[Senate Hearing 109-888]
[From the U.S. Government Publishing Office]
S. Hrg. 109-888
UNOBLIGATED BALANCES: FREEING UP FUNDS,
SETTING PRIORITIES AND UNTYING
AGENCY HANDS
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
MAY 18, 2006
__________
Available via http://www.access.gpo.gov/congress/senate
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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28-247 WASHINGTON : 2007
_____________________________________________________________________________
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Michael L. Alexander, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 16
WITNESSES
Thursday, May 18, 2006
Phyllis F. Scheinberg, Assistant Secretary for Budget and
Programs, Chief Financial Officer, U.S. Department of
Transportation................................................. 4
Lee J. Lofthus, Deputy Assistant Attorney General and Controller,
Department of Justice.......................................... 6
John P. Roth, Deputy Comptroller, Office of the Under Secretary
of Defense, Department of Defense.............................. 7
Charles E. Johnson, Assistant Secretary for Budget, Technology
and Finance, Department of Health and Human Services........... 9
Robert J. Henke, Assistant Secretary for Management, Department
of Veterans Affairs............................................ 11
Alphabetical List of Witnesses
Henke, Robert J.:
Testimony.................................................... 11
Prepared statement........................................... 51
Johnson, Charles E.:
Testimony.................................................... 9
Prepared statement with an attachment........................ 40
Lofthus, Lee J.:
Testimony.................................................... 6
Prepared statement........................................... 32
Roth, John P.:
Testimony.................................................... 7
Prepared statement........................................... 36
Scheinberg, Phyllis F.:
Testimony.................................................... 4
Prepared statement with attachments.......................... 25
APPENDIX
Chart submitted for the Record entitled ``FY'05 Unobligated
Balances Government-Wide''..................................... 59
UNOBLIGATED BALANCES: FREEING UP
FUNDS, SETTING PRIORITIES AND
UNTYING AGENCY HANDS
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THURSDAY, MAY 18, 2006
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:34 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. The Subcommittee on Federal Financial
Management, Government Information, and International Security
of the Committee on Homeland Security and Governmental Affairs
will come to order.
I want to first thank each of our guests for being here.
The topic we are going to talk about today is something called
``unobligated balances.'' An unobligated balance is money that
we appropriate to a government agency, but for whatever reason,
and there are many, the agency does not or cannot spend it in
that particular year, and so the money sits, parked in the
agency's accounts.
There are different types. The first kind of unspent funds
are called ``expired funds,''--money we said was to be spent
during a certain fiscal year. At the end of the year the money
is considered expired and is supposed to sit in these accounts
for 5 years. At that point, it is supposed to go back to the
Treasury where it can pay down debt or be put toward
emergencies and other priorities.
The notion is that bills come late, projects get delayed,
so the money should be available for 5 years to pay for
commitments made during that first year.
We can argue about whether 5 years is too long but one
thing for sure--the system is not working the way it should.
First of all, there is too much expired money.
From our cursory investigation, it looks like there is at
least $54 billion in expired funds. That is over half the war
supplemental we just passed. We ought to be thinking seriously
about how to investigate expired funds each year in a
systematic way so that we can figure out how much of it we are
likely to need to pay bills we have already incurred and how
much is just going to sit in the account for 5 years.
Another problem is that Congress views expired funds
approaching the 5-year waiting period as new money in the year
that they are supposed to revert to the Treasury. That means if
we appropriate $1 million in fiscal year 2000, and that $1
million did not get used, in 2006, Congress can take that money
and spend it for ``free'' on 2006 programs. That means we
actually spend $1 million more than the budget caps allow. That
is what actually happens to unobligated balances.
Calling this money ``new budget authority'' renders
meaningless the spending caps that are in place each year. What
is worse, it is used to grow government and liabilities in 2006
rather than paying down the debt incurred by repeated
supplemental appropriation bills and out-of-control spending.
This is not how the real world operates. The Federal
Government should take the same approach as a private business.
The money should not be used to offset spending that would
otherwise bust the budget cap if it were not for this
``accounting gimmick.''
By my estimates, and let me tell you--it has been very hard
for this Subcommittee to estimate because we are not keeping
good track of these monies at the Federal level--there is
somewhere around $430 billion in unspent funds government-wide.
Of this, at least $54 billion, as I said earlier, is sitting in
expired accounts. And I am not confident that this number is
even within the ballpark of what is really sitting in these
accounts.
It is difficult to get the exact figures because the Office
of Management and Budget (OMB) does not track this money. They
could not provide this Subcommittee with a reasonable figure
for the carryover balance of unobligated funds government-wide
because each agency uses different methods to keep their own
records.
I am not doubting the financial accounting of the
individual agencies, but I think these are records OMB should
officially monitor and keep to inform the budget makers and
financial planners.
Expired funds are only one of the unobligated balances.
There are other types--those sitting in multi-year accounts for
projects expected to stretch out over several years, and those
in so-called ``no-year'' accounts--such as contingency funds
that need to be ready if needed at any time, such as the
Vaccine Injury Compensation Fund or the Public Health Emergency
Fund. The amount in these accounts is around $376 billion.
While some of these no-year accounts are important to
retain, it is still worth taking an examination and looking at
them. Certain funds need to stay at a certain level, but some
certainly could be reduced.
Several programs consistently carry-over a large amount of
money each year, but then have no problem asking Congress for
budget increases. Take food stamps. OMB estimated that last
year the program carried over $2 billion in unobligated
balances at the end of the fiscal year. That is on top of
overpayments of $1.6 billion. The program is estimated to carry
over $3 billion this year and $3 billion next year. Yet I am
sure the Administration will continue to request steady or
increased funding for the program regardless of the reserve
balances.
It is time to start thinking creatively about the budget
process. Given the serious financial challenges we all face, at
the very least we should be asking appropriate questions and
exploring all avenues so future generations may have the same
opportunities we have had.
The one consistent finding from our investigation has been
that every agency uses different definitions of terms, tracks
different types of balances, and has different rules governing
unspent funds.
The Department of Justice, for instance, has a special
waiver allowing it to treat unspent funds differently than
other departments. With OMB responsible for the overall budget
process request, it would be helpful if they set systemic
standards about how to define, measure, and report unspent
funds at all agencies.
I am very disappointed that OMB is not testifying here
today, since fixing this problem is so critical to developing a
responsible budget request. The ad hoc system we have now is
allowing billions of dollars to go to waste every year. That
waste will be paid for by our children and grandchildren with
interest.
Again, I want to welcome each of you here. I ask that you
would limit your verbal testimony to 5 minutes. Your complete
written statement will be made part of the official hearing
record and we will hold our questions to the end.
Senator Carper will be here. He is running a little bit
behind.
Our first witness is Phyllis Scheinberg, Assistant
Secretary for Budget and Programs/Chief Financial Officer of
the Department of Transportation. She directs the development
and presentation of the Department's budget, coordinates DOT's
programs to achieve the goals of the President's Management
Agenda and oversees all DOT financial programs and systems.
