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United States Government Accountability Office:
February 2005:
21st CENTURY CHALLENGES:
Reexamining the Base of the Federal Government:
GAO-05-325SP:
Contents:
Preface:
Section 1: Introduction:
Section 2: Twelve Reexamination Areas:
National Defense:
Education and Employment:
Financial Regulation and Housing:
Health Care:
Homeland Security:
International Affairs:
Natural Resources, Energy, and the Environment:
Retirement and Disability Policy:
Scientific and Technological Innovation:
Transportation:
Governance:
Tax System:
Section 3: Where Do We Go From Here?
Table:
Table 1: Illustrative Generic Reexamination Criteria:
Figures:
Figure 1: Composition of Spending as a Share of GDP Under Baseline
Extended:
Figure 2: Composition of Spending as a Share of GDP Assuming
Discretionary Spending Grows with GDP after 2005 and All Expiring Tax
Provisions Are Extended:
Figure 3: Forces Shaping the United States and Its Place in the World:
Figure 4: Twelve Reexamination Areas:
Figure 5: Selected Reforms and Reexamination Approaches:
Figure 6: Reexamination Maturity Model:
[End of section]
Preface:
The Government Accountability Office has long had a statutory
responsibility for monitoring the condition of the nation's finances.
Recently, in our role as the auditor of the U.S. government's
consolidated financial statements, we included an emphasis paragraph in
our audit report for the fiscal year ended September 30, 2004
expressing our concerns that the fiscal policies in place today will--
absent unprecedented changes in tax and/or spending policies--result in
large, escalating, and persistent deficits that are economically
unsustainable over the long term. This conclusion is based on the
results of GAO's long-term budget model, which the agency has used
since 1992.
Over the long term, the nation's growing fiscal imbalance stems
primarily from the aging of the population and rising health care
costs. These trends are compounded by the presence of near-term
deficits arising from new discretionary and mandatory spending as well
as lower revenues as a share of the economy. Absent significant changes
on the spending and/or revenue sides of the budget, these long term
deficits will encumber a growing share of federal resources and test
the capacity of current and future generations to afford both today's
and tomorrow's commitments. Continuing on this unsustainable path will
gradually erode, if not suddenly damage, our economy, our standard of
living and ultimately our national security.
Addressing the nation's long-term fiscal imbalances constitutes a major
transformational challenge that may take a generation to resolve. Given
the size of our projected deficit we will not be able to grow our way
out of this problem--tough choices will be required. In addition,
traditional incremental approaches to budgeting will need to give way
to more fundamental and periodic reexaminations of the base of
government, ultimately covering discretionary and mandatory programs as
well as the revenue side of the budget. The nature and magnitude of the
fiscal, security, and economic and other adjustments that need to be
considered are not amenable to "quick fixes;" rather they will likely
require an iterative, thoughtful process of disciplined changes and
reforms over many years. Nonetheless, the magnitude of and potential
disruption from related changes can be mitigated if the necessary
policy changes are made sooner rather than later.
While prompted by fiscal necessity, such a fundamental review of major
program and policy areas can also serve the vital function of updating
the federal government's programs and priorities to meet current and
future challenges. Many current federal programs and policies, in fact,
were designed decades ago to respond to trends and challenges that
existed at the time of their creation. Given our recent entry into a
new century, we have been reminded of how much has changed in the past
several decades--whether it be rapid shifts in the security threats
facing the nation, the aging of our population, the globalization of
economic transactions, escalating health care costs, increased
environmental concerns, or the significant advances in technologies and
transportation systems. Moreover, given the fiscal constraints we are
likely to face for many years to come, such a reexamination may very
well be essential to address newly emergent needs without unduly and
unfairly burdening future generations of taxpayers.
Having identified the major fiscal challenge facing the nation, and
given our role in supporting the Congress, we believe that GAO also has
an obligation to provide policymakers with support in identifying
issues and options that could help to address these fiscal pressures.
In this report, we build on our past and pending work--90 percent of
which is requested by the Congress or required by law--to provide
policy makers with a comprehensive compendium of those areas throughout
government that could be considered ripe for reexamination and review.
This report is consistent with other GAO products, such as our high-
risk series and budget options reports, where we pull together our
insights and previous work for the Congress to help in its budget and
programmatic deliberations and oversight activities.[Footnote 1]
This report is intended to help the Congress in reviewing and
reconsidering the base of federal spending and tax programs. It is
intended as one input among many that Congress will receive as it
decides what its agenda will be for oversight and program review. We
have framed the issues presented as illustrative questions for
policymakers to consider as a supplement to their own efforts. The
questions are drawn from GAO's issued work, our strategic plan prepared
in consultation with the Congress, input from several inspectors
general and the institutional knowledge of our staff. They cover
discretionary spending, mandatory spending, including entitlements, as
well as tax policies and programs. While answers to these questions may
draw on the work of GAO and others, only elected officials can and
should decide which questions to address as well as how and when to
address them.
The report is organized in three sections. The first section sets the
stage by providing the rationale for reexamining the base of the
federal government and the scope of GAO's effort. The second section is
organized around 12 areas of federal activity and includes narratives
discussing emerging changes in each area as well as several
illustrative reexamination questions for each area. The third section
provides some perspective on various strategies, processes, and
approaches that should be considered as a possible means to address the
issues and questions raised in this report.
GAO stands ready to assist the Congress in addressing the much needed
base-line review of existing federal programs, policies, functions, and
activities.
The report was prepared under the direction of Paul Posner, Managing
Director for Federal Budget and Intergovernmental Issues in our
Strategic Issues team, with the assistance of every GAO team. Ty
Mitchell and John Forrester of our Strategic Issues team were the key
staff responsible for the development and publication of this document.
Copies of this report are available upon request. In addition this
document will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
Signed by:
David M. Walker:
Comptroller General of the United States:
[End of section]
Chapter 1: Introduction:
The federal government's financial condition and long-term fiscal
outlook present enormous challenges to the nation's ability to respond
to emerging forces reshaping American society, the United States' place
in the world, and the future role of the federal government. The near-
term deficits are daunting--a $412 billion unified budget deficit in
fiscal year 2004 (including a $567 billion on-budget deficit and a $155
billion off-budget surplus) and a $368 billion deficit (not including
any supplemental appropriations) forecast for fiscal year 2005 by the
Congressional Budget Office (CBO). If these near-term deficits
represented only a short-term phenomenon prompted by such factors as
economic downturn or national security crises--there would be less
cause for concern. However, deficits have grown notwithstanding the
relatively strong rebound of the economy from the recession in 2001,
and the incremental costs of responding to the nation's global war
against terrorism and homeland security represent only a relatively
small fraction of current and projected deficits. Morever, based on the
U.S. Government Accountability Office's (GAO) long-range fiscal
simulations, the current fiscal condition is but a prelude to a much
more daunting long-term fiscal outlook.
Over the next few decades, as the baby boom generation retires, federal
spending on retirement and health programs--Social Security, Medicare,
Medicaid, and other federal pension, health, and disability programs--
will grow dramatically. Other federal fiscal commitments, ranging from
explicit liabilities, such as environmental cleanup requirements to
more implicit obligations presented by lifecycle costs of capital
acquisitions, will also bind the nation's fiscal future. Absent policy
changes on the spending and/or revenue sides of the budget, a growing
imbalance between expected federal spending and tax revenues will mean
escalating and ultimately unsustainable federal deficits and debt that
serve to threaten our future national security as well as the standard
of living for the American people. Ultimately, the nation will have to
decide what level of federal benefits and spending it wants and how it
will pay for these benefits.
The nation's long-term fiscal outlook is daunting under many different
policy scenarios and assumptions. For instance, under a fiscally
restrained scenario, if discretionary spending grew only with inflation
over the next 10 years and all existing tax cuts expire when scheduled
under current law, spending for Social Security and health care
programs would grow to consume over three-quarters of federal revenue
by 2040. (See fig. 1.) On the other hand, if discretionary spending
grew at the same rate as the economy in the near term and if all tax
cuts were extended, federal revenues may just be adequate to pay
interest on the growing federal debt by 2040. (See fig. 2.) Numerous
alternative scenarios can be developed incorporating different
combinations of possible policy choices and economic assumptions, but
these two scenarios can be viewed as "bookends" showing a range of
possible outcomes.[Footnote 2]
Figure 1: Composition of Spending as a Share of GDP under Baseline
Extended:
[See PDF for image]
Notes: In addition to the expiration of tax cuts, revenue as a share of
GDP increases through 2015 due to (1) real bracket creep, (2) more
taxpayers becoming subject to the alternative minimum tax (AMT), and
(3) increased revenue from tax-deferred retirement accounts. After
2015, revenue as a share of GDP is held constant.
[End of figure]
Figure 2: Composition of Spending as a Share of GDP Assuming
Discretionary Spending Grows with GDP after 2005 and All Expiring Tax
Provisions Are Extended:
[See PDF for image]
Notes: Although expiring tax provisions are extended, revenue as a
share of GDP increases through 2015 due to (1) real bracket creep, (2)
more taxpayers becoming subject to the AMT, and (3) increased revenue
from tax-deferred retirement accounts. After 2015, revenue as a share
of GDP is held constant.
[End of figure]
Addressing the projected fiscal gaps shown here will prompt
policymakers to examine the advisability, affordability, and
sustainability of existing programs, policies, functions, and
activities throughout the entire federal budget--spanning
discretionary spending, mandatory spending, including entitlements,
and tax policies and programs. Neither slowing the growth of
discretionary spending nor allowing tax cuts to expire--nor both
options combined--would by themselves eliminate our long-term fiscal
imbalance. Additional economic growth is critical and will help to ease
the burden, but the projected fiscal gap is so great that it is
unrealistic to expect that we will grow our way out of the problem.
Clearly, tough choices will be required. Changes in existing budget
processes and financial, fiscal, and performance metrics will be
necessary to facilitate these choices.
Early action to change existing programs and policies would yield the
highest fiscal dividends and provide a longer period for prospective
beneficiaries to make adjustments in their own planning. The longer we
wait, the more painful and difficult the choices will become. By
waiting, an important window is lost during which today's relatively
large workforce can increase saving and begin preparing for the
necessary changes in fiscal policy, Social Security, health care and
other reforms that may very well be part of the solution to this coming
fiscal crunch. However, the long-term challenge is fast becoming a
short term one as the retirement of the baby boomers' generation will
begin as early as 2008 and since overall work force growth has already
begun to slow.
Emerging Forces Will Test Existing Policy Frameworks:
These challenges would be difficult enough if all we had to do is fund
existing commitments. But the nation and the world have and will
continue to change in fundamental ways. As a result, a wide range of
emerging needs and demands can be expected to compete for a share of
the budget pie. Whether it be national security, homeland security,
transportation, education, environmental cleanup, or public health, a
society with a growing population will generate new claims for federal
actions on both the spending and tax sides of the budget. For example,
the nation's population itself is projected to grow by about 50 percent
over the next 50 years, generating new needs for public and private
resources. Addressing the burdens of existing commitments and providing
expanded economic resources are two important strategies to enable
future generations to regain the fiscal flexibility to address these
needs.
More broadly, major forces are at work that will require the federal
government to rethink its entire approach to policy design, priorities,
and management to remain relevant to our changing society. In short,
government will need to change to become as dynamic as the nation and
the changing environment in which it must operate.
GAO's Strategic Plan for Serving the Congress and the Nation (2004-
2009), which was prepared in close consultation with the Congress,
highlights some of the major forces (See fig. 3.), in addition to the
large and growing fiscal imbalances that are at work to reshape our
nation and the role of the federal government.
Figure 3: Forces Shaping the United States and Its Place in the World:
Large and Growing Long-term Fiscal Imbalance-The U.S. government's
long-term financial condition and fiscal outlook present enormous
challenges to the nation's ability to respond to forces that shape
American society, the United States' place in the world, and the role
of the federal government. The short-term deficits are but a prelude to
a projected worsening long-term fiscal outlook driven largely by known
demographic trends and rising health care costs.
Evolving National and Homeland Security Policies-The dissolution of the
Soviet Union in 1991 and the emergence of the more diffuse threats
posed by terrorism to the nation's national and homeland security have
led to major shifts in strategic threats. While these new security
concerns are already prompting changes in defense postures and
international relationships, preparedness and responses to these new
threats also carry wide ranging and unprecedented implications for
domestic policies, programs, and infrastructures.
Increasing Global Interdependence-The rapid increase in the movement of
economic and financial goods, people, and information has prompted more
widespread realization that the nation is no longer self-contained,
either in its problems or their solutions. The growing interdependence
of nations, while carrying clear economic and social benefits, also
places new challenges on the national agenda and tasks policymakers to
recognize the need to work in partnerships across boundaries to achieve
vital national goals.
The Changing Economy-The shift to a knowledge-based economy and the
adoption of new technology has created the potential for higher
productivity but posed new challenges associated with sustaining the
investment in human capital and research and development that is so
vital to continued growth. While the sustainability of U.S. economic
growth has been aided by trade liberalization and increased market
competition in key sectors, the sustainability of growth over the
longer term will require a reversal of the declining national savings
rate that is so vital to fueling capital investment and productivity
growth.
Demographic Shifts-An aging and more diverse population will prompt
higher spending on federal retirement and health programs. Unless there
is strength in the underlying sources of productivity-education,
technology and research and development-low labor force growth will
lead to slower economic growth and federal revenue growth over the
longer term. As labor becomes ever more scarce, a greater share of the
work force will be comprised of foreign-born workers, women, and
minorities with broad-scale implications for education, training, child
care, and immigration policies.
Science and Technology Advances-Rapid changes in science and technology
present great opportunities to improve the quality of life and the
economy, whether it be finding new sources of energy, curing diseases,
or enhancing the nation's information and communications capacities.
However, technologies raise their own unique vulnerabilities, risks,
and privacy and equity concerns that must be addressed by policymakers.
Quality of Life Trends-Large segments of the population enjoy greater
economic prosperity than ever before, and the well being of many
Americans has improved dramatically thanks to breakthroughs in health
care and improvements in environmental protection. However, these
improvements have not been evenly distributed across the nation, as
more than 40 million Americans lacking health insurance demonstrate.
Prosperity has prompted its own stresses, as population growth and
sprawl create demand for new transportation and communication
infrastructure.
Diverse Governance Structures and Tools-To deliver on the public's
needs and wants, the nation's system will be pressed to adapt its
existing policy-making processes and management systems. The governance
structures and management processes that emerge will be shaped by the
above forces (e.g., increasing interdependency, scientific and
technological changes, and security threats), and will depend on having
sufficient foresight, a continuous reexamination and updating of
priorities, ongoing oversight, and reliable and results-oriented
national performance indicators.
Source: GAO.
[End of figure]
As the pace of change accelerates in every aspect of American life,
these forces work to present government with new and more complex
challenges and demands. As the federal role has grown in addressing a
wide range of needs, the public has come to expect higher levels of
performance and greater responsiveness by public officials and
programs.
If government is to effectively address these trends, it cannot accept
all of its existing programs, policies, and activities as "givens."
Many of our programs were designed decades ago to address earlier
challenges, informed by labor markets, security conditions, economic
theories, life expectancies, health conditions, organizational
structures, technologies, transportation systems, management models,
and compensation strategies of prior eras. Outmoded commitments and
operations constitute an encumbrance on the future that can erode the
capacity of the nation to better align its government with the needs
and demands of a changing world and society.
Accordingly, rethinking the base of existing federal spending and tax
programs, policies, and activities by reviewing their results and
testing their continued relevance and relative priority for a changing
society is an important step in this process of fiscal responsibility
and national renewal. A periodic reexamination offers the prospect of
addressing emerging needs by weeding out programs and policies that are
outdated or ineffective. Those programs and policies that remain
relevant could be updated and modernized by improving their targeting
and efficiency through such actions as redesigning allocation and cost-
sharing provisions, consolidating facilities and programs, and
streamlining and reengineering operations and processes. The tax
policies and programs financing the federal budget can also be reviewed
with an eye toward both the overall level of revenues that should be
raised as well as the mix of taxes that are used.
We recognize that this will not be a simple or easy process. Such a
process reverses the focus of traditional incremental reviews, where
disproportionate scrutiny is given to proposals for new programs or
activities, not those that are already in the base. Taking a hard look
at existing programs and carefully reconsidering their goals and their
financing is a challenging task. Reforming programs and activities
leads to winners and losers, notwithstanding demonstrated shortfalls in
performance and design. Given prior experience and political
tendencies, there is little real "low-hanging fruit" in the federal
budget. Moreover, given the wide range of programs and issues covered,
the process of rethinking government programs and activities may take a
generation to unfold.
We are convinced, however, that reexamining the base offers compelling
opportunities to both redress our current and projected fiscal
imbalance while better positioning government to meet the new
challenges changing expectations of this new century. In this regard,
the management and performance reforms enacted by the Congress in the
past 15 years have provided new tools to gain insight into the
financial, program, and management performance of federal agencies and
activities. The information being produced as a result can provide a
strong basis to support the review and reprioritization being suggested
in this report.
