335

the flexibility of its workforce and facilities and ensure access to world-class researchers.
Other pathfinder efforts may include consolidating some NASA facilities with military
installations.
Improving Cost Management. Huge cost growth on the Space Station has highlighted the need
for improved cost estimating capability in Human Space Flight, but this capability needs to
be strengthened across the agency. NASA will implement a plan of action to: 1) generate
independent cost estimates, particularly in Human Space Flight, and improve the capability
of program offices to credibly estimate costs; 2) strengthen and use the capabilities of the chief
financial officer and system management offices at all NASA centers; 3) strengthen NASA
headquarters capabilities for cost assessment and tracking program execution; and 4) increase
NASA’s use of outside experts to conduct rigorous independent cost and risk estimates of major
programs.

Strengthening Management
Apart from the specific performance improvements discussed above, the Administration seeks to
improve the management of NASA in a number of areas that will benefit all activities. Five specific
problem areas slated for improvement are part of the government-wide President’s Management
Agenda.
Initiative

2001 Status

Human Capital—NASA is pursuing management reforms that will alter its workforce.
NASA needs to continue to attract and retain employees with critical skills while
depending on outside organizations for most others. Two obstacles complicate
resolution. NASA has skill shortages in some key areas and excesses in others.
NASA also has limited capability for personnel tracking and planning. To address
these challenges, NASA will develop and implement an overall human capital strategic
plan complete with needed reforms.

•

Competitive Sourcing —NASA has identified 4,333 of its 19,005 positions as engaging
in commercial activities, but has yet to develop a plan to achieve the competition goals
for its commercial positions (15 percent by 2003 and 50 percent long-term). NASA also
needs to significantly increase the portion of its functions classified as commercial,
and to exempt fewer of them from cost comparisons. NASA will incorporate the three
major outsourcing efforts for Space Shuttle competitive sourcing, Space Station
non-government organization, and Strategic Resources Review initiatives in its next
analysis. NASA will present an integrated competitive sourcing plan in 2002 to
achieve the 50 percent long term goal including, for each year, specific targets, costs,
schedules and explanations of competitive sourcing mechanisms.

•

Financial Management —NASA financial management systems allow the agency to
track resources, but the agency lacks systems to support day-to-day operations and
track task completion. Implementation of NASA’s Integrated Financial Management
System (IFMS) in 2004 will provide support in the future and implement full cost
management with NASA’s 2004 Budget. NASA will proceed with IFMS implementation
and seek to accelerate it where justified.

•

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NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

Initiative

2001 Status

E-Government —NASA has failed to adequately justify its information technology (IT)
investments. NASA will continue to improve its Enterprise Architecture, and the Chief
Information Officer will ensure that the IT planning process is integrated into agency
decision-making processes.

•
•

Budget/Performance Integration —NASA has had difficulty in identifying appropriate
annual R&D measures for multi-year programs. NASA will prepare multi-year
program-level performance measures for all programs for its next performance plan.
These performance measures will originate with the program and project managers.

National Aeronautics and Space Administration
(In millions of dollars)
2001
Actual

Estim ate
2002
2003

Spending:
Discretionary Budget Authority:
Human Space Flight ...........................................
Space Shuttle ..................................................
Space Station ..................................................
Other Programs ..............................................
Science, Aeronautics and Technology .............
Space Science ................................................
Earth Science .................................................
Biological and Physical Research ................
Aero-Space Technology ................................
Other Programs ..............................................
Inspector General ................................................
Subtotal, Discretionary budget authority
adjusted 1 .............................................................
Remove contingent adjustments ..................
Total, Discretionary budget authority ....................

7,198
3,119
2,128
1,951
7,135
2,618
1,771
365
2,248
133
24

6,797
3,273
1,722
1,802
8,082
2,873
1,631
823
2,528
227
25

6,173
3,208
1,492
1,473
8,918
3,428
1,639
851
2,856
144
26

14,357
−104
14,253

14,904
−111
14,793

15,117
−117
15,000

Emergency Response Fund, Budgetary
resources ..............................................................

—

108

—

Adjusted to include the full share of accruing employee pensions and annuitants
health benefits. For more information, see Chapter 14, "Preview Report," in Analytical
Perspectives .

NATIONAL SCIENCE FOUNDATION

The President’s Proposal:

• Underwrites cutting-edge discovery in science and engineering to provide
significant breakthroughs in information technology, climate change research,
mathematics, nanotechnology, and fundamental research related to combating
bioterrorism;
• Concentrates more of the government’s basic research under the National Science
Foundation because it has the most competitive and effective research funding
process in the federal government;
• Improves the quality of math and science education through the President’s Math
and Science Partnerships Initiative; and
• Attracts more of the most promising U.S. students into graduate level science and
engineering by providing larger annual stipends.

The National Science Foundation (NSF)
is responsible for advancing science and
National Science Foundation
engineering in the United States.
NSF
Dr. Rita Colwell, Director
carries out its mission primarily by making
merit-based grants to individual researchers
www.nsf.gov 703–292–5111
and groups at more than 2,000 U.S. colleges,
Headquarters : Arlington, VA
universities and other institutions. Although
NSF represents about four percent of the total
Number of Employees : 1,204
federal budget for research and development,
2002 spending : $4.6 billion
it accounts for approximately one-fourth of all
federal support for basic research at academic
institutions.
NSF evaluates research and
education proposals using two criteria: the scientific merit of the proposed activity and the
prospective impact on society. NSF categorizes its programs to align with its three strategic goals:
1) Ideas (research); 2) People (education); and 3) Tools (facilities and instrumentation).

Ideas
To foster discoveries in science and engineering, NSF primarily invests in researchers and
educators at colleges and universities. The majority of grant recipients’ work is in basic research
(Ideas), which can yield important scientific discoveries that may lead to many applications. These

337

338

NATIONAL SCIENCE FOUNDATION

applications have driven economic growth and have enhanced the quality of life through advances
such as better weather forecasting, earlier detection of cancerous tumors, and the creation of the
Internet.
Although private industry has expanded its support for basic research over the past several years,
its research focuses mostly on the short-term in order to bring new products to market. Federal
investments in basic research provide a long-term foundation for breakthrough applications in areas
not usually supported by private industry.
Overall Performance. NSF is the leading
performer among federal agencies funding
basic research. For example, of the nearly
10,000 awards NSF makes annually, 94
percent of the research awards are made
through competition, based on merit review.
A competitive merit review process ensures
that high-quality research is funded. The
accompanying table displays the percent of
research competed at selected federal agencies.
NSF’s competitive approach pays rich
dividends.
Its grants often lay the early
foundation for future breakthroughs.
For
example, of the 11 Nobel Prize winners in the
sciences in 2001, eight received NSF funding
for the research that won them the award.

NSF-supported scientists are using a video camera on the back
of a horseshoe crab to decipher the neural code for vision.

Agency

Percent of Research
Competed in 2001

National Science Foundation ......................................

Department of Health and Human Services .............

National Aeronautics and Space Administration ......

Department of Commerce ...........................................

Department of Energy ..................................................

To further ensure high quality in its programs, external panels assess approximately one-third of
NSF’s programs each year, so that all programs are reviewed in a three-year period. During the past
two years, these panels have judged the majority of the programs assessed to be of high quality and
efficiently managed. NSF’s reputation for running an efficient and effective competitive merit-review
process has enabled it to provide leadership to other agencies, such as the Environmental Protection
Agency and the Department of Education, in improving their research programs.

THE BUDGET FOR FISCAL YEAR 2003

339

One of NSF’s many strengths is its
flexibility
to redirect resources to emerging
Creation of the Internet and the World Wide
science
and engineering opportunities.
Web
Unlike other agencies that own and operate
Computers and information networks have
numerous laboratories, NSF owns facilities
significantly changed the way we live and how
related to only a few programs, such as the
people interact with each other. NSF has
U.S. Antarctic Program. NSF is largely free
been pivotal at many steps along the way. The
from ongoing institutional obligations.
In
NSF-supported NSFNET (1986–1995) has been
addition, NSF awards do not last indefinitely.
transformed into today’s Internet. Its backing of
The average NSF grant is typically for three
computer science research led to the creation of
years. This minimizes research stagnation or
a graphic browser (MOSAIC) which precipitated
funding research that ceases to be important
the creation of the World Wide Web.
or cutting-edge.
NSF also maintains
programmatic flexibility by funding over
one-half of new grants entirely in one year,
rather than through installments. Instead of carrying financial commitments into future years,
NSF can quickly redirect resources to new areas of emerging opportunity.
All these features contrast starkly with the
increasing amount of federal research dollars
directed by congressional earmarks to projects
without due regard to competition or merit.
The Administration’s overall aim is to
position NSF to invest in priority research
areas, such as information technology and
nanotechnology, which connect discovery
to learning, innovation, and benefit to
society.
Nanotechnology, which involves
controlling the building of small and large
structures atom by atom, holds promise for
the development of technologies that could
range from higher-performance materials to
biomedical instruments as small as human
cells.

Small Streams Contribute Far More Than
Previously Thought to Cleaning Waterways

Excess nitrogen can cause ecologically
damaging effects in large waterways. Small
streams remove nitrogen from water faster than
do their larger counterparts. This finding is based
on data collected from streams in NSF’s Arctic
Tundra Long-Term Ecological Research site in
Alaska. According to the research, the smaller
the stream, the more quickly nitrogen can be
removed. Taking greater care to ensure small
streams can work effectively to clean the water
will reduce the overall nitrogen load that makes
its way into larger bodies of water. The finding
could have important implications for land-use
policies in watersheds from the Chesapeake Bay
on the East Coast to Puget Sound in the West.

Priorities like these tend to arise from
NSF’s core research efforts–disciplinary and
multidisciplinary programs that support ideas
generated by the academic community. NSF
allocates approximately 25 percent of its research budget in priority areas that will deliver scientific
breakthroughs, and 75 percent in core programs to build the capacity needed for the emergence of
new technologies.
Improving Performance. The President’s Budget proposes to improve the quality and efficiency
of federal funding of basic research at NSF by:

• Emphasizing

research in highly promising, multidisciplinary areas.
In addition to
nanotechnology, the 2003 Budget provides significant NSF funding for fundamental research

340

NATIONAL SCIENCE FOUNDATION

•

related to bioterrorism, information technology, mathematics, and climate change. Each of
these areas has the potential for significant breakthroughs.
Improving the quality of a number of science and engineering programs by transferring them to
NSF. Based on NSF’s noted expertise and success in funding competitive research, the budget
transfers the National Oceanographic and Atmospheric Administration’s (NOAA’s) Sea Grant
program and the U.S. Geological Survey’s toxic substances hydrology research program to
NSF to conduct merit-based competition and improve program effectiveness. The Sea Grant
program will be administered in partnership with NOAA to ensure that the agency’s research
and outreach objectives are reflected in the program’s ongoing work. The Administration may
also transfer non-competitive funding from the Smithsonian Institution’s astrophysics and
environment programs to NSF, following a program review by an independent panel.
Improving efficiency of research by increasing grant size. One means of improving research
efficiency is by providing adequately-funded grants to ensure the proposed work can be
accomplished as planned. Inadequately funded grants can result in an inefficient research
process, with an award only funding a portion of a research project. A researcher then has
to write additional proposals to get funding to complete the project and realize research
objectives. The 2003 Budget increases the average annual NSF award size to $120,000,
an increase of approximately $30,000 since 1998. NSF believes reaching this award size
will result in approximately 200 fewer awards (a two percent reduction), from 2002. NSF
also believes that the increased size will help ensure that its grants are more effective in
achieving research project objectives.

People
NSF
invests
in
People—students,
researchers, and educators—to strengthen
math, science, environmental, and engineering
education, thus equipping the American
workforce for the challenges of the 21st
Century.
Overall Performance. Longtime concern
persists over the state of grades K–12 science
and mathematics education in the United
States. The Third International Math and
Science Study compared American and other
countries’ students in math and science and
found that U.S. fourth graders did relatively
well in both subjects. But by the time they
reached their senior year in high school,
U.S. students ranked among the worst in the
world. In 2000, the National Assessment of
Educational Progress showed no improvement
in U.S. student performance in science and
limited improvement in mathematics since
1996.

NSF-supported graduate fellows are helping teach math and
science concepts to students in kindergarten through twelfth
grades.

THE BUDGET FOR FISCAL YEAR 2003

341

Achievement in mathematics and science
is most directly dependent on state and
Achievement score
local educational systems. NSF’s role is in
600
supporting new models of math and science
education.
In the past decade, NSF has
Average Score - All Countries
supported
new
models that, if successful,
500
could be adopted by state and local districts,
which have the resources to implement those
models.
Initial indications are that some
400
of these NSF-supported models are proving
successful in improving student achievement.
For example, over the first six years of
300
the NSF-funded Chicago Urban Systemic
Canada
Germany
Italy
South Africa
Netherlands
France
Russia
United States
Initiative, the percentage of fourth grade
Source: Third International Math and Science Study, 1996.
students meeting Illinois state standards in
science increased from 46 to 66. For the NSF-funded San Antonio Urban Systemic Initiative,
the average scores of African-Americans in grade 4 on the Texas Assessment of Academic Skills
increased by 32 percent over four years, and those of Hispanic students by 39 percentage points,
compared to a 16 percentage point increase for Texas fourth-graders overall.
Math and Science Literacy in Final Year of
Secondary School

In the area of graduate education there is concern that fewer U.S. students are enrolling in U.S.
graduate science and engineering programs. Since 1993, enrollment of U.S. students in graduate
level science and engineering programs dropped by nine percent. During the same period, enrollment
of foreign students on temporary visas increased by three percent. If fewer scientists and engineers
are entering the workforce, U.S. high technology firms may have to increasingly rely on foreign high
technology workers who are in the U.S. on temporary non-immigrant worker visas.
A recent survey of the Department of Education found that 57 percent of surveyed U.S.
baccalaureate recipients did not apply to science and engineering graduate programs for financial
reasons. Using their bachelor in science or engineering degree to get a job that may pay more than
twice the level of a graduate student stipend (salary) is often more enticing to a person carrying
debt from undergraduate school. One strategy of enabling U.S. students to go on to graduate school
is to provide competitive stipends to ease the financial burden. NSF performance in the 1990s in
providing competitive stipends was not good. From 1993 to 1999, NSF stipend levels dropped as
a percentage of starting salaries for bachelor students in the sciences and engineering from 65
percent to 52 percent and the difference may be growing wider.

Higher Scores in West Virginia

Students in West Virginia are considered “proficient” if they score above the 50 th percentile on the SAT-9.
At the outset of the NSF-funded Appalachian Rural Systemic Initiative education project in 1996, schools
participating in the project were scoring below the state average in both mathematics and science. By 2000,
those same schools show a marked improvement in the number of students scoring in the upper percentiles.
Most importantly, students in participating schools have not only “closed the gap” but all participating schools
have surpassed the state average in mathematics.

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NATIONAL SCIENCE FOUNDATION

Improving Performance. The President’s Budget proposes to strengthen math and science
education in the United States by:

• Improving the quality of math and science education in Grades K–12 through the President’s

•

Math and Science Partnerships Initiative. Support for the President’s Math and Science
Partnerships initiative is increased in the 2003 Budget. The Partnerships Initiative builds
on the fact that while states and local governments deliver education, NSF has a proven
record in supporting successful models to enhance math and science curriculum and student
test scores as a result. The Initiative provides funds for states and local school districts to
join with institutions of higher learning, particularly with their departments of mathematics,
science, and engineering, to beef up math and science education.
Attracting the most promising U.S. students into graduate level science and engineering by
providing more competitive stipends. The 2003 Budget increases the annual stipends for NSF’s
fellowship and traineeship programs from $21,500 to $25,000 to further attract U.S. students
to graduate level programs in science and engineering. NSF also will conduct a study on
graduate stipends in 2002 to recommend what the ultimate target for graduate stipends should
be as well as develop measures to assess its impact on the larger national effort to increase
and improve graduate students in science and engineering.
Improving quality of environmental education programs. Based on NSF’s noted expertise and
success in funding competitive programs, the budget transfers the Environmental Protection
Agency’s environmental education program to NSF to improve program effectiveness and
merit-based selection.

Tools
NSF invests in widely accessible, state-of-the-art
science and engineering Tools—sophisticated instruments,
equipment, facilities, databases, and large surveys. NSF’s
funding of facilities has grown and diversified and now
includes shared-use research facilities that are often
connected by high-speed networks.
Except for U.S. Antarctic Program facilities, NSF does
not directly operate the large-facilities that it supports, such
as the Gemini North telescope in Hawaii or the Terascale
Supercomputer in Pittsburgh. NSF primarily makes awards
to universities and non-profit organizations to construct,
manage, and operate large projects.

The Gemini North Telescope on Mauna Kea in
Hawaii provides some of the sharpest images
of any telescope on Earth.