Lee Lofthus is Deputy Assistant Attorney General and
Controller of the Justice Management Division, Department of
Justice. He is the Deputy Chief Financial Officer and is
responsible for department-wide financial reporting, budget
formulation and execution, accounting operation, assets
forfeiture fund, operational support, procurement, debt
management support, budget performance reporting, integration
into the President's Management Agenda.
John Roth is Deputy Comptroller Office of the Under
Secretary of Defense, Controller, Department of Defense. He is
responsible for budget review and analysis of all defense
programs. He is a former Deputy Director of the Investment
Directorate, Office of the Under Secretary of Defense, where he
was responsible for all defense programs funded by procurement
and research development tests and evaluations appropriation.
He is also an honorary professor at the Defense Systems
Management College.
Charles Johnson is well-known to this Subcommittee. He is
Assistant Secretary for Budget Technology and Finance at the
Department of Health and Human Services. He is the former Chief
Financial Officer of the Environmental Protection Agency. He
previously served as President of the Huntsman Cancer
Foundation. He is a former member of the Utah State Board of
Regents. He had a 31-year career practice of accounting,
retiring from KPMG in 1991. Welcome back.
Robert Henke is Assistant Secretary for Management,
Department of Veterans Affairs. He serves as VA's Chief
Financial Officer, Chief Acquisition Officer and Senior Real
Property Officer. He is responsible for the Department's
budget, financial policy and operations, acquisitions and
material management, real property asset management and
business oversight.
He is the former Principal Deputy Under Secretary at the
Department of Defense. He served in Operation Desert Storm and
most recently as a Navy reservist in Operation Enduring Freedom
in Afghanistan.
Welcome and thank you for your service.
Ms. Scheinberg, you are recognized for 5 minutes.
TESTIMONY OF PHYLLIS F. SCHEINBERG,\1\ ASSISTANT SECRETARY FOR
BUDGET AND PROGRAMS/CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
TRANSPORTATION
Ms. Scheinberg. Good afternoon, Mr. Chairman. Thank you for
the opportunity to appear before you today to discuss the
treatment of unobligated balances by the Department of
Transportation (DOT) and how they affect the Department's
budgeting and programming processes.
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\1\ The prepared statement of Ms. Scheinberg with attachments
appears in the Appendix on page 25.
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To put this discussion in context, I would like to briefly
describe the Department's programs. The President's fiscal year
2007 budget request for the departmental totals $65.6 billion
in budgetary resources to support major investments in
transportation nationwide that are vital to the health of our
Nation's economy and the American way of life. This includes
over $41 billion for highway infrastructure investment and for
highway safety programs.
An additional $8.7 billion has been requested for Federal
transit grant programs that will be used to construct new
transit projects, purchase bus and transit rail cars, and
replace and refurbish existing transit systems.
Over $13.6 billion has been requested to build, maintain,
and operate the Nation's air traffic control system, regulate
and inspect commercial and general aviation safety, and improve
the capacity and safety of airports. Combined, these
investments account for over 95 percent of the Department's
fiscal year 2007 budget request.
Typically, Federal operating programs, such as those that
fund the salaries and expenses of our railroad safety
inspectors, are funded year by year through the annual
appropriations process and the resources are used during that
same year.
At DOT such programs constitute a very small portion of our
total budget. Instead, the majority of the Department of
Transportation's program dollars support major capital
investment projects like highway, transit, and airport
construction, that generally take several years to complete. As
a result, funding for these programs also needs to be available
over multiple years and linked to the overall construction
cycle. As infrastructure projects progress, the specific funds
linked to each project are obligated as they are needed to
complete construction phases. Because this often happens over a
long period of time, a sizable portion of each year's funding
is likely to remain unobligated and unexpended for several
years.
For the Federal-aid Highway Program, the primary reason for
most of the unobligated balances is the application of
statutory budgetary controls known as obligation limitations.
These limitations, set in the annual appropriations process,
control the use of contract authority that is authorized in
multi-year highway authorization acts.
Typically, the limitation on obligations is lower than the
amount of new contract authority each year so a portion of the
contract authority is at least temporarily unavailable for
obligation. At the end of fiscal year 2005, $23 billion of the
$34.4 billion in the Federal-aid Highway Program unobligated
balances reflected the cumulative effect of annual obligation
limitations. This partially explains why DOT had an unobligated
balance of approximately $43 billion at the end of fiscal year
2005.
The unobligated balances that result from slow spending
patterns of capital infrastructure projects typically cannot be
directed to other funding needs. In addition, the Department as
such, is subject to the reprogramming provisions included in
our annual appropriations acts that tend to limit the movement
of funds when doing so would typically change a program or move
funds to other projects.
In the Federal-aid Highway Program there is considerable
flexibility for the States to transfer their formula funds to
other programs when they would be more useful to the States.
Similar flexibility does not exist for funds statutorily
designated for specific projects. The only exception is for
funds still remaining from projects designated before 1991.
In addition, the Congress has authorized the Federal
Highway Administration to conduct a process known as the August
redistribution. The process allows for obligation authority
that cannot be used by the end of a fiscal year to be made
available to States that can obligate these additional funds
before the end of the fiscal year. Given the complex nature of
Federal infrastructure projects, this redistribution project
has been an effective way for managing highway transportation
dollars.
Finally, Mr. Chairman, you asked if DOT's unobligated
balances expire. In some cases, our unobligated balances do
expire based on the number of years the Congress has made the
funds available to the Department in the annual appropriations
acts or in authorizing statues.
Unobligated balances that expire may stay within an account
for up to 5 additional years and can be used only to cover
upward adjustments of prior year obligations.
However, a significant portion of our funds do not expire
as they are provided in ``no-year accounts'' with unlimited
availability. These accounts include Federal-aid highways and
transit grant programs.
Thank you for the opportunity to testify and I will be
happy to answer any questions.
Senator Coburn. Thank you, Ms. Scheinberg. Mr. Lofthus.
TESTIMONY OF LEE J. LOFTHUS,\1\ DEPUTY ASSISTANT ATTORNEY
GENERAL AND CONTROLLER, U.S. DEPARTMENT OF JUSTICE
Mr. Lofthus. Thank you, Mr. Chairman. Good afternoon. I
appreciate the opportunity to appear before you today to
discuss unobligated balances and how they affect budgeting and
program funding at the Department of Justice. We are committed
to the wise use of unobligated balances in support of the
Department's critical mission programs.
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\1\ The prepared statement of Mr. Lofthus appears in the Appendix
on page 32.
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In terms of funding flexibilities, like many other
agencies, the Department of Justice is permitted by our
appropriations act to reprogram current year funds between
programs, projects, and activities within appropriations. We
also have a provision that permits us to transfer funds between
appropriations. At certain limits these capabilities require
OMB clearance and Congressional notification. Reprogrammings
and transfers are beneficial flexibilities for current funds
but we also have two important capabilities for using funds
beyond a single fiscal year's limitations.