GAO's 21st Century Questions:
This report is intended to help the Congress address current fiscal
demands as well as future fiscal challenges by providing a series of
illustrative questions that could help support a fundamental and broad-
based reexamination initiative. Drawing on GAO's institutional
knowledge and extensive program evaluation and performance assessment
work for the Congress, we present over 200 specific 21st century
questions illustrating the types of hard choices our nation needs to
face as it reexamines what the federal government does and how it does
it.
In developing the 21st century questions, we reflected on the inventory
of future forces working to reshape American society, our place in the
world, and the various roles and responsibilities of the federal
government that were presented in GAO's latest Strategic Plan for
Serving the Congress and the Nation (2004-2009). This plan outlines
specific trends, as described above, that have no geopolitical
boundaries and are expected to challenge what the federal government
does and how it does business in the future. These trends, along with
GAO's institutional knowledge and issued work, helped us identify those
federal program areas, activities and policy frameworks whose
relevance, rationale, and relative priority are likely to be tested in
the future. This process was carried out in 12 broad areas, discussed
in section 2. We also drew on the collective knowledge and experiences
of many others familiar with the various program areas discussed in the
next section. We made a concerted effort to solicit input from within
the accountability community, including various inspectors general as
well as consult with various congressional members, officials, and
staff.
The specific questions raised for each area were informed by a set of
generic evaluation criteria that are useful to evaluate any government
program, policy, function or activity. The criteria are framed as
questions in table 1 and are designed to address the legislative basis
for the program, its purpose and continued relevance, its effectiveness
in achieving goals and outcomes, its efficiency and targeting, its
affordability, its sustainability, and its management. We used these
criteria to generate specific 21st century questions about those
programs and priorities already identified. The resultant 21st century
questions illustrate the kinds of issues that a reexamination and
review initiative needs to address.
Table 1: Illustrative Generic Reexamination Criteria:
Relevance of purpose and the federal role; Does it relate to an issue
of nationwide interest? If so, is a federal role warranted based on the
likely failure of private markets or state and local governments to
address the underlying problem or concern? Does it encourage or
discourage these other sectors from investing their own resources to
address the problem?
Have there been significant changes in the country or the world that
relate to the reason for initiating it?
If the answer to the last question is 'yes,' should the activity be
changed or terminated, and if so, how? If the answer is unclear as to
whether changes make it no longer necessary, then ask, when, if ever,
will there no longer be a need for a federal role? In addition, ask,
"would we enact it the same way if we were starting over today?" Has it
been subject to comprehensive review, reassessment, and re-
prioritization by a qualified and independent entity? If so, when? Have
there been significant changes since then? If so, is another review
called for?
Is the current mission fully consistent with the initial or updated
statutory mission (e.g., no significant mission creep or morphing)? Is
the program, policy, function, or activity a direct result of specific
legislation?
Measuring success; How does it measure success? Are the measures
reasonable and consistent with the applicable statutory purpose? Are
the measures outcome-based, and are all applicable costs and benefits
being considered? If not, what is being done to do so?
If there are outcome-based measures, how successful is it based on
these measures?
Targeting benefits; Is it well targeted to those with the greatest
needs and the least capacity to meet those needs?
Affordability and cost effectiveness; Is it affordable and financially
sustainable over the longer term, given known cost trends, risks, and
future fiscal imbalances?
Is it using the most cost-effective or net beneficial approaches when
compared to other tools and program designs?
What would be the likely consequences of eliminating the program,
policy, function, or activity? What would be the likely implications if
its total funding was cut by 25 percent?
Best practices; If it fares well after considering all of these
questions, is the responsible entity employing prevailing best
practices to discharge its responsibilities and achieve its mission
(e.g., strategic planning, organizational alignment, human capital
strategy, financial management, technology management, acquisitions/
sourcing strategy, change management, knowledge management, client/
customer service, risk management)?
Source: GAO.
[End of table]
When taken together, these questions can usefully illustrate the
breadth of issues that can be addressed through a systematic
reexamination process. Importantly, the questions cover the three major
areas--discretionary spending, mandatory spending including
entitlements, and tax policies.
[End of section]
Chapter 2: Twelve Reexamination Areas:
This section provides short narratives describing the emerging forces
prompting the need to reexamine the goals, designs, and strategies
underlying the portfolio of programs in each of 12 broad reexamination
areas. As shown in figure 4, the reexamination areas correspond with
major federal missions and governmentwide processes.
Figure 4: Twelve Reexamination Areas:
Mission Areas:
Defense;
Education & Employment;
Financial Regulation & Housing;
Health Care;
Homeland Security;
International Affairs;
Natural Resources, Energy & Environment;
Retirement & Disability;
Science & Technology;
Transportation.
Crosscutting Areas: Governance;
Crosscutting Areas: Tax System.
Source: GAO.
[End of figure]
For each area, a summary of challenges and illustrative 21st century
reexamination questions demonstrate the type of review needed.
Questions are neither exhaustive nor representative of the highest
priorities. Nor are they intended to prescribe solutions or constitute
GAO findings regarding the program areas they discuss. They do,
however, provide examples of the types of questions--based on current
trends, future fiscal realities, and GAO's work and expertise--that a
fundamental reexamination of the base of federal government policies,
programs, functions, and activities could address for each of the 12
areas. The questions were selected for their fiscal significance, their
balance between a strategic and operational level, and their
relationship to GAO's strategic plan for serving the Congress.
National Defense Challenges for the 21st Century:
In the past 15 years, the world has experienced dramatic changes in the
overall security environment, with the focus shifting from conventional
threats posed during the Cold War era to more unconventional and
asymmetric threats evidenced in the events of September 11, 2001. To
respond to these events and the ensuing global war on terrorism, the
Department of Defense (DOD) has been given a significant infusion of
funds, with an annual appropriation totaling over $400 billion for
fiscal year 2005 and supplemental funding for homeland defense and
overseas military operations approximating $190 billion over the past 3
fiscal years. In addition to providing additional resources to enhance
war-fighting capabilities, the Congress has also taken steps to fund
enhanced compensation and benefit programs for active duty and reserve
personnel.
As DOD seeks to meet the demands of the new security environment, it
continues to bear the costs of the past by implicitly maintaining or
continuing to pursue many programs and practices from the Cold War era.
In this context, the magnitude of funding and potential for current
investments and operations to turn into long-term financial commitments
are prompting real questions about the affordability and sustainability
of the rate of growth in defense spending. For example, in September
2004, the Congressional Budget Office reported that carrying out
current defense plans would require annual funding to be sustained over
the longer term at higher real (inflation-adjusted) levels than have
occurred since 1980, excluding supplemental appropriations. Many
factors should be considered, including reassessing the base and rate
of growth in defense and related spending. Failure to do so will result
in significant waste today and opportunity costs over time. Moreover,
the recent 9/11 Commission Report suggests that changes are needed
across the government to strengthen national security institutions and
move beyond the legacy of the Cold War, including reforming the
nation's intelligence organizations and capabilities. As such, meeting
the nation's defense needs in the 21st century may prompt decision
makers to reexamine fundamental aspects of the nation's national
security programs such as how DOD plans and budgets, organizes its
forces, manages the total force, acquires new capabilities, positions
our forces, and considers alternatives to past approaches.
In addition to maintaining readiness and sustaining the current force,
DOD is faced with identifying capabilities, including critical
technologies, needed to meet the demands of the new security
environment, as well as determining the best way to provide those
capabilities and retain the U.S. military's technological superiority.
Striking an affordable balance between current and future needs will be
an ongoing challenge, particularly with the federal government's
current and projected fiscal imbalance. The upcoming quadrennial
defense review will provide an opportunity for DOD to move beyond the
legacy of the past, assess the capabilities required to meet current,
emerging and future threats, establish near-term and long-term
priorities, and adopt realistic funding plans.
To adapt to the new security environment, DOD is currently embarked on
an effort to transform its war-fighting capabilities and how it does
business to support the war fighter. DOD's civilian and military
leaders appear committed to reform; however, the department faces
significant challenges in accomplishing its transformation goals.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
To successfully transform itself, DOD must overcome cultural resistance
to change and the inertia of various organizations, policies, and
practices that became well rooted in the Cold War era. Longstanding
organizational and budgetary problems need to be addressed, such as the
existence of stove-piped or siloed organizations, the involvement of
many layers and players involved in decision-making, the allocation of
budget allocations on a proportional rather than strategic basis among
the military services, and the use of traditional approaches to basing
forces and replacing or enhancing capabilities (typically on a platform
by platform rather than a joint basis). DOD's current approach to
planning and budgeting often results in a mismatch between programs and
budgets. And it does not always fully consider long-term resource
implications and the opportunity cost of selecting one alternative over
another.
How should the historical allocation of resources across services and
programs be changed to reflect the results of a forward-looking
comprehensive threat/risk assessment as part of DOD's capabilities-
based approach to determining defense needs?
Can DOD afford to invest in transformational systems such as the Future
Combat System and national missile defense at the same time it
continues to pursue large investments in legacy systems such as the FA-
22 and new systems like the Joint Strike Fighter, especially if cost
growth and schedule delays continue at historical rates?
Are sufficient investments being made in capabilities that cross
service lines, such as joint communications and interoperable systems?
For example, is the Global Information Grid well enough defined and
understood to enable sound investments to be made in its key components
such as the Transformational Satellite?
Given the global availability of rapidly advancing technology, does DOD
need to reconsider its approach for identifying critical technologies
and protecting those technologies from being exploited in order to
maintain its military superiority?
The global war on terrorism has required the military forces to operate
differently from the ways it was organized, equipped, staffed and
deployed to operate under post-Cold War planning assumptions based on
regional threats. Current operations have required significant numbers
of ready forces, both active and reserve, to be mobilized for long
periods and created demand for certain skills, such as military police,
that exceeds the available supply. While DOD has taken steps to meet
short term operational needs, it has not yet determined how it will
meet the longer term challenges of reorganizing its forces and
identifying the capabilities it will need to protect the country from
current, emerging, and future conventional and unconventional security
threats.
Do the role, size, and structure of forces and capabilities comprising
the strategic triad need to be adjusted to meet the challenges of
providing strategic deterrence in the new security and fiscal
environment?
Are the active and reserve components appropriately sized, structured,
and used to meet the current and future national security demands? Is
the current business model sustainable for the reserve component?
What is the appropriate role for contractors, especially in forward
deployment and conflict areas, to maximize the capabilities of military
and contract personnel and to ensure effective integration of
contractors into military operations and support cost-effectively?
Does DOD's plan for realigning forces at overseas locations and
redeploying some forces from overseas to stateside locations provide a
significantly improved capability to respond to global threats in the
new security environment considering diplomatic, operational, and cost
considerations?
DOD's military personnel outlays are large and growing, increasing from
about $76 billion to an estimated $109 billion between fiscal years
2000 and 2005. In fact, personnel costs comprise the second largest
component of DOD's total fiscal year 2005 budget. The growth in
military personnel costs has been fueled in part by increases in basic
pay, housing allowances, recruitment and retention bonuses, incentive
pays and allowances, and other special pays. Furthermore, DOD's costs
to provide benefits, such as health care, have continued to spiral
upward. Expanded health care to reservists and their families and
retirees has been the primary cost driver in growing benefits costs.
Also, a large portion of DOD's compensation-related costs is in the
form of benefits and deferred compensations. In some cases, such
benefits exceeded those offered by private sector organizations. As the
total and per capita cost to DOD for military pay and benefits grows,
questions arise as to whether DOD has the right pay and compensation
strategies to cost-effectively sustain the total force in the future.
Regarding its civilian workforce, DOD is preparing to implement a
congressionally authorized personnel system, which will change the way
civilian employees are hired, assigned, compensated, promoted,
disciplined, and, if necessary, fired.
Given the growing encumbrance of pay and benefit costs, especially
health care, within DOD's budget, how might DOD's recruitment,
retention, and compensation strategies (including benefit programs) be
reexamined and revised to ensure that DOD maintains a total military
and civilian workforce with the mix of skills needed to execute the
national security strategy while using resources in a more targeted,
evidence-based, and cost-effective manner?
Is DOD pursuing the design and implementation of its new national
security personnel system initiatives in a manner that maximizes the
chance of success?
Given its size and mission, DOD is one of the largest and most complex
organizations to manage in the world. While the unparalleled combat
effectiveness of U.S. forces has been well evidenced in the Persian
Gulf and elsewhere, DOD has not been effective in managing its ongoing
business operations. Complicating DOD's efforts are numerous systems
problems and a range of other longstanding weaknesses in the key
business areas of strategic planning and budgeting, human capital
management, infrastructure, supply chain management, financial
management, information technology, weapons systems acquisition, and
contracting. For example, 8 individual items on GAO's list of high-risk
government operations and several of the governmentwide high-risk areas
apply to key DOD business operations. These problems that continue to
result in substantial waste and inefficiency adversely affect mission
performance and result in a lack of transparency and accountability.
Does DOD need to create a senior management position responsible and
accountable for taking a strategic, integrated, and sustained approach
to managing the day-to-day business operations of the department,
including ongoing efforts to transform DOD's business operations and
address the many related and longstanding high-risk areas? Should
specific qualifications requirements and periods of tenure or terms be
established for selected DOD positions related to key business
operations?
Are current organizations aligned and empowered to meet the demands of
the new security environment as efficiently as possible? What kinds of
economies of scale and improvements in delivery of support services
would result from combining, realigning, or otherwise changing selected
support functions (e.g., combat support, training, logistics,
procurement, infrastructure, or health care delivery)?
Education and Employment Challenges for the 21st Century:
The shift to a global economy and changes in technology, the nature of
work, and workforce demographics are challenging customary federal
approaches to education and employment. The global economy and advances
in technology enable work to be shifted to other countries or render
some jobs obsolete. If we are to compete effectively in a growing,
knowledge-based economy, our educational system must equip children
with appropriate skills to meet high standards and provide means for
adults to continue to learn new skills and enhance their existing
abilities. This will require ensuring that diverse populations have
access to postsecondary, vocational, and adult education. As an
increasingly volatile job market creates and eliminates jobs, federal
programs that train new workers or support workers who lose their jobs
must also be capable of responding to sudden changes in the economy.
Federal efforts to protect workers must account for changes in the
nature of work: membership in organized labor has declined, traditional
work arrangements are giving way to alternatives such as temporary
employment and teleworking, and lifelong service with a single employer
is becoming much less common.
Changes in workforce demographics pose additional challenges. The U.S.
labor force has more than doubled in the past 50 years but is now
growing at a much slower rate. Women, who helped fuel past workforce
growth, are expected to join the workforce at a constant rate, and baby
boomers are likely to begin retiring in large numbers in less than 5
years. As a result, those leaving jobs are expected to outnumber those
seeking jobs in certain industries. The tighter job market will
challenge federal efforts to ensure that employers have enough workers
with the right skills to help promote economic growth. This trend also
underscores the importance of addressing current pension, disability,
health, and immigration policies. With regard to the latter, it will be
important to consider whether the number of visas allowed for both
employment and education may affect long-term competitiveness, and our
ability to build bridges with other nations, their people, and their
cultures while addressing our national and homeland security needs.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
With rapid advances in technology, increases in global trade, and the
availability of highly educated foreign workers, U.S. workers
increasingly need advanced skills to remain competitive. Determining
what skills workers need and providing the right opportunities for
acquiring those skills will depend, in part, on building partnerships
among the multiple federal agencies and other key nonfederal players
that support employment training, industries, and employers. In
developing these partnerships, avoiding redundancy and ensuring
sufficient numbers of workers with the right skills will be crucial.
This challenge may become more difficult to address if labor markets
tighten over the next 20 years as the baby boom generation retires,
labor force participation rates for women remain flat, and immigrants
face potential difficulties in obtaining visas given heightened
security concerns. These shortages will have implications for the
broader economy and budget as well as the Department of Labor's efforts
to ensure that employers have sufficient numbers of workers with the
right skills.
Should federally funded training programs operated across multiple
federal agencies--9 federal agencies administer 44 such programs--be
better integrated and restructured in order to increase their cost
effectiveness?
How can existing policies and programs be reformed to ensure that
employers have sufficient numbers of workers with the right skills (for
example, modifying pension policies and regulations so that workers can
work part-time and still receive a pension)?
Many of the federal government's higher education policy tools--
especially its grant and loan programs--were designed decades ago to
meet the needs of traditional students in traditional academic
settings. However, they may not be well suited to an increasingly
diverse population that includes working adults, single parents,
students with disabilities, and increasing numbers of minorities. In
addition, these tools may not be structured to take advantage of the
potential for cost savings or widening access provided by distance
education technologies. The adoption of tax policy tools in the last
decade has resulted in some of these policies working at cross-purposes
to traditional grant and loan programs. For example, under the Higher
Education Act, students seeking federal grants and loans are penalized
for having saved funds to pay for their education, while the Internal
Revenue Code has encouraged saving by exempting individuals from
federal income taxation on interest income used to pay for
postsecondary education.