Overall Performance.
Research agencies must
strive to keep the development and upgrade of research
facilities on schedule and within budget. In running the
facilities, agencies should keep the operating time lost due to
unscheduled downtime to a minimum. NSF does relatively
well in meeting these goals. In 2000, all 11 construction
projects that NSF supports were within 10 percent of
their estimated annual cost, and seven of the 11 projects
were within 10 percent of meeting their annual schedule

THE BUDGET FOR FISCAL YEAR 2003

343

milestones. Also in 2000, 22 of 26 operating facilities kept time lost due to unscheduled downtime
to less than 10 percent of the total scheduled operating time. For major capital projects completed
since 1996, cost growth on five science projects was eight percent (or $36 million), generally less
than the average cost increase for major projects at most science agencies.
Although NSF has done relatively well in managing construction of its large facilities, project
complexity, cost, and risk are increasing. Future projects will challenge traditional NSF approaches.
To address this concern, the Administration directed NSF to develop a plan to enhance its
management of large facility projects. In response, NSF is now implementing a Large Facilities
Projects Management and Oversight Plan that improves the process for reviewing and approving
large projects and increases oversight of its projects. All current and future large projects will be
subject to these new guidelines and oversight.
Improving performance. The President’s Budget proposes to improve NSF investments in
Tools by:

• Enhancing

•

infrastructure capabilities
in astronomy, earthquake research,
The Really Sharp and The Really Fast
and the environment.
The budget
The Gemini Telescope Project is an international
proposes initiating construction of
partnership that will result in two 8.1-meter
the international Atacama Large
telescopes (each telescope has a main mirror
Millimeter Array telescope in Chile
over 26 feet across.) One telescope, partly
and the Earthscope projects across the
funded by NSF, is located on Hawaii’s Mauna
United States. The Atacama Large
Kea, and the other on Chile’s Cerro Pachón.
Millimeter Array will be the world’s
Each of the Gemini telescopes is designed to
most sensitive, highest resolution,
provide some of the sharpest images of any
millimeter-wavelength
telescope.
telescope on (or even above) our planet. In many
This telescope will serve as a testing
instances, the Gemini telescopes will outperform
platform for theories of star birth and
even the Hubble Space Telescope in clarity. Both
stellar evolution, galaxy formation
telescopes will be fully operational in 2002.
and evolution, and the evolution of
the universe itself. Earthscope will
With the capability to perform up to six trillion
provide several instruments, some
calculations every second, the NSF-funded
portable, to investigate the structure
Terascale Computing System in Pittsburgh will
and evolution of the North American
be the world’s most powerful computer doing
continent and the physical processes
public research. In tests in 2001, the machine
controlling earthquake and volcanic
established itself as the second-most powerful in
eruptions. This will provide significant
the world. The Terascale computer will be used
data to assess and mitigate national
for large-scale research modeling in areas that
risks associated with earthquakes,
include the life sciences, weather forecasting and
volcanic eruptions, and landslides. The
climate change.
2003 Budget also provides funding to
test at least two sites of the National
Ecological Observatory Network, which will provide an integrated network of regional
environmental research observatories.
Improving priority setting and the visibility of the selection process for large facility
projects. For the first time, the 2003 Budget identifies funding for early-stage planning and
development of potential new, large facility projects. This will increase the visibility of NSF’s

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NATIONAL SCIENCE FOUNDATION

facility selection process. The Office of Science and Technology Policy also will request that
the National Academy of Sciences review the scientific merit of IceCube and other proposed
U.S. neutrino collectors in the context of current and planned neutrino research capabilities
throughout the world. Neutrinos are one of the fundamental particles that make up the
universe and are also one of the least understood. Understanding neutrinos better will mean
greater understanding of the universe.

Research Network Brings W ireless Internet to Native American Reservations

In August 2000, the University of California, San Diego received a $2.3 million NSF award to develop
a prototype wide-area network for research and education. The High Performance Research and
Education Network is overcoming geographical, social and technical barriers to bring high-speed
Internet access to the La Jolla and Pala Native American reservations. In remote San Diego County,
the network connects the low-lying San Diego coastline with the county’s mountainous eastern region,
home of the reservations. This network also links the University with the Mount Laguna Observatory, an
earthquake-detection site. The network is a prototype that could be useful for geophysicists, astronomers
and ecologists, while demonstrating that the same tools can connect under-served educational users at
remote locations like the Pala and La Jolla reservations.

Program

Assessment

Explanation

Information
Technology
Research

Effective

Began focusing on long-term, high-risk information technology
research in 2000. Priority goals and objectives identified. Five-year
funding plan established. Program will be evaluated in 2002.

Nanotechnology

Effective

In 2001, began emphasizing long-term fundamental research aimed at
discovering novel phenomena, processes, and tools at the nanoscale
(10,000 times smaller than the diameter of a human hair). Priority
goals and objectives identified. Five-year funding plan established.
Program will be evaluated in 2003.

Core Research

Effective

Individual research divisions have research strategies; however,
overall core research strategy is not well communicated by NSF.
External evaluations of programs have generally produced positive
reviews while occasionally identifying areas for improvement.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

345

Explanation

Education and
Human Resources

Moderately
Effective

An overall strategy for NSF’s education programs is not well
articulated. External evaluations of programs have generally given
positive reviews while occasionally identifying areas for improvement.

Major Research
Equipment and
Facility Construction

Moderately
Effective

Appropriations account established in 1995 to fund development
of major research facilities. New process being implemented
to determine priorities among new facility projects. New facility
management guidelines are being developed.

Strengthening Management
NSF is a relatively well-run agency. Funding for the agency has grown significantly in the past
decade, while the agency’s staffing level has remained flat. The agency has accommodated the
increase in funding and responsibilities through the use of information technology and continued
reliance on outsourcing support of NSF’s review process to the academic community. Nevertheless,
there are major hurdles on the horizon.
Of the total federal funds NSF receives, 95 percent go to researchers and educators; the agency’s
overhead is only five percent. Many in Congress and the NSF Inspector General have questioned
whether the agency has enough resources to adequately manage its growing portfolio and conduct
adequate oversight of its awards. The 2003 Budget addresses these concerns by providing a
significant funding increase to expand award oversight by providing for more travel to review large
award recipients, providing additional personnel through temporary and permanent appointments,
and enhancing information technology (IT) systems to improve worker productivity and efficiency
of the award process.
NSF has been better managed and has a better baseline evaluation than most other agencies. For
example, NSF is the only agency to receive the top rating for financial management. NSF is also a
federal government leader for e-government and information technology. The growing demands on
NSF, however, will require it to further improve its management. In particular, NSF needs to improve
results of its human capital management, competitive sourcing, and integration of performance and
the budget efforts. A scorecard of NSF’s activities for the President’s management initiatives follows.
The agency is performing well, but there are areas of concern.

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NATIONAL SCIENCE FOUNDATION

Initiative

2001 Status

Human Capital—NSF’s human capital strategy is not integrated into its budget and strategic
plans and the agency does not implement succession plans. NSF does use staffing flexibilities
well, such as those provided in the Intergovernmental Personnel Act. NSF is moving
expeditiously to develop a Training Academy and to conduct an Organizational Assessment
Survey. The agency also will initiate a significant workforce analysis in 2002. The Foundation
is developing a five-year administration and management strategic plan to lay out how it plans
to address its workforce issues in the coming years.

•

Competitive Sourcing —NSF has not yet launched a viable competitive sourcing initiative. In
its 2000 analysis of workforce activities, NSF identified 533 positions as performing commercial
functions. NSF has not decided if it will compete any positions at this time. The agency wants
to wait until it gets results from its upcoming workforce analysis before it makes a decision on
competing positions. At that rate it will be difficult for the agency to meet 2003 competition
goals. NSF must develop and submit a competitive sourcing plan to meet near-term goals.

•

Financial Management —NSF is the federal leader in financial management and has met all
core criteria for a green rating for financial management. NSF’s financial management systems
meet federal financial management system requirements and it has received unqualified and
timely audit opinions on its annual financial statements. NSF expects to maintain this position.

•

E-Government —NSF meets most, but not all, of the standard core criteria for expanding
E-Government. All major information technology projects provided sufficient business cases.
However, NSF’s Government Information Security Reform Act report reflects deficiencies
in a number of important areas of security. These concerns include failure to implement
appropriate security controls to protect critical information and risk of disruption of essential
services. NSF has submitted its corrective action plans and will be reallocating 2002 funds to
quickly correct identified problems.

•

Budget/Performance Integration —NSF’s budget does not tie resources to results, provides
limited focus on outcomes, and does not charge the full budgetary cost to individual activities.
There are inherent difficulties in integrating the budget with performance given the long-term
nature of research, in which results may not occur until 10 years or more. Nonetheless, NSF
could do more. In Spring 2002, OMB and OSTP will work with major research agencies to
develop criteria for evaluating basic research during the formulation of the 2004 Budget.

•

THE BUDGET FOR FISCAL YEAR 2003

347

National Science Foundation
(In millions of dollars)
2001
Actual

Estimate
2002

2003

Spending:
Discretionary Budget Authority:
Research and Related Activities ............................................
Education and Human Resources .........................................
Major Research Equipment and Facility Construction ........
Salaries and Expenses ...........................................................
Inspector General .....................................................................
Subtotal, Discretionary budget authority adjusted 1 .................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

3,357
785
122
167
6
4,437
−6
4,431

3,598
875
139
176
7
4,795
−6
4,789

3,783
908
126
210
8
5,035
−7
5,028

Mandatory Outlays:
H-1B Fee Programs .................................................................
All other programs ....................................................................
Total, Mandatory outlays ..............................................................

11
28
39

100
45
145

97
49
146

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives.

SMALL BUSINESS ADMINISTRATION

The President’s Proposal:

• Leverages small business lending and equity investment;
• Establishes an online access point to help small businesses comply with federal
regulations;
• Supports Small Business Development Centers; and
• Eliminates or reduces redundant or poorly performing programs, such as the
One-Stop-Capital Shop program.

Small Business Administration

The Small Business Administration (SBA)
was created in 1953 to aid, counsel, assist,
and protect the interests of small businesses
and help families and businesses recover from
physical disasters. Critical to this mission
are SBA’s efforts to foster a business-friendly
environment, help clients to succeed, and
serve as the federal disaster bank.

Hecto V. Barreto, Administrator

www.sba.gov

202–205–6605

Number of Employees: 3,026 permanent
employees and 1,221 temporary employees for
disasters
2002 Spending: $1.1 billion
Field Offices: 93 nationwide

Providing Access to Capital
Through a variety of financing programs, SBA guarantees general small business loans,
equipment loans, and microloans, as well as venture capital equity investments. These programs
offer a wide spectrum of assistance, from an average of $12,000 for microloans to a maximum of $1.5
million for general business loans. Guaranteed equity investments can be as high as $20 million.
To address the lending needs of small businesses affected by the September 11th attacks,
the Congress passed and the President signed legislation that temporarily lowers fees for SBA
lending programs and transfers more risk to the government. While the fee reductions may
help a small number of businesses cope, it also means that SBA’s lending programs will be more
expensive. Given the additional cost, the Administration intends to target the available resources

349

350

SMALL BUSINESS ADMINISTRATION

to credit-worthy small businesses most likely to be underserved by the commercial capital markets
including start-ups and those seeking loans of less than $150,000. These types of firms need the
extra assistance because they generally entail more risk for lenders and their smaller loans are
more administratively burdensome. Without SBA support, the private sector may not make these
loans because they do not produce the same profit margins as larger loans.
Historically, SBA’s lending programs
served less than one-tenth of one percent of
A Hand Up Not a Hand Out
the nation’s small businesses annually and
provided less than one percent of annual
[T]he government can never guarantee success
small business lending. The Administration
in the private sector. That’s not what happens in
will work with the Congress and the lending
a system based upon free enterprise. And so the
and small business communities to explore
best thing we can do is help you to get your
new approaches to ensure that a greater
business started.
number of the nation’s small businesses
have adequate access to capital, such as
President George W. Bush
Capital Access Programs (CAPs). Under a
December 3, 2001
CAP program, the bank and the borrower
pay an up-front insurance premium typically
between three and seven percent of the loan amount into a reserve account, which is matched by
state governments. CAPs or other innovative state programs that place greater emphasis on market
solutions may point the way toward modernizing SBA’s lending programs.

Disaster Assistance
In the wake of physical disasters, SBA’s disaster loans are the primary form of federal assistance
for individuals and businesses. SBA’s disaster loans help homeowners, renters, businesses of all
sizes, and nonprofit organizations finance rebuilding and recovery efforts from physical damage.
Working closely with other federal disaster assistance agencies, particularly the Federal Emergency
Management Agency, SBA establishes temporary field offices in disaster areas where it helps the
public apply for low-interest construction and economic assistance loans. In 2001, SBA responded to
about 70 disasters and approved $986 million in loans. In 2002, the Administration sought and the
Congress provided nearly $1.4 billion in lending, including almost $600 million to support businesses
adversely impacted by the September 11th attacks. For 2003, the budget requests funding to support
SBA’s activity level consistent with its five-year average.

SBA Provides Front-Line Disaster Relief

“They were the most efficient, most humane
organization I’ve ever dealt with ,” says Marvin
Rafeld, owner of a small business in lower Manhattan. The SBA approved his loan request for nearly
$125,000 less than 24 hours after he applied.
“I was shocked by how quick it was.”

Improve
Disaster
Response.
SBA’s Disaster Loan Program plans to
significantly improve response capabilities
in 2003 by installing a paperless loan
application processing system. The new
system will allow SBA to process loan
applications electronically, thereby reducing
turnaround time as well as personnel
and administrative costs. SBA’s goal is
to increase its productivity by at least 25
percent. The new system will also enable

THE BUDGET FOR FISCAL YEAR 2003

351

SBA to review electronic files anywhere regardless of where a disaster occurs, and to share data
more easily with other SBA programs and other disaster relief agencies.

Technical Assistance
SBA’s technical assistance programs annually provide direct assistance to more than 1.3 million
small businesses through grants that support more than 1,000 Small Business Development Centers
(SBDCs). SBA and its resource partners provide training and counseling to small businesses on
topics ranging from developing business plans to managing cashflows. SBA has 389 Service Corps
of Retired Executives (SCORE) chapters, as well as grants provided for microloan lenders to provide
business assistance.

Across the United States, small business owners struggle
to understand the overwhelming number of government
regulations.

Measuring the performance of these
programs has been difficult because many
factors beyond SBA assistance affect small
business sustainability and growth.
In
addition, the SBDCs have been reluctant to
provide information to SBA. In fact, Congress
passed legislation prohibiting SBA from
collecting client-level information. SBA has
pledged to work more aggressively with its
technical assistance grant recipients to collect
information on business longevity, increased
taxable business activity, and the number
of start-up firms attributable to technical
assistance services. This data is necessary to
monitor the impact of SBA resources and hold
program managers accountable for results.

In addition, duplication and overlap in
these technical assistance programs can lead to confusion and diminish service delivery. The
budget includes $161 million for these programs and saves taxpayers $31 million by eliminating or
reducing poorly performing or redundant programs such as the One-Stop-Capital Shop program
and the Program for Reinvestment in Microentrepreneurs (PRIME).

Federal Procurement
The federal government annually purchases about $200 billion in goods and services and in
2003, the Administration expects to award about $44 billion in contracts to small businesses. The
Administration is committed to achieving the government-wide small business procurement goal of
23 percent.
In 2001, while the federal government met its small disadvantaged business procurement
goals, it fell short elsewhere, having problems meeting statutory goals where participation of
eligible small businesses remains low. For example, Historically Underutilized Business Zones
(HUBZone) business goals were not met. Though it is not clear how many eligible small businesses
exist, a recent study by the General Accounting Office cited poorly designed eligibility criteria and

352

SMALL BUSINESS ADMINISTRATION

burdensome and costly application processes as major barriers to small business participation in
the HUBZone program. SBA is working to correct these problems through regulatory changes.

Small Is Beautiful

Complying with regulations is a major burden for small businesses and a principal impediment to their success.
Laid end to end, federal regulations measure 16 feet long—and this does not include state and local laws. Apart
from being particularly costly for firms with fewer than 20 employees, regulations are just too hard for the typical
small business to find. Under the present arrangement, each of the nation’s 25 million small businesses must
coordinate with dozens of agencies to order licenses, select locations, negotiate leases, pay taxes, even hire
employees. No wonder many small business owners do not even know where to start.
To address this problem, SBA has launched BusinessLaw.gov , an Internet-site that provides one-stop access to
more than 30 types of regulatory information, 20,000 links to state and local laws, along with interactive help to
find additional solutions. As part of the Administration’s E-Government initiative, SBA will continue to offer small
businesses more on-line options to make complying with regulations easier.

Program

Assessment

Explanation

Small Business
Investment Company
(SBIC)

Effective

The SBIC venture capital program serves small businesses whose
needs are usually below
$5 million.

Disaster Loan
Program (direct loans)

Effective

The disaster program responds quickly to disasters and processes loan
applications in a timely manner.

7(a) General Business
Loan Program

Moderately
Effective

Declining defaults have improved performance but lender oversight
needs to be improved.

Small Business
Development Centers
(SBDCs)

Unknown

SBA should develop measures to determine if the SBDCs effectively
use the $88 million they receive in annual federal funding.

THE BUDGET FOR FISCAL YEAR 2003

Program

Assessment

353

Explanation

Section 8(a) Program

Ineffective

A recent Inspector General report noted that a small number of the
same businesses receive most 8(a) contracts and award dollars
year after year. Both business participants and agency procurement
officials are concerned about the administrative burden imposed by the
program.

One-Stop-Capital
Shops

Ineffective

Duplicates other SBA technical assistance programs.

Strengthening Management
SBA is making progress on the President’s Management Agenda. For example, it is one of only
four agencies whose financial systems met the Federal Financial Management Improvement Act
requirements. However, the Loan Monitoring System (LMS), SBA’s largest information technology
(IT) investment, which has significant impact on SBA’s ability to manage its $50 billion loan portfolio,
is behind schedule, over budget and not performing to expectations.
To advance the Administration’s management goals, SBA is administering a successful asset sales
program. The program is improving the collection of outstanding debts and moving loan servicing
functions to the private sector. In fact, SBA has sold more than 110,000 loans totaling over $4 billion,
collecting more from its sales to private sector investors than if it held and serviced the loans to
maturity. Some 135,000 loans worth $4.5 billion will be sold over the next few years. However, even
more improvements can be made. For example, the asset sales program has significantly reduced
SBA’s loan servicing workload yet SBA has not reduced staff for such activities.
This year, the Administration will implement a fundamental reorganization of the SBA’s field
office operations. Back office operations (servicing, liquidations, loan processing, etc.) will be
centralized or contracted out. District offices will focus on reaching a much larger percentage of
the small business community and improving oversight and marketing to lending institutions.
Specific strategies will be tested through District Office pilot projects in three offices during 2002
with implementation for 20 Districts in 2003. The pilots include using telecommuters, video
teleconferencing, and restructuring the relationship with SBA’s technical assistance grant recipients
to increase accountability.

354

SMALL BUSINESS ADMINISTRATION

Initiative

2001 Status

Human Capital —The agency has not articulated a clear vision of what role it should fulfill
in the marketplace. In addition, the benefits of asset sales and technological improvements
have not been translated into human resource efficiencies. While SBA recognizes the need to
restructure, little progress has been made to date. SBA expects to better articulate goals in a
2002 restructuring plan.

•

Competitive Sourcing —SBA’s analysis of its workforce indicates that 66 percent of SBA’s
activities are commercial in nature. However, SBA has not developed a competitive-sourcing
plan, something it will do in 2002. This effort will be closely coordinated with SBA’s human
resource restructuring.

•

Financial Management —SBA has received an unqualified and timely audit opinion five years
in a row, and its financial management system is compliant with relevant federal law. In
addition, SBA is improving the accuracy of cost estimates for its general business loan program
and will continue its successful asset sales program. In contrast to these successes, the
Loan Monitoring System (LMS) technology project is over budget, behind schedule, and not
performing as expected. SBA’s inability to implement LMS adversely affects its risk management
and oversight of its $50 billion loan portfolio. SBA is refining the LMS project and developing
specific implementation milestones.