The first category is explicit in the language of our
appropriations act, that funding is provided in the form of
multi-year or no-year appropriations. The multi-year or no-year
authority is typically targeted for specific program needs such
as information technology projects, automated litigation
support, construction, or accounts with significant variability
in funding needs across years such as prisoner detention.
The second authority provided to the Department of Justice
by Congress is a provision which permits us to access expired
balances, a capability which is of tremendous importance in
managing our operations effectively. As with most agencies, we
receive a substantial portion of our funding in annual
appropriations that expire if they are unobligated at the end
of a fiscal year. Agencies often describe these expired funds
as lapsed money, since the funds are no longer available for
new program needs.
Importantly in regard to expired balances, in fiscal year
1992 the Congress gave the Department of Justice the authority
to recapture expired unobligated balances prior to their
permanent Treasury cancellation. Public Law 102-140 allows us
to transfer expired unobligated balances to the Department's
working capital fund when we are sure that all of the original
obligations are covered and the remaining balances are not
required for adjustments or outlay. These transfers are made to
a specific working capital fund account that we call the
unobligated balance transfer account, known by its initials,
UBT.
The working capital fund is a no-year fund, so after a
component's unobligated balances are transferred to the UBT
account, that funding remains available until expended. The law
specifies that the unobligated balances are transferred only
for department-wide acquisition of capital equipment, for law-
enforcement or litigation-related information technology
systems, and for financial and payroll/personnel systems. We do
not commingle the UBT balances with other working capital fund
balances. Our use of the UBT resources is subject to
Congressional notification.
Since 1992, we have transferred approximately $1.8 billion
in funding to the Department's working capital fund to be
reused for various priority projects. Once the funds are
deposited in the UBT account, the funding is used for purposes
approved by the Attorney General and OMB and with Congressional
notification.
In recent years, we have used the UBT funding for critical
information technology projects such as the FBI's Fingerprint
Identification System, the FBI's Project Sentinel Case
Management System and the Law Enforcement National Data
Exchange System. We have used the UBT money for financial
systems projects and have also used it for the costs of
department-wide projects such as the Joint Automated Booking
System project and the Justice Consolidated Office Network,
called JCON.
The Department has used the UBT authority wisely in solving
unforeseen funding problems that occur in the course of our
operations. We have carefully used this authority in the manner
intended by Congress.
In closing, I would like to stress that the Department of
Justice highly values the authorities we have been given to
effectively manage our resources including the authority to
transfer expired unobligated balances into our working capital
fund. This flexibility provides a strong incentive for prudent
financial management and ensures that funds appropriated to the
Department of Justice remain accessible for high priority
needs.
Mr. Chairman, this concludes my prepared remarks. I would
be pleased to answer any questions. Thank you.
Senator Coburn. Thank you, Mr. Lofthus. Mr. Roth.
TESTIMONY OF JOHN P. ROTH,\1\ DEPUTY COMPTROLLER (PROGRAM
BUDGET), OFFICE OF THE UNDER SECRETARY OF DEFENSE
(COMPTROLLER), DEPARTMENT OF DEFENSE
Mr. Roth. Thank you, Mr. Chairman. I, too, welcome the
opportunity to testify on behalf of the Department of Defense's
unobligated balances, their treatment and how they affect our
budgeting and programming.
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\1\ The prepared statement of Mr. Roth appears in the Appendix on
page 36.
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As you are aware, the Department of Defense budget is large
and complex. In fiscal year 2006, we are executing programs
from 110 different military accounts. Of this number, 80 are
funded by appropriations from Congress and 30 are funded from
other sources such as permanent and indefinite appropriations,
receipts or revolving fund sales.
These accounts vary as to purpose and obligation life.
Approximately 39 percent are available for incurring new
obligations for only 1 year. The majority of these are military
personnel and operation and maintenance accounts. Investment
accounts are available for new obligations for multiple years
ranging from 2 years, for example, in the research and
development accounts to 5 years for accounts such as military
construction and shipbuilding.
For the most part, the Congress appropriates the total
funding for a given quantity of items or a program activity
even though the funding will obligate over a number of years.
Last, a few of our accounts, such as the Defense Working
Capital Fund and things like the Base Realignment And Closure
(BRAC) account are no-year accounts, meaning that these funds
are available for new obligations for an indefinite time
period.
Accounts expire for new obligations at the end of the
period of obligation availability stated in the relevant
appropriation act. Any unobligated balance remaining after the
account expires can only be used to adjust previously recorded
obligations. We cannot write new contracts or start new
projects after the account expires. For example, a contract
amendment for a cost growth, a price redetermination for
example, or claims that are within the scope of the original
contract are chargeable to that same account that originally
funded the contract.
Adjustments up to $4 million must be approved by the
component requesting the change. Adjustments between $4 million
and $25 million must be approved by the Defense Comptroller.
And any just over $25 million requires Congressional
notification in accordance with 31 U.S. Code 1553.
Accounts cancel 5 years after they expire for new
obligations. When an account is canceled, all remaining
balances, both the unobligated balances and obligated balances
not yet paid, are written off of the Treasury's books. No
obligation adjustments and no further payments can be made from
the account.
In certain cases, this process prevents us from making
payments on valid obligations of the Federal Government. In
these cases, the Congress has, in fact, provided as with
special authority that allows the use of up to 1 percent of our
current use funds to pay those kinds of bills.
The Department monitors obligations and unobligated
balances very carefully. Obligation rates are one of our key
financial metrics. Our programs are, in fact, utilizing the
funding provided in accordance with their plan. During the
active life of an appropriation, unobligated balances not
required for their original purposes can be shifted to other
programs in accordance with established reprogramming
procedures and statutory transfer authorities.
The Congress has long recognized the Department needs some
flexibility to move funds amongst these 80 accounts and the
several thousand individual programs contained in our budget in
order to satisfy urgent requirements, to accommodate fact of
life changes after appropriation action is complete.
We can group these flexibilities into two categories:
Reprogramming and transfers. Reprogramming actions move funds
between different programs within an appropriation account. We
control these programs at the program, project and activity
level or what we call the line item level, as specified in the
relevant oversight committee reports.
Transfers move funds between appropriation accounts. For
example, Congress provides us with what is called general
transfer authority. General transfer authority allows us to
move funds between accounts up to a certain aggregate dollar
limit. These transfers must be for higher priority purposes
based on unforeseen military requirements when determined to be
in the national interest.
Once funds have expired, it is important to note that,
except for very limited cases, the Department has no authority
to transfer funds, nor can we transfer funds between fiscal
years. The major exception is our authority to transfer
unobligated balances to accommodate fluctuations in foreign
currency rates. The Department does have standing authority to
transfer expired funds into operation and maintenance, military
personnel and construction accounts to the foreign currency
transfer accounts to fund foreign currency variances.