Is there a need for better coordination--or integration--among higher
education policy tools (such as grants, loans, and tax preferences) or
periodic examination of those policy tools that are not routinely
subject to periodic reauthorization or appropriation, such as the Hope
and Lifetime Learning tax credits, for which tax filers claimed nearly
$5 billion in 2002?
Higher education is increasingly global in nature as students study
outside their country of origin with greater frequency and universities
have become multinational institutions. While the United States has
long been the global leader in higher education--and the most desired
destination of foreign students seeking higher education--recent
graduate enrollments have fallen, and institutions in other countries
have captured an increasing share of the international student
population. The adoption of tighter security requirements has widely
been argued as contributing to the decreased enrollments of foreign
students in the United States.
How can the United States balance immigration policies--such as worker
and student visa programs--to address employers' need for workers with
particular skills, particularly math and science, the nation's need to
maintain global leadership in areas such as science and higher
education, and the nation's homeland security requirements?
The large achievement gap between students of different backgrounds has
persisted for four decades despite a significant federal investment in
educating disadvantaged students during that time. Many disadvantaged
children start school with fewer skills than their more advantaged
peers. Research shows that early intervention helps children succeed in
school and is particularly effective for the most disadvantaged
students. It is less clear whether current levels of coordination among
the myriad federal and state programs efficiently produce desired
results for particular subgroups of children. For example, systematic
information is not available on the total number of preschool children
receiving subsidies through various federal programs and/or
participating in state-funded preschool. This prevents a comprehensive
assessment of how fully the combination of federal and state programs
addresses preschoolers' needs. Recent legislative initiatives, such as
the No Child Left Behind Act with its emphasis on accountability, may
help change this trend and could be aided by retargeting of federal
investments. The Elementary and Secondary Education Act was passed in
1965 to provide assistance to states in educating disadvantaged
students through Title I, the largest federal program for elementary
and secondary education. However, since about 90 percent of school
districts receive these Title I funds to improve the education of
disadvantaged students, including a growing number with limited English
proficiency, an opportunity exists to improve targeting of funds to
school districts having the greatest number and percentage of
disadvantaged children.
Is there a need to reexamine the federal investment for early childhood
programs (e.g., funds provided under the Child Care and Development
Block grant and certain expenditures under Title I) to better
coordinate them and support state and local efforts to prepare
disadvantaged children to succeed in school?
In light of the increasing diversity of the nation's school age
population, should the Department of Education reexamine whether there
are opportunities to better target limited resources such as Title I
funds so that the needs of disadvantaged students including those with
limited English proficiency are better addressed?
Federal agencies that help employers provide safe, healthy, and
productive workplaces, such as the Occupational Safety and Health
Agency (OSHA), will have to adapt to both changes in workforce
demographics--the rising proportion of older workers in general and
immigrant workers in some occupations--and the rise of nontraditional
workplace arrangements, such as increased use of independent
contractors not covered by most worker protection laws.
Do recent changes in the labor force makeup and work arrangements--such
as the growing use of telework and the increasing number of independent
contractors--warrant a reconsideration of the Department of Labor's
focus, such as through OSHA, on traditional workplaces as part of its
efforts to ensure worker safety?
Financial Regulation and Housing Challenges for the 21st Century:
Increased global interdependency and rapid technological advancement in
the financial services industry pose significant challenges to U.S.
regulatory institutions charged with ensuring well-functioning markets
and to government agencies charged with managing loan guarantee or
mortgage insurance programs that, to some extent, compete with the
private sector. Globalization has become increasingly prevalent as
technology allows money to be moved around the world literally at the
push of a button, challenging regulators whose authority is defined by
national borders. Households can invest in companies worldwide and can
be defrauded or have their identities stolen from almost anywhere. The
financial services sector has been and continues to be one of the most
technologically sophisticated, whether in adapting technology to new
uses or providing incentives to develop state-of-the-art products to
solve a range of risk management problems. Lastly, immigration
patterns, demographic trends, and a range of quality-of-life issues are
important factors pushing up housing prices and related rents in
certain regions and local real estate markets, which quickly outpace
wage growth and put increasing strain on housing affordability in those
areas.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
The present federal financial regulatory structure evolved largely as a
result of periodic ad hoc responses to crises such as financial panics.
In the last few decades, however, the financial services industry,
especially as represented by the largest firms, has evolved, becoming
more global, more concentrated, complex, and consolidated across
sectors, and increasingly converging in terms of product offerings.
Multiple specialized regulators bring critical skills to bear in their
areas of expertise but have difficulty seeing the total risk exposure
at large conglomerate firms or identifying and preemptively responding
to risks that cross industry lines.
Is it time to modernize our financial regulatory system by
consolidating various federal regulatory agencies to promote a more
coherent and integrated structure, specify goals more clearly, and
provide sufficient resources along with the flexibility and incentives
to prospectively target resources to risk? To what extent can
specialized or consolidated regulators effectively address companywide
and systemic risks that arise from the potential failure of large,
diversified financial firms?
The need to improve consumers' financial literacy--their ability to
make informed judgments and effective decisions about the management of
money and credit--has become increasingly important. Consumers are
faced with an increasingly complicated array of options for managing
their personal finances and selecting investments and credit products.
In addition, available data show that many consumers are not adequately
saving for their retirement, despite concerns about the adequacy of
Social Security, private pensions, and retiree health benefits. At the
same time, unsecured consumer debt (especially credit card debt) has
grown rapidly in the past two decades, bankruptcy filings have
increased substantially, and predatory lending has become a growing
concern.
What role should the federal government take in improving financial
literacy among consumers, and what are the most effective strategies
for doing so? Where are there gaps or overlaps in federal financial
literacy programs? How many agencies should be involved? Can
disclosures be improved and what are the limitations of improved
disclosures in protecting consumers?
Government-sponsored enterprises (GSE) were created throughout the 20TH
century to address perceived market imperfections in financing housing,
agriculture, and higher education. With the federal benefits they have
been provided, the GSEs have linked local lending markets and national
capital markets. Two of the housing GSEs, Fannie Mae and Freddie Mac,
have played a critical role in establishing a nationwide secondary
mortgage market and increasing efficiency through greater
standardization of mortgage products. However, with rapid developments
spurred by technical change, the private marketplace has evolved
dramatically. While one GSE, Sallie Mae, has undergone privatization,
the other GSEs have used their special federally provided status and
related benefits to expand into new activities. These entities are also
taking on more risk and using more sophisticated and less transparent
risk management strategies. The public benefits and potential risks to
taxpayers from such expansion, as well as from the continued existence
of the GSEs, are a subject of great debate.
Is the current federal GSE regulatory framework appropriately
structured, and do the regulators have the necessary authorities to
address the risks of the GSEs? For example, should the Office of
Federal Housing Enterprise Oversight be combined with the other housing
GSE regulators into one comprehensive housing GSE regulator? What is
the GSE track record in achieving homeownership goals, especially for
low-income and protected groups? Do the GSEs continue to serve an
important public policy purpose? Should their mission focus be
restrained to limit expansion into new activities, or adjusted in any
way? Should they be privatized?
New information-based technologies are transforming the credit markets
at a rapid pace. Private sector financial institutions have been using
credit scoring and other tools to make finer distinctions among
potential risks, allowing them to measure and price risk more
effectively. Government lenders, loan guarantors, and insurers have
been slower to adopt similar tools for their decision making. While
federal credit programs can adopt some of the new technologies to
better measure risk, lags in such adoption increase the prospect of
adverse selection--if the private sector and GSEs take a larger share
of lower risk customers, government programs will be left to take on
the less well understood and potentially riskier remainder.
Do federal lending programs need to be reexamined to address the
increased risks and potential costs to the government? For example,
should the Federal Housing Administration (FHA) continue to fully
guarantee mortgages or move to a partial guarantee? If the cost of
credit is linked more closely with risk, what role might the federal
government play in reducing the cost of borrowing for those borrowers
with little or no credit history? For example, should FHA focus more of
its activities on those with little or no credit history?
Homeownership continues to be one of the primary means for many
families to accumulate wealth in this country, and is also thought to
contribute to stable and vital communities. While the overall
homeownership rate is at a historic high, in certain subpopulations the
rate lags behind. Numerous tools have been applied to increase home
ownership in the United States. Some of these tools are broadly based,
such as the tax deduction for home mortgage interest and GSEs and their
effect on mortgage interest rates. Both of these attract capital away
from other sectors of the economy and toward the housing sector. Other
tools are more narrowly focused on particular areas or populations,
such as the FHA mortgage insurance program and other loan programs
administered by the U.S. Department of Housing and Urban Development
(HUD) and USDA's Rural Housing Service (RHS). In addition, lenders and
others have developed mortgage products that permit households to
become homeowners sooner than would be the case otherwise.
To what extent do the tools and incentives increase spending on housing
rather than promote affordable housing? Can the tools and incentives
provided to homeownership be better targeted toward increasing home
ownership among selected groups with less capacity to access credit
markets? For example, should the cap on the mortgage interest deduction
be more precisely targeted?
What are the potential risks of recent homeownership initiatives for
borrowers, financial institutions, and taxpayers? Are the recent
increases in the home ownership rate sustainable; i.e., how will
families and financial markets cope with increases in mortgage interest
rates and slower growth in home equity?
A number of programs provided by HUD, RHS, and other agencies, as well
as other tools and incentives, are designed to provide decent rental
housing affordable to target populations. Over the years, the emphasis
of these incentives has shifted from the supply side (production
subsidies) to the demand side (vouchers). In recent years, most
construction of federally financed affordable rental housing has
resulted from tax provisions. In addition, a number of federally
assisted units are eligible to leave some older subsidy programs in the
next two decades. Finally, the costs of HUD's housing choice voucher
program continue to grow, driven in part by the difference between the
eligible population's income growth and the cost of privately owned
rental housing; this gap is increasing rapidly in certain markets. HUD
and its public housing agency partners have struggled to balance the
competing demands of maintaining assistance for a specified number of
households while controlling the increasing costs of doing so.
What are the advantages and disadvantages of demand-based subsidies
(vouchers) versus supply-based incentives (production or financing
subsidies) for providing affordable housing to target populations? To
what extent are these advantages and disadvantages dependent on local
housing market conditions? To the extent that market forces drive the
housing voucher's program cost, how might the Congress best reconcile
the competing demands of continued assistance to a targeted number of
households while addressing the long-term budget implications?
Health Care Challenges for the 21st Century:
Between 1992 and 2002, overall health care spending rose from $827
billion to about $1.6 trillion; it is projected to nearly double to
$3.1 trillion in the following decade. This price tag results, in part,
from advances in expensive medical technology, including new drug
therapies, and the increased use of high-cost services and procedures.
Many policymakers, industry experts, and medical practitioners contend
that the U.S. health care system--in both the public and private
sectors--is in crisis. In the public sector, long-term simulations of
the federal budget show a large and growing structural deficit
resulting, in large part, from known demographic trends and rising
health care costs. Since Medicare spending is driven by both these
factors, its burden on the budget and the economy will balloon--
tripling by 2035 and quintupling by 2075. One of the fastest-growing
segments of health care in both the public and private sectors is
prescription drugs. In 2004 the Medicare Trustees estimated that over a
75-year period the federal share of the new Medicare benefit would be
$8.1 trillion in current dollar terms. In the private sector, employers
and other private purchasers of health care services find that the
soaring cost of health insurance premiums poses a threat to their
competitive position in an increasingly global market, often
contributing to company decisions to outsource American jobs overseas,
to hire part-time rather than full-time workers, and to minimize cash
wage increases and pension costs.
Despite the significant share of the economy consumed by health care,
U.S. health outcomes continue to lag behind other industrialized
nations. The United States now spends over 15 percent of its gross
domestic product on health care--far more than other major
industrialized nations. Yet relative to these nations, the United
States performs below par in such measures as rates of infant
mortality, life expectancy, and premature and preventable deaths.
Moreover, evidence suggests that the American people are not getting
the best value for their health care dollars. Studies show that quality
is uneven across the nation, with a large share of patients not
receiving clinically proven, effective treatments. At the same time,
access to basic health care coverage remains an elusive goal for nearly
45 million Americans without insurance, with a growing percentage of
workers losing their employer-based coverage. Many more millions of
Americans are underinsured or have lost some of the benefits their
health plans previously afforded.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
Defining differences between needs, wants, affordability, and
sustainability is fundamental to rethinking the design of our current
health care system. Americans with good health insurance have access to
an array of advanced technology procedures at world-class health
facilities, but clinical studies suggest that not all of this care is
desirable or needed. Rising health costs are compelling both public and
private payers to examine whether these procedures can continue to be
financed without better accounting for their clinical effectiveness.
Additional health care spending over time will draw resources away from
other economic sectors and could have adverse economic implications for
all levels of governments, individuals, and other private purchasers of
health care.
How can we perform a systematic reexamination of our current health
care system? For example, could public and private entities work
jointly to establish formal reexamination processes that would (1)
define and update as needed a minimum core of essential health care
services, (2) ensure that all Americans have access to the defined
minimum core services, (3) allocate responsibility for financing these
services among such entities as government, employers, and individuals,
and (4) provide the opportunity for individuals to obtain additional
services at their discretion and cost?
The impact that federal health care outlays have on the federal budget
cannot be overstated. Medicare and Medicaid--entitlement programs for
which federal spending is mandatory--are consuming increasing shares of
the federal budget and shrinking the government's flexibility to pay
for other federal obligations, such as national and homeland security,
environmental cleanup, and disaster assistance. Today, Medicare and
Medicaid's combined share of the federal budget--at 20 percent--has
more than doubled in the last 2 decades. Moveover, long-term care for
chronic illness will be a growing challenge as the aged population
continues to grow. In addition, health care expenditures for the
Departments of Defense (DOD) and Veterans Affairs (VA) are increasing.
DOD's health care spending has gone from about $12 billion in 1990 to
about $26 billion in 2003--in part, to meet additional demand resulting
from program eligibility expansions for military retirees, reservists,
and the dependents of those 2 groups and for the increased needs of
active duty personnel involved in conflicts in Iraq, Bosnia, and
Afghanistan. VA's expenditures have also grown--from about $12 billion
in 1990 to about $24 billion in 2003--as an increasing number of
veterans look to the VA to supply their health care needs.
How can we make our current Medicare and Medicaid programs sustainable?
For example, should the eligibility requirements (e.g., age, income
requirements) for these programs be modified?
How can the federal government best leverage its purchasing power for
health care products and services?
What options are there for rethinking the federal, state, and private
insurance roles in financing long-term care?
How can the benefits, eligibility, and health delivery systems of VA
and DOD be optimally structured to ensure quality and efficiency? For
example, should changes in eligibility and the benefit structure of VA
and the military health system be considered?
With billions of federal dollars going to DOD and VA for health care,
what options are available to reduce spending growth through increased
collaboration in, and integration of, health care delivery between
those two agencies?
In the past several decades, the responsibility for financing health
care has shifted away from the individual patient. In 1962, nearly
half--46 percent--of health care spending was financed by individuals.
The rest was financed by a combination of private health insurance and
public programs. By 2002, the amount of health care spending financed
by individuals' out-of-pocket spending at the point of service was
estimated to have dropped to 14 percent. Tax preferences for insured
individuals and their employers have also shifted some of the financial
burden for private health care to all taxpayers. Tax policies permit
the value of employees' health insurance premiums to be excluded from
the calculation of their taxable earnings and exclude the value of the
premium from the employers' calculation of payroll taxes for both
themselves and employees. Health savings accounts and other consumer-
directed plans, which shift more of health financing to the individual,
also have tax preferences. These tax exclusions represent a significant
source of forgone federal revenue and work at cross-purposes to the
goal of moderating health care spending.
How can health care tax incentives be designed to encourage employers
and employees to better control health care cost? For example, should
tax preferences for health care be designed to cap the health insurance
premium amount that can be excluded from an individual's taxable
income?
What reforms will encourage the private health insurance market to
sufficiently pool risk and offer alternative levels of affordable
coverage to ensure that all Americans have access to essential health
care coverage? For example, are there alternatives to employer-based
coverage through professional organizations, trade associations, or
other entities?
The variation by geographic region in Americans' use of health care
services suggests, in part, quality and efficiency problems. Studies of
Medicare patients in different geographic areas have found that despite
receiving a greater volume of care, patients in higher use areas did
not have better health outcomes or experience greater satisfaction with
care than those living in lower use areas. Public and private payers
are experimenting with payment reforms designed to foster the delivery
of care that is clinically proven to be effective. Ideally, identifying
and rewarding efficient providers and encouraging inefficient providers
to emulate best practices will result in better value for the dollars
spent on care. However, implementing performance-based payment reforms,
among other strategies, on a systemwide basis, will depend on system
components that are not currently in place nationwide--such as
compatible information systems to facilitate the production and
dissemination of medical outcome data, safeguards to insure the privacy
of electronic medical records, improved transparency through increased
measurement and reporting efforts, and incentives to encourage adoption
of evidence-based practices. These same system components would be
required to develop medical practice standards, which could serve as
the underpinning for effective medical malpractice reform. Policymakers
would need to consider the extent to which federal leadership could
foster these system components.