•

E-Government —SBA has a documented enterprise architecture and capital planning
investment process, which help inform business decisions and the allocation of the agency’s
$50 million technology budget. SBA will lead the government-wide efforts in creating a one-stop
regulatory compliance tool for businesses. However, SBA’s difficulties continue in developing
cost, schedule, and performance goals for other E-gov projects and corresponding security
plans, such as the LMS.

•

Budget/Performance Integration —SBA submitted an integrated budget and performance plan,
which attempted to tie resources to output targets. However, SBA has been unsuccessful at
overcoming barriers to the collection of meaningful performance measures in some programs,
such as the SBDC program. SBA has pledged to work more aggressively with its technical
assistance grant recipients to collect information on performance measures such as business
longevity, increased taxable business activity, and the number of start-up firms attributable to
technical assistance services.

•

THE BUDGET FOR FISCAL YEAR 2003

355

Small Business Administration
(In millions of dollars)
2001
Actual

Estimate
2002
2003

Spending:
Discretionary Budget Authority:
Business Loans ........................................................................
Disaster Loans ..........................................................................
Non-Credit Business Programs .............................................
Salaries and Expenses ...........................................................
All Other Programs ..................................................................
Subtotal, Discretionary budget authority adjusted 1 .................
Remove contingent adjustments ............................................
Total, Discretionary budget authority .........................................

298
188
245
175
14
920
−20
900

208
214
177
171
12
782
−20
762

223
197
144
218
15
797
−18
779

Emergency Response Fund, Budgetary Resources:
Disaster Loans ..........................................................................
Business Loans ........................................................................
Total, Emergency Response Fund, Budgetary resources ......

100
—
100

75
75
150

—
—
—

Mandatory Outlays:
Loan Reestimates and Loan Asset Sale Proceeds .............
Total, Mandatory outlays ..............................................................

−1,380
−1,380

70
70

−238
−238

Credit activity:
Direct Loan Disbursements:
Disaster Loans ..........................................................................
Business Loans ........................................................................
Total, Direct loan disbursements ................................................

683
67
750

1,334
41
1,375

976
29
1,005

Guaranteed Loans:
Business Loans ........................................................................
Total, Guaranteed loans ...............................................................

10,963
10,963

9,111
9,111

10,111
10,111

Adjusted to include the full share of accruing employee pensions and annuitants health benefits.
For more information, see Chapter 14, "Preview Report," in Analytical Perspectives .

SMITHSONIAN INSTITUTION

The President’s Proposal:

• Completes federal funding for construction of the National Museum of the
American Indian and continues restoration of the Patent Office Building;
• Upgrades security for national treasures;
• Provides funding to decrease the large backlog of required maintenance by six
percent; and
• Assesses the opportunity for competition in scientific research.

The Smithsonian Institution’s mission is
“the
increase and diffusion of knowledge.”
Smithsonian Institution
The Smithsonian fulfills both parts of its
Lawrence Small, Secretary
mission through scientific research and by
operating 15 museums in New York City and
www.si.edu
202–357–2700
Washington, D.C., as well as the National Zoo.
Number of Employees : 4,560
More than perhaps any federal establishment,
the Smithsonian must maintain its facilities
2002 Spending : $548 million
to safeguard the nation’s priceless collections.
Facilities : 15 museums, plus the National Zoo
The Smithsonian receives about two-thirds
and three major scientific centers
of its annual operating funds from federal
appropriations.
The remaining one-third
comes from the Smithsonian Trust funds,
which include donations, income from the Trust endowment, proceeds from Smithsonian business
ventures, grants, and contracts. Over the past five years, federal appropriations have increased 24
percent, providing a total of $2.2 billion. On the Trust side, funding has risen 20 percent, providing
a total of $1.1 billion.

Museums
Overall performance. Smithsonian museums educate and entertain the public. If the number
of visits is used as a yardstick for overall performance, the Smithsonian has three of the four
top-performing museums in the United States. Five of the Smithsonian museums and facilities—Air
and Space, Natural History, American History, the Castle, and the National Zoo—receive over 85
percent of all Smithsonian visitors. The remaining 11 welcome less than 15 percent of the visitors,

357

358

SMITHSONIAN INSTITUTION

yet consume over 35 percent of the Smithsonian’s operating costs. Moreover, these museums will
require over 50 percent of future capital project costs.
Just as important as measuring the
number of visitors, their enjoyment and
learning, is the cost of providing those services.
This can be measured by the dollars per
visit spent operating the museums. Looking
across the Smithsonian’s museums, there are
great differences in the efficiency of providing
museum services. As the accompanying chart
shows, the cost to taxpayers of a visit to a
Smithsonian museum ranges from about $2 to
nearly $20.

Dollars per visit

Cost per Visit Varies Across
Smithsonian Museums

Improving performance. The Institution
0
will continue to improve efficiency, and will
American History
Hirshhorn
Sackler/ Freer
expand its performance data to determine
Air and Space
Natural History
National Zoo
African Art
cost per visit at each of its museums in
2003. Beginning in 2003, Institution performance also will be measured by visitor assessments of
enjoyment and learning.

Research
Overall performance. Scientific research
at the Smithsonian is as vast and varied as
its collections, and ranges from paintings and
insects to artifacts to animal reproduction.
In addition to its collections-based research,
the Smithsonian operates a trio of scientific
research centers.

Smithsonian researchers utilize the vast collection of fossil
plants belonging to the Institution.

The Smithsonian recently appointed a
commission to review its science programs.
The charge to this commission is to answer
the question: How should the Smithsonian set
priorities for scientific research in the years
ahead and, in general, carry out its historic
mission more effectively? This commission will
provide its report later in 2002.

In general, a merit-based, competitive process should govern the investment of federal
research funds. For decades, the scientific community has agreed that such a process produces
the highest quality science and the most innovative research. This approach is consonant with
the Administration’s emphasis on better management of federal programs. The President’s
Management Agenda, released in August 2001, calls for a results-oriented government that
promotes innovation through competition. While most federal research and development agencies
allocate at least some of their federal funds through merit-based competition, the Smithsonian does
not.

THE BUDGET FOR FISCAL YEAR 2003

359

Improving performance. An outside group will be appointed to recommend how much of
the funds directly appropriated to the Smithsonian for scientific research should be awarded
competitively. The review will encompass all Smithsonian scientific research. It will focus on
enabling Smithsonian scientific research to compete on a level playing field with other potential
performers of the research, where that potential exists. Following the review, if appropriate, the
Administration will submit its request to transfer necessary amounts from the Smithsonian to the
National Science Foundation. Any transferred funds would be available directly to the Smithsonian
to ease the transition in 2003 and then made available for competition in future years.

Facilities
Overall performance. The Smithsonian
must maintain over 400 buildings, and
currently has commitments to build two
more: the National Museum of the American
Indian, and the Udvar-Hazy extension of the
Air and Space Museum at Dulles Airport
near Washington, D.C. These new buildings
will increase the size of the Smithsonian’s
museums by nearly 20 percent, from 4.5
million to 5.5 million square feet.
The Smithsonian has not stayed within cost
estimates for significant projects. Estimates
for the cost of construction of the American
The National Museum of the American Indian will occupy the last
Indian Museum and the restoration of the
remaining space along the National Mall in Washington, D.C.
Patent Office Building (where the American
Art Museum and the Portrait Gallery are housed) have nearly doubled since 1999. Substantial
improvement in the Smithsonian’s ability to estimate costs is expected from its use of new cost
estimating techniques and management controls that were recently endorsed by the National
Academy of Public Administration (NAPA). In addition, the Smithsonian has hired new management
staff in this area.
At the same time, deterioration of existing
buildings over the past decade at the expense
of expansion and new museums has created a
huge maintenance and restoration backlog (see
accompanying chart). In 1995, the Commission
on the Future of the Smithsonian indicated that
$50 million per year for the subsequent decade
would be needed. After steady budget increases,
that level was reached in 2001. However, a new
assessment indicates more is needed, due to
more deterioration than was previously realized.
A recent report from the National Academy
of Public Administration estimated the total
cost of repair, restoration, and alterations over
the next decade at $1.5 billion. Based on these

Maintenance & Restoration Costs
of Facilities
In millions of dollars
300
250
200
150
100
50
0
1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Smithsonian Institution.

360

SMITHSONIAN INSTITUTION

projections, the Smithsonian’s maintenance and restoration budget would need to increase fourfold
within five years. Because such massive funding increases will not be possible under current budget
constraints, the Smithsonian will set priorities within the Institution for repair and restoration.
Improving Performance. The 2003 Budget addresses some of the Smithsonian’s most
significant performance challenges. The budget increases resources for maintenance, boosting
funds to reduce the large backlog of currently identified revitalization needs by six percent from
2001. The budget completes the federal commitment to construct the National Museum of the
American Indian and provides funds for the ongoing restoration of the Patent Office Building. The
budget addresses physical security for both collections and visitors, correcting currently identified
hazardous conditions. In addition, it provides funding for improvements in financial management.
Making the Smithsonian Safe and Secure

Keeping collections of plants and animals requires that they be preserved for future study. Certain kinds of
animal samples are preserved in potentially hazardous solvents such as alcohol. Currently, the Smithsonian
has a significant amount of alcohol on hand to store and preserve scientific specimens. The budget provides
funding to design a separate offsite building to store these collections. In addition, the budget provides $20
million to address immediate security concerns following the events of September 11 th.

Strengthening Management
Aggressive implementation of the President’s Management Reform Agenda is central to
improving government performance. For each initiative, the scorecard below describes how well
the Smithsonian is executing the management initiatives, and where it scored in 2001 against the
overall standards for success.

Initiative

2001 Status

Human Capital —The Smithsonian does not have an adequate plan for managing its
workforce. Total federal FTEs at the Institution in 2002 stood at 4,560. In addition, the
Smithsonian’s trust side supports approximately 1,400 FTEs. The Institution will provide a
workforce plan to control costs and improve management with the 2004 Budget.

•

Competitive Sourcing —The Smithsonian produced an inventory that lists 1,146 positions
(25 percent) as potentially performing commercial activities. Of that group, however, all but 36
were categorized as exempt from the cost comparison process. Among the exempt was the
Institution’s security workforce of 628. However, the U.S. Holocaust Memorial Museum has
outsourced its security workforce and is satisfied with its performance. The Smithsonian has a
timeline for completing a competitive sourcing plan by June 2002.

•

THE BUDGET FOR FISCAL YEAR 2003

361

Initiative

2001 Status

Financial Management —Although it has received clean opinions on its audited financial
statements, the Smithsonian is concerned that the unqualified opinion may be in jeopardy
due to the inadequacy of its accounting system. The recent NAPA report notes that “the
Smithsonian’s accounting system provides useful information only at the summary level and
does not support either federal requirements for obligation and outlay information or the
Smithsonian’s internal project management requirements.” A recent congressional request for
obligations and outlay information for repair projects required a labor-intensive effort by the
Smithsonian budget office staff. Replacement of the financial management system is a high
priority, and funds for it are included in the 2003 Budget request.

•

E-Government —Information Technology (IT) investment at the Smithsonian includes a
request for $64 million in 2003. Considerable effort has been poured into justifications and
business cases for two of the investments: Enterprise Resource Planning and Managed IT
Infrastructure (totaling $14 million of the 2003 request). A review of the IT portfolio indicates
duplicative system efforts. Over the next year, the Smithsonian will assess this issue and craft
a strategy for unifying and simplifying business processes and systems.

•

Budget/Performance Integration —To date, the Smithsonian has not finalized an updated
Strategic Plan or a Performance Plan. In previous years, the Smithsonian’s budget request
was based on incremental funding increases, such as pay raises and increases in utilities
costs, with no information on performance. For 2003, the budget shows some improvement
in performance measures. Performance information will be much more integrated with the
budget request in 2004.

•

Smithsonian Institution
(In millions of dollars)
2001
Actual

Estimate
2002
2003

Spending:
Discretionary Budget Authority:
Salaries and Expenses .................................................................................
Capital Projects ..............................................................................................
Subtotal, Discretionary budget authority adjusted 1 .......................................
Remove contingent adjustments ..................................................................
Available from prior years .............................................................................
Total, Discretionary budget authority, gross ....................................................
Total, Discretionary budget authority, net ........................................................

406
68
474
−19
—
455
455

418
98
516
−19
—
497
497

455
93
548
−20
14
542
528

Emergency Response Fund, Budgetary resources .......................................

—

Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more
information, see Chapter 14, "Preview Report," in Analytical Perspectives.

SOCIAL SECURITY ADMINISTRATION

The President’s Proposal:

• Enhances program integrity initiatives to reduce payment errors;
• Institutes new information technology initiatives to improve customer access and
expand the range of services offered to customers; and
• Increases productivity in key work areas.

The Social Security Administration (SSA)
promotes the economic security of the nation
through disbursing America’s major income
support entitlements for the elderly, disabled,
and their dependents.
SSA manages the
Old-Age, Survivors, and Disability Insurance
(OASDI) programs, universally known as
Social Security. SSA also administers the
Supplemental Security Income (SSI) program
for low-income aged and disabled individuals.
In addition, the agency provides services that
support the Medicare program on behalf of the
Centers for Medicare and Medicaid Services.

Social Security Administration

Jo Anne B. Barnhart, Commissioner

www.ssa.gov 800–SSA–1213
Headquarters : Baltimore, Maryland
Number of Employees : 63,464
2002 Spending : $492.7 billion
Field Offices : 1,337

Administering Benefits
SSA is responsible for paying around $40 billion in benefits to more than 50 million people every
month, processing more than five million new claims for benefits each year, handling approximately
61 million phone calls to its 800-number, and issuing 136 million Social Security statements. Other
activities include issuing Social Security numbers, maintaining earnings records for wage earners
and self-employed individuals, updating beneficiary eligibility information, educating the public
about programs, combating fraud, and conducting research, policy analysis, and program evaluation.
These activities are largely integrated across the various programs that SSA administers.
The 2003 Budget includes resources to increase productivity in customer service areas while also
redeploying staff to front-line customer service positions, thus improving performance in important
areas as identified in the accompanying table.

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Performance Measurements
Goal

2001

2002

2003

Percent of retirement claims processed within 14
days ....................................................................................

83%

85%

88%

Percent of SSA’s customer-initiated services
available to customers either electronically via the
Internet or through automated telephone service ........

21%

30%

40%

Percent of callers that access SSA’s 800 number
within five minutes of their first attempt .........................

92%

94%

Services for Persons with Disabilities.
The Ticket to Work and Work Incentives
Improvement Act of 1999 was designed to
reduce barriers and increase incentives for
individuals with disabilities to participate
in the workforce. Ticket to Work makes it
easier for disability beneficiaries to obtain
employment services and lets them choose
from a wider array of service providers.
The program also provides for cooperative
agreements and grant programs in each state
for activities aimed at educating beneficiaries
about available employment support services
and helping them understand the work
incentives built into the law. For example, one
important incentive gives Disability Insurance
(DI) beneficiaries the opportunity to test their
ability to earn wages during a nine-month trial
work period without affecting their eligibility
for benefits.

The Ticket to Work program helps people with disabilities return

As part of his New Freedom Initiative, the
to work.
President supported swiftly implementing
Ticket to Work. The program will be up and running in 13 states this year. SSA will expand Ticket
to Work to all states and U.S. territories in 2003, and the program will be fully operational by
early 2004. Over the long run, Ticket to Work is expected to increase the percentage of DI and SSI
beneficiaries who are employed. Achieving this goal generates at least a three-way benefit. First,
the federal government sees benefit payments to such persons drop. Second, the U.S. Treasury
collects taxes on wages earned. More importantly, though, the beneficiaries return to the dignity and
independence of work. The budget includes $40 million for SSA’s return-to-work activities in 2003.

Stewardship
SSA conducts activities that at some point touch nearly everyone in America—including issuing
Social Security numbers, maintaining earnings records that will later be used to calculate Social
Security benefits, and administering the benefit programs. As such, SSA has an obligation to ensure

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365

sound financial management of its programs, as well as accurate and reliable processes in other areas
such as Social Security number issuance.
A crucial aspect of good management in income support programs is ensuring that only eligible
individuals receive benefits, and that they receive benefits in the correct amount. SSA undertakes a
variety of activities to minimize improper payments through means such as verifying beneficiaries’
eligibility status, collecting debt, and investigating and deterring fraud. Despite these efforts, the
SSI program, in particular, remains inherently vulnerable to payment error and consequently has
been designated as a high-risk program by the General Accounting Office since 1997.
SSA has two major tools for ensuring payment accuracy: Continuing Disability Reviews (CDRs)
and SSI non-disability redeterminations. The first does what its title implies to ensure that only
those who remain disabled continue receiving benefits. Redeterminations are used to assess whether
an SSI recipient continues to meet the financial eligibility requirements or has experienced a change
of circumstances that would affect his or her monthly benefit amount.
Detecting and Preventing Payment Errors. The budget supports activities undertaken by
SSA to ensure the integrity of records and payments. The Administration proposes a total of $1.05
billion for conducting CDRs and redeterminations for 2003. The amount for CDRs ($642 million)
and redeterminations ($411 million) will enable SSA to conduct CDRs on schedule and increase the
number of SSI redeterminations conducted by nine percent over the budgeted 2002 level. This level of
funding will allow SSA to conduct almost 1.4 million CDRs and 2.5 million redeterminations in 2003.
Approximately two out of every five SSI recipients will receive a redetermination in 2003 with this
level of funding. SSA targets its redetermination effort on cases that are most likely to experience a
change in eligibility, such as when a beneficiary’s non-SSI income changes. SSA’s experience shows
$11 in program savings for each $1 invested in CDRs and approximately $7 in program savings from
overpayments collected and prevented for each $1 invested in redeterminations.
Protecting Social Security Numbers. Social Security numbers (SSNs) themselves have taken
on added importance as the SSN has become widely used as the key to a person’s identity. Firms
request SSNs for such basic activities as employment, opening a bank account, and applying for
credit. Their value motivates unscrupulous individuals to fraudulently acquire and use them. To
effectively reduce SSN fraud, SSA is reexamining its enumeration process to improve its ability to
assess whether individuals applying for SSNs are who they say they are.