Unobligated balances are part of the Federal financial
management process, particularly when you have multi-year
accounts and those kinds of appropriations. The Department is
very conscious of its accountability responsibilities. As good
stewards of the taxpayer funds, the Department manages
unobligated balances carefully to maximize utility of the
funding provided by Congress and to ensure that all relevant
policy and procedures are properly followed.
That concludes my comments and I am here for any questions
that you might have.
Senator Coburn. Thank you, Mr. Roth. Mr. Johnson.
TESTIMONY OF CHARLES E. JOHNSON,\1\ ASSISTANT SECRETARY FOR
BUDGET, TECHNOLOGY AND FINANCE, DEPARTMENT OF HEALTH AND HUMAN
SERVICES
Mr. Johnson. Thank you, Dr. Coburn. It is good to be with
you again. I am pleased to represent Secretary Leavitt in
testimony before you this afternoon.
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\1\ The prepared statement of Mr. Johnson with an attachment with
an attachment appears in the Appendix on page 40.
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You have asked us in our testimony to deal with the funding
flexibility that we have and to discuss the status of our
unobligated balances.
The Department of Health and Human Services has a budget of
almost $700 billion, approximately one out of every four
Federal dollars is spent by us. Almost everyone would assume
that we have a lot of money that can be moved around. People
talk about all we want are the crumbs that you drop by each
day.
When I joined HHS, I thought, too, that funding for
projects would be easy to find compared to the $8 billion
budget that I had at EPA. It is not as easy as I thought and
here is what I have discovered in my analysis.
Although it is $700 billion, almost 90 percent is in
mandatory funds. That still leaves a very substantial
discretionary amount, but that side, too, has its limitations.
We are subject to the normal budget rules which have been
carefully developed over time. The necessary expense rule, use
money only for its original stipulated purpose. Augmentation,
you cannot add additional funds to amounts previously specified
by Congress. Transfers, you cannot transfer between
appropriation accounts except for a small amount that we can
transfer under an emergency. And reappropriations, even if
Congress allows a reappropriation, it is scored again by CBO so
there is some reluctance by Congress to do so.
We are presently beginning work on our 2008 budget while we
are under a fiscal 2006 spending plan. It is not surprising
that there are events that cannot wait for 2008 action.
I can cite three recent examples where we have not as yet
been able to obtain funds because of these limitations. We
wanted to change our secure site for HHS to do business in
emergencies, the so-called COOP site because we need a closer
location. We were looking for some money to put into systems to
save substantial labor costs and to shorten the time in
response to our constituents. And Secretary Leavitt would like
some put in for a data collection system but there is no
secretarial discretionary fund. He has a small amount, that 1
percent transfer authority, but only in an emergency.
So what about unobligated funds? Why not use those? Let me
show you our unobligated funds through a graph.\1\ And I am
pleased to report that it is the same number on both graphs.
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\1\ The graph referred to appears in the Appendix on page 00.
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Senator Coburn. That is amazing is it not?
Mr. Johnson. That really pleases me.
Senator Coburn. That does not happen often.
Mr. Johnson. No, so I am very pleased with that.
But you can see that it is broken down with $825 million in
user fees, revolving funds, cooperative research agreements,
other people's funds for which we are the custodian.
Under the mandatory programs the largest number, of course,
is TANF and child care. We received an appropriation in late
September for disbursement in October, so it is an anomaly
really. The TANF Contingency Fund was part of the welfare
reform developed in 1996 in which we wanted to protect States
on an ongoing basis.
Other mandatory programs, including vaccine for children,
State demo grants, child support enforcement, other issues like
that all in the mandatory program.
So we get down to the discretionary side. On the
discretionary side, we have buildings and facilities for FDA,
Indian Health Services, National Institute of Health, CDC. Of
course, those are no-year funds until we can complete our
construction projects.
And then our other discretionary programs contain things
like free clinic, malpractice claims--a reserve basically--
stockpile, LIHEAP contingency funds.
And so as I looked at that, I said you know, not a lot of
real promise out of those funds. So what about our expired
unobligated funds?
The question I ask is would we like more flexibility? Would
we like to reduce our current request in order to access the
existing funds? The answer is absolutely. We understand that
when Congress gives us more flexibility it can possibly take
some flexibility away from you. So I understand that dilemma.
But if we look at the expired but unobligated funds, we
have $4.8 billion again, we agree, of which $1.8 billion of
that is in the discretionary category. We do not presently have
access to those funds other than to cover newly discovered
claims that apply to prior years.
So as I have read the testimony and heard the testimony
today, I see some special consideration has been given to some
other agencies to use expired but unobligated funds that are
about to be canceled. I am anxious to hear about those
departments and the special rights that they may have and
certainly your desire to get more uniformity among agencies.
I stand ready to answer any questions you may have.
Senator Coburn. Mr. Johnson, thank you. Mr. Henke.
TESTIMONY OF ROBERT J. HENKE,\1\ ASSISTANT SECRETARY FOR
MANAGEMENT, DEPARTMENT OF VETERANS AFFAIRS
Mr. Henke. Good afternoon, Mr. Chairman. Department of
Veterans Affairs and the Subcommittee share the common goals of
accountability, stewardship and improved financial management.
VA values and needs the authority that Congress has given us in
law to carry over unobligated funds, and in certain specific
circumstances to move resources between accounts. This
authority gives us the smart management flexibility that we
need to steward our resources in a way that maximizes VA's
mission, which is providing timely, high-quality health care
and benefits to our Nation's veterans.
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\1\ The prepared statement of Mr. Henke appears in the Appendix on
page 51.
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At the end of fiscal year 2005, VA's unobligated balances
totaled $21.601 billion. About $19 billion of this, or 89
percent, was in our mandatory accounts, our trust funds and our
revolving funds. These resources are for our entitlement
programs and can only be used for veterans benefits as
specifically mandated by law. By design and statute, Congress
has designated these as no-year accounts or funds that do not
expire, and we maintain these balances to ensure that veterans
benefits are paid on time. In some cases, the balances actually
represent veterans assets and not the VA's.
This $19 billion I mention is largely in three accounts.
First, our National Service Life Insurance Trust Fund, started
in 1940 to finance life insurance for World War II veterans,
contains $9.1 billion of unobligated funds. The Department
oversees this trust fund on behalf of veterans. Indeed, the
$9.1 billion represents insurance premiums that veterans have
paid over time.
Second, our housing accounts contain $5.7 billion. These
funds operate our guaranteed housing loan and direct housing
loan programs which, for over 60 years, have provided veterans
with the opportunity to become homeowners.
Third, $1.1 billion was unobligated in our compensation and
pensions mandatory account. This account makes compensation
payments to service-connected disabled veterans and pension
payments to wartime veterans. We disperse about $3 billion a
month from this account, from this compensation and pensions
account. And so this unobligated balance was used to pay
benefits to veterans in the first month of 2006.
On the discretionary side, we had about $2.4 billion in
unobligated balances, almost entirely in two accounts. VA's
major construction account carried forward funds into fiscal
year 2006. This account is also a no-year account and
unobligated balances are carried over each year. Large capital
construction projects typically take 12 months to award design
contracts and 18 to 24 months to make construction contracts.
Funds are obligated over time but only when key construction
milestones are met.
Multi-year projects require multi-year money and having
this flexibility ensures these projects are completed on time
and without interruption.
Our medical care discretionary accounts carried over more
than $1.1 billion from fiscal year 2005. VA received a $1.5
billion supplemental for health care near the end of 2005 and
it was provided as 2-year money. Given that timing, much of the
supplemental was carried over and is being used to provide
veterans health care in 2006.
In those few instances when funds do expire, they are not
available for new obligations. They remain expired for 5 years
to make obligation adjustments and at the end of the fifth
year, the funds are canceled and returned to the Treasury.
VA financial managers take many steps to ensure that we
minimize the amount of funds that expire. Of the $21.6 billion
in unobligated funds at the end of fiscal year 2005, only $13
million lapsed or was not available for obligation, and that is
less than 0.1 percent of the balance.
Sir, you asked about our ability to shift funds between
accounts. VA has specific defined authority to transfer
available funds between certain appropriated accounts. The
accounts we can transfer funds between and the requirements for
us to do so are clearly spelled out in law. In each case, VA
notifies Congress of its intent to transfer or reprogram funds,
and this ensures proper oversight and transparency.
The ability to transfer funds when necessary makes good
sense and it is a critical and prudent financial management
tool. It allows VA to respond to changing conditions during the
budget year and it helps us to ensure that taxpayer dollars are
well spent.
To close, Mr. Chairman, VA strives to ensure that every
dollar devoted to veterans programs is used wisely and smartly
managed. We do this to maximize both the effective and
efficient delivery of benefits and services earned by those who
have served our country in uniform.
Thank you for the opportunity and I welcome your questions.
Senator Coburn. Thank you. Let me just ask a general
question. We are going to make this pretty informal.
You basically have three different types of unobligated
balances. As you look at them, one of my questions is the
gaming that takes place on the appropriation cycles when they
go and steal your unobligated balance to create budget cap
elevation. The money that you have in unobligated balances is
not real money. It is not--money is not borrowed against that
money until it is actually spent. So it is an account. It is
not actually cash. Have those grown? And have they grown
disproportionately to the size of the program that you are
administering?
For example, in VA health care, have the unobligated
balances risen at a rate faster than the growth of the program
in the mandatory programs, for example? I know that you, I
think, at the end of March, with the transparency that has come
from the VA--and I want to compliment you all on that because
it has helped Congress a great deal--I think you had $600
billion still in that account at the end of March just for the
veterans health care.
Are you seeing in these different areas growth or have you
even looked at year-to-year-to-year unobligated balances
growing faster than what the program growths are? Because what
that allows us to do is, although you all are charged with
doing it in your areas of responsibility, it allows us to
redirect dollars where they should be.
My question is do you see any trend in that in any of the
accounts? Or have you even looked at it?
Mr. Johnson. Dr. Coburn, I will tell you what I have looked
at is the unobligated balances that expire and that is what you
are dealing with. And I have looked at it for the last 5 years.
And it really moves around with some, I guess regularity, if
you can say it moves around with regularity. There is no
pattern to it.
Senator Coburn. It is irregularly regular.
Mr. Johnson. It is irregularly regular; right?
And so I did not see a trend that would indicate that it is
growing faster nor is there a trend that is reducing. It just
moves around.
Senator Coburn. Let me ask each of you, the Department of
Justice has what would seem to be some flexibility for things
that will make them more efficient, increase their data,
streamline some of their processes and allow them to do things
that they might not otherwise because they have more
flexibility than many other agencies when it comes to
unobligated balances.
What do you think about that? Does it actually, and I will
ask you again Mr. Lofthus, has it really truly decreased the
requests coming from DOJ on the total budget request, what it
would have been otherwise? And how do we take what we are doing
there and maybe give some flexibility to the other departments
to allow them to be wiser with the money under their own
discretion in transferring or reprogramming some of this money?
Mr. Lofthus. If I can start on that one, Senator, I think
one of the advantages that we have with the unobligated balance
transfer authority, it really does allow us to maximize the use
of the appropriations we have received and diminishes the need
for us to go in for new money in the sense that we are often
left with rather small amounts in many accounts. We have over
300 different appropriations, if you count current and expired
appropriations.
And across those appropriations we are often left with
rather modest or small balances that by themselves are not
going to accomplish a whole lot. But by being able to go to
those accounts, transfer the money into our unobligated balance
transfer account, we can then use it for sizable capital
expenditures that the Department really needs.
We have bought a plane for the Justice Prisoner
Transportation System. That was desperately needed and that was
a great use.
We have used the unobligated balance transfer to go in for
money for the FBI's crime lab, and that meant we did not have
to go in with a new budget request. It was by cobbling together
these small balances from many sources. I think it has given us
a real advantage.
Senator Coburn. Yes, ma'am, Ms. Scheinberg.
Ms. Scheinberg. Mr. Chairman, I read Mr. Lofthus's
testimony, and I listened to his testimony, and I am taking
copious notes on this program because this would help us quite
a bit at the Department of Transportation for similar reasons.
We often do not need a huge amount of money to do something
very significant. We need some money, but we do not have the
flexibility to put the money together to do something. I am
thinking more in the terms of Information Technology (IT) and
financial systems, things that would improve the way we manage
the Department.
In a Department like ours, where there is a lot of interest
in construction programs, there is not a lot of outside
interest in our own internal financial management.
Senator Coburn. They want the money to go through the door.
Ms. Scheinberg. A small amount of flexibility could really
be helpful to us in the management systems that we need to keep
track of all of this money.
As it is, we try to find bits and pieces of money and put
these systems together. But it would be really helpful.
We also have about 100 appropriations accounts. When you
have large numbers of accounts, there is a lot of money spread
around. But we do not have the transfer authority.
Senator Coburn. Anybody else want to comment? Mr. Johnson.
Mr. Johnson. We looked at that proposal with great envy.
The three examples I mentioned, the COOP site and two systems
issues that we are desperately looking for ways to find funds,
would fit right into that working capital idea. I think it is a
tremendous idea.
It also includes an accountability clause, which I
understand that you have to submit any proposed expenditures
out of it to the Congress for oversight, which does add the
oversight and accountability to it. I just think it is a
tremendous idea.
Senator Coburn. Welcome, Senator Carper. I am glad you are
here. I was kind of lonely up here by myself.
This phenomenon of spending down as you get towards the end
of the fiscal year. You all know what I am talking about. It
happens.
If you had some kind of flexibility like that (DOJ working
capital fund flexibility), do you think that would be a tool to
keep you from spending down in anticipation that ``oops,
somebody on the Hill might not think we need this money. So we
are not going to get rid of it, maybe not in the best way?'' I
am not saying necessarily wasteful, but maybe done in terms of
the highest priority and need?
Could you see that that could create an opportunity where
there would be a pressure exerted on more judicious financial
decisions made as you ended the fiscal year, knowing that some
of that would go into an unobligated balance that then could
allow you to do what you wanted to do with the money rather
than spend it? Do you think there is any truth to that across
your agencies?
Go ahead, Mr. Henke.
Mr. Henke. Yes, sir, that is a true statement. We at VA
have, in our discretionary accounts, typically a fraction of
our appropriations that have a 2-year availability to avoid
that very phenomenon. It typically ranges between 5 percent and
7 percent of the account. But it is a particular portion of the
account that keeps its availability beyond 1 year to avoid that
very phenomena that you talk about. And we use that ability and
that authority flexibly to ensure that the end of year spend
down does not happen. Having 2-year money available affords us
that opportunity.
Senator Coburn. Go ahead, Mr. Roth.
Mr. Roth. We, too, at the Defense Department, have looked
at some of our annual accounts and whether it would be
judicious to extend the availability into the 2 years.
I will say, we take a hard look every year at unobligated
balances. You asked in one of your early questions is the trend
up or down. We have tried to really squeeze that number down to
ensure that people are making maximum utility of their
resources. And so we frequently look at the current year
budget. One of your questions in setting up this hearing is how
do we use the unobligated balances in terms of setting future
budgets and programs. In fact, as I said in my opening
statement, as one of the key metrics in judging some of these
accounts is the size of the unobligated balances and the trend
that they have had in recent years. For those that show a
persistent trend of having large unobligated balances, we take
a hard look at that account to see why that persists.
Senator Coburn. There is another downside on this, and I am
going to use something from your agency and it is not to slam
you at all.
Senator Ensign held a hearing on the $6 billion in
overpayment of performance bonus payments to people who were
not eligible. The finding from that hearing was that if it was
not going to get spent, they were not going to get it next
time. So therefore they paid the performance bonuses even
though people did not meet the standards for the performance
bonuses.
So we have to balance that against the unobligated
balances, against the incentive to do the right thing. Because
here the incentive worked the wrong way. We paid contractors $6
billion in 2005 or 2004, one of those years, for performance
that they did not perform in a fear that they would not get the
money the next year to pay the performance bonuses. So it
defeated the whole purpose of having a performance bonus system
and the taxpayers are out $6 billion in one fiscal year.
Those are difficult things to handle, but the purpose of
this hearing is to find out these unobligated, and then figure
the psychology, how do we best create the incentives to make
the best decisions.
Mr. Johnson, I think you wanted to say something.
Mr. Johnson. I have some experience from two different
agencies. At EPA, where they had 2-year money so you were not
as worried at the end of the fiscal year about obligating very
quickly. And now, at HHS, where it is all 1-year money and
there is a rush to obligate.
I am not saying that bad decisions are made. But whenever
there is a rush, you do change the culture a little bit. And
you may indeed move into some things that you should not move
into.
Senator Coburn. That might not be the highest priority.
Mr. Johnson. It may not be the highest priority, that is
correct.
Senator Coburn. Senator Carper, would you like to inquire?
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. I do. Thanks, Mr. Chairman.
To all of you, welcome. Some of you I see a lot, regulars
around here. We are glad to see you, whether it is your first
time or your third or fourth time.
I am struck, Mr. Chairman, by what Mr. Henke said from the
VA. I am always looking for best practices and models that we
can try to identify and see if they may be replicable in other
agencies.
You may recall in one of our hearings, I want to say it was
on real property management with the VA. I think one program I
thought they were doing an especially good job. I personally
like the way they harnessed information technology with respect
to the delivery of health care.
I want to more fully understand how you address this issue
of unobligated funds. Just give me a little primer on what you
do at the VA and how that works.
Mr. Henke. Yes, sir. The large balance of our unobligated
money is typically in our mandatory or trust fund accounts.
About 90 percent of what is unobligated is unobligated by
design and it remains available until expended. For example,
our Life Insurance Trust Fund, which is actually insurance
premiums paid by veterans, had $9 billion of unobligated
balances at the end of fiscal year 2005.
So where appropriate the funds are necessary and are
designed to match the needs of the program. In our compensation
and pensions accounts, those funds are necessary to carry over
to make payments early in the next part of the fiscal year.
On the discretionary side, we have some accounts that are
necessarily 2-year money or are no-year money based on the
particular project and activity that they are going to fund.
But we try to match up what the program needs with the way that
we finance it with the funds that are available to us.
Senator Carper. Are you aware of other agencies where we
could have an apples to apples comparison, where other agencies
are doing what VA is doing, in some respects?
Mr. Henke. I think, sir, each agency is unique in the
specific authorities that it has, perhaps in its appropriations
act. Obviously, we all are required to follow Title 31 and the
fiscal laws that are established there. But I think we have
seen today a fairly interesting variation in the authorities
and the flexibilities between different agencies.
Senator Carper. Going back to a point I think the Chairman
was making earlier, in State government in Delaware we used to
have a situation, and maybe we still do. I have been away from
State government for a while now. But it used to be that we
worked on a cash basis accounting. We got to the end of the
fiscal year in late June and agencies would spend their money
because if they did not they would lose it.
And then we got to the place where we were encumbering the
money and agencies could carry the money over from year to
year. So I remember well the motivation that some agencies
feel. Some people in agencies feel a use it or lose it kind of
approach.
I do not know who once said the only thing that is new in
the world is the history that we never learned. I want to go
back in history just a little bit and better understand how
this system worked, how we treated these unobligated funds
prior to 1990. I want to understand a little bit of the history
of why the Congress made the changes that it did in 1990.
I do not know if any of you could help us with that, but if
you could just give me a little bit of the history? Anybody?
Senator Coburn. They are not old enough.
Senator Carper. A couple of them might be old enough.
Mr. Roth. I can talk to some basics. I will not claim to be
a subject matter expert, to go back that far. The rules before
1990 were that the active appropriations would then go into a
surplus fund for 2 years where the funds would retain their
line item and appropriation and fiscal year integrity and
identification for the 2 years.
At that point, the funds then transitioned into something
called merged surplus and so-called M accounts. And in the so-
called merged surplus accounts, as the name would indicate in
the M accounts, the funding lost its fiscal year identification
and lost its appropriation identification. In the case of the
Defense Department these accounts never canceled. In today's
world, after 5 years the money is canceled and gets written off
the Treasury's books.
Before 1991 the money never canceled. These merged surplus
accounts and M accounts simply grew in size over time. That, in
and of itself, became a matter of controversy, just the size of
those accounts.
So that, very quickly, was the nature of the world before
that.
Senator Carper. A question for each of you. If you had to,
16 years later, rewrite the rule book for the practices that we
follow, and you probably already said this, but how would each
of you rewrite the rules? Or would you just leave them pretty
much as it is?