How can technology be leveraged to reduce costs and enhance quality
while protecting patient privacy?
How can industry standards for acceptable care be established and
payment reforms be designed to bring about reductions in unwarranted
medical practice variation? For example, what can or should the federal
government do to promote uniform standards of practice for selected
procedures and illnesses?
How can a medical information infrastructure be fostered, complete with
privacy safeguards, that will help reduce the occurrence of medical
errors and malpractice litigation and will furnish health outcomes data
to better inform consumer choice?
What reforms will help control health care costs associated with
medical liability without undercutting provider accountability?
The attacks of September 11, 2001, and subsequent anthrax incidents--as
well as disease outbreaks, such as the West Nile virus and SARS--have
elevated to priority status concerns about the quality and availability
of the nation's public health resources at the federal, state, and
local levels. In recent years, it has been apparent that, despite
improvements, the nation's public health infrastructure remains too
fragmented and uncoordinated and lacks the capacity to effectively
manage a large epidemic or bioterrorist attack. Since fiscal year 2002,
substantial federal funding has gone to state and local governments to
improve disease surveillance systems, laboratory capacity,
communication systems, and workforces. Federal funds directed at basic
biomedical research to improve treatment and vaccinations for
infectious diseases caused by biological agents have also been
substantial. In an era of growing demand and shrinking resources,
however, it may be prudent to determine how best to target the nation's
public health dollars.
What are the most effective strategies for tracking emerging infectious
diseases and targeting resources to prepare for treating these
diseases?
How can our international agreements encourage the equitable sharing of
financial responsibility for developing pharmaceuticals and other
medical technologies and eradicating AIDS and other worldwide disease
outbreaks? For example, what can be done to facilitate more
international burden-sharing for prescription drug research and
development currently financed through public expenditures and higher
U.S. prices?
Global interdependence and efficient transportation systems have
heightened U.S. vulnerability to a broad range of infectious diseases,
such as SARS and avian influenza. Moreover, HIV/AIDS, tuberculosis, and
malaria are increasingly viewed as a threat to economic growth and
political stability in many nations. The number of people with HIV/AIDS
will grow significantly by 2010, driven by the spread of the disease in
five populous and strategically significant countries--China, India,
Nigeria, Russia, and Ethiopia. To combat the spread of these diseases,
the United States pursues multiple approaches, including partnerships
with international organizations, such as taking the lead in support of
the World Health Organization (WHO). At the same time, the United
States also supports numerous bilateral programs to strengthen other
countries' health care systems. The increasingly global spread of
infectious diseases presents a challenge to these approaches and
prompts the need to reexamine the balance between and possible
integration of these approaches.
Should the United States reexamine its central role in supporting WHO
in global efforts to control the spread of emerging diseases such as
SARS and encourage other nations to provide more support to WHO with
their personnel and resources? Do U.S. commitments to infectious
disease interventions abroad, such as those for HIV/AIDS, need to be
reexamined to better ensure human well-being, economic growth, and
political stability in many nations? For example, can better
coordination or integration of current multilateral and bilateral
approaches to combating disease achieve greater effectiveness and
efficiency?
Homeland Security Challenges for the 21st Century:
The terrorist attacks of September 11, 2001, evoked with stunning
clarity the face and intent of enemies very different from those the
nation has faced before--terrorists such as al Qaeda, willing and able
to attack us in our territory using tactics designed to take advantage
of our relatively open society and individual freedoms. In the 3 years
since the attacks, the nation has begun confronting the enemy abroad
and domestically at the federal, state, local, and private levels. For
example, the Congress enacted legislation creating the Department of
Homeland Security (DHS) and strengthening other security measures in
law enforcement and border and transportation security. Military action
destroyed many terrorist sanctuaries and support networks. The new
Northern Command provided additional resources and authority for
homeland defense. Law enforcement disrupted terrorist cells and worked
with international authorities to identify and disrupt other terrorist
threats and target terrorist financing. National strategies, such as
the National Strategy for Homeland Security, set initiatives in many
homeland security areas. A series of homeland security presidential
decision directives provided further guidance and objectives in areas
such as critical infrastructure protection, national warning systems,
and national preparedness goals and metrics.
However, the threat of terrorism will persist well into the 21st
century. Terrorists are dispersed in loosely organized, self-financed,
international networks of terrorists, some of which are cross-national.
Domestic terrorist groups remain a security threat, though currently to
a much lesser extent than the international terrorist movement. We must
fundamentally reexamine our approaches to terrorism and homeland
security--the nature of the terrorist threat, its long-term impact, and
the impact of our strategies. While most believe we are safer than we
were on the day of the September 11 attacks, we still are not safe.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
Defining an acceptable, achievable (within constrained budgets) level
of risk is an imperative to address current and future threats. Many
have pointed out, as did the Gilmore and 9/11 Commissions, that the
nation will never be completely safe and total security is an
unachievable goal. Risks have been exposed in many aspects of normal
life, with perhaps many of the greatest dangers posed in areas that
Americans have simply taken for granted, such as air and water
supplies, food production chains, information systems, airports and
train stations, ports, borders, and shopping malls. However, we cannot
afford to protect everything against all threats--choices must be made
about protection priorities given the risk and how to best allocate
available resources. While risk-based allocation decision-making is
still evolving, we must take a more systematic, reasonable approach to
allocating resources. Adoption of management system standards, such as
the National Fire Protection Association 1600 standard for national
preparedness, can also aid in assessing risk and defining key homeland
security activities.
What is an acceptable level of risk to guide homeland security
strategies and investments, particularly federal funding? For example,
how should risk be managed in making sound threat, risk, and
criticality assessments, developing countermeasure options, and
implementing those options considered the most effective and the most
efficient? What criteria should be used to target federal funding for
homeland security in order to maximize results and mitigate risk within
available resource levels?
Confronting asymmetric threats requires new international and domestic
strategies and related tactics on our part. International and domestic
terrorists will not be defeated by conventional force projection and
weapons systems, law enforcement, or infrastructure protection alone.
Instead, our tactics will hinge more on intelligence, diplomatic
efforts, and domestic partnerships across many actors. Understanding
the underlying causes of terrorism--the isolation and alienation that
feeds violence--and focusing on mitigating those causes is likely to be
the only way to truly diminish the levels of terrorism globally and
domestically. For example, the international terrorist movement draws
on a hatred of what is seen as the corrupting influences of western
culture and values. Instigators of terrorism can find recruits for
violent actions among those who see themselves with little or nothing
to lose. Thus, efforts to confront ideological differences and offer
hope for the future are essential to the long-term effectiveness of
combating terrorism. Public diplomacy will be challenged to target and
better reach audiences in areas where new threats are emerging.
What new international and domestic strategies and related tactics will
effectively confront the asymmetric tactics we now face and, for the
longer term, address the root causes of terrorism? For example, how can
we best anticipate, and thus counter, asymmetric threats such as
suicide attacks, biological and chemical terrorism, and cyber attacks?
What approaches will address the root causes of terrorism, whether from
domestic or international groups? For example, should the current U.S.
approach to overseas broadcasting be realigned to target and better
reach audiences in areas where new threats are?
Establishing effective federal, state, and local government; private
sector; nongovernmental; and nation-state partnerships is crucial to
addressing risk across the nation. The Constitution requires the
federal government to "provide for the common defense" and to "repel
invasions." Many would interpret those requirements to justify homeland
security and related counterterrorism activities as an inherently
governmental obligation. However, the vast majority of the targets that
require protection are those owned by the private sector--critical
infrastructure such as water and power sources and information systems.
Many of the emergency response and recovery capabilities are those with
nonfederal or not-for-profit entities, such as public health
facilities.
Are existing incentives sufficient to support private sector protection
of critical infrastructure it owns, and what changes might be
necessary? How can intelligence and information on threats be shared
with other levels of government and other critical entities, yet be
held secure?
Measuring progress in the current war on terrorism is very much a work
in progress. Measures in use--such as the number of terrorists detained
or arrested worldwide or kept on the run--may be extremely limited or
meaningless without knowing if such actions seriously destroy, degrade,
or disrupt terrorists' plans or seriously degrade or dissuade their
recruitment efforts and community support. The apparent lack of
international terrorist attacks within our borders since the September
2001 attacks suggests positive results from our homeland security
actions, but it may also simply reflect terrorist choice of the time
and place of another attack. Small-scale domestic terrorist attacks
still occur. Fully addressing the range of threats posed by terrorism
and its causes requires more sophisticated ways to gauge progress.
What is the most viable way to approach homeland security results
management and accountability? For example, how should progress in the
current war on terrorism be measured and assessed? What are the
appropriate goals for prevention, vulnerability reduction, and response
and recovery? Who is accountable for the many components of homeland
security when many partners and functions and disciplines are involved?
How can these actors be held accountable and by whom?
Traditionally, state and local governments have had the primary
responsibility for financing first responders' preparation for and
response to disasters, whether natural or manmade, which are generally
local in their cause and effect. Prior to September 11, 2001, the
federal government's role was limited primarily to providing guidance,
some grants for planning, mitigation, and equipment, and disaster
response and recovery assistance after such major disasters as
hurricanes, earthquakes, and floods. Since September 11, 2001, the
federal government has provided billions of dollars to state and local
governments for planning, equipment, and training to enhance the
capabilities of first responders to respond to both smaller scale
natural disasters and terrorist attacks. However, the federal financial
assistance provided in the last several years has not been guided by a
clear risk-based strategic plan that outlines the role of federal,
state, and local governments in identifying, enhancing, maintaining,
and financing critical first responder capabilities for emergencies.
Moreover, while planning and assistance has largely been focused on
single jurisdictions and their immediately adjacent neighbors, well-
documented problems with first responders from multiple organizations
to communicate at the site of an incident and the potential for large
scale terrorist incidents have generated a debate on the extent to
which first responders should be focusing their planning and
preparation on a regional and multi-governmental basis. In addition, no
standards have been established on which to determine the equipment,
skills, and capacities that first responders need given the risks
individual locations may face. In the absence of risk-based performance
standards that could be used to establish baseline capabilities and
critical capacities, state and local governments have used their own
criteria for determining how federal grant funds should be spent. The
absence of standards has also made it difficult for first responders to
define the gap between what is and what should be and measure their
progress in achieving defined performance goals.
What should be the role of federal, state, and local governments in
identifying risks--from nature or man--in individual states and
localities and establishing standards for the equipment, skills, and
capacities that first responders need?
What costs should be borne by federal, state, and local governments or
the private sector in preparing for, responding to, and recovering from
disasters large and small--whether the acts of nature or man,
accidental or deliberate?
To what extent and how should the federal government encourage and
foster a role for regional or multistate entities in emergency planning
and response?
International Challenges for the 21st Century:
The United States faces rising challenges and threats to its national
and economic security. These threats include terrorism, regional
conflicts, and global instability sparked by growing gaps between the
"haves" and "have nots," as well as by corruption, ethnic hatred, and
disease. At the same time, the world grows increasingly interconnected
through more open markets, rapidly developing technology, and efficient
transportation systems.
In this environment, advancing and protecting U.S. international
interests requires the use of all available instruments of power--
military, diplomatic, and economic. The United States has periodically
employed its armed forces and civilian agencies, often in conjunction
with U.S. allies and the international community, to address various
threats to regional and international peace and stability. The United
States also maintains a vast network of embassies and consulates at
about 260 locations around the world, staffed by about 60,000 U.S. and
foreign national employees, to carry out foreign policy and public
diplomacy programs. In addition, the United States seeks to advance its
interests by participating in a wide variety of multilateral
organizations. While trying to anticipate and address emerging threats,
the U.S. government also seeks to promote foreign policy goals,
national and economic security objectives, sound trade policies, and
other strategies to advance the interests of the United States and its
trading partners and allies. The 21st century will bring increased
challenges in balancing security concerns with the desire to maintain
strong economic and cultural ties essential to domestic well being.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
The continuing proliferation of biological, chemical, and nuclear
weapons and delivery systems poses serious threats to the security of
the United States and its allies. The increasing likelihood that a
rogue regime or terrorists will attempt to threaten or attack the
United States or its allies with weapons of mass destruction (WMD) will
challenge the U.S. nonproliferation and counterproliferation efforts
and preparations for the consequences of WMD use. For example, the
great majority of Russian chemical weapons remain vulnerable to theft
or diversion by terrorists or rogue states.
Do U.S. efforts to reduce or prepare for such WMD threats need to be
reexamined? For example, does U.S. nonproliferation assistance,
currently provided almost exclusively to Russia, need to be extended to
other countries, such as Libya, that have WMD assets that must be
eliminated or secured? What U.S. and international responses are needed
to better deal with the increased security threats posed by rogue
states and terrorists seeking to acquire and use WMD? How can the
United States better work with our allies and others to prevent the
spread of WMD?
Protecting U.S. strategic interests in the face of new tests has
presented challenges for alliances established decades ago. For
example, serious disagreement with North Atlantic Treaty Organization
(NATO) allies France and Germany over U.S. policy in Iraq exposed
fundamental differences over how the alliance should respond to
security threats. Conflict interventions to make or keep peace,
stabilize failed states, and end terrorist regimes have dominated U.S.
foreign policy actions in recent years. Such interventions will likely
continue to play a prominent role in efforts to stabilize regions where
U.S. interests are undermined or threatened.
Do we need to reexamine the U.S. force structure used for nation
building and peacekeeping activities by the United Nations, NATO, and
other international institutions? Should the United States have a
separate force devoted to such functions? What role should the United
Nations, NATO, and other international institutions perform in
connection with such functions?
Increasing global interdependency and shifting trade patterns create a
range of challenges for policymakers. The high level of U.S. trade
deficits, rapid increases in imports from nations such as China, and
the increase in services trade have led to questions about the best way
to ensure that trade is fair and contributes to the well-being of the
American people. To date, new trade concerns, such as offshoring of
high-tech services and currency interventions, have generally not been
dealt with directly by traditional U.S. trade policy tools, such as
trade agreements, and will challenge policymakers to develop new
strategies for dealing with them. Moreover, the globalization of
economic activity is bringing an increasing share of the U.S. economy
under the domain of international agreements. Economic activity
historically viewed as isolated from international trade agreements,
such as local government procurement practices, may come under the
scrutiny of other parties to the trade agreements, and increasingly be
subject to their enforcement machinery.
Does the U.S. portfolio of international trade policy tools, such as
its heavy reliance on industry-specific trade agreements, need to be
reexamined for its effectiveness and relevance in addressing new trade
concerns such as offshoring and currency interventions?
What types of policy commitments and programs, such as agricultural
subsidies and import restrictions on textiles, may need to be
reexamined for their consistency with broader international trade
goals?
Although the United States' commitment to foreign aid has spanned more
than half a century, questions persist about the effectiveness of
bilateral U.S. aid to developing countries and multilateral aid
provided by international financial institutions. The United States
recently established a new foreign assistance program, the Millennium
Challenge Account (MCA), to function alongside the U.S. Agency for
International Development. MCA's goal is to reduce global poverty
through economic growth in countries that govern justly, invest in
their people, and encourage economic freedom. However, like other
foreign assistance efforts, MCA will face challenges such as
inconsistent political will, ineffective donor coordination, and
limited capacity of recipient nations to absorb donor resources.
Moreover, few, if any, countries that have received bilateral aid have
significantly reduced poverty, and rapid advances in technology have
caused poorer countries to fall further behind. Regarding multilateral
aid, the World Bank and International Monetary Fund (IMF) did not
prevent or quickly resolve the recent financial crisis in Argentina,
although Argentina had implemented reform programs funded by those
institutions since at least the early 1990s. Similarly, despite 9 years
of ongoing efforts by the World Bank and IMF, the debt problems of the
poorest nations will likely continue for decades.
Should the United States reevaluate its approach to reducing world
poverty? For example, what role should continued bilateral U.S. aid or
support of loans and grants through multilateral agencies play? Should
certain existing multilateral development loans be forgiven? Are
international financial institutions structured to achieve the long-
term financial health and stability of the countries they seek to help?
U.S. embassies and consulates are on the front lines, conducting
diplomatic activities and operating programs that are critical to
achieving a wide range of foreign policy interests. In addition to
interacting with foreign governments, embassies and consulates conduct
public diplomacy, promote trade, screen visa applicants wishing to
visit the United States, assist American citizens overseas, and play a
key role in fostering military alliances and providing military and
economic aid. Security priorities after 9/11 have further complicated
their mission. The demands placed on embassies and consulates by a
rapidly changing world challenge their existing ways of organizing
themselves and matching their resources and skills to meet those
demands. While there have been attempts to review how overseas resource
allocations are made, the rapidly changing world prompts the need to
continually reexamine mission priorities to determine the "who, where,
and when," as well as the mix of U.S. government and nongovernmental
personnel that should be overseas. Concerns over security for staff
assigned overseas and fiscal pressures will also prompt the
consideration of alternative ways of doing business overseas, such as
streamlining or outsourcing functions and performing functions from the
United States or other remote locations.