SSI Recipient Used Over 30 Aliases to Conceal His Identity

SSA’s Inspector General investigated a man in 2001 who used multiple SSNs and
identification documents to obtain SSA benefits under various aliases. During
searches, investigators seized counterfeit identifications, SSN cards, and fake
military documents. The evidence showed the man used 33 or more aliases, was
a five-time convicted felon, and was a federal fugitive for 17 years.
The man, a career criminal, at various times posed as a firefighter, traffic
investigator, animal control officer, Central Intelligence Agency agent, and U.S.
Marine Corps officer. At times, he portrayed himself as a highly decorated combat
veteran and former prisoner of war. He was incarcerated and ordered to pay
$56,900 in restitution to SSA.

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SSA has gotten more sophisticated at preventing SSN fraud. Software changes planned for
2002 and 2003 will interrupt the issuance of a card in cases where suspicious circumstances
exist. Nevertheless, vulnerabilities remain, especially with regard to verifying some documents
presented as identification. Working in partnership with other federal agencies, SSA will remain
at the forefront of conquering any technological obstacles and institutional barriers that provide an
opportunity for fraud to occur.

Strengthening Social Security For The Long Term
For more than 60 years, Social Security has provided retirement security for tens of millions of
Americans. Yet, Social Security itself is showing signs of insecurity. Increasing life expectancies and
falling birthrates have combined to put the current system on a path to insolvency. Social Security
costs are projected to exceed annual cash revenues starting in 2016, and the gap between costs
and revenues will continue to grow thereafter. Between 2016 and 2038, Social Security trust fund
“balances”—consisting of debt the government owes itself—will make up the difference, although
all this means is that general tax revenues will increasingly be tapped to pay benefits. After 2038,
incoming Social Security revenue will only cover 73 percent of currently scheduled benefits.
The President appointed a bipartisan commission in May 2001 to develop recommendations to
modernize and restore fiscal soundness to Social Security, based on the following principles:

• Modernization must not change Social Security benefits for retirees or near-retirees.
• The entire Social Security surplus must be dedicated to Social Security only.
• Social Security payroll taxes must not be increased.
• Government must not invest Social Security funds in the stock market.
• Modernization must preserve Social Security’s disability and survivor components.
• Modernization must include individually controlled, voluntary personal retirement accounts,
which will augment the Social Security safety net.
In December, the President’s Commission to Strengthen Social Security released its analysis of
the financial problems confronting Social Security and its recommendations for addressing them.
The Commission determined that reforming Social Security to include personal retirement accounts
would lead to better long run outcomes for future beneficiaries, the Social Security program, and the
economy as a whole.

Highlights of Commission Findings
Personal accounts would increase retirement security because they would facilitate wealth creation
for all participants. Establishing personal accounts in Social Security would advance a highly
progressive principle: it would provide an opportunity for wealth creation to the approximately
half of American households who save nothing in an average year after contributing 12.4 percent
of their wages to support the Social Security system. In addition, personal accounts could add
valuable protections for widows, divorced persons, low-income households and other Americans at
risk of poverty in old age.
Asset ownership would lead to improved financial security by diversifying risk. Over the decades,
lawmakers have changed the Social Security benefit formulas and payroll tax rates numerous times
in response to fiscal conditions. Future Social Security benefit levels remain uncertain due to the

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367

current projected funding shortfall in the program. Social Security participants could hedge against
this political risk by holding some of their future retirement benefits in the form of personal accounts,
to which they would have a legal right of ownership. Workers could invest their accounts as they saw
fit, and those wishing to avoid market risk could invest exclusively in government securities.

Commission to Strengthen Social Security: Models for Reform
Model 1. Future retirees who remain wholly in the traditional Social Security system would potentially receive
currently scheduled benefits, subject to future actions to restore solvency. Expected benefits for those who
opt for personal accounts would be substantially higher. Option to redirect two percent of payroll taxes to
personal account, in exchange for partial offset to defined benefit. No provision for additional revenues or other
measures to maintain solvency, so future benefit levels are uncertain.
Model 2. Future retirees who remain wholly in the traditional Social Security system would receive defined
benefits at least as high as today’s retirees in real terms. Expected benefits for those who opt for personal
accounts would be substantially higher. Higher benefits for survivors and lifelong low-wage workers. Option to
redirect up to four percent of payroll taxes (capped at $1,000) to personal account, in exchange for partial offset
to defined benefit. Temporary transfers of general revenues to the trust funds to maintain solvency.
Model 3. Future retirees who remain wholly in the traditional Social Security system would receive defined
benefits higher than today’s retirees in real terms, but less than currently scheduled benefits. Expected benefits
for those who opt for personal accounts would be substantially higher. Higher benefits for survivors and lifelong
low-wage workers. Larger reductions for early retirement. Option to redirect up to 2.5 percent of payroll taxes
to personal account (capped at $1,000), conditional on 1 percent out-of-pocket contribution (subsidized for
low-wage workers), in exchange for partial offset to defined benefit. Additional federal revenues dedicated
to Social Security indefinitely to maintain solvency.
Benefit and Cost Projections under the Three Models

Under all three models, expected benefits would be substantially higher than those payable with current-law
Social Security revenues. The accompanying table compares expected benefits and costs under the three
models with currently scheduled Social Security defined benefits, which are slated to grow in real terms for
future retirees because they are indexed to the average wage level. However, currently scheduled benefits are
uncertain after 2038 because the system is underfunded. The cost of currently scheduled benefit obligations
would exceed Social Security revenues by $4.2 trillion over the next 75 years.
The model benefit projections are not directly comparable to one another. For example, while Model 1’s
total benefits are higher than Model 2, the Model 1 defined benefit is subject to considerable uncertainty
because additional actions would be required to maintain solvency. Models 2 and 3 each fully fund the system.
Model 2 provides an expected combined benefit higher than currently scheduled benefits for most workers, at
significantly less cost to taxpayers than maintaining currently scheduled benefits under the existing system.
Model 3 benefits are higher than Model 2, because Model 3 explicitly requires more federal revenues, as
well as additional out-of-pocket account contributions from workers that are not captured in the measure
of federal costs.

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SOCIAL SECURITY ADMINISTRATION

Comparison of Costs and Benefits of Currently Scheduled
Payments and Models for Reform

Low Earner

Medium Earner

High Earner

New revenues
needed 1

Currently scheduled benefits, 2052 (2001 dollars)
$986

$1,628

$2,151

Change in expected benefits, with account proceeds, 2052 2

$4.2 trillion

Change in
new revenues
needed 3

Model 1

+8.9%

+12.0%

+14.5%

+3.8%

Model 2

+15.0%

+2.4%

-4.4%

-45.0%

Model 3

+19.2%

+21.8%

+22.7%

-33.9%

1Represents present value of the net cash flow required from the general fund over the next 75 years

to pay currently scheduled benefits.
2 Expected percent change from currently scheduled benefits for new retirees in 2052. Assumes

accounts invested 50 percent equities, 50 percent bonds, purchase of variable annuity upon
retirement.
3 Represents difference from the additional revenues that would be needed in any year simply to

meet currently scheduled benefits over the next 75 years.
4 Excludes costs of out-of-pocket contributions and associated subsidy.

Partial advance funding should be a goal of any effort to strengthen Social Security. Advance
funding would increase the nation’s capital stock and productive capacity. This would increase the
total economic resources available to support a large population of retirees and would reduce Social
Security’s financial burden on future generations. Advance funding should occur through personal
accounts rather than government investment in private securities. Government investment would
likely lead to inappropriate political interference in the market, inefficiency, and conflicts of interest.
A Social Security system with personal accounts would offer higher total expected benefits to
individuals than a system without accounts, regardless of what other steps are taken to balance
the system’s finances. Personal accounts improve total expected benefits by giving workers the
opportunity to realize the gains that come from returns on capital. The Commission presented three
models for balancing Social Security’s finances and incorporating personal accounts. The models
differed with respect to the extent to which they addressed Social Security’s fiscal imbalance. Under
each model, individuals with accounts invested in a standard portfolio could expect higher total
benefits than individuals without accounts.
Personal accounts can reduce the long-term cost growth of Social Security, thus improving its fiscal
sustainability. Each of the reform models developed by the Commission would allow individuals to
redirect part of their payroll tax revenue toward a personal account. In exchange for the opportunity
to pursue higher returns, individuals would agree to forego the defined benefit that would have been
financed by these payroll taxes assuming a low interest rate. As long as the personal account earned
a return higher than that interest rate, both the individual and the Social Security system would
come out ahead.

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369

Social Security could be made fiscally sustainable in a number of ways, all of which would require
some combination of changing the rate of benefit growth and committing additional revenues to the
system generated by taxation or by the proceeds of investment. In the absence of personal accounts,
the only choices are to increase taxes, slow the scheduled growth of benefits, or some combination
of the two. Whatever measures are ultimately taken to produce a fiscally sustainable system,
voluntary personal accounts improve the system by offering individuals the opportunity to pursue
higher expected returns by investing in a low-cost, diversified portfolio.
Finally, the Commission recommended that the Congress and the President engage in a period
of national discussion for at least one year to carefully consider the alternatives, as well as the
consequences of inaction, and then take the appropriate steps to strengthen and modernize Social
Security.
The full text of the Commission’s report is available at www.csss.gov.

Improving Performance
Service Delivery Assessment
The Commissioner of Social Security is committed to assessing the level of service that SSA should
be providing Americans, relate that to current service levels, and determine the necessary action to
reach service delivery goals.

Disability Process Improvements
A
long-standing
management
challenge for SSA has been the time
and expense involved in processing
claims
for
disability
benefits,
particularly appeals of unfavorable
initial determinations. Initial claims
are processed by state employees at
state disability determination service
agencies fully funded by SSA. In 2001,
the average processing time for initial
claims was 106 days, or about three and
a half months. For those whose claims
are denied, hearings are conducted by
SSA’s Office of Hearings and Appeals
(OHA). Applicants requesting a hearing
waited an average of another 10 months
in 2001 for OHA to return with a
decision (see accompanying chart).

Average Wait for an Applicant to Receive a
Disability Decision

Number of days

500

400

One Year
300

Hearing Decision
308

200

100

Reconsideration Step
70
Initial Disability Claims
Decision
106

Note: Claimant may receive a favorable decision before the final step.
Source: Social Security Administration.

The disability determination process is inherently complex. It involves the collection and
evaluation of medical and other evidence from the claimant, physicians, and sometimes from
employers or other individuals who may have information about the claimant’s impairments or
ability to work. SSA is exploring ways to automate the transmission and storage of case files, but

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SOCIAL SECURITY ADMINISTRATION

the process remains largely paper driven. Fragmentation across SSA’s field offices, state agencies,
and OHA also contributes to long processing times.
SSA periodically has investigated ways to reduce disability processing times. The most recent
effort began in the mid-1990s and has not achieved expected results. The number of disability claims
is expected to rise substantially in coming years, as the Baby Boom generation reaches the ages
at which the incidence of disability increases. It is imperative that SSA develop the capacity to
efficiently manage these workloads. SSA will examine potential process reforms that would use
administrative resources more efficiently and improve management controls. The budget commits
to reducing processing times for initial disability claims by five days in 2003.
The budget also proposes a management improvement by establishing a standard for accuracy in
SSI disability awards identical to that which applies to Social Security Disability Insurance.

Leveraging Technology
SSA anticipates moderate increases in its workloads over the next five years and then considerable
increases as the post-World War II Baby Boom generation enters retirement starting in 2008. Unless
SSA improves upon its current business processes by investing in and making use of technology
improvements, resources may not be able to meet workload demands over the next 10 years. When
combined with procedural changes, exploiting the full potential of information technology will allow
SSA to handle the workload increases and improve customer service without increases in staff.
21st Century Communication. SSA is developing a strategy to encourage citizens to interact
with the agency in the most cost-effective manner possible, particularly through the Internet or SSA’s
800-number. SSA has made progress in recent years, especially in its Internet presence. The agency
has rapidly expanded the types of online interactions that customers can conduct, such as filing
claims for retirement benefits over the Internet.
However, SSA remains a paper-driven agency. Only 3.5 percent of retirement claims are handled
over the Internet at this time, and other online services also experience low utilization rates. SSA is
developing aggressive outreach efforts to educate SSA customers about their options and encourage
them to interact with the agency through electronic means when possible. Since there are situations
which require an in-person visit to a local field office, and some customers prefer to conduct their
business in person, the option to visit a field office will remain available. However, most routine
transactions for those who have Internet access could be handled at lower cost to the agency and
greater convenience to the public through electronic means. SSA will establish performance goals
for the number of business transactions to be conducted via the Internet and through automated
telephone service. This information will be included in performance and accountability reports as a
performance indicator.
SSA’s goal is to have 40 percent of customer-initiated services available either via the Internet
or through automated telephone service in 2003, rising to 67 percent by 2005. The President’s
Budget provides $688 million in 2003 for SSA information technology, which will allow the agency
to maintain its existing technology infrastructure as well as expand its Internet services, improve
security capabilities, support electronic wage reporting by employers, and make a variety of other
improvements.

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371

Strengthening Management
SSA has made progress in implementing several components of the President’s Management
Agenda. In the area of financial management, SSA has already eliminated many of the serious
deficiencies seen in most government agencies. Specifically, SSA is one of only four agencies that has
received unqualified opinions on its financial audits since the agency first began submitting them
in 1996. The scorecard below establishes how SSA stood in 2001 against the standards for success
in each initiative. While the agency received one of the best evaluations overall, there are areas for
improvement. The plans to improve management are identified in each of the management agenda
sections.
Initiative

2001 Status

Human Capital —SSA has reduced its supervisor to employee ratio from 1:8 in 1990 to its
current level of 1:14, which is one of the lowest percentages of the 23 largest federal agencies.
In addition, from 1990 to 2001, SSA increased the number of front-line workers by over 5,000
while its workforce shrank two percent. However, given the expected future workloads and
the state of customer service, there is a compelling argument for additional redeployment of
staff to front-line positions.

•

Competitive Sourcing —While SSA identifies 19 percent of its workforce as performing
commercial tasks, there remain significant additional positions to be classified as commercial.
SSA will implement a management plan for increasing competitive sourcing that identifies by
function and location the competitions or direct conversions to be conducted as well as a
time line for when and how they will take place. The management and competition plan will
describe the strategies used to ensure that at least five percent of commercial positions will be
competed or directly converted in 2002, and that SSA will compete or directly convert at least
15 percent of the commercial positions by 2003 to meet the Administration’s two-year goal in a
broader effort to eventually compete at least 50 percent of all commercial activities.

•

Financial Management—In 2001, SSA received an unqualified audit opinion on its financial
statements, and its accounting and internal control systems met federal standards. However,
SSA does not have fully integrated financial and operating management systems, which
support day to day decision making. SSA is on track to integrating its financial and performance
management system, and will continue to integrate them through implementation of a new
cost accounting system in 2002.

Another key performance area is reducing erroneous payments. The problem plagues the
agency’s Supplemental Security Income (SSI) program, which remains a high-risk program
due to improper payments. In recent years, SSA has increased its funding for initiatives
focused on identifying erroneous payments. The 2003 Budget will enable SSA to increase
SSI non-disability redeterminations by nine percent and achieve a payment accuracy rate
of 94.7 percent.

•

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SOCIAL SECURITY ADMINISTRATION

Initiative
E-Government —SSA has a broad strategic goal of attaining a paperless environment by
2010. SSA has taken constructive steps in the last two years by rapidly expanding online
customer service options. These include retirement claims, Medicare replacement cards,
online “account” status, access to change one’s address and telephone number, and direct
deposit. Despite these new services, SSA remains a paper-driven agency that still relies on
moving claims folders from one site to the next for processing. To address this issue, SSA
will give high priority to E-Government projects that will result in large productivity increases
by improving the business process, such as with the “e-dib” project. This is a paperless
process centered on employees sharing an electronic folder in a secure environment to review
disability beneficiaries’ files.

2001 Status

•

SSA’s capital planning process has improved markedly over the last two years. However, SSA
will improve its risk management assessment, set performance goals associated with specific
information technology (IT) projects, and develop a cost-tracking system that consolidates cost
information for IT projects.
Budget/Performance Integration —SSA has a wide range of performance measures for the
various activities the agency conducts. However, SSA needs to strengthen the linkage between
performance and funding. Currently, SSA’s budget relates funding to outputs, by calculating
the workforce it needs to process all of the work it expects to receive at given production rates,
taking account of planned efficiencies and other changes. Only in a few activities (Continuing
Disability Reviews and SSI Redeterminations) does SSA have costs specifically aligned with
outcome measures. SSA will improve its ability to present a performance budget that permits
direct comparisons between incremental budgeted amounts and outcomes in specific activities.

•

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373

Social Security Administration
(In millions of dollars)
2001
Actual

Estimate
2002
2003

Spending:
Discretionary Budget Authority:
Limitation on Administrative Expenses (LAE) 1 .........................................
Office of the Inspector General ....................................................................
Research and Development .........................................................................
Subtotal, Discretionary budget authority adjusted 2 .......................................
Remove contingent adjustments ..................................................................
Total, Discretionary budget authority ...............................................................

7,448
72
23
7,543
−327
7,216

7,907
79
30
8,016
−343
7,673

8,283
87
23
8,393
−350
8,043

Emergency Response Fund, Budgetary resources .......................................

—

429,451
27,481

455,423
31,322

471,848
32,469

486
—
7
−1,692
−7,910
447,823

454
—
9
−1,368
−9,243
476,597

420
−420
9
−1,880
−9,564
492,882

Mandatory Outlays:
Old-age, Survivors, and Disability Insurance .............................................
Supplemental Security Income ....................................................................
Special Benefits for Disabled Coal Miners
Existing law ................................................................................................
Legislative proposal ..................................................................................
Special Benefits for Certain World War II Veterans ..................................
Offsetting Collections .....................................................................................
Undistributed Offsetting Receipts ................................................................
Total, Mandatory outlays ....................................................................................

The LAE account includes funding from the Hospital Insurance and Supplementary Medical Insurance trust
funds for services that support the Medicare program.
2 Adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more
information, see Chapter 14, "Preview Report," in Analytical Perspectives.