Ms. Scheinberg. Senator Carper, there is a fine line
between flexibility and oversight and controls. Even on the
issue of spending at the end of the fiscal year, to spend what
is available, we have controls to make sure that the money
lasts through the fiscal year. We do not want people to spend
their money too fast and we do not want them to spend it too
slow. The goal is to get down to the end of the fiscal year
with just the right amount of money. That is a very difficult
thing to do.
At the Department of Transportation, we do not have very
many 1-year accounts because we have a lot of accounts that
fund construction programs and need to be available for many
years.
We do not have very much flexibility, and it would be
helpful to have some more flexibility in being able to move
money. We had some discussion already at this hearing about
that. But I do appreciate the need for control, as well. It is
a fine balance.
I think it would be nice to have a little bit more
flexibility but I do understand that we need to continue to
control these things.
Senator Carper. Thank you. Mr. Lofthus.
Mr. Lofthus. I think in terms of the flexibilities that
Justice has, which are different I think from some of the other
speakers here this afternoon, in terms of being able to make
use of expired funds, when you look at things like the zeal
that may exist in certain pockets to spend down at the end of
the year, that environment really does not exist at the Justice
Department because we do have a capability to look at our
expired balances and be able to maintain them in a special
account where we can make use of them for capital expenditures
in the future.
I think it provides a built-in incentive to our financial
managers and our program managers to have, I think, excellent
stewardship over those funds because the agency can really put
them to good use.
So I think we have benefited tremendously from that
provision that dates to 1992. And I think that is something
that we rely heavily upon now, particularly in lean budget
times. And it means a lot to our Agency. So I am pleased that
we are able to make use of a capability like that.
Senator Coburn. How much did the Justice Department turn in
to the the Treasury Department in expired funds last year?
Mr. Lofthus. To give you an exact figure, I would like to
get back for the record. But you can see on this chart over
here on the right that our expired balances are roughly $585
million at the close of 2005.\1\ A lot of that would have been
swept into our unobligated balance transfer account and then we
would have had just a small portion of that, maybe a few tens
of millions that might have gone into that. Not even that
amount.
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\1\ Chart referred to appears in the Appendix on page 59.
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We try to make sure we sweep everything possible in so we
leave a very small amount that actually lapses and goes back to
the Treasury to be permanently canceled.
Senator Coburn. But some did?
Mr. Lofthus. Yes, we leave some back. We do that because
right down to the last day, on September 30, we may have a bill
come in that we have to pay or settle some ratification or
something and we want to make sure there is money there until
the last day.
Senator Carper. Mr. Roth, if you would just quickly address
my question.
Mr. Roth. I share the sentiment in terms of this fine line
between flexibility and accountability. There is not a program
manager worth their salt out there who would not like more
flexibility in terms of funding and being able to move money
around.
In our particular case, again we have about 100 accounts.
We always have a tension, for example, for a program manager
between what is called procurement accounts and research and
development accounts. There are some fine lines between that.
They would love to have some more flexibility to move money
back and forth but you get into an accountability issue and
into an oversight issue in terms of transparency, in terms of
where you are spending the money and these kind of things.
At the end of the day obviously the tension is you cannot
spend more than what was appropriated in any given account,
given the Anti-Deficiency Act laws and regulations and those
kinds of things. So there will always be something of a
balance.
To answer one of the questions, on September 30, 2005, we
canceled $2.7 billion at the end of that particular fiscal
year. It sounds like a large number, but that is far less than
1 percent of the funds that were available within that program
year.
As I went through some of the accounts in preparing for
this hearing, we typically cancel 0.3 percent. It is really a
very small percentage. It turns out, on an aggregate level,
ultimately to be a large number, in the billions of dollars.
But it is always far less than 1 percent.
So there clearly is a need for the funds during the
expiration period to settle old contracts, to pay old claims
and these kind of things. At the end of the day we actually, on
a percentage basis, end up canceling very little in terms of
the total program.
Senator Carper. Thank you. Mr. Johnson, do you want to take
a shot at it?
Mr. Johnson. You have asked the question have we heard some
ideas today that we would like to insert, if you were to
rewrite provisions?
Senator Carper. Please.
Mr. Johnson. The two things I like, the first is the
Justice Department, the Working Capital Fund, which would come
from expired funds.
The second I like is the ability to move a small amount of
1-year money and convert that into 2-year funds, so that at the
end of the year you would have some small ability to carry over
some amount of otherwise lapsed funds. I like both of those
ideas.
Senator Carper. Thanks. Mr. Henke, the last word.
Mr. Henke. Yes, sir. Your question is a very thoughtful one
because the incentive needs to be balanced between the need to
spend funds wisely against the desire to spend the funds at
this point in time.
I would suggest that VA's flexibility to carry some portion
or some fraction of our 1-year money into a second year is
particularly useful and helps us make prudent decisions. I
think that the ability that the DOD and DOJ have to sweep
expired balances for a particular purpose and need is also a
sound practice.
Senator Carper. OK. Thank you all. Thanks, Mr. Chairman.
Senator Coburn. For the record, the Treasury Department
reported to us that they got $16.4 billion back from the
agencies last year.
I have a couple questions that I would like to ask. Would
it be helpful to see, for everybody across the board, a
transfer authority of X percent of unobligated balances and
mandates? The rest is kept toward putting and keeping your
annual budget request down.
One of the things that we heard before you came here is
that the request from the Department of Justice is actually
less than their budget request because they have this
flexibility with this money. So if that was agency-wide, where
you had this ability, and then maybe combined with an idea to
incentivize efficiency, in other words, incentivize not
spending the money. I am not talking about in mandatory
programs. We are going to spend what we have to on the
mandatory programs, whether it is Veterans, Medicare, or
whatever.
But on the programs that are not, how do we incentivize
inside the agencies to where the agency benefits by being a
better steward? In other words, how do they share in the
savings? And how do we do that agency-wise to where we could do
that? Most of your funds go through the door.
So this portion of your funds that are not going out
through the door, how do we incentive the Department of
Transportation that they get a share in the savings generated
by good ideas, by good stewardship, by efficiency, by new IT?
We can eliminate this many FTEs if we do this?
In other words, how do you incentivize progress, like we
see in everybody else that is working on the greed motive, on
the profit motive? How can we do that? Any thoughts on that,
how we could do that? It is not a matter of distrust.
The other point that I would say is that you would have to
have mandatory oversight every year of each one of these
segments so that you knew you were going to have to have
transparency with the Congress and the American public.
Yes, ma'am?
Ms. Scheinberg. Yes, Senator.
As we mentioned a little while ago, one of the benefits
would be the ability of combining small amounts of money. Right
now we cannot move money, even if it is a very small amount.
And so you end up with small amounts of money in different
places in the Department. However, if we could combine those
amounts we could actually do something very constructive for
the Department as a whole in the sense of information
technology and financial management.
Senator Coburn. Or maybe five miles more of highway.
Ms. Scheinberg. The highway money----
Senator Coburn. I understand but it does not necessarily--
in other words, the point I am making in responding to your
question, it does not necessarily have to go for things inside.
It could buy more highway or more transit cars or do something
else if we got to the point where you were running efficiently
with the tools that you need.
Ms. Scheinberg. Right, and actually, that is a different
issue. Right now we do not, at the Department level, have the
ability to go out and bring back money that is unspent. The
States have the ability to move money but we do not. And so
money does sit in States around the country. If we could bring
it back and redistribute it, that would be very helpful.
That is a much larger issue because it involves the
authorization of these programs.
Senator Coburn. I think the other Senator from Oklahoma
would be very interested in your thoughts on that.
Ms. Scheinberg. What I consider a smaller and easier issue
to tackle would be the money that stays in the Department.
Instead of having it spread throughout our 12 operating
agencies, DOT would benefit by being able to combine it for
purposes that would be department-wide. It is not that I would
be looking for money to be moved from one agency to another for
somebody else's purpose but to do things that are department-
wide.
Right now we are not able to do that. We are not able to
get folks to come together because the money is all separate.
Senator Coburn. I am asking this for information and not in
an accusatory tone at all, so do not take it that way.
Are there any other ways that are padded in your agencies?
In other words, that things get padded towards the end of a
fiscal year? Padded because of some quirk in what Congress has
said? What else is out there in terms of padding?
That is kind of the response I thought I would get, no
response. Nobody is going to voluntarily offer that.
Mr. Lofthus. I will stick my neck out just to say that
since we have had the ability to transfer our expired balances
into the unobligated balance transfer account, I think it has
diminished the likelihood that people see an incentive to pad
or somehow put extra obligations on the books because they
simply do not have to do that. There is now an incentive not to
do it, to keep the funds available moving into this account
where a large number of our components across the Agency have
all benefited. They do not all benefit in a single year. They
may get taken care of in 1 year and they may not get taken care
of again for 2 or 3 years because it is somebody else's turn.
But the fact is they know there is a chance for them to have a
turn.
So there is really an incentive to be a good steward in
this environment.
Senator Carper. I had two more questions and you asked them
both. In fact, one of them you answered and that was the amount
of unobligated balance figures that went to the Treasury
Department?
Senator Coburn. $16.4 billion.
Senator Carper. So I do not have any more questions for
this panel. Thank you.
Senator Coburn. I have a couple more.
Is the 5-year period the right number? Or should it be
flexible? In other words, in the Defense Department, on some of
these systems, should it be longer and on other things should
it be shorter?
In other words, the fact that on funds that are going to go
into the unobligated expired accounts, we know that is 1 year.
And then it is going to be held for 5 years. Are there
differences in those? Are there some times where it should be 2
years and sometimes when it should be 8? In other words, I do
not know how we got to 5 years and I do not know the
legislative history behind that. But it would just seem to me
that the 5 years does not necessarily apply uniformly across
all the different needs and tasks that agencies are given.
Any thoughts on that?
Mr. Roth. Since you focused on us to begin with, let me try
to answer your question.
Like any standardized number, I think you are absolutely
correct, 5 years is a relatively artificial number. I think for
some of our annual accounts like our operating accounts and our
personnel accounts, 5 years is probably more than adequate in
terms of covering the kinds of claims that might come in during
that period.
For some of our larger capital investment accounts,
shipbuilding accounts, building space assets, and some of our
military construction facilities, 5 years is at a razor's edge.
We, on more than the odd occasion, use this 1 percent rule to
pay a bill after the 5 years.
So for large capital investment kinds of things, the 5
years is probably not long enough. For annual accounts probably
2 to 3 years would be adequate.
Ms. Scheinberg, how much do you think is sitting in State
accounts in unobligated highway funds now? A rough guess.
Ms. Scheinberg. I can tell you as a whole----
Senator Coburn. Yes, as a whole, not individual States.
Ms. Scheinberg. As a whole, the amount that is unobligated
for the Federal-aid Highway Program----
Senator Coburn. But is in State accounts.
Ms. Scheinberg. It would be about $10 billion in obligation
limitation.
Senator Coburn. There is all sorts of quirky things that
happen. I was talking with our State highway director. They
keep the money there because some people do not file claims for
bridge repairs that is done in a county by county commissioner.
But they kind of like having that little cushion there.
Ms. Scheinberg. There are a lot of reasons why this money
has not yet been obligated. Part of it has to do with money
that has been designated for special projects. And so the
project is not ready because it did not come from the State's
program. The State did not identify it and have it ready for
expenditure.
The other issue has to do with the fact States are waiting
for certain requirements to be met first. There are
environmental impact statements that have to be completed
before you can obligate the money. There is a long series of
steps that a State must go through before a highway project can
be completed.
In fact, even once it is obligated, we expect it to take 9
years for money that is obligated to be expended. Our outlay
stream is 9 years. So there is a very long process for these
projects.
There are a lot of reasons.
Senator Coburn. This is the last question and you do not
have to answer it here but I would love a written response. If
you could use all of your expired unobligated balances in your
agency for the next year, what would that reduce your request
on appropriations coming to Congress for? In other words, is
there a one-to-one correlation? Or is it 80 percent of that we
are going to get benefit out of it?
In other words, how do we better use the money that has
been appropriated? And how can you, you are there, you are on
the ground. You see the problems. You see the needs.
If you had that opportunity every year, if you had that
year end unobligated balances that were expired and were going
directly to you for your discretion, what would that do in
terms of the request of decreasing budget for your individual
agencies?
In your case, it is only $13 million so it is probably not
going to do much in terms of veterans. But it would do
something.
So the point is to allow that. But one of the things that
is happening is this money is getting gamed. You all need to
know this. Because we have a budget cap and then we use these
expiring unobligated balances to increase spending to the
flavor of what a senator or congressman wants, and most of it
is in terms of earmarks not in terms of something you all
identify as a priority but what some political need is in terms
of a priority.
So one of my goals in having this hearing is how do we
utilize the money in an area in which it was originally
intentioned and not in an area that is localized geographically
to somebody's political benefit.
That is the other thing that we want to look at because we
are going to look at it this year as we go through the
appropriation cycle, is how much of this is used to pump up the
budget? And how much of that pump does not go for you all but
does go in terms of directed funds to something that is not
necessarily a priority seen by you. But yet you have to do--and
you experience that a lot, Mr. Roth I know in terms of the
Department of Defense.
Department of Energy, 50 percent of their budget is
earmarks. So you can see the potential there where we could get
online on things that you are obligated to do in terms of your
charge as agencies can further benefit and the politics can get
out of it a little bit
Thank you all for being here. Let me say I appreciate what
you do. I appreciate President Bush because of what he has done
in terms of putting CFOs in, in terms of his PART program and
how we are seeing the agencies starting to become financially
secure in terms of their information systems and trying to do
it.
And my hope is that OMB can get as good as you all are in
terms of your CFO responsibilities and analysis of how you are
doing it.
Thank you for being here.
The hearing is adjourned.
[Whereupon, at 3:42 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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