How can the U.S. presence overseas be rationalized to "right place" as
well as "right size" embassies and consulates and ensure secure and
cost-effective overseas operations while continuing to meet key foreign
policy objectives and priorities?
Natural Resources, Energy, and the Environment Challenges for the 21st
Century:
Following passage of major environmental legislation in the 1970s, the
nation made a number of gains in its air and water quality, and
expressed a commitment to improved management of our natural resources.
As the nation moves into the 21st century, it is becoming increasingly
apparent that the current approach to natural resource use (including
energy) and environmental protection may need modification to
successfully address the long-term stresses affecting so many of our
nation's and the world's natural ecosystems. Evidence of this stress
can be found on many fronts, including depleted fresh water supplies,
deteriorating fisheries, multiple energy crises, and accelerated loss
of biodiversity. Similarly, the globalization of agribusiness coupled
with increasing concentration in the nation's agriculture sector raises
questions about whether the historic agriculture subsidy and support
structures remain appropriate.
In this context, the broad, long-term challenge is determining how the
nation can reconcile the desire for consumption today with the need to
protect resources to sustain the future. From the available evidence,
there is reason to reexamine existing programs to determine the balance
between supporting the needs of today's economy with our stewardship
obligations to the generations to come. Federal regulatory and economic
programs, policies, and approaches devised and implemented decades ago
may need to be reassessed, and new approaches, such as pricing
strategies, need to be considered to ration scarce resources. Natural
resource, energy, and environmental concerns are inextricably linked.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
Land use planning practices that do not adequately consider land,
water, and petroleum availability can contribute to sprawling
development and a host of problems. Such practices have had a part in
automobile usage reaching new highs each year, open space dwindling,
air pollution becoming more difficult to control, and the reliance on
imported oil continuing to climb. Likewise, population growth,
particularly in arid regions of the country, may soon face a limiting
obstacle--the availability of fresh water. In fact, water managers in
36 states expect water shortages to occur within the next 10 years
under even normal conditions. In many parts of the country, drought
conditions are giving an early indication of what may occur on a much
more widespread basis in the future. Federal transportation and other
incentive structures have played a role in current land use planning
results. In this context, it may be time to examine land use planning
and associated federal incentive structures to ensure that they are not
having unintended consequences. Relatedly, federal natural resource
allocation and usage decisions are distorted when the federal
government does not charge fair market value when offering these
resources for sale. Whether it be oil and gas, timber, grazing rights,
or water, the federal government has a history of selling its assets at
much lower prices than others or perhaps even below the cost of
delivering the asset. When this occurs, the federal government
shortchanges the Treasury and distorts markets for these resources.
Can alternative federal approaches to transportation, land management,
and water policies be adjusted to better promote sustainable management
of our nation's land and water resources? For example, given projected
water supply shortages, is there a need to reassess the balance between
urban expansion in water-scarce regions and continuance of existing
crop irrigation practices? Additionally, should steps be taken to
ensure that user fees commensurate with fair market value or the costs
of providing services are collected when federal natural resources are
sold?
The nation's energy consumption is significant and growing. Today,
according to our analysis of U.S. Department of Energy (DOE) data,
total U.S. energy consumption is equivalent to about 790 billion
gallons of gasoline per year, which is nearly 2,800 gallons consumed by
every man, woman, and child each year. Energy consumption is expected
to increase about 30 percent over the next 20 years. As a result of
these ever-increasing demands, energy reliability, affordability,
efficiency, and sustainability remain a concern. Not only has our
nation experienced multiple energy crises, but our systems remain
perpetually on the cusp of critical supply/demand imbalances. These
imbalances can quickly lead to price volatility that burdens consumers
and the industry and adversely affects our economy. While there are
differences of opinion as to how long the nation can rely on finite
fossil energy supplies to meet the majority of its energy needs, there
seems little doubt that at some point the nation will need to
transition to alternatives. Enhanced conservation could delay this
transition point, but many believe that without a vision for a
sustainable energy future, our nation's energy markets in the 21st
century will likely continue to experience the turmoil of the past with
increasing frequency. The recent collapse of the energy grid in
northeastern and midwestern states and the cascading blackouts that
followed, as well as the increases in gasoline and heating oil prices,
may be early warning signs of more pressing problems to come. In this
context, in addition to aggressively pursuing opportunities to increase
production, it may be time to consider placing a similar emphasis on
and investment in demand reduction strategies and development of
alternative or renewable energy supplies and technologies. Preparing
the nation for its long-term energy future may be dependent on an
approach that adequately balances all its options.
To what extent are federal energy policies and incentive structures
adequately preparing the nation to satisfy its energy needs over the
long term? What is the appropriate balance between efforts to promote
enhanced production of fossil fuels, alternative renewable energy
sources, and energy conservation?
While the nation has made great strides in improving the quality of our
air and water, questions are increasingly being raised about whether
the current policies, strategies, regulatory approaches, and
organizational structures--that in some cases were put in place in the
1970s--will be up to the challenge of protecting our air and water
quality in the decades to come. Our nation's urbanized areas are
continually battling to keep air pollution in check, and the regional
dimensions of air-quality problems are being increasingly exposed by
concerns over the spread of pollution from coal-fired power plants and
other industrial sources in the Midwest into the Northeast states.
Likewise, it continues to be a challenge to restore and protect
national treasures such as the Chesapeake Bay and the Great Lakes.
Despite hundreds of millions of dollars being spent, efforts to restore
these waters to healthy conditions are not showing as much progress as
hoped. In addition, the nation faces a more than $150 billion burden
over the next two decades to repair, replace, and upgrade the nation's
over 55,000 community drinking water and wastewater systems to protect
public health. A reexamination of current approaches to address these
problems may be in order to better achieve overall environmental
outcomes while providing more flexibility in achieving them. The
establishment and institutionalization of a science-based, widely
accepted set of environmental indicators to improve the quality of air
and water quality data is an essential prerequisite to evaluate
alternative approaches.
Does the existing federal regulatory approach for controlling air and
water pollution need to be modernized to generate improved results? In
particular, can the current prescriptive "command and control"
regulatory structure be changed to more cost effectively reduce
pollution and better protect the environment?
Is there a way for the federal government to implement environmental
regulations more efficiently and effectively by taking into account the
cumulative costs of multiple environmental regulations to state, local,
and tribal governments while at the same time ensuring benefits to
human health and the environment?
It is also unclear whether current agricultural practices and the
federal policies that have promoted them remain appropriate and
sustainable. When federal agricultural policies were first implemented,
the United States was a largely rural nation. Farming and its related
federal support were the lifeblood of many rural communities. Today,
the U.S. agricultural sector is dominated by a relatively small number
of agribusiness giants and very large farming operations that operate
globally. For example, while there are still over 2 million farms in
the United States, less than 10 percent of them provide 70 percent of
the nation's food and fiber and account for the vast majority of the
$60 billion worth of agricultural exports that help sustain the sector.
Federal support for agriculture exceeds $25 billion annually. Critics
question the need for this level of subsidies, which mostly go to
larger producers, particularly considering the government's current and
projected fiscal imbalance. In addition, while the Congress recently
passed legislation to phase out support to tobacco growers, large
subsidies remain for a number of crops that are often criticized in the
international marketplace as being anticompetitive. Furthermore,
farming and livestock operations have become highly concentrated, and
the associated fertilizer, pesticide, and animal waste run-off are
being increasingly recognized as major contributors to water pollution.
Finally, rural communities have changed as well. Farming is no longer
the dominant activity in many rural communities, and many of the large-
scale electrification and related infrastructure development programs
are logical candidates for reexamination. Accordingly, new approaches
to agricultural programs and policies better oriented to modern
challenges may be in order.
Do current federal agricultural policies and programs, which largely
rely on subsidies, remain relevant to the modern agricultural sector?
In addition, are current policies contributing to unfair trade
practices?
Can these policies and programs be sustained? Could alternative
approaches produce desired results more economically, effectively, and
efficiently? For example, could the federal crop insurance program be
expanded to play a larger role in the federal safety net for farmers?
Are government supports for or ownership of energy production and
electricity generation in rural areas and particular regions still
necessary given fundamental changes in the past 50 years in energy
market infrastructure?
According to the combined estimates from DOE, DOD, and the U.S.
Environmental Protection Agency (EPA), it could cost in excess of $500
billion in current dollars to clean up (1) the radioactive wastes
accumulated during 50 years of nuclear weapons production at DOE
facilities, (2) unexploded ordnance, discarded munitions, and related
contamination at current or former U.S. military sites, and (3)
hundreds of thousands of Superfund and other hazardous waste sites
created by private sector activities. Some of the contamination in
these sites may take 50 to 70 years to clean up; at other sites, the
contamination is so extensive that it may be irreversible and the site
may be irretrievable. Frequently, the progress in cleaning up these
sites does not meet expected time frames and the costs dramatically
exceed available funding levels. For example, DOE's projects for
treating and storing radioactive and hazardous waste, a by-product of
nuclear weapons production at DOE facilities, are estimated to cost
more than $140 billion and could take decades to complete. Furthermore,
the current approaches to cleaning up DOE, DOD, and EPA sites are not
consistent and, in some cases, not especially efficient or effective;
development of more innovative incentives and approaches may be needed.
The enormity of this task, combined with the fiscal constraints facing
the nation, raises questions about whether existing cleanup standards
are realistic.
Does the current pace and cost of nuclear and hazardous materials
cleanup activities at DOE, DOD, and EPA sites suggest the need for
alternative approaches to address these issues? Can the nation afford
to cleanup radioactive and hazardous waste sites to the standards
currently being applied? For example, are there opportunities for DOE
to apply risk factors, just as EPA assigns risk factors to Superfund
sites, to determine the most cost-effective approach to clean up a
site, possibly resulting in disposal of more waste at current sites
rather than moving it to the planned underground repository?
Retirement and Disability Policy Challenges for the 21st Century:
One of the great American achievements of the 20TH century was the
development of a comprehensive national social insurance system. A core
element of the system was a sturdy retirement component--with Social
Security as a foundation, supplemented by a private pension system and
individual savings arrangements--which sought to conquer the long-
standing economic fear of poverty in old age. For the last half
century, millions of American workers were able to look forward to
their retirement as a time of dignity, respect, and security. The
Congress later extended these social insurance protections to those
workers who were unable to engage in gainful economic activity because
of disability. Indeed, insuring workers and their families from the
potentially devastating income loss caused by unexpected injury,
illness, or death removed another great risk to their economic well-
being.
The challenges facing retirement and disability programs are long-term,
severe, and structural in nature. A successful policy response to these
challenges will require a fundamental and comprehensive reassessment of
each of the key components of our national retirement and disability
system.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
Social Security faces severe, long-term, structural financing
challenges that if not addressed, could lead to the depletion of its
trust funds. The unfunded obligation for the Old Age, Survivors, and
Disability Insurance (OASDI) trust funds for the next 75 years is $3.7
trillion in present value as of 2004. Projected tax income to the OASDI
trust funds will begin to fall short of outlays in 2018 and, by 2042,
trust fund balances will be insufficient to fully finance benefits
promised under the current program. Social Security faces this long-
term financing shortfall largely because of several concurrent
demographic trends, namely that people are living longer, spending more
time in retirement, and having fewer children. For example, average
time in retirement grew from 11.5 years in 1950 to 18 years for the
average male worker as of 2003. Women are also having fewer children.
In the 1960s, the fertility rate was an average of 3 children per
woman, but by 2030 it is expected to fall to 1.95--a rate that is below
replacement. Taken together, these trends threaten the financial
solvency and sustainability of Social Security as well as the federal
budget as a whole. Social Security could be brought into balance over
the next 75 years in various ways, including an immediate increase in
payroll taxes of 15 percent or an immediate reduction in currently
promised benefits of 13 percent (or some combination of the two).
Ensuring the sustainability of the system beyond 75 years will require
even larger changes. Encouraging older workers to extend their labor
force participation can also improve program solvency while
contributing to overall economic growth. Lastly, highlighting the need
for early action, even greater adjustments in scheduled benefits and
revenues will be required the longer Social Security's financial
challenges remain unaddressed.
How should Social Security be reformed to provide for long-term program
solvency and sustainability while also ensuring adequate benefits (for
example, increase the retirement age, restructure benefits, increase
taxes, and/or create individual accounts)?
How can existing policies and programs be reformed to encourage older
workers to work longer and to facilitate phased retirement approaches
to employment (for example, more flexible work schedules or receiving
partial pensions while continuing to work)?
Serious weaknesses have become manifest in our nation's private pension
system. Despite sustained large federal tax subsidies, total pension
coverage continues to hover at about half of the total private sector
labor force. The number of traditional defined benefit plans in which
employers rather than employees bear the risk of investment has been
contracting for decades, and recent plan terminations by bankrupt
sponsors of large defined benefit plans have threatened the solvency of
the Pension Benefit Guaranty Corporation (PBGC), the federal agency
that insures certain benefits under such plans. Recognizing the long-
term challenges facing PBGC, GAO has placed PBGC's single-employer
pension program on its high-risk list of programs needing further
attention and congressional action. As of the end of fiscal year 2004,
the agency's single-employer pension program registered a net negative
accumulated position of $23.3 billion. While growth in the number and
coverage of defined contribution plans--where each worker has an
individual account that receives contributions--has somewhat mitigated
the decline of more traditional defined benefit plans, these plans have
also experienced problems. Many workers covered by defined contribution
pension plans continue to choose not to participate, potentially
leaving them with an inadequate retirement income. The risk burden of
defined contribution plans requires individual employees to be
knowledgeable about investment and other retirement decisions, yet
information and education are not always available. Large holdings of
company stock in such plans may add to employees' risk that their
retirement savings will be inadequate to provide levels of income
needed in retirement. Finally, workers receiving their retirement
benefit in a lump sum and the ability to withdraw or borrow money from
retirement saving plans prior to retirement to supplement current
consumption can drain workers' accounts of needed benefits well before
retirement. Policymakers will need to consider how to best encourage
wider pension coverage and adequate and secure pension benefits that
are preserved for retirement purposes for the current and the future
labor force, and how such pensions might best interact with changes to
the Social Security program.
What changes should be made to enhance the retirement income security
of workers while protecting the fiscal integrity of the PBGC insurance
program (for example, increasing transparency in connection with
underfunded plans, modifying PBGC's premium structure and insurance
guarantees, reforming plan funding rules, or restricting benefit
increases and the distribution of lump sum benefits in connection with
certain underfunded plans)?
How can existing policies be reformed to encourage income preservation
strategies so that retirement income lasts an individual's entire life
(for example, benefit annuitization)?
Meanwhile, federal disability programs, such as those at the Social
Security Administration (SSA) and the Department of Veterans Affairs
(VA), have experienced significant growth over the past decade and are
expected to grow even more as increasing numbers of baby boomers reach
their disability-prone years. Moreover, the composition of the
disability rolls has changed significantly, with a larger proportion of
beneficiaries with mental impairments receiving benefits today than in
the past. At the same time, recent scientific advances as well as
economic and social changes have redefined the relationship between
impairments and work. Advances in medicine and technology have reduced
the severity of some medical conditions and have allowed individuals to
live with greater independence and function in work settings. Moreover,
the nature of work has changed in recent decades as the national
economy has moved away from manufacturing-based jobs to service-and
knowledge-based employment. Given the projected slowdown in the growth
of the nation's labor force, it is imperative that those who can work
are supported in their efforts to do so. Yet federal disability
programs remain mired in concepts from the past and are poorly
positioned to provide meaningful and timely support for workers with
disabilities. Further, in light of a congressionally established
commission to study the appropriateness of veterans' benefits, VA may
be faced with the need to reform its eligibility criteria. Over the
last decade, GAO has built a body of work examining these issues and,
more recently, has called for the fundamental transformation and
modernization of federal disability programs, including SSA's
Disability Insurance and Supplemental Security Income programs and VA's
disability programs. In January 2003, GAO added modernizing federal
disability programs to its high-risk list.
How can federal disability programs, and their eligibility criteria, be
brought into line with the current state of science, medicine,
technology, and labor market conditions (for example, which jobs are
based on knowledge and skills rather than on strength and endurance)?
How can such programs better facilitate the participation of people
with disabilities in the workforce and society (for example, earlier
intervention in providing vocational rehabilitation or assistive
technology devices such as voice synthesizers or standing wheelchairs)?
What options could be considered for reforming VA's current disability
benefits structure for veterans (such as revisiting the definition of
service-connected benefits) that would ensure appropriate and adequate
benefits?