FEDERAL DRUG CONTROL PROGRAMS

The President’s Proposal:

• Focuses on preventing drug use before it starts, through education and community
action;
• Increases support for treatment and prevention programs;
• Disrupts the drug market by attacking the economic basis of the drug trade; and
• Emphasizes performance, not business as usual.
The Office of National Drug Control Policy (ONDCP), which is part of the Executive Office of
the President, is responsible for developing the government-wide National Drug Control Strategy
and the budget that supports it. This strategy involves most of the major Cabinet Departments and
encompasses programs that attempt to prevent the use of drugs, treat those who are addicted to
illegal substances, enforce the nation’s drug laws, interdict drugs before they reach the American
border, and help other nations eliminate the production of illegal drugs. ONDCP also is directly
responsible for four drug control programs, with funding totaling close to $500 million.

Overview
Although some progress in reducing drug use has been made, the record is clearly mixed. Use
of illegal drugs by youths fell substantially between 1979 and 1992, but has increased since then.
Among persons 18 and older, and among adolescents and young adults, reported use dropped over a
20-year period, but has not dropped significantly since the early 1990s.
Yet costs associated with drug use, such as incarceration, illness, and premature death, continue
to rise and are estimated to exceed $160 billion annually. Despite substantial spending by all levels
of government, and concerted efforts of parents, friends, schools, and faith-based organizations, drug
use in the United States remains unacceptably high and imposes considerable costs on society. One
part of the problem is reflected in the way the federal government confronts the drug problem. Much
of the $19 billion spent in 2002 in the name of drug control actually reflects the failure of our drug
efforts by funding the consequences of drug use.

375

376

FEDERAL DRUG CONTROL PROGRAMS

A Greater Emphasis on Education and Community Action
The President believes the most effective
way to reduce the supply of drugs in America
is to reduce the demand for drugs in America
by stopping drug use before it starts. The
President’s Budget recognizes the central role
of prevention in reducing drug use and the
budget this year provides funding for several
major efforts.

Above all, we must reduce drug use for one great
moral reason: over time, drugs rob men and women
and children of their dignity and character. Illegal
drugs are the enemies of ambition and hope. And
when we fight against drugs, we fight for the souls
of our fellow Americans .
President George W. Bush
December 14, 2001

More than anything else, prevention means
sending a consistent message. Two examples
are the National Youth Anti-Drug Media Campaign and the Drug-Free Communities Program. The
President’s Budget includes $180 million for the media campaign, which attempts to educate young
people about drug use and its consequences through targeted, paid messages in both the traditional
mass media and on other media like the Internet. The Drug-Free Communities program, funded
at $60 million in 2003, furnishes matching grants to local anti-drug coalitions trying to prevent the
illegal use of drugs, alcohol, and tobacco by youth.

Disrupting the Market: Attacking the Economic Basis of the Drug Trade
Local efforts by themselves are not enough. Disrupting the drug trade remains an essential part
of the federal government’s approach to drug control. It is a two-front campaign. Internationally,
disrupting the drug trade includes tracking and stopping aircraft and ships attempting to smuggle
illegal drugs into the United States, cooperative efforts with other nations to dismantle drug
production facilities, taking apart drug trafficking and money laundering organizations, and
building the political and legal institutions to deter future drug trafficking.
A key component of this effort is the Andean Counterdrug Initiative. The President’s Budget
includes $731 million for this initiative, $106 million more than enacted in 2002. This funding
request continues programs to aid law enforcement in the Andean region, including the operations
and maintenance of the Colombian National Police and Army Counternarcotics Brigade. More
details on the Andean Counterdrug Initiative can be found in the Department of State and
International Assistance Programs chapter.

Increasing Support for Drug Treatment
When prevention and enforcement efforts fail, we must treat those who abuse drugs. There are
approximately five million heavy users of illegal drugs in America today—one-third of whom ingest
two-thirds of all drugs. In order to help those seeking treatment, the President has made increasing
drug treatment a priority. The President’s Budget proposes an increase of nearly $110 million for
the Substance Abuse and Mental Health Services Administration’s Targeted Capacity Expansion
program, which is designed to support a rapid response to emerging trends in substance abuse. It
also includes a $60 million increase for the Substance Abuse Prevention and Treatment Block Grant,
which will provide additional funding to states for treatment and prevention services.

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377

However, the majority of those who need treatment do not seek it voluntarily, and for that reason,
$77 million is proposed for the Residential Substance Abuse Treatment (RSAT) program. RSAT
distributes funds to states that support drug and alcohol treatment in state correctional systems. The
budget also proposes $52 million for the Drug Courts program, which uses the courts’ authority to
force abstinence from drugs and to alter behavior with escalating sanctions, mandatory drug testing,
treatment, and strong aftercare programs.

Emphasizing Performance
The President has committed the federal government to manage by results, and nowhere is
the need for improved management greater than in federal drug control efforts. For example, the
effectiveness of the Safe and Drug-Free Schools program has been questioned. While laudable in its
goals, a recent Rand report on the program found that the locally-designed initiatives “are rarely
based on proven models,” and concluded that the program has not been credibly evaluated. To
improve evaluation and better direct program activities in 2003, the Department of Education will
develop an evaluation plan for these grants, one that will impose program accountability, while
alerting schools to problem areas.
The High Intensity Drug Trafficking Areas (HIDTA) program was set up so that law enforcement
agencies could zero in on areas designated by ONDCP as “centers” of major drug production,
manufacturing, importation, or distribution. The program has grown from the five original HIDTAs
of a decade ago to 28 HIDTAs currently. Much of the increase in the HIDTA program is the result of
congressional direction of funds to specific HIDTAs. However, there are questions about whether
some of these areas deserve to be designated as HIDTAs. No systematic evaluation of the HIDTA
program has been conducted and no credible performance measures have been developed. The
budget proposes $206 million for HIDTAs, a reduction of $20 million from the 2002 enacted level,
and provides funding to measure performance.
ONDCP will continue the work to bring
accountability to drug control programs
Principal Goals of the National Drug Control
through better performance measurements.
Program
Right now, the national program has a
Two-Year Goals:
Performance Measures of Effectiveness
(PME) system with five goals, 31 objectives,
Reduce current drug use by 10 percent for ages
and nearly 100 performance targets. The
12–17 and for persons ages 18 and up.
Administration will carefully examine this
Five-Year Goals:
system and its complex relationships to
determine what fundamental changes and
Reduce current drug use by 25 percent for ages
adjustments should be made. In arraying
12–17 and for persons ages 18 and up.
so much detail, this system obscures the
fundamental aim of the Drug Strategy—to
reduce drug use in America. Therefore, as an additional management reform, ONDCP will judge
the overall success of the National Drug Control Program by focusing on two specific two-year and
five-year goals, using as a baseline the 2000 National Household Survey on Drug Abuse.

378

FEDERAL DRUG CONTROL PROGRAMS

Restructuring the Drug Control Budget
To bring greater accountability to drug control efforts, the Administration will propose a
significant restructuring of the drug control budget. The national drug control budget includes close
to 50 budget accounts totaling $19 billion for 2003. Recent independent analyses commissioned by
ONDCP, as well as ongoing, required reviews by Inspectors General, have identified weaknesses in
the methodologies agencies use to measure drug control spending. These budgets are imprecise and
often have only a weak association with core drug control missions. Reform of the national drug
control budget is needed.
In the coming months, the Administration will develop a new way to report the drug control
budget, based on the following guidelines:

• all funding items displayed in the drug control budget should be readily identifiable line items
•

in the President’s Budget or agency budget justifications; and
the budget presentation should be simplified by eliminating several supporting agencies from
the drug control budget tabulation. Only agencies with a primary supply reduction or demand
reduction mission would be displayed in the drug control budget. Agencies with no or little
direct involvement in drug control would be excluded from the revised drug control budget
presentation.

The aim is to distinguish between funding for drug control efforts and funding for the consequences
of drug use. It is the first category, drug control, that should be strengthened and emphasized. The
second category, consequences of drug abuse, simply catalogues our policy failures. We should not
confuse large expenditures on this second category with effective action against drug abuse.
This stricter definition of drug control is likely to reduce dramatically the federal funding deemed
to represent drug control funding, but in fact represents a renewed federal commitment to actually
reducing drug use. For example, the traditional methodology used in the accompanying table shows
2003 drug spending of $19.2 billion. The new methodology, when applied to this estimate, might show
annual drug control spending to be several billion dollars less. This presentational change, while
dramatically lowering the amount of funding attributed to the drug control budget, will not have a
negative effect on federal drug control efforts. In fact, it will improve those efforts by focusing on
managing programs genuinely directed at reducing drug use. The proposed methodological changes
will be discussed more fully in the 2002 National Drug Control Strategy, and will be shared with the
Congress and key stakeholders in the coming months. The 2004 Budget will show the changes in
full.

THE BUDGET FOR FISCAL YEAR 2003

379

Federal Drug Control Funding by Agency
(Budget authority, dollar amount in millions)
2001
Actual

2002
Enacted

2003
Request

Change 2002- 2003
Dollar
Percent

Department of Agriculture:
Agricultural Research Service ...........................................................
U.S. Forest Service..........................................................................
Special Supplemental Nutrition Program for Women, Infants

5
6

5
7

—
—

and Children................................................................................
Total, Agriculture ..........................................................................

16
27

18
29

19
31

1
1

8%
5%

Corporation for National and Community Service ....................................

53%

DC Court Services and Offender Supervision .........................................

-4

-5%

Department of Defense:
Counterdrug Operations ....................................................................
Plan Colombia/Andean Regional Initiative............................................
Total, Defense ..............................................................................

1,047
103
1,150

998
11
1,009

999
—
999

1
-11
-10

*
-100%
-1%

Intelligence Community Management Account........................................

-9

-20%

Department of Education .....................................................................

634

660

635

-25

-4%

Deptartment of Health and Human Services (HHS):
Administration for Children and Families ..............................................
Centers for Disease Control and Prevention .........................................
Centers for Medicare and Medicaid Services ........................................
Health Resources and Services Administration ........................ .............
Indian Health Service ........................................................................
National Institutes of Health (NIDA & NIAAA)........................................
Substance Abuse and Mental Health Services Administration ................
Total, HHS ...................................................................................

83
224
500
46
60
823
1,655
3,390

90
225
560
47
62
933
1,766
3,684

91
225
620
47
63
994
1,820
3,860

1
*
60
—
1
61
54
176

1%
*
11%
—
2%
7%
3%
5%

Deptartment of Housing and Urban Development....................................

309

—

Department of the Interior:
Bureau of Indian Affairs ......................................................................
Bureau of Land Management ..............................................................
U.S. Fish and Wildlife Service..............................................................
National Park Service.........................................................................
Total, Department of the Interior ......................................................

23
5
2
10
39

23
5
1
10
39

*
—
—
*
*

*
—
—
1%
1%

The Judiciary......................................................................................

757

820

921

101

12%

Department of Justice:
Assets Forfeiture Fund ......................................................................
U.S. Attorneys ..................................................................................
Bureau of Prisons .............................................................................
Community Policing ..........................................................................
Criminal Division...............................................................................
Drug Enforcement Administration .......................................................
Federal Bureau of Investigation ..........................................................
Federal Prisoner Detention ................................................................
Immigration and Naturalization Service................................................
Interagency Crime and Drug Enforcement ...........................................
INTERPOL ......................................................................................
U.S. Marshals Service .......................................................................
Office of Justice Programs .................................................................
Tax Division .....................................................................................
Total, Department of Justice ...........................................................

440
228
2,342
375
35
1,480
707
376
525
325
*
224
1,017
*
8,074

360
245
2,525
427
38
1,605
416
429
538
339
*
255
963
*
8,140

430
254
2,443
653
39
1,699
421
464
713
362
*
278
309
*
8,067

70
10
-82
226
1
93
6
35
175
24
*
23
-653
*
-74

19%
4%
-3%
53%
2%
6%
1%
8%
33%
7%
4%
9%
-68%
5%
-1%

380

FEDERAL DRUG CONTROL PROGRAMS

Federal Drug Control Funding by Agency—Continued
(Budget authority, dollar amount in millions)
2001
Actual
Department of Labor ............................................................................

2002
Enacted
79

Office of National Drug Control Policy:
Operations (ONDCP) ........................................................................
High Intensity Drug Trafficking Areas ...................................................
Counterdrug Technology Assessment Center .......................................
Special Forfeiture Fund .....................................................................
Total, ONDCP ..............................................................................

25
208
36
233
502

25
226
42
239
533

25
206
40
251
523

*
-20
-2
12
-10

1%
-9%
-5%
5%
-2%

Small Business Administration ...............................................................

—

Department of State:
Bureau of International Narcotics and Law Enforcement (INL)
International Narcotics Control .........................................................
Plan Colombia/Andean Regional Initiative..........................................
Subtotal, INL................................................................................
Emergencies in the Diplomatic and Consular Service ............................
Public Diplomacy ..............................................................................
Total, Department of State .............................................................

279
—
279
2
9
290

198
625
823
1
9
833

152
731
883
3
10
895

-45
106
61
2
*
63

-23%
17%
7%
150%
4%
8%

Department of Transportation:
U.S. Coast Guard .............................................................................
Federal Aviation Administration ..........................................................
National Highway Traffic Safety Administration......................................
Total, Department of Transportation ................................................

745
20
30
796

540
19
32
591

629
20
32
682

89
1
*
90

16%
6%
1%
15%

Department of the Treasury:
Bureau of Alcohol, Tobacco, and Firearms ...........................................
U.S. Customs Service .......................................................................
Federal Law Enforcement Training Center ............................................
Financial Crimes Enforcement Network ...............................................
Interagency Crime and Drug Enforcement............................................
Internal Revenue Service...................................................................
U.S. Secret Service...........................................................................
Treasury Forfeiture Fund....................................................................
Total, Department of the Treasury ...................................................

165
708
32
11
103
51
22
170
1,262

185
995
35
12
108
39
26
146
1,547

199
996
30
13
108
42
31
146
1,565

14
1
-5
1
—
3
5
*
18

7%
*
-15%
7%
—
7%
17%
*
1%

Department of Veterans Affairs ..............................................................

681

709

742

Total, Federal Drug Control Funding................................................

18,095

18,823

19,180

357

Notes: 2002 and 2003 data are preliminary.
*Less than $500 thousand or 0.5 percent.

2003
Request
79

Change 2002- 2003
Dollar
Percent
*
*

OTHER AGENCIES
COMMODITY FUTURES TRADING COMMISSION
The Commodity Futures Trading Commission (CFTC) regulates U.S. futures and options markets.
It strives to protect investors by preventing fraud and abuse and ensuring adequate disclosure of
information. The President’s Budget includes a proposed fee on each round-turn commodities futures
and options transaction. The fee will be phased in during 2003. This proposal recognizes that market
participants derive direct benefits from the CFTC’s oversight, which provides legal certainty and
contributes to the integrity and soundness of the markets. The 2003 Budget provides $83 million to
fund mission critical activities (e.g., enforcement and market surveillance) and to strengthen U.S.
competitiveness, as required by the Commodity Futures Modernization Act of 2001.
In 2003, the CFTC will work to review every contract market designation application and
derivatives transaction execution facility registration application within 30 to 60 days and respond
to applicant exchanges with a notification letter. CFTC also will review requests for approval of
products and rule changes and respond to trading exchanges (e.g., Chicago Board of Trade) in
writing within 90 days.

CONSUMER PRODUCT SAFETY COMMISSION
The primary responsibility of the Consumer Product Safety Commission (CPSC) is to protect the
public from unreasonable risk of injury connected with consumer products. CPSC also helps develop
uniform safety standards for consumer products, and conducts and promotes research into preventing
product-related deaths, injuries, or illness.
A substantial portion of the CPSC’s work focuses on decreasing fire hazards linked to consumer
products and on reducing head injuries to children. CPSC’s programs have helped drive down home
fire death rates from consumer products by 46 percent since 1985, and head injury rates for children
by 15 percent since 1986.
The Commission carries out its mission by emphasizing voluntary standards first, moving
to mandatory standards only when necessary. CPSC also seeks to obtain major product recalls
cooperatively with industry. It works actively with industry leaders to promote good product
safety practices through conferences, special events, and expanded use of its toll-free hotline,
1–800–638–2772 and its website, www.cpsc.gov.

CORPORATION FOR NATIONAL AND COMMUNITY SERVICE
The Corporation for National and Community Service (CNCS) provides service opportunities
for more than 1.5 million Americans in educational, public safety, and environmental activities
through programs such as AmeriCorps and the National Senior Service Corps (NSSC). CNCS
and its service opportunities are key components of the Administration’s USA Freedom Corps—a

381

382

OTHER AGENCIES

new initiative to engage citizens in promoting homeland security and civic volunteering at home
and abroad. The budget requests $1,035 million, a $299 million or 41-percent increase, for the
Corporation to support 75,000 AmeriCorps members, strengthen homeland security efforts, and
expand service opportunities for an additional 100,000 seniors. This includes support for some
6,300 AmeriCorps VISTA members to provide outreach and technical assistance to community and
faith-based organizations.
National Service and Homeland Security. Since the attacks of September 11th, the President
has encouraged all Americans to help fight terrorism on the home front by “making a commitment
of service in our own communities.” The budget includes $118 million across all CNCS programs to
support these efforts. It also places senior citizens and other volunteers in community activities to
strengthen homeland security. CNCS will furnish grants to states and community organizations to
support and mobilize volunteers in public safety, public health, disaster relief and preparedness.
Expanding Opportunities for Service Through AmeriCorps. The AmeriCorps program
enables Americans of all backgrounds to serve in local communities through programs
sponsored by nonprofit organizations. The 2003 Budget includes an increase of $230 million to
support an additional 25,000 AmeriCorps members. The Corporation’s programs will support
community-service organizations in meeting local needs and will conduct activities to promote
public safety, public health, and emergency preparedness. The budget also includes $10 million for
challenge grants for teaching and other national service programs under section 126 of the National
and Community Service Act, where private sources provide at least 50 percent of funds required to
operate the program.
Senior Service and Special Volunteer Programs. The National Senior Service Corps (NSSC)
uses the talents of more than 500,000 older Americans to meet a wide range of community needs.
Consisting of the Retired and Senior Volunteer Program, the Foster Grandparent Program, and
the Senior Companion Program, the NSSC serves young people with special needs, helps seniors
live independently in their homes, and provides support services to youth ex-offenders. The budget
includes $213 million for the NSSC, a $6 million increase over 2002 and the second step of the
President’s five-year strategy to increase annual funding for the Senior Corps to $250 million over
five years. In addition, the budget proposes $55 million for Special Volunteer Programs to provide
service opportunities for an additional 100,000 seniors, including activities in homeland security and
a new Parent Drugs Corps.

DISTRICT OF COLUMBIA
The nation’s capital city faces new and unique challenges following the events of September 11th .
The President’s Budget provides additional federal funding to support the District of Columbia’s
public safety response to events directly related to the federal government’s presence in the District.
The Congress provided $200 million in 2002 to help the District address immediate security needs
arising from the September 11th attacks. The 2003 Budget adds to these resources by proposing $15
million to support the District’s role in homeland security.
The budget continues to support the D.C. Resident Tuition Assistance program with $17 million
in funding. The program was started in 1999 and allows District residents to attend public colleges
nationwide at in-state tuition rates and to receive grants to attend private colleges in the D.C.
area. This program is intended to ensure that D.C. residents have the same access to postsecondary
education as residents of states. The budget also proposes $1 million for Transportation Systems

THE BUDGET FOR FISCAL YEAR 2003

383

Management to implement recommendations in the National Capital Planning Commission’s
October 2001 report.

DISTRICT OF COLUMBIA COURTS
The District of Columbia Courts receive funding from the federal government under the 1997
National Capital Revitalization and Self-Government Improvement Act. In 2002, a new Family Court
of the D.C. Superior Court was created, which provides increased coordination and continuity for
child- and family-related cases. The President’s Budget provides $191 million to the D.C. Courts,
including funding to increase staffing for the Family Court Division. This funding includes $32
million to address long-term capital infrastructure needs associated with the expansion of the Family
Court Division and overall deterioration of the D.C. Court facilities.

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
The Equal Employment Opportunity Commission (EEOC) works to enforce laws that prohibit
employment discrimination based on race, sex, religion, national origin, age, or disability. The
EEOC sets out to enforce the nation’s equal employment laws through selective litigation,
mediation, and alternative dispute resolution. Beyond enforcement, EEOC strives to prevent
employment discrimination through outreach, training, and technical assistance to promote
employer compliance.
The 2003 Budget provides $324 million for EEOC. The budget reflects efficiencies that EEOC
expects to realize through workforce restructuring and a reduction of decision-making layers to serve
citizens more cost effectively. The budget will enable EEOC to continue to reduce its case backlog.
The budget also includes $30 million for state, local, and tribal fair employment and more than $15
million for critical information technology improvements.

EXECUTIVE OFFICE OF THE PRESIDENT
The Executive Office of the President (EOP) encompasses a number of offices, councils, and
accounts dedicated to serving the President. As part of the 2003 Budget, the Administration is
requesting a consolidation and financial realignment for the EOP. The initiative would consolidate
the 12 individual annual appropriations for the salaries and expense accounts for the EOP agencies
and fund them with a single appropriation. It would consolidate the resources for common
acquisition-related goods and services into the EOP’s Office of Administration, including the Vice
President’s needs.
This proposal would give the President maximum flexibility in allocating resources and staff in
support of his office and is intended to: permit a more rapid response to changing needs and priorities;
allow the President to address emergent national needs; produce greater economies of scale and other
efficiencies in procuring goods and services; and enhance accountability for performance.
This initiative would enable the President to effectively manage and align EOP resources
consistent with decision-making in an efficient and straightforward manner, while enhancing the
accuracy of the financial systems and significantly reducing the administrative volume and cost of
processing transactions through the U.S. Treasury. This initiative is carefully crafted to properly

384

OTHER AGENCIES

support the President and the Vice President separately as the two senior constitutional officers of
the Executive Branch, while achieving substantial efficiencies.
Resources requested for the EOP in 2003 are $336 million. These resources will support
approximately 2,000 personnel, information technology, and other infrastructure needs to serve
the President and the Vice President. The EOP budget also includes new funding for the USA
Freedom Corps. While the 2003 request is above the 2002 enacted level, the entire increase is
due to additional homeland security requirements. These homeland security expenses include the
establishment of the Office of Homeland Security and a separate counter-terrorism directorate in
the National Security Council, and the costs associated with ensuring the security of the President,
the Vice President, and the staff that serve them. If homeland security expenses are excluded, the
budget for the EOP grows by less than the rate of inflation.

FEDERAL COMMUNICATIONS COMMISSION
The President’s Budget requests an appropriated spending level of $278 million for the Federal
Communications Commission (FCC), $248 million of which will be offset by regulatory fees. This
funding level supports increased efficiency in the FCC’s work processes through information
technology investments and the FCC’s Excellence in Engineering initiative. The FCC works
to encourage a fully competitive marketplace in communications and to promote affordable
communications services for all Americans. Through more efficient licensing, the FCC will ensure
more rapid introduction of new services and technologies. In 2003, the FCC will complete 95 percent
of its licensing activities for communications services within agency-established timeframes for
each activity, such as 90 days from license application to issuance for wireless services. Also, 85
percent of all FCC applications will be filed electronically.
In 1993, the President and the Congress gave the FCC authority to assign spectrum licenses
through competitive bidding, which has proven to be an efficient and effective way to allocate this
finite public resource. Upcoming spectrum auctions are expected to generate more than $25 billion
over the next five years.
The Administration will propose legislation to provide more certainty in upcoming auctions. The
legislation will establish a framework for the FCC to develop regulations that promote clearing the
spectrum in television channels 60–69 (747–762 and 777–792 MHz) for new wireless services in an
effective and equitable manner. Such legislation also would shift the statutory deadlines for the
auction of channels 60–69 from the elapsed 2000 date to 2004 and for the auction of channels 52–59
(698–746 MHz) from 2002 to 2006. Providing more certainty about how and when the spectrum in
channels 60-69 will become available to new entrants and shifting the deadlines for both auctions
would increase expected revenues by $6.7 billion.
To facilitate the clearing of analog television broadcast spectrum and provide taxpayers some
compensation for use of this scarce resource, the Administration will propose legislation authorizing
the FCC to establish an annual lease fee totaling $500 million for the use of analog spectrum by
commercial broadcasters beginning in 2007. Upon return of their analog spectrum license to the
FCC, individual broadcasters will be exempt from the fee.

THE BUDGET FOR FISCAL YEAR 2003

385

FEDERAL DEPOSIT INSURANCE
The purpose of deposit insurance is to maintain stability and public confidence in the nation’s
financial system. Federal deposit insurance, offered by the Federal Deposit Insurance Corporation
(FDIC) and the National Credit Union Administration (NCUA), is designed to protect depositors
against losses from failures of insured commercial banks, thrifts (savings institutions), and
credit unions. Individual deposits up to $100,000 are covered in virtually all U.S. banks, savings
associations, and credit unions.
Currently, the federal government insures more than $3 trillion in deposits at more than 20,000
institutions through the FDIC and NCUA. These agencies maintain insurance reserves to use when
resolving failed institutions. The FDIC and the NCUA fund these reserves through assessments on
insured institutions, recoveries of assets liquidated from failed institutions, and interest earned on
these reserves in U.S. Treasury securities.
The Administration is developing proposals to strengthen the deposit insurance system that draws
on the framework released by the FDIC under former Chairwoman Donna Tanoue in April 2001.

• The FDIC has been prohibited from charging premiums to “well capitalized” institutions since

•

1996. Therefore, under the current pricing structure, only seven percent of banks and 11
percent of thrifts pay regular insurance premiums. The framework would have all institutions
pay at least a nominal amount for federal deposit insurance and would assess new deposits.
Under the current system, the FDIC is required to maintain a designated reserve ratio (DRR,
the ratio of insurance fund reserves to total insured deposits) of 1.25 percent. If the DRR
falls below 1.25 percent, all institutions could be required to pay premiums averaging 23 basis
points if the DRR cannot be restored to 1.25 percent within a year. This current structure
requires institutions to face a cliff of high premium payments when they are weakest. The
FDIC framework would replace the current fixed reserve ratio with a flexible range.

The framework would merge the bank and thrift funds, which offer an identical product. A merged
fund would be stronger and better diversified than either fund standing alone. Additionally, given
that many institutions currently hold both bank- and thrift-insured deposits, merging the funds
would eliminate the need to track bank and thrift deposits separately and would help streamline
mergers and acquisitions.

FEDERAL ELECTION COMMISSION
The Federal Election Commission (FEC) has jurisdiction over the financing of election campaigns
for the U.S. House of Representatives, the U.S. Senate, the Presidency, and the Vice Presidency. The
FEC is composed of six commissioners, appointed by the President and confirmed by the Senate. The
FEC discloses campaign finance information, enforces limits and prohibitions on contributions, and
oversees the public funding of Presidential elections. The President’s Budget includes $47.0 million
for 2003, $3.0 million more than 2002, to allow the FEC to meet its increasing workload.

FEDERAL TRADE COMMISSION
The Federal Trade Commission (FTC) enforces various consumer protection and antitrust laws
that prohibit business practices that are anticompetitive, deceptive, or unfair to consumers. The FTC
also works to promote informed consumer choice and public understanding of the competitive process,

386

OTHER AGENCIES

seeking to accomplish this mission without impeding legitimate business activity. The proposed 2003
operating budget of $177 million is more than offset by anticipated fee collections.
In 2003, the FTC will expand its contribution to the Administration’s consumer privacy agenda
by helping victims of ID theft, increasing enforcement and outreach on children’s online privacy, and
increasing enforcement against “spam.” It will also seek to establish a national “do-not-call” list that
would protect consumers from unwanted and intrusive telemarketing calls, and bring nationwide
consistency to the current patchwork of lists administered by states and the private sector.

GENERAL SERVICES ADMINISTRATION
The mission of the General Services Administration (GSA) is to help federal agencies better
serve the public by offering at best value: quality workplaces, expert solutions, acquisition
services, and management policies. For 2003, GSA is proposing six agency-wide strategic goals:
1) provide best value for federal agencies; 2) achieve responsible asset management; 3) operate
efficiently and effectively; 4) ensure financial accountability; 5) maintain a world-class workforce
and workplace; and 6) help federal agencies comply with their social, environmental, and other
administrative responsibilities. GSA has recognized previous shortcomings in its ability to measure
the achievement of its strategic goals and has begun to build and implement a new Performance
Management Process. This new process will include performance measures beyond the traditional
measures of customer satisfaction, such as performance against customer expectations and industry
and government benchmarks for quality, timeliness, cost, and return on investment. Data gathering
and reporting systems will be improved to present the performance of GSA’s business lines and to
show its policy role in helping agencies improve the management of administrative activities.
Most of GSA’s employees provide or procure commercial services for other federal agencies on
a reimbursable or fee-for-service basis. Since GSA operates a collection of business-like services,
it has significant opportunities to improve its overall performance by subjecting its activities to
market-based competition. By the end of 2003, GSA will have conducted such competitions for at
least 15 percent of its “commercial activities” workforce.
The 2003 Budget also recognizes GSA as operator of the official federal portal for providing citizens
with one-stop access to federal services via the Internet or telephone. This is a key element of the
President’s vision for expanding electronic government (E-Gov). The E-Gov initiative will improve
the value of the federal government to its citizens, just as American industry has learned to use
the Internet to improve efficiency and customer service. Full implementation of the President’s
E-Gov vision will also require cross-agency approaches that permit citizens, businesses, and state
and local governments to easily obtain services from and electronically transact business with the
federal government. The Administration’s interagency Quicksilver E-Gov Task Force identified 23
high priority Internet services for early development.
Though best known for the services it provides other federal agencies, GSA operates two
programs, the Federal Consumer Information Center (FCIC) and FirstGov, that provide the public
with electronic access to federal and other government information and services. GSA’s Office of
Government-wide Policy includes several information technology support activities that were part
of this E-Gov task force and whose continued involvement is essential to the success of the E-Gov
initiatives. The President proposes to consolidate GSA resources involved in implementing the
citizen-centered aspects of the President’s E-Gov vision into a new Office of Citizen Services.

THE BUDGET FOR FISCAL YEAR 2003

387

For 2003, the President also proposes $45 million for an E-Gov Fund to finance interagency E-Gov
projects. Although a significant increase over the $20 million requested in 2002, this year’s request
is supported by specific project plans developed by the Quicksilver Task Force.
In 2003, GSA expects to provide its federal agency customers over $34 billion in office space,
supplies and equipment, motor vehicles, telecommunications, information technology, and other
administrative services. Agencies will reimburse GSA’s revolving funds for $15 billion of this
amount and pay the remaining $19 billion directly to vendors under GSA’s Multiple Award
Schedules contracts. The budget includes $6.9 billion in new obligational authority to provide
secure, cost effective workplaces for over 1.1 million federal employees. Of this amount, over $135
million in additional funding is provided for increased guard services, building security equipment,
and other security initiatives to ensure the safety of federal employees.
Through its regulations and delegated property management and procurement activities, GSA
influences an additional $70 billion in federal spending and the management of assets valued at $450
billion. Although its agency customers reimburse GSA for almost all of its annual expenses, certain
expenses are funded by appropriations. In 2003, for example, the Administration proposes $551
million (net discretionary budget authority) for GSA, primarily for the construction and renovation of
federal buildings. This amount also funds the Office of Government-wide Policy, the Office of Citizen
Services, the Office of the Inspector General, and certain operating expenses related to property
disposal, information technology security, and agency-wide management activities.

INSTITUTE OF MUSEUM AND LIBRARY SERVICES
The Administration continues to recognize the important role that libraries and museums play
in the nation’s education system and communities. The Institute of Museum and Library Services
(IMLS) provides state grants and competitive awards to assist the nation’s museums and libraries in
expanding their services to the public. Evaluations of IMLS’s programs have shown them to have a
positive effect on the operations of grantees. The budget increases funding for core IMLS programs
and administrative support that benefit libraries and museums nationwide from $195 million to $211
million. It does not continue narrow, special-interest projects that were designated by the Congress
for funding in 2002.
The President’s Budget proposes a $10 million initiative to recruit and train library professionals.
In May 2000, Library Journal Magazine reported that 40 percent of librarians indicate they plan
to retire in nine years or less. According to the July 2000 Monthly Labor Review, 57 percent of
professional librarians were age 45 or older in 1998. To help recruit a new generation of librarians
for the 21st Century, this initiative will provide scholarships to graduate students in library and
information science, support distance learning technology for training programs in underserved
areas, and recruit librarians with diverse language skills.
IMLS’s two offices, the Office of Museum Services and the Office of Library Services, receive
their funding through two different appropriations bills. Having one agency receive funding
from two sources creates inordinate complexity for all parties involved. For simplicity’s sake, the
Administration recommends that funding for the entire agency come from the Labor/HHS/Education
appropriations subcommittee.
In addition to making grants, IMLS also undertakes a number of research and policy development
activities. A recent example of its work includes a collaborative effort with the National Science
Foundation to share complementary research information in digital library technology. The

388

OTHER AGENCIES

Administration believes that the establishment of the Museum and Library Services Act of 1996
has been successful, and recommends continued authorization of these programs.

NATIONAL ARCHIVES AND RECORDS ADMINISTRATION
The National Archives and Records Administration (NARA) safeguards records of all three
branches of the federal government and ensures ready access to essential evidence that documents
the rights of American citizens, the actions of federal officials, and the national experience. In 2003,
the budget proposes $272 million for NARA. Of these resources, $2.3 million will enable NARA to
continue leading the Electronic Records Management project. This effort will pilot government-wide
procedures and tools for electronic records management and will pave the way toward solving the
substantial challenge of preserving and providing access to the government’s electronic records.
To manage electronic records in the future, NARA also will gradually deploy components of the
Electronic Records Archive. Moreover, NARA will complete installation of the Federal Register’s
electronic editing and publishing system. This system will accommodate digital signatures and
electronic submission of documents for Federal Register publications, as well as real-time revisions
of the Code of Federal Regulations.

NATIONAL COMMISSION ON LIBRARIES AND INFORMATION SCIENCE
The National Commission on Libraries and Information Science (NCLIS) was established in
1970 as the agency primarily responsible for assessing issues related to library and information
services policy. With the creation of the Institute of Museum and Library Services (IMLS) and the
growth of the information science industry, issues that used to be the exclusive domain of NCLIS
are now part of the mission of many other agencies. As noted earlier in this chapter, IMLS is
currently involved in significant research and evaluation concerning museums and libraries. While
the Administration supports the nation’s libraries, it does not support duplicative or ineffective
agencies. NCLIS’ products—primarily reports on a wide variety of information issues—have failed
to have a significant impact on public policy. NCLIS does not operate programs; 100 percent of its
funding has been for salaries, travel, and other expenses for its commissioners and staff.
The Administration believes that other agencies can take on the responsibilities of NCLIS that
continue to be necessary, such as compiling basic statistics on libraries. NCLIS’ other activities have
failed to demonstrate that their results justify their cost. The budget recommends eliminating this
agency in 2003, saving taxpayers $1 million.

NATIONAL ENDOWMENT FOR THE ARTS
The National Endowment for the Arts (NEA) supports efforts to enhance the availability and
appreciation of the arts. In 2003, NEA will promote hands-on art education programs for children
from pre-school through grade 12. At the same time, NEA will support activities designed to foster
a variety of arts endeavors, state and regional arts organizations, and efforts to expand the reach
of the arts into America’s underserved communities. The budget requests $117 million to carry out
these activities, a slight increase over 2002.

THE BUDGET FOR FISCAL YEAR 2003

389

NATIONAL ENDOWMENT FOR THE HUMANITIES
The National Endowment for the Humanities (NEH) works to support educational and scholarly
activities in the humanities, preserve America’s cultural and intellectual resources, and provide
opportunities for Americans to engage in lifelong learning in the humanities. In 2003, the budget
requests $127 million for NEH to continue partnerships with state humanities councils, efforts to
preserve brittle books and serials, the strengthening of humanities teaching, learning, and museum
exhibitions, documentary media projects, and reading programs that reach popular audiences. NEH
also will enhance its efforts to collect, analyze, and disseminate information about the state of the
humanities.

NATIONAL LABOR RELATIONS BOARD
The National Labor Relations Board (NLRB) regulates private-sector employer and union
relations to minimize interruptions to commerce caused by strikes and worker-management discord.
The NLRB supervises elections in which employees determine whether to be represented by a
union. It is also authorized to prevent and remedy unlawful acts, called unfair labor practices, by
unions or employers. In 2003, the Board expects to receive 30,000 unfair labor practice cases and
6,000 representation cases.
Fair and expeditious case resolution is the NLRB’s highest priority. The agency is more effective
when it can achieve a voluntary resolution of meritorious cases, thereby reducing the need for
time-consuming and costly litigation. The NLRB will continue its goal of settling 95 percent of its
unfair labor practice cases before they require a decision by the five-member Board. Through its
performance goals, the NLRB will continue to place a high priority on reducing its case backlog,
especially on the oldest pending cases.
The 2003 Budget includes $246 million for the NLRB. In particular, the budget provides: $1
million for information technology to strengthen computer security; $1.3 million to finance licensing
agreements to support software upgrades that will promote long-term savings; and $1.3 million to
support an integrated administrative management system for budget, finance, personnel/payroll,
and procurement.

NATIONAL TRANSPORATION SAFETY BOARD
The National Transportation Safety Board (NTSB) is charged with determining the causes of
transportation accidents and promoting transportation safety. The Board investigates accidents,
conducts safety studies and issues recommendations, and evaluates the effectiveness of other
government agencies in preventing transportation accidents. It also coordinates federal assistance
to the families of victims of catastrophic domestic transportation accidents.
The 2003 Budget provides $73 million for salaries and expenses for the NTSB to fulfill its role in
improving the nation’s transportation safety.

390

OTHER AGENCIES

NUCLEAR REGULATORY COMMISSION
The Nuclear Regulatory Commission (NRC) regulates nuclear material use in the United States.
NRC’s actions protect public health and safety, promote common defense and security, and guard the
environment.
NRC faces several challenges in the coming year. In light of the September 11th terrorist attacks,
the NRC is conducting a top-to-bottom analysis of all aspects of the agency’s safeguards and physical
security programs. These programs set the standards for security that must be maintained by
NRC licensees. The NRC uses such standards to evaluate the security and safeguards of regulated
facilities and materials. The NRC must also be prepared to evaluate new reactor designs and to
license the possible construction of new nuclear plants. The NRC will continue its preparations to
review a potential application to construct a high-level nuclear waste repository at Yucca Mountain,
Nevada. The NRC will also review an increasing number of reactor license renewals to extend the
useful lives of existing nuclear reactors and power uprate applications to increase the reactors’
electrical generating capacity.
To carry out these and other activities of ongoing necessity, the budget proposes $605 million in
2003 for the NRC, a five percent increase over 2002.

OFFICE OF PERSONNEL MANAGEMENT
The Office of Personnel Management (OPM) provides human resource management leadership
to the President, federal agencies, and their employees. It oversees the federal civil service merit
systems and provides retirement, health benefit, and other insurance services to federal employees,
annuitants, beneficiaries, and agencies.
OPM is leading agencies in implementing the President’s human capital initiative. This effort
is designed to make government more citizen-centered, results-oriented, and market-based. OPM is
working closely with agencies to ensure that they strategically use the broad range of existing human
resources management tools to recruit, retain, and manage a high-performing workforce. To support
this clear customer-focus, OPM itself has embarked on a significant agency restructuring.
Total discretionary funding of $274 million in 2003 is almost evenly divided between OPM’s
two major missions: 1) managing and overseeing its government-wide human resources and 2)
administering the federal employees benefits trust funds (retirement, health insurance, and life
insurance). It also includes $60 million for information technology projects and government-wide
payroll modernization aimed at increasing efficiency and maximizing citizen service. These
initiatives will streamline and automate the exchange of federal personnel information, cut the cost
and time to complete security clearances, deliver training services electronically, simplify federal
job applications while reducing hiring times, make claims processing faster, cheaper, and more
accurate, and modernize federal payroll systems and service delivery.
In addition to the discretionary funding, OPM will pay out employee benefits totaling $79 billion
in 2003: $53 billion in annuities to more than 2.4 million retired federal employees, their survivors,
and other beneficiaries, $24 billion in health insurance for nine million enrollees and dependents;
and $2 billion in life insurance claims. Beginning in 2003, OPM also will make group long-term
care insurance products available to approximately 20 million members of the federal civilian and
uniformed services, their families, and retirees.

THE BUDGET FOR FISCAL YEAR 2003

391

RAILROAD RETIREMENT BOARD
The Railroad Retirement Board administers retirement, survivor, unemployment, and sickness
insurance benefits for qualified railroad workers and their families. In 2003, it is estimated that $8.8
billion in retirement-survivor benefits will be paid to some 663,000 individuals, while about $124
million in unemployment and sickness benefits are estimated to be paid to some 37,000 persons.
The railroad retirement system benefits are financed through railroad employer contributions,
railroad employee payroll deductions, payments from the Social Security trust funds, and taxpayer
subsidies. Unlike other private industry pension plans, the rail industry pension program is the only
private industry pension subsidized by federal taxpayers and administered by a federal agency.
The Railroad Retirement and Survivors’ Improvement Act increases benefits for railroad
workers and their families, reduces employer taxes initially, and establishes a trust to invest the
railroad pension fund assets in private equities. Currently, the pension fund confronts an unfunded
liability of $39.7 billion, as measured by the Employee Retirement Income Security Act standards.
Consequently, the effects of this law will need to be monitored closely to ensure the solvency of the
railroad retirement pension fund.

REGIONAL ECONOMIC DEVELOPMENT AGENCIES
The President’s Budget requests funding for three regional economic development agencies:
1) the Appalachian Regional Commission ($66 million); 2) the Denali Commission ($41 million);
and 3) the Delta Regional Authority ($10 million). These agencies provide grants to communities
in designated geographic areas for public infrastructure, business development, education, and
job training related to long-term economic development. The budget proposes that funding be
focused on distressed communities and be used for projects that provide sustainable increases
in employment and economic activity. The Administration is working to develop comparable
performance measures for these agencies.

SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission (SEC) regulates U.S. capital markets and the
securities industry. It strives to protect investors by preventing fraud and abuse in U.S. capital
markets and ensuring adequate disclosure of information. The SEC conducts compliance inspections
and examinations in order to review and monitor the conduct and financial conditions of securities
firms and their affiliates.
Today there are over 1,000 investment companies with $6.7 trillion in assets under management,
more than double the amount of deposits at commercial banks. At the same time, there are over
7,000 investment advisors registered with the SEC. In 2001, the agency exceeded planned compliance
inspections for investment companies. In 2003, the agency also will begin placing greater emphasis
on risk-based inspections in order to achieve the goal of conducting at least one examination of every
registrant every five years.
The 2003 Budget includes $481 million to carry out mission-critical activities, implement E-Gov
initiatives, and respond to changes in the financial markets driven by global competition and
technology.

392

OTHER AGENCIES

In January 2002, the Investor and Capital Markets Fee Relief Act was signed into law. The
legislation reduces the rates of tax-like fees collected by the SEC on certain securities transactions.
Enactment of the legislation is consistent with the Administration’s efforts to invigorate free markets
and reduce costs imposed on those markets by the government, while ensuring that the SEC will
have the ability to continue to protect investors and maintain the integrity of the nation’s securities
markets. Without this legislation, the SEC would be collecting five times its annual budget in fees
without any benefit to investors or the markets.
The legislation also authorizes the SEC to provide additional compensation and benefits to
employees if the same type of compensation or benefits are then being provided by any federal
banking agency. This authority will be carried out by the executive branch in a manner that assists
in the performance of the mission of the SEC while minimizing inequities with similarly situated
federal employees.

TENNESSEE VALLEY AUTHORITY
Established in 1933 as an experiment to promote economic development and flood control
management, the Tennessee Valley Authority (TVA) today is a major U.S. government-owned
corporation with two main roles. It is the fifth largest electric utility in the country, generating and
selling electric power worth an estimated $7.3 billion in 2003 (about four percent of the nationwide
total). It is also a natural resource management agency, with an annual operating budget of more
than $50 million, providing navigation, flood control, recreation, water supply and related services
throughout Tennessee and in six neighboring states.
During 2003, TVA estimates it will spend $5.6 billion to produce power at its 11 coal-fired power
plants, five nuclear units, and 30 hydropower facilities. TVA forecasts it will use $1.4 billion in 2003
to upgrade the agency’s power plants and expand its 17,000-mile high-voltage transmission system.
The remaining $300 million TVA will use to reduce its outstanding debt, which stood at $25.4 billion
at the end of 2001.
Over the next five years, TVA estimates it will reduce its debt by $2.4 billion. TVA is reducing its
debt to prepare the agency for the major changes now occurring in the electric power industry, where
competition and restructured transmission systems are replacing integrated monopolies in existence
since the 1930s.
TVA will work with the 158 municipal utilities and cooperatives that distribute TVA power to
renegotiate current sales contracts and end its exclusive supply relationship with those entities.
TVA will also work with the Federal Energy Regulatory Commission, the Department of Energy, and
other utilities to improve the nation’s transmission system. The effort will include forming regional
transmission organizations to reduce the cost and increase the reliability of the region’s and the
nation’s power supply. TVA will continue to work with independent power producers to enable them
to tie into TVA’s transmission network.
As a result, increased regional power supplies and enhanced competition will soon give TVA’s
distributors more power sources to choose from. TVA will also work with the municipal utilities
and cooperatives that distribute its power to design and implement power-pricing policies, such as
time-of-day pricing systems, that encourage cost-effective energy conservation.

SUMMARY TABLES

This set of Summary Tables corrects the omission of minus signs
in this section of the Budget . It replaces the entire Summary
Tables section (pp. 393–417).

393

2002

2003

2004

2005

2006

2007

In billions of dollars:
Outlays ...............................................................
Receipts .............................................................
Deficit/surplus ....................................................

2,052
1,946
−106

2,128
2,048
−80

2,189
2,175
−14

2,277
2,338
61

2,369
2,455
86

2,468
2,572
104

Debt held by the public.....................................

3,477

3,570

3,600

3,548

3,470

3,379

As a percent of GDP:
Outlays ...............................................................
Receipts .............................................................
Deficit/surplus ....................................................

19.8
18.8
−1.0

19.5
18.8
−0.7

19.0
18.9
−0.1

18.7
19.2
0.5

18.5
19.2
0.7

18.3
19.1
0.8

Debt held by the public.....................................

33.6

32.7

31.2

29.2

27.1

25.1

THE BUDGET FOR FISCAL YEAR 2003

Table S–1. Budget Totals

395

396

Table S–2. Budget Summary by Category
(In billions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007

2003–2012

Outlays:
Discretionary:
Defense .........................................................
Non-defense .................................................
Subtotal, discretionary .....................................
Emergency Response Fund ............................
Mandatory:
Social Security ..............................................
Medicare ........................................................
Medicaid ........................................................
Other mandatory ..........................................
Subtotal, mandatory .........................................
Net interest ........................................................
Total Outlays ...........................................................
Receipts ..................................................................
Unified Surplus.......................................................

336
382
718
22

368
405
773
16

390
418
808
7

412
423
835
3

428
429
857
1

442
437
880
*

2,041
2,112
4,153
27

4,531
4,454
8,984
27

456
223
145
310
1,133
178
2,052
1,946
−106

472
231
159
297
1,159
181
2,128
2,048
−80

491
241
170
283
1,185
189
2,189
2,175
−14

515
257
184
291
1,248
190
2,277
2,338
61

542
278
200
303
1,323
188
2,369
2,455
86

571
302
217
313
1,402
185
2,468
2,572
104

2,591
1,308
930
1,488
6,318
933
11,431
11,588
157

6,001
3,141
2,315
3,243
14,700
1,767
25,478
26,481
1,002

On-budget surplus ............................................
Off-budget surplus ............................................

−262
155

−259
179

−208
195

−156
217

−142
228

−139
243

−904
1,061

−1,464
2,466

* $500 million or less

SUMMARY TABLES

(In billions of dollars)
2003

2004

2005

Total
2003–2007

Current baseline surplus ......................................

109

169

764

Budget proposals:
Defense and homeland security .....................
Strengthening Medicare ...................................
Farm bill reauthorization ..................................
Provide incentives for charitable giving .........
Health tax credits ..............................................
Reform unemployment .....................................
Extend expiring tax provisions ........................
Other proposals.................................................
Related debt service.........................................
Subtotal, budget proposals .................................

−31
−2
−7
−2
−1
−1
−3
−6
−1
−54

−38
−3
−7
−2
−7
−1
−3
1
−4
−65

−45
−5
−7
−3
−9
−3
−5
−4
−7
−88

−224
−50
−34
−15
−36
−18
−26
−20
−43
−466

Budget surplus/deficit, pre-economic security
plan .....................................................................

−3

298

Bipartisan economic security plan ......................

−77

−57

−20

−141

Budget surplus/deficit, including economic
security plan ......................................................

−80

−14

157

THE BUDGET FOR FISCAL YEAR 2003

Table S–3. Impact of Budget Policy on the Surplus

397

398

Table S–4. Discretionary Totals
(Budget authority; dollar amounts in billions)
2001

2002

Change
2002–2003

2003

Delta
Discretionary budget authority:
Homeland security ...............................................
Department of Defense .......................................
Other operations of government ........................
Total, discretionary budget authority 1 .............

10
303
330
643

12
328
348
688 2

25
366
355
746

Adjustments, contingent upon adoption of
proposal:
Full funding of federal employee retirement
costs ..................................................................
Total, including contingent adjustments ................

8
651

9
696

9
755

Emergency Response Fund:
War on terrorism ..................................................
Homeland security ...............................................
Other September 11th response ........................
Total, Emergency Response Fund .....................

13
3
5
20

3
8
9
20

10
—
—
10

Percent

13
38
7
59

111
12
2
9

Excludes budget authority associated with the mass transit budget category.
Includes a $1.7 billion upward adjustment, from the 2002 appropriated level, for discretionary spending offset
by mandatory savings enacted in appropriations bills.
2

SUMMARY TABLES

(Budget authority in billions of dollars)
2001
Total, Homeland Security

2002

2003

16.0

19.5

37.7

0.3
1.4
7.6

0.3
1.4
8.8

3.5
5.9
10.6

0.1
0.4
6.3

0.2
1.5
7.4

0.7
4.8
12.2

Department of Defense (DoD) .............................................
Mandatory/fee funded ...........................................................

−4.0
−1.5

−4.7
−2.9

−7.8
−4.7

Total, Homeland Security, non-DoD discretionary ......

10.5

11.9

25.2

Emergency Response Fund .................................................

2.5

8.1

—

Supporting first responders ..................................................
Defending against biological terrorism................................
Securing our borders.............................................................
Sharing information and using information technology to
secure the homeland ........................................................
Aviation security .....................................................................
Other homeland security.......................................................
Defense and mandatory/fee funded programs included above:

THE BUDGET FOR FISCAL YEAR 2003

Table S–5. Homeland Security

399

400

Table S–6. Year-to-Year Percentage Growth in Discretionary Budget Authority
Agency

Agriculture...........................................................................................
Commerce 1 .......................................................................................
Defense ...............................................................................................
Education 2 .........................................................................................
Energy .................................................................................................
Health and Human Services ............................................................
Housing and Urban Development 3.................................................
Interior .................................................................................................
State and International Assistance Programs 4 ............................
Justice .................................................................................................
Labor ...................................................................................................
Transportation ....................................................................................
Treasury ..............................................................................................
Veterans Affairs ..................................................................................
Corps of Engineers ...........................................................................
Environmental Protection Agency Operating Program ................
Federal Emergency Management Agency.....................................
National Aeronautics and Space Administration ...........................
National Science Foundation ...........................................................
Small Business Administration ........................................................
Social Security Administration .........................................................
Smithsonian Institution ......................................................................
Total (excludes full funding of federal employee retirement
costs and Emergency Response Fund)................................

1998
to
1999

1999
to
2000

2000
to
2001

2001
to
2002

2002
to
2003

Average
Growth
1998–2003

4
29
6
−3
7
12
12
−1
23
5
3
−14
12
2
−2
5
18
*
7
16
*
2

4
61
5
2
−1
9
−6
6
2
2
−20
13
−2
9
1
1
37
*
6
7
2
6

13
−41
5
37
13
19
34
21
−4
13
36
28
16
7
14
9
−38
5
13
1
8
4

*
2
8
24
4
10
4
*
7
1
2
−7
5
6
−4
1
26
4
8
−15
6
9

*
*
12
1
5
9
7
*
4
−1
−7
19
5
7
−10
2
114
1
5
2
5
6

4
4
7
11
5
12
9
5
6
4
1
6
7
6
−1
4
22
2
8
2
4
6

SUMMARY TABLES

*0.5 percent or less
1
2000 Commerce data includes funding for Census 2000.
2
2002 funding includes a $1.3 billion supplemental proposal for Pell Grants.
3
1998 and 1999 have been adjusted for reclassification of Federal Housing Administration receipts.
4
International Affairs Program totals do not include P.L. 480 Title II food aid, which is included in the totals for Agriculture; 1999 data is also
adjusted to remove $18.2 billion in one-time funding for the International Monetary Fund.

(In billions of dollars)
Agency

2001
Actual
2.9
4.1
19.8
5.2
305.6
40.1
20.2
54.5
28.4
10.5
21.6
12.0
7.8
18.0
15.1
23.2
4.8
0.1
7.9
(3.9)
0.3
2.4
0.5
12.6
14.4
4.4
0.2
0.9
6.3
6.8
—
650.7

Estimates
2002
2003
3.1
3.5
4.4
5.1
19.8
19.8
5.3
5.3
330.8
369.3
49.8 1
50.3
21.0
21.9
59.8
65.3
29.5
31.5
10.5
10.5
21.9
21.8
12.3
11.4
8.9
9.2
16.6
19.8
15.8
16.6
24.7
26.4
4.6
4.1
0.2
0.2
8.0
7.7
(3.9)
(4.0)
0.3
0.3
3.1
6.6
0.6
0.6
13.1
13.9
14.9
15.1
4.8
5.0
0.2
0.3
0.8
0.8
6.7
7.0
6.3
6.3
–1.3
–0.4
696.5
755.4

Change:
2002–2003
0.4
0.6
–*
*
38.4
0.5
1.0
5.5
2.0
*
–0.1
–0.9
0.4
3.2
0.8
1.8
–0.5
–*
–0.3
(0.1)
0.1
3.5
–*
0.7
0.2
0.2
*
*
0.3
*
0.9
59.0

401

Legislative Branch ....................................................
Judicial Branch ..........................................................
Agriculture..................................................................
Commerce .................................................................
Defense-Military ........................................................
Education ...................................................................
Energy ........................................................................
Health and Human Services ...................................
Housing and Urban Development ..........................
Interior ........................................................................
Justice ........................................................................
Labor ..........................................................................
State ...........................................................................
Transportation ...........................................................
Treasury .....................................................................
Veterans Affairs .........................................................
Corps of Engineers ..................................................
Other Defense Civil Programs ................................
Environmental Protection Agency ..........................
Operating program...............................................
Executive Office of the President ...........................
Federal Emergency Management Agency............
General Services Administration ............................
International Assistance Programs ........................
National Aeronautics and Space Administration ..
National Science Foundation ..................................
Office of Personnel Management ...........................
Small Business Administration ...............................
Social Security Administration ................................
Other Independent Agencies ..................................
Allowances.................................................................
Subtotal ................................................................
Remove contingent adjustment for full funding of
–8.1
–8.5
–9.0
–0.4
federal employee retirement costs ....................
Total.......................................................................
642.6
687.9 2
746.5
58.5
20.0
20.0
10.0
–10.0
Emergency Response Fund ...................................
* $50 million or less
1
Includes a $1.3 billion supplemental proposal for Pell Grants.
2
Includes a $1.7 billion upward adjustment, from the 2002 appropriated level, for discretionary spending
offset by mandatory savings enacted in appropriations bills.