Scientific and Technological Innovation Challenges for the 21st
Century:
For society and government, developments in science and technology
present great opportunities to improve the quality of life, the
performance of the economy and the government, and the relationship of
government to its citizens. Advances in science and technology in the
United States have historically been fueled by combined public and
private sector research and development investments of about $284
billion annually. These investments, along with the nation's strong
research and development infrastructure and intellectual property
protections, have long ensured the United States a leadership position
in the development and commercialization of scientific advances and
have helped nurture entrepreneurship and dissemination of information
on new technologies. The benefits of applying technological innovation,
such as information technology, in the United States, have not only
resulted in many positive outcomes but have also presented many new
challenges, concerns, and vulnerabilities.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
As the pace of innovation has quickened over the past 30 years,
competition in the global economy has also accelerated and other
nations are increasingly gaining in their ability to commercialize
technological advances, educate highly skilled technical workforces,
and offer world-class research opportunities to the best and brightest
minds. These strides in global scientific and technological innovation
are beginning to challenge the United States' preeminent position.
How can the federal government develop a more coordinated and targeted
approach to setting the U.S. research agenda that also ensures the best
return on investment? For example, can the current patchwork of federal
investments in scientific research provided by multiple agencies and
programs be integrated or better coordinated to more effectively and
efficiently identify and prioritize critical emerging technologies?
Are different kinds of federal incentives needed to encourage greater
private sector collaboration and nurture interdisciplinary research and
development approaches that can enhance U.S. competitiveness and
productivity? For example, does the current research tax credit
actually stimulate private sector research spending that would not have
occurred otherwise? Are the types of research being done by businesses
that claim most of the tax credit enhancing U.S. competitiveness and
productivity?
Can existing program structures and funding processes maintain the
nation's position as a critical collaborator in jointly funded
international scientific research and ensure that the United States can
continue to attract global investments in new technologies? For
example, how can the U.S. nanotechnology research and development
effort effectively collaborate with global nanotechnology research and
development efforts without compromising the nation's intellectual
property or competitiveness?
Compounding these external challenges are domestic demographic and
educational changes that have reduced the size and quality of the U.S.
scientific workforce, such as the lagging performance of U.S. students
in science, math, and engineering; the large numbers of U.S. scientists
reaching retirement age; and reduced numbers of foreign-born scientists
and researchers coming to the United States because of heightened
security concerns and opportunities in other nations.
How can the United States better develop a world-class technical and
scientific domestic workforce that is not as dependent on large inflows
of international students and researchers? For example, are different
educational tools or targeted funding strategies needed to enhance U.S.
student achievements in math and the sciences?
Do current workforce retraining programs provide adequate incentives to
help the United States develop lifelong learning strategies and
proactive training programs that will meet the needs of a rapidly
changing technological environment? For example, should the federal
government consider providing training tax credits to employers or
individuals so that U.S. workers can obtain the training they need to
stay current in a knowledge-based economy?
Information technology advancements have contributed to substantial
gains in U.S. productivity, opened the workforce to people who were
previously barred because of physical disabilities or geographic
distances, and have begun to alter the way citizens interact with their
government. However, interconnectivity has also raised the potential
for unauthorized access to personal and confidential data and created
new vulnerabilities to the nation's critical operations and the
infrastructures they support.
How can the federal government effectively utilize advanced
technologies to further enhance homeland security while also protecting
the privacy of U.S. citizens? For example, should the federal
government encourage states to use biometric technologies that could
help ensure that drivers licenses are issued only to authorized and
authenticated individuals?
What cybersecurity technologies can be applied to protect critical
infrastructures from attack given current threat assessments and what
implementation challenges, such as effective information sharing among
key public and private stakeholders, will have to be addressed?
Similarly, despite many successes in the exploration of space, the loss
of life, unsuccessful missions, and unforeseen cost overruns have
recently increased the level of concern over the benefits of such
exploration, particularly with regard to human space flight activities.
Since its inception, the National Aeronautics and Space Administration
(NASA) has undertaken programs that have greatly advanced scientific
and technological knowledge. However, a painful symbol of the difficult
environment in which NASA must perform its mission, as well as the
risks associated with human space exploration, is the recent loss of
Shuttle Columbia and its crew. The complexities NASA faces in returning
the remaining three shuttles to flight so that construction can resume
on the International Space Station and the debate over the potential
cost and the federal government's role in implementing the
administration's vision for space exploration are emblematic of the
challenges the nation will need to resolve in the years ahead.
What objectives are both appropriate and affordable for the U.S. space
program? For example, can all existing programs continue to be
effectively implemented at current resource levels and without
substantial involvement by the private sector?
Transportation Challenges for the 21st Century:
The nation's economic vitality and the quality of life of its citizens
depend significantly on the soundness, security, and availability of
its physical infrastructure. The nation's transportation system
presents particularly complex policy challenges, because it encompasses
many modes--air, water, highway, transit, and rail--on systems owned,
funded, and operated by both the public and private sectors. Increasing
passenger and freight travel has led to growing congestion, and
policymakers face the challenge of maintaining the safety and condition
of the transportation system while preventing congestion from
overwhelming it. Transportation decisions are inextricably linked with
economic, environmental, and energy policy concerns, and coordination
across levels of government and different sectors is daunting and
complex. New security imperatives in a world after 9/11 present
additional challenges for all modes of transportation that must be
addressed in a rapidly changing demographic and technological
landscape. Successfully addressing transportation needs in the face of
these complex, crosscutting challenges requires strategic and
intermodal approaches, effective tools and programs, and coordinated
solutions involving all levels of government and the private sector.
These requirements, in combination with the looming fiscal crisis faced
by all levels of government, challenge the nation to fundamentally
reexamine existing government transportation programs and commitments,
to ask whether existing program constructs and financing mechanisms are
relevant to the challenges of the 21st century, and to make tough
choices in setting priorities and linking resources to results.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
The transportation grant programs funded by the Highway Trust Fund--
including the nation's highway and transit programs--have evolved
slowly since the Trust Fund was created in 1956. While the program was
created for the purpose of constructing the interstate highway system,
and the interstate is complete, the basic construct of the program, in
terms of its financing and delivery mechanisms, has not changed. In
addition, this and other federal transportation programs do not have
the mechanisms to link funding levels with the accomplishment of
specific performance-related goals and outcomes, such as improvements
in mobility and security. Most highway grant funds are apportioned by
formula, without regard to the needs or capacity of recipients. Because
many state and local governments select most projects receiving this
funding, there is little assurance that the projects selected and
funded best meet the nation's mobility and security needs.
How narrowly or broadly should the federal role and interest in the
nation's transportation system be defined? For example, should federal
programs and spending be more closely aligned with specific national
interests and purposes, such as interstate freight mobility or national
and homeland defense? Concurrently, should responsibilities and
authority for projects that support regional mobility and other needs
be devolved to state and local governments along with the revenue
sources that support them?
Should the federal transportation formula grant programs for state and
local governments be revised to better consider factors such as need,
performance, capacity, and level of effort by the states and
localities?
Transportation programs and funding mechanisms are largely stovepiped
by modes of transportation. For example, while passenger and freight
travel occurs on all modes, federal funding and planning requirements
focus largely on highway, transit, and aviation passenger travel. This
framework makes it difficult for intermodal projects and other modal
projects (e.g., freight or passenger rail) to be integrated into the
transportation system.
Can intermodal solutions to the needs of modes such as freight, air,
and passenger rail service be effectively carried out within the
framework of the existing trust funds and other transportation programs
or is another model needed? Do the existing tools and delivery
mechanisms, such as existing trust funds dedicated only to certain
modes of transportation, have the wherewithal to provide intermodal,
efficient, cost-effective solutions to mobility and security
challenges?
While the trust funds were originally based on the concept of having
users pay for the transportation systems, this concept is beginning to
fray. Revenues to the Highway Trust Fund, which funds the majority of
highway and surface transportation safety spending and a large portion
of transit spending, are drawn from fuel taxes and user fees. The
purchasing power of these revenues is declining and future fuel tax
revenues will be further eroded by the increasing fuel efficiency of
vehicles. Aviation Trust Fund revenues are also declining, in part
because of lower cost airline tickets and other factors. The Federal
Aviation Adminstration will face significant challenges in supporting
its four major accounts, which include operations, facilities and
equipment, airport improvement program, and research, engineering, and
development. Many experts question whether the current financing scheme
for transportation is ultimately sustainable. As a result,
decisionmakers are increasingly looking more to the general fund to
finance transportation programs, and state and local governments are
increasingly relying on property and sales taxes to fund transportation
improvements.
Should the federal government continue to provide public financing
through grant programs or develop alternative, targeted, market-driven
incentives, such as credit enhancements, to stimulate private
financing, particularly in areas such as freight, maritime, and
aviation where a mix of private and public beneficiaries exist?
The use of tolls, congestion pricing, and user fees holds promise for
helping to solve congestion and mobility problems and provide new
revenues for infrastructure improvements. However, the availability of
competing federal grant funds and federal restrictions on tolling,
pricing, and fees can work at cross purposes by dissuading state and
local governments and transportation service providers from adopting
these tools.
What other mechanisms are available--e.g., tolls, pricing, demand
management, or user fees--that could be used to a greater degree than
today to help finance the nation's transportation infrastructure that
are both sustainable and would promote efficiency in the use of
infrastructure and better capture revenue from beneficiaries?
Governance Capacity to Meet Challenges in the 21st Century:
The federal government must address and adapt to a range of major
trends and challenges in the nation and the world--a long-term,
structural fiscal imbalance; a transformation from an industrially
based to a knowledge-based economy; revolutionary changes in technology
that have altered how we communicate and do business globally; greater
reliance on market forces and competition; and changing national
security threats. To respond to these trends and challenges, government
must have the institutional capacity to plan more strategically,
identify and react more expediently, and focus on achieving results.
There are signs of transformation as the Congress has established
agencies that can meet evolving challenges. For example, recognizing
growing security threats, the Congress created the Department of
Homeland Security to fundamentally transform how the government is
structured to respond to these threats and has recently restructured
the intelligence community to ensure the nation has the critical
information it needs to defeat these threats. Likewise, agencies
including the Federal Bureau of Investigation (FBI), GAO, National
Aeronautics and Space Administration (NASA), the Department of Defense
(DOD), and the U.S. Postal Service are undertaking major efforts to
transform their operations. Furthermore, the government is partnering
with the private sector to devise a comprehensive set of key national
indicators to provide the nation with quality data that the public,
media, policymakers, and both government and nongovernment institutions
can use to assess the nation's progress in addressing key challenges.
Yet, in many cases, the government is still trying to do business in
ways that are based on conditions, priorities, and approaches that
existed decades ago and are not well suited to addressing 21st century
challenges. For example, some agencies do not yet have all the
necessary abilities, more flexible legal authorities, and leadership
and management capabilities to transform their cultures and operations.
Consequently, to successfully navigate transformations across the
government, it must fundamentally reexamine not only its business
processes, but also its outmoded organizational structures, management
approaches, and in some cases, outdated missions.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
To be a leading democracy in the information age may very well mean
producing unique public sources of objective, independent,
scientifically grounded, and widely shared quality information so that
we know where the United States stands now and what the trends are on
both an absolute and relative bases--including comparisons with other
nations. By ensuring that the best facts are made more accessible and
usable by the many different members of our society, we increase the
probability of well-framed problems, good decisions, and effective
solutions. The stakes are high, including considerations regarding
allocating scarce public resources, strengthening the economy, creating
jobs, stimulating future industries, enhancing security, promoting
safety, strengthening our competitive edge, and sustaining the
environment.
Is the federal government effectively informed by a key national
indicator system about the position and progress of the nation as a
whole--both on an absolute and relative bases compared to other
nations--as a guide to helping set agency and program goals and
priorities?
Is the federal statistical system adapting effectively to the nation's
needs for information? Is it effective at all levels and sectors of
society to meet evolving information requirements? Are the large
amounts of data that it collects being effectively disseminated to the
widest possible audiences, with due consideration to privacy and
confidentiality issues?
Most major outcomes of federal activities are supported by multiple
programs and tools that, in turn, are often sponsored by many different
federal agencies. Although these individual programs address common or
similar performance goals, they result in an overly fragmented delivery
network and at times work at cross purposes. For example, federal food
safety programs are carried out by 12 agencies with differing
enforcement criteria and inspection practices. The fragmentation of
federal programs reflects a policymaking process that is overly
stovepiped by agency and program, with insufficient focus on how
individual programs contribute to overarching, crosscutting goals and
missions. As a result, the capacity to periodically reexamine the
alignment and relevance of policy portfolios in a changing society is
limited. The Government Performance and Results Act (GPRA) provided for
a governmentwide performance plan to address these issues, but this
plan has not yet been developed by the executive branch. Furthermore,
the federal government lacks a governmentwide strategic plan to provide
a framework for addressing crosscutting goals.
How can the executive branch and the Congress have a more strategic,
crosscutting focus on policy and budget decisions to address goals that
cut across conventional agency and program boundaries? Can the
governmentwide performance plan required by GPRA be implemented to
provide the necessary crosscutting focus?
How can agencies partner or integrate their activities in new ways,
especially with each other, on crosscutting issues, share
accountability for crosscutting outcomes, and evaluate their individual
and organizational contributions to these outcomes? How can agencies
more strategically manage their portfolio of tools and adopt more
innovative methods to contribute to the achievement of national
outcomes? For example, how can the myriad federal food safety programs
managed across several federal agencies be consolidated to better
promote safety and the integrity of the nation's food supply?
Increasingly, the government relies on new networks and partnerships to
achieve critical results and develop public policy, often including
multiple federal agencies, domestic and international non-or quasi-
government organizations, for-profit and not-for-profit contractors,
and state and local governments. The federal government uses an array
of different tools and program designs to work in this environment,
such as direct service delivery, loans and loan guarantees, tax
preferences, insurance programs, grants, and regulations. Ranging from
education to homeland security, a complex network of governmental and
nongovernmental entities shape the actual outcomes achieved, whether it
be through formal partnerships in grant programs or through independent
actions of each acting locally to address common problems.
Notwithstanding the increased linkages in our system, each level of
government often makes decisions on these interrelated programs
independently, with little interaction or intergovernmental dialogue.
While the magnitude of the nation's challenges calls for a concerted
effort across sectors, there are insufficient opportunities for leaders
of those sectors to come together to reach consensus about the kinds of
mutual commitments that are necessary.
How can greater coordination and dialogue be achieved across all levels
of government to ensure a concerted effort by the public sector as a
whole in addressing key national challenges and problems? For example,
what mechanisms might usefully bring together leaders across
governments to address joint problems, perhaps through establishing
commissions or other vehicles for promoting dialogue?
More specifically, government has also begun to fundamentally change
who does its business--recognizing that it could better partner with
the private sector in new, more cost-effective ways. Agencies are
assessing what functions and transactions the private sector could
perform and asking their employees to compete with private entities for
this business to improve quality and reduce costs. But the government
does not yet know how this trend is affecting its workforce and its
ability to refocus more on strategic needs or the extent to which it
has delivered real cost savings. Collecting and evaluating data to
ensure such transformations are implemented effectively and deliver the
desired results will be critical.
Has the government's approach to competitive sourcing--using the
private sector to do more of the government's business--proven
successful? Should it be modified to improve results and reduce costs
in a timely, fair, and equitable manner? For example, should federal
agencies be more consistent in determining what work is inherently
governmental and, therefore should be performed by federal employees?
For work that is not inherently governmental, should agencies be
required to develop plans for competing this work in order to achieve
measurable efficiencies and performance improvements?
Performance, mission, cost, schedule, and other risks are inherent in
major federal programs and investments such as weapons systems,
homeland security, federal buildings and other infrastructure,
transportation subsidies, environmental clean-up, and information
technology systems. Despite these risks, federal agencies often lack
comprehensive risk management strategies that are well integrated with
program, budget, and investment decisions. As one example among many,
homeland security investments are designed to reduce risks to the
nation's communities and assets, but the availability of a common set
of analytical tools and procedures on how agency management should use
them can be improved to better align the allocation of homeland
security resources with risk-related measures, such as relative risk
and risk reduction per dollar invested. Governmentwide guidance
generally does not fully integrate risk management into all aspects of
decision-making such as policy making, program planning,
implementation, and monitoring. More broadly, the Congress and the
executive branch face a series of difficult and contentious trade-offs
as they re-examine, re-prioritize, and restructure the base of federal
programs in response to current budget demands and long-term fiscal
challenges and the changing risk profiles faced by programs and
agencies change. As was discussed in section 1, much of the base of the
federal government was put in place in response to the wants, needs,
and affordabilities of an earlier era. For example, some risks to
farmers and to the aging population as discussed elsewhere in this
section have changed over the decades, as have the tools for evaluating
and communicating risk about costs and other outcomes. A more thorough
and disciplined approach to identifying and managing risk across the
federal government could help in structuring and informing the daunting
decisions that need to be made.
How could the federal government consistently apply a comprehensive
risk management framework to help guide federal programs and apply
resources efficiently and to best effect? For example, can the Office
of Management and Budget and the Department of Homeland Security
develop guidance for Homeland Security to better align federal
investments in preparedness with the potential risk and threat facing
the nation's assets and communities? To what extent should federal
agencies, such as DOD or NASA, consider and report on the uncertainty
of cost estimates for major procurements in budget requests? To what
extent can changing risks be monitored across federal programs and how
can these changes be used to review the base of ongoing federal
commitments?
A range of individual agencies need to successfully complete their
specific transformation initiatives. For example, the U.S. Postal
Service is under increasing financial pressure as the Internet,
electronic bill payment, and growing competition from private delivery
companies are changing the nation's communication and delivery sectors
and adversely affecting mail volume. Yet the Postal Service's ability
to address these challenges is hindered by an outmoded business model
that relies on mail volume growth to cover rising costs. The service is
working to cut costs, improve productivity, reduce its workforce, and
make other needed changes, but it will need attention and support as it
adapts a new and more competitive business model.
How should agencies, including the U.S. Postal Service, transform their
services, infrastructure, legal framework, operations, and workforce to
keep pace with rapid changes in technology as well as in the
communications, labor, and other sectors of the economy?
What are the specific leadership models that can be used to improve
agency management and address transformation challenges? For example,
should we create chief operating officer or chief management officer
positions with term appointments within selected agencies to elevate,
integrate, and institutionalize responsibility and authority for
business management and transformation efforts?
The government has not transformed, in many cases, how it motivates and
compensates its employees to achieve maximum results within available
resources and existing authorities. Even though people are critical to
any agency's successful transformation, define its culture, develop its
knowledge, and are its most important asset, a number of agencies still
try to manage this asset with a "one-size-fits-all" approach. For
example, employees are compensated through an outmoded system that (1)
rewards length of service rather than individual performance and
contributions, (2) automatically provides across-the-board annual pay
increases, even to poor performers, and (3) compensates employees
living in various localities without adequately considering the local
labor market rates for these employees. To address these problems and
provide the services the public expects, the federal civil service
system must be reformed governmentwide, and this reform must be guided
by a set of consistent principles, criteria, and practices.
How should the federal government update its compensation systems to be
more market-based and performance-oriented? For example, should poor
performers be guaranteed pay increases? How can these systems ensure
pay comparability and provide reasonable annual pay adjustments while
also competing for critical occupations or in higher cost locations? In
addition, how can the government make an increasing percentage of
federal compensation "at risk" or dependent on achieving individual and
organizational results by, for example, providing more compensation as
one-time bonuses rather than as permanent salary increases?
More than 30 federal agencies control about $328 billion in real
property assets worldwide, and maintain a "brick and mortar" buildings
and office presence in 11 regions across the nation. But this
organization and infrastructure reflects a business model and the
technological and transportation environment of the 1950s. Many of
these assets are no longer needed; others are not effectively aligned
with, or responsive to, agencies' changing missions; and many others
are in an alarming state of deterioration, potentially costing
taxpayers tens of billions of dollars to restore and repair. The
Congress and several agencies have recognized and begun to address this
issue, but this financial liability still looms.
In a modern society with advanced telecommunications and electronic
information capabilities, does the government still need 11 regions?
Which agencies still need a physical presence in all major cities?
What opportunities exist to more strategically manage the federal
government's real property assets, such as disposing of excess federal
facilities or better leveraging surplus in the private sector to make
the federal portfolio more relevant to current missions and less
costly?
Tax System Challenges in the 21st Century:
American taxpayers paid about $1.9 trillion in combined federal taxes,
including income, payroll, and excise taxes, in fiscal year 2004. These
taxes, along with over $4 trillion in deficit borrowing, funded the
federal government. The tax revenue raised represented about 16 percent
of gross domestic product--at the low end of the range of federal taxes
as a share of GDP for the last 40 years.
Beyond funding government, any tax system, including the current one,
has profound effects on the economy as a whole and on individual
taxpayers, both for today and tomorrow. Taxes affect decisionmaking
throughout the economy, including decisions concerning how much and
where to work, save, and invest. These decisions, in turn, affect
economic growth and future income, and thus future tax revenues.
Concerns about the tax system's effect on future economic performance
are one driver of the current debate about the future of that system.
The U.S. position in the worldwide economy has fundamentally changed
and the structure and composition of our economy has shifted. U.S.
workers and firms must now succeed in a world of fast-paced
technological change and constantly evolving global competition. Also,
as noted in section 1, the imbalance between federal revenues and
expenditures, if allowed to persist long term, will affect economic
growth. Addressing the imbalance will require greater scrutiny of both
tax revenues and expenditures.
The following challenges and illustrative questions provide a framework
for thinking about these issues in the future.
The success of our tax system hinges very much on the public's
perception of its fairness and understandability. Fairness is
ultimately a matter of personal judgment about issues such as how
progressive tax rates should be and what constitutes ability to pay.
Fairness also depends on the extent to which taxpayers believe their
friends, neighbors, and business competitors are complying with the tax
laws and actually paying their taxes. Compliance is influenced by the
effectiveness of the Internal Revenue Service's (IRS) enforcement
efforts but also by Americans' attitudes about the tax system and
government. Disturbing recent polls indicate that about 1 in 5
respondents say it is acceptable to cheat on their taxes.
Given our current tax system, what tax rate structure is most likely to
raise sufficient revenue to fund government and satisfy the public's
perception of reasonableness and fairness?
How can we best strengthen enforcement of tax laws to give taxpayers
confidence that their friends, neighbors, and business competitors are
paying their fair share? For example, can we increase compliance with
the tax laws and reduce the need for IRS enforcement activities through
greater use of withholding and information reporting? Would improved
compliance data allow IRS to better allocate its enforcement resources?
Could increased penalties and disclosure reduce the use of abusive tax
shelters?
Over the years the federal tax system and especially the federal income
tax has become more complex, less transparent, and subject to frequent
revision. Some complexity is understandable in an economy as diverse
and sophisticated as ours. However, tax system complexity and frequent
revisions make it more difficult and costly for taxpayers who want to
comply to do so and for IRS to explain and enforce the tax laws. Many
argue that complexity creates opportunities for tax evasion, through
vehicles such as tax shelters, which in turn motivate further changes
in tax laws and regulations and perhaps more complexity. A lack of
transparency also risks creating disrespect for the tax system and the
government.
What opportunities exist to streamline and simplify the current tax
system and thereby make it more transparent to taxpayers, reduce
opportunities for tax evasion, and decrease the compliance burden on
taxpayers? For example, can the Alternative Minimum Tax be eliminated?
Can the Earned Income Tax Credit eligibility rules be simplified? Could
the measurement of income be simplified?
The growing complexity of the tax system stems in part from the
extensive use of tax incentives to promote social and economic
objectives. The tax system includes hundreds of billions of dollars of
such incentives--the same magnitude as total discretionary spending.
For instance, the Low Income Housing Tax Credit is the federal
government's largest program for creating new affordable housing units
and the Earned Income Credit is its largest cash assistance program for
low-income families. However, tax incentives do not compete in the
annual budget process and effectively are "fully funded" before any
discretionary spending is considered. Further, relatively little is
known about the effectiveness of tax incentives in achieving the
objectives intended by the Congress. As far back as 1994, GAO concluded
these incentives deserved more scrutiny.
Which tax incentives need to be reconsidered because they fail to
achieve the objectives intended by the Congress, their costs outweigh
their benefits, they duplicate other programs, or other more cost-
effective means exist for achieving their objectives? For example,
could health-related tax incentives, including the treatment of
employer-provided health insurance, which has been estimated to be over
$180 billion in both income and certain payroll taxes, be better used
to promote broader health care access, more efficient health care
delivery, and more effectively control costs?
Rather than reconsider specific types of tax incentives, is it time to
consider another 1986-style tax reform (broadening and simplifying the
tax base by eliminating many tax preferences thus allowing tax rates to
be minimized)?
Incentives for savings are a particular concern. Private sector savings
are near historical lows and government savings, due to federal budget
deficits, are negative. Low rates of domestic saving force the nation
to rely on foreign lenders to finance new investment. The tax code
includes many incentives intended to increase savings to finance
retirement, health care, higher education, and so on. These savings
incentives, which exempt some income from tax, have moved the current
tax system in the direction of a consumption base. These incentives,
however, are complex and, although not completely settled, researchers
have raised questions about how much, if any, net new savings they
stimulate.
How effective are existing tax incentives at increasing savings for
their targeted purposes? How effective are they at increasing overall
national savings? Could the myriad savings incentives (IRAs, health
savings accounts, several education savings incentives, etc.) that
complicate the current tax system be consolidated and simplified while
promoting increased savings?
The debate about the future tax system is partly about whether the
goals for the nation's tax system can be best achieved using the
current structure, which is heavily dependent on income taxes, or a
fundamentally reformed structure, which might include more dependence
on consumption taxes, a flatter rate schedule, and fewer tax
incentives. Increasing globalization, which makes it easier to move
assets, income, and jobs across international borders, is another
motivator for the debate. As policymakers grapple with such issues,
they will have to balance multiple objectives such as economic growth,
equity, simplicity, transparency, and administrability while raising
the needed revenue. The appropriate balance among these objectives may
also be affected by (1) how, if at all, to take into account that,
including both the employer and the employee share, an estimated two-
thirds of taxpayers would pay more in 2004 in payroll taxes--which are
levied to fund social security and Medicare benefits--than they pay in
income taxes and (2) whether and how to tax wealth.
Is the federal income-based tax system sustainable and administrable in
a global economy? How should we tax the income of U.S. multinational
corporations that is earned outside of the U.S.?
Should the basis of the existing system or any new reforms be changed
from an income to a consumption base (today we actually have a hybrid
system)? Would such a change help respond to challenges posed by
demographic, economic, and technological changes? How would such a
change affect savings and work incentives?
Regardless of whether a consumption tax is created, the current income
tax is revised, or other fundamental tax system changes are made, how
should the burden be allocated among taxpayers? Who should pay more and
who should pay less? How can burden be distributed according to
policymakers' decisions while minimizing complexity and preserving the
desired benefits of any fundamental tax policy changes?
How would the interrelationships between the federal and state and
local tax systems and with the payroll tax system be taken into account
when changing the federal tax system? How should wealth be taxed, if at
all, in either an income or consumption based tax system and in any
conversion to a consumption tax? How should transfers of wealth be
taxed, if at all?
[End of section]
Section 3: Where Do We Go From Here?
The reexamination questions posed in this report constitute both a
challenge and an opportunity. Given the size of the fiscal imbalances
looming in the future, business as usual will not suffice. The real
question is not whether we deal with the fiscal imbalance, but how and
when. Our policy process will be challenged to act with more foresight
to take early action on problems that may not constitute an urgent
crisis but pose important longer term threats to the nation's fiscal,
economic, security, and societal future. To address these issues,
policymaking institutions will also be challenged to shift from the
traditional focus on incremental changes in spending or revenues to
look more fundamentally at the underlying relevance, relative priority
and results of various federal programs, policies, functions, and
activities in addressing current and emerging national needs and
problems across all major areas of the federal budget--discretionary
spending, entitlements and other mandatory spending, and tax policies
and programs.
While not easy, the periodic reexamination of existing portfolios of
federal programs offers the prospect of weeding out ineffective or
outdated programs while strengthening and updating those programs that
are retained. Thus, such a process addresses not only fiscal imbalances
but also can improve the responsiveness and effectiveness of government
in addressing 21st century needs and challenges. As discussed in
section 1 of this report, the nation's current fiscal policy path is
unsustainable. The questions posed in section 2 of this report can be
considered as one input among many that Congress will receive as it
decides how to address these issues. While answers can draw on the work
of GAO and others, only elected officials can and should decide
whether, how, and when to move forward.
Fiscal Challenges Prompt the Need for a New Approach:
The stakes associated with federal programs are large, both for
beneficiaries of those programs and the nation's taxpayers. These
programs serve important constituencies and provide significant current
benefits. Accordingly, challenging the underlying basis, rationale, and
results achieved by these programs is never simply an analytic
exercise, but rather a political process involving players with
strongly felt views and differing interests.
The conflicts and uncertainties entailed in budgeting and policymaking
are often mitigated by focusing decisions on incremental changes in
resources each year. As a result, this incremental process focuses
disproportionate attention on proposed changes to existing programs and
proposals for new programs, with the base of programs being taken as
"given." This traditional process helps ensure stability and certainty
in federal funding commitments and helps target the limited time and
attention of policymakers on new proposals or proposals to change
existing activities. While this approach may be appropriate in periods
of stability and fiscal strength, it may be insufficient during a time
of change and fiscal challenge.
Moreover, the process routinely examines only the one-third of federal
spending subject to the annual appropriations process. By definition,
entitlement programs and tax expenditures are generally not reviewed or
reauthorized annually, and many of these programs are not even subject
to periodic reauthorization to ensure that they are periodically
reviewed. As the nation enters a period when the existing portfolio of
programs is unaffordable and unsustainable at current levels of
taxation, a more fundamental review of all major existing spending and
tax policies and programs is not only appropriate but essential.
The size of the problem is so large that across-the-board approaches to
distributing cuts broadly across many individual programs and accounts
cannot really work. In addition, such approaches can result in
retaining fat while cutting muscle--specifically, across-the-board
cuts risk cutting effective programs while leaving ineffective,
outdated, or lower priority programs in the base. An across-the-board
approach also constitutes a missed opportunity to address at a
fundamental level the drivers of long-term deficits. Given the size of
the long-term fiscal imbalances, all major spending and revenue
programs in the budget should be subject to periodic reviews and
reexamination. While it is important to focus on the major programs
driving the long-term outlook--Medicare, Medicaid and Social Security-
-our recent fiscal history suggests that exempting major areas from
reexamination and review can undermine the credibility and political
support for the entire process. Given the size of the long-term fiscal
imbalances, it is highly unlikely that this problem can be "solved" by
reforms in any one sector.
Building Support for a Reexamination Process:
We recognize that reexamining the base is a challenging process for
both leaders and stakeholders alike. Just as the traditional process
limits choices and political conflict, putting entire programs up for
review periodically can increase the stakes and conflict associated
with budget decisions. Accordingly, a process to review established
programs and priorities will need to be supported by a strong and
publicly compelling rationale.
The challenge for leaders is to frame the fiscal challenges as
something with important consequences for the values and interests that
affect American citizens, both now and in the future. As participants
at GAO's recent budget forum noted, leaders have been able to make a
compelling case for fiscal sacrifice before, but it is never
easy.[Footnote 3] While current deficits are troubling, they are but a
prelude to the daunting long-term fiscal challenges highlighted in
section 1 that are significant, structural and unsustainable in nature.
However, long-term issues can be difficult to address, particularly
when the most significant impact is beyond the 10 year baseline time
horizon.
Effective and sustained leadership will be necessary to gain support
among the public and other key players for addressing these long-term
fiscal issues. Taking a long-term perspective can provide important
dividends for leaders in making the case to the broader public for
initiating a reexamination process sooner rather than later. Early
action can turn the power of compounding from an enemy to an ally, as
reduced deficits usher in reduced debt, interest costs and economic
growth. Moreover, early action can enable leaders to phase in changes
over many years to permit future program beneficiaries to more easily
adjust to policy changes by altering their own private choices for
savings, retirement, or other issues. Finally, reexamination can also
be used as a way to free funding for new programs and investments,
thereby providing more immediate support for the exercise.
Perhaps the most compelling reason to begin the review process now is
the dire consequences of waiting for a crisis. If we wait for deficits
to rise to levels that seriously alarm markets or other economic actors
to the point of approaching or reaching a "tipping point," the nation
will be forced to adopt major and precipitous policy actions that would
have significant disruptive consequences for the lives of retirees and
workers alike.
Given the severity of the nation's fiscal challenges and the wide range
of federal programs, the hard choices that need to be considered may
take a generation to address. Beginning the reexamination and review
process now would enable decision makers to be more strategic and
selective in choosing areas for review over a period of years.
Reexamining selected parts of the budget base, over time rather than
all at once, will lengthen the process, but it may also make the
process more feasible and less burdensome for decision makers. And by
phasing in change to programs or policies that might otherwise have
prohibitively high costs of transition, the burden of change can be
spread out over longer time periods.
Notwithstanding the challenges associated with reexamination,
reviewing the base of programs and operations has ample precedent. The
federal government, in fact, has reexamined and reformed selected
programs and priorities in the past. From a programmatic perspective,
such reexaminations have included, for example, the 1983 Social
Security reform, the 1986 tax reform, and the 1996 welfare reform. They
have also included reforms such as the creation of the Department of
Homeland Security and, most recently, the ongoing reorganization of the
U.S. intelligence community. From a broader fiscal standpoint, the
1990s featured significant deficit reduction measures adopted by the
Congress and supported by the President that made important changes to
discretionary spending, entitlement program growth, and revenues that
helped eliminate deficits and bring about budgetary surpluses.