THE BUDGET FOR FISCAL YEAR 2003

Table S–7. Discretionary Budget Authority by Agency

402

Table S–8. Discretionary Proposals By Appropriations Subcommittee
(Budget authority in billions of dollars)
Appropriations Subcommittee

2001
Actual

2002
Estimate

2003
Proposed

Change:
2002–2003

Agriculture and Rural Development .......................
Commerce, Justice, State, and the Judiciary .......
Defense ......................................................................
District of Columbia ..................................................
Energy and Water Development.............................
Foreign Operations ...................................................
Interior and Related Agencies ...............................
Labor, Health and Human Services, and
Education ..............................................................
Legislative ..................................................................
Military Construction ................................................
Transportation and Related Agencies ...................
Treasury and General Government........................
Veterans Affairs, Housing and Urban
Development .........................................................
Allowances.................................................................
Total with full funding of federal employee
retirement costs ...............................................
Remove full funding of federal employee
retirement costs....................................................
Total .......................................................................

16.7
39.7
296.6
0.5
24.4
14.6
19.5

16.9
40.5
320.5
0.4
24.8
15.5
19.6

17.2
41.2
360.4
0.4
25.3
16.1
19.5

0.3
0.7
40.0
*
0.5
0.7
−0.1

110.5
2.8
9.1
17.8
16.7

124.6
3.1
10.5
16.4
17.9

131.2
3.5
9.0
19.7
18.7

6.6
0.4
−1.6
3.3
0.9

81.7
—

85.8
—

93.5
−0.4

7.7
−0.4

650.7

696.5

755.4

59.0

−8.1
642.6

−8.5
687.9

−9.0
746.5

−0.4
58.5

Emergency Response Fund ...................................

20.0

10.0

−10.0

*$50 million or less
1 Includes a $1.7 billion upward adjustment, from the 2002 appropriated level, for discretionary spending
offset by mandatory savings enacted in appropriations bills.
SUMMARY TABLES

(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

Strengthening Medicare ................................................................

—

1,680

3,375

5,068

17,485

22,497

50,105

190,159

Farm Bill 1 ..........................................................................................

4,200

7,271

7,019

6,688

6,727

6,774

34,479

67,576

Bipartisan Economic Security Plan 2 .........................................

27,000

8,000

1,500

—

9,500

Medicaid/SCHIP:
Medicaid/SCHIP reform ...............................................................
Rationalizing prescription drug payments .................................

—
—

348
−290

125
−650

309
−1,090

144
−1,620

161
−1,800

1,087
−5,450

1,781
−17,640

—
—

46
29

314
148

270
262

340
329

387
355

1,358
1,123

3,069
4,191

—
—
—
—
—
—
—
—
—

−66
—
—
−66
—
—
—
−20
9

−53
—
—
−53
−2
−3
−5
256
404

60
−37
−5
18
−7
−11
−18
270
532

116
−47
−15
54
−13
−25
−38
356
685

119
−49
−20
50
−19
−43
−62
375
730

176
−133
−40
3
−41
−82
−123
1,238
2,361

798
−402
−210
186
−262
−641
−903
2,352
6,543

—
—
—

−5
−5
−3

−10
−5
−10

−14
−10
−14

−15
−10
−15

−44
−30
−42

−139
−80
−117

—
—

13
—

25
−10

38
1

40
1

116
−8

336
−3

Welfare reform:
TANF reauthorization....................................................................
Food Stamps reauthorization ......................................................
Child support enforcement:
Federal collections and payments to States.........................
Food Stamps savings ..............................................................
Medicaid savings ......................................................................
Subtotal, child support enforcement .................................
Supplemental Security Income ..............................................
Medicaid savings .................................................................
Subtotal, SSI
Subtotal, excluding Food Stamps reauthorization
Total, welfare reform ..................................................
Other Proposals:
Agriculture:
Increase timber competition (use of sealed bids)................
Non-timber interests bidding ..................................................
Collect fair market value from ski resorts .............................
Accelerate repayment to reforestation trust fund and
payments from special use permits to enhance
environmental protection for lands used by ski resorts..
Provide permanent recreation fee authority .........................

THE BUDGET FOR FISCAL YEAR 2003

Table S–9. Mandatory Proposals

403

404

Table S–9. Mandatory Proposals—Continued
(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

—

112

211

—
—
—

149
—
—

149
113
−1,200

150
498
—

150
89
—

150
—
—

748
700
−1,200

1,498
700
−1,200

—

190

440

—
—
—
—

−1,201
1,201
−1
—

−1
1
−1
−17

−101
101
−101
7

−1
1
−1
48

−1,304
1,304
−104
38

−1,587
1,587
−387
490

—

319

1,929

3,072

5,320

21,812

—
—
—
—

1,606
−1,606
−3
80

−446
446
−4
−15

−435
435
−6
−48

−430
430
−5
−17

−427
427
−5
—

−132
132
−23
—

−2,184
2,184
−46
—

—

832

5,634

6,991

7,535

7,654

28,646

74,300

SUMMARY TABLES

Education:
Teacher loan forgiveness ........................................................
Energy:
Power marketing associations to directly fund Corps of
Engineers’ operations and maintenance expenses ......
Increase BPA’s borrowing authority.......................................
ANWR, lease bonuses ............................................................
Health and Human Services:
Abstinence education ..............................................................
Interior:
ANWR, lease bonuses:
State of Alaska’s share:
Receipts ...........................................................................
Expenditure .....................................................................
Federal share .......................................................................
Provide permanent recreation fee authority .........................
Correct trust accounting deficiencies in individual Indian
money investments .............................................................
Labor:
Reform Unemployment Insurance .........................................
Refinance Black Lung Disability Trust Fund debt:
Black Lung Disability Trust Fund .......................................
Treasury’s interest receipts ................................................
Propose reforms of FECA for future beneficiaries ..............
Redirect H-1B training .............................................................
Treasury:
Outlay effect of refundable tax credits...................................

(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

Veterans Affairs:
IRS income verification on means tested veterans and
survivors benefits ................................................................
Army Corps of Engineers:
Recreation user fee increase .................................................
FCC:
Shift spectrum auction deadlines:
Spectrum receipts ...............................................................
Spectrum relocation ............................................................
Impose annual analog fees after 2006 ..................................
FEMA: Reform National Flood Insurance .................................
OPM:
Simplify computation of annuities under the CSRS for
individuals with part-time service ......................................
Multi-Agency:
Authorize spending of reimbursements for spectrum
relocating costs ....................................................................
Indirect impact of other proposals (third scorecard):
Enact FECA surcharge ...........................................................
Impact of accrual accounting..................................................
Total, mandatory proposals ..........................................................

—

−6

−24

−54

—

−6

−1

−5

—
—
—
—

4,000
50
—
−43

−3,300
−50
—
−75

−2,700
—
—
−115

−4,700
—
—
−165

—
—
−500
−227

−6,700
—
−500
−625

−6,700
—
−2,680
−2,080

—

313

—

100

165

100

515

715

—
—
31,200

—
−34
22,213

−1
−23
13,102

−5
198
16,927

−7
420
28,800

−7
618
39,358

−20
1,179
120,400

−50
7,686
352,906

THE BUDGET FOR FISCAL YEAR 2003

Table S–9. Mandatory Proposals—Continued

Excludes Food Stamps reauthorization of $4,191 million over 10 years shown under the welfare reform and the receipt effect of FFARRM account
tax incentives of $1,233 million over 10 years shown in Table S–10.
2
Affects both receipts and outlays. Only the outlay effect is shown here. The receipt effect is −$62,000 million for 2002, −$65,000 million for 2003,
−$47,000 million for 2004, −$9,500 million for 2005, $17,000 million for 2006, $18,000 million for 2007, −$87,000 million for 2003–2007, and −$43,500
million for 2003–2012.

405

406

S–10. Effect of Proposals on Receipts
(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

Bipartisan Economic Security Plan 1 .........................................

−65,000

−47,500

−9,500

17,000

18,000

−87,000

−43,500

−570

−1,429

−1,437

−2,288

−3,567

−3,591

−12,312

−32,636

−93
−24

−192
−169

−205
−121

−219
−127

−230
−139

−238
−156

−1,084
−712

−2,632
−1,730

−10

−49

−54

−59

−66

−72

−300

−789

−122

−177

−181

−189

−198

−205

−950

−2,101

−1

−3

−4

−18

−48

−8

−11

−13

−17

−21

−25

−87

−282

—

−10

−24

−38

−52

−62

−186

−219

—

−16

−163

−191

−207

−577

−1,718

—

−245

−1,689

−2,811

−2,774

−2,951

−10,470

−29,116

—

−328

−406

−605

−1,222

−2,158

−4,719

−20,730

SUMMARY TABLES

Tax Incentives:
Provide incentives for charitable giving:
Provide charitable contribution deduction for nonitemizers
Permit tax-free withdrawals from IRAs for charitable
contributions .........................................................................
Raise the cap on corporate charitable contributions...........
Expand and increase the enhanced charitable deduction
for contributions of food inventory .....................................
Reform excise tax based on investment income of private
foundations ...........................................................................
Modify tax on unrelated business taxable income of
charitable remainder trusts ................................................
Modify basis adjustment to stock of S corporations
contributing appreciated property ....................................
Allow expedited consideration of applications for exempt
status 2 ..................................................................................
Strengthen and reform education:
Provide refundable tax credit for certain costs of attending
a different school for pupils assigned to failing public
schools 3 ...............................................................................
Allow teachers to deduct out-of-pocket classroom
expenses ..............................................................................
Invest in health care:
Provide refundable tax credit for the purchase of health
insurance 4 ...........................................................................
Provide an above-the-line deduction for long-term care
insurance premiums............................................................

−62,000

(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

Allow up to $500 in unused benefits in a health flexible
spending arrangement to be carried forward to the next
year........................................................................................
Provide additional choice with regard to unused benefits
in a health flexible spending arrangement .......................
Permanently extend and reform Archer MSAs ....................
Provide an additional personal exemption to home
caretakers of family members ...........................................
Assist Americans with disabilities:
Exclude from income the value of employer-provided
computers, software and peripherals ...............................
Help farmers and fishermen manage economic
downturns:
Establish FFARRM savings accounts ...................................
Increase housing opportunities:
Provide tax credit for developers of affordable single-family
housing .................................................................................
Encourage saving:
Establish Individual Development Accounts (IDAs) ............
Protect the environment:
Permanently extend expensing of brownfields remediation
costs ......................................................................................
Exclude 50 percent of gains from the sale of property for
conservation purposes .......................................................
Increase energy production and promote energy
conservation:
Extend and modify tax credit for producing electricity from
certain sources ....................................................................

—

−441

−723

−782

−830

−2,776

−7,819

—
—

−23
−43

−39
−468

−45
−530

−52
−607

−159
−1,648

−566
−5,691

—

−314

−383

−362

−345

−348

−1,752

−3,957

—

−2

−6

−20

−52

—

−133

−350

−244

−171

−898

−1,233

—

−7

−76

−302

−715

−1,252

−2,352

−15,257

—

−124

−267

−319

−300

−255

−1,265

−1,722

—

−193

−306

−299

−289

−1,087

−2,390

—

−2

−44

−90

−94

−98

−328

−918

−92

−227

−303

−212

−143

−146

−1,031

−1,779

THE BUDGET FOR FISCAL YEAR 2003

S–10. Effect of Proposals on Receipts—Continued

407

408

S–10. Effect of Proposals on Receipts—Continued
(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

Provide tax credit for residential solar energy systems ....
Modify treatment of nuclear decommissioning funds........
Provide tax credit for purchase of certain hybrid and fuel
cell vehicles ........................................................................
Provide tax credit for energy produced from landfill gas ..
Provide tax credit for combined heat and power property
Provide excise tax exemption (credit) for ethanol 2 ...........
Promote trade:
Extend and expand Andean trade preferences 5 ...............
Initiate a new trade preference program for Southeast
Europe 5 ..............................................................................
Implement free trade agreements with Chile and
Singapore 5.........................................................................
Improve tax administration:
Implement IRS administrative reforms ................................
Reform unemployment insurance:
Reform unemployment insurance administrative
financing 5 ...........................................................................
Expiring Provisions:
Extend provisions that expired in 2001 for two years:
Work opportunity tax credit ...................................................
Welfare-to-work tax credit ....................................................
Minimum tax relief for individuals .........................................

−3
−89

−6
−156

−7
−168

−8
−178

−17
−188

−24
−199

−62
−889

−72
−2,042

−21
−12
−97
—

−80
−34
−208
—

−181
−59
−235
—

−349
−86
−238
—

−530
−120
−296
—

−763
−140
−139
—

−1,903
−439
−1,116
—

−3,027
−1,130
−1,091
—

−130

−192

−213

−226

−58

—

−689

—

−19

−23

−25

−7

—

−74

—

−21

−86

−109

−131

−155

−502

−1,560

—

265

559

—

−1,002

−1,451

−2,902

−2,982

−4,429

−12,766

−6,924

−43
−9
−122

−153
−37
−353

−200
−57
−256

−127
−48
—

−60
−32
—

−29
−22
—

−569
−196
−609

−576
−209
−609

SUMMARY TABLES

(In millions of dollars)
Total
2002

2003

2004

2005

2006

2007
2003–2007 2003–2012

Exceptions provided under subpart F for certain active
financing income..................................................................
Suspension of net income limitation on percentage
depletion from marginal oil and gas wells ........................
Generalized System of Preferences (GSP) 5 .......................
Authority to issue qualified zone academy bonds ...............
Permanently extend expiring provisions:
Provisions expiring in 2010:
Marginal individual income tax rate reductions ...............
Child tax credit 6 ..................................................................
Marriage penalty relief 7 .....................................................
Education incentives ...........................................................
Repeal of estate and generation-skipping transfer
taxes, and modification of gift taxes .............................
Modifications of IRAs and pension plans .........................
Other incentives for families and children ........................
Research & Experimentation (R&E) tax credit ....................
Total budget proposals ..................................................................

−864

−1,502

−630

—

−2,132

−25
−370
−4

−44
−415
−13

−18
—
−25

—
—
−35

—
—
−37

−62
−415
−147

−62
−415
−332

—
—
—
−1

—
—
—
−5

—
—
—
−10

—
—
—
−15

—
—
—
−20

—
—
—
−26

—
—
—
−76

−183,769
−31,697
−12,976
−2,810

178
—
—
—
−64,532

−550
—
—
—
−73,017

−1,097
—
—
−906
−59,130

−1,485
—
—
−2,949
−27,927

−1,987
—
—
−4,654
−6,034

−2,178
—
—
−5,623
−9,433

−7,297
—
—
−14,132
−175,541

−103,659
−6,490
−1,298
−51,051
−591,020

THE BUDGET FOR FISCAL YEAR 2003

S–10. Effect of Proposals on Receipts—Continued

Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $27,000 million for 2002, $8,000 million for 2003, $1,500
million for 2004, $9,500 million for 2003-2007, and $9,500 million for 2003-2012.
2
Policy proposal with a receipt effect of zero.
3
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $165 million for 2003, $449 million for 2004, $699 million for
2005, $975 million for 2006, $1,213 million for 2007, $3,501 million for 2003-2007, and $4,155 million for 2003-2012.
4
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $677 million for 2003, $5,185 million for 2004, $6,292 million
for 2005, $6,560 million for 2006, $6,441 million for 2007, $25,145 million for 2003-2007, and $59,873 million for 2003-2012.
5
Net of income offsets.
6 Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $8,745 million for 2003-2012.
7 Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $1,527 million for 2003-2012.

409

410

Table S–11. Receipts by Source - Summary
(In billions of dollars)
Estimates

Source

2001
Actual

2002

2003

2004

2005

2006

2007

Individual income taxes ........................................
Corporation income taxes ....................................
Social insurance and retirement receipts ...........
On-budget ..........................................................
Off-budget ..........................................................
Excise taxes ...........................................................
Estate and gift taxes ..............................................
Customs duties ......................................................
Miscellaneous receipts .........................................
Bipartisan economic security plan ......................
Total receipts ........................................................
On-budget ..........................................................
Off-budget ..........................................................

994.3
151.1
694.0
(186.4)
(507.5)
66.1
28.4
19.4
37.8
—
1,991.0
(1,483.5)
(507.5)

949.2
201.4
708.0
(190.8)
(517.2)
66.9
27.5
18.7
36.4
–62.0
1,946.1
(1,428.9)
(517.2)

1,006.4
205.5
749.2
(203.9)
(545.3)
69.0
23.0
19.8
40.2
–65.0
2,048.1
(1,502.7)
(545.3)

1,058.6
212.0
789.8
(216.3)
(573.5)
71.2
26.6
21.9
42.8
–47.5
2,175.4
(1,601.9)
(573.5)

1,112.0
237.1
835.2
(227.0)
(608.2)
73.6
23.4
23.0
43.2
–9.5
2,338.0
(1,729.8)
(608.2)

1,157.3
241.4
868.7
(235.1)
(633.7)
75.3
26.4
24.7
44.4
17.0
2,455.3
(1,821.6)
(633.7)

1,221.7
250.6
908.3
(243.0)
(665.3)
77.5
23.2
26.2
46.2
18.0
2,571.7
(1,906.4)
(665.3)

SUMMARY TABLES

(In billions of dollars)
Function
National defense ....................................................
International affairs ................................................
General science, space, and technology ...........
Energy .....................................................................
Natural resources and environment ....................
Agriculture...............................................................
Commerce and housing credit .............................
On-budget ..........................................................

Full text of Budget of the United States Government : Fiscal Year 2003

FRASER