Some may be skeptical as to whether our political system is able to
address long-term problems or commitments. However, such skepticism
ignores past examples of attention to long-term goals. The interstate
highway program took a generation to plan and complete. The Social
Security system was created with very long time horizons in mind and
has undergone major restructuring in both 1977 and 1983, with an eye
toward improving the program's longer-term sustainability. As a nation,
we also anticipated, and as a result met, the educational capacity
needs of the baby boom all the way from primary school to college.
States and other nations also have engaged in reexamination exercises.
States have variously examined their bases, through cutback management,
performance and strategic planning, budget reform, and privatization/
contracting out. In recent years, various states have reexamined their
various programs and priorities through such mechanisms as efficiency
commissions and reprioritization exercises. For instance, the state of
Washington adopted what it calls a statewide results-based approach to
budgeting called "Priorities of Government" to address a budgetary
shortfall of $2.4 billion for the 2003-2005 biennium. Under this
system, programs and activities were reviewed and ranked based on their
relative contribution to eleven broader performance goals, leading to
cuts for programs below the line of available revenues.
Other nations, too, have undertaken comprehensive reexamination
efforts. New Zealand, Australia, Canada, and the Netherlands, for
example, have undergone performance-based budgeting and performance
management reforms aimed at reprioritizing the base of their respective
governmental activity and budget that spanned a number of years. In
Canada, an OECD study concluded that a program review exercise
delivered $18.8 billion in savings above previously-planned reductions
(cumulative over 3 years) announced in the 1995 and 1996 budgets and to
that extent certainly contributed to achieving--and in fact exceeding-
-the original deficit-to-GDP target of 3 percent by 1996-97. In the
Netherlands, reconsideration reviews are conducted on particular
programs selected for each budget cycle, with participation by working
groups of central budget and departmental staff as well as external
experts, resulting in a public report with recommendations to be
considered in the budget process. According to OECD, the process has
been in place since 1981 and has lead to significant savings as well as
many reforms of major policy areas.[Footnote 4]
Multiple Approaches Can Facilitate Reexamination:
In our system a successful reexamination process will in all likelihood
rely on multiple approaches over a period of years. Rules and process
can play a role in facilitating decisions and supporting leaders in
making tough choices. However, processes cannot by themselves force
decisions. Leadership, a sense of stewardship for the future, and an
agreement that tough choices and meaningful actions are required and
essential for success.
Some congressional observers believe a deceptively simple approach may
hold the most promise: reliance on the existing reauthorization,
oversight, appropriations, and budget processes. They have been
deployed to review and change existing programs on a selective or
episodic basis, but each also is perceived to have certain constraints
that have prompted calls for change:
* The reauthorization process. The reauthorization process affords the
Congress the opportunity to probe into the effectiveness of a program
and to terminate or make any changes before providing funding for the
reauthorized program. Reauthorization is the purview of authorizing
committees in the Congress and authorizations generally precede
appropriations. However, some programs have authorizations that are
permanent and do not expire while others are subject to periodic
reauthorizations, are funded by permanent appropriations, such as the
Veterans Affairs Pensions Benefits program. Furthermore, concerns have
been expressed that the authorization process has increasingly been
made less effective by the continuation of funding in appropriations
bills even when programs' authorizations have expired, such as the
Federal Bureau of Investigation (FBI) and the Federal Prison System,
which were funded in fiscal year 2005 with expired authorizations of
appropriations.
* The oversight process. Although oversight can and does occur with
authorizations and appropriations, the Congress also has a separate
oversight process available outside the traditional reauthorization/
appropriations discussions. This oversight process provides the
Congress the means to hold agencies accountable for the economy,
efficiency, and effectiveness of existing policies, programs, and
agency operations. The committees primarily responsible for exercising
this oversight are the Senate Committee on Homeland Security and
Governmental Affairs and the House Committee on Government Reform,
although authorizing committees also engage in oversight reviews and
hearings in connection with matters within their jurisdiction. GAO and
agencies' inspectors general support congressional oversight with
analysis, evaluations, investigations, and reviews of various programs
and operations. Concerns have been expressed by a number of observers
regarding the need to increase attention to oversight in the Congress
and the lack of legislative follow-through for findings of oversight
investigations and hearings.
* The appropriations process. For the approximately one-third of the
federal budget that is subject to the annual appropriations process,
this process gives the Congress the opportunity to annually review
programs and operations. Although this process does not touch the major
drivers of the long-term deficit (e.g., Medicare, Medicaid, Social
Security) it does cover programs important to citizens and the nation
(e.g., defense, homeland security, health research, transportation,
national parks, education, environment). The squeeze created by the
growth in mandatory spending increases the need to ensure that this
part of the budget is reexamined and adapted to the 21st century.
* The budget process. The congressional budget process is the annual
vehicle through which the Congress articulates both an overall fiscal
stance--overall targets for spending and revenue--and its priorities
across various broad categories. The process provides the overall
constraints for spending and revenue actions by the Congress for each
year and the rules of procedure that can be used to constrain new
entitlement and tax legislation not assumed in the annual budget
resolution. Directions contained in the budget resolution for
reconciliation legislation trigger the review of existing programs by
directing congressional committees to propose cuts to meet savings
targets contained in the resolution. The budget rules that were
grounded in statute--including discretionary spending caps and "PAYGO"
limits on mandatory spending and tax cuts--and enforced by executive
actions if violated, expired at the end of fiscal year 2002; the only
constraints are those contained and enforced through congressional
budget resolutions, and reinforced by points of order.
Other specific approaches and processes have been proposed to
supplement the existing congressional processes and entities. While
these are generally aimed at addressing perceived limitations with
existing processes and to prompt greater incentives or support for
review and reexamination, each have their own set of potential benefits
as well as limitations that have historically constrained their use or
success:
* Special temporary commissions. Special temporary commissions have
been convened to formulate recommendations for specific policy or
functional areas. Temporary commissions are appealing because they
provide a safe haven for developing policy alternatives, often are
bipartisan in nature, may involve both executive and legislative branch
representatives, and typically include experts both within and outside
of government. Most commissions are designed to address issues in a
timely manner and then are dissolved. Commissions can be very
promising, but their ultimate success depends on the extent to which
the Congress and the executive branch agree about the need for action,
on the need to use a nontraditional approach to reach agreement or to
develop a specific proposal, and on their general willingness to
address the recommendations of such commissions. This can be seen in
the differing results of some examples: Social Security reform (e.g.,
Greenspan Commission and Moynihan Commission), terrorism and
intelligence reform (e.g., 9-11 Commission), military base realignment
and closures (e.g., BRAC Commission), and Medicare (e.g., Breaux
Commission).
* Sunset provisions. Proposals have been made to institute across-the-
board provisions terminating all existing programs after a certain
number of years to trigger their reexamination. Although numerous
specific programs contain fixed period authorizations that are like
sunset provisions, such as the federal highway funding and the
Temporary Assistance for Needy Families (TANF) program, a broad federal
sunset law has never been adopted. Concerns about this approach include
the burden of a crosscutting provision and the lack of targeting those
programs most in need of reexamination. In addition, some have noted
that fixed-period authorizations are, in effect, sunset provisions. The
reauthorization process can offer the same opportunity for
reexamination--and if appropriations are not forthcoming in the absence
of a reauthorization, then fixed-term authorizations effectively
constitute sunsets.
* Executive reorganization authority. In the past, the Congress has
provided the president with authority to propose and gain fast-track
consideration of changes in structures and responsibilities of federal
agencies and programs. However, such authority has been progressively
limited over the years. The fundamental issue raised by granting
reorganization authority to the President is whether and how the
Congress wishes to change the nature of its normal deliberative process
when addressing Presidential proposals to restructure the federal
government. The Congress may want to consider different tracks for
proposals that propose significant policy changes versus those that
focus more narrowly on government operations.
* Biennial Budgeting. Shifting appropriations to a biennial cycle has
been proposed as a way to promote more systematic congressional
oversight and review in the "off" year. However, skeptics note that
whether this reform in fact frees more congressional time depends on
whether the budget remains relatively unchanged during the off year.
The Congress has been passing annual supplemental appropriations in
recent years and this is expected to continue for several more years.
Moreover, some argue that reducing appropriations reviews to once every
other year would serve to reduce the opportunities for the Congress to
routinely examine and review programs and executive operations.
Although some states use biennial budgeting (e.g., Texas, Connecticut,
and Ohio), their experiences are mixed, with the governor having more
budgeting power than the President.
Performance and analytic tools may be as important as or more important
than specific process reforms in facilitating reexamination. In this
regard, the performance metrics and plans ushered in by the Government
Performance and Results Act of 1993 (GPRA) have led to a growing supply
of increasingly sophisticated measures and data on the results achieved
by various federal programs. Agencies and OMB have been working over
the years to strengthen the links between this information and the
budget. Under the Program Assessment Rating Tool (PART), for example,
OMB plans to rate the effectiveness of each program in the budget over
a 5-year period.
While these initiatives provide a foundation for a baseline review of
federal policies, programs, functions, and activities, several changes
are in order to support the type of reexamination we have in mind.
First, the PART focus on individual programs will provide important new
assessments, but it needs to be supplemented by a more crosscutting
assessment of the relative contribution of portfolios of programs and
tools to broader outcomes. Most key performance goals of importance--
ranging from low income housing to food safety to counterterrorism--are
addressed by a wide range of discretionary, entitlement, tax, and
regulatory approaches that cut across a number of agencies. While OMB
is moving to include some crosscutting assessments in the fiscal year
2006 PART, fully developing the governmentwide performance plan
provided for under GPRA would provide a more systematic vehicle for
addressing the performance of programs cutting across agencies to
broader goals. Second, the Congress could consider the need to focus
its oversight and review on these important overarching goals and
missions by considering adopting a performance agenda of its own. One
potential approach we have suggested is a performance resolution that
could be included as part of the annual budget resolution to help
target congressional activity on key program areas or performance
problems. Once program areas or problems are selected, special
collaborative initiatives among GAO, CRS, CBO, IGs, and even OMB could
be undertaken to identify and evaluate various performance issues and
alternatives for congressional consideration, including identifying
specific programs ripe for reorganization, consolidation, or other
reforms.
Conclusion:
As the foregoing discussion suggests, there are a range of available
reexamination approaches and strategies. Assuming that reexamination is
pursued by the Congress adopted as a congressional objective, we
suggest that the challenge for the Congress is at least threefold: (1)
building support within the Congress itself, the Administration, and
ultimately the broader public to justify a base-line reexamination of
existing federal policies, programs, functions, and activities as
discussed in section 1, (2) identifying those areas that congressional
and executive leaders agree need review along the lines of the
illustrative questions offered in section 2, and (3) choosing
reexamination approaches and strategies that are appropriate for the
particular areas being examined as discussed in this section.
The choice among reexamination approaches will be informed by many
factors. Initially, the choice of reexamination tools or approaches may
be determined depending on such factors as how frequently an issue
arises and the degree of political support and complexity. For example,
a commission may be well suited to moving along ideas for problems that
occur infrequently and that require "cover" to reach political
agreement, such as Social Security reform. The reauthorization and
oversight processes may be better suited for problems that occur more
frequently, but not every year, as is the case with TANF
reauthorization and oversight hearings on the activities of federal
agencies. The appropriations process may be more conducive to policy
matters requiring congressional action every year, such as the funding
of national defense. In fact, a mix of different approaches has often
been used to reexamine and reform specific policy areas in the recent
past, as shown in figure 5.
Figure 5: Selected Reforms and Reexamination Approaches:
Congress has enacted major reforms in recent years which were promoted
and considered through the use of various reexamination processes and
tools:
Intelligence reform-The Intelligence Reform and Terrorism Prevention
Act of 2004 aimed to unify, coordinate, and make more effective the
U.S. intelligence community. Congress drew on the reexamination agenda
put forward by the National Commission on Terrorist Attacks Upon the
United States (9-11 Commission), in developing the actual legislation
through its committee system.
Department of Homeland Security-The Homeland Security Act of 2002
brought together 22 organizations and created the Department of
Homeland Security. In its proposal for a Department of Homeland
Security, the President included several provisions similar to those
proposed by reexamination effort of the U.S. Commission on National
Security/21st Century (Hart-Rudman Commission). Congress tailored the
actual legislation following hearings and consideration by its
authorizing and oversight committees.
Farm reform-The Federal Agriculture Improvement and Reform Act of 1996
changed the federal government's approach to farm support from a policy
based on managing crop production and supporting farm income to a
policy that allows producers flexibility in what they plant. The need
for new legislation was triggered by the provision in permanent law
that would have rebased subsidies to levels authorized in 1949-leading
to higher subsidies and federal costs.
Social Security reform-The 1983 Amendments to the Social Security Act
made changes in Social Security coverage, financing, and benefit
structure. The reform was made necessary by projections showing
insufficient fund assets to pay all benefits. A bipartisan executive-
legislative commission developed the proposal that led to legislation
receiving widespread bipartisan congressional support.
Source: GAO.
[End of figure]
Other important factors that will drive the specific approaches used
include the public's readiness and familiarity with the issues being
reexamined, the need for some kind of budgetary constraint or incentive
to prompt review, the desire for consensus among stakeholders, and the
stage of development of the issue itself.
Figure 6 demonstrates how different approaches might be appropriate at
differing stages of the development of an issue, ranging from the need
to simply raise awareness about the related, perhaps not widely
perceived, reexamination issues all the way to the need to develop
specific proposals for dealing with relatively well-defined problems.
Studies by GAO or other independent and qualified organizations could
be used to raise public awareness of issues and problems ("agenda
setting"). Congressional hearings and other forums (e.g., regional
sessions) could be used to educate the broader public about the need
for change. When prioritizing the issue among other concerns, the
Congress might use the occasion of the annual budget resolution, the
oversight agenda, or perhaps develop a new performance resolution to
rank its reexamination and review priorities. For developing policy
proposals, the Congress can rely on existing authorization processes,
or can rely on a temporary special commission to develop new policy
proposals or recommendations for particularly complex or controversial
areas. As a reexamination unfolds, then, a combination of approaches
may be needed.
Figure 6: Reexamination Maturity Model:
Different developmental stages of reexamination:
* Agenda setting--raising awareness of issues by collecting information
and defining the nature, timing and scope of new issues and problems
with existing programs;
May require different reexamination approaches, such as:
* Studies by GAO or other independent and qualified organizations.
Different developmental stages of reexamination:
* Educating--informing the broader public about need for change;
May require different reexamination approaches, such as:
* Congressional hearings or other forums.
Different developmental stages of reexamination:
* Prioritizing and aggregating--validating the basis for problem
definition, and prioritizing and grouping assessments of current
programs;
May require different reexamination approaches, such as:
* Leadership prioritization initiatives;
* Annual congressional budget resolution/oversight agenda.
Different developmental stages of reexamination:
* Developing policy proposals--providing a menu of options, exploring
differences, making recommendations;
May require different reexamination approaches, such as:
* Temporary special commissions;
* Reauthorization process;
* Executive reorganization authority.
Source: GAO.
[End of table]
Regardless of the specific combination of reexamination approaches
adopted, the ultimate success of this process will depend on several
important overarching conditions:
* Sustained leadership to champion changes and reforms through the many
stages of the policy process.
* Broad based input by a wide range of stakeholders.
* Reliable data and credible analysis from a broad range of sources
that provides a compelling fact based rationale for changing the base
of programs and policies for specific areas.
* Clear and transparent processes for engaging the broader public in
the debate over the recommended changes.
In conclusion, our nation faces large, growing and structural long-term
fiscal imbalances that we cannot simply grow our way out of. Rather,
hard choices based on a fundamental reexamination of government
policies, programs, functions, and activities will be necessary in
order to address our long-term fiscal imbalance. This will include
consideration of what the federal government should do, how it should
do business, and how it should be financed in the future. The
resolution of these problems must invariably entail difficult political
choices among competing programs that promise benefits to many
Americans but are collectively unaffordable at current revenue levels.
However, given the fiscal challenges, a reexamination of government can
be expected, whether initiated through a public decision making process
or forced on us by a crisis.
The questions provided in this volume are designed to illustrate the
kinds of issues that such a review can address, not the answers that
such a process will reach. Such a review will be difficult and the
process may take a generation or more to unfold. The reexamination
process will in fact proceed through various processes and venues.
However, the nation will be better served if such a process begins
sooner rather than later.
FOOTNOTES
[1] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005) and Opportunities for Congressional Oversight and
Improved Use of Taxpayer Funds, GAO-04-649 (Washington, D.C., May 7,
2004).
[2] To view alternative scenarios between these "bookends," see the
section on The Nation's Long-Term Fiscal Challenge on GAO's Web site
(www.gao.gov/special.pubs/longterm/).
[3] GAO, Comptroller General's Forum: The Long-Term Fiscal Challenge,
GAO-05-282SP (Washington, D.C.: February 2005).
[4] Organisation for Economic Co-operation and Development,
Reallocation: The Role of Budget Institutions (GOV/PUMA/SBO (2003)15),
May 16, 2003.
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To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548: