2006 federal budget document

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BUDGET

BUDGET OF THE UNITED STATES GOVERNMENT

Fiscal Year 2006



THE BUDGET MESSAGE OF THE PRESIDENT

Over the previous four years, we have acted to restore economic growth, win the War on Terror,protect the homeland, improve our schools, rally the armies of compassion, and promote ownership.The 2006 Budget will help America continue to meet these goals. In order to sustain our economicexpansion, we must continue pro-growth policies and enforce even greater spending restraint acrossthe Federal Government. By holding Federal programs to a firm test of accountability and focusingour resources on top priorities, we are taking the steps necessary to achieve our deficit reductiongoals.

Our Nation’s most critical challenge since September 11, 2001, has been to protect the Americanpeople by fighting and winning the War on Terror. Overseas and at home, our troops and homeland

security officials are receiving the funding needed to protect our homeland, bring terrorists to justice,eliminate terrorist safe havens and training camps, and shut down their financing.

In Afghanistan and Iraq, we are helping establish democratic institutions. Together with our coali-tion partners, we are helping the Afghan and Iraqi people build schools, establish the rule of law,create functioning economies, and protect basic human rights. And while the work is dangerous anddifficult, America’s efforts are helping promote societies that will serve as beacons of freedom in theMiddle East. Free nations are peaceful nations and are far less likely to produce the kind of terrorismthat reached our shores just over three years ago.

To ensure our security at home, the 2006 Budget increases funding for anti-terrorism investiga-tions; border security; airport and seaport security; nuclear and radiological detection systems andcountermeasures; and improved security for our food supply and drinking water.

This Budget also promotes economic growth and opportunity. We must ensure that Americaremains the best place in the world to do business by keeping taxes low, promoting new tradeagreements with other nations, and protecting American businesses from litigation abuse andoverregulation. To make sure the entrepreneurial spirit remains strong, the Budget includesimportant initiatives to help American businesses and families cope with the rising cost of healthcare. This Budget funds important reforms in our schools, and promotes homeownership in ourcommunities. In addition, the 2006 Budget supports the development of technology and innovationthroughout our economy.

The 2006 Budget also affirms the values of our caring society. It promotes programs that are effec-tively providing assistance to the most vulnerable among us. We are launching innovative programssuch as Cover the Kids, which will expand health insurance coverage for needy children. We arefunding global initiatives with unprecedented resources to fight the HIV/AIDS pandemic, respondto natural disasters, and provide humanitarian relief to those in need. The 2006 Budget continuesto support domestic programs and policies that fight drug addiction and homelessness and promotestrong families and lives of independence. And in all our efforts, we will continue to build workingrelationships with community organizations, including faith-based organizations, which are doing somuch to bring hope to Americans.

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2 THE BUDGET MESSAGE OF THE PRESIDENT

In every program, and in every agency, we are measuring success not by good intentions, or bydollars spent, but rather by results achieved. This Budget takes a hard look at programs that havenot succeeded or shown progress despite multiple opportunities to do so. My Administration is press-ing for reforms so that every program will achieve its intended results. And where circumstanceswarrant, the 2006 Budget recommends significant spending reductions or outright elimination of programs that are falling short.

This Budget builds on the spending restraint we have achieved, and will improve the process bywhich the Congress and the Administration work together to produce a budget that remains withinsensible spending limits. In every year of my Administration, we have brought down the growthin non-security related discretionary spending. This year, I propose to go further and reduce thiscategory of spending by about one percent, and to hold the growth in overall discretionary spending,including defense and homeland security spending, to less than the rate of inflation. I look forwardto working closely with the Congress to achieve these reductions and reforms. By doing so, we willremain on track to meet our goal to cut the deficit in half by 2009.

Our greatest fiscal challenges are created by the long-term unfunded promises of our entitlementprograms. I will be working with the Congress to develop a Social Security reform plan that strength-ens Social Security for future generations, protects the benefits of today’s retirees and near-retirees,and provides ownership, choice, and the opportunity for today’s young workers to build a nest egg fortheir retirement.

In the past four years, America has faced many challenges, both overseas and at home. We haveovercome these challenges not simply with our financial resources, but with the qualities that havealways made America great: creativity, resolve, and a caring spirit. America has vast resources, butno resource is as abundant as the strength of the American people. It is this strength that will helpus to continue to prosper and meet any challenge that lies before us.

GEORGE W. BUSH

February 7, 2005



OVERVIEW OF THE PRESIDENT’S 2006 BUDGET

The 2006 Budget builds on the progress the President and the Congress achieved in meeting thepriorities of the Nation during the first term. We are funding efforts to defend the homeland fromattack. We are transforming our military and supporting our troops as they fight and win the GlobalWar on Terror. We are helping to spread freedom throughout the world. We are promoting highstandards in our schools, so that our children gain the tools they need to succeed. We are promotingthe pro-growth policies that have helped to produce millions of new jobs and restore confidence inour economy. And we are taking additional action to enforce spending discipline.

During his first term, the President worked with the Congress to respond to a stock marketcollapse, recession, the terrorist attacks of September 11, 2001, and the revelation of corporate

scandals. To meet the economy’s significant challenges, in each year the President proposed andsigned into law major tax relief that fueled recovery, business investment, and job creation.

To rebuild and transform our Armed Forces, the President raised spending for our military bymore than a third, the largest increase in defense spending since the Reagan Administration. Tomake our homeland safer, the President created the Department of Homeland Security and nearlytripled funding for homeland security activities.

-5

0

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Spending RestraintNon-Security Discretionary Spending

Percent change

Final Yearof Prior

Administration

2001 2002 2003 2004 2005 2006

+15

+6+5

+4

+1

-1

----------- Budget Years of First Term -----------

These actions had significant consequences for ourNation, and for the Budget. The President committedto spend what was needed to win the War on Terrorand protect the homeland and committed to enforcerestraint elsewhere. The President and the Congresssucceeded in bringing down the rate of growth innon-security discretionary spending each year of hisfirst term. In the last Budget year of the previous

Administration, non-security discretionary spendinggrew by 15 percent. In 2005, such spending will riseonly about 1 percent.

Because of this increased spending restraint,deficits are below what they otherwise would havebeen. Last year’s Budget projected a deficit of 4.5percent of Gross Domestic Product (GDP) in 2004, or $521 billion. The President set out to cutthat deficit in half by 2009. Largely because economic growth generated stronger revenues than

originally estimated, and because the Congress adhered to the spending restraint called for in thePresident’s Budget, the 2004 deficit came in $109 billion lower than originally estimated. At 3.6percent of GDP, the actual 2004 deficit, while still too large, was well within historical range andonly the 10th biggest deficit in the last 25 years. With continuation of the President’s pro-growtheconomic policies and responsible spending restraint, we will remain on track to cut the deficit inhalf by 2009, to a level that is well below the 40-year historical average deficit of 2.3 percent of GDP.

With a growing economy, tax receipts are rising, which is helping to bring down the deficit as apercentage of GDP. In order to sustain our economic expansion, however, we must exercise evengreater spending restraint than in the past. When the Federal Government focuses on its priorities,

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4 OVERVIEW OF THE PRESIDENT’S 2006 BUDGET

and limits the resources it takes from the private sector, the result is a stronger, more productiveeconomy.

When achieved through spending restraint rather than through tax increases, deficit reductionbolsters confidence in America’s economy. This confidence of global capital markets in America bringsimportant advantages to our economy in the form of lower real interest rates and lower borrowing

costs, which in turn lead to more investment and more jobs. Keeping America’s fiscal house in order,while holding taxes down, sustains growth and justifies investors’ confidence in the U.S. economy.

The Administration proposes to tighten spending further this year by limiting the growth inoverall discretionary spending, even after significant increases in defense and homeland security,to 2.1 percent—less than the projected rate of inflation. In other words, under the President’s2006 Budget, overall discretionary spending will see a reduction in real terms. In non-securitydiscretionary accounts, the President proposes to cut spending by nearly 1 percent—the tightestsuch restraint proposed since the Reagan Administration.

The Budget also proposes more than 150 reductions and eliminations in non-defense discretionaryprograms, saving about $20 billion in 2006, and an additional set of reforms in mandatory programs,saving about $137 billion over the next 10 years.

In restraining spending in the 2006 Budget, the Administration was guided by three major criteria:First: Does the program meet the Nation’s priorities? The Budget increases funding to strengthen

our Armed Forces, improve our homeland defenses, promote economic opportunity, and fostercompassion.

Second: Does the program meet the President’s principles for appropriate use of taxpayerresources? If an appropriate Federal role could not be identified in a program’s mission, the Budgetproposes to reduce or eliminate its funding.

Third: Does the program produce the intended results? The President’s Management Agenda(PMA) has been in existence for nearly four years. As a part of the PMA’s Budget and PerformanceIntegration Initiative, the Program Assessment Rating Tool (PART) measures the success of programs in meeting goals and identifies which are achieving their intended results and which are

not. The PART can help determine when two programs that perform similar tasks produce starklydifferent results—and helps the Administration to reward only those that succeed, thus reducingredundancies in the Federal Government. For programs that have achieved their desired results,and do not merit continued funding, the Administration has recommended eliminations.

2004 2005 2006 2007 2008 2009 20100

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A Declining Budget DeficitPercent of GDP

--------------------------- Projections --------------------------

40-year HistoricalAverage

Final

3.6 3.5

2.3

3.0

1.7

1.31.5

February 2004Projection

4.5

The Budget forecasts that the deficit will continue todecline as a percentage of GDP. In 2005, we project adeficit of 3.5 percent of GDP, or $427 billion. And if wemaintain the policies of economic growth and spendingrestraint reflected in this Budget, in 2006 and each of the next four years, the deficit is expected to decline.By 2009, the deficit is projected to be cut by more than

half from its originally estimated 2004 peak—to just 1.5percent of GDP, which is well below the 40-year histor-ical average deficit, and lower than all but seven of thelast 25 years.

While the Budget projects steady and solidimprovement over the five-year budget window, theNation faces substantial deficit challenges about

a decade from now. At that point, when the major effects of the retirement of the Baby Boomgeneration begin to be felt, deficits are projected to rise indefinitely. That is why it is necessary to act



THE BUDGET FOR FISCAL YEAR 2006 5

this year to strengthen Social Security. While the program can deliver promised benefits to today’sseniors, it has made promises to young workers that it cannot keep. Social Security’s unfundedobligations total more than $10 trillion, and that figure grows by hundreds of billions of dollarswith every year of inaction. This year, the President will work with the Congress on Social Securityreform that includes personal accounts and fixes the problem permanently. Such reforms aremuch-needed, both to provide young workers the opportunity to build a nest egg for retirement, and

to take a major step in confronting the long-term fiscal danger posed by the unfunded obligations of our entitlement programs.

Highlights of the President’s Budget

• Overall discretionary spending rises by just 2.1 percent, lower than the rate of expected inflation.

• Non-security discretionary spending falls by nearly 1 percent, the tightest such restraint proposed sincethe Reagan Administration.

• The deficit is forecast to fall to 3.0 percent of GDP in 2006, compared with 3.5 percent in 2005.

• The deficit is forecast to fall to 1.5 percent of GDP by 2009, well below the 40-year historical average

of 2.3 percent of GDP.



6 OVERVIEW OF THE PRESIDENT’S 2006 BUDGET

HIGHLIGHTS OF PROGRAM INCREASES AND NEW INITIATIVES

(All figures depicting increases are above the 2005 enacted levels.)

Defense, Foreign Assistance, and Homeland Security

• Raises overall Defense spending by 4.8 percent, or 41 percent since 2001.

• $35 billion more between now and 2011 to reorganize the total Army forces and increase the numberof active Army combat brigades by 30 percent.

• $3.5 billion more between 2006 and 2011 to implement the Global Posture Initiative, which will increaseU.S. responsiveness and allow for the return of 70,000 U.S. troops from Cold War bases.

• $1.7 billion for unmanned vehicles, which perform hazardous tasks without risking the lives of soldiers,sailors, airmen, and Marines.

• $3 billion, an increase of $1.5 billion, to expand the Millennium Challenge Account for foreign

assistance, to encourage sound economic and governance policies in the developing world.• $4.2 billion for the Department of Health and Human Services (HHS), a $154 million increase, to

address the threat of bioterrorism.

• $600 million for a Targeted Infrastructure Protection Program in the Department of Homeland Security(DHS) to assist State and local governments in reducing the vulnerability of critical infrastructure, suchas chemical facilities, ports, and transit systems.

• $581 million, a 45-percent increase, for research and developmentof radiological and nucleardetectionsystems and countermeasures at DHS, the Department of Energy, and HHS.

• An increase of $555 million for the Federal Bureau of Investigation, an 11-percent increase over 2005levels, and a 76-percent increase since 2001.

Economic Opportunity and Education

• $10 billion over 10 years in tax incentives to create economic Opportunity Zones in areas transitioningto new and emerging industries.

• $3.7 billion for a new economic and community development program that consolidates 18 ineffectiveor duplicative programs into a flexible and targeted program.

• $200 million to provide home purchase downpayment assistance to 40,000 low-income families.

• $28 billion increase for student aid programs through 2015, including the retirement of the Pell Grantshortfall, an increase in the maximum Pell award by $500 over five years, and additional benefits tostudent borrowers, helping more than 10 million needy students cover the costs of college.

• $1.5 billion for the President’s High School Initiative to extend No Child Left Behind (NCLB) reforms

into high schools through improved testing and programs for at-risk youth.

• $11.1 billion for IDEA special education grants to States, an increase of $508 million, taking the totalincrease in Federal funding for IDEA grants to $4.8 billion, or 75 percent, since 2001.

• $603 million more for Title I to provide grants to improve education in low-income communities andsupport NCLB reforms, a total increase of $4.6 billion, or 52 percent, for Title I since 2001.

• $500 million for schools and teachers to close the achievement gap and attract high-quality teachersto high-need schools.




Health and Compassion

• $74 billion over 10 years for health-insurance tax credits for low-income individuals and families thatwill ultimately help 15 million families purchase affordable health insurance.

• $4 billion in grants to States to establish health insurance purchasing pools, through which people who

qualify for the tax credit and others can obtain coverage.• $28.5 billion over 10 years for tax deductions for premiums for high deductible insurance, which will

ultimately help six million Americans save for their health care costs in tax-free accounts.

• $19.2 billion over 10 years for tax rebates for small businesses that contribute to their employees’ healthsavings accounts, encouraging more small employers to offer health benefits.

• $2.0 billion for Health Centers in medically underserved areas, a $304 million increase, fulfilling thePresident’s commitment to create or expand 1,200 center sites by 2006 and begin the commitment toestablish a health center in every high-poverty county that can support one.

• $1 billion in grants over two years for Cover the Kids, a new campaign to enroll millions morelow-income children in Medicaid and the State Children’s Health Insurance Program.

• $125 million for Health Information Technology to help achieve the President’s goal that most

Americans have electronic health records by 2014.• $3.2 billion, an increase of $382 million, to continue to expand the President’s Emergency Plan for

AIDS Relief.

• $1.2 billion for international food aid, including a new initiative to provide $300 million as cashassistance, allowing emergency food aid to be provided more quickly to address the most urgentneeds.

• $4 billion, an increase of 8.5 percent, for Federal housing and social programs for the homeless,including $1.4 billion for Homeless Assistance Grants.

• $100 million to fund competitive grants for States to develop innovative approaches to promote healthymarriages.

• $3.1 billion over 10 years in tax incentives to promote donations to charitable organizations from

individual retirement accounts.

Science and Environment

• $27 billion through 2010, to make permanent the Research and Experimentation tax credit, a criticalelement in our innovation economy.

• $5.6 billion for the National Science Foundation’s vital science, education, and basic researchprograms, an increase of $132 million.

• $511 million to advance new and cutting-edge nuclear energy technology to provide reliable,affordable, and emissions-free sources of energy.

• $260 million for the President’s Hydrogen Fuel Initiative, to help reduce our dependence on foreignsources of oil and create a new generation of hydrogen-powered vehicles.

• $286 million for the President’s Clean Coal Research Initiative to research, develop, and demonstrateclean coal technologies, including the FutureGen Initiative to create the world’s first zero-emissionscoal-based power plant.

• $485 million, an added $34 million, or 7.5-percent increase, for the core fundamental research andfacilities of the National Institute of Standards and Technology.

• $210 million, an increase of $46 million, for assessment and clean-up of about 600 brownfields sites,spurring development in former manufacturing areas in our inner cities.

• $144 million increase to continue upgrading National Park Service facilities to an acceptable condition.



PROMOTING ECONOMIC OPPORTUNITY AND

OWNERSHIP

President George W. Bush participates in a conversation abouthomeownership at the Carpenters Training Center in Phoenix, Arizona,March 26, 2004.

Supported by the pro-growth policiesPresident Bush and the Congress adoptedduring his first term, the U.S. economy isstrong and its fundamentals point to contin-uing prosperity and expansion. The economyis creating new jobs; the unemployment rateis lower than the average of the 1970s, 1980s,and 1990s; previously discouraged workers

are re-entering the workforce and Americanbusinesses are investing for the future in newequipment and technology.

The economy’s expansion has been steadyand broad-based, with new investment and jobgrowth in virtually all major industries, andacross all regions of the country. There areseveral aspects of this expansion that meritspecial attention, including: the current features of our expansion that suggest long-term economichealth; the policies that restored growth to the economy; and the economic policies needed to keepour economy on a healthy economic path.

The Economy’s Current Condition

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

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Strong Sustained Real GDP Growth

Percent change from year earlier

Note: GDP growth for 2004 is an estimate.

--------------Projections---------------

As of the fourth quarter of 2004 theeconomy had grown 13 straight quarters, andproduction and income had grown more than10 percent. The economy generated over 2.6million new jobs from August 2003 throughDecember 2004, the unemployment rate fellby almost a full percentage point, and a widerange of indicators point to continued strongeconomic growth and improving labor markets

in 2005.

The Administration is forecasting 3.6percent real GDP growth in 2005 and 3.5percent growth in 2006, which approximatesthe consensus of private-sector forecasters. Awide range of indicators support this forecast.

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10 PROMOTING ECONOMIC OPPORTUNITY AND OWNERSHIP

1973 1979 1985 1991 1997 2003 2009

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Strong Productivity GrowthPercent change

2.5% Average1996-2000

1.4% Average1974-1995

4.2% Average2001-2004

Note: Productivity growth for 2004 is an estimate.

---Projections---

Strong productivity growth means more competitive companies andhigher paid workers.

For example, labor productivity rose at anaverage rate of 2.5 percent from the beginningof 1996 to the end of 2000, significantly fasterthan productivity growth over the previous20 years. Since the business cycle peak in thefirst quarter of 2001, productivity has risen

even faster, at a robust 4.2 percent averageannual rate. Productivity growth has, asexpected, slowed somewhat in 2004, but at3.1 percent growth over the past 12 monthsit continues to grow at historically high levelsthat help restrain price pressures, increasethe standard of living, and sustain economicmomentum.

1980 1984 1988 1992 1996 2000 2004

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Low Interest Rates and Low InflationHave Helped Restore Strong Growth

Percent

30-Year Conventional Mortgage Rate

10-Year Treasury Note Yield

CPI-U (Percent Change)

Price stability is also an important factorfor strong growth in the economy. Even with arecent spike in energy prices, overall inflationremains subdued, helping to sustain businessand consumer confidence in the economy.Historically low interest rates, in part madepossible by low inflation, also create a positiveenvironment for growth by helping individualsmake large-scale purchases, such as homes,or to refinance old loans at lower cost. Lowinterest rates have also allowed businesses

to achieve substantial interest cost savings,strengthen their balance sheets for the future,and take better advantage of new investmentopportunities.

Dec Apr Aug Dec Apr Aug Dec

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180S&P 500

Dow JonesIndustrials

NasdaqComposite

Major Stock IndexesOctober 2002 = 100

2002 2003 2004

The news on labor markets, output, produc-tivity, inflation, and interest rates all suggestthe economy has moved to a higher plane of long-term, sustainable expansion. This goodnews is reflected in the performance of theequity markets: stock prices rose sharplyin 2003, and again in the closing months of

2004. All the major stock indices are at ornear their highest levels since September11, 2001. Increases in equity markets haveadded $4 trillion to household wealth sinceSeptember 2002, restoring much of the lossesthat followed the stock market decline of 2000-2002. Combined with gains in housingprices, household net worth has risen $8.5trillion since the third quarter of 2001.




Data released in the final days of 2004 and in early 2005 reinforce expectations for continued eco-nomic strength. Industrial production, which started to slide in mid-2000, began to recover again bythe end of 2001 and reached a new high in December of 2004. Oil prices have fallen from their highs.

And business optimism, as measured by a periodic survey released by the National Federation of Independent Business, reached a 20-year high in December, driven especially by business plans fornew hiring.

Tax Relief: Why it Worked

The recent economic performance is remarkable considering that the U.S. economy was in arecession by early 2001, faced a major national emergency in September 2001, and endured therevelation of major corporate scandals and two wars. Yet the recession of 2001 was relativelyshort-lived and shallow, and it gave way to a robust expansion largely because the Congressresponded to the President’s call and enacted tax relief in 2001, 2002, and 2003.

1991-1995 1996-2000 2001:2-2004:3

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6Taxes

Gov't Transfers

Capital Income

Labor Income

Contributions to Growth in Real Per CapitaDisposable Income

Average annual percent change

Total: 0.8

Total: 2.8

Total: 1.7

Taxes went from being an extra drag on the economy in the 1990s tobecoming a powerful stimulus through the President’s program.

Lower tax rates enacted in 2001 reduced ob-stacles to growth by increasing the incentivesto work, save, invest, innovate, and start newbusinesses. In 2002, the President worked withthe Congress to improve investment incentives,which reversed a two-year downward trend inbusiness investment; as of the fourth quarter of 2004, business investment had increased sevenconsecutive quarters.

In 2003, the President worked with the Con-gress to accelerate the 2001 tax relief. Also in2002, an improvement in the tax treatment of small business investment helped many entre-preneurs put more of their capital to work in

growing their firms. And the President won sig-nificant reductions in the tax rate on dividendsand capital gains. This added tax relief reduceddistortions arising out of the tax code that unfairly and unwisely subjected some forms of invest-ment income to excessively high tax rates, and fundamentally improved the investment and savingclimate in the United States. Lower dividend and capital gains tax rates also significantly reducedthe incentives that previously drove businesses to rely unduly on debt financing.

POLICIES FOR A STRONGER ECONOMY

The economy has rebounded from its period of weakness, and even with a recent spike in energy

prices and continued weak economic growth among our trading partners, it appears poised for con-tinued strength. An extended economic expansion is far from assured; however, the Administrationwill continue to advance policies that promote growth, opportunity, and ownership. These steps willhelp America remain the world’s best place to do business and create jobs.

Tax Policy

As outlined above, tax relief was a primary reason for the economy’s rebound. In 2004, thePresident signed into law the fourth tax cut in as many years to maintain that tax relief, including




the new 10-percent tax bracket, the marriage penalty relief, the increase in the child tax credit,dividend tax relief, and other provisions that will continue at their current levels in most casesthrough 2010. The President has called on the Congress to make this tax relief permanent so thatfamilies and businesses can invest and plan with confidence.

Even with all the positive changes the President has signed into law, the Federal income tax code

still discourages economic growth in many ways. For example, the income tax continues to discouragesaving for many taxpayers, and so the President has proposed Retirement Savings Accounts, whichwould replace the complex array of retirement saving incentives currently in the tax code, such asIRAs, Roth IRAs, and similar saving vehicles. The President has also proposed Employer RetirementSavings Accounts to simplify the saving opportunities individuals have through their employers.

The President also proposed Lifetime Savings Accounts that would, for the first time, allow individuals to save on a tax-preferred basis for any purpose. While important to all Americans, Life-time Savings Accounts are especially important to low-income individuals and families who need tosave, but cannot afford to lock up funds for retirement that may be needed for an emergency in thenear-term. The President also proposed Individual Development Accounts that would give extra fi-nancial incentive to certain low-income families to set aside funds for major purchases, such as a first

home.For generations, the tax code has encouraged Americans to spend first and save second. These

proposals would level the incentives to save and consume, thereby promoting a culture of saving in America that is essential to future prosperity.

These saving proposals would help address one of the tax code’s many flaws, but they cannot ad-dress all the problems the tax code presents for the economy. Therefore, the President has called for afundamental reform of the Federal income tax system to make it simpler, fairer, and more pro-growth.The Federal income tax code is not just a complicated mess; it is also a maze of special-interest loop-holes that cause America’s taxpayers to spend more than six billion hours every year on paperwork.Work, entrepreneurship, investment, ownership, and even education are discouraged by our tax sys-tem. Businesses routinely make decisions about the deployment of capital not on economic merits

alone, but also on the relevance of certain chapters of our tax code.The President appointed a bipartisan Advisory Panel on Fundamental Tax Reform to report to the

Secretary of the Treasury by July 31, 2005, on options to reform the tax code. These options will formthe basis of efforts to enact reforms that meet the President’s objectives of simplification, fairness,and a more pro-growth tax system, while recognizing the importance of homeownership and charityto American society.

Litigation Reform

The costs of litigation per person in the United States are far higher than in any other major indus-trialized nation in the world. Lawsuit costs have risen substantially over the past several decades,

and a significant part of the costs go to paying lawyers’ fees and transaction costs—not to compen-sating the injured parties. The litigation explosion is clogging our civil courts and threatening jobsacross America. Businesses with $10 million or more in revenue bear an average annual cost of $150,000 from litigation. Small businesses with less than $10 million in revenue bear 68 percent of business tort liability costs, even though they only take in 25 percent of business revenue.

The President is pushing the Congress to pass legislation that reduces the burden of frivolouslawsuits on our economy. The President supports enactment of medical liability reform, class ac-tion lawsuit reforms, and asbestos litigation reform to expedite fair resolutions and curb the costs of lawsuits for all Americans.




Frivolous lawsuits and excessive jury awards are driving many health care providers out of commu-nities and forcing doctors to practice defensive medicine. This reduces access to medically necessaryservices and raises the costs of health care for all. The President has proposed proven reforms, suchas common-sense limits on non-economic damages, to make the medical liability system more fair,predictable, and timely.

The President’s proposed class action reforms seek to limit the abuse of large, nationwide classaction cases and provide justice to the truly injured parties. Class actions are an important andintrinsic part of the U.S. legal system. However, class actions are heavily abused, which in turnharms affected parties and undermines the American judicial system. In particular, injured partiesoften receive awards of little or no value while lawyers receive large fees. The proposed class actionreform legislation recognizes that large interstate class actions require Federal court jurisdictionbecause they typically affect more citizens, involve more money, and raise more interstate commerceissues than any other type of lawsuit. In addition, the President wants to end the practice of “judgeshopping,” where trial lawyers file cases only in jurisdictions likely to favor plaintiffs. These reformsdo not alter the right of a plaintiff to bring a legitimate claim, or change controlling substantive law,but provide additional protection and information to class members.

Asbestos cases have generated the longest-running mass tort litigation in U.S. history and have ledto the bankruptcies of at least 74 companies and to more than 50,000 lost jobs. Within the past fewyears, there have been sharp increases in the number of asbestos claims filed annually. The currentsystem is costly to administer, with total projected costs estimated at between $200 and $265 billion.These costs have driven exposed defendants into bankruptcy and may leave little or no funds to payfuture asbestos victims. The President has stressed the need for reform and urged the Congress tofind a fair and permanent solution.

Regulatory Reform

Excessive regulations can prevent the creation and growth of new small businesses and the jobsthey create; in the first term, the Administration slowed the growth of new rules by 75 percent. The

President wants to streamline regulations further and reduce paperwork to alleviate the burdensthat unduly handicap America’s entrepreneurs and job creators. The Administration is taking actionin several areas to streamline Federal regulations, while still moving forward with crucial safeguardsfor homeland security, human health, investor and environmental protection. Regulations should beanalyzed based not just on their benefits, but also on their costs. When regulations are proposed, thescientific research supporting their enactment must be sound, and subject to careful scrutiny. Andwhen regulations are out of date, they must be reviewed for relevancy, and to make sure the benefitsthey produce are at least equal to their costs.

Health Care Costs

The rapid pace of health care inflation slows job growth, reduces the growth rate of worker wages,

and makes health care less accessible and less affordable for consumers. When employers have topay more for health coverage for their workers, they can afford less for worker paychecks. Ultimately,the increase in overall labor costs to U.S. employers, as a result of rising health care costs, damagesour economy’s global competitiveness.

Some employers, especially small businesses, struggle to provide even basic health insurancefor their employees. State and national rules often prevent small businesses from bandingtogether to purchase health coverage at the same rates paid by large companies. The Presidentproposes to address this problem through Association Health Plans, which would permit cross-Statehealth-purchasing alliances of small businesses and other organizations. In addition, the President




would make health care more affordable by offering tax credits for employer contributions to HealthSavings Accounts. These accounts allow employees to save tax-free for their out-of-pocket healthcosts, and are paired with high-deductible insurance policies that cover hospitalization and othermajor health care costs.

Among the drivers for health care inflation are the out-of-control costs that come from unneces-

sary medical liability lawsuits. As mentioned previously, the President has an aggressive plan toreform our medical liability system. These reforms are critical because frivolous lawsuits have al-ready chased many doctors out of the practice of medicine and make health care less accessible formillions of Americans. And for the doctors who remain, these lawsuits are an ever-present fear. Doc-tors wary of getting sued practice defensive medicine, ordering more laboratory tests or examinationsthan are medically necessary, which ultimately drives up health care costs for everyone. And becauseof the number of lawsuits—even those that are dismissed—insurers for doctors and hospitals raisepremiums, and these higher costs of practicing medicine are passed on to consumers. Even if yourdoctor has never been sued, and even if you rarely visit the doctor, your health care has become farmore expensive because of the abuse of our medical liability laws. Those States that have adoptedcommon-sense reforms, such as caps on punitive damages and limits on non-economic damages, haveseen smaller and more manageable increases in doctor’s liability insurance premiums. The President

intends to work with the Congress this year to adopt similar reforms nationally.The President also supports investments in and accelerated deployment of health information tech-

nology that will further help to control rising health care costs. These technologies can reduce medi-cal errors, improve patient care, and save doctors and nurses time, ultimately saving our health caresystem dollars.

Another way to control rising health care costs is by closing loopholes that slow the movementof more affordable generic drugs to the marketplace. The Administration has taken action to im-prove access to generic drugs by: limiting the time a drug company can delay the marketing of ageneric competitor; instituting rule changes to prevent drug companies from blocking the marketingof generic versions by using patents on minor features; and tightening the rules on patent applica-tions so that false statements to get a patent result in criminal charges. These actions are bringing

generic drugs to the market more quickly, and will save American consumers $35 billion over 10years—savings that go not only to the consumers, but also to Medicare and Medicaid programs ad-ministered by the States.

Trade

President Bush’s top economic priority is the creation of more jobs for American workers. Free andfair trade helps create more higher-paying jobs for American workers by opening new markets for

American products and services, expanding choices for American consumers, and attracting foreigncompanies to invest and hire in the United States. America is economically stronger when we par-ticipate fully in the worldwide economy because 95 percent of the potential customers for Americanproducts live outside the United States.

Trade agreements like the North American Free Trade Agreement and the World Trade Organiza-tion (WTO) have generated benefits—lower prices and more choices—totaling $1,300 to $2,000 an-nually for the typical U.S. family. Lowering barriers to trade by even one-third will boost the worldeconomy by as much as $613 billion—and the U.S. economy by $144 billion a year. To the typicalfamily of four, that means an additional $2,000 or more a year in savings.

Exports have reached record levels during the Bush Presidency. President Bush, working closelywith the Congress, won Trade Promotion Authority to enable quicker passage of trade agreements.This was the first time the Congress approved Trade Promotion Authority in eight years. Using this




authority, the Bush Administration has completed free trade agreements with 12 countries, including Australia, Morocco, Bahrain, Chile, Singapore, and Jordan, and is negotiating free trade agreementswith 10 others. In addition, the Administration is in the process of forming a Free Trade Area of the

Americas, which will become the world’s largest free trade area.

The Administration also played a critical leadership role in successfully launching a new round

of global trade negotiations at the WTO, and has developed an aggressive plan to open interna-tional markets for U.S. farmers—which helped generate a 10-percent increase in agricultural exportsbetween 2000 and 2003.

The President recognizes that some communities and some industries face adjustments in theglobal economy. That is why he signed a major expansion of assistance to help workers acquire newskills and find new jobs. The Trade Act of 2002 nearly tripled the Trade Adjustment Assistance pro-gram. In 2003 it provided some $1.3 billion in training and income support, with nearly 200,000workers eligible for assistance. President Bush is ensuring that U.S. trading partners abide by theirinternational commitments by aggressively enforcing U.S. trade laws. For example, the Administra-tion brought the first-ever WTO case against China for its discriminatory tax treatment against U.S.semiconductor makers. In July 2004, China agreed to end this unfair practice.

Energy

A hydrogen refueling station at Los Angeles InternationalAirport.

It is critical to our economy to have affordable, re-liable, and secure energy supplies. President Bushin his first term put forward the first comprehensive,long-term energy policy in a decade to meet this goalthrough conservation, investment in new technology,and development of new domestic sources of energy.The Bush Administration has completed, or is in theprocess of implementing, nearly 75 percent of the 106recommendations contained in the President’s com-

prehensive National Energy Policy, such as filling theStrategic Petroleum Reserve to capacity.

President Bush also proposed modernizing theelectricity grid by reforming outdated laws, openingaccess to the transmission grid, establishing regionalplanning and coordination, and establishing mandatory reliability standards to prevent blackouts.The President has advocated funding for clean coal research, including FutureGen, and increasinguse of clean coal technology; funding for nuclear energy research and development; new efficiencystandards for consumer products; tax incentives for use of renewable sources of energy like wind andsolar power; and the opening of a small area (less than one percent) of the Arctic National WildlifeRefuge for environmentally responsible oil and gas exploration. The Arctic National Wildlife Refuge

has the potential to provide over one million barrels of oil a day and provides access to one of thelargest known reserves of natural gas in the United States.

President Bush launched a groundbreaking initiative to develop technologies and infrastructureto produce, store, and distribute hydrogen for use in fuel-cell vehicles, electricity generation, andother applications. Hydrogen-powered fuel cells hold the potential to power cars, trucks, homes, andbusinesses while producing virtually no pollution or greenhouse gases.




Innovation and Ownership

President Bush talks with an employee at U.S.A. Industries in Bay Shore,N.Y., March 11, 2004.

In virtually every industry, Americancompanies and entrepreneurs are exercisingthe power of innovation to meet 21st Centurychallenges. Invention, commercialization, and

diffusion of new ideas into new products andservices directly affect the pace of productivitygrowth and the quality of peoples’ lives.Innovation lowers costs to consumers andbrings new products to the market.

The greatest incentive for innovation is ahealthy economy that rewards the inventorand investor. The Administration supportsstrong protection of patent rights and researchand development, as well as the enforcementof anti-trust laws so that new competition is

always welcomed. The President has laid the foundation for healthy innovation with tax relief thatrewards those who create jobs and invest capital in new ideas. He has also proposed many otherpolicies to build on this base:

The President has proposed to make the Research and Experiment tax credit permanent toencourage technological discovery.

• The President proposes to increase Federal spending on new research and development to $132billion, an increase of one percent over 2005 and an all-time high.

• He has established programs to accelerate the adoption of hydrogen fuel technology, a new andpromising energy source, which has the potential to reduce our dependence on foreign sourcesof energy.

• His proposals would transform health care through the rapid application of new health infor-mation technology, thereby reducing medical errors and health care costs.

• The President has called for universal, affordable access for broadband technology by the year2007.

• The President has placed a priority on nanotechnology, information technology, and scientificand technological standards.

As our economy continues to expand, the Federal Government will help communities respond toand prepare for changing conditions, particularly as some industries restructure and new industriesappear. To help workers in poor communities, the President is proposing Opportunity Zones andother initiatives to provide tax relief, and attract new business, and improve housing and job train-ing. In addition, he has signed legislation and increased funding to support the cleanup of former

industrial sites, which are known as brownfields. A key element of the Administration’s policy is to promote ownership in America. The Administra-

tion has promoted and will continue to support policies that allow individuals to take greater controlover their lives through private ownership. When families have assets, they have a foundation of stability to help them through difficult periods. A family that saves, owns a home, or invests througha retirement, health, or education fund is building toward a brighter future and contributing to oureconomy’s long-term economic health.

The best place to see these effects is where people live. More Americans own their own homes thanever before, and the value of those homes is rising at a steady pace. Our strong housing market is




a testament to the faith that Americans place in their homes as a long-term investment. The Pres-ident has placed a high priority on promoting further gains in homeownership, particularly amongminorities. Already, minority homeownership is at a record high, and in 2002 the President set anambitious goal to add 5.5 million minority homeowners through 2010. Through downpayment assis-tance programs, financial literacy efforts, tax incentives for building affordable homes, and Individ-ual Development Accounts, the President is promoting the kinds of policies that will strengthen our

neighborhoods and communities and provide more Americans a chance to call something their own.

The same principle applies to other Presidential policies. Health Savings Accounts provide a bet-ter way for Americans to control and spend their health care dollars. Lifetime Savings Accounts willprovide a better way for Americans to save for college tuition and other goals. Personal Retirement

Accounts under Social Security will provide a better way for Americans to save for their own retire-ment, using a portion of their payroll taxes. In all these proposals, personal ownership is the commonfeature, because it is the best way to achieve financial independence and prosperity.

During the past four years, this Nation experienced significant economic challenges that tested theresolve of the American people. But as is now clear, that resolve was never in question. The economicrecovery has now become a strong expansion that is bringing prosperity to more communities across

America. Yet the on-going weakness in other nations’ economies serve as a reminder that the UnitedStates cannot afford to take a strong economy for granted. Effective tax, monetary, labor, regulatory,environmental, education, trade, and national security policies are all necessary for a strong andgrowing economy.

At the same time, all these policies merely complement the effort, ingenuity, and strength of in-dividual workers and companies that comprise our $12 trillion economy. Through the pursuit of pro-growth policies, our economy is once again growing at a strong and sustainable pace. Througha growing economy, Federal receipts are once again rising at a steady rate. Combined with spend-ing restraint, rising revenues will reduce the near-term budget deficit. By addressing the near-termdeficit and the long-term imbalances in entitlement programs, America will further reinforce ourprospects for a strong economy in the years ahead.



THE NATION’S FISCAL OUTLOOK

Over the past four years, the Administration and the Congress have responded to the challengesposed by recession, terrorist attacks, corporate scandals, and the War on Terror. The responsesincluded enacting tax relief, reducing regulatory burdens, promoting trade, supporting entrepreneur-ship, and making a substantial investment in our homeland security and defense. Working with theCongress, this Administration took steps to help generate and fuel the economic recovery.

Sustaining economic expansion now requires additional action, especially strong Federalspending discipline. While the Administration and the Congress succeeded in slowing the growthin non-security discretionary spending during the President’s first term, more needs to be done toensure Federal spending growth does not place unsustainable demands on our economy.

When the Federal Government focuses on its priorities and limits its claim on resources takenfrom the private sector that helps sustain a stronger, more productive economy. When it is achievedthrough spending restraint rather than through tax increases, deficit reduction bolsters confidencein America’s economy. This confidence in global capital markets brings important advantages to

America’s economy in the form of lower interest rates and lower borrowing costs, which in turn leadto more investment and more jobs. Keeping America’s fiscal house in order, while holding taxes down,sustains growth and justifies investors’ confidence in the U.S. economy.

A strong economy and a strong fiscal condition are mutually reinforcing goals. Just one year ago,the Nation’s economy was still emerging from the effects of multiple shocks. Last year’s Budget es-timated a deficit of 4.5 percent of Gross Domestic Product (GDP) in 2004, or $521 billion. Privateand other forecasters had similar deficit expectations. Largely because economic growth generated

stronger revenues than originally estimated, and because the Congress adhered to the spending re-straint called for in the President’s Budget, the 2004 deficit came in $109 billion lower than expected,at $412 billion, or 3.6 percent of GDP.

The 2005 Budget, while providing needed increases for overall homeland security and defensespending, still held overall discretionary spending growth to 4 percent for the second year in a row.Non-security discretionary spending growth declined for the fourth year in a row, down from a highof 15 percent in the final budget year of the prior Administration to about one percent in 2005.

The President’s 2006 Budget demonstrates even greater restraint: it is the first Budget to proposea cut in non-security discretionary spending since the Reagan Administration. Even with significantincreases in security-related spending, the 2006 Budget holds overall discretionary spending to 2.1percent growth, which is just below the projected rate of inflation. In other words, after providing

substantial increases for protecting America at home and abroad, overall discretionary spending willstill be reduced in real terms.

In the area of non-defense discretionary spending, this Budget proposes more than 150 programreductions and eliminations, saving a total of about $20 billion dollars in 2006 alone. Discretionaryspending is subject to the annual appropriations process and is therefore easier to control becauselegislation must generally be enacted each year for programs to continue.

Spending on mandatory programs is more difficult to restrain because these programs generallyoperate based on formulas that are not subject to annual review. Consequently, when these programsgrow faster than originally envisioned, which is often the case, there is no automatic mechanism to

19



20 THE NATION’S FISCAL OUTLOOK

impose restraint. The only way to constrain the growth of mandatory spending is by enacting newlaws that change the rules governing spending. The 2006 Budget proposes significant reforms inmandatory programs, saving a total of $137 billion over a 10-year period.

Among the many reforms the Budget proposes are changes to Federal high school funding pro-grams, which have for years focused on narrow purposes that have not proven effective in improving

student academic achievement or job prospects. The Budget proposes to consolidate the funding forthese programs, and use that funding for more testing, intervention programs for struggling read-ers, and other reforms. The Budget also creates a new economic development program that willreplace the current system of duplicative efforts that often do not show positive results. By focusingresources on the creation of jobs and economic opportunity, and on private partnerships, this reformwill improve accountability and results. And the Budget proposes reforms in Medicaid to reduce in-efficiencies and overpayments, while extending to States more flexibility in determining Medicaideligibility and how benefits are delivered.

When evaluating the Nation’s fiscal outlook, it is important to consider two different time frames:what happens in the near-term, and what happens thereafter with the retirement of the BabyBoom generation. With continued pro-growth policies and responsible spending restraint, the fiscalcondition of the Federal Government shows steady and solid improvement over the five-year budget

window. This period of relative success will end roughly a decade from now when the retirementof Baby Boomers begins in earnest, and the costs of the Nation’s entitlement programs explode.

At that point, the Federal Government’s deficits are expected to begin a dramatic rise, and theentitlement programs that are currently manageable will eventually overwhelm the rest of theFederal budget—unless appropriate and effective reforms are enacted.

THE NEAR-TERM FISCAL OUTLOOK

The best way to compare annual deficit levels is by analyzing their size relative to the overall size of the economy, as measured by GDP. Such a comparison gives the most meaningful measure of the sizeand scale of deficits, spending, and revenue. After all, a deficit of $100 billion is less than 1 percent

of our $12 trillion economy. But $100 billion would have represented 10 percent of the $1 trillioneconomy of 1970.

2004 2005 2006 2007 2008 2009 20100

1

2

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A Declining Budget DeficitPercent of GDP

--------------------------- Projections --------------------------

40-year HistoricalAverage

Final

3.6 3.5

2.3

3.0

1.7

1.3

1.5

February 2004Projection

4.5

Near-term budget projections show a trend of steady decline in deficits as receipts grow and thespending restraint in this Budget is enforced. The

Administration, like private forecasters, projects thatthe economy will grow at a strong and steady pace incoming years. Fueled by the President’s pro-growthpolicies, the Administration projects tax receipts togrow faster than outlays in each of the next five years.From 2005 to 2010, receipts are projected to rise by

an average of nearly 7 percent annually, more thantwo percentage points faster than average growth inspending.

Last year, the Administration’s Budget projected adeficit of 4.5 percent of GDP in 2004. But by the end of

the year, the deficit had shrunk to 3.6 percent of GDP, which while still too large, was only the 10thlargest deficit in the last 25 years. Even with renewed economic growth and current and past spend-ing restraint measures, the Administration expects that deficits for 2005 and 2006 will be higherthan projected last year. The 2005 deficit estimate in last year’s Budget did not include the costs




of 2005 supplemental appropriations to fund continuing operations in Afghanistan and Iraq. Sincethat Budget was released, the Congress enacted $25 billion in additional appropriations to supportmilitary operations. The Administration intends to submit a supplemental appropriations requestof approximately $81 billion primarily to support operations for the remainder of the fiscal year. The2006 Budget’s spending and deficit projections fully reflect the outlay effects of these two supple-mental requests. However, the Budget does not reflect the effect of undetermined but anticipated

supplemental requests for ongoing operations in Iraq and Afghanistan beyond 2005.

1940 1950 1960 1970 1980 1990 2000 2010

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40

50

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100

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Declining Federal Debt

Debt held by the public as a percent of GDP

While the 2005 deficit rises in nominal dollarterms to $427 billion, it falls to 3.5 percent of GDP. And in 2006, the deficit is expected tofall further still, to 3.0 percent of GDP, whichwould be only the 15th largest in 25 years. Allthese projections assume both the continuedeconomic growth we have seen, as well as thespending restraint included in this Budget. If we maintain these policies, we cut the deficitby more than half from its originally estimated

2004 peak—to just 1.5 percent of GDP, whichis well below the 40-year historical average of 2.3 percent.

Financial markets look at deficits usingadditional methods. One important measureis the ratio of all publicly-held Federal debt to GDP. This ratio, which has varied between 34 percentand nearly 50 percent over the past 20 years, is projected to be 40 percent at the end of 2007, and tofall to 39 percent in 2010. This decline is expected to occur because projected deficits as a share of GDP are modest, and because economic growth is projected to be strong over this period.

THE LONG-TERM FISCAL CHALLENGE: A CALL FOR REFORM

As discussed above, the Federal Government’s near-term fiscal outlook is expected to improvesteadily over the next several years. The same cannot be said of the long-term deficit picture asa result of long-standing imbalances between what major entitlement programs currently promisein benefits and the resources expected to be available to meet those promises. Due to a combinationof demographic and cost pressures, Social Security’s and Medicare’s unfunded obligations pose thereal fiscal danger to the Federal budget and to our economy in general.

Social Security

Social Security today operates on what is known as a “pay-as-you-go” basis, in which current worker

payroll taxes are used immediately to pay for the benefits of current retirees and other beneficiaries.However, demographic trends indicate that the ratio of workers to beneficiaries will continue to de-cline. In 1950, there were about 16 workers paying for every beneficiary. Today, there are slightlymore than three—and by the time today’s young workers retire, there will be only two workers tosupport each person on Social Security. Despite multiple efforts in the past to patch the system withcuts in benefits and increases in the payroll tax and the retirement age, the Social Security systemremains on a clear path to fiscal failure.

A snapshot of the Social Security system today gives no hint of the trouble to come because it showsSocial Security with a cash surplus estimated to be $76 billion in 2006. However, this surplus begins




to decline in 2008 as the first wave of Baby Boomers retire. In 2018, the Social Security systemwill collect less in taxes than it pays in benefits and will shift into a permanent cash deficit. In2042, Social Security will exhaust its Trust Fund assets and will be bankrupt. If Social Security’sproblems are left unresolved, today’s young workers will see their benefits sharply and suddenly cut,their children’s payroll taxes raised, or both.

Another measure of Social Security’s long-term fiscal condition comes from the long-run net present value of its future income and promised benefits. Looking out over the next 75 years, Social Securityis carrying a deficit of $3.7 trillion, a figure that includes its existing Trust Fund balances of $1.5trillion.

The picture is actually worse, because the 75-year window takes credit for the payroll taxes paidby the next generation of workers while failing to count benefit payments owed to them beyondthe 75-year timeframe. A more accurate way to describe Social Security’s financial jeopardy is bycalculating how much it would cost to fix the problem permanently. An analysis that captures thenet present value of all Social Security tax collections and promised benefits shows Social Securityfacing a deficit of $10.4 trillion, allowing for the present value of Social Security’s Trust Fund bal-ance. That figure is estimated to rise by around $600 billion in 2005, and by increasing amounts eachyear thereafter, if no reforms are enacted.

The long-term fiscal imbalance in Social Security is well known to investors at home and abroad.Failure to rectify Social Security’s finances could cause financial markets to question the FederalGovernment’s commitment to sustainable fiscal policies. Such a conclusion would at some point findits expression in steadily rising real borrowing costs to the Federal Government, a drop in confidencein the American economy that would lead to less business investment, and slower overall economicgrowth.

Only significant changes in policy can prevent Social Security from driving the Federal Govern-ment to debt levels that are unsustainable. The sooner necessary policy changes are made, the lessdisruptive they will have to be. The President’s Commission to Strengthen Social Security presentedthree options as the basis for reform in its 2001 report. Many other proposals have been advanced inthe intervening period as well.

The President has made clear that in 2005, he will pursue legislation that permanently fixes SocialSecurity, building on recent reform efforts and following these guiding principles:

• Benefits for today’s retirees or those near retirement should not be changed. Americans whohave already put in an entire working career are counting on Social Security benefits. We mustcontinue to honor the commitments we have made to our seniors.

• Payroll taxes must not be increased. Past shortfalls in Social Security have been addressed byrepeatedly raising payroll taxes on current workers and employers. These efforts have nevercorrected the problem. Moreover, higher taxes would hurt economic growth, which is vital toboth near-term and long-term deficit reduction.

• Social Security reform must also include the creation of voluntary personal accounts so that

younger workers can have greater control over and actual ownership of their payroll tax dollars.These accounts will enable American workers to build a nest egg for retirement.

Voluntary personal accounts under Social Security involve financing the transition from today’sunsustainable “pay-as-you-go” system. The creation of these accounts would therefore have impor-tant consequences for Federal finances in both the near-term and in the long-run, but these effectsdo not have the same impacts on the economy as traditional debt financing.

The effect of creating personal accounts would be to protect some portion of worker payroll taxesfrom the reach of the Federal Treasury. The Federal Government might therefore have to increase itsborrowing in the private capital markets by an amount equal to the annual flow of payroll taxes into




the personal accounts. While the creation of personal accounts would increase Federal borrowing,they would also reduce the Federal Government’s future spending obligations by an equal amount.Both effects must be shown and understood together—both the size of near-term investments inpersonal accounts, under reasonable participation assumptions, and the corresponding amount bywhich reform would reduce future unfunded obligations. It is misleading to measure only the near-term impacts.

Social Security: The Need for Action

In 2008—just four years from now—the first cohort of the Baby Boom generation will reach 62, the earliest

age at which Social Security retirement benefits may be claimed and the age at which about half of prospec-

tive beneficiaries choose to retire; in 2011, these individuals will reach 65 and will thus be eligible for Medi-

care. At that time, under the intermediate assumptions of the OASDI trustees, there will still be more than

three covered workers for each OASDI beneficiary; by 2025, this ratio is projected to be down to 2–1/4. This

dramatic demographic change is certain to place enormous demands on our nation’s resources–demands

we almost surely will be unable to meet unless action is taken. For a variety of reasons that action is better

taken as soon as possible.

Alan Greenspan, Chairman of the Federal Reserve

Testimony, House Budget Committee

February 25, 2004

Even under a wide range of assumptions, CBO’s projections point to a financial imbalance in the Social

Security system over the long run. Changes in economic growth can affect the system’s finances. But

because the initial benefits paid to new recipients are indexed to the overall growth of earnings, the effect of

such changes is muted. For the most part, the future financial status of Social Security will be driven not by

economic conditions but by long-term demographic shifts–most notably, the aging of the population. That

trend is generally predictable, because anyone who will receive retirement benefits during the next 62 years

has already been born.

Congressional Budget Office

“The Outlook for Social Security”

June 2004

Our Social Security challenge is more urgent than it may appear. Failure to take remedial action will, in com-

bination with other entitlement spending, lead to a situation unsustainable both for the federal government

and, ultimately, the economy.

General Accounting Office

“Social Security: Analysis of Issues and Selected Reform Proposals”

January 15, 2003

The fundamentals of the financial status of Social Security and Medicare remain problematic under the in-

termediate economic and demographic assumptions. Social Security’s current annual cash surpluses will

soon begin to decline and then turn into rapidly growing cash deficits toward the end of the next decade

as the baby-boom generation retires. . . . As the reserves in Social Security and [the Medicare Hospital Insurance Trust Fund] are drawn down and [Medicare Supplementary Medical Insurance Fund] general rev-

enue financing requirements continue to grow, the pressure on the Federal budget will intensify. We do not

believe the currently projected long run growth rates of Social Security and Medicare are sustainable under

current financing arrangements.

Social Security and Medicare Boards of Trustees

“Status of the Social Security and Medicare Programs”

2004




Under most circumstances in which the Federal Government borrows funds, it is because theGovernment is spending more on goods, services, and transfer payments than it is taking in. In thecase of personal accounts, however, the reduction in national savings from the Federal Government’sincreased borrowing exactly matches the increase in private saving that occurs through the personalaccounts. There is no net reduction in national saving arising from this arrangement, nor is thereany reduction in the flow of saving available to the private sector. For this reason, the creation

of personal accounts is not expected to have any detrimental effect on financial markets or on theoverall economy.

Comprehensive reform that includes personal accounts would permanently eliminate theunfunded obligations of the current system. Ultimately, that is the standard by which any legisla-tion to strengthen the Social Security system must be held. To achieve this, the long-term growth inannual Social Security outlays cannot be greater than the long-term growth in program-generatedreceipts.

Projections regarding various proposals’ fiscal effects and their impact on beneficiaries will bebased on analyses provided by the non-partisan actuaries and other technical experts at the SocialSecurity Administration.

Medicare and Other Entitlement Programs

Medicare’s financial problems are in part driven by the same demographics we see in SocialSecurity, but Medicare’s problems are compounded by the rising cost of health care. This suggeststhat effective solutions to Medicare’s long-term financial shortfall may differ significantly from thesolutions for Social Security. For example, policies that foster a strong economy will tend to reduceMedicare’s shortfall because a strong economy produces additional receipts without generatingadditional promised benefits. By comparison, an increase in Social Security payroll tax receiptsarising from a strong economy produces commensurate increases in promised benefits.

In 2003, the President signed into law the Medicare Modernization Act (MMA), which added a pre-scription drug benefit to the program and created the Medicare Advantage program, in which private

health plans compete for seniors’ business by providing enhanced benefits. Seniors and other ben-eficiaries will now have access to prescription drugs and more preventive services under Medicare.

And importantly, the legislation lays the foundation for addressing Medicare’s long-term financingchallenge by dramatically increasing beneficiary choices and introducing market-based competition,which are the essential ingredients for greater efficiency and quality in our health care system.

Among its reforms, the MMA created new tax-favored Health Savings Accounts (HSAs). Theseaccounts allow workers to save tax-free for their out-of-pocket health costs, and are paired with low-premium, high-deductible health plans that cover hospitalization and other major health care costs.HSAs represent an innovation in health care coverage with improved incentives.

HSAs make basic health insurance more affordable, and promote health care decisions that aremore effective for both patients and the entire health care system. For example, people with HSAs

have a financial incentive to stay healthier, since fewer doctor visits mean more dollars left over inthe savings accounts. When consumers use their accounts to pay for out-of-pocket expenses, they aremore likely to seek out the best quality and the lowest price. This should drive health care providersto become more efficient and more cost-conscious, to the benefit of all health care consumers.

Individuals and families with HSAs are less likely to be dependent on employment or the insurancepolicies of a single employer for their health coverage. The President has proposed extending thebenefits of HSAs in two important ways: he has proposed giving small business owners a refundabletax credit for contributions made to employees’ HSAs; and he has proposed increasing the availabilityof HSAs for low-income families by providing a $1,000 direct contribution to their HSA in conjunction




with a refundable tax credit of up to $2,000 toward the purchase of a low-premium, high-deductiblehealth care plan.

The President has also advanced policies to accelerate the integration of the latest informationtechnologies into health care. He has set a goal that most Americans have electronic health recordswithin the next 10 years. Electronic health records are already making a difference in our health

care system, making patient records available to doctors in emergency situations and routine visits,promoting accurate medical notations and prescriptions, and helping to prevent avoidable medicalerrors, all while protecting patient privacy. By improving efficiency and reducing errors, we will seehealth care savings, making all health care in America more affordable and accessible.

The President is also proposing medical liability reforms. The costs of medical liability insuranceare driving doctors out of practice, or are being passed on to patients and their employers in higherinsurance rates. In addition, the pressure of medical liability lawsuits is causing more doctors topractice medicine defensively and order more lab tests or exams than is necessary, which is drivingup health care costs even further. By enacting national medical liability reform we will be able toaddress the problem of junk lawsuits against doctors, clear our court system of unnecessary litigation,and help to control health care inflation.

These policies will increase competition and individual choice in the health care marketplace, drivethe industry toward much greater efficiency, and eliminate some of the pressures that are liftinghealth care costs. Taken together, they will slow the rate of health care inflation, slow the rate of increases in Medicare costs, and thereby diminish Medicare’s unfunded obligations.

Much can also be done within Medicare itself to bring down its unfunded obligations. For example,to help address the program’s long-term fiscal challenges, the MMA requires the Medicare Trusteesin their annual report on the program’s financial soundness to analyze the combined fiscal status of the two Medicare Trust Funds and warn the Congress and the President when Medicare’s reliance ongeneral revenue funding will exceed 45 percent. If the Trustees determine that general revenue fund-ing will exceed 45 percent in two consecutive years, a Medicare Funding Warning is issued, whichmakes available special legislative procedures to allow the President and the Congress to addressthe shortfall in the Medicare Trust Funds. This new fiscal safeguard will alert the Congress andthe President should Medicare’s dedicated revenues fall below adequate levels. The Administrationsupports efforts to integrate Medicare’s financing structure and monitor the program’s reliance ongeneral revenue funding, such as a unified Medicare Trust Fund.

Other entitlement programs pose similar challenges to the long-term fiscal condition of the FederalGovernment. For example, the Medicaid program, which was created in 1965 to help States providehealth care benefits to low-income families with children, has evolved into an extremely complicatedprogram that emphasizes institutional settings, when home and community-based settings could bemore appropriate. And the program is growing rapidly. Counting the States’ share of costs, it isnow larger than Medicare. Total Medicaid expenditures will reach a projected $338 billion in 2006.Medicaid has become the largest expenditure in many State budgets, surpassing even primary andsecondary education. Yet, because of the program’s cumbersome structure, there are many very low-

income Americans who are not helped by Medicaid.Over the long term, Medicaid is not only a serious fiscal challenge for both Federal and State gov-

ernments, but its current structure is not the most efficient way to deliver modern medical care tothe poor. The Administration proposes to restore Medicaid’s original promise to protect and promotethe health of the least financially fortunate among us, while fostering a more balanced Federal-Statepartnership that improves the program’s long-term financial stability. The program’s open-endedfinance structure encourages efforts by States to draw down Federal matching funds, sometimes in-appropriately. These financing practices undermine the Federal-State partnership required by theMedicaid statute and jeopardize the financial stability of the program. The 2006 Budget proposes




several program integrity measures to reduce inappropriate use of Federal commitments under Med-icaid. Also, the Administration proposes to apply lessons learned from the successful State Children’sHealth Insurance Program by giving States more flexibility to provide needed care to larger num-bers of the uninsured, while reducing needless overhead and waste. Together with his package of proposals to help the uninsured, this reform will focus on increasing health insurance coverage forlow-income families while also promoting more efficient and rational ways of delivering care, such as

community-based care alternatives for persons with disabilities. (For a more complete description of reforms in the Medicaid program, please see the Department of Health and Human Services chapter.)

BUDGET ENFORCEMENT AND PROCESS REFORM

To enforce spending discipline in the 2006 Budget, as well as maintain spending discipline overthe long-term, the Administration proposes several budget process reforms.

The Administration supports the establishment of overall discretionary spending caps and pay-as-you-go (PAYGO) rules for mandatory spending. To further this goal, the Administration transmittedin April of last year the Spending Control Act of 2004. The Administration plans to repropose that

legislation, including appropriate updates and revisions.In addition, this Budget proposes that the Congress adopt the Administration’s discretionary cap,

PAYGO requirement, long-term unfunded obligations controls, and associated reforms as part of its2006 Budget Resolution.

The Administration’s proposals are based largely on the lapsed Budget Enforcement Act (BEA).From 1991 to 2002, the BEA set statutory budget authority and outlay limits on discretionaryspending and a PAYGO requirement for all other legislation that were enforced by across-the-boardspending reductions. Until budget surpluses surfaced in 1998, the BEA proved to be an effectivebrake on the growth in spending.

Discretionary Spending Limits. The Administration proposes annual statutory limits ondiscretionary spending through 2010 that would be adhered to throughout the budget process. The

President’s proposal would require a three-fifths vote of the Senate for an appropriations bill thatcaused these limits to be exceeded. If an appropriations bill was enacted that caused these limits tobe exceeded, OMB would be required to make across-the-board cuts to eliminate the excess spending.

Currently, there are inadequate incentives in budget scoring rules to fund program integrity activ-ities to ensure that taxes owed to the Government are collected, eliminate the estimated $40 billionin improper payments, and combat other fraud and abuse in Government programs. For example,if the Budget allocates $100 million for the collection of $500 million in delinquent tax payments,the savings of $400 million are not counted as a form of savings. Thus, neither the Congress northe Administration has a budget scoring incentive to provide for such program integrity activities.The Administration proposes an incentive for funding these activities by adjusting discretionary capsupward to allow additional funding for continuing disability reviews, health care fraud detection, un-

employment insurance integrity, and Internal Revenue Service delinquent tax collections. Mandatory Spending Controls. Mandatory spending constitutes spending that is not generally

under the discretion of the Congress in the annual appropriations process. When President Kennedywas in office, mandatory spending represented one-third of the budget. Today, it amounts to nearlytwo-thirds of the budget.

The Administration’s proposal would modify the PAYGO mechanism that was in existence from1991-2002 to require legislative proposals that increase mandatory spending to be offset by reduc-tions in other mandatory spending. Budget enforcement mechanisms should be focused on controllingspending, not on raising taxes on America’s workers and families. Under the proposal, tax increases




could not be used to offset mandatory spending increases; nor would tax relief legislation be subjectto PAYGO procedures. Like the discretionary spending enforcement mechanism, this proposal wouldrequire a three-fifths vote of the Senate for legislation that violated this requirement. If legislationwas enacted that caused a net increase in mandatory spending, OMB would be required to makeacross-the-board reductions in non-exempt programs.

Long-term Unfunded Obligations. The real fiscal danger is posed by the long-term unfunded obli-gations of the Social Security, Medicare, and other entitlement programs. Spending decisions on enti-tlements often have ramifications on the budget outlook far beyond the conventional 10-year windowused to score changes in policy. Enforcement mechanisms are needed to address the long-term impactof entitlement spending expansions. The Budget proposes to establish a new measure to analyze thelong-term impact of legislation on unfunded obligations of major entitlement programs. If legislationcaused an increase in these obligations, it would require a three-fifths vote of the Senate.

Line-Item Veto Authority. A perennial criticism of the Federal Government is that spending and taxlegislation contain too many provisions, or earmarks, that would likely not become law if consideredas a stand-alone bill. The persistence of these items in the Budget diverts resources from higherpriority programs.

The President proposes that the Congress address this issue by providing him and futurePresidents with a line-item veto that would withstand constitutional challenge. From the Nation’sfounding, Presidents have exercised the authority not to spend appropriated sums. However, theCongress sought to curtail this authority in 1974 through the Impoundment Control Act, whichrestricted the President’s authority to decline to spend appropriated sums. The Line-Item Veto

Act of 1996 attempted to give the President the authority to cancel spending authority and specialinterest tax breaks, but the U.S. Supreme Court found that law unconstitutional. The President’sproposal would correct the constitutional flaw in the 1996 Act.

Specifically, the President proposes a line-item veto linked to deficit reduction. This proposal wouldgive the President the authority to defer new spending whenever the President determines it is not anessential Government priority. All savings from the line-item veto would be used for deficit reduction,

and could not be applied to augment other spending.The Budget proposes other budget process reforms, including proposals to give the budget resolu-

tion the force of law, move to a biennial budget and appropriations process, and prevent Governmentshutdowns through an automatic continuing resolution.

In addition to these legislative proposals, the Administration plans on augmenting its own controls.To contain the cost of administrative decisions that can increase the cost of mandatory spending, theOffice of Management and Budget plans to establish an internal review process that requires agen-cies, when proposing substantial administrative decisions that increase mandatory spending, to alsopropose other offsetting administrative decisions that reduce mandatory spending. This “administra-tive PAYGO” approach would complement congressional adoption of PAYGO for legislated increasesin mandatory spending.

The reductions and reforms in the 2006 Budget will contribute to an even stronger near-term out-look for the Federal budget. And they will help strengthen the Federal Government’s long-term fiscaloutlook. Federal programs that place a large and rising claim on current tax dollars represent a realdanger to our current and future fiscal health, and to our economy as a whole. It is critical that wetake steps to confront these rising costs, and promote responsible reforms that place our entitlementprograms on a path towards balance.



PROTECTING AMERICA

The 2006 Budget helps meet the primary responsibility of the Federal Government: To defend ourNation from attack. The Budget meets this commitment by increased funding for the Department of Defense, international diplomatic and security efforts, and homeland security functions.

The Budget raises defense spending by 4.8 percent and raises homeland security spending by 8percent, including fee funded activities. Since 2001, the Administration will have raised defensespending by more than 40 percent and more than tripled funding for homeland security. These fundshelp protect America by supporting our all-volunteer forces with higher pay and better equipmentas they fight and win the Global War on Terror. These funds are helping our military transform tomeet the emerging threats of the 21st Century. And these funds are supporting our efforts to defend

against terror threats at home.In the War on Terror, the Bush Administration’s primary strategy is to take the fight to the en-

emy. Our ability to do so depends on steady support for our troops and their mission in Iraq and Afghanistan. Working with a broad coalition, our troops have liberated these nations from the ruleof tyrannical regimes that actively supported terrorist organizations. With the continued support of the Congress, our troops will help these nations develop the capability to defend their own democrat-ically elected governments, which will promote freedom and reform throughout the region. Fightingterror is not just a matter of killing or capturing terrorists. Fighting terror requires a steady com-mitment to spreading liberty and democracy, because free nations are peaceful nations.

While fighting this war, the Administration is also transforming our military so that it has thetraining and weapons to meet the challenges of the 21st Century. By restructuring our overseas bases

to enhance access to potentially unstable areas of the world—rather than remaining in large far-awaybases built for the needs of the Cold War—we will enable our troops to surge quickly to deal withunexpected threats. By taking advantage of 21st Century military technologies, America’s combatpower can be rapidly deployed with greater precision, stealth, and success. By building modular

Army brigades, we will create a more flexible fighting force able to match the needs of the mission.

These steps will help meet the threats of the 21st Century, including the war in which we arecurrently engaged. They will strengthen our alliances around the world, while we build new part-nerships to better preserve the peace and promote freedom. And they will reduce the stress on ourtroops and our military families.

In addition to these steps, the Administration has reorganized the Nation’s military commandsto address the new challenges. These efforts include creating a new Northern Command to better

defend the homeland; the Joint Forces Command focused on transformation; and a new StrategicCommand responsible for early warning of, and defense against, missile attack. The Administrationis also negotiating new strategic relationships that would have been unimaginable just a decade agowith nations in Central Asia, the Caucasus, and other critical areas of the world.

The 2006 Budget provides substantial resources to increase our ability to prevent terrorist at-tacks, as have prior budgets since September 11, 2001, by increasing funding for the Federal Bureauof Investigation’s counterterrorism efforts and focusing resources on the most vulnerable domestictargets: airports and seaports; the food supply and water systems; major transportation systems;information networks and critical infrastructure. With the creation of the Department of Homeland

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30 PROTECTING AMERICA

Security, the Nation has a better coordinated, focused, and funded system to protect America fromterrorist attack.

WINNING THE WAR ON TERROR

Three years ago, Afghanistan was ruled bythe brutal Taliban regime and was the homebase from which al-Qaida was able to planthe September 11th attacks. American andcoalition troops liberated the Afghan people.In October, 2004, Afghanistan held its firstfree and fair democratic Presidential election,giving new hope to some 25 million people.

Likewise, three years ago, Iraq was ruled by atyrant who provided a safe haven for terrorists,invaded his neighbors, had used weapons of

mass destruction against his own people, anddefied the will of the world by failing to disclosehis plans to develop such weapons again in thefuture. The Iraqi people are now confronting

many challenges, but are creating in the heart of the Middle East an example of freedom anddemocracy. Iraqi security forces are fighting alongside coalition troops to defeat insurgents andforeign fighters. The Iraqi people have taken the first steps toward freedom and self-government.

Ensuring security in Iraq and Afghanistan requires dedication and sacrifice. The 2006 Budget,and the 2005 supplemental request, will ensure that our Armed Forces have the resources to get the

job done. The Administration’s 2005 supplemental request will provide funding for military capabil-ities, troop support, force protection, repair of damaged equipment, the training of Iraqi and Afghansecurity forces, and increased intelligence support.

Security in Iraq and Afghanistan

Our goal is to ensure Iraqis and Afghans arefully capable of defending themselves and theirnew societies against the forces of terrorism.The Department of Defense (DOD) and theDepartment of State have devoted substantialresources to train and equip security forces inIraq and Afghanistan.

The coalition faces difficult challenges in

training and equipping Iraqi security forces,as these forces continue to face targetedattacks by insurgents. However, despite thesechallenges, coalition forces had trained nearly

127,000 Iraqi security forces as of mid-January and continue training the Iraqi army, police, andother security forces, such as border enforcement personnel, to provide for their own country’ssecurity. The 2005 supplemental request will allow us to accelerate the work we have started.

Similarly in Afghanistan, DOD is training the Afghan National Army (ANA). The ANA is nowfighting terrorism and maintaining security with a force of 16,000 troops, including soldiers from all




of Afghanistan’s ethnic groups. DOD will accelerate training to help the Afghans develop their ownmilitary capabilities.

Along with other nations, the United States is also making long-term investments in both Iraqand Afghanistan. Key infrastructure projects in Iraq will create jobs and provide millions of Iraqiswith greater access to basic services, such as clean water, electricity, and reliable telecommunications

systems. In both Iraq and Afghanistan, U.S. aid coordinated by the State Department and the Agencyfor International Development, will continue to build the local capacity to deliver healthcare andother basic services, collect revenues, and develop the framework necessary for a modern and openeconomy.

The Budget also devotes resources to protect Afghanistan’s democratic and economic developmentfrom the drug trade by providing funding to eradicate poppy crops; develop alternative cash crops;interdict the drug flow; prosecute drug traffickers; and build Afghanistan’s counter-narcotics capa-bilities.

The Commander’s Emergency Response Pro-gram (CERP) provides the funds for U.S. troops

to assist Iraqis and Afghans with critical recon-struction and assistance projects. Commanderson the ground are able to provide assistancein a streamlined fashion, which means moneyis available to respond to needs right away.CERP has helped troops on the ground buildgoodwill with Iraqis, which in turn supports theoverall mission. Since the inception of CERP,commanders have spent almost $250 million todirectly improve education, healthcare, electric-ity, water, and security. The 2006 Budget and2005 supplemental propose to continue the authority for CERP. The Budget requests authority foran additional $300 million and the supplemental will request additional 2005 funds and authority.

Strengthening Our National Guard and Reserves

During 2005, the Administration expects to have more than 163,000 National Guard and Reservistsmobilized across all services supporting the Global War on Terror. In recognition of the burdensplaced on our mobilized Guardsmen and Reservists, the President proposed and signed into law in-creases to their Montgomery GI Bill education benefits, if mobilized for 90 days or more. In addition,Guardsmen and Reservists have benefited from enhanced compensation, including a new bonus forconversion to a different military specialty; revised enlistment and reenlistment bonuses; and en-hanced health benefits, including better pre- and post-mobilization coverage. Guardsmen and Re-

servists who have been deployed also benefited from active-duty compensation increases.

Blocking Terrorist Financing

The United States continues to work with friends and allies to disrupt the financing of terrorismby identifying and blocking the sources of funding, freezing the assets of terrorists and those whosupport them, denying terrorists access to the international financial system, protecting legitimatecharities from being abused by terrorists, and preventing the movement of assets through alternativefinancial networks.




The Budget commits over $100 million tothe Department of the Treasury’s efforts toprotect America by detecting and stoppingfinancial crimes, money laundering, and ter-rorist financing. The Office of Terrorism andFinancial Intelligence safeguards financial

systems against illicit use by rogue nations,terrorist facilitators, money launderers, drugkingpins, and other national security threats.One of the most visible and effective tacticsof the comprehensive strategy has beenpublic designation of terrorists and terroristorganizations. Since September 2001, theUnited States and our allies have designated397 terrorist-related entities and frozen nearly $147 million in terrorist assets worldwide.

Intelligence Reform

The recently enacted Intelligence Reform and Terrorism Prevention Act of 2004 builds on thereforms implemented by these agencies and by executive orders on information sharing, intelligencecommunity management, and the National Counterterrorism Center (NCTC). The new Director of National Intelligence (DNI) is empowered to set funding, collection, and analytic priorities acrossthe national intelligence program in consultation with appropriate Department and agency heads.In addition, the DNI will spearhead efforts to improve information sharing within the intelligencecommunity.

The recently created NCTC has already become a critical player in the war on terror. The NCTCexpands on the analytic mission of the former Terrorist Threat Integration Center by serving as theprimary organization in the U.S. Government for analyzing and integrating intelligence pertainingto terrorism and counterterrorism; serving as the central and shared knowledge bank on known and

suspected terrorists and international terror groups; and ensuring that agencies, as appropriate,have access to and receive the all-source intelligence support needed to execute their counterterror-ism plans or perform independent, alternative analysis. The NCTC will improve our ability to mountcoordinated, strategic operations against terrorism.

Fighting Terror by Promoting Democracy

The best hope for achieving peace in our world is the expansion of freedom. The 2006 Budgetfunds initiatives to promote democracy and reform, particularly in the Middle East, North Africa,and other majority Muslim countries. For example, the Budget includes $80 million for the NationalEndowment for Democracy to enhance its efforts to strengthen democratic institutions, the rule of

law, human rights, civic education, and independent media.The Budget also includes $120 million for the Middle East Partnership Initiative, a cornerstone

of the State Department’s approach to supporting political and economic reform in the region. Allthese activities promote long-term reforms by advancing democratic and economic freedom, whichdiminishes terror organizations’ ability to recruit.

To promote better understanding of America and American ideals, the Budget includes $180 mil-lion in 2006 for exchange programs in countries with significant Muslim populations, including theNear East, South Asia, Indonesia, and parts of Africa and Europe. Public diplomacy in the regionwill support the continuation of several priority programs, including American Corners—locations




around the world that provide access to information about America through the Internet, guest speak-ers, and other events for non-Americans in a neutral setting. The 2006 Budget for the BroadcastingBoard of Governors includes an increase to significantly expand television broadcasting to Iran, Pak-istan, and Afghanistan in 2006, following the successful launch of its Arabic news satellite televisionchannel, al-Hurra, in 2004.

The successful presidential election held by the Palestinian Authority is an important step towardthe building of democratic institutions needed for realization of the President’s vision of two states,Israel and Palestine, living side by side in peace and security. The United States will take a leadingrole in helping Palestinians build a viable economy and democratic institutions, and the securityinstitutions they need to fight and defeat terror. The Budget contains $150 million for projects aidingthe Palestinians in infrastructure and democracy building.

Fighting Terror with Development

Persistent poverty and oppression can lead to the kind of despair and failed states that becomehavens for terror. The United States is the world’s leader in providing development and humani-tarian assistance, opening up our markets for trade, and providing peacekeeping assistance to re-

gions where peace and stability are needed. In 2002, the President pledged that the United Stateswould lead by example and increase its core development assistance by 50 percent, or $5 billion, by2006. The 2006 Budget exceeds this commitment—the request for core development assistance is$8.2 billion above the amount appropriated in 2002. Moreover, President Bush has increased officialdevelopment assistance more than at any other time since the Marshall Plan, reversing decades of decline in assistance as a percentage of GDP. This positive trend will continue in future years as twoof the President’s main foreign policy initiatives—the fight against HIV/AIDS and the MillenniumChallenge Account—disburse more funds to promote development and reform and fight suffering andpoverty.

TRANSFORMATION OF OUR MILITARY

Even as our men and women in uniform continue to wage the War on Terror in Iraq and Afghanistan, DOD is adapting to face new and emerging threats. Much of the increase in defensebudgets has been devoted to transforming our Nation’s military capabilities and laying the founda-tion for winning the War on Terror. This process is dynamic and requires an ongoing adjustment of national security priorities. DOD has begun a strategic analysis that will form the basis of the 2005Quadrennial Review. This review will further refine the Nation’s long-range security requirementsand assessment of needed capabilities.

Global Posture Initiative

To be better prepared to respond rapidly to the threats of the 21st Century, the Administration iscommitted to transforming all aspects of the U.S. global defense posture, including our infrastruc-ture, personnel, and equipment. In August 2004, the President announced the most comprehensiverestructuring of U.S. military forces overseas since the end of the Korean War. The Global PostureInitiative entails working with more partners around the world to use our military capabilities moreeffectively. As a first step, the initiative repositions U.S. forces from Cold War bases to areas of strate-gic importance today. Such new basing strategies will provide the United States rapid access to areaswhere contingency operations may arise but where a large permanent presence is not required. Inthe next decade, 70,000 military personnel, and 100,000 family members and other civilians, are ex-pected to return to the United States as part of this effort. The initiative will be implemented over




the next 10 years. To begin this effort, the Administration has added $416 million in the 2006 Bud-get, and plans to request $3.5 billion more through 2011.

Tools of Transformation

The Department is working on a wide range of new technologies, especially those that can protectmilitary personnel while allowing them to perform their mission more effectively. The Department’sresearch and development efforts in this area are broad in scope. They range, for example, from thedevelopment of new materials for troop clothing to provide better camouflage and improved comfortand health, to new ways of detecting and neutralizing improvised explosive devices, chemical and bi-ological agents, and radioactive materials. Developments in advanced materials have dramaticallyimproved soldier body armor, providing unparalleled protection in combat. These and other technolo-gies of the future are transforming how the United States will fight in future conflicts. Advances innew sensors, hypervelocity missiles, low-observable materials, and smart weapons will enable U.S.forces to fight smarter, more efficiently, and with greater precision than ever before.

DOD continues to make major investments in the development and procurement of unmanned ve-

hicles for ground, underwater, aerial, and combat use. Small unmanned aerial vehicles, for example,can provide information during ground combat to reduce casualties. Underwater vehicles are beingdeveloped for mine detection and avoidance operations. Ground vehicles are being used to identifyand explode improvised explosive devices remotely. The ground and air vehicles are a central partof the Army’s Future Combat System and will provide a wide range of functions, including armedreconnaissance, fire support, autonomous logistics, and mine detection. Some of the forerunners of these new systems are being used today in Iraq and Afghanistan. The 2006 Budget provides $1.7billion for these efforts.

The 2006 Budget supports the Navy’s Littoral Combat Ship (LCS) and its associated weapons sys-tems by providing $613 million for continued development. The LCS, now in acquisition and testing,is a fast, small, and low-cost surface warship capable of operating in littoral (near-shore) waters. Theprimary missions of the LCS are anti-small-boat warfare, mine countermeasures, and anti-subma-rine warfare. Secondary missions will include intelligence, surveillance and reconnaissance, home-land defense, maritime interdiction, and support for Special Operations forces.

The President’s Budget supports substantial investments in advanced technology, particularly inremote sensing and high performance computing, to give our military additional advantages overour enemies. U.S. intelligence agencies and elements are employing advanced technology systemsto acquire, process, and produce information from enemy signals, imagery, and human and othersources. Investments in communications will improve the effectiveness of troops in the field andtheir commanders in carrying out their missions. These technological developments are improvingour ability to detect and counter the broad range of threats facing the United States.

MAKING THE HOMELAND MORE SECURE

Since the terrorist attacks of September 11, 2001, America has engaged in a broad and determinedeffort to identify and pursue terrorists abroad and secure our citizens and interests at home. Workingwith the Congress, the President signed legislation to: break down the walls between law enforce-ment and terrorist investigations; reorganize the Federal Government by reforming and improvingintelligence gathering and analysis; acquiring biological weapons countermeasures; enhancing se-curity at our borders, airports, and in our communities; and strengthening America’s preparednessand response capabilities.




This Administration’s commitment to securing the homeland is reflected in this and past budgets:non-Defense homeland security spending has more than tripled since 2001. But homeland securityis not simply a Federal responsibility; rather it requires a national effort with cooperation among allGovernment levels, the private sector, and individual citizens. The President’s 2006 Budget supportsthese partnerships in areas as diverse as researching and deploying radiological and nuclear detec-tion systems; developing detectors for chemical agents; augmenting mass casualty care capabilities;

and protecting our food supply and drinking water.

Identifying Terrorists and Preventing Their Entry

The 2006 Budget places special focus on programs that seek to detect suspicious individuals ormaterials before they enter the country. Just as important are efforts to share information aboutsuspicious individuals and materials with multiple levels of law enforcement.

The FBI has transformed itself to make counterterrorism its top priority and has established acomprehensive intelligence program to prevent terrorist attacks, an effort that has been acceleratedby the passage of the Intelligence Reform and Terrorism Prevention Act of 2004. The President’sBudget supports the FBI’s counterterrorism priorities by providing $294 million for counterterror-

ism and counterintelligence initiatives and $117 million in new funding to bolster the intelligenceprogram. This Budget boosts FBI funding by 11 percent, or $555 million, resulting in an overall FBIbudget increase of 76 percent since 2001.

To enhance information sharing on international travelers and to screen for terrorists, the Pres-ident also issued a directive that called on the Department of Homeland Security (DHS) and otheragencies to improve and better coordinate screening of people, cargo, and conveyances. The Bud-get reflects a new coordination of offices to oversee screening efforts and set screening standards.This office will consolidate several major initiatives within the Border and Transportation SecurityDirectorate, including: US-VISIT, the Secure Flight Program, and the Transportation Worker Iden-tification Credential Program. The 2006 Budget also increases funding f or these programs by $344million, including $50 million to accelerate the deployment of US-VISIT and $49 million to imple-

ment Secure Flight, a program that will improve security checks of airline passengers names througha more effective and efficient automated process.

The 2006 Budget provides $104 million for the multi-agency Terrorist Screening Center (TSC), a$75 million increase over 2005, to enable TSC to meet its increasing responsibilities in developingand managing a consolidated terror screening watch list, particularly in support of Secure Flight.To date, TSC has received approximately 17,000 calls, of which 8,500 were a positive match withthe database. TSC staff currently fields nearly 100 calls per day from Federal, State, and local lawenforcement representatives.

The Budget also provides a $21 million increase for DHS’ IDENT fingerprint system and fund-ing for increased interviews, screening, and information sharing between Federal agencies on visaapplicants; the development and production of new machine-readable biometric U.S. passports; and

for increased interoperability of border security and counterterrorism systems for various agencies.The State Department is also leading a U.S. effort to collect biometric information on known andsuspected terrorists from foreign governments.

Defending Against Catastrophic Threats

The Administration has made unprecedented investments to counter possible terrorist threats.The 2006 Budget supports deployment of existing counterterrorism technology and focuses America’sscientific and technical expertise on new solutions.




Threats to Food and Agriculture. The 2005 Budget contained significant funding to protect thesafety of the Nation’s food system from contamination by terrorists. The 2006 Budget continues thiscommitment by including $596 million, an increase of $143 million, to improve our ability to detectand contain contamination. The 2006 Budget also includes $58 million to support the establishmentand maintenance of laboratories to analyze samples of potentially contaminated food as quickly aspossible. For example, the Food Emergency Response Network (FERN) links strategically located

State and Federal laboratories that analyze food samples in the event of a biological, radiological, orchemical terrorist attack in this country. FERN laboratories will be participating in the ElectronicLaboratory Exchange Network (eLEXNET), an integrated information network, which is designed toallow health officials across the Nation to compare, share and coordinate laboratory analysis findingsand potentially identify contaminated foods. The Budget also includes funding for border inspectionsof imported foods, research on new methods to prevent food contamination, and expansion of labora-tories to rapidly identify human and animal disease pathogens of concern.

EPA scientist sorting spores of an anthrax surrogate to evaluate

sampling methods that will confirm decontamination of structures.

Radiological, Biological, and ChemicalThreats. The 2006 Budget significantlyincreases funding to prevent nuclear terrorism

by securing nuclear materials at their sourceand by detecting and interdicting the mate-rials in transit. DOD’s Cooperative ThreatReduction program will spend $416 million tohelp dismantle weapons of mass destructioninfrastructure in the former Soviet Union toprevent the proliferation of nuclear weapons.The Department of Energy’s National NuclearSecurity Administration (NNSA) will spend$343 million in Russia and other regions of concern to secure vulnerable nuclear weaponsand weapons-usable material, and to install

detection equipment at overseas border cross-ings and ports to prevent and detect the illicittransfer of nuclear material. The Megaports program, which has been enthusiastically received byour overseas partners since its inception in 2003, equips overseas ports with radiation detectionequipment and provides training to foreign law enforcement officials so that they can better detect,deter, and interdict illicit trafficking in radioactive materials. In 2006, NNSA will increase fundingfor Megaports by 450 percent, as more countries join this U.S.-led international effort.

A new Domestic Nuclear Detection Office (DNDO) is being created to develop and deploy a compre-hensive domestic system to detect and report any attempt to import, assemble, or transport a nuclearexplosive device, fissile material, or radiological material intended for illicit use. The DNDO will beresponsible for developing a comprehensive national nuclear detection architecture. The DNDO will

also work with State and local grant recipients to ensure that their radiation detection assets workin concert with Federal detection efforts.

Since 2001, more than $5 billion has been provided to the National Institutes of Health for researchand development of advanced medical countermeasures against the most dangerous biological threatagents. The 2006 Budget builds on this investment with an additional $1.7 billion to support both thebasic research that leads to breakthroughs in scientific knowledge, and applied research and develop-ment that converts that knowledge into effective countermeasures such as vaccines and treatments.In 2004, the Congress provided $5.6 billion for the President’s Project BioShield initiative that willprovide the funding to acquire these countermeasures to protect America.




The DHS Biological Countermeasures Office budget request is $385 million in 2006, a $22 millionincrease that will help develop vaccines to defend our food supply from intentional or accidental in-troduction of animal diseases into the country. These vaccines will help protect the Nation from thecatastrophic economic consequences a major disease outbreak would cause to the agricultural sector.The Budget also requests funding for a Next Generation Animal Disease Center that will be able toanalyze pathogens from large animals.

The 2006 Budget doubles the spending for chemical agent research and development conducted byDHS, to $107 million, including $36 million in new spending on countermeasures to non-traditionalchemical agent threats. This funding level includes the creation of a state-of-the-art materials test-ing facility that will be housed within DOD’s chemical countermeasures programs. The Budget alsoprovides NIH with $50 million to research medical countermeasures to chemical agents.

DOD has increased funding by $223 million to boost efforts in the areas of agent detection, earlywarning, decontamination, and medical countermeasures for chemical and biological threats. TheBudget proposes funding to modernize and upgrade laboratories belonging to the U.S. Army MedicalResearch Institute of Infectious Diseases and the U.S. Army Medical Research Institute of ChemicalDefense, which provide world-class scientific research and technical expertise on biological agents,emerging infectious disease agents, and chemical agents. The funding will help these agencies inte-grate into the interagency National Biodefense Campus, thereby improving our scientific efforts todefend against biological warfare.

Launched in 2005, the National Biosurveillance Initiative directed Federal agencies to enhancebiosurveillance capabilities to reduce the detection time following an attack, confirm the size andcharacteristics of the attack, and initiate a response. The initiative establishes a National Biosurveil-lance Integration System at DHS to combine and analyze information collected from human, animaland plant health, food and environmental monitoring systems. Such an analysis, combined withevolving threat and intelligence information, will provide greater context for those making criticalhomeland defense decisions.

Project BioWatch is designed to detect the release of dangerous biological or chemical agents into

the environment. The BioWatch program operates in more than 30 major metropolitan areas, andis designed to provide early warning of a large-scale biological weapons attack and accelerate thedistribution of life saving treatment and preventative measures before the development of seriousand widespread illnesses.

Threats to Aviation. DHS is creating a new Explosives Office to identify the best way to protectagainst explosives, especially at high-threat venues. The Department’s Science and Technology Di-rectorate will spend more than $150 million on aviation explosives detection research, and will con-tinue to deploy more advanced equipment and systems at airports. The Transportation Security

Administration will ensure improved explosives detection screening of airline passengers by spend-ing a total of $100 million in 2005 and 2006 to deploy new technologies at airport checkpoints. TheOffice of State and Local Government Coordination and Preparedness will designate explosives de-tection and mitigation as a national initiative for 2006 grant awards.

In addition, the DHS Science and Technology Directorate proposes to spend $110 million in 2006to continue research on the viability of countermeasures for commercial aircraft against the threatof shoulder-fired missiles known as Man-Portable Air Defense Systems.




The Beagle Brigade checks passengers for illegalfood products.

Threats to Other Infrastructure. The 2006 Budgetprovides over $2 billion to ensure the security of ourNation’s ports. Funding will primarily support the CoastGuard’s ports, waterways, and coastal security program($1.9 billion in discretionary funding), and the U.S. Customsand Border Protection (CBP) container security initiatives.

In addition, the Budget includes $600 million for TargetedInfrastructure Protection (TIP) grants to be allocated bythe Secretary to address the unique requirements of portsand other critical infrastructure.

CBP screens 100 percent of cargo entering our seaports,and all cargo that is identified as a potential threat is in-spected using large x-ray and radiation detection equipment.The CBP strategy is to rule out potential threats before ar-rival at our borders and ports. This year, 6 percent of to-tal cargo containers were identified as potential threats andwere physically inspected immediately upon arrival. CBP

manages both the Container Security Initiative and the Cus-toms Trade Partnership Against Terrorism. Both programsaim to secure containers in the early stages of shipping, be-fore they arrive in the United States. The 2006 Budget in-cludes an additional $14 million to support continued expansion of these programs.

EPA coordinates protection of the Nation’s drinking water and water treatment systems. The2006 Budget proposes $44 million to support the initial deployment in five cities of an early warningsystem, called Water Sentinel, to detect terrorist attacks on drinking water systems and a laboratorynetwork to support water surveillance and emergency response.

A 25-foot Defender class security boat from Coast Guard Maritime Safety

and Security Team 91106 keeps watch over passenger vessels and highprofile landmarks in New York Harbor.

DHS’ Information Analysis and Infrastruc-

ture Protection Directorate (IAIP), identifiesthe critical infrastructure that if attackedand destroyed could cause catastrophic healtheffects or mass casualties. With site visits anddata collection, IAIP develops site securityguidelines for nuclear power plants and chemi-cal facilities. Security guidelines are also beingdeveloped for spent nuclear fuel, petroleumrefineries, natural gas facilities, and railroads.While private owners remain responsible forsecurity, the $600 million TIP program willbe available to supplement critical protection

efforts. To increase collaboration among alllevels of government, IAIP is improving the

sharing of information by expanding the Homeland Security Information Network to all States andat-risk infrastructure sites across the Nation. The 2006 Budget provides $530 million for IAIP’sinfrastructure protection activities.




Conclusion

In protecting America, the Federal Government must defeat terrorism before it reaches our shores.We are attacking terrorists where they train, and cutting off their resources throughout the world.We are also promoting a forward strategy of freedom and reform, so that the terrorists’ messageincreasingly loses its force and appeal. And because terrorists do not choose military targets, weare preparing our homeland to detect and deter attacks on civilians, and to respond if necessaryto emergencies. The 2006 Budget significantly increases resources to the continuing challenge of protecting America’s freedom and promoting the freedom of the world.



42 SUPPORTING A COMPASSIONATE SOCIETY

Supporting America’s Families and Communities

President Bush speaks at the National Summiton Fatherhood.

The American family remains one of our Nation’s greateststrengths. The 2006 Budget supports families in several ways.The Administration promotes healthy marriages and strongfamilies through programs that help fathers and mothersdevelop parenting skills and encourage community- andfaith-based organizations to support families. The Budgetproposes to direct $240 million in mandatory funds to new ef-forts to support healthy marriages and responsible fatherhood.Of this amount, $100 million, plus dollar for dollar matchingcontributions from States, would fund competitive grants forStates, territories, and tribal organizations to develop inno-

vative approaches to promote healthy marriages. The Budgetincludes $100 million for research, demonstration projects, andtechnical assistance, primarily focusing on family formationand healthy marriage activities. To support these programs,

funds would be redirected from the Temporary Assistance forNeedy Families High Performance Bonus ($100 million) andthe Illegitimacy Reduction Bonus ($100 million). In addition,the 2006 Budget provides $10 million in discretionary funds toincrease support of community-based maternity group homes,where young, pregnant, and parenting women can receiveaccess to f aith- and community-based coordinated services.

More than 25 million children live in homes without fathers. In response to this problem, the Ad-ministration proposes to create a $40 million per year grant program to faith-based and communityorganizations to help non-custodial fathers become more involved in their children’s lives.

In addition, the 2006 Budget provides support for programs that encourage responsible choices

before parenthood. President Bush’s Abstinence Initiative provides grants to States and communitiesto develop, implement, and evaluate programs for adolescents that promote abstinence and healthychoices. Activities also advance parent education and outreach, media campaigns, and researchrelated to abstinence education. Since 2001, 102 grantees have provided abstinence-only educationservices in communities nationwide. The Budget provides more than $206 million for abstinence-onlyactivities this year.

To help older foster care children make the transition to adulthood, the 2006 Budget commits $60million to the Foster Care Independent Living Program. This program provides vouchers of up to$5,000 for education or vocational training to help youths who are close to leaving foster care develop

job-related skills and lead independent and productive lives.

Some families experience hardship as a result of having a parent in prison. As a group, the nearly

two million children with parents in prison have more behavioral, health, and educational problemsthan the population at large and these children are more likely to become incarcerated. Mentoringby caring adults can improve the long-term outcomes for children whose parents are incarcerated.In 2004, the Department of Health and Human Services awarded $8.9 million in continuation grantsand $37 million in new grants to programs that provide mentoring services to these children. ThisBudget includes $50 million for competitive grants. Since 2003, this program has worked towardproviding 70,000 new mentors for children with a parent in prison.

Once a parent has been released from prison, they should be given every opportunity for a freshstart. The Budget includes $75 million for the Prisoner Re-entry Initiative, which brings faith-based




and community organizations together with Federal agencies to help recently released prisonersmake a successful transition into society and long-term employment. Through the collaborativeefforts of the Departments of Labor, Housing and Urban Development, and Justice, this four-yearinitiative will provide job training and placement, transitional housing assistance, and mentoringto 50,000 non-violent ex-offenders. The first grants under this program will be awarded by August2005.

One of the most pressing needs for those trying to build lives of dignity is escaping from the down-ward spiral of drug addiction. The Administration focuses on increasing access to effective substanceabuse treatment through programs that allow those suffering from addiction to choose treatmentplans that best suit their needs. Under the Access to Recovery program, individuals with vouch-ers may access treatment and support services from a range of providers, including faith- and com-munity-based providers. The Access to Recovery initiative offers a flexible approach to a difficultproblem—and the 2006 Budget supports this effort by including $150 million, which will sustain theexisting 15 grants while expanding access to additional States or tribal organizations. States willhold providers accountable for results and reward those providers most effective at helping individ-uals to recover from addiction.

Promoting Accessible Health Care

America’s health system provides high-quality, leading-edge care to those who need it. But risingcosts can put health care coverage out of reach for many Americans, imposing a burden on familiesand businesses. That is why the President’s health care policies focus on making health care moreaffordable and accessible, especially for low-income Americans.

The President visits with health care providers at Inova Fair OaksHospital, Fairfax, Virginia.

Despite the availability of health care cover-age through Medicaid and the State Children’sHealth Insurance Program (SCHIP), millionsof eligible children in lower-income familieshave not enrolled. The 2006 Budget proposes

Cover the Kids, a national outreach campaignthat will provide $1 billion in grants overtwo years to promote increased enrollmentin Medicaid and SCHIP. By combining theresources of the Federal Government, States,schools, and community organizations, Coverthe Kids aims to enroll as many Medicaid- andSCHIP-eligible children as possible.

This Budget emphasizes ways to improveaccess to health care for Americans in need

without resorting to government control of the delivery of medicine. The Budget reproposes a tax

credit that will help lower-income individuals purchase health insurance and health care. Thisyear’s proposal has been modified so that eligible individuals now have more insurance choices andcan save for future health expenses.

The Administration also proposes providing $4 billion in Federal grants to States to set up healthinsurance purchasing pools. By combining the purchasing power of millions of low-income individ-uals and families, these pools would offer tax-credit recipients an additional option for affordablehealth insurance and would make it easier and faster to shop for coverage.

For those who still cannot get affordable coverage, President Bush proposes to further enhance thenetwork of health centers that provide access to quality primary and preventive health care. Health




Centers now provide care to nearly 14 million patients at 3,740 sites across the United States eachyear. One in six of the Nation’s low-income individuals receive health care at these sites, which treatanyone regardless of ability to pay. These centers keep patients from using more expensive care inhospital emergency rooms, and provide care when illnesses and injuries can be treated quickly andwithout long hospitalization.

The 2006 Budget completes the President’s commitment to create 1,200 new or expanded healthcenter sites to serve an additional 6.1 million people by 2006. Almost 2.4 million additional individu-als will receive health care in 2006 through 570 new or expanded sites in rural areas and underservedurban neighborhoods. The Budget builds on the success of the President’s Health Centers Initiativeby including $26 million to fund 40 health center sites in high-poverty counties that lack health cen-ters and support more faith-based and community organizations in providing these services.

The Nation’s seniors and disabled with access to Medicare will continue to benefit from the intro-duction of Medicare Drug Discount cards. These cards provide real savings to seniors of all incomelevels, and added savings to low-income seniors. Roughly six million Medicare beneficiaries haveenrolled since June 2004, when the cards first became available. Independent studies have shownsavings of 20 percent or more off the retail price of most brand-name drugs and 30 to 60 percent off

generic drugs. In addition, over 1.7 million beneficiaries began receiving the $600 annual low-incometransitional assistance. These beneficiaries can save up to 90 percent off the average retail price of brand-name drugs when they combine the drug card savings with the $600 transitional assistance.Beginning January 1, 2005, Medicare beneficiaries became entitled to new preventive benefits in-cluding screenings for diabetes and heart disease, as well as a Welcome to Medicare physical for newbeneficiaries.

Also beginning January 1, 2006, Medicare beneficiaries will be eligible for a voluntary prescrip-tion drug benefit. They will have their choice of prescription-drug-only plans or Medicare Advantageplans that offer a full array of physician, hospital, and prescription drug coverage. Medicare will takesteps to encourage employers to continue offering drug and other health care benefits to millions of seniors. The new drug coverage will be particularly beneficial for low-income beneficiaries. Those

with incomes below 135 percent of poverty will pay no monthly premium, no deductible, and verysmall co-payments per prescription.

The 2006 Budget includes several proposals that promote home- and community-based care op-tions for people with disabilities. These proposals build on the President’s New Freedom Initiative,which is part of a nationwide effort to integrate people with disabilities more fully into society. Undera five-year demonstration project, the Budget would pay for Medicaid services for individuals movingfrom institutions to the community. This would encourage home- and community-based care, whichis both less expensive and more effective than the care provided in institutions.

Providing Shelter

The Administration recognizes that the problem of homelessness is often tied to other major chal-lenges: delivering mental health and substance abuse treatment to those who need it most, providingopportunities for work, and giving hope and comfort to those who are escaping abuse or neglect. TheBush Administration is working to end chronic homelessness by funding prevention and interventionprograms.

Research indicates that chronically homeless people may comprise less than 10 percent of the home-less population but consume over half of emergency homeless services because their needs are notcomprehensively addressed. The Samaritan Initiative will provide up to $200 million in 2006 by pro-

viding housing and social services to treat the chronically homeless properly. Across the country, 46




States and over 170 localities, along with the private sector, have joined the Federal effort to movechronically homeless individuals from the streets into permanent supportive housing.

President Bush visits with volunteers at a center for homeless adults andchildren.

The Budget provides record resources forthe Nation’s homeless. The Budget for theDepartment of Housing and Urban Devel-

opment includes $1.4 billion for Homeless Assistance Grants, $200 million more thanin 2005. The Department of Veterans’ Affairs(VA) estimates that one-third of the adulthomeless population are veterans. VA’s home-less assistance programs now constitute thelargest integrated network of services in theUnited States and serve approximately 40,000homeless veterans annually. The Budgetprovides $231 million to support directly the

VA’s efforts to combat homelessness amongthe Nation’s veterans—and an additional $1.5

billion for medical care to homeless veterans.

Upholding Our Values in the World

The Administration supports compassionate programs overseas as well. America leads the worldin providing hunger relief and medicine, as well as support and manpower to deliver aid to those af-flicted by the ravages of war, persecution, natural disasters, and disease. President Bush has broughtinternational scrutiny to human trafficking networks. And he has led a global effort to treat thosewith HIV/AIDS and prevent the spread of this disease, which claimed the lives of more than threemillion people in 2003.

The effort against HIV/AIDS starts at home. Domestically, the President has requested record lev-

els of funding to combat HIV/AIDS. The 2006 Budget requests a total domestic HIV/AIDS budget of $17.4 billion. He has also stated his support for the reauthorization of the Ryan White Comprehen-sive AIDS Resources Emergency (CARE) Act based upon the principles of focusing Federal resourceson life-extending care; ensuring flexibility to target resources to address areas of greatest need; andensuring accountability and results.

Overseas, President Bush has launched an ambitious $15 billion, five-year Emergency Plan for AIDS Relief. Since the President announced the Emergency Plan in his 2003 State of the Union Address, the United States has provided $5.2 billion for the fight against global HIV/AIDS. The 2006Budget requests an additional $3.2 billion for this effort. The U.S. Government has made remark-able progress during the Emergency Plan’s first year of implementation. In the first eight monthsof President Bush’s Emergency Plan for AIDS Relief, the United States supported training for more

than 312,000 service providers and supported more than 14,000 sites where prevention, treatment,and care services are provided in 15 countries in Africa, Asia, and the Caribbean.

Under the Emergency Plan, the Administration is committed to preventing seven million newHIV-infections; treating two million HIV-infected people; and caring for 10 million people affected byHIV/AIDS, including orphans.

As part of these efforts, the United States is also working with international organizations likeUNAIDS, the World Health Organization, and the Global Fund to Fight AIDS, Tuberculosis, andMalaria. The Bush Administration provided the founding contribution to the Global Fund, and theUnited States remains the world’s largest donor.




Indonesians affected by the December 2004 tsunami receive food aidfrom the United States.

While the United States response to theHIV/AIDS crisis is an outstanding example,this Nation has always been a world leaderin providing hunger, disaster, and otherhumanitarian relief. When an earthquakeand tsunami struck the Indian Ocean basin

in December 2004, the United States ledrecovery efforts with a coordinated responsewith our armed forces deployed to the region.

Assistance included food aid, medical assis-tance, water filtration, temporary shelter,airlift support, and long-term developmentassistance.

The United States has traditionally beenthe most generous of the donor governments inproviding humanitarian assistance in disasterrelief, and this recent display of assistance

was no different. The Department of Defenseand the United States Agency for International Development conducted one of the largest relief efforts in the agency’s history to save lives, to lessen suffering, and to reduce the economic effect of the disaster.

The United States, which comprises roughly 25 percent of the world’s economic output, providesmore than 40 percent of the world’s food aid. In 2004, U.S. food aid protected vulnerable populationsaround the world, with more than $700 million donated to the food emergencies in the Darfurregion in Sudan, as well as crises in Ethiopia and southern Africa. In 2004, the United Statesled the world—both in timeliness and funding levels—in assisting more than one million inter-nally-displaced persons in the Darfur region of Sudan and 200,000 Sudanese refugees in Chad. The2006 Budget continues this strong level of support, addressing food and non-food needs of victims of

the conflict in Darfur. The 2006 Budget supports the Administration’s continuing efforts to preventwidespread famine and proposes major new efforts to make food aid more effective by requesting aportion of it as cash assistance, which allows emergency food aid to be provided more quickly andmore flexibly.

In 2002, the President proposed the Millennium Challenge Account (MCA) to provide new incen-tives for developing nations to pursue successful economic growth policies and democratic reforms.Through MCA, contributions are linked to responsible actions by developing nations. MCA rewardsnations that root out corruption, respect human rights, adhere to the rule of law, invest in betterhealth care, better schools, and broader immunization, and have more open markets and sustainablebudget policies. Using funds in the MCA, the Millennium Challenge Corporation (MCC) works witheligible countries to support proposals with clear objectives to help those countries’ poorest citizens

lift themselves out of poverty. While the President’s proposal has not received the funding initiallyenvisioned, the Budget would keep it on track to reach $5 billion in annual funding by 2007. TheCongress increased MCA funding from $1 billion in 2004 to $1.5 billion in 2005. The 2006 Budgetprovides $3 billion to help participating countries help themselves become prosperous democraticstates. These investments aid our national security by helping nations avoid becoming havens forterrorists, who thrive in failed states. But these investments also respond to the humanitarian needsof people who have known only poverty and dependence.

The 2006 Budget also reinforces the Administration’s commitment to finding durable solutions forthe more than 12 million refugees worldwide in need of protection. The United States continues




offering permanent resettlement to the most vulnerable among these populations. Refugee admis-sions rose by more than 80 percent in 2004. The United States is the world’s largest donor to theUnited Nations High Commissioner for Refugees and the world’s leader for accepting them . The2006 Budget provides a funding increase of $85 million to support the growing number of refugeesbeing resettled in the United States.

The President and Mrs. Bush speak to students attending natureclasses at the Modolodi Nature Reserve near Gaborone, Botswana.

President Bush is committed to increasing American volunteerism overseas and, accord-ingly, has asked for increases over prior year’sappropriations in Peace Corps’ budget everyyear since taking office. The Administration’sbudget request of $345 million continues thatsupport. Peace Corps volunteers—7,733 strongin 2004—are at their highest level in 29 years.These dedicated individuals reflect the best of

American values and compassion by workingin such diverse fields as education, health,information technology, business development,the environment, and agriculture. The 2006Budget will help Peace Corps open at least twonew posts and maintain the existing number of

volunteers.

The 2006 Budget funds the Volunteers for Prosperity initiative, coordinated by USA Freedom Corpsand USAID. This program provides America’s highly skilled professionals new opportunities to serveabroad in the countries of their choice. Additionally, organizations that become Volunteers for Pros-perity participants are given priority for Federal funding in select Federal development assistanceprograms. Since its inception, Volunteers for Prosperity has recruited nearly 200 non-profit and for-profit organizations representing a pool of 34,000 skilled American professionals from fields such ashealth care, business, banking, information technology, education, and public administration. These

organizations have deployed nearly 7,000 volunteers to help reduce poverty and promote economicgrowth.

Conclusion

In all these areas—supporting the family, caring for the poor and sick, protecting the vulnerable,and upholding our values—the 2006 Budget supports the efforts of millions of people who by theiractions are making a difference in the lives of their fellow Americans and others around the world.

In this Budget, we have focused our resources on programs that show promise and success andhave shifted away from efforts that have proven less effective. We support those programs that domore than offer good intentions. They deliver results. The programs supported in the 2006 Budget

serve the purposes for which they were designed. They feed the hungry, heal the sick, and savethe addicted from despair. They promote caring and compassion and bring those they serve fromdependence to lives of dignity. They uphold the principle that taxpayer dollars must be spent wherethey can do the most good for the greatest number, and that the Federal Government should welcomethe participation of faith-based and community organizations in the delivery of such services. All of our efforts succeed not by the sheer size of budgets, but by the care and talent brought to help thosewho once seemed beyond help.



MAKING GOVERNMENT MORE EFFECTIVE

The Federal Government has a responsibility to ensure that taxpayers’ money is spent wisely onpriority needs. The 2006 Budget emphasizes the goal of achieving the results the American peopleexpect at a reasonable cost. This effort is critical to implementing President Bush’s aggressive plan tohalve the deficit by 2009. Achieving this plan will require continued pro-growth economic policies andsound spending restraint. Throughout the 2006 Budget, the Administration maintains that focus.

Spending restraint can take many forms. Rather than achieve fiscal discipline by cutting programsacross the board, this Administration has employed a strategic approach that emphasizes results andefficiency.

To make the Federal Government more effective, the Administration is working to:

Control spending and be a good steward of taxpayer dollars;

• Set clear goals and achieve them;

• Accomplish more with less;

• Focus Federal resources on programs that work; and

• Bring reform to entitlement programs.

Since taking office, the President has addressed these important aspects of a more effective Govern-ment. His Budgets have dramatically reduced the growth in discretionary spending for non-securityprograms. This year’s Budget calls for a reduction in that category of spending. With the Presi-dent’s Management Agenda, the Administration has made good management a priority throughout

the Federal Government. The President initiated Medicare reforms, and will be proposing significantreforms of our Social Security system this year. Through sustained and dedicated effort, the FederalGovernment is showing that it can respond to the pressing needs of the Nation, while remainingresponsible with taxpayer dollars.

ACHIEVING RESULTS

The President is committed to disciplined spending and ensuring Federal funds achieve the bestresults for the American people. Throughout the Budget, there are proposals to eliminate or reducespending for programs that are not producing results, to limit long-term spending growth, and toreform programs to achieve better results.

Some examples of these budgetary proposals include: Better high school intervention programs. To provide funding for States under a High School

Intervention Initiative, the Administration proposes to consolidate narrow-purpose programs, mostof which have not proven effective in improving our secondary students’ academic achievement orability to obtain a job. The President’s new High School Intervention Initiative will provide $1.2billion to help States implement a high school accountability framework and a wide range of effectiveinterventions. In return for a commitment to improve academic achievement and graduationrates for secondary school students, States will receive the flexibility to choose which interventionstrategies will be most effective in serving the needs of their at-risk high school students.

49



50 MAKING GOVERNMENT MORE EFFECTIVE

Better management of student loan programs to maximize Pell Grants. The Budget proposes acomprehensive package of reforms to make the student loan programs more efficient and more costeffective. These reforms will link subsidy payments to lenders and guaranty agencies more closelyto their costs and modify interest rates for borrowers who are no longer in school and who haveconsolidated their loans. The Budget achieves $34 billion in savings over 10 years by reducing unnec-essary subsidies and payments to lenders, guaranty agencies, and loan consolidators, and by placing

a larger share of the loan risks on lenders. A portion of these savings will be used to increase the PellGrant maximum award by $500 over a five-year period, pay off the current $4.3 billion Pell shortfall,improve benefits to students in school by increasing loan limits for first-year students, and extendthe current favorable interest rate framework, while still reducing overall costs to the taxpayer.

Better programs to enhance community economic development. The Budget creates a new economicdevelopment program within the Department of Commerce, called the Strengthening America’s Com-munities Grant Program. The President’s proposal replaces the current duplicative set of Federalcommunity and economic development programs spread throughout multiple agencies with a moreconsolidated approach that focuses resources on the creation of jobs and opportunities, encouragesprivate sector investment, and includes rigorous accountability measures and incentives. This Pro-gram is a targeted, results-oriented approach that will encourage innovation and economic opportu-

nity. And by streamlining the delivery of Federal economic development programs, taxpayers will seeadministrative savings. The President’s Budget includes $3.7 billion for the Strengthening America’sCommunities Grant Program to provide economically distressed communities with a source of fund-ing for planning, infrastructure development, and business financing to achieve long-term economicstability and growth.

Better job training programs. The Budget merges the Department of Labor’s four major Federal job training and employment grant programs into a single $4 billion grant program and allows Gov-ernors to supplement this consolidated grant with their State’s resources from a menu of severalother Federal job training and employment programs. This proposal would establish increasinglyrigorous performance standards each year, leading to a goal in the tenth year that States place inemployment 100 percent of the workers trained with grant resources. To ensure that individuals are

placed in high-quality jobs, States would also be required to show improvements in earnings and jobretention. States’ performance would be ranked and published each year. These reforms, along withthe President’s $250 million Community College job training initiative, will result in the training of 400,000 workers—twice as many as are trained under the current system.

Better research programs benefiting commerce. The Budget proposes termination of the AdvancedTechnology Program (ATP) at the Department of Commerce. This proposal is consistent with the 2005Consolidated Appropriations Act, which did not provide funding for new awards from ATP. Other ini-tiatives, such as those at the National Institute of Standards and Technology and the extension of the research and experimentation tax credit, are more effective in supporting needed research andtechnological development for U.S.-based businesses, American workers, and the domestic economy.

MANAGING FOR RESULTS

Government should always strive to serve the people with the best programs while making the mostefficient use of public tax dollars. Launched in August 2001, the President’s Management Agenda(PMA) set out to strengthen management practices and foster accountability so that Governmentmanagers and their employees could better focus on and produce results. Federal managers nowroutinely ask themselves if the programs they manage are achieving results at a reasonable cost. If the answer is “no” or “we don’t know,” managers find out what the problem is and work to fix it. If theanswer is “yes,” they pursue ways to increase efficiency by replicating their success in new areas. The




Administration’s efforts to improve Government effectiveness and efficiency will allow Departmentsand agencies to serve the American people better and with fewer resources. In each area of the PMA,the Administration has established markers of success and goals for future progress.

Strategic Management of Human Capital

The Strategic Management of Human Capital Initiative of the PMA helps agencies ensure theyhave high-performing employees with the right skills at the right time. Through this initiative,agencies are identifying the critical skills their employees need to fulfill the agency’s mission. Theagencies then work to close any gaps through directed hiring and training. This effort is drivingagencies to improve performance appraisal systems to distinguish accurately among different levelsof performance. These updated appraisal systems also make clear how each employee’s contributionsaffect the agency’s overall effectiveness. Managers are responsible for making performance expecta-tions clear to each employee.

While the Human Capital Initiative is helping agencies establish strong management practices,the Federal Government needs additional tools if it is to make the greatest use of its personnel. TheDepartments of Homeland Security (DHS) and Defense (DOD) are currently developing and imple-

menting modern systems that provide flexibility to compensate personnel appropriately given thenature of their contributions and performance, as well as quickly hire personnel with needed skills.These flexibilities are critical for DHS and DOD because these agencies must anticipate and respondquickly to the Nation’s changing needs. It is also important that these flexibilities be granted to allagencies so that they can make the greatest use of their personnel to achieve their own importantmissions. The Administration will be working this year to extend similar personnel reforms to otherFederal agencies.

To help taxpayers get their money’s worth, the Administration should reward employeeperformance based on contributions to the accomplishment of agency missions and goals. Theimprovements in the performance appraisal systems—better distinguishing among different levelsof performance, tying individual performance to organizational goals, and training managers tomake clear to employees their expectations and give constructive feedback—are establishing thefoundation for performance-based pay. The Administration is currently implementing a system inwhich pay is more closely linked to performance for members of the Senior Executive Service, thetop executive cadre of the Federal Government. Tying pay to performance instead of longevity willyield improved results.

Competitive Sourcing

Competitive sourcing through public-private competition is helping agencies become more results-oriented and effective. Through competition with private providers, Federal employees who performcommercial activities are given the opportunity to develop plans for restructuring their organizationsto optimize efficiency and eliminate waste. And private contractors have the chance to offer new and

innovative solutions to meet the pressing needs of the Federal Government. These efforts have ac-celerated the implementation of long-overdue reengineering efforts and cost-savings measures, andhave produced impressive results.

Competitions completed in 2003 and 2004 will save taxpayers more than $2.5 billion over the nextfive years. Most of the cost savings associated with competitive sourcing comes without the need forlarge scale reductions in Federal employment.

DOD projects cost savings of more than $6 billion as a result of competitions completed between2001 and 2006. These reductions are enabling the Department to focus its resources on core activi-ties.




Competition at the Internal Revenue Service (IRS) has triggered transformational changes atcenters that process tax returns and those that inventory and warehouse forms and publications.In-house personnel will continue to provide these services, but under restructured organizationsthat are expected to save IRS more than $185 million over a five-year period.

These results confirm that competitive sourcing is a critical tool that can help agencies improve

performance while reducing costs by 10 to 40 percent. The Administration will continue to work withthe Congress to remove legislative restrictions on competitive sourcing so that all Federal agencieshave full use of this important management tool.

Improved Financial Performance

This past November, a record 22 Federal agencies prepared their Performance and Accountabil-ity Reports within 45 days of the end of the fiscal year. When the Administration first set this newgoal, agencies typically took five months to prepare these financial reports. Of the 24 major Federalagencies, 18 received unqualified audit opinions this past fiscal year. These important achievementsdemonstrate that agencies were able to maintain the high levels of financial management of previ-ous years while accelerating their financial reporting dramatically. These achievements were pos-

sible because of the year-round financial management disciplines that agencies established. Theyimplemented systematic and automated improvements to reconciliation and analysis processes, aswell as improved coordination and communication with the agencies’ Inspectors General, externalauditors, and operating partners. Demonstrating fiscal accountability and achieving unqualified fi-nancial statements are good first steps. Ultimately, agency leadership must use this more accurate,precise, and timely financial information in their day-to-day management.

Some agencies are now regularly using more timely financial information for decision-makingand working to expand their use of this information to make their organizations more effective.For example, the Social Security Administration (SSA) uses detailed performance and cost data tomonitor workloads throughout its nationwide organization of field offices, hearing offices, and StateDisability Determination offices. Real-time access to work and workload information has enabledSSA to achieve productivity gains of more than five percent in 2002, and more than two percent in2003 and 2004.

Electronic Government

The E-Government initiative focuses on ensuring that the Federal Government’s $60 billion annualinvestment in information technology (IT) is well spent. Agencies are working to ensure that all ma-

jor IT investments are justified with strong business cases that detail cost, schedule, and performancegoals, and explain how each investment fits into a larger IT investment strategy. Agencies are work-ing to ensure that all projects are completed within 10 percent of cost, schedule, and performancegoals.

Federal agencies are also working to ensure that all IT systems are properly secured and data is

appropriately protected. Currently, 77 percent of Government systems have been certified as secure,up from 26 percent three years ago.

The E-Government initiative emphasizes the customer—the general public. In 2001, the Admin-istration proposed 24 solutions for providing E-Government services to the public. Federal agencieswork together to implement E-Government projects to improve and streamline services for citizens,businesses, and Federal workers and reduce redundancy of investments. For instance, Federal job ap-plicants can now access a central on-line source for all Federal job postings through www.usajobs.gov.Citizens no longer need to submit multiple 20-page applications, but can instead submit a single threeto five page resume to apply for Federal jobs. Agencies are also working to place their rulemaking




docket contents online, at www.regulations.gov, to facilitate effective public review and comment onproposed rules.

Interagency cooperation is also a vehicle for increasing the efficiency of the Government’smanagement practices. The consolidation of 26 Federal payroll systems into two—an initiativethis Administration launched in 2001—is expected to save $1.1 billion over 10 years. Building on

this experience, agencies are pursuing consolidation opportunities in other areas, such as financialmanagement, grants management, and human resources management. Federal agencies willcompete with one another and with private providers to be designated shared service providersthat will provide specific administrative services on a Government-wide basis, reducing the needfor individual agencies to invest in these administrative systems individually. The Administrationwill continue to work with the Congress to remove legislative restrictions on E-Government so allFederal agencies can fully implement this important management tool.

Budget and Performance Integration

The overall goal of the Budget and Performance Integration Initiative is to have all programsachieve their expected results and continue to improve performance, which is central to effective

Government.

The Administration is systematically assessing every program using the Program Assessment Rat-ing Tool (PART). The PART requires us to ask whether a program has a clear definition of success,uses strong management practices, and produces results. The PART drives improvements in thequality of performance information and makes agencies accountable for the performance of theirprograms.

A key principle of the PMA is that performance should significantly influence policy-making. ThePART provides valuable performance information that informs decisions about how to invest limitedbudgetary resources. All programs receive close scrutiny. Low priority and low performing programsare generally proposed for reduction or elimination, and the funding is redirected to higher per-forming alternatives. Programs that are high priorities, but that need improvement are subjected

to reforms that will produce better results. For instance, as a result of PART analyses, the Budgetproposes to consolidate the Community Development Block Grant and the Economic Development

Assistance programs into a more targeted, unified program that sets accountability standards in ex-change for flexible use of the funds to support communities’ economic development and communityrevitalization efforts.

The PART is also being used to drive performance improvements so that taxpayers get more fortheir money. Each assessment requires follow-up steps designed to ensure the agency improves itsprograms. For instance, in response to an assessment completed two years ago, the Citizenship andImmigration Services (USCIS) in DHS has begun implementing significant IT and process improve-ments. Since May 2003, more than 182,000 immigration benefit applications have been filed online,reducing processing time and errors. One USCIS field office is piloting a green card replacement

project. USCIS is accepting e-filed applications at this office and to date the pilot program has re-duced the average renewal processing time from over eight months to approximately 10 businessdays. E-filed applications have risen from an average of 650 per month prior to implementation of the pilot program to about 1,650 per month.

The Budget and Performance Integration Initiative is changing the usual debates about budgetpolicy. Instead of asking agencies only “how much” they need, agencies are being asked “how well”they are performing with the dollars they receive. To reinforce this shift in approach, the agenciesare preparing performance budgets that display clearly the level of performance expected with therequested funding level.




The Administration has assessed 60 percent of Federal programs, and has plans to assess theremaining 40 percent over the next two years. Because the potential for savings and productivityare great, the Administration is proposing two mechanisms for realizing these opportunities in asystematic and expedited fashion.

First, the Administration is proposing the establishment of a Sunset Commission to provide reg-

ular scrutiny of Federal programs. This bipartisan commission would review each Federal programon a schedule established by the Congress to determine whether it is producing results and shouldcontinue to exist. Programs would automatically terminate according to the schedule unless the Con-gress took action to continue them.

The second proposal is to establish Results Commissions to review Administration plans toconsolidate or streamline programs that cross departmental or congressional committee jurisdic-tional lines to improve performance and increase efficiency. Ordinarily, programs that cross suchboundaries often are not subject to the usual performance review process, resulting in inefficiencies,lost opportunities, or redundancies. Results Commissions, made up of experts in relevant fields,would be established as needed to review consolidation proposals. The Congress would consider theCommission’s recommendation through expedited review authority.

The PMA also includes several program initiatives to improve the management of Federal agenciesin targeted areas. Some of these initiatives have begun to generate significant savings and efficiency.Two are highlighted below.

Eliminating Improper Payments

Federal agencies make more than $2 trillion in payments to individuals and a variety of other en-tities each year. An improper payment occurs when the funds go to the wrong recipient, the recipientreceives the incorrect amount of funds, or the recipient uses the funds in an improper manner. Bystrengthening financial management controls so that Federal agencies can better detect and prevent

improper payments, the Federal Government can better ensure the taxpayer dollar is put to the usethe Congress intended.

In 2004, Federal agencies identified 60 percent of Federal outlays ($1.4 trillion) as at risk for sig-nificant improper payments. In response, agencies now annually measure the extent of improperpayments in these outlay categories. They have established aggressive targets to reduce improperpayments and are implementing plans to meet those targets. The Eliminating Improper PaymentsInitiative is holding agencies accountable for effectively carrying out these activities by regularlyreporting on improper payment rates.

Agencies that correctly gauge improper payments estimate a total of $45.1 billion in improperpayments in 2004. Approximately 92 percent of the improper payments in these programs were

overpayments—a number that reveals the full potential for reducing costs and saving taxpayerdollars. Setting aside expected growth in outlays for these programs, agencies expect the 2004improper payments total to decrease by approximately $5.1 billion in 2005, $8.3 billion in 2006, and$12.8 billion in 2007.

While many reductions in improper payments depend on strengthening management controls,these efforts would be bolstered by expanded legislative authorities for Federal agencies to shareinformation. The Administration will work with the Congress to develop appropriate informationsharing legislation that allow programs to verify income and other eligibility criteria with dataalready in the Government’s possession, while ensuring that recipients’ privacy is protected.




Real Property Asset Management

The PMA is also helping agencies ensure that they efficiently manage the hundreds of billionsof dollars in real property that the Federal Government owns. The Federal Real Property Councilhas developed standards for how Federal agencies should initiate improvements to propertymanagement. Among the standards is: using timely and accurate inventory data and performance

measures in evaluating property acquisition, maintenance, and disposal decisions. To facilitatethese efforts, the Budget proposes to expand disposal authorities for the Department of Agriculture,General Services Administration, and the National Aeronautics and Space Administration—threeof the largest property-holding agencies. The proposed authorities streamline the disposal process,allowing these agencies to take a more timely and cost-effective approach to right-sizing theirproperty inventories.

The Scorecard

To ensure that Federal agencies are accountable for improving their management, the Adminis-tration established a scorecard that rates agency efforts green, yellow, or red. Each PMA initiative

has specific long-term goals intended to establish management practices and disciplines that foster amore effective and results-oriented Government. These goals are known as the Standards for Successand can be found at www.whitehouse.gov/results/agenda/standards.pdf . Green status representsfull achievement of all of the goals for a particular initiative; yellow represents an intermediate levelof achievement; and red indicates that agency has at least one deficiency. Agencies have action plansto achieve the goals of the PMA, and each quarter receive progress ratings of their adherence to theirimplementation plans and the quality of their work. While the Federal Government has had man-agement improvement goals in the past, the scorecard and detailed action plans give unprecedentedemphasis to holding the Government accountable for achieving its goals.

The agency chapters provide an update on each agency’s implementation of the PMA.

A scorecard reflecting status and progress scores as of December 31, 2004 follows. Each quarter

an updated scorecard is available at www.whitehouse.gov/results/agenda/scorecard.html.




Executive Branch Management ScorecardCurrent Status as of

December 31, 2004

Progress in Implementing President’sManagement Agenda

HumanCapital

Com-petitive

Sourcing

FinancialPerf.

E-Gov

Budget/ Perf.

Integration

HumanCapital

Com-petitive

Sourcing

FinancialPerf.

E-Gov

Budget/ Perf.

Integration

Agriculture

Commerce

Defense

Education

Energy

EPA

HHS

DHS

HUD

Interior

Justice

Labor

State

DOT

Treasury

VA

AID

Corps

GSA

NASA

NSF

OMB

OPM

SBA

Smithsonian

SSA

Arrows indicate change in status since evaluation on September 30, 2004.




Program Initiative Scorecard

Initiative Status Progress

Faith-Based and Community Initiative:

Agriculture .....................................................................

Education.......................................................................

HHS .................................................................................

HUD .................................................................................

Justice.............................................................................

Labor ...............................................................................

AID ...................................................................................

Real Property Asset Management:

Agriculture .....................................................................

Defense ..........................................................................

Energy ............................................................................

HHS .................................................................................

DHS .................................................................................

Interior.............................................................................

Justice.............................................................................

Labor ...............................................................................

State ................................................................................

DOT .................................................................................

VA .....................................................................................

Corps ..............................................................................

GSA .................................................................................

NASA ..............................................................................



DEPARTMENT OF AGRICULTURE

AT A GLANCE:

2006 Discretionary Budget Authority: $19.4 billion(Decrease from 2005: 10 percent)

Major Programs:

Agriculture Commodities Support

• Conservation

• Food and Nutrition Service• Forest Service

• Food Safety, Animal and Plant Health, and Marketing Programs

• Rural Development

MEETING PRESIDENTIAL GOALS

Promoting Economic Opportunity and Ownership

Ensuring an economically sound future for American agriculture by providing a financial safetynet for farmers and promoting free and fair trade, while promoting more efficient productiondecisions and reducing agricultural subsidies.

• Supporting rural telecommunications with broadband loans.

Protecting America

• Protecting the food supply by ensuring enforcement of food safety and security standards atmeat, poultry, and egg products plants and protecting agriculture from pest infestations anddisease.

•Maintaining the commitment to protect the agriculture and food system against intentional orunintentional contamination.

Supporting a Compassionate Society

• Providing important nutrition programs, including the Food Stamp, School Lunch, School Break-fast, and Child and Adult Care Food programs, and the Special Supplemental Nutrition Programfor Women, Infants, and Children.

• Helping tenants displaced from traditional rural multifamily housing units.

59



60 DEPARTMENT OF AGRICULTURE

MEETING PRESIDENTIAL GOALS—Continued

Making Government More Effective

• Improving the Crop Insurance program by proposing reforms to reduce the need for ad hoc

disaster assistance.• Improving accountability through significant reform of the Forest Service including significantly

reducing its indirect costs, and addressing maintenance needs for our national forests by sellingunneeded facilities and establishing a working capital fund for facilities.

• Eliminating or phasing out conservation programs, such as the Resources Conservation andDevelopment Program and Watershed and Flood Prevention Operations Program, that do noteffectively target Federal resources on need or performance in order to refocus funding to high-priority conservation programs.

• Initiating the process to close the public/private Rural Telephone Bank because of insufficientdemand for its privatization and because the Government is able to provide the Federal financialassistance through other programs in a more cost-effective manner.

Agency-specific Goals

• Ensuring that eligible, low-income individuals have access to food stamps and improvingprogram accountability.

• Managing National Forests and Grasslands and assisting private landowners in managing landsin a productive, sustainable way.

• Redirecting funding from lower priority conservation programs in order to fund national-levelresource priorities, such as helping animal feeding operations comply with environmentalregulations and helping ranchers fight and control invasive species.




PROMOTING ECONOMIC OPPORTUNITY AND OWNERSHIP

Enhancing economic opportunities for agricultural producers

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004170

190

210

230

250

270

290

0

15

30

45

60

75

90

Billions of dollars (gross) Net farm income, billions of dollars

Farm Income

Source: USDA.

Gross GovernmentPayments

Gross Farm-Related Income

Gross CashReceipts

Net Cash FarmIncome

The cornerstone of the U.S. Department of Agriculture (USDA) is the assistance it providesto improve the U.S. farm economy. By anystandard, the farm economy is quite healthy.Net cash income of U.S. farmers in 2004 isforecast to exceed the 2003 record level of $68.6billion by 13 percent (see accompanying chart).Two consecutive years of exceptionally largecrop harvests and very high livestock prices,as a result of strong demand, have benefitedthe farm sector. This is only the fourth timesince 1990 that the value of both crop and

livestock production is expected to increase.The combined value of production for crop andlivestock commodities is expected to increaseby $27.6 billion in 2004, a 13-percent increase,

following a $20.7 billion (10.8 percent) increase in 2003. The value of farm sector production,including income from forestry and services earned on farm assets, rose $50.1 billion in just twoyears. The farm sector contributes significantly to U.S. national economic output. In 2004, it isestimated that the sector contributed a record $118.9 billion in net value added, up $17.5 billion,or 17 percent, from 2003.

Given this success, the Administration believes that it is appropriate to adjust current levels of assistance to farmers under the 2002 Farm Bill (Farm Security and Rural Investment Act of 2002).

The 2002 Farm Bill provided a total of $176 billion in farm-related assistance, a 74-percent increaseover the assistance the previous Farm Bill would have provided in the absence of any additionalemergency assistance. Not all of this assistance is appropriately targeted, and many of the programsmay need to be reformed as a result of any new multilateral long-term trade agreements. Therefore,the Administration is proposing the following legislative changes to reduce agricultural subsidies,promote more efficient production decisions, and extend expiring programs:

• Reducing the payment limit cap for individuals to $250,000 for commodity payments, includingall types of marketing loan gains, while removing the three-entity-rule.

• Basing marketing loans on historical production.

• Reducing crop and dairy payments to farmers by five percent. Payments to farmers from allcommodity programs (e.g., marketing loans, direct and counter-cyclical payments) would be

calculated and payments would be reduced by five percent.• Requiring the dairy price support program to minimize expenditures.

• Imposing a sugar marketing assessment to be paid by sugar processors on all processed sugar.

• Extending the Milk Income Loss Compensation program for two years.




SUPPORTING A COMPASSIONATE SOCIETY

From nutrition assistance to housing assistance to international food and education assistance,USDA works to improve the lives of people across the Nation and throughout the world. USDA is

also bringing expertise to school feeding programs in 25 countries throughout the world. The McGov-ern Dole International Food for Education and Child Nutrition program was permanently authorizedin the 2002 Farm Bill with the objective of using U.S. commodities and financial assistance to jump-start school feeding programs in poor countries. Results from the program show improvement instudent enrollment, attendance, and performance. In 2005, over 2.2 million women and children willreceive meals under this program. The 2006 Budget expands the program to reach over 2.5 millionrecipients.

The Special Supplemental Nutrition Program for Women, Infants, and Children, more commonlyknown as the WIC program, serves the nutritional needs of low-income pregnant and post-partumwomen, infants, and children up to their fifth birthday. The Budget provides $5.5 billion for WICservices, full funding for all those estimated to be eligible and seeking services. On July 30, 2004,

President Bush signed the Child Nutrition and WIC Reauthorization Act of 2004. This law makesmany important improvements to the National School Lunch Program that affect the 29 millionchildren participating in the program on an average school day. The Administration is implement-ing these changes to increase access to nutrition for vulnerable children, help States and schoolsfight childhood obesity, improve the integrity of the school meals programs, and strengthen WIC costcontainment efforts.

Multifamily Housing

In September 2004, the Supreme Courtruled that owners of USDA financed multi-family housing projects have a right to prepay

pre-1989 loans. This ruling put the tenantpopulation served by those properties atrisk of potential displacement (an estimated1,648 properties with 45,933 units, or about10 percent of the portfolio, will be affected).The 2006 Budget provides $214 million for a

voucher program for these displaced tenants.In addition, the Administration is developinga proposal to provide for the revitalization of USDA-financed multifamily housing projects.Collectively, these proposals will ensure thatUSDA continues to provide decent, safe, affordable housing to those who need it. The 2006 Budget

also reflects the Administration’s preference for loan guarantees and vouchers as a way to promoteprivate ownership and individual control in providing low-income, tenant-based housing in rural

America. The multifamily housing guarantees are doubled to $200 million, while no funding hasbeen provided for new construction in the direct loan program.




would come from reductions in formula-based research programs, which are generally allocated toinstitutions on a non-competitive basis rather than allocating based on performance.

Prioritizing Resource Conservation and Development Funding

Currently, the Resource Conservation and Development (RC&D) Program provides assistance tolocal communities to develop strategic plans that address their locally identified natural resourceand economic development concerns. The program’s long-term goal is to improve the capability of local communities to plan and deliver improvement projects.

A PART assessment of the program, however, found that it is duplicative of other USDA and Fed-eral resource conservation and rural development programs. Also, the RC&D Program does not pri-oritize and target funding based on need or performance. Accordingly, the 2006 Budget proposes anew policy for the RC&D Program that phases out Federal support for the local planning areas after20 years of support. At that point, these local communities should have the experience and capacityto identify, plan, and address their priorities. This policy would cancel Federal support for 189 RC&Dareas in the 2006 Budget.

In addition, the Budget proposes to eliminate funding for watershed and flood prevention opera-tions. The resulting savings would be redirected to other high-priority conservation activities withinthe Natural Resources Conservation Service budget, most notably to accelerate technical assistanceto help agricultural producers meet regulatory challenges, particularly in the areas of managing live-stock and poultry waste.

Dissolving the Rural Telephone Bank

The Rural Telephone Bank (RTB) was designed to provide a commercial source of financing onceit was privatized after 1985. Though RTB has been moving towards privatization for 20 years, theBank is still controlled by the Federal Government. When RTB was created in 1972, there werelimited options for rural telecommunications providers to obtain financing outside the Government.However, a recent analysis estimated that 50 percent of the rural telecommunications capital needseach year are provided from internal funding, 10 percent from the Rural Utilities Service, sevenpercent from RTB, and the remainder (33 percent) from other sources, including the Rural TelephoneFinance Cooperative (private) and the Government-run Universal Service Fund. In addition, fundingfor RTB has significantly exceeded demand for financing of rural telecommunications investments.Currently, there is over $1.3 billion in undisbursed loans.

The Administration proposes to establish the process and terms to implement a dissolution of theBank. Dissolution will allow RTB to close as the demand for private lenders has been fulfilled throughother sources. In addition, the stock holders will obtain a cash payout for their stock while removingthis cumbersome program from the Government. This proposal avoids the privatization of a bankthat will either fail or need continued Government support to remain in operation.




MAKING GOVERNMENT MORE EFFECTIVE—Continued

Update on the President’s Management Agenda

The table below provides an update on USDA’s implementation of the President’s Management

Agenda as of December 31, 2004.

Human CapitalCompetitive

Sourcing

Financial

PerformanceE-Government

Budget and

Performance

Integration

Status

Progress

Over the past year USDA updated and refocused its Strategic Human Capital Plan. Under the Plan, USDA

implemented a new Performance Management System for 60 percent of its employees that ties individualperformance to accomplishment of USDA’s strategic goals and effectively differentiates among performers.USDA has strengthened its workforce planning which will help avoid significant gaps in mission criticaloccupations through aggressive recruiting for new employees and development of current employees. Inaddition, the newly launched online learning system expands training opportunities for employees and providesbetter human resource tools for managers. While USDA initially had difficulty with competitive sourcing, in 2004USDA completed several studies estimated to yield $174 million in savings. USDA made significant progresson financial management. This past year, USDA submitted its third clean audit opinion on November 15, twomonths earlier than last year, and resolved six material weaknesses. USDA completed security certifications on98 percent of its information technology systems up from zero last year. USDA continues to make progress in theBudget and Performance Integration initiative by developing meaningful performance measures and reducingthe number of programs that are rated as Results Not Demonstrated.


Faith-Based and Community Initiative



Since 2004, USDA has raised its status for the Faith-based and Community Initiative from Red to Yellow. USDApublished Department-wide regulations affirming the ability, rights, and responsibilities of faith-based andcommunity-based organizations to participate in USDA programs, initiated pilot projects and related evaluations

to encourage greater involvement by such organizations, and enhanced outreach and technical assistancecapabilities. As part of the Real Property Asset Management Initiative, USDA is improving its management of itsvast resources (total asset value of $8 billion, consisting of 22,000 buildings and facilities and 3,600 leases)by completing a draft framework asset management plan; development of an automated inventory databasesystem; and establishment of a department-wide council to oversee implementation of asset managementperformance measures. USDA currently has nine programs, representing 68 percent of total outlays, that areat risk of or susceptible to improper payments. Efforts include developing measurement plans and beginningstatistical sampling. (Because this is the first quarter that agency efforts in the Eliminating Improper PaymentsInitiative were rated, progress scores were not given.)




AGENCY-SPECIFIC GOALS

Nutrition and Health

Food stamps alleviate hunger and malnutrition among low-income individuals. In 2006, the FoodStamp Program will provide approximately $33.1 billion in benefits to 29.1 million people. The Bud-get proposes to tighten overly broad waivers from the program’s eligibility criteria. Households whichreceive Supplemental Security Income or Temporary Assistance for Needy Families cash assistancewould continue to be automatically eligible for food stamps, while all other individuals would applyunder regular program rules. Additionally, the Administration proposes to work with the Congress torename the Food Stamp Program to better represent the Program’s mission of providing nutritionalsupport to low-income families.

The Administration is committed to improving integrity in the Food Stamp program with the goalof reducing the national average error rate from 6.64 percent for 2003, to 6.20 percent for 2006. Thisimprovement is projected to eliminate $146 million in over- and under-paid food stamp benefits in

2006. The Budget provides a new tool for program integrity by allowing States to use the NationalDirectory of New Hires to verify employment and wage information on food stamp applications andreports.

Protecting the Nation’s Environment

Healthy Forests Initiative. The President’s Healthy Forests Initiative is reducing the risk of cata-strophic wildfires by restoring forest and rangeland health. The Budget funds activities that advancethe goals of the Healthy Forests Initiative that will thin overcrowded forests, protect forests fromunnatural insect and disease infestation, and improve wildlife habitat and air and water quality.The Budget provides $281 million for USDA’s Forest Service and $211 million for the Departmentof the Interior for high-priority brush removal and other projects that provide the greatest reduc-

tion of risk posed by catastrophic wildfires. The Budget also includes $167 million to monitor theenvironmental effects of these and other projects on our national forests. By supporting watershedenhancements, vegetation management, and forest health research, the Budget improves forest andrangeland health to protect communities, wildlife habitats, and municipal watersheds from cata-strophic fires.

Focusing Conservation Dollars on High Priorities. To help meet scientific, regulatory, and finan-cial challenges, the Department’s primary conservation agency, the Natural Resources ConservationService (NRCS), provides assistance to agricultural producers. The 2006 Budget targets fundingto national-level conservation priorities and provides new resources to enhance NRCS’s cooperativeefforts as envisioned in the President’s August 2004 Executive Order. Cooperative conservation en-sures that Federal agencies collaborate with their State, local, tribal, and non-governmental partners

to enhance natural resources and protect the environment.Specifically, the Budget includes an increase of $37 million to provide more conservation technical

assistance to livestock producers to comply with environmental regulations. With this additionalfunding, NRCS will work with farmers to develop 3,800 comprehensive nutrient management plansand apply nutrient management on over 470,000 acres of agricultural land.




AGENCY-SPECIFIC GOALS—Continued

To help ranchers fight and control invasivespecies, the 2006 Budget includes an increaseof $10 million. The National Invasive Species

Council has identified several invasive speciesthat heavily impact western range lands, suchas the yellow star thistle, leafy spurge, andtamarisk.

In the 2006 Budget, the Administration isrequesting $274 million for the ConservationSecurity Program (CSP), a 35-percent in-crease. During the first year of enrollment in2004, the Department signed long-term CSPcontracts with 2,200 farmers and ranchers in18 priority watersheds around the country. In

2005, the USDA will enlarge the program byoffering enrollment opportunities in about 200 watersheds, and in 2006, the Budget anticipates thatUSDA will continue to expand the program by delivering it in an additional 200 watersheds. TheCSP rewards farmers and ranchers for their existing levels of conservation and provides incentivesfor them to enhance their environmental stewardship.

Department of Agriculture(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending

Discretionary Budget Authority:

Commodities and International........................................................................ 3,060 2,858 2,837Rural Development .............................................................................................. 2,449 2,407 2,454Forest Service........................................................................................................ 4,723 4,278 4,063Conservation .......................................................................................................... 1,177 982 814Food and Nutrition Service ............................................................................... 4,930 5,578 5,858Research ................................................................................................................. 2,478 2,667 2,320Marketing and Regulatory Programs ............................................................ 1,820 1,752 1,849Central Administration ........................................................................................ 525 551 627Subtotal, excluding items below ...................................................................... 21,162 21,073 20,822Receipts ................................................................................................................... 49 55 62

Additional Wildland Fire Suppression ........................................................... — 394 —Mandatory savings proposals .......................................................................... — — 1,394

Total, Discretionary budget authority ................................................................. 21,113 21,412 19,366

Memorandum: Budget authority from enacted supplementals ............... 400 553 —

Total, Discretionary outlays ................................................................................... 22,079 21,828 21,238




Department of Agriculture—Continued(In millions of dollars)

Estimate2004

Actual 2005 2006

Mandatory Outlays:

Food and Nutrition Service ............................................................................... 39,814 46,364 50,064Commodity Credit Corporation ........................................................................ 10,668 24,074 19,288Crop Insurance ...................................................................................................... 3,198 3,297 3,640Natural Resources Conservation Service ................................................... 1,396 1,754 1,949Agriculture Marketing Service.......................................................................... 1,013 1,285 985Forest Service........................................................................................................ 664 848 947Loan liquidating accounts and reestimates................................................. 5,049 3,620 3,131Receipts and all other programs ..................................................................... 2,012 916 387

Total, Mandatory outlays ........................................................................................ 49,692 73,086 73,355

Total, Outlays .............................................................................................................. 71,771 94,914 94,593

Credit activity

Direct Loan Disbursements:Farm Loans............................................................................................................. 899 962 937Commodity Credit Corporation ........................................................................ 9,150 11,944 10,106Rural Utilities Service .......................................................................................... 3,787 4,579 4,542Rural Housing ........................................................................................................ 1,393 1,369 1,029Rural Community and Economic Development......................................... 274 431 496P.L. 480..................................................................................................................... 411 100 42All other programs ................................................................................................ 62 73 79

Total, Direct loan disbursements ......................................................................... 15,976 19,458 17,231

Guaranteed Loan Commitments:Farm Loans............................................................................................................. 2,347 2,579 2,510Commodity Credit Corporation ........................................................................ 2,758 4,528 4,396Rural Utilities Service .......................................................................................... 19 1,179 30Rural Housing ........................................................................................................ 3,420 2,837 2,824Rural Business and Community Development .......................................... 1,063 613 925

Total, Guaranteed loan commitments ................................................................ 9,607 11,736 10,685



DEPARTMENT OF COMMERCE

AT A GLANCE:

2006 Discretionary Budget Authority: $9.4 billion(Increase from 2005: 49 percent)

Major Programs:

Economic Development

• International Trade

• Patent and Trademark Office

• Scientific and Technological Standards

• Census Bureau

• Oceanic and Atmospheric Science and Management



Promoting economic growth and entrepreneurship in economically distressed areas by proposingthe new Strengthening America’s Communities Grant Program.

• Growing the economy by expanding access to foreign markets by helping nearly 900 U.S. firmsexport for the first time and facilitating over 6,000 transactions to new markets.

• Advancing science and technological leadership by improving the quality and processing timesfor patents and trademarks and enhancing standards research on emerging technologies.

Protecting America

• Efficiently protecting U.S. national security through programs that control the export of sensi-tive goods by ensuring up-to-date export control lists and timely processing of export licenses.


• Improving fishery management and the accuracy of weather, climate, and ocean-conditionsforecasts through targeted investments and improved program design.

73



74 DEPARTMENT OF COMMERCE


Enhancing Economic Development and Trade

The President’s 2006 Budget creates a new economic development program within the Departmentof Commerce, the Strengthening America’s Communities Grant Program. The President’s proposalreplaces the current duplicative set of Federal community and economic development programs witha more consolidated approach that focuses resources on the creation of jobs and opportunities, en-courages private sector investment, and includes rigorous accountability measures and incentives.The Strengthening America’s Communities Grant Program is a targeted, results-oriented approachthat will encourage innovation and economic opportunity. By streamlining the delivery of Federaleconomic development programs, taxpayers will see administrative savings. The President’s Budgetincludes $3.7 billion for this program to provide economically distressed communities with a sourceof funding for planning, infrastructure development, and business financing to achieve long-termeconomic stability and growth (see table below).

Promoting Results-Oriented Economic Development

The 2006 Budget proposes a new approach, the Strengthening America’s Communities Grant Program,for targeting assistance to needy communities and focusing on achieving tangible results for low-incomepersons and economically distressed areas:

Old Model New Approach

Clear Purpose Programs lack clarity in purpose andoverlap in mission and function.

Clear objectives focusing on: jobcreation, homeownership, commercialdevelopment, reducing blight, and

private sector investment.Targeted to Need 38 percent of Community Development

Block Grant funds go to States andcommunities with poverty rates that arelower than the national average.

Target resources only to communitiesthat need assistance, based on povertyand job loss.

Efficiency The sprawling bureaucracy atthe Federal level has duplicatedbureaucracies at the local level withfunding provided to over 3,000 granteesa year. As a result, funding is spreadthinly across the Nation with very little todemonstrate relative to total investment.

Streamline Federal programs toeliminate inconsistent criteria andreduce administrative burdens and redtape.

Leverage PrivateSector

Too little focus on whether economicand community development projectslead to sustained economic growth andopportunity.

Work with the private sector to identifyopportunities for economic growth indistressed areas.

Results andAccountability

Focus on short-term outputs rather thanlong-term outcomes that demonstrateimprovement toward communityself-sufficiency.

Hold grantees accountable for achievingresults and make continued fundingcontingent upon demonstratingprogress.




Our changing economy presents challenges for certain communities where traditional industries,such as manufacturing, do not employ as many workers as they did a generation ago. The Presidenthas proposed a new Opportunity Zone Initiative that will help these local economies adapt and diver-sify by targeting Federal resources and encouraging new and existing businesses to invest in theseareas. The Commerce Department will have the lead role in managing this initiative. These efforts,combined with the President’s tax relief packages and initiatives to increase homeownership and re-

duce regulatory burdens, will help more communities participate in our growing national prosperity.

The Minority Business Development Agency (MBDA) also strives to improve economic opportunity.In 2004, MBDA programs provided assistance and improved access to financial and procurementopportunities to over 25,000 clients nationwide. In the spring of 2004, the President, by ExecutiveOrder, renewed the Advisory Commission on Asian Americans and Pacific Islanders. The 2006 Bud-get supports increases for the Commission’s efforts to improve economic opportunities.

Enhancing the growth of export businesses and reducing barriers to trade help strengthen theeconomy. The Budget provides a program level of $409 million for the International Trade Admin-istration (ITA) for trade promotion and compliance activities. This level of funding will expand theU.S. exporter base by increasing the number of U.S. exporters entering new markets and the numberof U.S. firms exporting for the first time, and by supporting efforts to ensure compliance with tradeagreements.

China is our third largest trading partner. Currently, there are almost 13,000 U.S. small- andmedium-sized enterprises that export to China. Nevertheless, trade with China continues to presenta number of challenges for U.S. companies. ITA, together with other Federal agencies, has workedto help U.S. companies overcome these barriers. Recently, ITA has increased staff working on mar-ket access problems in China, created a China Business Information Center to better advise smalland medium-sized companies on doing business with China, increased its staff at our Embassy andConsulates in China, and created a China office in the Import Administration to better focus re-sources on China anti-dumping cases. To help ensure that China honors its World Trade Organiza-tion commitments, the United States continues to engage China on specific trade issues in a numberof forums, including the Joint Commission on Commerce and Trade (JCCT). The first meeting of the

ministerial-level JCCT, held in mid-2004, achieved progress on several important issues, includingtechnical standards and distribution services, and strengthened commitments to improve intellec-tual property right protections.

Building the Infrastructure for Innovation

The 2006 Budget includes increases for Commerce programs that support and enhance innovationand technological advancement—creating the conditions for economic growth.

The Patent and Trademark Office (PTO) issues patents, registers trademarks and works to protectU.S. intellectual property rights holders through international treaties and enforcement training pro-grams. The 2006 Budget requests a program level of $1.7 billion for PTO, a 10-percent increase from2005. This program level provides PTO full access to its fee collections in 2006. PTO developed anaggressive strategic plan and proposed legislative changes to restructure patent and trademark feesto modernize and improve its operation. This included initiatives to improve the quality and the pro-cessing times of patents and trademarks, and initiatives to improve electronic filing and processingof applications. The Congress enacted many aspects of the modernization bill in the 2005 Consoli-dated Appropriations Act. The increase in the 2006 Budget should enable PTO to continue to makeprogress in achieving its performance goals, increasing the percentage of patents and trademarksprocessed electronically to 100 percent by 2006, and achieving complete review of patent applica-tions in an average of 31 months and trademark applications in an average of 15 months by 2010.




PROMOTING ECONOMIC OPPORTUNITY AND OWNERSHIP—Continued

Protecting Intellectual Property Rights Abroad

Together with ITA and other Federal agencies, PTO is participating in the Administration’s Strategy Target-ing Organized Piracy (STOP!) Initiative, launched in October 2004. This initiative targets the global tradeof pirated and counterfeit goods that threatens America’s innovation economy. PTO has developed a com-prehensive guide, and telephone hotline available at www.stopfakes.gov to help American innovators andbusinesses safeguard their ideas and inventions. In addition, PTO is enhancing its Office of Enforcement tobetter assist foreign countries in the enforcement of intellectual property rights.

The National Institute of Standards and Technology (NIST) develops technical standards neces-sary to support existing industries and to enable development of emerging technologies. The Budgetprovides $485 million, a 7.5-percent increase over 2005, for measurement and standards research re-lated to nanotechnology, biosciences, manufacturing, computing and networking systems, and public

safety, and for the renovation and repair of NIST labs. With these resources, NIST will be able to ad-dress a broad array of national scientific and technical infrastructure needs by building intramuralcapacity and leveraging complementary external research efforts through collaboration and partner-ships.

Telecommunications and information-related industries are an increasingly important and grow-ing part of the economy. The National Telecommunications and Information Administration (NTIA)works to bring the benefits of advanced telecommunications technologies to millions of Americansand promotes the efficient use of the Federal radio spectrum. In response to a Presidential directive,NTIA has taken a lead role in the Government-wide effort to implement the Spectrum Policy for the21st Century. The 2006 Budget supports this initiative to improve domestic and international spec-trum management.

The Census Bureau plans to usehand-held computing devices withglobal positioning system capabilityduring the 2010 Census to improvethe efficiency of data collection andprocessing.

Providing Key Information about the Populationand Economy

Information about the economy and population is essential for moni-toring and improving the Nation’s economic and social conditions. TheBureau of Economic Analysis (BEA) calculates the gross domestic prod-uct and related essential economic measures. The 2006 Budget requestsincreases for BEA to continue to improve the timeliness and quality of its economic data.

The Census Bureau conducts surveys and censuses that measurechanging demographics and the economic condition of the Nation. The

2006 Budget provides increases for the Census Bureau to continue itsreengineering efforts for the 2010 Census. This includes early planningand testing to contain costs and to improve the efficiency of datacollection activities.





Improving Environmental Stewardship

Through targeted investments and improved program design, the 2006 Budget will provideresources to enhance effective management of ocean and coastal resources, and observationand prediction of changes in the earth’s environment by the National Oceanic and Atmospheric

Administration (NOAA). The release of the final report from the U.S. Commission on Ocean Policylast fall highlighted the importance of sound management of ocean resources. In addition, the recenthurricanes in the southeastern United States and tsunami in the Indian Ocean demonstrated the

value of accurate prediction and warning networks for atmospheric and oceanic systems.

The U.S. Commission on Ocean Policy, a council mandated to conduct a comprehensive review of national ocean policy, released its final report in 2004, which called for changes to increase the effec-tiveness of oceans programs. The Budget provides support for the U.S. Ocean Action Plan that wasdeveloped in response to the Commission’s report. New investments and program improvements

within NOAA are aimed at strengthening our knowledge and management of ocean resources. Forexample, funding for effective fisheries management, including a new fishery research vessel, willenable NOAA to better assess the status of fish stocks and increase the number of stocks that areharvested at sustainable levels. Funds are also provided to assist in adoption of individual fish-ing quota (IFQ) systems, consistent with the Administration’s important proposed reforms to theMagnuson-Stevens Fishery Conservation and Management Act. IFQ systems offer a market-basedapproach that moves fisheries management away from more cumbersome and inefficient regulatorypolicies.

Winter Flounder, Georges Bank Stock

1990 1992 1994 1996 1998 2000 2002 2004

0

2

4

6

8

10

12

Biomass in thousands of metric tons

Rebuilt Level

Overfished Level

Source: NOAA.

Atlantic Cod, Georges Bank Stock

1990 1992 1994 1996 1998 2000 2002 2004

0

50

100

150

200

250Rebuilt Level

Overfished Level

Biomass in thousands of metric tons

Source: NOAA.

Populations of New England groundfish species, including Georges Bank Winter Flounder and Atlantic Cod,

reached record lows in the 1990s due to overfishing. Management measures aimed at rebuilding these

stocks were introduced by NOAA and the New England Fishery Management Council in 1994. Some stocks,

such as Winter Flounder, have responded quickly. However, for other species, such as Atlantic Cod, man-

agement challenges remain.




Management of marine resources will also be enhanced through funding to implement local ac-tion plans to protect coral reefs based on strategies developed with State and local governments andstakeholders.

As part of the U.S. National Tsunami HazardMitigation Program, NOAA maintains the DeepOcean Assessment and Reporting of Tsunamis(DART) Project, a moored buoy system thatprovides accurate and timely tsunami warninginformation. DART helps scientists betterpredict tsunami behavior, which will ultimatelysave lives and property. The 2006 Budget

includes $9.5 million to improve U.S. tsunamiwarning capabilities.

Restoration of threatened and endangered salmon stocksis important for environmental quality, Native American

communities, commercial and recreational fishermen, andthe economic vitality of the Pacific Northwest. The aim of the Pacific Coastal Salmon Recovery Fund is to help restorethese stocks through improvement and expansion of habitat.However, a 2004 Program Assessment Rating Tool analysisfound that the program was not able to allocate fundingaccording to the recovery needs of sensitive salmon populations.The Administration continues support for the Recovery Fundand proposes improvements to help ensure funds are allocatedto high priority activities.

The Commission on Ocean Policy also commended the work

of NOAA’s Sea Grant program, highlighting its capability togather local and State input on research priorities. The Budgetcontinues support for Sea Grant, which will focus this valuablecapability on important regional ocean and coastal ecosystemconcerns.

Accurately predicting storm and other weather events andtracking changes in the climate over time are important topublic safety and for averting economic losses. The 2006Budget provides planned increases for continued developmentand acquisition of weather satellites. In addition, the Budgetsupports increases within the climate program, specificallyfocusing on the strategic programs of the President’s ClimateChange Research Initiative.

The Budget also supports progress towards the goals of the U.S. Integrated Earth ObservationSystem, which will provide improved coordination, capability and data management for weatherprediction, natural disaster management, climate research, and ocean resources management. Thedevastating impact of the recent tsunami in South Asia demonstrates the potential value of thiseffort.

Improving Effectiveness by Realigning Other Commerce Programs

Consistent with the Administration’s emphasis on shifting resources to reflect changing needs, the2006 Budget proposes to terminate the Advanced Technology Program. This proposal is consistent

with the 2005 Consolidated Appropriations Act which did not provide funding for new awards. The Administration believes that other NIST programs are more effective and important in supportingthe fundamental scientific understanding and technological needs of U.S.-based businesses, Ameri-can workers, and the domestic economy.

The 2006 Budget proposes to fund the Hollings Manufacturing Extension Partnership Programat $47 million, a 50-percent reduction from the 2005 grant level. The Administration’s approachwill maintain a strong national network of centers while focusing funding based on centers’ perfor-mance in providing information and consulting services to small manufacturers. The program hasalso augmented funding through expanding partnerships with other agencies and institutions. Given





this new operating environment, the Administration believes the program has evolved to a stage atwhich less reliance on direct appropriations is required.

To reduce duplication within Government services, the Budget also proposes to terminate the Pub-lic Telecommunications Facilities, Planning and Construction program. This program has recentlytargeted funding toward the purchase of digital transmission equipment by public broadcasting sta-tions; the 2006 Budget proposes that a portion of the Corporation for Public Broadcasting’s alreadyenacted 2006 funding be made available for this purpose.

To improve efficiency, the Budget also streamlines administrative layers within the Economics andStatistics Administration and the Technology Administration.


The table below provides an update on the Department of Commerce’s implementation of thePresident’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress


During 2004, Commerce made significant progress in reducing workforce skill gaps in mission critical areas

and reducing average hiring times. Commerce also resolved remaining areas of financial managementnon-compliance and developed a plan for expanding the use of its financial reporting systems to improveoperations in additional key business areas; actively contributed to several E-Government initiatives, includingExport.gov to improve potential exporters’ access to trade information; and completed Program AssessmentRating Tool evaluations on over two-thirds of its programs.




Department of Commerce(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending

Discretionary Budget Authority:Departmental Management:

Salaries and Expenses .................................................................................. 49 47 54

Emergency Guaranteed Loan Program accounts................................ 52 — 50

Headquarters Renovation ............................................................................. — — 30

Office of the Inspector General ................................................................... 21 21 23

Subtotal, Departmental Management ........................................................... 122 68 57

Economic Development Administration........................................................ 308 284 27

Economic Development Challenge ................................................................ — — 3,710

Bureau of the Census ......................................................................................... 609 745 877Economic and Statistics Administration ....................................................... 73 79 85International Trade Administration.................................................................. 336 398 396Bureau of Industry and Security ..................................................................... 67 67 77

Minority Business Development Agency...................................................... 29 30 31

National Oceanic and Atmospheric Administration (NOAA):

Operations, Research and Facilities ......................................................... 2,697 2,852 2,608

Procurement, Acquisition and Construction ........................................... 961 1,038 965

Other accounts.................................................................................................. 11 18 11Subtotal, NOAA ..................................................................................................... 3,669 3,908 3,584Patent and Trademark Office (PTO):

Program Level ................................................................................................... 1,221 1,555 1,703

Offsetting Collections...................................................................................... 1,321 1,563 1,703

Subtotal, PTO......................................................................................................... 100 8 —Technology Administration ................................................................................ 6 6 4

National Institute of Standards and Technology (NIST):

Scientific and Technical Research and Services.................................. 336 379 426Industrial Technology Services ................................................................... 208 244 47

Construction of Research Facilities........................................................... 64 73 59Subtotal, NIST ....................................................................................................... 608 696 532National Telecommunications and Information Administration ............ 48 38 23


Memorandum: Budget authority from enacted supplementals ............... — 21 —


Total, Mandatory outlays ........................................................................................ 151 161 124

Total, Outlays .............................................................................................................. 5,855 6,283 6,507

Credit activity

Direct Loan Disbursements:Fisheries Finance Direct Loan Financing account ................................... 98 14 12

Total, Direct loan disbursements ......................................................................... 98 14 12



DEPARTMENT OF DEFENSE

AT A GLANCE:


Major Programs:

Defense of the Nation and its interests

• Training and equipping of military personnel

• Operation and maintenance


Protecting America

Leading the Global War on Terror by eliminating sanctuaries for terrorism, capturing or killing

al-Qaida’s most senior leaders and al-Qaida associated individuals.

• Supporting democratic elections in Afghanistan and Iraq.

• Enabling field commanders in Iraq to fund reconstruction projects quickly.

• Transforming the way wars are fought, with both new organizational strategies and weaponssystems and equipment:

— Executing new strategies to improve the way the Army and Navy deploy their forces;

— Moving troops from their Cold War footing to new strategic locations and approaches throughthe Global Posture Initiative; and

— Pursuing an aggressive strategy of “spiral” development to ensure that new technologies aredeployed sooner.


• Supporting our troops and their families to enable accomplishment of the Department of Defense’s mission and to recognize the sacrifice they make on a daily basis:

— Providing quality medical care to uniformed service members and their families; and

— Providing excellent educational opportunities to troops, particularly those serving in Iraq and Afghanistan, and quality housing through a nearly complete privatization program.

83



84 DEPARTMENT OF DEFENSE



• Implementing a program that converts military positions to civilian positions to free up troops

for more high-priority warfighting missions.• Transferring the background investigation section of the Defense Security Service to the Office

of Personnel Management, enabling the Department to focus on its core mission.

• Focusing resources and forces where they are most needed through the Base Realignment andClosure initiative.

• Instituting new management practices in manufacturing and repair facilities to improveefficiency and increase production.




PROTECTING AMERICA

Under this Administration, the Department of Defense (DOD) has received the largest increases infunding since the Reagan Administration, and this Budget builds upon that record. The 2006 request

represents a 41-percent increase over 2001, and a 4.8-percent increase over 2005. The Departmenthas used these resources to transform our Nation’s military capabilities to meet future threats, toimprove the quality of life for our troops and their families, and to fight the Global War on Terror.

To ensure the most cost-effective use of its resources, the Department has recently examined itsprograms carefully. As a result, DOD has changed some of its spending priorities in this year’s Bud-get and will continue to refine these in the 2005 Quadrennial Review, the Department’s strategicreview of defense requirements and spending priorities. This Budget continues the Administration’scommitment to our troops by providing a 3.1 percent pay raise and additional bonuses to supportrecruiting and retention. The Budget includes additional funding in the outyears for the Army tochange from a division-based structure to one based on new, more agile "modular" brigades bettertailored to both ongoing operations in Iraq and Afghanistan and future conflicts. It also improves

DOD’s capabilities against weapons of mass destruction, including new laboratory facilities, detec-tion systems, and protective measures against advanced biological and chemical weapons. This Bud-get moves funding for critical intelligence activities essential to success in the long-term Global Waron Terror, including language proficiency training, to the base intelligence budget. This move sig-nificantly reduces the reliance of the Intelligence Community on supplemental funding, which hasbeen a source of insecurity in intelligence program planning and a source of criticism from the 9/11Commission. In addition, the Budget increases by 1,400 the number of special operations personnel,whose capabilities have contributed significantly to the War on Terror.

One of the key tenets of transformation is the ability to evolve rapidly and adjust future planningto account for changes in the global environment. Because of the continuing need to reexamine pri-orities, DOD has reviewed its management processes and weapons systems. As a result, this Budgetproposes management savings such as a reduction in Navy end-strength and overall defense contrac-tor support. It also reduces major systems over the next few years based on their cost-effectivenessand/or potential to counter future threats. Examples of these reductions include slower productionrates for the V-22, the Expeditionary Fighting Vehicle, the F/A-22, and several classes of large war-ships (including retiring one aircraft carrier early). DOD has also terminated some programs whosecost-effectiveness no longer warrants their continuation, such as the C-130J and the Joint CommonMissile. While proceeding with the above changes, DOD continues to support new transformationalcapabilities, such as Unmanned Aerial, Underwater, and Land Vehicles; the Littoral Combat Ship,the Army’s Future Combat System; and many other programs with a high potential to meet currentand future threats.

The Global War on Terror

DOD is fighting the Global War on Terror by:

• taking the fight to the enemy;

• working with allies to isolate and eliminate terror cells; and

• supporting emerging democracies.

Since the precise costs of ongoing operations could not be estimated at the time the 2005 Budgetwas proposed or enacted, the Administration plans to request, in addition to the 2006 Budget pro-posals, an emergency supplemental to fund continuing military operations in 2005. The 2006 Budget




PROTECTING AMERICA—Continued

and 2005 supplemental funding request reinforce the United States’ unwavering commitment to en-suring that our men and women in uniform have what they need to protect our homeland, defeatterrorism around the world, and support new democracies in Iraq and Afghanistan.

Soldiers with the Iraqi Armed Forces and U.S. Marines with the 5thMarine Regiment, 1st Marine Division, patrol the streets while clearingbuildings during Operation Al Fajr (New Dawn) in Fallujah, Iraq.

In 2005, the United States expects tomaintain substantial force levels in Iraq toensure security and help the Iraqi governmentdefeat the insurgency. In 2005, the UnitedStates also expects to maintain a significantforce in Afghanistan. The 2005 supplementalwill help to fund these deployments, includingequipment, force protection, and intelligencesupport.

Together the 2006 Budget and 2005 supple-

mental will increase the ability of the Army tosupport the Global War on Terror by accelerat-ing their transformation into more lethal, morecapable units. Further, these funds will providethe resources to train Iraqi and Afghan securityforces to assure greater responsibility for the se-

curity of their countries. In order to build upon the military successes in Iraq and Afghanistan, andin order to continue to lay the foundation for stable democracies, the United States is committed tobuilding up the security forces of these new governments. As of January 2005, U.S. and allied forceshad trained 127,000 Iraqi security forces and will continue to work with the Iraqi Government toimprove the capabilities and performance of these forces.

Members of the U.S. Marines 7th Regiment walk the city streets of AlAnbar, Iraq and hand out gifts as gestures of goodwill.

Similarly, in Afghanistan the coalition hastrained over 16,000 troops for the AfghanNational Army (ANA). The ANA has been sosuccessful that the rate of training has beenincreased and funds to accelerate that effortwill be requested in the 2005 supplemental.

Another key element of the U.S. strategy tobolster democracy in Iraq and Afghanistan isproviding aid to the people there. To advancefreedom and stability, the United States isfunding a variety of long- and short-terminitiatives designed to support national

infrastructure and projects of immediate valueto hundreds of towns and villages.

The 2006 Budget and 2005 supplementalpropose to continue the authority for the Commander’s Emergency Response Program (CERP).The Budget requests authority for an additional $300 million, and substantial additional 2005supplemental funding will be requested. Since the inception of CERP, commanders have spentalmost $250 million to directly improve education, healthcare, electricity, water, and security. Eachmajor command has been allocated CERP funds based on the geography, population, and needsof their respective region. CERP projects help local commanders quickly deal with short-term




Members of the U.S. Army’s 21st Infantry Regiment provide schoolsupplies and visit classes at Al Nidhal public school in Amel Shabi,Iraq.

needs and are conducted along with large-cityand nationwide projects headed by the U.S.

Agency for International Development and theCorps of Engineers. CERP is successful becauseit is administered by local commanders who liveand interact with local citizens. Commanders

work directly with local communities, throughcivil affairs experts, to identify and respond toimmediate needs with low-cost, high-impactprojects. A testament to the program’s successis the fact that the Iraqi Interim Governmenthas added millions of dollars of its own fundingto the program.

Transforming Our FightingCapabilities

Transforming the way the U.S. military is organized and equipped is one of the highest securitypriorities for President Bush. To support the President’s goals, the 2006 Budget and 2005 supple-mental fund:

• a wide variety of unmanned vehicles;

• the continued development of a reconfigurable warship that can be effective in multiple missions;

• the realignment of Army units to make them more flexible and more easily deployable;

• the Global Posture Initiative that optimizes the deployment of U.S. forces around the world; and

• the development of new communications and computer systems.

A soldier with the 1st Infantry Division operates and maintains aShadow 200 Unmanned Aerial Vehicle at Forward Operating BaseWarhorse in Iraq.

Unmanned vehicles are well suited to the

dangerous missions that U.S. troops oftenundertake at great risk. The Departmentcontinues to make major investments in thedevelopment and procurement of unmannedground vehicles (UGVs), unmanned underwater

vehicles (UUVs), unmanned aerial vehicles(UAVs), and unmanned combat aerial vehicles.DOD has only begun to exploit the potentialof these vehicles. For example, while currentoperational UAVs like the Predator and GlobalHawk are well known, many other UAVs havebeen, or are being, developed by the Departmentin a wide variety of shapes and sizes. Andwhile the current generation of UAVs have beenmainly used in the reconnaissance role, the Department is exploring the feasibility of using UAVsin entirely new ways that will help to transform how U.S. forces fight. An example of this is the useof armed robots to assist in the clearing of buildings occupied by insurgents. This capability has thepotential to transform urban combat operations. UUVs are also being developed for mine detectionand avoidance operations, and the range of missions for UGVs is expanding from examiningimprovised explosive devices to exploring caves. The Department’s funding for these efforts reflectsthe importance the Administration places on this area of technology development. The 2006




of high-demand units and providing stability for soldiers and their families. The Administrationplans to request an additional $35 billion for the Army for modularity between 2005 and 2011.

Global Posture Initiative

Forward basing for B–2 Bombers is addressed by the Global PostureInitiative.

In August 2004, the President announcedthe most comprehensive restructuring of U.S.military forces overseas since the end of theKorean War. This will require the shifting of our military presence from Cold War needs toone reflecting the strategic realities of the 21stCentury. Once the Global Posture Initiative isimplemented, our forces will be better able tocontend with new threats, such as those posedby terrorism and the proliferation of weaponsof mass destruction. Another benefit of thisinitiative is that it will enable fewer overseas

moves for service members, providing morestability for military families.

Paratroopers in Italy board a plane before a night drop into Germany aspart of an exercise.

This initiative is expected to be imple-mented over the next 10 years. Over thattime, 70,000 military personnel—and 100,000family members and other civilians—areexpected to return to the United States as aresult of this effort. The United States’ over-seas presence will be reduced from 850 sites to550. To begin this effort, the Administration

has added $416 million in the 2006 Budgetand $3.5 billion through 2011. Furthermore,the Administration expects the decisions onglobal posture will help inform base closingdecisions under the Base Realignment andClosure (BRAC) process in 2005.

Spiral Acquisition

One of DOD’s key initiatives for improving how it procures new weapon systems is the use of “spiralacquisition,” in which new technologies and capabilities are tested and added to the inventory incarefully planned and limited increments. In the past, many new weapon systems were designed

from a “clean sheet” to achieve a dramatic leap forward in capability. This often led to pushing theuse of very young technologies, coupled with very complex designs and system engineering. Theresult was often large cost increases and schedule delays. This inevitably resulted in troops havingto continue using older equipment, which was not upgraded because the new weapons’ program costover-runs were absorbing funding. The Administration is committed to solve this problem.

A good example of spiral acquisition is the Army’s Future Combat System (FCS), which this Budgetsupports with a $3.4 billion request, an increase of $200 million from 2005. FCS will provide 18 newsystems (ranging from UAVs, new sensors, unmanned ground systems, and new armored fighting

vehicles) to re-equip the Army for the highly mobile, network-centric warfare of the 21st Century.





FCS had been structured as a classic large, complex acquisition where everything was planned tocome together (all 18 systems plus a network to link them) into the first, completely re-equippedbrigade in 2010. The acquisition risk and cost of this approach was formidable. Recognizing the

problem, the Army restructured FCS development and procurement into a spiral acquisition wheresubsets of the new systems are delivered in four “spirals” beginning in 2008. This approach allowsthe Army to deploy those elements of FCS that are ready first, while providing enough time to testand develop the more challenging components for introduction in later spirals. The new strategy willprovide more capability to the troops sooner, while effectively managing cost and technical risk.

Strengthening Intelligence

Policymakers require timely, accurate, and insightful information on the capabilities and inten-tions of foreign powers, including terrorist groups. Military commanders need such information andreal-time battlefield intelligence to wage war successfully. The agencies of the U.S. intelligence com-munity have the responsibility to meet the full range of U.S. intelligence needs from the national levelto the tactical level. The 2006 Budget devotes substantial resources to U.S. intelligence capabilitiesand continues a commitment to transform them to more effectively meet the challenges of the 21stCentury.





Military Housing

A military family moves into their new house on Ford Island, Hawaii.

The President is committed to providingmembers of the military and their familiesquality housing whether they live on- oroff-base. The 2006 Budget is the first in whichmembers of the military and their familiesliving off-base will have their total averagehousing costs fully paid.

One of the goals of the 2006 Budget is toeliminate 67,000 inadequate housing units(out of a total of 136,000 Government-ownedunits) by 2007. A proven method to eliminateinadequate housing, and to improve the qualityof housing over the long-term, is to privatizeGovernment-owned family housing—so thatprivate sector professionals best able to refurbish, build, and supply housing for our troops do so,allowing the Department to focus on its core warfighting mission.

Defense Health

A member of the 105th Military Police Battalion, North CarolinaNational Guard, cradles his seven-week old daughter beforeboarding a plane to deploy to Iraq at Pope Air Force Base, NorthCarolina.

DOD’s expert medical care teams continueto save lives in Iraq and Afghanistan dueto advanced battlefield medical techniques,rapid patient transportation systems, and

state-of-the-art medical equipment. Battlefieldhealth care has been enhanced with field surgicaland medical care teams that provide front-line,life-saving medical attention within minutesafter injury and are integrated with a responsivemedical system. The specialized aero-medicalevacuation system quickly moves patients fromthe battlefield to military hospitals for follow-oncare in Germany and the United States, somewithin 36 hours. The wounded survival rateis 98 percent, and families see firsthand theimportance of the swift, high-quality, and

compassionate care delivered. DOD has also made far-reaching improvements in its development of automated records to support quick access to critical healthcare information. In 2006, the Budgetrequests $19.8 billion, an increase of $1.6 billion over 2005, to continue providing our troops andtheir families with comprehensive and quality health care.

This Administration has expanded access to medical care for reservists and their family membersbefore, during, and after mobilization. For those reservists, retirees, and families not using DOD’sown medical care system, DOD provides an insurance program called TRICARE. This program hasmade significant changes to its nationwide contracts to improve portability for families and eliminateregional administrative differences. Enrollment is now automatically transferred when beneficiaries




SUPPORTING A COMPASSIONATE SOCIETY—Continued

An Air Force Pharmacy Technician fills a prescription in the clinic atDavis-Monthan Air Force Base, Arizona.

move to a new region. The network of civilianphysicians has also expanded, and othercustomer-focused improvements have been

made to increase the quality of care, access, andclaims payments. DOD’s new TRICARE websiteprovides more beneficiary information onenrollment and network providers, proceduresto file claims, customer support, and the abilityfor a patient to view his or her claims online.In addition, the website includes programs toprovide beneficiaries with information thatallows them to make better healthcare decisions.

Education Assistance

In keeping with his commitment to improve benefits and quality of life for the Nation’s citizen-soldiers, President Bush proposed and recently signed into law a new education assistance programfor members of the Guard and Reserve who are mobilized in the War on Terror. Members of theNational Guard and Reserve mobilized for more than 90 consecutive days and less than one yearwill receive, in addition to the current $288 benefit, an additional $114 per month, or 40 percentincrease, for a total of $402 per month in 2005 for education. Members mobilized between one andtwo consecutive years will receive an additional $314 per month, or 109 percent more, for a total of $602 per month in 2005. Members mobilized over two consecutive years will receive an additional$515 per month, or 179 percent more, for a total of $803 per month in 2005. The 2006 Budget funds

this initiative with $203 million.DOD also provides a full range of transition services to members leaving service. These services in-

clude information on education, training, employment assistance, Guard and Reserve opportunities,medical benefits, financial assistance, and public and community service. DOD also offers a vari-ety of tools to help departing service members write resumes and maintains databases of jobs frommany employers, including employers specifically seeking applicants with service members’ skills.DOD works closely with the Department of Veterans’ Affairs and the Department of Labor to ensuredeparting members receive all the benefits and assistance to which they are entitled.





Transfer of Background Checks to the Office of Personnel Management

DOD and the Office of Personnel Management (OPM) signed a Memorandum of Agreement for thepermanent transfer of approximately 1,800 DOD employees to OPM, in early 2005. The employeeswill augment OPM’s contractors to perform the personnel background investigations required forFederal employment and granting security clearances for Federal civil servants, military personnel,and contractor personnel. With these additional personnel, OPM will be able to aggressively moveto reduce the backlog in these investigations—a critical step to strengthen national and homelandsecurity. Moving this function to OPM allows DOD to focus its resources on warfighting, while allow-ing OPM to use its expertise in personnel matters.

Military to Civilian Conversions

Beginning in 2004, DOD converted over 7,600 military positions to civilian positions, to relieve

strain on the military force and to free up our troops to meet high-priority military missions. The De-partment plans to convert an additional 12,000 military positions in 2005, and over 5,800 additionalpositions in 2006. This program is an essential part of the Department’s efforts to ensure all militarypersonnel are performing military essential activities in support of the Global War on Terror.

National Security Personnel System

In November 2003, the Congress passed landmark legislation adapting an Administration proposalto grant authority to DOD to establish a new civilian personnel management system, the NationalSecurity Personnel System (NSPS). Since that time, the Department has worked with its employees,OPM, and various union representatives to develop a personnel system that will provide the Depart-ment the flexibility to hire, assign, pay, evaluate, advance, and remove DOD civilian employees based

on current national security requirements. The system will protect employees’ rights by continuingthe use of merit system principles, accommodation of veterans’ preference, and respect for bargain-ing. DOD plans to roll out the first phases of NSPS at the end of 2005 and beginning of 2006. Oncefully implemented, NSPS will cover over 700,000 civilian DOD employees.

A tank at the Marine Corps Logistics Base in Albany,Georgia undergoes depot maintenance.

Adopting Best Practices

DOD depots are adopting best practices from theprivate sector to save money and improve theirability to maintain our military’s equipment. Theimplementation of new initiatives has helped militarydepots to identify wasteful practices and eliminate

tasks that do not add value. Depot managers havereorganized workspaces to be more ergonomic, helpingDOD personnel to spend more time repairing militaryequipment and less time looking for their tools or spareparts.

As a result, military depots have decreased the turn-around time it takes to repair critical equipment. For ex-ample, increased efficiency enabled the Oklahoma City

Air Logistics Center to reduce the number of days needed to maintain KC–135s from 440 to 230 days.





Base Realignment and Closure

The maintenance of excess infrastructure diverts resources from where they can best be used to

support the military. The 2006 Budget will allow the Department to implement the recommendationsof the 2005 BRAC round that, in conjunction with the Global Posture Initiative, will allow it to matchits infrastructure spending to new national security imperatives. BRAC will start realizing over $7billion in estimated annual savings by 2012. These savings will allow DOD to allocate funds to higherpriority requirements, such as efforts to modernize weapons, enhance quality of life and improvereadiness. However, the 2006 Budget does not prejudge any particular closures or realignments.Decisions regarding closures or realignments are made through the BRAC process.


The table below provides an update on DOD’s implementation of the President’s Management



Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

Arrow indicates change in status rating since evaluation as of September 30, 2004 .

Over the past year, the Department has worked to develop and begin implementing the new National SecurityPersonnel System that will give DOD the tools it needs to manage its workforce more strategically. In addition,DOD has made solid progress identifying and strengthening management competencies. While DOD haseffectively used A-76 competitions to achieve general savings in the past, the pace of announcements hasslowed significantly causing DOD to fail to meet its goals. Competition announcements under the revised A-76Circular have lagged. With new announcements coming, DOD expects the Competitive Sourcing Initiative toreduce costs to the Military Services and Defense Agencies by more than $6 billion by 2006 and by almost$16 billion by 2009. The Department is engaged in a major, long-term effort to modernize its financial andbusiness systems. This effort is helping DOD to better understand the root causes of its financial managementweaknesses, target improvement efforts, and identify best practices going forward. For E-Gov, DOD certified andaccredited 72 percent of all its systems to ensure they meet information technology security requirements, and itis moving forward with architecture efforts to improve information flow to the battlefield. As part of the BudgetPerformance and Integration Initiative, DOD continues to implement the new Program, Planning, Budgeting and

Execution System to emphasize the integration of performance metrics into the budget process.






Privatization of Military Housing


Arrow indicates change in status since evaluation on September 30, 2004 .

DOD is well positioned to make significant advancements in real property management. The Department’sAsset Management Plan incorporates best practice solutions that assist DOD managers in making capitalinvestment decisions that help advance mission critical objectives. The Department has employed effectivecontrols to maintain low improper payment rates in the military retirement and health programs. DOD is alsotaking aggressive steps to address improper payments to contractors, recovering $86.3 million of such paymentsin 2003. (Because this is the first quarter that agency efforts in the Eliminating Improper Payments Initiative wererated, progress scores were not given.) The Department has privatized 74,153 housing units and is on track toeliminate all inadequate housing units by 2007. The 2006 Budget supports the elimination of all inadequate

housing in the continental United States by 2007. DOD is making significant progress this year in privatizingmilitary housing, thereby achieving Green for status and progress.

Department of Defense(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending


Military Personnel ................................................................................................. 97,048 104,022 108,943Operation and Maintenance ............................................................................. 128,104 137,024 147,828Procurement ........................................................................................................... 76,090 78,119 78,043Research, Development, Test, and Evaluation.......................................... 64,309 68,797 69,355Military Construction............................................................................................ 5,634 5,950 7,809Family Housing ...................................................................................................... 3,799 4,055 4,243Revolving Funds and Other .............................................................................. 681 2,091 3,120

Subtotal................................................................................................................ 375,665 400,058 419,341

Budget authority from enacted supplementals 1 .......................................... 92,810 1,074 —



Total, Mandatory outlays ........................................................................................ 182 836 1,900

Total, Outlays .............................................................................................................. 437,116 444,068 426,3151

2004 includes repeal of $1.8 billion rescission and inclusion of $983 million for CPA.



DEPARTMENT OF EDUCATION

AT A GLANCE:


Major Programs:

Title I grants to States and local school districts

• Special education

• Pell Grants

• Research and statistics



Creating a new high school initiative to extend No Child Left Behind (NCLB) into the upper

grades through improved accountability and effective interventions to help at-risk youthcomplete high school successfully, and through testing in grades 9–11.

• Providing grants to improve education in low-income communities and support NCLB reforms.

• Supporting reforms in special education to improve services for students with disabilities.


• Reforming the student loan programs by reducing unnecessary subsidies to lenders and otherfinancial intermediaries, and redirecting these funds to the Pell Grant program to help low-income students pay for college.

97



98 DEPARTMENT OF EDUCATION


Building a Strong Foundation: Leaving No Child Behind

At the center of the President’s commitment to education is his promise to “leave no child behind.”When President Bush launched his No Child Left Behind initiative, he said, “The Federal role ineducation is not to serve the system. It is to serve the children.” No Child Left Behind (NCLB) ismaking a difference for every child, in every public school. It is no longer acceptable for any child toslip through the cracks or fail to receive the challenging education he or she deserves. Schools areheld accountable for ensuring that all children, including those who are disadvantaged or disabled,become proficient in reading and math. Parents receive detailed information about the performanceof their schools. Students who attend low-performing schools have the option to attend a better publicschool or, if their schools do not improve, to receive tutoring funded by the school district. And allthis is guided by a commitment to support practices that rigorous research shows to be effective.

It is far too soon to know the full impact of NCLB as school districts have set ambitious goals for

ensuring that all children are proficient in reading and math by 2014. Nonetheless, there are earlysigns of success. An October 2004 report by the Education Trust analyzed student achievement datafrom the 24 States that had three years of comparable test scores. It found that in 23 of them, overallachievement had improved. States are making gains in closing the achievement gap between stu-dents from disadvantaged backgrounds and their peers from more advantaged backgrounds, whilealso improving achievement generally. The majority of the 24 States analyzed reported a narrowingof the achievement gap between African Americans, Latinos, and Native Americans and their whitepeers in both reading and math. Compared to a year ago, the percentage of schools meeting theirstudent performance targets on State assessments has increased significantly in several States.

Student Achievement Results for States That Have at Least Three Years of Data

Disaggregated by Race and Ethnicity

In Reading In Mathematics

The African American-white gap narrowed in 16 Statesand grew wider in three.

The African American-white gap narrowed in 17States, grew wider in two, and remained the same inone.

The Latino-white gap narrowed in 14 States, grewwider in three, and remained the same in two.

The Latino-white gap narrowed in 16 States, grewwider in three, and remained the same in one.

The Native American-white gap narrowed in 13 States,grew wider in two, and remained the same in two.

The Native American-white gap narrowed in 14 States,grew wider in two, and remained the same in two.

The gap between poor and non-poor students

narrowed in nine States and grew wider in one.*

The gap between poor and non-poor students

narrowed in all 10 States examined.** Only 10 States provided data for both poor and non-poor students.Source: Education Trust, "Measured Progress," October 2004

The 2006 Budget continues the President’s support for the major components of NCLB, on top of thedramatic funding increases for key K–12 programs since 2001. While education remains principallythe responsibility of the States, the Federal Government will continue its aggressive leadership inthe education of America’s children.




Title I Grants to Local Educational Agencies. Title I provides funds to schools in low-income com-munities and is the foundation for the NCLB accountability, school improvement, and parental choicereforms. The Budget requests $13.3 billion for Title I, a $603 million, or 4.7-percent increase overthe 2005 level, and a 52-percent increase since 2001, to help schools implement the No Child LeftBehind Act.

Reading First and Early Reading First. The Budget includes $1.1 billion for the President’s sig-nature literacy programs to help students in preschool and elementary school improve their readingskills. Reading First supports high-quality, scientifically proven reading practices in grades K–3 toensure that all children can read at grade level by third grade. The Budget proposes $1.0 billion,fulfilling the President’s commitment to provide $5 billion for reading over five years. The Budgetincludes $104 million for Early Reading First to develop model childhood literacy and pre-readingprograms for schools serving high-poverty communities.

State Assessments. The Budget provides $412 million to help States implement current NCLBtesting requirements. This includes $400 million for formula grants to States and $12 million forcompetitive grants to help States tackle some of the most difficult testing issues including assess-ments for special populations.

Beating the Odds

Students in schools in largecities often face themost difficult odds and need the most help to reach academicexcellence.

When President Bush first took office, two-thirds of inner-city fourth graders could not read at a basic level.The most recent Council of Great City Schools’ report, "Beating the Odds IV," showed that many schoolsin large cities are meeting the challenge and have made important gains in reading and math scores on2003 State assessments. In addition, achievement gaps may be narrowing between urban areas and thepopulation as a whole, between African Americans and whites, and between Hispanics and whites. Findingsshow that:

• 84.6 percent of all grades included in the Great City Schools report showed gains in math scores.

• 72.1 percent of all grades tested showed gains in reading scores.

• In 73.1 percent of fourth grades tested, the gap in reading scores between whites and African Americanstudents narrowed.

• In 60.0 percent of fourth grades tested the gap in reading scores narrowed between whites andHispanics.

Districts in the Council of Great City Schools enroll 15 percent of the Nation’s public school students and 30percent of the Nation’s African American, Hispanic, limited English proficient, and poor students.

Source. http://www.cgcs.org/reports/beat_the_oddsIV.html .

Teachers. Recognizing that well-trained, highly qualified teachers are critical to student learn-ing, the Budget provides $500 million in funding for the President’s new Teacher Incentive Fund.This program would reward teachers and schools making great progress in closing the achievementgap between students of different socio-economic backgrounds, recruit the most effective teachersto teach in high-need schools, and provide support for school districts to link teacher compensationmore closely to growth in student achievement. The Budget also provides $2.9 billion for the TeacherQuality State Grants program to support teacher training and recruitment. In addition, $40 millionis requested for the Adjunct Teacher Corps initiative to create opportunities for professionals with





The new Teacher Incentive Fund will help place more high-qualityteachers in low-performing schools and reward teachers who improvestudent achievement.

extensive knowledge in the core academic subjects to teach middle and high school courses,particularly in mathematics and science.

Choice. To support and enhance schoolchoice reforms, the Budget provides $50million in new funding for the Choice IncentiveFund to support development of innovativeschool choice programs, $219 million forCharter Schools Grants, $37 million for CreditEnhancement for Charter School Facilities,and $15 million through the District of Columbia budget for scholarships to helplow-income students in Washington, D.C.,attend higher-performing schools.

Finishing the Job: Bringing NCLB to High Schools

The vast majority of NCLB reforms affect K–8 education, as only five percent of Title I funds go tohigh schools. In the 2006 Budget, the Administration is building on NCLB with an aggressive, com-prehensive high school initiative. The $1.5 billion high school initiative gives States the support theyneed to upgrade the quality of secondary education and ensure that every student graduates fromhigh school prepared to enter college or the workforce with the skills to succeed. The need for thisinitiative is great. For example, according to the latest results from the Program for InternationalStudent Assessment, America’s 15-year-olds performed below the international average in mathe-matics literacy and problem-solving, placing 28th out of 39 industrialized countries.

High School Intervention Initiative. This initiative provides $1.2 billion to help States implementa high school accountability framework and a wide range of effective interventions. In return for acommitment to improve academic achievement and graduation rates for secondary school students,States will receive the flexibility to choose which intervention strategies will be most effective in serv-ing the needs of their at-risk high school students. Allowable activities would include vocational ed-ucation programs, mentoring programs, and partnerships between high schools and colleges, amongother approaches. A portion of the funding will be used for randomized trials and evaluations to iden-tify the most effective intervention strategies to enable school administrators to make better choiceson what educational strategies to adopt.

To provide funding for States under the High School Intervention Initiative, the Administrationproposes to consolidate narrow-purpose programs that support a particular high school interven-tion strategy. These include Vocational Education, Upward Bound, Talent Search, GEAR UP, and

Smaller Learning Communities. Most of these programs have not proven effective in improving oursecondary students’ academic achievement or ability to obtain a job. Under the Administration’sProgram Assessment Rating Tool (PART), Vocational Education was rated Ineffective because it hasproduced little or no evidence of improved outcomes for students despite decades of increasing Fed-eral investment.

The PART found that Upward Bound was not serving the high-risk students who were most likelyto benefit from the program. Under the new High School Intervention Initiative, States will have theoption of continuing activities funded under these programs if they will help States improve studentoutcomes.




Three out of ten students who enter 9th grade won’t complete highschool. For African American and Hispanic students, it’s nearly fiveout of ten. Without a diploma, students are likely to face a lifetime oflow-skill, low-paying jobs. The President’s High School Initiative willhelp all students complete high school successfully.

High School Assessments. Building on theaccountability framework of NCLB, the highschool initiative would require testing ingrades 9–11 in language arts and math. Statesand school districts would have the flexibilityto align the testing system with their existing

instructional program, but be held accountablefor improving student achievement. TheBudget provides $250 million to help Statesimplement this aspect of the new initiative.

Other aspects of the President’s high schoolprogram include:

Striving Readers. This Presidential ini-tiative, first funded in 2005, complementsthe Administration’s reading initiatives inelementary school. The Budget provides $200 million, an increase of $175 million—or eight times

the 2005 level—to develop and implement research-based interventions that will improve thereading skills of high school students who read below grade level.

Math-Science Partnerships. The Budget continues the President’s efforts to improve math andscience education, providing $269 million for this Department of Education program, a $90 millionincrease over the 2005 level. Of this amount, $120 million would support direct Federal competitivegrants to partnerships between secondary schools and colleges to increase achievement in math forstruggling secondary students.

State Scholars. Studies show that high school students who take rigorous courses are more likelyto succeed in college. The President proposes $12 million to help States establish State Scholarsprograms that encourage students to complete a rigorous curriculum that includes at least threeyears of math and science, three and one-half years of social studies, four years of English, and two

years of foreign language courses. In addition, the Budget provides $33 million to give low-incomehigh school students up to $1,000 in additional Pell Grant aid for the first two years of college if theycomplete the State Scholars curriculum.

Strengthening Performance and Accountability: Reforming Special Education

On December 3, 2004, the President signed into law the Individuals with Disabilities EducationImprovement Act of 2004, reauthorizing the Individuals with Disabilities Education Act (IDEA). Thereauthorized IDEA makes several adjustments to align special education to NCLB’s accountabilitysystems. Together, these landmark laws provide the framework for high hopes and expectations thatall students, including the 6.9 million children with disabilities, can succeed in school. This law is

fully consistent with the Administration’s principles for IDEA reauthorization, and with the 2002recommendations of the President’s Commission on Excellence in Special Education.

Over the next year, the Administration will provide guidance and technical assistance to States,schools, and parents so that they can be partners with the Department in implementing the myriadregulatory and paperwork changes required by the law, many of which will take effect in July 2005(see box for the most significant provisions). The President’s 2006 Budget complements the law andprovides $12.2 billion for all IDEA programs, including $83 million for special education research,studies, and evaluations funded under the Institute for Education Sciences, and $11.1 billion forIDEA Grants to States, a 75-percent increase since 2001. These increases, along with the law’s local





flexibility provisions, will improve the State and local special education systems, and produce realbenefits for students served by IDEA.

Special Education Reforms Achieved through the 2004 Reauthorization of the

Individuals with Disabilities Education Act (IDEA)

Accountability for Results. Aligns provisions on assessments and the contents of the individualized educationprograms (IEPs) with NCLB.

Quality Teachers. Strengthens requirements for special education teachers to be highly qualified in their coresubjects, with some flexibility for States, school districts, and new teachers of multiple subjects.

Paperwork Reduction Pilots. Includes option of multiyear IEPs for 15 States and gives the Secretary authorityto waive paperwork requirements for up to 15 States for up to four years to reduce paperwork burden forteachers and to increase their time for instruction.

Parental Choice. Lets parents choose early intervention services for their pre-school children.

Research-Based Practices. Places new emphasis on using evidence-based information for all aspects of specialeducation, creates the new Center for Special Education Research and places it in the Institute of EducationSciences, which coordinates all education research and will help inform special and regular education practices.

Local Flexibi lity on Use of Funds. 1) Allows States to establish funds that help school districts pay for high-costservices received by a small number of children with severe disabilities. 2) Allows local educational agenciesto use 15 percent of IDEA Grants to States to provide “early intervening services” to K–12 students whohave not been identified as children with disabilities. 3) Allows States to use IDEA Grants to States to providesupplemental education services to children with disabilities in schools that are in need of improvement,consistent with NCLB.

The 2006 Budget also continues the Administration’s focus on results for children with disabilities.For example, based on the 2004 PART findings that IDEA’s early childhood programs do not haveannual or long-term performance measures to judge program effectiveness, the Department of Edu-cation will continue to work with States to identify measures and to pilot-test State data systems.

Future Reforms in Elementary and Secondary Education

The President’s commitment to “leave no child behind” is matched by his commitment to achieveresults. If Federal programs are not working or if they do not give State and local administratorsthe flexibility they need to achieve results, they should be reformed. In the coming months, the Ad-ministration will work with the Congress to achieve a number of program consolidations to createstreamlined, flexible, performance-based grants in the areas of improving reading and math instruc-tion, safe schools, teacher training, education innovation, and school choice. This will allow States

and schools to better tailor Federal dollars to best meet the needs of students.

Creating O pportunity: Higher Education

The Administration is committed to providing equal access to higher education and life-longlearning through such important programs as expanded loan options and increased grant awards.College costs are rising significantly. As a result, student aid is increasingly important to ensurethat students have an opportunity to go to college.




2001 2002 2003 2004 2005 20063

4

5

6

4

5

6

7

8

9

1011

12

13

14

15

Millions of recipients Billions of dollars

Source: Department of Education.

Increases 2001in Pell Grant Recipients Since

Federal Costs

Recipients

Increasing Pell Awards. This year, the Administration will be working with theCongress to enhance opportunity for studentsby expanding the Pell Grant program. PellGrants are the single largest source of grantaid for postsecondary education, and help

nearly one-third of all undergraduates affordthe cost of college education. To help studentskeep up with the rising cost of college, theBudget proposes to increase the $4,050maximum award by $100 in 2006, and $500over five years, lifting the maximum award to$4,550. The Budget also retires the $4.3 billionPell Grant shortfall, which has been a majorobstacle preventing increased awards for themore than five million Pell-eligible students. In addition, the Budget proposes to make larger Pellawards available both to students who accelerate their studies by attending school year-round and

to many active duty military personnel. The Budget’s Pell Grant proposal is part of a larger packageof reforms intended to modernize and improve the Federal student aid system.

Reforming Student Loans. The Administration is strongly committed to the lender-based guaran-teed Federal Family Education Loan program and expects it to continue as the primary source of loans to students in the years ahead. In addition, the Administration will continue to maintain astrong Direct Loan program to ensure that no eligible student is denied access to student loans inthe event a student or school cannot find a suitable lender.

However, problems in the structures of the current student loan programs prevent them from meet-ing all their policy and program objectives. Specifically, the Federal Government assumes almostall of the risk for the loans, while Federal subsidies to intermediaries—lenders and guaranty agen-cies—are set high enough to allow the less efficient ones to generate a profit. These problems lead to

unnecessary costs for taxpayers and prevent the program from achieving the efficiencies the marketis designed to provide.

The Budget proposes a comprehensive package of reforms to make the student loan programs moreefficient, cost-effective vehicles for helping students finance their postsecondary educations. Thesereforms will link subsidy payments for lenders and guaranty agencies more closely to their costsand modify interest rates for borrowers who are no longer in school and who have consolidated theirloans. The Budget achieves $34 billion in savings over 10 years by reducing unnecessary subsidiesand payments to lenders, guaranty agencies, and loan consolidators and by placing a larger share of the loan risks on lenders. These savings will be used to increase the Pell Grant maximum award,pay off the current $4.3 billion Pell shortfall, and improve benefits to students in school by increasingloan limits for first year students and extending the current favorable interest rate framework. Thispackage will also include budget scoring rules to ensure that the Pell Grants program is fully fundedand shortfalls will not be created in future years. In addition, $10 billion in savings over ten yearswill be set aside to reduce the Federal budget deficit.





According to 2003 Census data, the median annual income of

Americans aged 25 or older with a bachelor’s degree is 61 percenthigher than those who pursued no further education beyond a highschool diploma. The President’s proposals to increase Pell Grants andraise student loan limits will help remove financial barriers that preventmany Americans from completing a postsecondary education.

Improving Access to Community Colleges.The Budget provides $125 million to establisha new Community College Access Grants

Fund designed to boost college enrollment andcompletion, in particular among low-incomestudents. The initiative offers incentives tocommunity colleges to provide dual-enrollmentprograms, which ease the transition to collegeby allowing high school students to earncollege credit, and encourages States to createpolicies to make it easier for students totransfer credits earned at community collegesto four-year institutions.

New Loans for Short-term Training. The

President has proposed a new loan program tohelp students, the unemployed, transitioningworkers, and older workers acquire or upgradespecific job-related skills through short-termtraining programs. The program will be

market-oriented and use an industry-driven approach with risk-sharing by lending institutions toensure that the loans are targeted at real jobs projected both now and for the future.





Improving Program Performance

The Department of Education used the Program Assessment Rating Tool (PART) to analyze theperformance of 23 of its programs in the 2006 Budget; the Department has assessed 56 programssince 2004. The PART reviewed each program’s purpose and design, management, and achieve-ments; determined its level of effectiveness; and led to recommendations for program improvements.Of the programs that have been analyzed using the PART, two are Effective, 14 are Adequate, 15are Ineffective, and 35 do not have sufficient data to determine a rating. PART analyses contributedto the development of the High School Intervention Initiative; helped determine which programsshould be funded, reduced, or terminated; and identified inefficiencies in the student loan programsthat will be addressed by the proposed legislative reforms described above.

Program Terminations and Reductions

At a time of constrained Federal discretionary spending, achieving the goals of academic excellenceand expanded access to higher education requires that every education dollar be spent wisely. Fund-ing for programs that do not perform well, duplicate other programs at the Federal or State level, orhave completed their mission must be re-directed toward programs that have either been proven towork or those that hold the promise of reaching the Department’s goals more effectively. The 2006Budget proposes the termination of 48 programs, including many that the PART has shown to beineffective (Even Start, Safe and Drug-Free Schools State Grants, and Vocational Education) andmany that are unable to demonstrate results. In addition, funding for 16 programs will be reduced.

As a result, $4.7 billion will be redirected toward such programs as Title I, IDEA, the High SchoolIntervention Initiative, and improving teacher quality.


The table that follows provides an update on the Department of Education’s implementation of thePresident’s Management Agenda as of December 31, 2004.






Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

The Department of Education’s management improvement efforts achieved significant results in the past year.Not only has the Department achieved critical financial operational goals such as receiving an unqualifiedopinion for the third year in a row and meeting early reporting deadlines, but the Department has also begunimplementing enhanced reporting capabilities to improve risk management, compliance with laws andregulations, and overall organizational governance. Education also completed key competitions with anticipatedsavings of $53 million over the next five years that will improve performance in payment processing and humanresources management. In addition, the Department is participating in critical E-Government initiatives that will

simplify and expand the public’s access to Education programs through Grants.gov and e-loans. Finally, theDepartment continues to collect performance information and measure outcomes to focus budget, program,grant making, and policy initiatives on improving the effectiveness of Education programs.




Elimination of Fraud and Error in Student Aid Programs and Deficiencies

in Financial Management

The Department has eliminated barriers to faith- and community-based organization (FBCO) participation inrelevant education programs and is implementing extensive outreach and technical assistance efforts. As aresult, FBCO applications for specific Federal education programs have increased by 87 percent since 2002.

To eliminate improper payments, the Department has developed a risk model that identifies risk-susceptiblegrant programs. Initial assessments in 2004 indicate that relative risk is low in those programs. The Departmentwill assess risk in other programs in 2005 with an emphasis on student aid programs. (Because this is thefirst quarter that agency efforts were rated in the Eliminating Improper Payments Initiative, progress scoreswere not given.)

The Department has demonstrated improvements monitoring key areas as needed to improve performanceand reduce fraud and error in Student Aid Programs. For example, student loan default rates have droppedand collections on defaulted loans have increased. In addition, the Department is beginning a new project tointegrate its front-end business lines to streamline the process of applying for and awarding student loans.




Department of Education(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending


Elementary and Secondary Education:

Title I Grants to LEAs 1 ................................................................................. 12,342 12,740 13,342Reading First and Early Reading First ..................................................... 1,118 1,146 1,146State Assessments.......................................................................................... 390 412 412Teacher Incentive Fund..................................................................................

Adjunct Teacher Corps................................................................................... — — 40Teacher Quality State Grants ...................................................................... 2,930 2,917 2,917Charter Schools programs............................................................................ 256 254 256Choice Incentive Fund ................................................................................... 50

Impact Aid ........................................................................................................... 1,230 1,244 1,241Safe and Drug Free Schools Programs 2 .............................................. 674 672 31721st Century Community Learning Centers........................................... 999 991 991English Language Acquisition ..................................................................... 681 676 676IDEA Part B State Grants 3 ......................................................................... 10,068 10,590 11,098

High School Programs:

High School Intervention ............................................................................... — — 1,240High School Assessments ............................................................................ — — 250Striving Readers ............................................................................................... — 25 200Mathematics and Science Partnerships .................................................. 149 179 269Advanced Placement...................................................................................... 24 30 52Vocational Education ...................................................................................... 1,195 1,194 —

TRIO Upward Bound ...................................................................................... 280 280 —TRIO Talent Search......................................................................................... 145 145 —GEAR UP ............................................................................................................ 298 306 —State Scholars Capacity Building ............................................................... — — 12

Higher Education:

Community College Access Grants .......................................................... — — 125Pell Grants—Discretionary Funding (legislative proposal) ............... 12,007 12,365 13,232Pell Grants—Mandatory Funding (non-add, legislative proposal) — — 4,721Enhanced Pell Grants for State Scholars (non-add) .......................... — — 33 Historically Black Colleges and Graduate Institutions ........................ 276 297 299

Research and Statistics 4 ................................................................................. 335 338 338All other .................................................................................................................... 10,265 9,776 7,046

Total, Discretionary budget authority 5 ............................................................. 55,662 56,577 56,049


— — 500




Department of Education—Continued(In millions of dollars)

Estimate2004

Actual 2005 2006

Mandatory Outlays:

Federal Direct Student Loans (legislative proposal) ................................ 3,246 1,335 39Federal Family Education Loans (legislative proposal) .......................... 4,800 10,193 5,346All other .................................................................................................................... 2,228 2,524 1,993


Total, Outlays .............................................................................................................. 62,816 70,953 64,272

Credit activity

Direct Loan Disbursements:Federal Direct Student Loans (FDSL)........................................................... 12,506 13,598 14,681FDSL Consolidations .......................................................................................... 7,649 9,064 7,615

Loans for Short-Term Training ......................................................................... — — 85Subtotal, FDSL disbursements:

Other Direct Loans ............................................................................................... 54 31 46Total, Direct loan disbursements ......................................................................... 20,209 22,693 22,427

Guaranteed Loan Commitments:Family Federal Education Loans (FFEL) ..................................................... 37,712 41,934 45,362FFEL Consolidation ............................................................................................. 36,119 34,785 25,319Loans for Short-Term Training ......................................................................... — — 198


Program level. Budget authority is $600 million less than program level in 2004 and $195 million less in 2006.2

Program level. Budget authority is $330 million more than program level in 2004 and 2005.3

Program level. Budget authority is $259 million more than program level in 2004 and $791 million less in 2006.4

Includes special education research and studies funding.5Program level. Budget authority is $11 million less than program level in 2004.



DEPARTMENT OF HEALTH AND HUMAN SERVICES

AT A GLANCE:


Major Programs:

Medicare

• Medicaid

• State Children’s Health Insurance Program

• Health Centers

• Marriage and Healthy Family Development

• Bioterrorism

• Health Care Information Technology



Promoting national health care information technology, with the goal of most Americans havingan electronic health record with proper medical privacy protection by 2014.

• Proposing a comprehensive, consumer-driven plan to address the problems of rising health carecosts and the uninsured. This plan includes: Health Savings Accounts; Association HealthPlans; tax credits; and medical liability reform.

Protecting America

• Strengthening the Nation’s preparedness against bioterrorism, through biodefense research anddevelopment, biosurveillance early warning systems, hospital and public health preparedness,

and defense against intentional contamination of the Nation’s food supply.• Improving the ability to respond to bioterrorism through a new initiative to improve mass

casualty care after a catastrophic incident, and augmenting the Strategic National Stockpileof pharmaceuticals and other medical supplies.


• Ensuring access through Health Centers to high-quality primary and preventative health carefor low-income individuals.

127



128 DEPARTMENT OF HEALTH AND HUMAN SERVICES


• Helping healthy families through initiatives that support marriage, provide assistance to par-ents, and encourage the development of family-support programs run by community organiza-tions.

• Strengthening and modernizing health care and offering drug coverage for approximately 42million senior citizens and persons with disabilities through the Medicare program.

• Providing quality health care in a cost-efficient manner to over 46 million low-income individu-als, elderly individuals, and individuals with disabilities through the Medicaid program.

• Providing health care coverage to a total of approximately 5.8 million low-income, uninsuredchildren through the State Children’s Health Insurance Program.

• Proposing a health insurance tax credit so that millions of Americans will have access to afford-able health care.

• Enrolling as many uninsured, eligible children as possible into Medicaid and the State Chil-dren’s Health Insurance Program through the President’s Cover the Kids proposal.


• Developing additional decision support tools at the National Institutes of Health to improve themanagement of its large and complex scientific portfolio and to better integrate research acrossits 27 Institutes and Centers.

• Strengthening Medicare program integrity by preventing overpayments, accelerating contractorreform, and rationalizing payments for bad debt.

• Increasing efficiency and lowering costs for Medicaid prescription drugs.

• Proposing to build on past efforts to improve efficiencies and the fiscal integrity of Medicaid andState Children’s Health Insurance Program.





Health Information Technology

The Administration is strongly committed to advancing quality, consumer-driven health care andencouraging collaboration and productivity in the medical services sector. The newly created Office of the National Coordinator for Health Information Technology (HIT) at the Department of Health andHuman Services (HHS) coordinates Federal efforts across many initiatives and activities, including:

• Advancing the adoption of HIT by physicians, hospitals, and other providers;

• Implementing electronic prescriptions as mandated by the Medicare Prescription Drug,Improvement, and Modernization Act of 2003;

• Developing models for the exchange of Electronic Health Records (EHRs) and other health datanationally and with proper medical privacy protection; and

• Identifying standards and the mechanisms for broad adoption of EHRs.

The 2006 Budget includes $125 million to continue progress in this area, including $75 million inthe Office of the Secretary to foster collaboration and develop the conceptual framework and infra-structure for a nationally interoperable HIT network that would interconnect clinicians, personalizecare, and improve public health surveillance.

Promoting Affordable Health Care

Rising health costs are an impediment to job and wage growth. When health care costs rise, em-ployers have less to spend on new employees, or on salaries for their existing employees. Risinghealth care costs impose a burden on families and small businesses and put coverage out of the reach

of many Americans. Many businesses—particularly small firms—are struggling with these risingcosts. According to the Census Bureau, 45 million people lacked health insurance coverage in 2003,including 8.4 million children.

The President has proposed a comprehensive, consumer-driven plan to address the problems of rising health care costs and the uninsured. His plan includes: Health Savings Accounts (HSAs); As-sociation Health Plans (AHPs) for small businesses, civic groups, and community organizations; taxcredits for low-income families; medical liability reform; and electronic health records for all Ameri-cans within 10 years.

The President’s plan will help reduce the rising cost of health care while improving quality andsafety. It will provide new and affordable health coverage options for all Americans—targeted to

those who need it most: low-income children and families; employees of small businesses; and theself-employed.

Health Insurance Tax Credit. The President proposes a tax credit that will help individuals pur-chase health insurance and health care. The proposal provides greater choice of insurance productsand encourages saving for future health expenses. Individuals under age 65 who are not enrolledin public or employer-sponsored health plans would be eligible. The credit would be refundable andcould be paid in advance directly to the health plan. The amount of the credit would depend on anindividual’s income level. The credit would phase out at incomes of $30,000 for an individual and$60,000 for a family.





• Traditional Health Insurance Tax Credit. With thisoption, the credit would pay for 90 percent of thecost of the premium of standard coverage, up to a

maximum of $1,000 for an individual, and $3,000for a family of four.

• Health Insurance Tax Credit with HSA. This mod-ification would allow individuals to use a portionof the credit (up to $2,000 for a family of four; $700for an individual) to purchase a high-deductiblehealth plan while putting the remaining portionof the credit (up to $1,000 for a family of four; $300for an individual) in an HSA. The money in theHSA belongs to the individual and can be used topay for medical expenses. Unspent funds from one

year would roll over for use in the following year. State Purchasing Pools. To help low-income individ-

uals purchase coverage with the health insurance taxcredit, the Administration proposes providing $4 billion in grants to States to establish purchas-ing pools. By combining the purchasing power of individuals and families, these pools would offertax-credit recipients an additional affordable health insurance option and would make it easier andfaster to shop for coverage.

Cover the Kids. Despite the availability of health care coverage through Medicaid and the StateChildren’s Health Insurance Program (SCHIP), millions of children eligible for these programs havenot enrolled. The 2006 Budget proposes Cover the Kids, a national outreach campaign that willprovide $1 billion in grants over two years. By combining the resources of the Federal government,

States, schools, and community organizations, Cover the Kids aims to enroll as many Medicaid- andSCHIP-eligible children as possible.

Above-the-Line Deduction for Certain Health Insurance Premiums. Under this proposal, all individuals who purchase a high-deductible health plan in conjunction with a health savings accountwould be allowed to deduct the amount of the health plan’s premium from their taxable income evenif they do not itemize their deductions. This new deduction would make high-deductible health plansmore affordable.

Rebate to Small Employers Contributing to Employees’ HSAs. To encourage small employers tocontribute to their employees’ health savings accounts, the Administration proposes a refundable taxcredit. Small employers would receive a tax credit of up to $500 per employee with family coverageand $200 per employee with individual coverage.

Association Health Plans (AHPs). The Administration proposes creating AHPs to make availablenew affordable health insurance policies. Under this proposal, small employers, civic groups, andcommunity organizations can band together and use their purchasing power to negotiate lower-pricedcoverage for their employees, members, and their families. Previous proposals have limited AHPs tosmall businesses. This proposal applies not only to small businesses but also to private, non-profit,multi-State entities outside the workplace.




Medical Liability Reform. Reforms to medical liability lawwill increase access to quality, affordable health care for all

Americans, while reducing frivolous and time-consuming legalproceedings against doctors and health care providers. Thelawsuit burden is driving good doctors out of local communitiesacross the country and raising health care costs for all.

Reforming the medical liability system and providing a fair,predictable, and timely medical liability process will improveaccess to quality health care and reduce health care costs.

National Marketplace for Health Insurance. Becauseindividuals can purchase health insurance only in the State inwhich they live and cannot shop for more affordable coveragein other States, competition among insurers is limited byState boundaries. The Administration proposes creating acompetitive marketplace across State lines that maintainsstrong consumer protections. This new marketplace wouldallow individuals the freedom to shop for the best buy on health

coverage that most effectively meets their needs, and wouldincrease the availability of affordable health coverage.




PROTECTING AMERICA

Armed with a single vial of a biological agent small groups of fanatics, or failing states, could gain the power

to threaten great nations, threaten the world peace. America, and the entire civilized world, will face this

threat for decades to come. We must confront the danger with open eyes, and unbending purpose.

President George W. BushFebruary 11, 2004

Strategic National Stockpile

The Strategic National Stockpile containsdrugs, vaccines, and other medical supplies

and equipment that can be delivered anywherein the country within 12 hours of a request forassistance. The Stockpile currently containsenough smallpox vaccine for every American,treatments for anthrax, countermeasures forinjuries following a chemical, radiological,or nuclear incident, and treatments forconventional explosive attacks. The 2006Budget provides additional funding to improvethe Nation’s ability to respond to biologicaland chemical weapons attacks with life-savingtreatments and supplies, including additional

antibiotics to treat anthrax, nerve agenttreatments, and chemical countermeasuresthrough the Chempack program. The Budget also includes increased funding for the storage andmaintenance of next-generation countermeasures, including a new anthrax vaccine purchasedthrough the President’s newly enacted Project BioShield.

Biodefense Research and Development

The Budget continues to invest heavily in research and development that will lead to new coun-termeasures against the most dangerous threat agents, including those that have been geneticallymanipulated. Within the 2006 Budget’s nearly $29 billion for the National Institutes of Health(NIH), the Administration will continue to fund biodefense research and development activities at$1.8 billion. This includes $50 million for chemical countermeasure development and $47 million forradiological and nuclear countermeasure development. NIH supports basic research, which leads tobreakthroughs in scientific knowledge, and applied research and development that converts knowl-edge into products that can be manufactured in large quantities. Project BioShield can then be usedto acquire these countermeasures that will be safer and more effective in protecting Americans.




Medical Surge Capacity

In the event of a large-scale attack in one or more cities, existing medical capacity could be over-whelmed quickly. The President designated HHS as the lead for coordinating Federal support of State and local medical and public health response to mass casualty events. The Budget includes$70 million to improve emergency health care by allowing the Federal Government to purchase andstore deployable medical care units, including medical supplies and equipment that can be deliveredto an affected area. This initiative will also enhance the Medical Reserve Corps and provide priortraining and verification of credentials to ensure the availability of health care providers during suchan emergency.

The Budget also proposes nearly $1.3 billion in investments to bolster hospital preparedness andState and local biodefense preparedness. Included in the total for hospital preparedness is $25 mil-lion for a targeted, competitive demonstration program to establish a state-of-the-art emergency carecapability in one or more metropolitan areas. These emergency care centers will be designed to meetthe demands of a terrorist attack or other incident requiring mass casualty care and containment of infectious agents.

Biosurveillance and the National Biosurveillance Initiative

Unlike in conventional attacks, the use of biological weapons may not be immediately apparent.Reducing the time it takes to detect an attack can save many lives. Last year, the President pro-posed a new biosurveillance initiative to provide earlier indication that an attack has occurred, andto better determine accurately its nature and scope by monitoring human, animal, and plant health,the food supply, and the environment. The 2006 Budget will build on this progress with continuedinvestments in the gathering and analysis of this information.

Defending the Nation’s Food Supply

Building upon significant investments in 2005, the President is committed to improving the safetyand security of the food and agriculture supply. In 2006, the Food and Drug Administration (FDA) willcontinue to work with the U.S. Department of Agriculture (USDA) and the Department of HomelandSecurity to improve protection of the Nation’s food supply from intentional or natural contamination.The Budget requests a $30 million increase for the FDA to develop strategies to prevent and mitigatefood contamination, as well as testing methods to identify the presence of contamination quickly andaccurately. The Nation’s food laboratory network will work to analyze food samples more rapidly,which will better help to identify outbreaks and be able to quickly process a surge of samples follow-ing a terrorist incident. Each of these activities will be coordinated with USDA, which will receivean increase of $145 million in 2006 to protect the food and agriculture supply from terrorist attacks.





Protecting the Nation from Influenza and the Threat of an Influenza Pandemic

2001 2002 2003 2004 2005 20060

50

100

150

200

250

300

350

400

450

HHS Influenza Vaccine and

Preparedness FundingMillions of dollars

Source: HHS.

CDC Vaccine Purchase

CDC Surveillance andPreparedness

FDA Research and Licensing

NIH Research andDevelopment

PandemicPreparedness

41 53

101

255

419 430

Every fall and winter, influenza poses a

threat to public health, especially for seniorsand others vulnerable to complications frominfluenza. If a new influenza virus for whichwe have no immunity or vaccine takes aform that is easily spread, an influenzapandemic could develop and cause terribledamage to public health. The Administrationis committed to improving influenza vaccinesupply, preventing another influenza vaccineshortage, and helping prepare for a possiblepandemic. HHS is enhancing global influenzasurveillance to provide an earlier warningof the viruses’ emergence; increasing thesupply of influenza vaccine; stockpiling large

quantities of antiviral drugs; promoting the development of new technologies to produce vaccinemore quickly and securely; and investigating promising ways to safely and effectively extend thesupply of vaccine doses, especially in a pandemic.

The Budget builds on this progress, maintains a childhood influenza vaccine stockpile, includes a$20 million increase for influenza vaccinations for children and other vulnerable populations, andproposes $30 million to expand the Nation’s vaccine supply. The Budget also includes an increaseto enhance global disease surveillance and a $21 million increase to work with manufacturers toincrease the availability of additional U.S.-licensed vaccine to meet increased supply needs, especiallyduring an influenza pandemic.

Strengthening the Safety of Medical Products

FDA works to ensure the safety of medical products, including prescription and over-the-counterdrugs. Before being made available to consumers, medical products undergo a rigorous review byFDA scientists for safety and effectiveness. After approved medical products are made available toconsumers, FDA staff review adverse events and respond to any concerns. This system has succeededin providing American consumers with safe and life-improving medical products for decades.

FDA continues to evaluate its systems and processes to refine its oversight and further improvethe safety of medical products. FDA is sponsoring a study by the Institute of Medicine on the effec-tiveness of the U.S. drug safety system, with an emphasis on the continued safety of medical products

already approved for use by FDA. The Institute of Medicine study will examine FDA’s role within thehealth care delivery system and recommend measures to enhance the confidence of Americans in thesafety and effectiveness of their drugs. In addition, the 2006 Budget proposes a 24-percent increasefor the FDA Office of Drug Safety to enable FDA to continue its track record of success in providingsafe and effective medical products to American consumers.





Improving Medicare

The Medicare Prescription Drug, Im-provement, and Modernization Act of 2003(MMA) created improvements to the Medicareprogram, providing beneficiaries with morechoices and enhanced benefits. Seniors andindividuals with disabilities will have accessto more modernized, higher quality healthcare. Funding for the Medicare program isprojected to be $340 billion in 2006. Medicareconsists of four parts:

• Part A: hospital insurance, which

provides coverage for hospitals, skillednursing, hospice, and other relatedservices;

• Part B: supplementary medical insurance, which provides coverage for outpatient hospital,physician, home health, laboratory services, durable medical equipment, and other relatedservices;

• Part C: Medicare Advantage, which finances the full Medicare benefit through private plans;and

• Part D: the new prescription drug benefit.

Advancing Medicare Advantage. The MMA created the Medicare Advantage program (Part C) tooffer more choices and better benefits to Medicare beneficiaries through competition among private

health insurance plans. Beginning in 2006, Preferred Provider Organizations (PPOs) will begin toserve beneficiaries on a regional basis. These regional plans will compete with existing local Medicare

Advantage plans to provide health services to beneficiaries. HHS has identified 26 regions across theNation in which PPO plans will compete to provide services. HHS established these regions to ensureall Medicare beneficiaries, including those in small States and rural areas, have the opportunity toenroll in a PPO and to encourage plans to participate. In 2006, 16 percent of beneficiaries are ex-pected to be enrolled in Medicare Advantage plans, and by 2009, this number is projected to increaseto 24 percent.

Medicare Prescription Drug Benefit. The MMA created a new prescription drug benefit (Part D)that will begin in 2006. In the interim, the MMA authorized the Centers for Medicare and MedicaidServices (CMS) to offer Medicare beneficiaries a prescription drug discount card. Around six million

beneficiaries have signed up for the card since June 2004. Independent studies have shown savingsof 20 percent or more off the retail cost of brand name drugs and 30 to 60 percent off generic drugs.In addition, over 1.7 million low-income beneficiaries have begun to receive $600 annually in transi-tional assistance provided by the Act. These beneficiaries can save up to 90 percent off the averageretail price of name-brand drugs when they combine the drug card savings with the $600 transitionalassistance.





Beginning January 1, 2006, Medicare beneficiaries will beeligible for a subsidized prescription drug benefit that helpslower their drug costs. They will have their choice of enrolling

in either prescription drug-only plans or Medicare Advantagedrug plans. HHS will conduct extensive outreach efforts tohelp seniors understand their new choices. Expanded effortsthrough 1–800–Medicare, community based organizations,and media outreach will ensure that seniors have adequateinformation to benefit from the new options under the MMA.

The drug plans will receive subsidies from Medicare to helpkeep premiums and cost-sharing low. Additional subsidies willbe paid to employers to encourage them to continue to offerretiree health benefits to millions of seniors. This will assistbeneficiaries in retaining the employer sponsored coverage to

which they have grown accustomed.In addition, Medicare will provide generous additional

assistance to low-income beneficiaries. For those beneficiarieswith incomes below 135 percent of poverty, they will pay nomonthly premium, no deductible, and very small co-paymentsper prescription. Beneficiaries with incomes between 135 and

150 percent of poverty will pay reduced premiums, a $50 deductible, and reduced cost-sharing.

Improving Health Centers

2002 2003 2004 2005 2006

Goal: 1,200 by 2006

Source: HHS.

Completing the President’s

Health Centers InitiativeNew and Expanded Sites Since 2001

302

619

490

1,350

772

Health Centers deliver high-quality, af-

fordable primary and preventive health careto nearly 14 million patients, regardless of ability to pay, at 3,740 sites across the UnitedStates annually. In 2006, Health Centers willserve an estimated 16 percent of the Nation’spopulation at or below 200 percent of FederalPoverty Line.

The Budget will complete the President’scommitment to create 1,200 new or expandedHealth Center sites to serve an additional 6.1million people by 2006. Almost 2.4 millionadditional individuals will receive health carein 2006 through over 570 new or expandedsites in rural areas and underserved urbanneighborhoods. The President has established a new goal to create a Health Center in every poorcounty that lacks a Health Center and can support one. The Budget includes $26 million to fund40 new Health Center sites in high-poverty counties. Faith-based and community programs will beencouraged to compete for these grants.




Modernizing Medicaid and SCHIP Coverage

Medicaid was created nearly 40 years ago to provide access to health care for individuals on wel-fare, based on health care available at that time. Over that time span, Medicaid has grown far fasterthan most Federal entitlement programs. The Budget calls for specific reforms to Medicaid that pro-mote better care for low-income Americans, more local control for States, fair payments to providers,

and better accountability measures so that Medicaid’s fiscal condition will improve.

In 2006, funding for Medicaid is projected to be $338 billion, about $193 billion of which is paid bythe Federal Government. Since 1998, SCHIP has made available approximately $40 billion over 10years for States to provide health care coverage to targeted low-income, uninsured children. Sincethe beginning of the Administration, enrollment in SCHIP has grown by over one million children toa total of approximately 5.8 million in 2003.

Even though Medicaid will serve more than 46 million Americans in 2006, it operates under out-dated rules. Medicaid excludes millions of individuals who are well below the Federal poverty levelbecause program rules remain tied to welfare eligibility categories. While the President’s HealthCenters Initiative has provided access to health care for many uninsured individuals, many are stillleft with the choice of seeking health care through hospital emergency rooms, contributing to the

growing burden of uncompensated care among hospitals.

Instead of helping these individuals get better coverage, States often reluctantly decline to expandcoverage because Medicaid rules do not easily support many up-to-date, efficient approaches to ex-panding coverage. Moreover, millions of senior citizens and individuals with disabilities in need of long-term care are provided only with the choice of leaving their homes for institutional care to getthe support they need. There is now widespread evidence that updating Medicaid to keep pace withthe people it serves, and better coordinating it with SCHIP, can lead to better coverage, better healthcare, and a more sustainable cost structure for the States and the Federal Government.

Medicaid and SCHIP Modernization. In addition to proposing an increase in Federal resourcesfor covering the uninsured (the elements of which were outlined in the Promoting Economic Oppor-tunity and Ownership section of this chapter), the Administration proposes to provide States with

additional flexibility in Medicaid to further increase coverage among low-income individuals andfamilies without creating additional costs for the Federal Government. This proposal would buildon the success of SCHIP to provide acute care for children and families, as well as current efforts toreduce the number of uninsured individuals.

States generally regard the complex array of Medicaid laws, regulations, and administrative guid-ance as overly burdensome, with the result being higher costs for covering fewer beneficiaries. Inresponse, the Administration has granted waivers that allow States to extend Medicaid coverageto higher income and non-traditional populations, such as childless adults. For example, in 2001,the Administration introduced the Health Insurance Flexibility and Accountability (HIFA) demon-stration initiative. This initiative emphasizes the coordination of currently available Medicaid andSCHIP funding with private insurance. Through these waiver programs and the HIFA initiative,

States have found that they can provide health care to more beneficiaries with the same amount of funding by changing delivery systems and using mainstream coverage, including managed care andcoordination with employer plans.

SCHIP provides States with more flexibility than Medicaid, allowing States to cover targeted pop-ulations, incorporate private sector insurance options, provide appropriate benefit packages, andmaximize public dollars.

A modernized Medicaid system will give States greater flexibility without the need for burden-some waiver applications. Principles that are employed in SCHIP and emphasize innovation will beexpanded to Medicaid beneficiaries, while long-term care reforms will build on successful programs





that use consumer direction and home- and community-based care to improve satisfaction and lowercosts. A modernized Medicaid system will continue to grow at a robust rate to accommodate increasesin health care spending.

Enhancing Medicaid and SCHIP Coverage

Apart from program modernization, the following proposals will enhance coverage under both Med-icaid and SCHIP.

SCHIP Reauthorization. The authorization for the SCHIP program expires at the end of 2007.Due to its success at enrolling millions of low-income uninsured children, the 2006 Budget proposesto reauthorize this program early. The Administration will seek authority to better target SCHIPfunds in a more timely manner.

Transitional Medical Assistance (TMA). TMA provides Medicaid coverage for former welfarerecipients after they enter the workforce. The Budget proposes to extend TMA for one year with

certain statutory modifications, including a State option to eliminate TMA reporting requirementsand provide 12 months of continuous eligibility regardless of changes in families’ financial status.In addition, the Budget proposes a waiver of the TMA requirement for States that currently providehealth benefits for families at 185 percent of the Federal poverty level, which is the statutorilymandated income eligibility level. These changes will allow for consistent enrollment of TMAbeneficiaries while easing the administrative burden on States.

Medicare Premium Assistance. The Administration proposes to continue Medicare Part B premiumassistance for Medicare beneficiaries between 120 and 135 percent of the Federal poverty level forone year. In 2005, these premiums will be $78.20 per month. States receive 100 percent Federalfunding for these benefits.

Vaccines for Children (VFC). VFC provides all recommended childhood vaccines, free of charge, to

four categories of eligible children: Medicaid beneficiaries, American Indians/Alaskan Natives, theuninsured, and the underinsured (those without coverage for a particular vaccine). The Adminis-tration proposes to improve vaccine access by allowing underinsured children to receive VFC-funded

vaccines at State and local health clinics, rather than only at Federally Qualified Health Centers andRural Health Centers.

Health Insurance Portability and Accountability Act (HIPAA). Since enacted in 1996, HIPAA hasincreased the continuity, portability, and accessibility of health insurance. To ensure that Medic-aid and SCHIP beneficiaries receive the benef its of HIPAA coverage, the Administration proposestwo legislative changes. Under this proposal, eligibility for a Medicaid/SCHIP Employer-SponsoredInsurance (ESI) Program would be a qualifying event, which would allow families to enroll in ESIimmediately through special enrollment. This proposal also would require SCHIP programs to issue

certificates of creditable coverage, which promote portable health coverage by verifying the period of time an individual was covered by a specific health insurance policy.

Improving Options for People with Disabilities. The Budget includes several policies that promotehome- and community-based care options for people with disabilities. These policies build on thePresident’s New Freedom Initiative, which is part of a nationwide effort to integrate people withdisabilities more fully into society.

• Money Follows the Person Rebalancing Demonstration. This five-year demonstration wouldfinance Medicaid services for individuals who transition from institutions to the community.Federal grant funds would pay the full cost of home and community-based waiver services for




one year of a beneficiary’s care, after which the State would agree to continue this care at theregular Medicaid matching rate.

• Home and Community-based Care Demon-strations and Programs. The Budget includesproposals to encourage home and commu-

nity-based care for children and adults withdisabilities, such as demonstrations to providerespite care for caregivers of adults and children.

Another demonstration will test the effective-ness of providing home and community-basedalternatives to psychiatric residential treatmentfor children enrolled in Medicaid. States willhave the option to continue Medicaid eligibilityfor spouses of individuals with disabilities whoreturn to work. States will also have the optionto provide Medicaid presumptive eligibility for institutionally qualified individuals who aredischarged from hospitals into the community.

• Long-Term Care Insurance. The 2006 Budget would promote the use of long-term care (LTC)insurance by eliminating the Federal legislative ban on new LTC Partnership Programs, whichare a proven approach to lowering Medicaid costs while giving consumers and families morecontrol and involvement in their long-term care services. Through these programs, consumerswho purchase and use Partnership-approved insurance can become eligible for Medicaid servicesafter their insurance coverage is exhausted without having to divest all of their assets, as istypically required.


Compassion Capital Fund. To advance the efforts of community-based, charitable organizations,

including faith-based organizations, the President’s 2006 Budget provides $100 million for the Com-passion Capital Fund, to enhance their ability to provide social services, expand their organizations,diversify their funding sources, and create collaborations to better serve those in need. Among thepriorities within the 2006 proposal is an emphasis on supporting anti-gang efforts through commu-nity and faith-based organizations. Since 2002, a total of $149 million has been given directly to morethan 300 organizations and sub-grants to more than 3,000 grass-roots organizations.

Mentoring Children of Prisoners. As a group, the more than two million children with parentsin prison have more behavioral, health, and educational problems than other children. Mentoringby caring adults can improve the long-term outcomes for children whose parents are incarcerated.In 2004, HHS awarded $8.9 million in continuation grants and $37 million in 169 new grants toprograms that provide mentoring services to these children. The Budget includes $50 million for

competitive grants. Since 2003, this program has been working toward providing over 70,000 newmentors for children with a parent in prison.

Maternity Group Homes. The 2006 Budget also provides $10 million to increase support tocommunity-based maternity group homes by providing young pregnant mothers with access tocommunity-based coordinated services.

Access to Recovery. In 2004, HHS awarded Access to Recovery (ATR) grants to 14 States and onetribal organization to create substance abuse treatment voucher programs. ATR is designed to giveaddicted individuals the ability to choose from a range of effective treatment and recovery supportoptions, including faith-based and community providers. The 2006 Budget includes $150 million





Wisconsin issued the first Access to Recovery voucher to KimberlyWashington (left), a 41-year old mother from Milwaukee, Wisconsinwhose addiction and related felony convictions are a barrier to em-ployment and to raising her children. Ms. Washington chose MetaHouse because the agency provides residential treatment and re-covery support services, and it will allow her one-year old baby tolive with her in treatment once she is ready for re-unification. Sheand her Access to Recovery coordinator (right) developed a Recov-ery Support Team, including herservice providers, probation officer,church, family, and others to help her achieve and sustain recoverypost-treatment. Ms. Washington said that “...knowing there’ssome-

one, or something, like an angel on my shoulder gives me hope, andmotivation, that I will not fail this time—someone will be there.”

to maintain existing commitments and expand access to effective treatment in additional States.States will hold providers accountable for results and reward those providers most effective at help-ing clients to achieve recovery from addiction.

Marriage and Healthy Family Development

The Administration’s initiatives to promote marriage and healthy family development are builtaround four strategies:

1) Support marriage and families;2) Provide tools to parents;3) Teach children how to be good family members and citizens; and4) Encourage community organizations, including faith-based organizations, to support families.

Supporting Healthy Marriages and Responsible Fatherhood. The Budget proposes to direct $240million to new efforts to support healthy marriages and responsible fatherhood. Of this amount,$100 million, plus dollar for dollar matching contributions from States, would fund competitive

grants for States, territories, and tribal organizations to develop innovative approaches to promotehealthy marriages. The Budget includes $100 million for research, demonstration projects, andtechnical assistance, primarily focusing on family formation and healthy marriage activities. Tosupport these programs, funds would be redirected from the Temporary Assistance for NeedyFamilies High Performance Bonus ($100 million) and the Illegitimacy Reduction Bonus ($100million).

The Administration also proposes to create a $40 million per year grant program, through faith-and community-based organizations, that helps non-custodial fathers become more involved in theirchildren’s lives. More than 25 million children live in homes without fathers.

Abstinence Only Education. Last year, President Bush announced the expansion of the initiativeto educate teens and parents about the health risks associated with early sexual activity and to help




teens make healthy choices. As part of this initiative, the President directed the Department asfollows:

• Develop research-based standards for abstinence education curricula;

• Conduct a review of the consistency of messages in all federal programming for youth addressingteen pregnancy prevention, family planning, and STD and HIV/AIDs prevention;

• Develop a public education campaign designed to help parents communicate with their childrenabout the risks associated with early sexual activity; and

• Provide grants to communities and States to develop and implement abstinence-only programsand for Federal evaluation of these programs.

In support of this initiative, by 2008 funding for these programs will increase to a total of $270million.

Refugee and Entrant Assistance

Refugees come to the United States for protection from persecution and in search of freedom, peace,and opportunity. The Office of Refugee Resettlement provides programs to help refugees, asylees,trafficking victims, and other beneficiaries achieve economic self-sufficiency and social adjustment.The Budget includes $552 million, or an increase of $68 million, to assist States and faith-basedand community organizations in resettling the growing number of refugees, and for the care andplacement of unaccompanied alien minors in safe and appropriate environments.

Carlos, a 15-year old Guatemalan who never knew his parents and was raised by relatives, journeyed tothe United States through Mexico with an older cousin in search of his mother and a better education. His journey was mostly by foot and bus. While residing in shelter care in Phoenix, Carlos exhibited develop-mental and physical delays. With the help of intensive services from the Unaccompanied Refugee Minor(URM) program in the Office of Refugee Resettlement, the child’s mother and grandmother were advised

of the child’s exceptional needs and thus were more prepared to handle his serious medical issues. TheURM program completed a home suitability assessment, confirmed that the mother was prepared to carefor Carlos, prepared Carlos to join his mother, and worked aggressively to complete family reunification.

Reforming Welfare

Temporary Assistance for Needy Families (TANF). The Administration continues to pursue its planto reauthorize the TANF program, which provides grants to States for programs that assist needyfamilies with children. TANF grants also promote work and the formation of married-parent familiesin order to reduce dependence on government benefits. The Administration’s plan maintains funding,

strengthens work requirements, supports healthy marriages and family formation, and increasesState flexibility.

Strengthening Programs for Children

Early Childhood (Good Start, Grow Smart). Because it is important for children to enter schoolready to learn, the Administration has worked to improve early childhood programs through theGood Start, Grow Smart initiative. The goals of this initiative are:

• Strengthening Head Start;





The National Institutes of Health

The National Institutes of Health (NIH) will receive nearly $29 billion. Overall, NIH’s researchprogram has rated well in its Program Assessment Rating Tool (PART) performance assessmentsand is an effective mechanism for promoting biomedical breakthroughs. To better integrate researchacross its 27 Institutes and Centers, NIH is developing additional decision support tools to improvethe management of its large and complex scientific portfolio. This will allow NIH to more efficientlyaddress important areas of emerging scientific opportunities and public health challenges. The Ad-ministration is committed to this new effort, which will stimulate accelerated investments in researchinvolving multiple Institutes and Centers, thereby helping improve the Nation’s health.

Medicaid and SCHIP

Program Integrity. Medicaid’s complexity and open-ended fi-nance structure encourages efforts by States to draw down Fed-eral matching funds, sometimes inappropriately. These financ-ing practices undermine the Federal-State partnership requiredby the Medicaid statute and jeopardize the financial stability of the Medicaid program. The 2006 Budget proposes to build onpast efforts to improve efficiencies and the fiscal integrity of Med-icaid and SCHIP—and even with these reform efforts, Medicaid’sfuture spending is expected to increase at a robust 7.2 percentgrowth rate over 10 years.

The Administration proposes to further improve the integrity

of the Medicaid matching rate basis of funding by proposing stepsto curb financing arrangements that have been used by a numberof States to avoid the legally determined State matching fundsrequirements. Through various mechanisms, Federal funds arereturned from providers back to the State and “recycled” to drawadditional Federal dollars.

• Recovering Federal Funds Diverted From Providers. SomeStates keep a portion of Federal payments intended forproviders. The Budget proposes to build on CMS efforts to identify and recover divertedpayments that are not used for their intended purpose.

• Capping Payments to Government Providers. Under current law and regulation, States continue

to have ample opportunities to make excessive payments to individual government providersabove their costs for the purpose of leveraging additional Federal dollars. The 2006 Budget pro-poses to limit Federal reimbursement to no more than cost to curb excessive payments and stillpreserve a State’s ability to pay reasonable rates to providers.

• Reforming Provider Taxes. Under certain conditions, States may use the proceeds of taxescollected from a certain class of health providers to help finance the State’s share of Medicaidexpenses. Under current rules, the tax cannot exceed six percent of revenues and must be ap-plied uniformly across all health care providers in the same class (e.g., all hospitals). The 2006Budget proposes to phase down the allowable tax rate from six percent to three percent and





require that managed care organizations be treated the same as other classes of health careproviders with respect to provider tax requirements.

• Strengthening Reimbursement Policies for Selected Medicaid Services. The 2006 Budget pro-

poses: 1) clarifying allowable services that can be claimed under targeted case management(TCM), and rehabilitation services; 2) aligning Federal reimbursement for TCM services withadministrative matching rate of 50 percent; and 3) codifying in regulation CMS reimbursementpolicies for services provided free of charge to the public.

• Strengthening Medicaid Requirements for Questionable Asset Transfers. To qualify for Medicaidlong term care services, an individual may only retain nominal assets. Applicants who transferassets at less than fair market value are subject to delays in Medicaid eligibility. With estateplanning, however, Medicaid applicants can retain their assets and qualify for Medicaid withoutany delays. In conjunction with the long-term care partnership proposal, the Budget proposes tostrengthen existing requirements for questionable asset transfers as part of an effort to promotepersonal responsibility and planning for long-term care expenses.

• Medicaid Administrative Claims. The Administration proposes establishing individual Stateallotments for Medicaid administrative claims. Medicaid administrative claims operate underan open-ended financing framework, which does not encourage States to administer the pro-gram as efficiently as possible. In some instances, there is evidence that States have attemptedto shift administrative costs associated with other social service programs to Medicaid. Forthese reasons, the Administration proposes to create new incentives for program administra-tion by establishing administrative claim allotments that will encourage cost-effective methodsfor operating the program.

• Medicaid and SCHIP Financial Management. In 2006, HHS will continue to devote more re-sources to Medicaid and SCHIP financial management. This effort will include increasing thenumber of audits and evaluations of State Medicaid programs, and elevating the importance of

financial management oversight at HHS. The Budget proposes to allocate $25 million from theHealth Care Fraud and Abuse Account to finance this initiative.

Medicaid Prescription Drugs. The Budget makes several proposals to increase efficiency and lowercosts in Medicaid prescription drugs, one of the fastest growing segments of the Medicaid budget.

• Amend Medicaid Drug Rebate Formula. All drug manufacturers must pay a rebate to States inorder to have their drugs covered by Medicaid. Part of the rebate formula is the lowest privatemarket price, also called best price. Best price effectively acts as a price floor, preventing man-ufacturers from negotiating deep discounts with large purchasers such as hospitals and HMOs.The Administration proposes to replace best price with a budget neutral flat rebate, allowingprivate purchasers to negotiate lower drug prices.

• Restructure Pharmacy Reimbursement. The House Energy and Commerce Committee recently

held a hearing that documented substantial and rising Government overpayment for prescrip-tion drugs in Medicaid. The Administration proposes moving to a system that more closely alignspharmacy reimbursement with pharmacy acquisition cost, while providing adequate paymentfor dispensing prescriptions.

• Pharmacy Plus Demonstrations. Pharmacy Plus Medicaid demonstrations provide a drugs-onlyMedicaid benefit to certain aged and disabled beneficiaries not otherwise eligible for Medic-aid. Pharmacy Plus was intended as a placeholder program in the absence of a universal drugbenefit under Medicare. With the introduction of the Medicare drug benefit, Pharmacy Plushas achieved its goal. CMS will continue to work closely with States that have Pharmacy Plus




programs to enable them to provide comparable coverage to their beneficiaries under the newMedicare drug benefit at the same or lower cost to the States.

Medicare Financial Enhancements

0

2

4

6

8

10

12

14

Medicare Expenditures andNon-Interest Income

Source: 2004 Annual Report of the Board of Trustees for the Federal HospitalInsurance and Federal Supplementary Medical Insurance Trust Funds .

Percent of GDP

2000 2010 2020 2030 2040 2050 2060 2070 2080

Payroll

Premiums

General Revenues

Expenditures

Other

Strengthening Medicare’s Long-Term Fi-nancial Security. Medicare is financed by twoseparate trust funds, the Hospital InsuranceTrust Fund and the Supplementary MedicalInsurance Trust Fund. This bifurcatedtrust fund structure finances Medicare as if the program offers two separate, unrelatedbenefits, instead of recognizing that Medicareprovides integrated, comprehensive healthinsurance coverage. The MMA took stepsto address this problem, and requires theMedicare Trustee’s Report to include a new,

comprehensive fiscal analysis, the CombinedMedicare Trust Fund Analysis. This analysisexamines the program’s financing as a whole,and provides the President and the Congress

with a warning if Medicare’s dedicated revenues are projected to fall below adequate levels in sevenyears. The Administration supports a unified trust fund for Medicare, which would provide anintegrated financing structure for the program’s comprehensive benefit package.

Improving Quality. Medicare currently pays all health care providers equally for the same service,regardless of the efficiency or the quality of services furnished. The Administration has promotedaccountability for quality, creating initiatives to collect data from Medicare providers on quality mea-sures and making them publicly available. Better measures of efficiency and quality in health care

suggest that Medicare can improve payments for high-quality care. The Administration will takefurther steps to encourage excellence in care by exploring provider payment reforms that link qual-ity to Medicare reimbursement in a cost neutral manner. Such payment reforms should be flexibleenough to support innovations in health care delivery.

Administrative Improvements. In the coming years, HHS will make changes to rationalize severalcomponents of the payment system. Specialty hospitals, which tend to be physician-owned and focuson patients with specific medical conditions or who need surgical procedures, are a small but growingsegment of the health care industry. MedPAC, the congressional advisory committee for Medicareissues, conducted extensive research and found that there are problems in physician ownership of hospitals and in the way Medicare pays for hospitals. The Administration will seek to refine the in-patient hospital payment system and related provisions of regulations to ensure a more level playing

field between specialty and non-specialty hospitals.With regard to Medicare Advantage, the Budget will phase in over four years the savings from the

full implementation of risk adjustment payments to account for different health status of beneficia-ries in Medicare Advantage plans. The phase-in will begin in 2007 and will be completed by 2010,and is projected to produce savings to the extent that Medicare Advantage plans serve healthier ben-eficiaries, on average, compared to fee-for-service. The Budget also proposes to improve paymentaccuracy for patients who are transferred from inpatient hospitals to post-discharge acute settings,such as nursing facilities. Lastly, HHS will refine the Skilled Nursing Facility Prospective PaymentSystem in 2006 to ensure appropriate payments for certain high-cost cases.





Program Integrity. Medicare program integrity efforts haveyielded billions of dollars in savings. The Budget continuesthis effort with $1.1 billion from the Health Care Fraud and

Abuse Control Account to fight improper Medicare payments.The Budget requests $75 million for efforts to protect the newMedicare prescription drug program and Medicare Advantageagainst fraud, waste, and error, and these funds will be includedin a Government-wide proposal to fund program integrityactivities through a discretionary cap adjustment.

Additionally, HHS will strengthen program integrity by preventing overpayments, accelerating contractor reform and ratio-nalizing payments for bad debt. HHS will institute several dataprocessing improvements that will reduce overpayments. TheBudget provides funding to continue the modernization of Medi-

care’s data systems to this end. HHS will also accelerate imple-mentation of a new process for awarding contracts to adminis-trative contractors, which will enhance Medicare’s ability to holdcontractors accountable for their program integrity performance.Lastly, the Budget proposes to rationalize the reimbursement of bad debt to promote efficiency and ensure equitable treatmentacross providers.

MMA Implementation

CMS Operations and Efficiencies. HHS has initiated an extensive effort to implement the manyprovisions of the MMA. In 2004, CMS reorganized to improve the oversight and administration of

Medicare Advantage and the prescription drug benefit and provide more support for improving qual-ity and efficiency in Medicare. HHS has begun outreach efforts to ensure that beneficiaries can getthe most out of their new choices, and develop new procedures to enroll beneficiaries and employersin the new benefit. In 2005 and 2006, HHS will also implement other provisions of the MMA, suchas contractor reform for Medicare’s administrative contractors and changes to payments for Part BCovered Drugs.


The following table provides an update on HHS’ implementation of the President’s Management Agenda as of December 31, 2004.




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

Estimate2004

Actual 2005 2006

SpendingDiscretionary Budget Authority:

Food and Drug Administration ......................................................................... 1,362 1,433 1,487Program level (non-add) ............................................................................... 1,695 1,801 1,881

Health Resources and Services Administration ........................................ 6,677 6,806 5,982Program level (non-add) ............................................................................... 7,323 7,373 6,541

Indian Health Service.......................................................................................... 2,921 2,984 3,048Program level (non-add) ............................................................................... 3,639 3,774 3,846

Centers for Disease Control and Prevention 1 ......................................... 4,440 4,584 4,017Program level (non-add) ............................................................................... 6,062 6,312 5,901

National Institutes of Health.............................................................................. 27,733 28,444 28,590Program lev el (non-add) ............................................................................... 27,896 28,650 28,845

Substance Abuse and Mental Health Services Administration ........... 3,234 3,268 3,215Program level (non-add) ............................................................................... 3,351 3,392 3,336

Agency for Healthcare Research and Quality ............................................ — 3 —Program level (non-add) ............................................................................... 304 321 319

Centers for Medicare and Medicaid Services 2 ........................................ 2,579 2,666 3,178Program level (non-add) ............................................................................... 2,358 3,445 3,999

MedPAC/OCR/GDM/AHRQ Administration ................................................ 19 19 19Discretionary HCFAC .......................................................................................... — — 80Administration for Children and Families ..................................................... 13,288 13,537 13,127

Program level (non-add) ............................................................................... 13,292 13,599 13,187 Administration on Aging ..................................................................................... 1,374 1,393 1,369Office of the Secretary ........................................................................................ 393 405 385

Program level (non-add) ............................................................................... 497 508 517 Health Information Technology ........................................................................ — — 75Office of Medicare Appeals 3 .......................................................................... 58 58 80Program Support Center: Medicare eligible retiree accrual ................. 27 33 34Office of the Inspector General ....................................................................... 39 40 40Public Health and Social Services Emergency Fund .............................. 2,164 2,269 2,428

Subtotal, Discretionary budget authority .......................................................... 66,308 67,942 67,154Medicare Reform Administrative Expenses 2 ............................................ 1,000 — —






DEPARTMENT OF HOMELAND SECURITY

AT A GLANCE:

2006 Discretionary Budget Authority (gross): $34.2 billion(Increase from 2005: 7 percent)

Major Programs:

Border and Transportation Security

• Coast Guard

• Emergency Preparedness and Response

• Information Analysis and Infrastructure Protection

• United States Citizenship and Immigration Services

• United States Secret Service

• Science and Technology


Protecting America

Protecting and enforcing our borders, including expansion of the America’s Shield program andthe continuation of the Arizona Border Control Initiative.

• Supporting port security activities, including Coast Guard port security programs and Customsand Border Protection container security programs.

• Creating a new Screening Coordination and Operations Office to enhance security screening of people, cargo, and conveyances.

• Concentrating Federal funds for State and local homeland security assistance programs on thehighest threats, vulnerabilities, and needs.

• Improving the Nation’s ability to detect and rapidly characterize a potential bioterrorist attackby collecting and analyzing disease surveillance data from people, animals, and plants.

• Improving detection of, and countermeasures for, the threat posed by nuclear and radiologicalweapons.

• Enhancing detection of, and countermeasures for, the threat posed by chemical agents.

• Strengthening aviation security by upgrading explosives detection technology, deploying newbaggage-screening systems, and improving the monitoring of performance by airport screenersand screening systems.

151



152 DEPARTMENT OF HOMELAND SECURITY



• Supporting response and recovery to major disasters and emergencies.

• Achieving a six-month processing standard for immigration applications by the end of 2006.


• Providing continued support for the United States Secret Service’s protection and investigationprograms.

• Supporting all Coast Guard missions including security of ports, waterways and coastlines, drugand migrant interdiction, and fisheries enforcement.




PROTECTING AMERICA

Securing the Nation’s Border, Ports, and Transportation Systems

The President’s 2006 Budget will continue to ensure the security of the Nation’s borders, ports,and transportation systems with enhanced screening of goods and people through programs such asthe new Screening Coordination and Operations Office; increases to the United States Visitor andImmigrant Status Indicator Technology (US-VISIT) system; additional radiological and nuclear in-spection equipment; and expansion of the Container Security Initiative. The President’s 2006 Budgetwill strengthen enforcement, border, and port security with increases to the Border Patrol; continuedexecution of the Arizona Border Control Initiative (ABCi); improvements to the Coast Guard; andnew, threat-focused State and local assistance grants.

The Border Patrol uses horses in difficult terrain to secure the Nation’sborder.

Improving Enforcement, Border, and Port Se-curity. The primary mission of the Border Pa-trol is to detect and apprehend illegal aliens andsmugglers of aliens at or near our land border.The Border Patrol is specifically responsible forpatrolling the 6,000 miles of Mexican and Cana-dian international land borders and 2,000 milesof coastal waters surrounding the Florida Penin-sula and the island of Puerto Rico.

Funding for the Border Patrol in 2006includes $37 million for 210 additional BorderPatrol agents, and $20 million for the acqui-sition and replacement of aging Border Patrolaircraft. Since September 11, 2001, Border

Patrol staffing has grown by nearly 1,200agents (11-percent increase). The President’s Budget also enhances the America’s Shield Initiative,an integration of many surveillance, video, and detection systems along the border.

Arizona Border Control Initiative

In April 2004, DHS announced a joint initiativebetween Immigration and Customs Enforce-ment and Customs and Border Protection.The Arizona Border Control Initiative strives todeter illegal crossing, disrupt smuggling orga-

nizations that transport illegal aliens into theUnited States, and reduce the overall numberof deaths of migrants crossing the desert intoArizona from Mexico. The President’s Budgetincludes $50 million for enhanced personnel,technology, and aviation assets.





Detaining and removing illegal aliens is critical to effective enforcement of our immigration laws.The 2006 Budget continues the Administration’s commitment to enforcing our Nation’s immigrationlaws and increases funding by $176 million for the detention and removal of illegal aliens. It pro-

vides $90 million for increased detention beds and additional detention and removal officers. It alsoprovides $39 million for the detention and repatriation costs of the ABCi, which aims to deter illegalcrossings of the desert. The Budget also includes $8 million to apprehend alien fugitives and $5.4million to ensure that aliens convicted of crimes in the United States are deported directly from cor-rectional institutions after their time is served, preventing their release into the community. TheBudget also includes $3.5 million for additional Department of Homeland Security (DHS) attorneysto prosecute immigration cases.

Alternatives to conventional detention methods are essential to improving performance. In thecase of non-criminal aliens, particularly asylum seekers, officials are using alternative custodyarrangements to ensure their appearance at immigration proceedings. These pilot programs havebeen successful and the Budget requests $5.4 million in additional funding to expand them. This

will allow DHS to focus resources on the most serious alien criminals.

Coast Guard security escorts the Liquified Natural Gas TankerMATTHEW in Boston Harbor.

The Budget includes $6.9 billion for theCoast Guard, an 11.4-percent increase over thecomparable 2005 level. Within these levels,$1.9 billion is for the Coast Guard’s Port,Waterways, and Coastal Security mission.This will fund a variety of high-priority CoastGuard initiatives like armed, high-speed boatsin ports with liquefied natural gas terminals,further implementation of the Automatic Iden-tification System to track sea-going vessels

and enhance Maritime Domain Awareness,new weapons systems for the Coast Guard’shelicopter fleet, and implementation of theCommon Operating Picture to enable CoastGuard assets to work better together.

Ports and other transportation facilities where people and cargo enter the United States will bea major priority for the $600 million Targeted Infrastructure Protection grant program, which willenhance State, local, and private efforts to secure our Nation’s critical infrastructure.

Effective Screening of Goods and People. Following enhancements since September 11, 2001, andthe recommendations of the 9/11 Commission, on August 27, 2004, the President issued guidance

that directed DHS, in coordination with other departments and agencies, to enhance terrorist-relatedscreening of people, cargo, and conveyances, and implement a coordinated and comprehensive ap-proach to terrorist-related screening in immigration, law enforcement, intelligence, counterintelli-gence, border and transportation systems, and critical infrastructure. This Budget meets these goals,and reinforces actions already accomplished to augment our existing screening programs.

A new DHS organizational structure that consolidates existing programs will substantially im-prove internal coordination, operations, and efficiency of screening roles and missions. This newScreening Coordination and Operations Office will manage DHS major screening programs, includ-ing: the United States Visitor and Immigrant Status Indicator Technology Program (US-VISIT),




A Customs and Border Protection officer processes a travelerthrough US-VISIT.

which will screen international travelers arrivingat our ports of entry; and the Secure Flightprogram, which will conduct automated screeningof all domestic commercial aviation passengers.In addition, the management structure of at leastnine other existing programs will be combined,

including the Free and Secure Trade and theTransportation Worker Identification Cardprograms. This office will also strive to bettercoordinate the screening processes and activitiesoperated by other Federal agencies by leadingongoing interagency review and communicationson screening policy and practices.

US-VISIT is central to the Federal Government’sscreening of international visitors. US-VISIT expe-dites the clearance of legal and safe travelers, whilefocusing on blocking those intending to do harm. In

2004 and 2005 the first phases of US-VISIT weresuccessfully deployed. The 2006 Budget includes a $50 million increase for accelerated deploymentof US-VISIT at land border ports of entry and for enhanced access for border personnel to immigra-tion, criminal, and terrorist information. Under the President’s proposal, the Administration willcommit over $1.4 billion to support this initiative through 2006.

In order to secure our borders while remaining open to trade and travel, DHS must use technol-ogy to establish layered, risk-based security programs. In tandem with supporting efforts to ensureeffective screening, the President’s Budget provides $125 million in new funding for improved radio-logical and nuclear screening equipment at our borders. U.S. Customs and Border Protection (CBP)will continue to deploy these screening systems to cover all ports of entry. CBP will also work withthe Science and Technology Directorate at DHS to initiate a pilot program to deploy next-generation

radiation detectors.

Another example of this layered, risk-based security approach is seen in the Container SecurityInitiative (CSI), which pre-screens cargo before it reaches our shores. Phase I of CSI implementedthe program at the top 20 foreign ports, which ship approximately two-thirds of the containers tothe United States. Phase II expanded the program to additional ports based on volume, location,and strategic concerns. This Budget continues support for both Phase I and Phase II, as well asPhase III—capacity building at several higher-risk ports of entry. The Budget provides $5.4 millionin additional funding for CSI over the 2005 level.

Also essential to cargo security are partnerships with some of the biggest American importers aspart of the Customs Trade Partnership Against Terrorism (C-TPAT). To date, over 4,500 importers,

1,700 carriers, and 1,300 brokers and freight forwarders are participating in C-TPAT. The $8.2 mil-lion in additional funding over the 2005 level for C-TPAT will be used for supply chain specialistsand increased supply chain security validations.

Aviation screening operations continue to be a high priority of the Administration. The Budgetproposes more than $4.5 billion for aviation screening operations, an increase of approximately $0.4billion from the 2005 level. Funding will ensure sufficient resources for 45,000 Federal screeners and10,000 screening devices nationwide. The Administration expects innovative and secure contractscreening operations to expand between this year and 2006, beyond the five airports currently usingcontract screeners.





A truck passesthrough a radiationportal monitor at the portof Newark, New Jersey.

The Budget includes funding to significantly upgradedetection of explosives at our Nation’s airport check-points, a recommendation of the 9/11 Commission. In

total over 2005 and 2006, the Administration proposesto invest more than $100 million in new technologyto strengthen explosives screening. The Budget alsoprovides a $26 million increase for the Federal Air Mar-shals to protect our Nation’s airplanes and passengers.

Restructuring of State and Local AssistanceGrants

Over the last four years, DHS agencies have provided$11.3 billion to State and local governments to prevent,

prepare for, and respond to acts of terrorism. Anadditional $3.2 billion in grants and other assistanceprovided by other Federal agencies has also goneto State and local responders. Yet, nearly half of these funds have been allocated according tocongressionally-mandated formulas that bear little relation to need and risk. Recognizing this, theIntelligence Reform and Terrorism Prevention Act of 2004 included a call for the Congress to passlegislation reforming the system for distributing State and local terrorism preparedness grants.The Budget proposes to restructure $2.6 billion in grants for States, urban areas, and infrastructureprotection, so that DHS will target grants to fill critical gaps in State and local terrorism preventionand preparedness capabilities, taking into consideration their threats and vulnerabilities. Majorgrant initiatives within the 2006 Budget include:

•Faster, better-allocated State Homeland Security grants would provide $1 billion for discre-tionary grants to States and territories. Funds would be awarded to meet national preparednessgoals and priorities identified in State homeland security plans. This approach replaces the cur-rent State funding formula, which does not target funds for high-risk States or specific needs.

• The Urban Area Security Initiative would provide $1 billion in discretionary grants to urbanareas and regions. Funds would be linked to national preparedness goals and specific gaps iden-tified in regional homeland security plans. As in the past, DHS will define eligibility criteria toencourage coordinated planning and avoid duplication. The requested funding level assumesthat no more then 50 regions will receive funding, with each required to coordinate their grantapplications with surrounding States.

• The Targeted Infrastructure Protection program would provide $600 million in integrated

grants, enabling DHS to supplement State, local, and private infrastructure protectionefforts, especially for deployment of nuclear and chemical detection capabilities and securityinvestments at ports and other transit facilities. Rather than providing arbitrary amountsfor particular sectors, priorities and projects would be determined based on relative risk,

vulnerability, and need.

• The Assistance to Firefighters Grants program would provide $500 million in competitive grantsto fire departments and emergency medical providers. These funds would pay for vehicles,equipment, and training that these responders need to better protect the public, especially frompotential terrorist attacks and other mass casualty events. The Administration will continue




its efforts to remove bureaucratic obstacles to the participation of large fire departments in thisprogram.

Fostering Communications Between First Responders

In the event of a national emergency, it is crucial that first responders, State and local govern-ments, and the Federal Government are able to communicate with each other. The 2006 Budgetrecognizes the importance of this goal and includes initiatives to strengthen such communicationscapabilities. The Administration is dedicated to ensuring that adequate radio frequency spectrumexists for public safety. It also has supported a number of steps to expand public safety access tospectrum, including proposing an analog spectrum fee on broadcasters to encourage faster return of analog television spectrum, so that a portion of it may be allocated for public safety use.

First responders practice extricating a victim during a weapons ofmass destruction training exercise at the DHS Center for DomesticPreparedness in Anniston, Alabama.

The Science and Technology Directorate hasestablished a new Office of Interoperability andCompatibility (OIC), which includes the SafeCommunications program that was createdto coordinate public safety communications toachieve national wireless interoperability. Thisoffice is charged with creating standards, inpartnership with the public safety community,for communications, equipment, and training, toenable first responders from different jurisdictionsto share information.

During 2004, OIC helped first responders in 10urban areas to communicate with each other in theevent of a large emergency incident, including a ter-rorist attack. In 2004 alone, over $830 million wasallocated to State, regional and local interoperability efforts through State and local grant programs.

During 2005 and 2006, these efforts will be expanded to other cities participating in the Urban AreaSecurity Initiative. Interoperability will continue to be a major focus of State and local homelandsecurity grants in the 2006 Budget.

Citizen Involvement

Citizen Corps, a component of the USA Freedom Corps, brings together local leaders, citizen vol-unteers, and a network of first-responder organizations in local preparation and response efforts.Federal funding has led to the establishment of more than 1,400 local Citizen Corps Councils acrossthe United States. The 2006 Budget request includes $50 million in grants to State Citizen Corpsactivities.

Protecting Critical Infrastructure

The Department’s Information Analysis and Infrastructure Protection (IAIP) Directorateis charged with coordinating the Federal Government’s efforts to protect the Nation’s criticalinfrastructure, including: commercial assets (e.g., stock exchanges), Government facilities, dams,nuclear power plants, national monuments and icons, chemical plants, bridges, and tunnels. DHS,other Federal agencies, and State and local governments use a risk-management approach to reducethe vulnerability of critical infrastructure and protect them against terrorist threats. The 2006Budget includes $530 million for IAIP’s infrastructure protection activities.





The Homeland Security Operations Center operates 24 hours a day tohelp deter, detect, and prevent terrorist acts.

Since its establishment in 2003, IAIPactivities include identifying, assessing, andsecuring critical infrastructures. IAIP has de-

veloped a national inventory of infrastructuresthat could be terrorist targets. This databaseis used by IAIP to determine which sites posepublic health or economic risks if attacked. Asmost critical infrastructures are not Federallyowned or operated, IAIP must work withState homeland security advisors, ownersand operators of critical infrastructure, publicsafety personnel, and other Federal agencies.These relationships serve to reinforce Federal,State, and local protection strategies. Forexample, IAIP works closely with local law

enforcement to protect infrastructures throughthe use of “buffer zone protection plans”. Theseplans are implemented at key sites to expand the zone of protection around facilities. IAIP hashelped develop buffer zone protection plans and security plans for chemical sites, dams, nuclearpower plants, and water facilities.

Cyber security is another key element of infrastructure protection. The consequences of a cyberattack could cascade across multiple infrastructures and imperil public safety. The 2006 Budget pro-poses $73 million to enhance ongoing programs for IAIP’s National Cyber Security Division (NCSD).NCSD serves as a national focal point for the public and private sectors to address cyber securityissues. As such, NCSD established the U.S. Computer Emergency Response Team (US-CERT), apartnership among NCSD and its public and private partners to coordinate cyber security, increase

public awareness of cyber threats, and improve computer security preparedness and response to cy-ber attacks. US-CERT also supports watch and warning capability, which helps track incidents andtrend data, ranks associated severity, and generates real-time alerts.

Monitoring activities and access to current information at nuclear power plants, chemical man-ufacturers, and other sites is essential in the coordination of infrastructure protection. IAIP oper-ates the Homeland Security Operations Center (HSOC) to monitor current threats against key sites.It is the national-level hub for information sharing, situational awareness, and domestic incidentmanagement. Federal, State, local, tribal, and private sector organizations are connected to theHSOC. The 2006 Budget continues to support the HSOC by improving monitoring and communica-tions capabilities.

Information Sharing. In meeting its mandate to disseminate information to help prevent terrorist

attacks, IAIP communicates timely and valuable threat-related information to State and local offi-cials, Federal agencies, and the private sector as is appropriate. Recipients of IAIP’s analysis usethis information to respond to specific threats. In the past year, all 50 States and major urban areashave been connected to the Homeland Security Information Network (HSIN). In 2006, county-levelgovernments will begin to be connected to HSIN. HSIN is the main information sharing portal forDHS.

IAIP is also involved in the efforts to improve information sharing within the intelligence commu-nity. DHS continues to be a partner with other intelligence agencies, such as the recently-establishedNational Counterterrorism Center (NCTC). IAIP analysts staff the NCTC 24 hours a day. Working




as partners, this type of collaboration ensures the analysis done between IAIP or the NCTC comple-ments each other in the best interest of the Nation’s security.

Increased information sharing has also resulted in an improved capability to detect and rapidlycharacterize a potential bioterrorist attack. For example, the Department has established the Na-tional Bio-Surveillance Integration System (NBIS) within IAIP. NBIS will collect and analyze disease

surveillance information from people, animals, plants, food, and the environment. This informationwill be monitored continuously, in the context of intelligence information, to rapidly identify and char-acterize suspicious patterns of illness, and to support response activities by providing improved “sit-uational awareness.” The surveillance information to support this activity will come from expandedand enhanced systems across the Federal Government and international sources.

Emergency Preparedness

An effective response to a major terrorist incident or natural disaster depends on adequate prepa-ration. The Federal response to the hurricanes of 2004 demonstrated the value of proactive andaggressive response measures. The Budget continues to build on these capabilities and supportscritical preparedness, response, and recovery efforts at all levels of Government.

In 2004, the Federal Government developed the National Response Plan (NRP), a comprehensiveapproach to domestic management of emergencies. DHS also led the development of a National Inci-dent Management System (NIMS). Released in July 2004, NIMS establishes a standard frameworkfor Federal, State, tribal, and local governments to respond to incidents and emergencies. The Bud-get provides $15 million to support the implementation of NIMS through the DHS NIMS IntegrationCenter.

The Budget provides an additional $20 million to augment our response capabilities for the mostcatastrophic terrorist attacks. DHS will continue an initiative to plan and build emergency responsecapability, working closely with State and local venues as well as other Federal agencies. Additionally,the Budget includes $10 million for DHS to continue to develop and maintain mobile medical treat-ment facilities that could be deployed to a community after a large-scale event that would otherwise

overwhelm a community’s medical system.

Science and Technology

New technologies to detect and counter terrorist threats are critical to preventing and minimizingthe damage from terrorist attacks. The 2006 Budget includes several major initiatives to achievethis important goal.

Unifying Federal Nuclear Detection Efforts. A new Domestic Nuclear Detection Office (DNDO) isbeing created that will develop and deploy a comprehensive domestic system to detect and reportany attempt to import, assemble, or transport a nuclear explosive device, fissile material, or radio-logical material intended for illicit use. The DNDO will be responsible for interagency coordination

of a comprehensive national nuclear detection architecture. One major DNDO responsibility will beoversight of all transformational research and development for detection, identification, and report-ing of radiological and nuclear materials.

Nuclear and Chemical Detection Architecture Transformational Research and Development. Underthe 2006 Budget, the Science and Technology Directorate will devote $262 million for advanced de-tection devices to minimize the likelihood of a radiological or nuclear device entering into the UnitedStates, more than double the amount spent in 2005. This research is part of a broader effort to focusthe Nation’s resources toward countering the threat of nuclear or radiological materials being usedagainst the American people. This research and development (R&D) program will be integrated





with our overseas non-proliferation efforts to create a seamless strategy for preventing terroristsfrom acquiring radiological and nuclear devices and detecting one on our shores. This program willalso be integrated with U.S. Customs and Border Protection, which will work with the Science and

Technology Directorate on a pilot program to deploy next-generation radiation detectors to ensurethat these materials do not cross the borders into the United States. The Budget also doubles theamount of spending on chemical agent R&D to $107 million, including $36 million in new spendingon non-traditional chemical agent threats.

BioWatch Program for Environmental Monitoring and Detection. The 2006 Budget will enhanceand expand the BioWatch environmental monitoring program, which samples and analyzes air inover 30 metropolitan areas to check for dangerous biological agents. The program is designed toprovide early warning of a large-scale biological weapon attack, thereby allowing the distribution of life-saving preventive treatment.

Countering the Threat of Shoulder-fired Missiles Against Commercial Aircraft. The Science andTechnology Directorate will continue to research the viability of technical countermeasures for com-

mercial aircraft against the threat of shoulder-fired missiles. The Directorate will invest $110 millionto test these systems on air-cargo Civilian Reserve Aircraft Fleet planes for safety and reliability.





Response and Recovery

Orlando, Florida, September 12, 2004—Cots and hospital beds are setup in the Orange County Convention Center.

In 2004, DHS responded to 65 major disasterdeclarations and seven emergencies. Withinsix weeks during the months of August andSeptember, four large hurricanes made landfallin the Southeast. The Federal Government’ssupport during and after these storms wasamong the largest response and recoveryundertakings ever. The Federal EmergencyManagement Agency (FEMA) coordinated thismassive response effort, which included thedelivery of over 10 million gallons of water,163 pounds of ice, 14 million Meals Ready toEat, and 14,000 mobile homes or trailers todisplaced families. Additionally, FEMA medicalteams treated nearly 10,000 people.

The 2006 Budget provides $3.3 billion for disaster relief—a level of funding consistent with theaverage annual disaster costs over the past five years, not including large and rare events, such asthe attacks of September 11, 2001. This includes more than $2 billion in new resources and fundsavailable from prior years.

U.S. Citizenship and Immigration Services

The Administration is committed to making sure America continues to welcome the contributionsof immigrants. Within DHS, the United States Citizenship and Immigration Services (USCIS) con-tinues to improve systems to provide immigrants information and services in a timely, accurate,consistent, courteous and professional manner, while also guaranteeing national security.

Backlog Reduction. The 2006 Budget continues funding for the President’s multi-year $540 millioninitiative enabling USCIS to reduce the backlog of applications, and ensure a six-month processingstandard for all applications by the end of 2006. In 2004, USCIS has continued the focus on qualityimprovements and expanded national security checks, such as performing background name checkson all applications before approval. Although the checks have initially meant longer processing times,enhanced security will ensure that only eligible applicants are given the right to enter the UnitedStates. In addition, USCIS began implementing significant information technology improvementsincluding electronic filing (e-filing) for certain immigration applications.

Over the coming year, the Department will focus on transforming the application process witha greater focus on customers. DHS will establish clear performance milestones, actively monitorprogress towards these milestones, and ensure integrity by establishing comprehensive qualityassurance measures.





Coast Guard Polar Icebreaking

The Program Assessment Rating Tool (PART) assessment of the Coast Guard Polar IcebreakingProgram yielded an outcome of Results Not Demonstrated, due to a combination of poor alignmentof the program with the user community and inadequate performance measures. By contrast, theNational Science Foundation’s Polar Tools, Facilities, and Logistics program received an EffectivePART score.

The Budget proposes to transfer funding for the Polar Icebreaking Program to the National ScienceFoundation to better align resources with those who benefit from the program. While the CoastGuard will continue to operate the polar icebreaking fleet on a reimbursable basis, the National Sci-ence Foundation will ultimately be responsible for the long-range planning required to refurbish orreplace the ships, as necessary, which are nearing the end of their serviceable lives.

Improving Management of Aviation Security

The Department will also work to expand airport contract screening opportunities at those airportswishing to opt out of Federal screening operations. Preliminary analysis of five contract screeningairports in place after the September 11th attacks found there was no detrimental effect on securityby having contract screeners, and that many functions could be undertaken more efficiently and ef-fectively through contractor-led operations. Given the importance of effective screening operationson airlines, airports, and passengers, finding the best way to undertake airport screening is our high-est aviation security priority. The Department will be working to ensure its contracting program isan attractive, beneficial screening system option for airports while maintaining or improving secu-rity outcomes. Ultimately, efficient and effective screening operations can only be achieved througha strong partnership with local airports. The contracting program will provide options for strength-ening this partnership.

Aviation security is a shared responsibility of the Federal Government, airports, airlines, and thetraveling public. Airport screening, one element of aviation security, benefits passengers and aircarriers by protecting them from threats. These costs should be borne by the beneficiaries of theseservices. In 2004, aviation security fees covered less than half the cost of core Federal airport screen-ing operations. The Budget proposes to increase passenger fees by $3.00 starting in 2006, raising thefee on a typical one-leg ticket from $2.50 one way to $5.50. For passengers traveling multiple legson a one-way trip, that fee would rise from the current maximum of $5.00 to $8.00. Total securityfees will rise from an estimated $2.6 billion this year, to $4.1 billion in 2006, allowing near full costrecovery of spending on Federal aviation screening operations.

Reforming Human Capital

In creating DHS, the Homeland Security Act provided an historic opportunity to design a mod-ern human resources management system that is mission-centered, fair, effective, and flexible. DHSlaunched an ambitious, collaborative effort in 2003 that may be used as a model for future Gov-ernment reform. The collaboration involved input from managerial and non-managerial employeesat all levels, employee unions, academia, and Government service reform experts. This endeavorwill culminate with the publication of final regulations establishing the system. The 2006 Budgetspecifically provides resources that will be used for training supervisory personnel to administer a





performance-based pay system and to create the information technology framework for the new sys-tem. There will be a phased rollout of the new system scheduled to begin later this year.


The table below provides an update on the DHS’ implementation of the President’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress


The Department continues implementing a human resources system that provides flexibility to rapidly react toemerging threats, protects workers rights, and ties pay to employee performance. It also continues its efforts todevelop a department-wide approach to manage its personnel that will strengthen coordination and erase theboundaries that used to delineate the 22 components that merged to create the Department.

DHS continues to struggle in its Electronic Government and information technology efforts and has been unableto demonstrate consistent progress and results. While the Department has made notable improvements in ITsecurity, in the coming year it will increase its focus on strengthening management and implementation ofthe IT and E-Gov investments of the Department.

In support of budget and performance integration, the Department is using the Program Assessment Rating Tool

results to improve program performance, developing and using efficiency measures, and utilizing performancedata to inform and justify budget decisions.

DHS met the 2004 accelerated audit deadline and initiated its three-year reform program to unify, streamline,and integrate the Department’s legacy financial management systems.




For the Real Property Asset Management initiative, DHS has developed an Operating Entity Data ElementsMatrix. The structure of this real property database incorporates Federal Real Property Council standards fordata elements and performance metrics. The next critical step in this initiative is to draft and implement anAsset Management Plan. With respect to improper payments, DHS is undertaking a comprehensive statisticalsampling program early this year to identify any potential problem areas along with focused assessments bya recovery audit contractor in select major agencies such as U.S. Immigration and Customs Enforcement.(Because this is the first quarter agency efforts in the Eliminating Improper Payments Initiative were rated,progress scores were not given.)





United States Secret Service

The United States Secret Service is organized into two major components, one focused on protec-tion and the other focused on investigation. PART assessments of two protective programs foundthat both are highly effective, receiving some of the highest evaluations across Government. TheProtective Intelligence program provides Secret Service law enforcement personnel with the infor-mation needed to carry out their protective operations. The Foreign Protectees and Foreign Missionsprogram exercises the Service’s unique authority and capability to coordinate logistics, advanced se-curity surveys, intelligence analysis and dissemination, and other planning activities preceding visitsfrom foreign heads of state and other dignitaries. The Budget includes $1.2 billion for the Secret Ser-

vice to provide continued support for its protection and investigation programs, $28 million higherthan the 2005 enacted level.

The Secret Service ensures the safety of the President.

Federal Law Enforcement TrainingCenter

The Federal Law Enforcement TrainingCenter provides training to personnel frommore than 80 law enforcement agencies. Anadditional $3 million will be used to teachofficers how to avoid collisions and reduce thedangers associated with pursuit driving.

The Federal Law Enforcement Training Accreditation program creates accreditationstandards for the training programs used by

law enforcement agencies. This effort willencourage the adoption of best practices andstandards among law enforcement agencies.

Coast Guard Search and Rescue

The Coast Guard is responsible for minimizing the loss of life and property on the seas, and itsSearch and Rescue (SAR) program is one of its oldest missions. Coast Guard employees spend hun-dreds of hours annually training for and executing SAR missions, and Coast Guard rescue swimmersare recognized as some of the best in the world. To help improve the Coast Guard’s SAR program, theBudget continues implementation of the Rescue 21 system (a state-of-the-art maritime distress and

response communications system) and includes funds to start recapitalization of the Coast Guard’sHigh-Frequency distress-call monitoring system.




Department of Homeland Security(In millions of dollars)

Estimate2004

Actual 2005 2006

SpendingGross Discretionary Budget Authority:

Border and Transportation Security ............................................................... 13,508 14,642 16,099U.S. Coast Guard ................................................................................................. 5,668 6,321 6,947Emergency Preparedness and Response .................................................. 2,886 3,082 3,257Science and Technology .................................................................................... 913 1,116 1,368Information Analysis and Infrastructure Protection .................................. 834 894 873Office of State and Local Government Coordination............................... 4,193 3,985 3,565Other Department of Homeland Security .................................................... 1,888 1,950 2,043

Total, (gross) ............................................................................................................... 29,890 31,990 34,152Less Fee-Funded Activities .......................................................................... 1,994 2,994 4,810

Total, Discretionary budget authority (net) ....................................................... 27,896 28,996 29,342Project Bioshield ............................................................................................. 885 2,508 —

Memorandum: Budget authority from enacted supplementals ............... 2,448 6,533 —


Mandatory Outlays (gross) .................................................................................... 4,906 6,712 6,730Less Mandatory Receipts and Flood Insurance Collections ................ 5,300 6,224 7,046

Total, Mandatory outlays (net) .............................................................................. 394 488 316

Total, Outlays (net).................................................................................................... 26,537 33,259 33,284

Credit activityDirect Loan Disbursements:

Disaster Assistance ............................................................................................. — 25 25Total, Direct loan disbursements ......................................................................... — 25 25



DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT

AT A GLANCE:


Major Programs:

Section 8 Rental Assistance

• Federal Housing Administration• Public Housing

• HOME Improvement Partnerships Program

• Homeless Assistance Programs

• Housing for the Elderly and Disabled



Supporting the President’s ambitious agenda for expanded homeownership by assisting approx-imately 40,000 low-income families with the downpayment on their first home.

• Preparing families for homeownership, identifying predatory lending practices, and helpingcurrent homeowners avoid default.

• Proposing two new mortgage programs that would help more than 250,000 families achievehomeownership.

• Supplying tax credits to increase the supply of single family affordable homes.


• Working to end chronic homelessness through innovative local strategies to move chronicallyhomeless individuals from the street to permanent supportive housing.

• Helping ex-offenders get a second chance at employment.


• Reforming Housing Vouchers to improve results and better serve two million low-income house-holds.

167



168 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT


• Expanding outreach to faith-based and community organizations to level the playing field forthe Department of Housing and Urban Development’s formula and competitive grants.

• Reducing improper payments in rental assistance programs.





More Americans have achieved the dream of homeownership than at any time in our Nation’s his-tory: Sixty-nine percent of households own their homes. For the first time ever in 2004, a majority

of minority households own their own homes. The 2006 Budget supports ambitious goals to:

• Add 5.5 million new minority homeowners by 2010 (goal set in 2002)—1.9 million new minorityhomeowners were added by 2004; and

• Increase the supply of affordable homeownership units by seven million over the next 10 years(goal set in 2004).

American Dream Downpayment Initiative

Saving enough cash for the downpayment and closing costs is the greatest obstacle to homeowner-ship for many. To help overcome this obstacle, the President proposed new Department of Housing

and Urban Development (HUD) funding to help low-income families purchase their first homes. OnDecember 16, 2003, President Bush signed the American Dream Downpayment Act. Six monthslater, HUD distributed $161.5 million in downpayment funds to over 400 State and local Govern-ments. These funds have already helped over 4,000 families purchase their first homes; 50 percentof those families are minorities. The 2006 Budget provides $200 million to continue this initiative.

On December 16, 2003, President Bush signed the American Dream Downpayment Act. As a result of thisinitiative, on October 29, 2004, Taryn Ramos was able to purchase her first home with the downpaymentassistance grants administered by Fresno, California.

Housing Counseling

The Budget proposes $40 million for Housing Counseling to prepare families for homeownership,identify predatory lending practices, and help current homeowners avoid default. In 2006, HUD willassist approximately 800,000 families to become homeowners or avoid foreclosure, using faith-basedand community organizations in this effort.





Ensuring Government-Sponsored Enterprises Promote Affordable Housing

Low/Moderate Special Affordable Underserved

0

10

20

30

40

50

60

2001-2004

2005

2006

2007

2008

New Affordable Housing Goals

Source: HUD.

Percent of GSE-financed units

Government-sponsored enterprises (GSEs)

were chartered to help low- and moderate-in-come families secure mortgages. HUD recentlypublished a rule that requires Fannie Mae andFreddie Mac to increase their purchases of mortgages for low- and moderate-income house-holds and underserved communities. Thesenew goals will push the GSEs to genuinelylead the market in creating homeownershipopportunities for less advantaged Americans.

In addition to increasing the annual housinggoals through 2008 (see accompanying chart),

HUD’s rule establishes new home purchase sub-goals in each of the three goal areas. This is in-tended to focus the GSE’s efforts on purchases of homes rather than refinancings. HUD projects

that over the next four years, the GSEs will purchase an additional 400,000 home loans that meetthese new and more aggressive goals as a result of the new rule.

FHA Zero Down Payment and Payment Incentives

To remove two large barriers to homeownership—the down payment and impaired credit—theBudget proposes two mortgage programs. The Zero Down Payment mortgage allows first-time buy-ers with a strong credit record to finance 100 percent of the home purchase price and closing costs.

For borrowers with limited or weak credit histories, a second program, Payment Incentives, initiallycharges a higher insurance premium and reduces premiums after a period of on-time payments. In2006, these new mortgage programs would assist more than 250,000 families achieve homeowner-ship.

Single Family Homeownership Tax Credit

The President proposes a new Single Family Homeownership Tax Credit that will increase thesupply of single family affordable homes by up to an additional 50,000 homes annually. Under thePresident’s plan, builders of affordable homes for middle-income purchasers will receive a tax credit.State housing finance agencies will award tax credits to single family developments located in acensus tract with median income equal to 80 percent or less of area median income and will be lim-

ited to homebuyers in the same income range. The credits may not exceed 50 percent of the cost of constructing a new home or rehabilitating an existing property. Each State would have a homeown-ership credit ceiling adjusted for inflation each year and equal to the greater of $1.75 times the Statepopulation or $2 million. In total, the tax credit will provide $2.5 billion over five years.

Homeownership Vouchers

The Homeownership Voucher program, while still new, has successfully paved a path for low-in-come Americans to become homeowners. Strong and committed collaboration among public housing




agencies, local non-profits, and lenders, as well as pre- and post-homeownership counseling for fam-ilies has proven essential in making the program work. The greatest challenge to the success of theprogram is finding lenders who are willing to participate.

Although the Homeownership Voucher program is voluntary, a Program Assessment Rating Toolanalysis completed on the program shows that it has over-achieved its annual goals consistently since

the program began. In its first four years, the program helped over 2,000 low-income families thatwere renting through the Section 8 program to become homeowners. In 2006, the program plans toassist 5,000 families achieve homeownership.

Neighborhood Reinvestment Corporation

The Budget increases funding for the Neighborhood Reinvestment Corporation to $118 million.The Corporation, a public nonprofit organization chartered by the Congress in 1978 and independentof HUD, is also working to expand minority homeownership. The Corporation is pledging to providedirect assistance to over 170,000 families in 2006 through affordable mortgage and rehabilitationlending, comprehensive homebuyer education, and counseling services.





Ending Chronic Homelessness

The Administration remains committed to the goal of ending chronic homelessness. Chronicallyhomeless individuals who have disabling conditions and live on the streets and in shelters for longperiods comprise less than 10 percent of the homeless population, yet they consume over half of emergency homeless services. Housing this population will free Federal, State, and local emergencyresources for families and individuals who need shorter-term assistance.

In 2004, the Federal Collaborati ve Initiative to End Chronic Homelessness, through HUD, and theDepartments of Health and Human Services (HHS) and Veterans Affairs (VA), funded 11 granteesacross the country. Building on the success of this initiative, in 2006, the Samaritan Housing Ini-tiative will provide up to $200 million through HUD in new housing subsidies paired with casemanagement specifically targeted to this population.

Across the country, 46 States and 170 localities, along with the private sector, have joined theFederal effort to move chronically homeless individuals from the streets to permanent supportivehousing, and to prevent additional individuals from becoming chronically homeless.

The Budget provides more resources than ever for permanent supportive housing for homeless in-dividuals who have been on the streets or in shelters for long periods. The 2006 Budget includes$1.4 billion for Homeless Assistance Grants, $0.2 billion more than in 2005. Altogether, the Admin-istration requests $4 billion in 2006 for Federal housing and social programs for the homeless, an8.5-percent increase.

Coming Out of the Cold: Providing permanent housing forchronically homeless individuals.

In its second year, the Federal Collaborative Initiative

to End Chronic Homelessness in 11 communitiescontinues its progress. Already, it has helped place438 formerly homeless persons in permanent hous-ing. This group had been homeless for a cumulative2,873 years. One study suggests that similar cases ofhomelessness cost the public an average of $40,000a year in shelter, emergency room visits, and otherpublic services. Without the help of this initiative,these individuals would have cost the public $115million, over the average seven-year period they werehomeless.

Consider thecase of Wayne, a 44 year old veteran who

had been homeless off and on for five years. In De-cember 2003, after living in the woods for 18 months, Wayne, with a serious infection and substance abuseissues, sought shelter during a bad snowstorm. After stays in a local shelter and a detox program, he wastreated at the local VA hospital, which referred him to the newly funded Collaborative Initiative project inPortland, Oregon led by Central City Concern. As part of the Federal support for that project, VA providescase management services for eligible veterans. Wayne received permanent supportive housing in March2004. He has remained housed and wants to work. His goal is to work on disaster relief for the AmericanRed Cross. The Portland Collaborative Program has assigned him to an employment specialist to help himto reach his goal.





Housing for Returning Ex-offenders

More than 600,000 offenders are released from prisons each year and face multiple barriers upon

their return to society, including inadequate job skills and housing. Approximately two-thirds of pris-oners are re-arrested within three years of their release, and half return to prison during that sameperiod. To confront this problem, the President announced in the 2004 State of the Union Addressa four-year $300 million Prisoner Re-entry Initiative to help individuals leaving prison make a suc-cessful transition to community life and long-term employment. Drawing on the collaborative effortsof the Departments of Labor, HUD, and Justice, and harnessing the experience of faith-based andcommunity organizations, the program will offer a range of job training, housing, and mentoring ser-

vices, that will help reduce recidivism and ensure that former prisoners are reintegrated into society.The President’s Budget provides $75 million for this initiative in 2006, including $25 million withinHUD.





Reform Low-Income Housing Assistance

The Housing Choice Voucher program provides two million low-income families with subsidies tohelp them afford a decent place to live. Participants contribute 30 percent of their income towardrent; the Government pays the rest. In the past, funds have been appropriated for a specific numberof units each year. These funds were then given to public housing agencies (PHAs) based on thenumber of vouchers they were awarded. HUD is concerned that voucher costs have increased at arate of more than double the average increase in the private rental market for the past several years.This rate of increase, combined with an extremely complex set of laws and rules that govern theprogram, has limited its effectiveness.

The Administration proposes to simplify the program and give more flexibility to PHAs to admin-ister the program to better address local needs. Building on changes in the 2005 Consolidated Ap-propriations Act, the Administration proposes expanding the “dollar-based” approach. PHAs would

continue to receive a set dollar amount as in 2005, but they would have the freedom to adjust theprogram to the unique and changing needs of their community, including the ability to set their ownsubsidy levels based on local market conditions. These changes would provide a more efficient andeffective program to help low-income families more easily obtain decent, safe, and affordable housing.

Housing for the Elderly

The Housing for the Elderly (Section 202) program provides capital grants and operating subsidiesto non-profit sponsors to construct new apartment units for very low-income elderly people. The2004 PART found lengthy and delayed construction, unexpected cost increases, and an inability todemonstrate program performance results.

The Administration will investigate ways that Housing for the Elderly can be reformed to addressthese performance shortcomings. In doing so, it will be guided by successful models of housing assis-tance vouchers and the HOME block grant, both of which provide housing efficiently and quickly. Thefollowing table compares and contrasts the approach of the existing Housing for the Elderly capitalgrant program with that of the HOME program.

Section 202 Elderly Housing has Higher Federal Costs and is Slower to Complete thanHOME Assistance

202 Capital Grants HOME Program

Delivery System Competitive grant to nonprofit

sponsors for all capital costs andoperating subsidy.

HUD formula grant to cities and

States for capital and operation.

Approximate Federal Grant Shareper Unit

$100,000 $30,000

Other Sources per Unit $0 $70,000

Years to Occupancy 5 years 2¼ years





The table below provides an update on HUD’s implementation of the President’s Management Agenda as of December 31, 2004.


SourcingFinancial


Budget andPerformance

Integration

Status

Progress

HUD has begun to overcome chronic weaknesses in its human capital as cited by the Government AccountabilityOffice. HUD has revamped its hiring practices to fill jobs in an average of 38 days instead of 96 days; isdeveloping a new managerial cadre through recent hiring and executive training programs; and synchronizedmanagers’ goals and performance plans with the overall aims of the agency. HUD’s year-long effort to develop

a workforce plan sets the stage for more improvement in closing skill gaps over the next year. HUD’s firstcompetition is now in progress and HUD is working to expand competitive sourcing to generate savings incommercial activities. While still suffering from internal control weaknesses, HUD met the accelerated timetablesfor producing its performance and accountability report, and improved the reliability, accuracy, and timelinessof financial systems. HUD is continuing efforts to reduce its internal control weaknesses from 10 to 7 by nextyear. HUD completed security reviews for all of its information systems in calendar year 2004, and plans arein place to eliminate security defects by next year. HUD set achievable long-term goals on reducing chronichomelessness and increasing minority homeownership. HUD will expand this strategic approach to other budgetareas and use them to focus its resources and programs on achieving those goals.




HUD Management and Performance

HUD expanded its outreach to community organizations, including faith-based organizations, attempting tolevel the playing field for its formula and competitive grants. HUD has removed all discriminatory barriers toparticipation by such organizations. HUD’s technical assistance has helped these organizations understand theapplication process as well as the responsibilities for implementation. These organizations are beginning tocompete more widely and effectively as shown in their success in increasing the number of grants from 659to 765 (increase of 16 percent) from 2002 to 2003.





At the beginning of the President’s first term, HUD committed to working with its stakeholders to reduce theimproper payment in rental subsidies by one-half by 2005. At that time, over 60 percent of rental subsidies werecomputed incorrectly because of administrative processing errors. Other errors resulted from inadequate

verification of tenants’ self-reported incomes. Four years later, HUD has achieved exactly what it committed todo. Processing errors are down to 30 percent and improper payments are lower by half, a reduction of $1.6billion in payment errors (see accompanying chart). HUD does not plan to stop there. Beginning in 2005,HUD will expand the verification of tenant self-reported incomes to include recent wage data. This has thedual benefit of both improving accuracy and providing more privacy because income data will be matchedelectronically whereas current procedures require a paper verification letter to the tenant’s employer. Thesestewardship efforts improve confidence that the right person is getting the right benefit in a timely, dignified, andprivate manner as intended under law. (Because this is the first quarter that agency efforts in this initiative wererated, progress scores were not given.)

Today, public and assisted housing residents reside in better quality housing with fewer safety violations than fouryears ago. HUD increased the percentage of projects meeting its physical condition standards in public housingby nine percentage points (from 83 percent in 2002 to 92 percent in 2004) and in subsidized private housing by

eight percentage points (from 87 percent in 2002 to 95 percent in 2004). HUD now turns around at least 45percent of public housing authorities classified as “troubled” within 12 months rather than the two years allowedby regulation. New rules and procedures have virtually eliminated property flipping fraud from the FHA insuranceprograms, and close monitoring will continue to prevent such abuses. New rules and procedures have forced outbad appraisers from the FHA program and an effort called Credit Watch will continue to bar other individualswho improperly raise the risk of loss in these programs. Since 2001, HUD has worked with stakeholders tostreamline their Consolidated Planning process into an easy-to-use and helpful tool for communities.

2000 2003

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Over Payments

Under Payments

Improper HUDReduction of $1.6 Billion inRental Payments

Millions of dollars

Source: HUD.

HUD has responded with successful ini-tiatives to reduce the chronic overpaymentproblems in its rental assistance programs,as cited by the Government AccountabilityOffice and others. HUD has reducedimproper payments by 50 percent, from $3.2billion in 2000 to $1.6 billion in 2003. Furtherefforts in the future will improve the accuracyof these payments, ensuring that eligiblehouseholds received the correct paymentunder the rules of the program.




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

Estimate2004

Actual 2005 2006


Community Development Fund ........................................................................... 4,933 4,703 —HOME Investment Partnerships .......................................................................... 2,006 1,900 1,941

American Dream Downpayment Initiative (non-add) ............................. 87 50 200 Homeless Assistance Grants ............................................................................... 1,260 1,241 1,440Housing Opportunities for Persons with AIDS................................................ 295 282 268Tenant-based Rental Assistance......................................................................... — 14,766 15,845Project-based Rental Assistance ........................................................................ — 5,298 5,072Housing Certificate Fund ....................................................................................... 16,413 1,557 2,500Public Housing ........................................................................................................... 6,275 5,017 5,734Native American Housing Block Grant ..............................................................

650 601 583Revitalization of Severely Distressed Public Housing (HOPE VI) ........... 149 143 143Housing for the Elderly............................................................................................ 773 741 741Housing for Persons with Disabilities ................................................................. 249 238 120Federal Housing Administration (FHA) ............................................................. 2,941 2,311 2,224Lead Hazard Reduction .......................................................................................... 174 167 119All other HUD programs ......................................................................................... 1,798 979 1,514

Total, Discretionary budget authority ...................................................................... 32,034 32,208 28,510

Memorandum: Total, excluding programs consolidated into new

Commerce program 1 ........................................................................................ 27,575 27,972 28,510


Total, Discretionary outlays ........................................................................................ 39,197 41,063 42,122

Total, Mandatory outlays ............................................................................................. 5,822 1,551 1,937

Total, Outlays................................................................................................................... 45,019 42,614 40,185

Credit activity

Direct Loan Disbursements:FHA............................................................................................................................ — 53 54

Total, Direct loan disbursements ......................................................................... 53 54

Guaranteed Loan Commitments:

FHA............................................................................................................................ 132,080 137,063 136,220All other programs ................................................................................................ 419 353 359


See Department of Commerce chapter for details.



182 DEPARTMENT OF THE INTERIOR


• Proposing or modifying fees related to land and mineral use to shift $27 million in costs to thosedirectly benefiting from the resources.

• Terminating $90 million in State recreation grants that support activities that are not Federal

responsibilities.


• Reforming and reorganizing tribal trust programs and activities to provide greater accountabil-ity to the beneficiaries.

• Promoting outcome-based performance by setting goals of establishing healthy, sustainable fishand wildlife populations.

• Improving water management and restoring ecosystems in California’s Central Valley throughthe collaborative California Bay-Delta program.

• Preventing water crises and reducing conflict over water in the West through the Water 2025program.





The Arctic National Wildlife Refuge (ANWR)

0

5

10

15

20Millions of acres

Oil ANWRand Gas Development Area in

Source: Department of the Interior.

Entire Arctic National Wildlife Refuge

Dedicated Wilderness

1002 Area

Development Area

Note: For presentation purposes, the Development Area is shownoversized so that it is visable on the chart.

Reducing the Nation’s dependence on foreignenergy sources is a top Administration priority.The United States imports approximately half of its daily oil consumption of 20 million barrels.

Although the United States produces almost allof the natural gas it uses, it will have to importmore natural gas in the future because of grow-ing demand and restrictions on developing en-ergy resources on public lands.

The Administration supports authorizingthe limited exploration of the region withthe most promising oil reserves—commonlyreferred to as the “1002 Area”—within ANWR,using the strictest environmental standards.The Department of the Interior (DOI) esti-mates that the 1002 Area holds between 5.7billion and 16 billion barrels of recoverablereserves, or, at peak production, up to one million barrels per day of new domestic oil supply. Inaddition, the development footprint from production would only cover about one-tenth of one percentof the 1002 Area. (See accompanying chart.)

Outdoor Recreation on Public Lands

Millions of people each year visit our national parks, forests, refuges, and public lands. These areasoffer unparalleled outdoor recreational opportunities, ranging from exploring mangrove thickets atTen Thousand Islands National Wildlife Refuge in Florida to hiking on the Appalachian NationalScenic Trail. DOI manages an array of natural and cultural wonders, including 388 national parksor park units, 546 national wildlife refuges, and 261 million acres of public land administered by theBureau of Land Management (BLM).

The American Recreation Coalition estimates that outdoor recreation generates $250 billion of economic activity annually. Americans pursuing recreation opportunities on Federal lands support

Preserve America

American history comes alive in historic buildings, cultural sites, and communities that celebrate their his-toric settings. Thousands of historic and cultural sites are the pride of local communities everywhere. Manyof these communities have the opportunity to use historical sites to promote heritage tourism and economicdevelopment. The President’s Preserve America initiative provides $12.5 million in 2006 for upfront planningand associated assistance to communities looking for ways to preserve their local heritage in a self-sustain-ing manner. For example, Virginia City, Montana, attracts visitors with one of the best-preserved gold miningtowns in the West. As Americans travel, they seek to reconnect with our Nation’s rich history and diverseculture; the Preserve America initiative will help communities meet this growing demand for heritage tourism.





1998 2000 2002 2004 2006

0

20%

40%

60%

80%

100%

0

500

1,000

1,500

2,000

2,500Funding in millionsVisitor satisfaction

National Park Service Funding andVisitor Satisfaction

Operations Funding

Backlog Funding

Visitor Satisfaction


travel-related industries, equipment makersand suppliers, and many “gateway communi-ties” adjacent to public lands, from Bar Harbor,

Maine to Moab, Utah. Access to these Federallands does more than just generate touristdollars; it also attracts new investments andindustries and fosters healthier and moreactive communities.

To better serve these visitors and protect theresources that attract them, the 2006 Budgetcontinues to support operational funding forInterior’s land management agencies. Oper-ational funding for parks, refuges, and publiclands will be 20 percent higher than in 2001.

The result of this support has been consistentlysatisfied visitors. Every year since 1998, about 95 percent of park visitors have rated the overallquality of services in national parks as good or very good. In addition, 97 percent of visitors to BLMpublic lands in 2003, and 90 percent of visitors to wildlife refuges in 2002, were satisfied with theirexperience.

The humpback chub and other native fish inGrand Canyon National Park struggle to competewith trout previously brought to the area byhumans. To help the native fish recover, NPS isworking with partners to remove non-native fishfrom Colorado River tributaries. The ArizonaGame and Fish Department, Glen Canyon DamAdaptive Management Program, the Navajonation, and other partners have matched Federalfunds almost three to one, helping to restoreanother key link in the national park’s ecosystem.

Cooperative Conservation Initiative

The Administration wants to promote conservation andstewardship of our Nation’s lands and other natural resources.Local involvement is critical to enduring, successful, effectiveand long-lasting conservation results and was emphasized

in the President’s recent Executive Order on the Facilitationof Cooperative Conservation, E.O. 13352. The Department’sCooperative Conservation Initiative (CCI) consists of a

variety of volunteer, partnership, and cost-share conservationprograms in the Fish and Wildlife Service (FWS), Bureauof Land Management (BLM), and the National Park Service(NPS). The CCI embodies the purpose of the ExecutiveOrder by promoting collaborative actions that support theuse, enhancement, and enjoyment of natural resources. Inaddition, the CCI allocates $126 million in Federal matchingfunds for resource conservation and restoration projects,ranging from FWS coastal habitat restoration to BLM grazing

management improvements and wetlands restoration. Theuse of matching funds improves cooperative relationshipswith local stakeholders and increases the impact of conserva-tion efforts. As partners invest time, money, and energy intoprojects, the CCI gives landowners and communities a stakein local conservation efforts.





Supporting Indian Schools

Quality education is critical for the future of tribal governments and individual Indians. The Bu-reau of Indian Affairs (BIA) serves approximately 48,000 students and resident-only boarders (aboutseven percent of all Native American children) in 184 elementary and secondary schools and dormi-tories located in 23 States. In April 2004, the President signed Executive Order 13336, which estab-lishes an Interagency Working Group, including representatives from the Departments of Educationand the Interior, to assist American Indian and Alaska Native students in meeting the challengingacademic standards of the No Child Left Behind Act of 2001 in a manner that is consistent with tribaltraditions, languages, and cultures. In 2006, BIA will continue aggressively implementing this lawthrough its partnership with the Department of Education, and through its efforts to establish lead-ership programs and rehabilitate additional reservation schools.

2002 2003 2004 2005 2006

0

10

20

30

40

50

60

70

Bureau of Indian Affairs

School Facility Condition Index

Percent of schoolsreceiving good or fair rating

Percent of schools


In 2000, the President committed to spend

nearly $1 billion to address the then-backlogof Indian school construction projects. The

Administration has met this commitment,and has provided more funding for BIA schoolconstruction and repairs in just four yearsthan the previous Administration did in eightyears. In 2001, only 35 percent of BIA schoolswere in good or fair condition. With the effortsfunded in the 2006 Budget, over 65 percentof all schools, or almost double the amount in2001, will be in good or fair condition. Theoverall Facility Condition Index (FCI), a tool forassessing the condition of a building, will haveimproved from a poor rating (0.266) to a fairrating (0.101), keeping BIA on target to reachits FCI goal of .10 in 2008.

The new Wingate Elementary School is a K–8thgrade facility located southeast of Gallup, NewMexico. The school can accommodate more than825 students, including boarding students housedin brand new dorm facilities. The campus design

embodies the elements important to the Navajoculture. An elementary and middle school connectedby an administration wing with media center and ahogan-shaped Navajo culture room are the majorcomponents of the school. In keeping with Navajotradition, all entrances to the buildings face east. Theschool is scheduled to be occupied in February 2005.





Maintaining our National Parks

Mount Rainier National Park proposes major investments in 2006 toimprove visitor services.

Over the past four years, NPS has devel-oped a way to measure its performance inmaintaining national park facilities. Thismeasurement framework enables the ParkService to prioritize funding and demonstrateresults more effectively. Using its newmanagement system and regular facilityassessments, NPS has developed a FacilityCondition Index (FCI) to show results. Thisindustry standard provides the starting pointfor determining what investments are neededto achieve acceptable conditions and how tomeasure progress towards reaching that goal.

With passage of the 2006 Budget and the Ad-ministration’s surface transportation reautho-rization bill, national parks will have received$4.9 billion over five years for maintenance andconstruction, which is a 40-percent increase in annual funding from 2001 to 2006. With the fundsexpected through 2009, NPS assets such as park buildings will be brought to acceptable conditionoverall, as measured by the FCI average. Park roads, however, remain a concern, underscoring theneed to increase park roads funding, as proposed in the Administration’s surface transportation au-thorization bill.

Abandoned Mine Land (AML) Restoration

The Congress passed the 1977 Surface Mining Control and Reclamation Act (SMCRA) to reclaimabandoned coal mine lands. The AML program pays for the reclamation through coal fees, whichexpire in June 2005. More than $3 billion in unfinished health and safety work remains, potentiallyaffecting more than 3.5 million Americans who live less than one mile from abandoned coal mines.

A 2004 Program Assessment Rating Tool (PART) assessment found the Office of Surface Miningeffectively manages the program and coordinates with coal-mining States, although the program’s de-sign hinders the timely cleanup of abandoned coal mine lands. SMCRA’s f unding allocation formuladistributes grants to eligible States and Tribes even if they have no high priority sites remaining.

AML Goals and Accomplishments

Current

Program

Budget

Proposal

Acres Reclaimed Annually ................................................. 6,900 8,200

Years to Eliminate Health and Safety Problems ........ 47 25

Corrects SMCRA Allocation Problem ............................ No Yes




This delays clean-up in some areas and contributes to poor water quality and other health and safetyproblems.

The Administration proposes to extend the coal fee and to modify SMCRA in a way that both cor-rects the diversion of dollars away from the most serious problems and pays the certified States andTribes only their share of AML fund balances over 10 years.

Southern Nevada Public Land Management Act (SNPLMA)

1999 2000 2001 2002 2003 2004 2005

0

200

400

600

800

1,000

1,200

1,400

Millions of dollars

SNPLMA Revenues

Actual Receipts

Original CBO

Scoring

Source: the Congressional Budget Office.Department of the Interior and

Note: Data through 2004 are actuals. Projected peak in 2005 is due inpart to a lag in receipt of payments from 2004 land sales.

SNPLMA, passed in 1998, sets aside fundsfrom the sale of public lands around Las Vegasfor specific uses in Nevada. Under SNPLMA,15 percent of revenues are provided directly toState and local entities, and the remainder of the proceeds are devoted to both Federal andlocal projects in Nevada without further con-sideration by the Congress. This situation re-duces accountability in the programs funded by

public land sales.

The program was established with theunderstanding that a substantial portionof the revenues generated would be spentto acquire and conserve other lands aroundNevada. In fact, a 2006 PART review foundthat as SNPLMA land sale receipts haverisen dramatically in the last few years, the

available funding has outpaced land acquisition needs, and these excess funds are increasingly beingdiverted to other activities. Only eight percent of funds approved for the latest round of projects arededicated to land acquisition. Meanwhile, 67 percent of these funds have been dedicated to purely

local projects, which do not reflect the highest priorities of the Nation. For example, $16 million of land sale receipts were earmarked for the first phase of a recreational shooting range outside Las

Vegas.

When SNPLMA was originally passed, the Congressional Budget Office (CBO) estimated that pro-ceeds from land sales under the bill would be roughly $70 million per year; receipts will be 17 timesthat level in 2005. The 2006 Budget proposes to amend SNPLMA to redirect 70 percent of all receiptsto the Treasury, where land sale receipts have historically been deposited. This proposal serves thegeneral taxpaying public while still providing roughly four times the level of spending in Nevadathan originally anticipated in 1998. The proposal would not change the amount of revenue currentlyprovided to State and local entities, only the portion dedicated to Federal spending in Nevada.

Pick-Sloan Missouri Basin Program

The Administration proposes to redistribute costs of this multi-State project to power customerswho are using the dams and power plants, originally built during the 1950s and 1960s, in part tosupport irrigation. Much of the planned irrigation is technically impractical or economically unjusti-fied, and will never be developed. Approximately $500 million of unpaid construction and operationcosts could be recovered from power customers who benefit from the finished facilities.





Recovering Costs for Energy Permitting

To ensure the Government receives fair compensation for the use of the Nation’s land and minerals,

the Budget proposes and modifies several fees related to mineral development, including expandedpermit processing fees for onshore minerals and a new permitting fee for Outer Continental Shelf (OCS) leases. In addition, OCS rental rates, which have not increased in 10 years, will rise with therate of inflation. These fees support the Administration’s efforts to charge for Government serviceswhere the direct beneficiary can be identified. This will shift the costs from taxpayers and allow DOIto better process lease or permit applications as demand increases. The proposed fees are expectedto generate approximately $27 million in 2006, thereby reducing the cost to taxpayers for operatingthese programs.

State Recreation Grants

The 2006 Budget terminates funding for Land and Water Conservation Fund State recreationgrants. These grants support improvements to State and local parks that are more appropriatelyfunded through State funding or bonds than Federal resources. A PART review found the currentprogram could not measure performance or demonstrate results.





The table below provides an update on DOI’s implementation of the President’s Management Agenda as of December 31, 2004.


SourcingFinancial



Integration

Status

Progress

DOI has made progress in many areas. The Department developed and received provisional certification for anew five-level Senior Executive Service performance management system, incorporated diversity strategies intobureau workforce plans, and began to incorporate goals into performance plans of all employees. Competitivesourcing reviews project savings of $3 million annually for at least five years, and, to date, only one permanent

Interior employee of the 5,032 reviewed has been involuntarily separated. In financial performance, however,DOI continues to face challenges in Indian trust reform. DOI also must continue efforts to implement the newFinancial and Business Management System. In addition, Interior certified and accredited over 80 percent ofits information technology systems (up from 10 percent in 2003); received the E-Gov Institute’s Excellence inEnterprise Architecture Award for leadership in government transformation; and matured its Investment ReviewBoard. Finally, the Department expanded implementation of Activity Based Costing and continued tracking thecosts of achieving performance goals.



Interior has completed comprehensive condition assessments for most assets and is on schedule to finish themall by the end of 2006. DOI now uses a Facility Condition Index to monitor asset conditions and determinefunding priorities.





Reforming Management of Indian Trust Responsibilities

DOI has responsibility for the investment of, and disbursement and reporting to individual Indi-ans and Tribes on, financial assets generated from leasing and other commercial activities on Indianlands. DOI developed a Comprehensive Trust Management Plan to guide trust reform, undertooka reengineering effort, and adopted a targeted strategic plan as part of its efforts to improve perfor-mance and provide greater accountability to its beneficiaries.

A key step to reform is the American Indian Probate Reform Act of 2004, which the President signedinto law in October 2004. The Act provides a clearer method to pass down individual Indian landownership from one generation to the next; creates a uniform Federal Indian probate code; and facil-itates the consolidation of Indian land ownership to restore economic viability to the land. The 2006Budget includes funding to help eliminate a backlog of 23,000 probate cases, as well as to process theprojected 4,500 new probate cases that will occur each year. This will help to make sure that no newcases are added to the current backlog. The Administration continues to support the Indian Land

Consolidation Program as an additional way to help address the fractionation of individual Indianland interests. The 2006 Budget proposes $34.5 million for the program. In addition, the Budgetincludes $135 million for the Office of Historical Trust Accounting to continue an accounting in ac-cordance with the five-year plan filed with the U.S. District Court. This amount may be revised aslegal issues pending before the Courts are resolved.

Reforming Tribal Priority Allocation Funding

Tribal Priority Allocation (TPA) funds provide basic tribal services, such as Tribal Courts, socialservices, adult vocational training, child welfare, and natural resources management. TPA givesTribes the opportunity to further Indian self-determination by establishing their own priorities andmoving Federal funds among programs.

Indian Tribes are becoming more business-oriented and are seeking more control over their landsand economic and cultural decisions. In addition, BIA is helping to expedite key energy and mineralresource development opportunities through the timely processing of joint-venture development andlease agreements.

The Administration believes TPA could be improved by targeting funding to the areas of greatestneed. The funding process used today is a formula allocation based on historical funding levels estab-lished in the early 1970s, and has remained essentially unchanged. To improve program accountabil-ity, DOI will consult with Tribes on how best to focus program funds on areas of need, considering theincentive effects of any such reallocation. The Administration will continue to support Tribes thatcontinue to strive for self-determination with funding and technical support.

Salmon eggs: a result of the FWS FishHatchery Program.

Effective Fish and Wildlife Service Programs

The Migratory Bird Management and the National Fish Hatch-ery programs of FWS exemplify the Department’s efforts to improveprogram performance and become more results-based. The Migra-tory Bird Management program developed new goals during the 2006PART process, including a new measure that examines the percent of migratory birds that are at healthy and sustainable levels. This out-come-oriented goal, along with targeted annual measures, will help




Whooping Cranes at Arkansas National Wildlife Refuge.

ensure the program achieves what is expected:healthy, sustainable migratory bird populations. ThePresident’s 2006 Budget proposes an increase of $5.7million to help achieve this and other program goals.Similarly, the Budget includes an increase of $2.3million for National Fish Hatchery operations to

increase the percent of threatened and endangeredaquatic species populations that become self-sustain-ing in the wild; the number of priority recovery tasksimplemented for listed or threatened species; and thenumber of restoration tasks implemented for nativeaquatic species.

California Bay-Delta Restoration

As part of the new CALFED partnership, people who benefit fromprojects, such as potentially raising Shasta Dam, would share in thecosts along with the State and Federal governments.

The Administration requests $35 million forthe Bureau of Reclamation to fund a newly-au-thorized ecosystem restoration, water quality,water supply, and flood protection programknown as CALFED. The overall Federalrequest for CALFED is over $150 million forseven agencies. This adaptive managementprogram in California’s Central Valley and theSan Francisco Bay-Delta assists Californiain proactively addressing conflicts over water.The program, operated in conjunction with

the State of California and local entities, willensure that all project partners pay a shareof project costs according to the benefits theyreceive. The CALFED program has manydifferent components; the program will bemanaged to ensure that progress for thesecomponents is achieved in a balanced manner.

Water 2025

Water is the scarcest resource in some of the fastest growing areas of the country. Water 2025

proactively addresses potential future water conflicts in areas of the West where such conflicts arelikely to occur. The program focuses resources on high-risk areas, emphasizing improvements inwater efficiency, conservation, and water markets. It promotes collaboration, improves technology,and removes institutional barriers. The 2006 Budget requests $30 million for Water 2025, allocatingcompetitive grant funds equally among the Bureau of Reclamation’s five regions.




Department of the Interior(In millions of dollars)

Estimate2004

Actual 2005 2006


Bureau of Land Management .......................................................................... 1,776 1,699 1,737Minerals Management Service ........................................................................ 171 174 167Office of Surface Mining ..................................................................................... 296 297 299

Legislative proposal ........................................................................................ — — 58Bureau of Reclamation/CUPCA ...................................................................... 954 966 907US Geological Survey......................................................................................... 938 935 934Fish and Wildlife Service ................................................................................... 1,303 1,292 1,323National Park Service ......................................................................................... 2,259 2,315 2,249Bureau of Indian Affairs...................................................................................... 2,306 2,296 2,187Office of the Special Trustee ............................................................................ 209 228 304

All other .................................................................................................................... 485 465 478Subtotal, excluding item below ........................................................................ 10,696 10,667 10,643Additional Wildland Fire Suppression ........................................................... — 99 —


Memorandum: Budget authority from enacted supplementals ............... 100 98 —


Mandatory Outlays:

Existing law ........................................................................................................ 2,599 2,569 1,703Legislative proposal ........................................................................................ — 6 417


Total, Outlays .............................................................................................................. 7,943 8,538 8,952

Credit activity

Guaranteed Loan Commitments:Indian guaranteed loan program ..................................................................... 88 67 67

Total, Guaranteed loan commitments ................................................................ 88 67 67



DEPARTMENT OF JUSTICE

AT A GLANCE:


Major Programs:

Combating terrorism

• Drug enforcement

• Firearms and explosives enforcement

• Federal detention programs

• Prosecuting corporate fraud, and other criminal and civil legalactivities


Protecting America

Combating terrorism and strengthening the Nation’s intelligence.

• Reducing illegal drugs by targeting the 42 most significant drug organizations.

• Combating gun violence in the Nation’s communities through Project Safe Neighborhoods.

• Providing additional Federal prison and detention capacity.


• Fighting child exploitation and maintaining support for missing children’s initiatives.

• Supporting local law enforcement efforts to combat violence against women, provide victims’services, and expand the use of DNA to fight crime and to protect the innocent.

• Assisting communities by helping ex-offenders re-enter and reintegrate into society.

• Fighting human trafficking.


• Achieving $2 billion of savings from reduction and elimination of programs that fail to demon-strate results.

193



194 DEPARTMENT OF JUSTICE

PROTECTING AMERICA

Combating Terrorism

The President’s highest priority for the Department of Justice (DOJ) continues to be the detection,prevention, investigation, and prosecution of terrorist attacks against U.S. citizens and interests.In the past year, the Department made 1,428 counterterrorism-related arrests, and prosecuted andobtained convictions in 497 terrorism-related and anti-terrorism cases. The 2006 Budget furtherstrengthens these counterterrorism efforts, and proposes significant funding increases for the FederalBureau of Investigation (FBI), the lead agency within DOJ for combating terrorism, to hire additionalagents and intelligence analysts, as well as provide increased support to its counterterrorism mis-sion.

The FBI has received significant resource increases in recent years, with funding rising from $3.3billion in 2001 to $5.1 billion in 2005. The Budget proposes $5.7 billion for the FBI in 2006, anincrease of 11 percent over 2005. This level would support 2,945 counterterrorism agents and 2,746

intelligence analysts at the Bureau.

2001 2002 2003 2004 2005 20060

1

2

3

4

5

6

FBI Funding IncreasesBudget authority in billions

Supplemental Appropriation

Regular Appropriation

At the President’s direction, since Septem-ber 11, 2001, the FBI has undergone atransformation in its priorities, as well as itsorganization. First, the President set cleargoals to ensure that protecting the UnitedStates from terrorist attacks was the FBI’stop concern. Second, the FBI has utilized the

vital tools of the USA PATRIOT Act to breakdown the wall separating law enforcementand intelligence functions, greatly improvingcoordination and information sharing withinthe Bureau. Third, the FBI establisheda comprehensive intelligence program toprevent terrorist attacks, an effort thathas been accelerated by the passage of the

Intelligence Reform and Terrorism Prevention Act of 2004. The 2006 Budget supports the FBI’spriorities and intelligence reform by providing new funding of $294 million for counterterrorism andcounterintelligence initiatives, and $117 million to bolster the intelligence program. These fundinginitiatives will:

• Increase the resources and agents dedicated to terrorism investigations.

•

Double the size of the FBI’s Hostage Rescue Team.• Hire 500 additional intelligence analysts to assist in the war on terrorism.

• Add $75 million for the Terrorist Screening Center, which consolidates terror screening watch-lists and supports Federal screeners worldwide, in addition to State and local law enforcement.

• Increase the Foreign Language Program by $26 million to enhance the FBI’s language transla-tion capability, especially for anti-terrorism efforts.

• Expand the Legal Attaché program to augment the FBI’s presence in other countries, especiallyfor counterterrorism efforts.




The FBI’s Hostage Rescue Team (HRT) is an elite specialcounterterrorism tactical unit trained to respond in extraordinarysituations, such as hostage rescue, high-risk arrests and searches, andweapons of mass destruction events. Recent HRT deployments haveincluded Iraq, Afghanistan, the 2004 Summer Olympic Games, and thePresidential Inauguration. The 2006 Budget provides $24 million in

new funding to address HRT’s growing tactical responsibilities in crisisresponse situations. It also provides an additional $10 million for theFBI to begin planning a new facility for HRT and its assets.

The 2006 Budget provides $3.1 billion inhomeland security-related funding for DOJprograms. In addition to the counterterrorismprograms of the FBI and the TerroristScreening Center, the Budget also includesfunding for terrorism-related prosecution

and detention, funds for converting oldertechnology mobile radio and other systems todigital, narrowband communications, as wellas State and local assistance programs suchas the Regional Information Sharing System,USA Freedom Corps, and State and Local

Anti-Terrorism Training.

Targeting Drug Traffickers

In March 2002, the Attorney General

announced a comprehensive six-part drugenforcement strategy for DOJ. The strategydeploys numerous Federal law enforcementagencies to identify and target the mostsignificant drug supply organizations and their related components. The central element of thestrategy was the development of the first national list of priority drug trafficking targets, theConsolidated Priority Organization Targeting (CPOT) list, a unified list of international “commandand control” drug traffickers and money launderers. These organizations and their relatedcomponents, including the financial infrastructure supporting those enterprises, are targeted forinvestigations. Of the 58 organizations targeted during 2003 to 2004, 14 have been dismantled andeight others have been severely disrupted. Currently, there are 730 active investigations linked tothe 42 targets on the 2005 List. DOJ also has established a comprehensive benchmark for the most

prevalent illicit drugs, including marijuana and cocaine, and intends to reduce their availability anduse by 10 percent between 2001 and 2008.

The Department’s Drug Enforcement Administration (DEA) is responsible for investigating drugtrafficking organizations in tandem with the other Federal agencies participating in the OrganizedCrime and Drug Enforcement Task Force (OCDETF) program. During 2004, DEA and OCDETF suc-cessfully dismantled 36 organizations linked to those on the CPOT List, and significantly disruptedthe activities of 159 others. The 2006 Budget provides $38 million for enhancements in intelligencesharing and priority targeting, $14 million for the operation and maintenance of the Drug IntelligenceFusion Center, and $58 million for additional OCDETF agents, attorneys, and deputy marshals. Inaddition, a total of $22 million has been provided in support of the Administration’s Afghanistan

Growth of the High-Intensity Drug Trafficking Area (HIDTA) Program

In 1990, Federal funds were appropriated to five areas of the United States that were considered the mostcritical high-intensity drug trafficking area “gateways” for drugs entering the Nation. The five regions includedspecific designated areas in Los Angeles, Houston, New York/New Jersey, South Florida, and the SouthwestBorder. Today, the program is no longer well focused. From a small targeted program in 1990, HIDTAs nowinclude 60 percent of the population of the United States.





counter-narcotics initiative, which is needed to help promote the long-term stability of the country,as well as stem the supply of heroin to the global narcotics market.

The 2006 Budget also proposes transferring the High-Intensity Drug Trafficking Area (HIDTA)Program, operated by the Office of National Drug Control Policy, to DOJ in order for this drug controlprogram to be better coordinated with OCDETF. The program has grown well beyond its intendedscope from when it was first funded at $25 million in 1990 for only five regions experiencing highlevels of drug trafficking. It now spends $227 million on 28 areas that include much of the populatedUnited States. Efforts to focus the HIDTAs on the President’s National Drug Control Strategy prior-ity of targeting high-level organizations such as the CPOT List have failed and have been hindered bythe practice of funding individual HIDTAs at the same level year after year. As a result, the Budgetproposes reducing HIDTA funding to create a better-focused, more effective $100 million programthat gives Justice greater leeway to determine how funds will be targeted.

Detaining Violent Criminals

The Bureau of Prisons (BOP) and the Office of the Federal Detention Trustee (OFDT) ensurethat Federal criminals are appropriately detained and incarcerated to assure public safety. Takentogether, the cost of Federal incarceration and detention activities now accounts for over a thirdof DOJ’s annual budget. At present, there are over 182,000 inmates in Federal custody, of whichapproximately 25 percent represent immigration-related arrests. In addition, the number of Federaldetainees has experienced record growth, up almost 200 percent over the past decade with the largestincreases occurring along the U.S. Southwest border due to Department of Homeland Security (DHS)and DOJ border enforcement and protection initiatives.

No one is exempt from correctional officer training at BOP. Respondingto emergencies is the first and most important job of every single BOPemployee from the Director of the Bureau to the budget office and fromthe warden to the physician—everyone, no matter the rank, profile, or job is a correctional officer first. Rigorous correctional officer training foreveryone instills a sense of security, competence, and camaraderie inthe BOP ranks that is essential to maintaining prison safety and security.

The 2006 Budget includes $85 million toopen three new prisons (one high-security,

one medium-security, and one secure women’sprison) and to expand two other facilities.When fully activated, these prisons will add atotal of 3,164 beds to help meet BOP’s growinginmate capacity needs. In addition, $37million is provided to pay for the added costsfor food, security, medical care, and clothingof almost 4,300 inmates in existing BOPfacilities, and $20 million in initial fundingis included for 1,600 new private contractbeds. While additional prison space is beingadded, the Budget continues a moratoriumon additional new prison construction untilthe bureau completes an evaluation of itsexisting low- and minimum-security prisonfacilities for potential modification to househigher security inmates. BOP also has begunto institute several management initiativesto streamline operations and reduce costs,including consolidating correctional officertraining, centralizing prisoner sentence and




inmate designation functions, relocating human resource and employee development functions, andtransferring inmates with the most critical medical needs to dedicated BOP medical centers. For2006, $1.2 billion is provided to OFDT to support an average daily detainee population in excessof 60,000.

The aggressive enforcement of the Administration’s law enforcement initiatives, and the result-

ing detainee population increase, has continued to challenge detention planning and forecasting.The Department is committed to enhancing its forecasting models, which requires balanced coor-dination among DOJ and DHS components. OFDT will improve forecasting by considering DOJand DHS policy decisions, along with information received from the Administrative Office of theUnited States Courts. DOJ law enforcement policies—for example, those relating to gun and druginitiatives—affect the number of Federal arrests and criminal prosecutions. The size and scope of DHS border control and protection initiatives—including putting more border patrol agents on theborders—influences the Federal prisoner and detainee populations and affects detention costs.

Prosecuting Corporate Fraud and Violent Crime

The United States Attorneys prosecute violators of Federal law including corporate criminals.

Criminal penalties assessed by the Federal courts, mostly for U.S. Attorney criminal fraud prose-cution efforts, increased by 30 percent in 2004. The 2006 Budget supports these ongoing activitieswith $1.6 billion. In addition, the Department’s litigating divisions are combating corporate fraudand other cases. And, in the past four years, this Administration has increased Federal prosecutionsof the criminal misuse of firearms by 76 percent. In 2004, the Justice Department filed 11,067Federal firearms cases, the highest number of such cases on record for a single year.

Assisting State and Local Law Enforcement

The 2006 Budget includes $2.4 billion for State and local assistance programs, including ProjectSafe Neighborhoods, the DNA Initiative, USA Freedom Corps, State and Local Anti-Terrorism Train-

ing, and the Regional Information Sharing System. These and other programs funded within DOJenhance the capability of State and local governments to reduce crime in our communities, as wellas our vulnerability to terrorism.

Today crime, including violent crime, is at a 30-year low. The Project Safe Neighborhoods (PSN)initiative, announced by the President and the Attorney General in 2001, is a comprehensive strategythat brings together Federal, State, and local agencies to continue the record reduction in the violentcrime in our communities. Working with the Department, each community tailors the program to tar-get problems associated with the criminal misuse of firearms and to build on local capacities. Since2001, the Administration has dedicated $1.3 billion in Federal resources to PSN, including grants toState and local task forces through the Office of Justice Programs (OJP), increased Federal prosecu-tors within U.S. Attorneys Offices, and additional agent and training resources within the Bureauof Alcohol, Tobacco, Firearms and Explosives (ATF). For 2006, the Budget requests $363 million forPSN, an increase of $138 million, or 61 percent, over the 2005 enacted level. The program increasewill:

• Provide $74 million in grant assistance for State and local prosecution of criminal misuse of firearms;

• Increase funding for States to update criminal history records, which are needed to deter illegalfirearms purchases, by $34 million, which is more than double the 2005 enacted level; and

• Augment Project ChildSafe, which distributes gun locks to prevent misuse of guns by childrenand youth, by $29 million over the 2005 enacted level.





The 2006 Budget continues funding for the President’s DNA initiative, Advancing Justice ThroughDNA Technology, a plan to devote more than $1 billion over five years to help realize the full potentialof DNA technology in the criminal justice system. The initiative advances the use of DNA to solve

crimes and exonerate the innocent. The initiative will help clear the backlog of unanalyzed DNAsamples from the most serious violent offenders, invest in DNA analysis technology for crime labs,train criminal justice professionals to make better use of DNA evidence, and promote the use of DNAto identify missing persons. The Administration proposes $236 million in 2006 for the initiative, anincrease of over $68 million over the 2005 enacted level.

Through the efforts of the FBI, DEA, ATF, U.S. Marshals, and State and local assistance, the Ad-ministration is committed to further reducing the violent crime rate in the Nation. In June 2004, the

Attorney General announced a targeted effort to deploy teams of Federal law enforcement agents andprosecutors to 15 cities to work with local law enforcement to curb the rate of violent crime in someof the communities not sufficiently benefiting from the overall reduction in the crime rate. DOJ willcontinue to support the deployment of these Violent Crime Impact Teams as part of this initiative in

2006.





Protecting Our Children

DOJ is committed to fighting child pornography and obscenity, and to protecting children from traf-ficking and other forms of exploitation. The Department works with other law enforcement agenciesto target, dismantle, and prosecute predatory child molesters and those who traffic in child pornogra-phy. The Criminal Division’s High-Tech Investigative Unit (HTIU) is staffed with computer forensicexperts, who work with Federal agents and prosecutors and use their technological expertise againstInternet-based child pornographers and adult obscenity offenders. The HTIU receives and reviewsmore than 100 tips per month from the Federal Trade Commission and organizations such as theNational Center for Missing and Exploited Children. The Budget increases funding by $13 millionfor the Justice Department’s efforts to fight child pornography and obscenity, including the CriminalDivision programs, the FBI’s Innocent Images Initiative, which investigates sexual predators whouse the Internet to prey on children, and the Internet Crimes Against Children Task Forces, whichlinks Federal, State, and local law enforcement efforts.

Protecting Our Children fromExploitation and Obscenity

2001 2002 2003 2004 2005 20060

10

20

30

40

50

60

Budget authority in millions

Child abductions, especially by strangers,are among the most tragic of crimes. Yet, withthe help of the growing AMBER (America’sMissing: Broadcast Emergency Response)

Alert network, more children are being foundand returned to their homes. AMBER Alertsare emergency alerts broadcast by localauthorities when law enforcement discoversthat a child has been abducted and is inimminent danger of harm. Since the Presidentannounced an Administration effort to expandand coordinate the AMBER Alert network inOctober 2002, AMBER Alert has been creditedwith the recovery of over 150 children, or over80 percent of all 188 recoveries since AMBER

Alert began in Texas in 1996. Today, there are 96 AMBER plans operating across the country,including 30 local, 17 regional, and 49 statewide plans. The Budget includes $5 million for thecontinued development of the successful AMBER Alert network across America.

More than 600,000 incidents of domestic violence were committed in the United States in 2003. Approximately one-third of women who are murdered each year are killed by their current or formerhusband or partner. Children who are subjected to domestic violence often grow up to inflict violenceon others, creating a cycle of violence that must be stopped. In the 2002 Budget, the President re-

quested and secured a $100 million increase in funding for Violence Against Women Act programsand has continued to provide similar levels of funding in every Budget since then. In an effort tocombat this problem, the Administration has obtained over $1.8 billion in funding since 2001 for pro-grams that combat violence against women. The Budget requests $386 million for Violence AgainstWomen Act programs that target domestic violence and strengthen services for victims and theirdependents, which are funded primarily through DOJ’s Office on Violence Against Women.





Helping Prisoners and Ex-Offenders Reintegrate into Society

More than 600,000 offenders are released from prisons each year and face multiple barriers upon

their return to society, including inadequate job skills and housing. Approximately two-thirds of pris-oners are re-arrested within three years of their release, and half return to prison during that sameperiod. To confront this problem, the President announced in his 2004 State of the Union Addressa four-year $300 million Prisoner Re-entry Initiative to help individuals leaving prison make a suc-cessful transition to community life and long-term employment. Drawing on the collaborative effortsof the Departments of Labor, Housing and Urban Development, and Justice, and harnessing the ex-perience of faith-based and community organizations, the program will offer a range of job training,housing, and mentoring services that will help reduce recidivism and ensure that former prisonersare reintegrated into society. The President’s Budget provides $75 million for this initiative in 2006,including $15 million within DOJ.

Many in America’s prisons are struggling with substance abuse problems that hinder their suc-

cessful reintegration into society. The President’s Budget provides $44.1 million for the ResidentialSubstance Abuse Treatment (RSAT) Program. RSAT helps States and local governments implementdrug treatment programs in correctional facilities so that offenders can reenter society free of addic-tion.

Fighting Human Trafficking

The Administration is committed to ending trafficking in human beings, which is a modern dayform of slavery and an affront to human dignity. According to some estimates, each year at least700,000, and as many as four million people, primarily women and children, are trafficked aroundthe world and exploited for sexual purposes or for labor without compensation. Of these, 14,500to 17,500 people are trafficked annually into the United States. In 2002, President Bush signed

Executive Order 13257 to establish a Cabinet-level Interagency Task Force to Monitor and CombatTrafficking in Persons, in which the Department actively participates. The FBI and the CriminalSection of the Civil Rights Division investigate cases of human trafficking in conjunction with DHSimmigration and customs enforcement agents. From 2001 to 2003, the Department opened 210 newhuman trafficking investigations, more than double the number opened in the previous three years,and the Civil Rights Division and the U.S. Attorneys initiated 111 trafficking prosecutions. In 2004,alone, the Department opened 130 trafficking investigations and undertook 51 prosecutions.





Reducing or Eliminating Non-performing Programs

The President’s Budget reduces or eliminates a number of programs that do not have a record of demonstrating results, including:

• General purpose State and local law enforcement programs, such as the Community OrientedPolicing Services (COPS) Hiring Grants and the Byrne Justice Assistance Grants that are notable to effectively demonstrate an impact on reducing crime. A 2004 Program Assessment Rat-ing Tool (PART) assessment rated the COPS Hiring Grants as Results Not Demonstrated withrespect to reducing crime, notwithstanding the program’s funding of over 100,000 police offi-cers, exceeding the program’s original commitment. Elimination of these programs will save$635 million a year.

• State Criminal Alien Assistance Program (SCAAP) grants, which serve as a form of revenuesharing rather than assistance targeted to a particular need. A 2005 PART assessment rated

SCAAP as Results Not Demonstrated. Ending this program will save $301 million a year.• Juvenile Accountability Block Grants (JABG), which provide a variety of non-focused juvenile

justice grants to States and localities. A 2004 PART assessment rated JABG as Ineffective.Terminating this program will save $54 million a year.

• Programs like the Byrne Discretionary Grants and the COPS Law Enforcement TechnologyGrants, which are earmarked in their entirety by the Congress, prevent targeting of assistancebased on need or priority. Eliminating these programs will save $305 million a year.


The table that follows provides an update on DOJ’s implementation of the President’s Management







Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

Over the past year, the DOJ has made strong progress in implementing most areas of the President’sManagement Agenda. DOJ developed a human capital plan that is guiding its implementation of individualperformance plans that tie to strategic goals, and has assessed management competencies for skills gaps.DOJ completed one standard competition of FBI vehicle maintenance that will yield $10.5 million in net savingsover the next five years. By 2008, DOJ will have competed 55 percent of suitable commercial positions. DOJcontinues to address weaknesses in its financial systems with a goal of achieving substantial Federal FinancialManagement Improvement Act compliance during 2005. The Department is also addressing the weaknesses in

OJP’s grant accounting that caused DOJ to receive a disclaimer on its 2004 financial statements. DOJ continuesIT improvements in support of the 24 E-Government initiatives (including reviewing all planned IT investments forduplication of E-Gov initiatives and submitting plans for implementing E-Gov initiatives for human resources andfinancial and grant management). DOJ also has addressed security issues for most systems, although seriousinadequacies remain in protecting critical cyber infrastructure. The Department also has made improvements inbudget and performance integration by incorporating performance information into managers’ appraisals andusing PART reviews to justify budget requests and direct program improvements.




DOJ has strengthened its outreach to community organizations, including faith-based organizations, as well asimplementation and planning for new pilot initiatives. In the coming year DOJ will be giving special attentionto improving the quality of data collection in support of the initiative, as well as improving planning and goalachievement. In support of the Real Property Initiative, the Department developed a draft asset managementplan and updated policy guidance for DOJ components.




Department of Justice(In millions of dollars)

Estimate2004

Actual 2005 2006


Federal Bureau of Investigation ...................................................................... 4,569 5,145 5,701Drug Enforcement Administration .................................................................. 1,648 1,631 1,694Federal Prison System 1 .................................................................................... 4,768 4,754 4,755United States Marshals Service...................................................................... 727 748 790Bureau of Alcohol, Tobacco, Firearms, and Explosives:

Existing law ........................................................................................................ 826 878 804Legislative proposal (fee-funded activity) ................................................ — — 120

Detention Trustee ................................................................................................. 841 874 1,222United States Attorneys ..................................................................................... 1,527 1,542 1,626General Legal Activities .....................................................................................

614 626 680Office of Justice Programs, COPS, Office on Violence AgainstWomen................................................................................................................. 3,024 2,796 1,504

Organized Crime and Drug Enforcement Task Force ............................. 548 554 662All other .................................................................................................................... 449 633 780

Subtotal, Discretionary budget authority .......................................................... 19,541 20,181 20,338Less Crime Victims’ Fund Rescission........................................................... — — 1,267


Memoran dum: Budget authority from enacted supplementals ............... 81 25 —


Mandatory Outlays:Bureau of Alcohol, Tobacco, Firearms, and Explosives:

Legislative proposal ........................................................................................ — — 120All other 2 ................................................................................................................. 7,921 1,448 2,293


Total, Outlays .............................................................................................................. 28,969 21,186 23,3961

Net of $314 million rescission of unobligated balances.2

2004 mandatory outlays include completion of funding associated with the September 11th Victim Compensation Fund.



DEPARTMENT OF LABOR

AT A GLANCE:


Major Programs:

Job training and employment

• Unemployment insurance

• Pension protection

• Labor law enforcement

• Employment statistics



Training more workers by giving Governors and individuals more flexibility and setting higherperformance standards for job training and employment programs.

• Improving workers’ access to health benefits by allowing small businesses to band together tooffer health insurance for their workers and their families.

• Giving working families more flexibility by offering them the options of compensatory time off and flex-time.

• Safeguarding workers’ pensions by restoring the solvency of the Pension Benefit GuarantyCorporation.

• Protecting workers’ safety, health, pay, and benefits through strong enforcement of our Nation’s

labor laws and compliance assistance for employers.• Helping veterans to return to civilian life by enforcing their re-employment rights.

• Matching employers to willing workers through an electronic search engine and more efficientforeign labor certification process that protects American jobs.


• Helping troubled communities by giving ex-offenders a second chance.

205



206 DEPARTMENT OF LABOR



• Preventing and recovering overpayments of Unemployment Insurance benefits.

• Refocusing the International Labor Affairs Bureau on its original mission of research, analysis,and advocacy.

• Improving Federal workers’ compensation programs by strengthening return-to-work incen-tives, adopting effective State practices, and restoring the solvency of the Black Lung DisabilityTrust Fund.

• Eliminating the duplicative and ineffective Migrant and Seasonal Farmworkers program.





Expanding Access to Job Training

In April 2004 the President proposed significant reforms to the Department of Labor’s (DOL’s) jobtraining programs to double the number of workers trained and to give workers more choice abouttheir training and career paths. The 2006 Budget builds on that proposal by:

• Giving Governors more flexibility. The President’s proposal would merge the four major DOLFederal job training and employment grant programs into a single $4 billion grant program.In addition, Governors would be able to supplement this consolidated grant with their State’sresources from a “menu” of several other Federal job training and employment programs.

• Eliminating unnecessary overhead. In exchange for more flexibility, the proposal would placestrict limits on overhead costs. This would free resources to allow more workers to be trained.

• Giving workers more choice. The President’s proposal would give workers greater control overtheir training through the use of personal Innovation Training Accounts.

• Demanding greater accountability. The proposal would establish increasingly rigorous perfor-mance standards each year, leading to a goal in the tenth year that States place in employment100 percent of the workers trained with grant resources. To ensure that individuals are placedin high-quality jobs, States would also be required to show improvements in earnings and jobretention. States’ performance would be ranked and published each year.

These reforms, together with the President’s $250 million Community College job training initia-tive, will train 400,000 workers annually—twice as many as are trained under the current system.

Improving Workers’ Access to Health Benefits

The Nation’s eight million small business employers are only half as likely as large employers to of-fer health benefits. More than half of the Nation’s uninsured are small business employees and theirfamilies. To help these small businesses and give more working families access to health coverage,the President wants to allow small businesses to join together through industry and professional as-sociations to purchase affordable health benefits for their workers. These Association Health Plans(AHPs), which would also be available to a broad range of civic, faith-based, and community organi-zations, would give small businesses and groups the same kind of purchasing power and options thatlarge firms and unions provide, expanding health coverage and saving participants as much as 25percent on their health insurance premiums. DOL would be charged with oversight and regulationof AHPs, and would ensure that they meet strict solvency and other requirements.





Giving Working Families More Flexibility

It seems that Americans are getting stretched in every direction

these days. It’s hard to work 40 hours or more a week, find time

to make dinners, take your father to a doctor’s appointment,

attend a school play and go to a parent-teacher conference.

. . . There is no doubt that Americans need more time. The

President wants to work with Congress to make flex time and

comp time more widely available, so that people can work a

flexible schedule and have more control over how they spend

the hours of their day.

September 14, 2004

First Lady Laura Bush

Many labor laws are outdated,designed generations ago whenfew women worked outside thehome. In 2003, almost 61 per-cent of two-parent families hadboth parents working, versus 49percent in 1976. The Presidenthas called on the Congress togive private-sector workers thesame flexible scheduling optionsthat Federal employees now enjoy.Offering choices like whether to

receive overtime pay as cash oras paid time off will help workerssuccessfully juggle the demands of the workplace with the needs of their families.

Safeguarding Workers’ Pensions

PBGC Has Gone from AccountingSurplus to Deficit

2000 2001 2002 2003 2004-25

-20

-15

-10

-5

0

5

10

Billions of dollars

Source: PBGC.

9.7

-3.6

7.7

-11.2

-23.3

Assets minus Liabilities

The Pension Benefit Guaranty Corporation(PBGC) insures the defined-benefit pensionsof 44 million Americans against employerbankruptcy or other plan failures. Nearly 1

million individuals now receive, or are owed,benefits under plans that have been takenover by the PBGC. At the end of 2004, PBGC’sliabilities exceeded its assets by more than $23billion—more than double the $11.2 billiondeficit recorded a year earlier—due to thetermination and anticipated termination byU.S. businesses of a number of large pensionplans.

The Administration is committed to address-ing this problem as part of its comprehensive

strategy to strengthen the retirement security of America’s workers. Although no payments for work-ers who currently receive PBGC benefits are threatened, the defined-benefit pension system must bereformed or future worker benefits will be at risk. The 2006 Budget proposes comprehensive reformsdesigned to protect workers’ pensions and stabilize the defined-benefit pension system by updatingthe 30-year-old legislation that created the PBGC. The proposals contained in the 2006 Budget would:

• Require employers to fund their plans responsibly. PBGC estimates that private-sector sin-gle-employer defined-benefit plans are underfunded by more than $450 billion. The Adminis-tration’s proposals would require companies to make up their funding shortfall within a reason-able period of time. In addition, the Administration would give companies greater flexibility to




contribute funding above their current liabilities and would reduce volatility in plans’ requiredcontributions.

• Estimate plan liability more accurately and simply. Under current law a variety of statutoryprovisions determine a company’s pension plan liability. This makes it difficult to know whethera company is funding its plan adequately, thereby allowing companies to minimize their pension

contributions and understating PBGC’s exposure. The Administration’s proposals would provide a better measure of liabilities and establish appropriate funding targets based on a plan’srisk of termination.

• Set insurance premiums based on cost and risk. Defined-benefit plans pay premiums to PBGCin return for coverage. Current premiums do not properly reflect the plan’s risk of insolvencyand are inadequate to cover losses to PBGC. The President’s proposals would reform the currentpremium structure to restore PBGC to a sound financial state by increasing the share of pre-mium income tied to the plan’s risk of termination. The risk-based premium would reflect thenew funding targets and be re-examined on a periodic basis to ensure PBGC’s solvency. Flat-ratepremiums would be adjusted to reflect wage growth. These reforms would provide PBGC withthe assets needed to pay future benefits and would strengthen companies’ incentives to ensureadequate funding.

• Prevent companies from making empty promises to workers. Currently companies may promisefuture benefits to their workers (in lieu of immediate compensation) that they fail to provide forand in many cases can neither keep nor pay insurance premiums to cover. This places the burdenof these increased benefits on PBGC and the financially healthy companies that fund it. The

Administration’s proposals would require companies to pay for additional benefits immediatelyif they are financially weak or have a significantly underfunded pension plan.

• Make pension plans more transparent. Current law does not require adequate disclosure toworkers, retirees, investors, and policymakers about a plan’s funding status. As a result, work-ers are surprised when promised benefits are lost, and investors and policymakers are unableto make informed decisions. The Administration’s proposals would require plans to provideworkers with timely information on the true financial health of pension plans and make such

information publicly available.

For further information on these proposals, please see www.dol.gov/ebsa.

Protecting Workers

The 2006 Budget includes the resources DOL needs to fulfill its responsibilities under more than180 worker protection laws, providing $1.4 billion for labor law enforcement. DOL will continueto meet its responsibilities to workers through a combination of enforcement and compliance assis-tance and will continue to update its regulations so they make sense, protect workers, and minimizeunnecessary burdens on employers. The 2006 Budget will:

• Ensure safe and healthy workplaces. The Occupational Safety and Health Administration(OSHA) and Mine Safety and Health Administration (MSHA) are responsible for assuring thesafety and health of the Nation’s workers. From 2002 to 2003, the occupational injury andillness rate declined from 5.3 to 5 cases per 100 full-time workers and the number of injuriesand illnesses fell by 7.1 percent. The 2003 workplace fatality rate of 4 per 100,000 workers wasalso a record-low level. The 2006 Budget provides $747 million for OSHA and MSHA to allowthese agencies to maintain a strong enforcement presence and work with employers to ensurethe physical well-being of their workers. Included in this amount is $1 million to improveOSHA’s ability to get timely data on worker injuries and illnesses, based on a recommendationin OSHA’s Performance Assessment Rating Tool (PART) review.





Safeguarding Union Members’ Dues

Even relatively small embezzlements can have a devastatingimpact on the resources available to union members and theirlocals. For example, a routine OLMS audit in Wisconsin re-vealed payments to a union’s former business manager formileage and meals totaling more than $30,000. The subse-quent OLMS criminal investigation confirmed fraudulent pay-ments over a number of years and led to a conviction for em-bezzlement of $135,198 (an amount representing more thanone-third of the union’s assets), a 25-month prison sentence,and full restitution to the union. To strengthen Labor-Manage-ment Reporting and Disclosure Act protections, OLMS is re-building an effective audit program and enhancing its compli-ance assistance efforts. OLMS will also place a renewed em-

phasis on auditing large international unions, some of whichhave never been audited in the 45-year history of the Act.

• Protect union members. In col-laboration with DOL’s Officeof Inspector General and other

Federal agencies, the Office of Labor-Management Standards(OLMS) ensures that laborunions remain financiallysecure and free from fraud andcorruption. The 2006 Budgetincludes a $7 million (17-per-cent) increase to reinvigorateOLMS audit and complianceassistance programs. TheBudget includes $5 millionto help OLMS hire 48 new

auditors and investigate andcombat embezzlement of unionfunds and $1 million to createa new, contractor-operatedunit to advise unions on howto comply with the law. This funding would help restore critical capacity lost during the 1990s.

• Protect workers’ pensions and benefits. The Employee Benefits Security Administration (EBSA)protects the integrity of pensions, health plans, and other employee benefits for more than 150million people, and works with the three million employers who offer benefits to ensure theircompliance with the law. In 2004, EBSA’s work resulted in the recovery of $3.1 billion in re-tirement, health, and other benefits for American workers and their families—a 121-percent in-

crease over the previous year. In addition EBSA closed 4,500 criminal and civil investigations,nearly 70 percent of which resulted in correction of violations under the Employee RetirementIncome Security Act. EBSA also received a record 474 applications to participate in its programthat helps employers and plan officials voluntarily correct specific violations. The 2006 Budgetincludes $137 million for EBSA.

• Boost penalties for non-compliance. In some cases, employers’ compliance with Federal require-ments hinges on the threat of enforcement and monetary sanctions. Some of DOL’s current civilmonetary penalties have not been raised in decades (other than for inflation) and are not highenough to deter repeated or egregious offenses. To strengthen the deterrence, the Administra-tion again calls for an increase in civil monetary penalties for violations of laws administeredby the Employment Standards Administration and MSHA. Penalties for the death or seriousinjury of youths caused by child labor violations would increase from $11,000 to $50,000, andto $100,000 for repeat or willful violations. MSHA proposes to raise the maximum penalty foregregious violations from $60,000 to $220,000, bringing its penalties more in line with thoseassessed by OSHA. The 2006 Budget also supports allowing OLMS to impose civil monetarypenalties on unions, employers, and others that fail to file their required financial reports on atimely basis. These new penalties would strengthen DOL’s ability to enforce labor laws whencooperative approaches are not enough.





Strengthening Communities by Helping Ex-Offenders with Transition Assistance

Each year more than 600,000 inmates leave State and Federal detention facilities and return totheir communities and families, many without the skills or support necessary to enter and competein the workforce. Without help, a majority of these individuals probably will return to criminal ac-tivity. A 1994 Department of Justice study following almost 300,000 former State prisoners foundthat approximately two-thirds were re-arrested within three years of their release, and more thanhalf had been re-incarcerated.

The 2006 Budget includes a total of $75 million for the second year of funding for the President’sfour-year Prisoner Re-entry Initiative, which teams Federal agencies with faith-based andcommunity organizations to help recently released prisoners make a successful transition back tosociety and long-term employment. Given their close connection to the communities they serve,faith-based and community organizations are well situated to help returning prisoners. Many

are already serving this population with promising results. Through the collaborative efforts of the Departments of Labor, Justice, and Housing and Urban Development, the Prisoner Re-entryInitiative will provide job training, transitional housing assistance, and mentoring to tens of thousands of non-violent ex-offenders.





Preventing and Recovering Overpayments of Unemployment Insurance Benefits

The Unemployment Insurance (UI) program provides monetary benefits to eligible workers whoare unemployed through no fault of their own. UI is a Federal-State partnership, in which the FederalGovernment pays for administrative expenses and States levy taxes to pay UI benefits and determineeligibility and benefits. Despite States’ efforts to reduce improper UI payments, in 2003 improperpayments accounted for $3.8 billion, or more than nine percent of the nearly $41 billion in State UIpayments. The 2006 Budget proposes a package of legislative changes that would reduce improperpayments, saving an estimated $4.7 billion over 10 years. The legislation would:

• Boost States’ incentives to go after benefit overpayments by permitting them to use a portion of recovered funds on fraud and error reduction. Currently, all recoveries of overpayments mustbe used to pay UI benefits. Allowing States to retain a small percentage of recovered fundsto further reduce improper payments would reward them for taking aggressive steps to reduce

fraudulent and erroneous payments, give them the resources they need to continue their efforts,and save $229 million over 10 years.

• Impose a penalty for UI fraud. The proposal would require States to impose a minimum 15-per-cent penalty on fraudulent overpayments, and require the proceeds to be used only for improperpayment reduction. The State of Washington has imposed such a penalty, and has seen a dra-matic increase in overpayment collections as a result. This proposal would save an estimated$798 million over 10 years.

• Enlist private collection agencies in the recovery of overpayments and delinquent employer taxes.Several States have explored using private collection agencies, but balked at paying excessivefees, which can be as much as 25 percent of collections, from UI administrative funds. The Ad-ministration would permit States to allow collection agencies to retain a limited portion of theamounts they recover, resulting in recoveries totaling $369 million over a 10-year period. Toguard against collectors’ use of abusive or unfair tactics to recover funds, the proposal wouldrequire that any contract entered into by the State explicitly follow the Fair Debt CollectionPractices Act.

• Charge employers when their actions lead to overpayments. Employers sometimes fail to respondto State queries about worker separations (like whether claimants were fired), which can lead toimproper UI payments. Despite the costs associated with these mistakes, States do not alwayspenalize employers when their actions contribute to overpayments. The Administration wouldrequire States to charge employers for any UI benefits improperly paid in such cases, therebyencouraging employers to respond promptly to State requests for information about their formerworkers’ UI eligibility and generating 10-year savings of $227 million.

• Collect delinquent UI overpayments through garnishment of tax refunds. Each year an estimated

$500 million in UI overpayments go unrecovered. Under current law, individuals’ Federal taxrefunds are used to offset delinquent child support obligations, debts owed to Federal agencies,and State income tax debts. The Administration reproposes to add delinquent UI debts to thelist of debts that can be offset by tax refunds. This proposal would recover overpayments of $3.1billion over 10 years.





Refocusing the Bureau of International Labor Affairs

As noted by the PART assessment, the Bureau of International Labor Affairs (ILAB) has a broad

and ill-defined mission. ILAB had historically played a research, analysis, and advocacy role, but hasevolved to include a large and duplicative grantmaking function. Between 1996 and 2003, ILAB’sfunding rose by 1,500 percent, and now covers a host of activities that are already addressed bylarger international grants programs run by the State Department and the Agency for InternationalDevelopment. The 2006 Budget provides $12 million for ILAB and returns the agency to its originalmission of research, analysis, and advocacy.

Improving Federal Workers’ Compensation Programs

DOL administers a number of Federal workers’ compensation programs designed to provide eco-nomic stability to families that have been affected by occupational injury, illness, or death. The 2006

Budget proposes critical reforms to improve the operation and stability of two of these programs.• The Federal Employees’ Compensation Act (FECA). FECA, which pays workers’ compensation

to Federal civilian employees, has not been substantially updated since 1974. The Budget re-proposes reforms that would adopt “best practices” of State workers’ compensation programs,encourage individuals to return to work as early as possible, streamline claims processing, andupdate benefit levels. These proposals would save the Federal Government more than $720 mil-lion over 10 years.

• The Black Lung Benefits program. The Black Lung Benefits Act provides benefits to coal min-ers who have been totally disabled by occupational black lung disease. Benefits in some casesare paid from the Black Lung Disability Trust Fund, which is financed through an excise tax oncoal. Although excise tax revenues have been sufficient to finance the program’s benefit and ad-ministrative costs for the past decade, they have not been enough to cover ever-growing interestcosts on the Trust Fund’s debt. As a result, DOL has had to borrow more just to pay interest on adebt that now approaches $9 billion. DOL’s Inspector General has repeatedly identified the debtas a threat to the Black Lung program’s financial stability and integrity. To fix this problem,the Administration will repropose legislation to refinance the Trust Fund’s debt and eventuallyretire it.

Eliminating the Migrant and Seasonal Farmworkers Program

The 2006 Budget reproposes ending the Migrant and Seasonal Farmworkers training program,which was rated ineffective in a PART assessment. The assessment found that the services providedunder this program duplicate Federal efforts in other programs administered by DOL and other agen-

cies (such as the Departments of Health and Human Services, Agriculture, and Housing and UrbanDevelopment) and primarily consist of supportive services like emergency cash assistance, ratherthan job training and employment services to help participants secure more stable and permanentemployment. The PART also noted the program’s poor performance accountability and limited useof competition to award funding. These workers can be served better through the Nation’s system of One-Stop Career Centers.





The table below provides an update on DOL’s implementation of the President’s Management Agenda as of December 31, 2004.


SourcingFinancial



Integration

Status

Progress

In the past year, DOL has earned status upgrades on each of the five initiatives and attained green statusin four of the Government-wide initiatives. In Human Capital, DOL adopted: competency models to assessand improve employee skills; multi-faceted, well-targeted staff development and mentoring programs; andwell-planned systems to evaluate rank-and-file performance and strengthen managerial accountability. In 2004

DOL completed six streamlined competitions and one standard competition that will yield savings of more than$3 million. DOL showed that program managers use financial information to improve operations and thatit has a plan to expand the use of financial data to increase efficiency. In E-Government, DOL established anew management system to ensure the efficient and effective management of all its E-Government and ITprojects. DOL also uses performance information to make operational decisions, evaluate employees, andestablish long-term and annual goals. DOL is able to provide full and marginal costs for key program areas andcontinues to improve program efficiency measures.





DOL has made significant progress in providing outreach and technical assistance to enhance opportunitiesfor faith-based and community organizations (FBCOs) to compete for Federal funding. In 2004, DOL awarded170 grants totaling $71 million to FBCOs. To support the Real Property initiative, DOL is developing an assetmanagement plan. The Department has assessed its programs to determine which are susceptible to significantimproper payments and has plans to measure and reduce improper payments. (Because this is the first quarterthat agency efforts in the Eliminating Improper Payments Initiative were rated, progress scores were not given.)




Department of Labor(In millions of dollars)

Estimate2004

Actual 2005 2006


Training and Employment Services ............................................................... 5,129 5,319 5,844Unemployment Insurance Administration .................................................... 2,619 2,674 2,633Employment Service/One-Stop Career Centers 1 .................................. 964 963 84Community Service Employment for Older Americans .......................... 438 436 437Bureau of Labor Statistics ................................................................................. 518 529 543Occupational Safety and Health Administration ........................................ 458 464 467Mine Safety and Health Administration ........................................................ 269 279 280Employment Standards Administration ........................................................ 392 401 416Employee Benefits Security Administration ................................................ 124 131 137

Veterans’ Employment and Training..............................................................

219 223 224Bureau of International Labor Affairs ............................................................ 110 93 12Office of Disability Employment Policy ......................................................... 47 47 28All other .................................................................................................................... 500 475 396

Total, Discretionary budget authority 2 ............................................................. 11,786 12,034 11,501Memorandum: Budget authority from enacted supplementals ............... 1 — —


Mandatory Outlays:

Unemployment Insurance Benefits:

Existing law ........................................................................................................ 42,525 35,461 36,891Legislative proposal ........................................................................................

— — 281Trade Adjustment Assistance........................................................................... 699 880 966Black Lung Benefits Program: 3

Existing law ........................................................................................................ 1,433 1,428 1,405Legislative proposal ........................................................................................ — — 3,343

Federal Employees’ Compensation Act:

Existing law ........................................................................................................ 127 230 234Legislative proposal ........................................................................................ — — 6

Energy Employees Occupational Illness Compensation Program ..... 380 1,209 931Pension Benefit Guaranty Corporation: 4

Existing law ........................................................................................................ 247 543 315Legislative proposal ........................................................................................ — — 2,195

All other 4 ................................................................................................................ 401 447 408

Total, Mandatory outlays .................................................................................... 44,516 38,218 40,545

Total, Outlays .............................................................................................................. 56,797 50,091 51,7181

2006 reflects the transfer of Employment Service Grants to Training and Employment Services.2

2004 and 2005 rescissions of mandatory funding are now reflected in mandatory outlays.3

2006 reflects the Black Lung debt refinancing, which includes a one-time payment to Treasury. There is no Government-wide budgetary effectuntil 2014, when the excise tax rates would be extended.

4Net mandatory outlays are negative when offsetting collections exceed outlays.



218 DEPARTMENT OF STATE AND INTERNATIONAL ASSISTANCE PROGRAMS


• Working with the Multilateral Development Banks to pool the contributions of many donors toassist developing countries with positive growth policies.

• Providing keys to economic growth and lasting democracy in the developing world through

education initiatives.

• Bringing developing countries out of poverty while creating job opportunities for Americans byreducing barriers to free trade. The Budget anticipates implementation in 2006 of free tradeagreements with five countries of Central America and the Dominican Republic, Bahrain, andPanama, as well as continued progress on free trade agreements with countries in Asia, Africa,and the Americas.


• Continuing to expand the President’s Emergency Plan for AIDS Relief with an unprecedentedeffort to prevent the spread of AIDS, treat infected individuals, and care for those affected by

HIV/AIDS, including orphans.• Providing for vulnerable populations around the world, through food aid and other humanitar-

ian assistance such as shelter, health care, water, sanitation, and disaster and reconstructionassistance.

• Maintaining a generous refugee resettlement program while providing needed humanitarianassistance to those awaiting return to their homeland.


• Ensuring that the composition of U.S. Government agencies and personnel overseas isappropriately aligned with our foreign policy priorities, security concerns, and overall resource

constraints, through the President’s initiative to “rightsize” the U.S. Government’s presenceoverseas.




PROTECTING AMERICA

With critical funding from the United States, voter registration andelections are conducted in Afghanistan.

Winning the War on Terror is the highestforeign policy priority of this Administration.

In support of that objective, programs in theDepartment of State and related internationalaffairs agencies are directed at assisting the de-

velopment of freedom, democracy, and economicopportunity in Iraq and Afghanistan; providingsupport to our coalition partners; improvingthe peacekeeping capabilities of other nations;and encouraging the spread of democracyand freedom necessary to thwart terrorism’sadvance.

Promoting Global Democracy

Promoting democracy and freedom around theworld is fundamental to peace and security at home. The Budget includes a further expansion of ourcurrent bilateral programs to strengthen democratic institutions worldwide and new efforts, such asa contribution to the United Nations Democracy Fund, which was announced by President Bush atthe United Nations General Assembly in September 2004. The Fund will provide technical assistanceto nations adopting democratic reforms.

In particular, the United States is committed to supporting the peoples of Iraq and Afghanistan intheir historic quest for freedom and democracy. Our mission in these sovereign nations is to promotestability, security, and prosperity to ensure that they never again are ruled by regimes that oppresstheir citizens and support terrorism.

Creating a Stable Iraq. Iraqis, with help from the Coalition and many partners, are rebuildingtheir country and offering freedom, new opportunities, and much needed services to their people.While security problems remain a major challenge for the Iraqi people and for development in variousparts of the country, significant progress has been made in many key areas.

The Iraqi Interim Government, led by Prime Minister Allawi, demonstrated resolve and a clearcommitment to Iraq’s transition to democracy, including free and fair elections to establish a morerepresentative government. The new Iraqi currency is stable and has appreciated against other cur-rencies. Oil revenues for the Iraqi people since June 2003 are estimated at over $20 billion. Iraq’sown security and police forces are being rapidly expanded, trained, and equipped so that Iraq canprotect its own people and its borders.

Assistance from the United States and other countries will continue to have an impact. With keyinfrastructure projects underway across Iraq, millions of Iraqis will benefit from greater access tobasic services. The United States will continue to help the Iraqi government deliver basic services toits people, collect revenues, and develop a free market system capable of joining the global economy.The 2006 Budget provides $360 million for economic assistance to Iraq for these activities.





The paving of the Kabul Kandahar road in Afghanistan.

Supporting Democracy in Afghanistan. OnDecember 7th, 2004, the first democraticallyelected Afghan President was inaugurated,

following the first free and fair election in Afghanistan’s history. The economy grew 16percent during the last Afghan fiscal year,2003–2004, and the new Afghan currencyhas remained strong. The lives of Afghans,especially those of women and children,continue to improve, and 2.4 million refugeeshave returned home. Today over 40 percentof primary school students are girls, up from

virtually zero under the Taliban, and overallenrollment for boys and girls has increased

by over 300 percent. The new Afghan National Army is now fighting terrorism and maintaining

security with a force of 16,000 soldiers and support personnel that includes all of Afghanistan’sethnic groups, and over 33,000 Afghan police that have been trained and equipped.

With U.S. aid and the contributions of other nations, the Afghan government will continue to buildthe necessary capacity to deliver health services, collect tax and customs revenue, and develop thelegal and regulatory framework for a modern, open economy.

The 2006 Budget requests nearly $1.1 billion to build on the positive momentum in Afghanistan.This Budget will provide funds to invest in the health, education, clean water, and free market in-frastructure that create conditions for sustained growth and stability; and eradicate poppy crops,develop alternative livelihoods, interdict drug flows, and prosecute narco-traffickers to ensure thatthe drug trade does not threaten Afghanistan’s democracy or undermine economic development.

Border Security. The Department of State continues to work with the Department of HomelandSecurity (DHS) to secure America’s borders against those who threaten our security, and at the sametime, the Department works to promote legitimate travel for commerce, education, and tourism.

The Department of State is improving the visa and passport systems to make America safer.The State Department, working jointly with DHS, is developing secure visas and passports, whichwill provide reliable ways to link travel documents to their owner. In addition, the Departmentsof State and Homeland Security are gathering biometric identifiers—such as digital photos andfingerprints—from visa applicants and conducting security checks to verify travelers’ identitieswhen they enter and exit the United States.

The State Department is a key player in the effort to integrate databases as well as an important

contributor to the Terrorist Screening Center and the National Counter Terrorism Center. Thesecenters integrate and analyze terrorist threat information, collected both domestically and abroad,to detect, identify, and interdict people who may pose a threat to America.

The Broader Middle East and Muslim Outreach Initiatives. Expanding democracy, supporting po-litical, economic, and social reform, and improving access to education, information, and jobs arecritical to eradicating international terrorism. The 2006 Budget continues to enhance diplomaticand assistance activities in the Middle East, North Africa, and other majority Muslim countries.The Budget includes $120 million for the Middle East Partnership Initiative, a cornerstone of thePresident’s strategic approach to supporting economic, political, and social reform in the region.




Broadcasting to the Middle East

In 2006, the Broadcasting Board of Governors (BBG) will have nearly quadrupled the number of broad-casting hours to the broader Middle East from approximately 13,000 hours per year in 2001 to over 50,000hours per year. In particular, the BBG established two 24/7 Arabic-language television channels (al-Hurra

and al-Hurra Iraq) in 2004 that complement the success that Radio Sawa has had in attracting a significantaudience for U.S.-developed broadcasts in the region. Surveys from 2004 show that 25 percent of adultsin nine Middle Eastern countries tune into Radio Sawa and/or al-Hurrah television each week, and approxi-mately 75 percent consider their news reliable. In 2006, the BBG will continue local and live news coveragethrough satellite and land-based transmission of Radio Sawa and al-Hurra television.

The Budget also includes $80 million for the National Endowment for Democracy (NED), anincrease of $20 million over 2005 levels. NED provides grants to private groups and organizationsthat build and strengthen democratic institutions, and promote the rule of law, human rights, civiceducation, and a free press.

A wide range of public outreach, diplomacy, and broadcasting initiatives are being pursued at theState Department and at the Broadcasting Board of Governors (BBG) in the 2006 Budget. Fund-ing in 2006 will support the development of libraries and information centers in the Muslim worldcalled American Corners; support the TV Co-Op program, which brings foreign journalists to theUnited States and facilitates their professional development and assists in the production of theirown programming related to American culture; encourage an expansion of Foreign Journalist Tours;translate more Western books into Arabic; increase scholarships and visiting fellowships; upgradethe American government Internet presence; and train more Arab speakers, public relations spe-cialists, and experts in Arab matters. The Voice of America will increase the number of hours itbroadcasts to countries in the broader Middle East, with significantly increased television program-ming in languages such as Persian, Dari, Pashto, and Urdu.

A view inside the BBG Middle East Broadcasting Networksnewsroom.

The Administration is expanding funding forpublic diplomacy and exchange efforts by 21percent in general and specifically in the broaderMiddle East. For example, the 2006 Budgetincludes $100 million for the Partnerships forLearning (P4L) Initiative, which provides schol-arships and exchange opportunities to studentsin the Muslim world. P4L was created to reachan audience younger and more diverse than thataddressed by existing programs. In 2006, theP4L Initiative, including the Youth Exchangeand Study program, will specifically focus its

outreach programs on underserved communitiesin non-urban areas with a focus on high schoolstudents and females in the Muslim world.

This Administration continues to provide accurate and balanced news and information to audiencesin the Middle East, through the Middle East Broadcasting Network, which receives $79.3 million inthe 2006 Budget.





Managing Threats Abroad

Support for Our Coalition Partners. The United States and our allies have shown great resolve

in the War on Terror. The Budget supports the front-line states that have joined us in the cam-paign against global terror. The President’s request includes over $640 million for Pakistan to helpadvance security and economic opportunity for Pakistan’s citizens; over $450 million for Jordan toaccelerate economic growth opportunity and strengthen border controls; and over $550 million tosupport Colombia’s unified campaign against drugs and terrorism.

The Global War on Terror

U.S. assistance continues to result in unparalleled military, law enforcement, and intelligence cooperationthat has successfully destroyed terrorist cells, disrupted terrorist operations, and prevented attacks. Overthe last year, there have been many counterterrorism successes in cooperating countries and international

organizations. For example:

• More than three-quarters of al-Qaida’s known key leaders and associates have been detained or killed,with major successes in Afghanistan, Pakistan, Indonesia, the Philippines, and Saudi Arabia;

• Indonesia, the world’s largest Muslim country, has taken new steps to move against Jemaah Islamiahoperatives, an al-Qaida-linked Islamic terrorist organization;

• The United States has trained and advised Philippine forces in their counterterror operations , such asthose against the Abu Sayyaf terrorist group;

• Yemeni authorities have moved against al-Qaida in their own territory, hosted Army Special Forces totrain and advise Yemeni troops in counterterrorism, and increased contacts with key U.S. agencies;and

• Saudi Arabia is working to shut down the facilitators and financial supporters of terrorism, and has

captured or killed many leaders of the al-Qaida organization in Saudi Arabia.

Building Peace Support Capabilities. Global peacekeeping capabilities, with a particular focus on Africa, are critical to bringing security and stability to troubled regions. The 2006 Budget includes$114 million for the second year of the Global Peace Operations Initiative. This Initiative, beingimplemented in cooperation with the G-8, pledges to:

• Train and equip 75,000 troops by 2010 to increase global capacity to conduct peace supportoperations with a focus on Africa;

• Create a “clearinghouse” function to exchange information and coordinate G-8 efforts to enhance

peace operations training and exercises in Africa;• Develop a transportation and logistics support arrangement to help provide transportation for

deploying peacekeepers and logistics support to sustain units in the field; and

• Establish a Gendarme (Constabulary) Center of Excellence in Italy to increase capabilities andinteroperability of military police forces for peace support operations, and to support otherexisting centers dedicated to that purpose.




President George W. Bush meets with Presidents Hamid Karzai of

Afghanistan and Pervez Musharraf of Pakistan at the United Nations.

In addition to this initiative, the Admin-istration has established an Office of theCoordinator for Reconstruction and Stabiliza-tion within the Department of State. This officewas created to enhance the U.S. Government’splanning and response capabilities to address

conditions in failed, failing, and post-conflictstates and put in place a foundation for lastingpeace, good governance, and economic andsocial development. In the absence of effectiveengagement, such states pose risks to the secu-rity of the world. They often become breedinggrounds for terrorism, communism, organizedcrime, trafficking, humanitarian catastrophes,and other threats to U.S. national interests.

The 2006 Budget proposes a significantexpansion in the Office of the Coordinator to

strengthen its ability to lead U.S. planningefforts for countries and regions of mostconcern, and coordinate the deployment of U.S. resources when needed. In addition, the 2006Budget proposes a $100 million Conflict Response Fund to quickly address emerging needs. Thisfunding will help the United States deploy trained and experienced civilian personnel immediatelyto an unstable region. These teams would lead interagency efforts and come ready with plans toachieve stability and begin reconstruction.

Counternarcotics Activities. The U.S. Government is committed to rolling back the drug trade andsevering the ties between narco-traffickers, terrorists, and other international criminal organiza-tions. The 2006 Budget includes $734.5 million for the Andean Counterdrug Initiative to consolidategains made in recent years in the areas of eradication, interdiction, and alternative development.

This past year, almost 120,000 hectares of Colombian coca were aerially eradicated, and 12,845 fam-ilies received alternative development assistance. In 2004, the government of Colombia establisheda law enforcement presence throughout the entire country for the first time in history. Nearly 150Colombian narco-traffickers, terrorists, and money launderers have been extradited to the UnitedStates in the past two years.

The United States is applying lessons learned from the successes under Plan Colombia to otherparts of the world, including Afghanistan. In 2004 the Administration moved quickly to make coun-ternarcotics a central pillar of its reconstruction assistance in Afghanistan. It proposed to begin anambitious anti-poppy campaign, working with the newly elected President, Hamid Karzai, and ourinternational partners including Great Britain. The 2006 Budget includes $437 million for opera-tions to continue the fight against drugs in Afghanistan.





11.012.1 11.6

13.3

15.2

17.0

19.8

2000 2001 2002 2003 2004 2005 20060

5

10

15

20Budget authority, billions of dollars

U.S. Core Development Assistance*

* Does not include Iraq Relief and Reconstruction Fund.

President Exceeds Commitments with the 2006 Request

In 2002, President Bush called for “a newcompact for global development, defined by

new accountability for both rich and poornations alike. Greater contributions fromdeveloped nations must be linked to greaterresponsibility from developing nations.” ThePresident pledged that the United Stateswould lead by example and increase its coredevelopment assistance by 50 percent overthe next three years, resulting in an annualincrease of $5 billion by 2006. The President’soriginal 2002 pledge called for these newfunds to go into a new Millennium Challenge

Account (MCA). The Administration did not

receive its full requests for MCA in 2004 and2005. Therefore, this Budget adjusts MCA’sramp-up period to more accurately reflect Congressional action to date, reaching the $5 billion figureby 2007. Nonetheless, this Budget still substantially exceeds the President’s 2002 commitment foroverall growth in core development assistance by requesting a total of $19.8 billion, $8.2 billionmore than in 2002.

Millennium Challenge Account

MCA is an innovative program that focuses only on those countries, among the poorest in the world,that have met independent criteria with respect to ruling justly, investing in their people, and pro-

moting economic freedom. This common-sense approach uses measurable indicators to select coun-tries best able to effectively use assistance. Once selected, countries develop their own proposals andenter into partnership agreements—called Compacts—with the Millennium Challenge Corporation(MCC). MCC will fund only those proposals with clear objectives, a sound plan for implementationand financial accountability, and specific indicators demonstrating results. This innovative processis beneficial because it gives countries the responsibility for their own development, in some casesfor the first time. However, it is also time intensive. MCC has identified 17 eligible countries in 2004and 2005. In recent months, 15 of those countries have submitted Compact proposals.

By providing incentives for countries to reform, MCA has strengthened the resolve of some statesto break down the barriers to economic growth and a better quality of life for their citizens. Theimpact of these reforms extends even to those countries that are not currently eligible, as they adoptpolicy reform agendas in an attempt to become eligible.

The Congress appropriated $1.5 billion for MCA in 2005, $1 billion short of the President’s request.The 2006 Budget request of $3 billion for MCC’s third year will help countries help themselves be-come more prosperous, democratic states. In 2006, MCC will expand its list of potentially eligiblecountries to some 110 states with per capita incomes of up to about $3,000 per year, an increase fromthe current number of roughly 80 states with a per capita level of up to about $1,500 per year. The2006 funding request will support those countries deemed eligible for funding in 2006 by the MCCBoard of Directors, as well as the 17 countries currently eligible.




Given that MCC was established in 2004, has only recently selected MCA eligible countries, and thetime required for countries to develop their own proposals that meet MCC requirements for demon-strating results, the funding request for 2006, combined with the amounts appropriated in 2004 and2005, provides enough resources for those countries ready to proceed with Compacts in 2006.

Multilateral Economic Assistance Programs

New bakeries bring work opportunities to rural women inGuatemala and provide food security for their families.

More traditional multilateral economic assistanceprograms continue, with new emphasis on account-ability of performance. When countries implementsound economic and governance policies, they creategreater growth, stability, and a better future for theircitizens. To ensure the effectiveness of internationalassistance, donors should focus resource assistanceon countries that adopt positive growth policiesand clear, measurable goals and targets for theassistance they receive. The United States has been

instrumental in getting the Multilateral DevelopmentBanks (MDBs), such as the World Bank, to instituteallocation systems that ensure more assistance goesto better performing countries and less goes to weakerperformers. With strong U.S. leadership, the MDBsare instituting results-oriented management, as recommended in Program Assessment Rating Toolreviews of a number of MDBs, and increasing transparency to bolster development outcomes andenhance accountability.

The United States has led efforts to help the poorest countries to make more productive invest-ments without incurring greater debt by pressing the World Bank and other MDBs to increase theshare of assistance provided as grants rather than loans. The United States recently concluded

replenishment negotiations for the World Bank’s International Development Association and the African Development Fund, which will increase the share of new funding disbursed to the poorestcountries through grants, rather than loans, to about 45 percent from approximately 25 percent and20 percent, respectively. The United States also recently completed replenishment negotiations forthe Asian Development Fund, which established, for the first time, a grant window where 21 percentof total assistance will be in the form of grants. The 2006 Budget will support these agreed-uponreforms through its request of $1.34 billion for U.S. contributions to these institutions and the otherMultilateral Development Banks.

The United States continues to support 100 percent debt reduction under the Enhanced HeavilyIndebted Poor Countries (HIPC) Initiative. Coupled with prudent economic policies, debt reductionallows these countries to channel resources they would have used to pay interest and other debt

service costs into critical programs, such as health and education. The 2006 Budget requests $100million to continue to support HIPC and other debt reduction programs.

Promoting the Gains from Trade

A strong worldwide economy is critical for creating job opportunities for Americans, and liberaliz-ing trade is the single most effective tool in strengthening the global economy. Free and fair tradecreates high-paying jobs for American workers, businesses, farmers, and ranchers, while increasingthe living standards of Americans through lower prices and more choices.





In 2004, free trade agreements with Chile and Singapore were signed and implemented, and thePresident concluded free trade agreements with Australia, Bahrain, and Morocco, in addition to theagreement with five Central American Countries (CAFTA) and the Dominican Republic. The Pres-

ident also initiated free trade negotiations in 2004 with Panama, Thailand, and three countries of the Andean region (Colombia, Peru, and Ecuador) and notified the Congress of his intention to beginfree trade negotiations with Oman and the United Arab Emirates.

These agreements achieve strong intellectual property and investment protections for U.S. com-panies, as well as enforcement of domestic environmental and labor rules. The President will buildon this success with completion in 2005 of the Andean Free Trade Agreement and with continuedprogress towards a Free Trade Area of the Americas agreement, as well as an agreement with theSouthern African Customs Union. The President has also called for a Middle East Free Trade Areaby 2013 to spur economic growth and expand opportunity in this critical region of the world. The2006 Budget provides for the implementation of free trade agreements with Bahrain, Panama, theDominican Republic, and CAFTA. The Office of the U.S. Trade Representative will continue to pur-

sue aggressive trade agreements with other nations.

Students from a secondary girl’s school in Baghdad with new schoolsupplies.

The United States is working with 148member economies in the World Trade Or-ganization (WTO) to reach an agreement thatwill open markets to U.S. businesses, promoteworldwide growth, and enhance economicdevelopment in some of the poorest countriesof the world. Having played a key role inlaunching the current WTO Doha Develop-ment Agenda, the United States has proposedelimination of all global tariffs on consumer

and industrial goods by 2015, substantial cutsin farm tariffs and trade-distorting subsidies,and broad opening of services markets.

Investing in Tomorrow’s Leaders

Education enables people to be more productive, improve their standard of living, and contributeto the growth of their nations. Unfortunately in much of the world, access to basic education is stillextremely limited, and illiteracy, especially among women, is very common.

The Administration has launched several education initiatives since 2002 to focus more resourceson improving educational quality across the globe. The Africa Education Initiative is providing schol-arships for girls, distributing 4.5 million textbooks and training over 400,000 teachers. The innova-tive Centers for Excellence in Teacher Training in Latin America and the Caribbean are focusedon improving the quality of schools and their curricula. Significant new resources for educationin the Muslim world, in countries such as Pakistan, Indonesia, Morocco, Yemen, Jordan, Iraq, and

Afghanistan, have expanded opportunities for millions of girls and boys. Under the G-8’s BroaderMiddle East and North Africa Initiative, the United States and its allies are seeking to train 100,000teachers in the region by 2009. Worldwide, President Bush has more than doubled funding for StateDepartment-funded basic education programs, from $126 million in 2001 to $322 million in this Bud-get. In addition to funding for basic education, the Budget includes $167 million for higher educationand training worldwide.





America’s compassion for the world’s most vulnerable citizens is manifested in the internationalprograms that provide humanitarian and other assistance. The President’s Budget reflects this

continued commitment.

Emergency Plan for AIDS Relief—Caring for the World’s Most Vulnerable Citizens

The President’s Emergency Plan for AIDS Relief Saves Lives

One person benefiting from the Emergency Plan is Buse Banga of Zambia. When she arrived at the MotherTeresa Hospice in Lusaka, Zambia, Buse lay in a coma. Her neighbors had given her up for dead. But after just two weeks receiving antiretroviral treatment in a U.S.-supported clinic, Buse opened her eyes. Severaldays later, she returned home, standing tall and full of life, to the joyful astonishment of her friends andfamily. By 2008, the Emergency Plan will help two million more people in similar ways.

The President’s Emergency Plan for AIDS Relief continues in its third year to fight the globalHIV/AIDS epidemic, which resulted in almost 3.1 million deaths in calendar year 2004 alone.The Administration is committed to prevent seven million new HIV infections by 2008; treat twomillion HIV-infected people; and care for 10 million individuals affected by HIV/AIDS, includingorphans. The Emergency Plan uses prevention funds for methodologies that are effective in helpingpeople avoid behaviors that place them at risk of contracting HIV. One such program is called“ABC”—Abstinence, Be faithful, and, as appropriate, correct and consistent use of Condoms—andwas proven successful in Uganda, Zambia, Senegal, and elsewhere. The Emergency Plan maintainsbilateral, regional, and volunteer HIV/AIDS programs in over 100 countries around the world with

a focus on some of the hardest hit nations: Botswana, Cote d’Ivoire, Ethiopia, Guyana, Haiti, Kenya,Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda, Zambia, and Vietnam.

2003 Baseline 2004 2005 20060

1

2

3

4

5

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Target impact,millions of people

Global AIDS funding,billions of dollars

Emergency Plan for AIDS Relief Reaching the2008 2-7-10 Goal

Source: Department of State.

Global AIDS Funding

Treatment

Prevention

Care

Since the President announced theEmergency Plan—a five-year, $15 billioncommitment—in his 2003 State of the Union

Address, the United States has provided$5.2 billion for the fight against global AIDS,and the 2006 Budget requests an additional$3.2 billion for this effort. Starting with $2.4billion in 2004, the U.S. Government has maderemarkable progress during the EmergencyPlan’s first year of implementation and hasalready made a significant impact on thelives of those living with AIDS. For example,with $350,000 in Emergency Plan fundingfor Botswana, UNICEF has been able toimprove service delivery in care and support of orphans and vulnerable children; strengthenfaith-based organizations’ institutional capacities; and ensure orphans and vulnerable childrenhave access to essential services and protection from abuse and exploitation.





A peer educator in Zambia explains the process of voluntary counselingand testing for HIV/AIDS.

In addition to bilateral programs, theUnited States is helping other nations deepentheir commitment to stemming the spread of

HIV/AIDS through our role in internationalorganizations like UNAIDS, WHO, and theGlobal Fund to Fight AIDS, Tuberculosis, andMalaria. This Administration provided thefounding contribution to the Global Fund,and the United States remains by far theworld’s largest donor to it. The President’sEmergency Plan is working with UNAIDSand other international organizations toimplement the “three ones” in countries thatreceive assistance: one national plan, onenational coordinating authority, and one

national monitoring and evaluation system. In this way, nations are building a more coordinatedand effective global effort to fight HIV/AIDS.

Humanitarian and Food Assistance

The United States, through its support of international and non-government organizations, willcontinue to be the world’s most generous provider of food aid and non-food humanitarian assistance,including shelter, health care, water, and sanitation. The 2006 Budget also reinforces the Admin-istration’s commitment to finding durable solutions for refugees around the world, and provides anincrease in funding to support assistance abroad and resettlement in the United States.

Sudanese refugee women mixing the corn soy blend provided by theUnited States.

In 2004, the United States led the interna-tional community—both in terms of timelinessand funding levels—in assisting over 1.6million internally-displaced persons in theDarfur region of Sudan, and 200,000 Sudaneserefugees in Chad. The 2006 Budget continuesthis strong level of support, addressing boththe food and non-food needs of victims of the conflict in Darfur. The Administrationcontinues to support the Sudanese peoplethrough humanitarian assistance as thecountry works toward a peace settlement forDarfur that will allow refugees and otherdisplaced persons to return to their homes.

The United States also supports refugee re-settlement and assistance in this country. In2004, the United States admitted more than50,000 of the world’s refugees for resettlement, nearly doubling the previous year’s total. PresidentBush continues to advocate for a generous resettlement program, and the 2006 Budget provides asignificant increase in funds to support the growing number of refugees being resettled in the United




States. Millions more will be assisted through humanitarian assistance programs in countries wherethey first seek asylum as they await repatriation opportunities.

Child immunization saves lives in Ghana.

In 2004, U.S. food aid protected vulnerablepopulations around the world, with over $700million donated to the food emergencies in

Sudan, Ethiopia, Angola, and southern Africa,which helped feed over 14 million people. The2006 Budget supports the Administration’scontinuing efforts to prevent widespreadfamine as well as major new efforts to makefood aid more effective by requesting a portionof it as cash assistance, which allows emer-gency food aid to be provided more quicklyand more flexibly to address the most urgentneeds. The analysis of food assistance throughthe Program Assessment Rating Tool supportsthis decision to give assistance in cash.

Human Rights and the Rule of Law

Human rights and the rule of law are core values of the American people and a key element of U.S.foreign policy. The United States will continue to challenge governments to meet their obligationsunder international treaties and work to reform and strengthen the Office of the United NationsHigh Commissioner for Human Rights and United Nations Commission on Human Rights. The 2006Budget includes over $115 million in funding for support, training, and assistance programs to aidpeople and strengthen institutions that promote freedom and human rights and help establish therule of law. In 2004, the United States provided approximately $38.5 million in FREEDOM Support

Act funds to strengthen democracy, human rights, and the rule of law in Central Asia, including

assistance with legislative drafting; training judges, prosecutors, and public defenders; and providingadvisors for judicial and prison reform.

Abolishing Trafficking in Humans

The United States is committed to abolishing the trafficking of human beings, which is a modernday form of slavery and an affront to human dignity. According to some estimates, each year at least700,000 and possibly as many as four million people, primarily women and children, are traffickedaround the world and exploited for sexual purposes or for labor without compensation.

In 2002 President Bush established a Cabinet-level task force to monitor and combat thistrafficking. The following year he announced a $50 million U.S. Government initiative to combat

this growing problem. Agencies are using these funds to prevent human trafficking, protect andreintegrate victims, and build the capacity to investigate, prosecute, and convict traffickers inBrazil, Cambodia, India, Indonesia, Mexico, Moldova, Sierra Leone, and Tanzania. The 2006 Budgetcontinues support for the anti-trafficking program. In addition, the Administration has establisheda Human Smuggling and Trafficking Center to coordinate interagency efforts to share informationand prevent trafficking in persons, migrant smuggling, and terrorist travel, and is working toidentify and assist trafficking victims domestically.





Service

President Bush is committed to increasing American service overseas and, accordingly, has asked

for increases in the Peace Corps’ budget every year since taking office. The number of Peace Corps volunteers—7,733 in 2004—is at its highest level in 29 years. These dedicated individuals reflectthe best of American values and compassion by working in such diverse fields as education, health,HIV/AIDS education and prevention, information technology, business development, the environ-ment, and agriculture. The Budget requests $345 million for the program, allowing it to open atleast two new posts and maintain the existing number of volunteers.

In addition, in 2003, President Bush announced a new initiative coordinated by USA FreedomCorps and USAID called Volunteers for Prosperity that provides America’s professionals new oppor-tunities to serve abroad on specific development initiatives in countries of their choice. Organizationsthat become Volunteers for Prosperity participants and deploy volunteers are given priority for Fed-eral funding in select Federal development assistance programs. Since its inception, Volunteers for

Prosperity has recruited nearly 200 non-profit and for-profit organizations, representing a pool of 34,000 skilled American professionals. These organizations have deployed nearly 7,000 volunteersto help reduce poverty and promote economic growth.





Capital Security Cost Sharing for Diplomatic Facilities

Protection of U.S. Government personnel assigned abroad is a top priority. In response to the 1998bombings of two U.S. embassies in East Africa, the State Department embarked on several ambitiousinitiatives to improve physical security overseas. Many posts require additional work to withstandterrorist attacks and other dangers. In 1999, the State Department launched a security upgrade andconstruction program to begin to address requirements in more than 260 embassies and consulates.

In 2003 and 2004, the State Department completed construction of several new embassy com-pounds, including compounds in: Tunis, Tunisia; Zagreb, Croatia; Abu Dhabi, United Arab Emirates;Istanbul, Turkey; and Sofia, Bulgaria. In addition, the State Department has 22 projects under con-struction and has awarded contracts for 12 new projects.

A view of the new embassy compound in Istanbul, Turkey.

In 2005, the Administration initiated aplan to dramatically expedite construction of

secure facilities worldwide, called the CapitalSecurity Cost-Sharing Program. Under thisprogram, each agency with staff overseascontributes annually towards constructionof the new facilities based on the number of authorized positions and the type of spacethey occupy. In 2006, non-State agencieswill contribute approximately $203 million to

the program and State will contribute $810 million. This cost-sharing plan will enable the StateDepartment to replace 150 embassies and consulates over 14 years for a total cost of $17.5 billion.

Capital security cost sharing is a major component of the President’s Management Agenda initia-tive on “rightsizing” that stresses that agencies should consider all implications—including mission,cost, and security—when they choose to place or retain staff overseas. Cost-sharing among agenciesfor U.S. diplomatic facilities abroad reflects the recognition that the facilities represent the entireNation, and not just facilities of the Department of State.

Rightsizing the U.S. Government Presence Overseas

The President emphasizes the importance of safety, efficiency, and accountability in U.S. Govern-ment staffing overseas by making sure that the composition of Government agencies is consistentwith our foreign policy goals, security needs, and overall fiscal condition. There are more than 57,000permanent American and local staff overseas under the authority of Chiefs of Mission. The average

Overseas Staffing Under Chief of Mission (COM) Authority

Total Personnel Overseas UnderCOM Authority (Including American

and Locally Engaged Staff)Projected for 2005

Total America Direct Hire PersonnelOverseas Under COM Authority

Projected for 2005

Average Cost of a U.S. Direct HireOverseas Estimated for 2006

57,128 14,659 $430,000





cost of putting an American direct hire position overseas in 2006 will be approximately $430,000.With our foreign policy priorities demanding increased support to meet new homeland security, coun-terterrorism, and global AIDS requirements, it is important that we use overseas staff resources

carefully.In 2004, the Department of State established the Office of Rightsizing the U.S. Government

Overseas Presence. It also started an initiative called MOMS (Model for Overseas ManagementSupport), which provides support activities for the new Embassy in Baghdad and will be expandedto assist other embassies in 2005 and 2006. In 2005, the Department of State plans to open thenew Frankfurt Regional Center, and implement a shared-services model at its Florida RegionalCenter. These centers will take on certain work now being done at overseas posts. Beginning in2005, formal rightsizing reviews are required for all new embassy construction projects and everyU.S. mission worldwide on a five-year basis. And in 2006, the Administration will continue to buildon the achievements that support the Rightsizing Initiative through expanded shared-services andregionalization models, rigorous post level reviews, and an accurate accounting of overseas staffing

and costs that produce rightsizing results.


The table below provides an update on the State Department’s implementation of the President’sManagement Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress


The State Department is aggressively implementing human capital improvements including implementationin 2005 of a revised Civil Service appraisal system that better differentiates performance and that ties thework of all employees to achieving the strategic goals of the Department. For competitive sourcing, the StateDepartment announced its first standard competition for Multi-Media Services and numerous streamlinedcompetitions. The State Department has developed efficiency measures for each of its programs and is usingthem to drive down cost while achieving performance. For instance, the Refugee Admissions Program hasdecreased the per-person cost of admitting refugees to the United States from nearly $4,500 in 2002 to $3,500in 2004, while exceeding the goal of admitting 50,000 refugees.






A “Right-Sized” Overseas Presence

In support of the Real Property Initiative, the Department of State is working to integrate its domestic andoverseas real property operations into a unified asset management plan.

As noted earlier in the narrative on rightsizing, this PMA initiative seeks to ensure that our overseas presenceis aligned with overall mission priorities, security, and costs. The Office of Management and Budget, workingclosely with the Department of State and other interagency rightsizing partners, has made progress in puttingin place mechanisms that support accountability, transparency, and new alternatives for overseas staffing. Inthe coming year, efforts will focus not only on strengthening these new processes, but on demonstrating realresults of positions being moved in response to regionalization efforts following formal rightsizing reviews, andon streamlining and consolidation of support services.

The table below provides an update on the U.S. Agency for International Development’s (USAID’s)implementation of the President’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

USAID has successfully implemented a new financial management system in Washington, D.C., and is in theprocess of rolling that system out to missions around the world. The Agency has received its second clean

audit opinion and reduced auditor material weaknesses from three to one. The Agency has developed acomprehensive human capital strategy and accountability system, and is in the process of implementing thatsystem. The Agency is also undertaking an ambitious review of its current business model, and is consideringmoving to regional or Washington-based provision of certain assistance functions to improve efficiency andeffectiveness. Together with the State Department, the Agency is developing a comprehensive EnterpriseArchitecture, which will help to more effectively target information technology investments and business processimprovements. In the last year, USAID created, and used to inform certain budget decisions, a new strategicbudgeting model, and developed a set of agency-wide and regional performance measures that will be usedacross regional bureaus and programs.



The Faith-Based and Community Initiative just completed its first year at USAID and is actively engaged inremoving barriers to participation by community organizations, including faith-based organizations, as well asintensifying outreach and information dissemination to make USAID competitive grant opportunities moreaccessible to a broader population of potential grantees.




Department of State and International Assistance Programs(In millions of dollars)

Estimate2004

Actual 2005 2006


Department of State:

Diplomatic and Consular Programs .......................................................... 4,185 4,172 4,473Embassy Security, Construction, and Maintenance............................ 1,376 1,504 1,526International Organizations and Conferences ....................................... 1,449 1,649 2,332Global HIV/AIDS Initiative ............................................................................. 488 1,374 1,970All other programs ........................................................................................... 2,455 2,561 3,012

Subtotal, Department of State ......................................................................... 9,953 11,260 13,313

International Assistance Programs:

Foreign Military Financing............................................................................. 4,258 4,745 4,589Nonproliferation, Anti-Terrorism, Demining and Related

Programs ........................................................................................................ 336 399 440Development Assistance ............................................................................... 1,364 1,448 1,103Economic Support Fund................................................................................ 1,947 2,481 3,036Child Survival and Disease Programs...................................................... 1,823 1,538 1,252Millennium Challenge Corporation ............................................................ 994 1,488 3,000Peace Corps ...................................................................................................... 308 317 345Conflict Response Fund (legislative proposal)...................................... — — 100All other programs ........................................................................................... 4,057 3,788 4,595USDA International Food Aid (non-add) ................................................. 1,185 1,173 885

Subtotal, International Assistance Programs ............................................. 15,087 16,204 18,460

Other International Affairs Activities:Export-Import Bank ......................................................................................... 30 77 211Broadcasting Board of Governors ............................................................. 552 591 652All other programs ........................................................................................... 74 183 87

Subtotal, Other International Affairs Activities ........................................... 656 851 950


Memorandum: Budget authority from enacted supplementals ............... 3,155 193 —

Discretionary Outlays:

Department of State ............................................................................................ 9,953 11,260 13,414

International Assistance Programs ................................................................ 16,837 16,724 17,778Other International Affairs Activities .............................................................. 1,167 1,233 1,086From Supplementals ........................................................................................... 380 112 104


Total, Mandatory outlays ........................................................................................ 5,032 2,524 561

Total, Outlays .............................................................................................................. 23,305 26,805 31,821




Department of State and International Assistance Programs—Continued(In millions of dollars)

Estimate2004

Actual 2005 2006

Credit activity

Direct Loan Disbursements:Department of State ............................................................................................ — 1 1International Assistance Programs ................................................................ 511 791 551Export-Import Bank.............................................................................................. 928 277 144

Total, Direct loan disbursements ......................................................................... 1,439 1,069 696

Guaranteed Loan Commitments:International Assistance Programs ................................................................ 3,037 5,609 560Export-Import Bank.............................................................................................. 10,928 11,092 11,787

Total, Guaranteed loan commitments................................................................ 13,965 16,701 12,347



DEPARTMENT OF TRANSPORTATION

U N I

T E D S T AT ES O F

A M E R

I C A

D E P A R T M E N

T O F T R AN S

P O R

T A T

I O N

AT A GLANCE:

2006 Discretionary Budgetary Resources: $57.5 billion(Decrease from 2005: 1 percent)

Major Programs:

Aviation system

• Interstate highway system

• Rail system

• Highway safety programs



Improving aviation and surface transportation safety.

• Improving transportation mobility.

• Improving passenger rail service between cities.


• Implementing recently released Federal Aviation Administration air traffic controller workforceplan to ensure appropriate staffing.

• Developing Federal highway grant management techniques to reduce cost and schedule over-runs.

• Improving oversight of all Department of Transportation loan programs.

• Improving research coordination and oversight of pipeline and hazardous materials safetyprograms.

237



238 DEPARTMENT OF TRANSPORTATION


Aviation Safety

1999 2000 2001 2002 2003 20040

10

20

30

40

50

60

70

Source: Department of Transportation.

Severe Runway Incursions are DecreasingThe United States has the largest, mostcomplex aviation system in the world. TheNation’s airspace system includes 14,934 airtraffic controllers, 3,364 airports, and 315air traffic control facilities. Yet despite thiscomplexity and size, commercial aviationcontinues to be the safest form of trans-portation—the United States has seen onlyone commercial accident since 2002. TheFederal Aviation Administration (FAA) hasestablished strategic goals to reduce the rates

of commercial and general aviation fatalaccidents, reduce the risk of potential runwaycollisions, and reduce cabin injuries caused byturbulence.

FAA, working with industry, academia, andother Federal agencies, conducts aviation research for improving safety. For example, in 2006, FAAwill continue its research into technologies, procedures, and practices that help ensure the continued

FAA Delivers New Technology

FAA’s ASDE-X technology provides General Mitchell InternationalAirport in Milwaukee, Wisconsin with a new tool to more efficientlymanage runway traffic.

The FAA’s Airport Surface Detection Equip-ment—Model X (ASDE-X) increases airportsafety. ASDE-X uses advanced technology to:

• Determine the position of ground trafficby using a three dimensional display,which is particularly useful during periodsof poor weather;

• Prevent potential runway collisions byproviding visual and audio alerts to airtraffic controllers; and

• Reduce taxi time and delays by eliminat-

ing unnecessary communications.

At the four sites where this new technologyis deployed, it has reduced the risk of runwayincursions by 66 percent and reduced taxi-outtime delays by 2.6 percent, meaning lesstime waiting for departures. The 2006 Budgetprovides $24 million to deploy ASDE-X at nineadditional airports.




airworthiness of older aircraft. FAA will also develop and implement airport design standards andsurface movement procedures to lower the risk of runway collisions.

The 2006 Budget supports FAA’s continuing safety efforts. The Budget request for FAA is nearly$11 billion, excluding grants for airport development. The Budget provides $8.2 billion in operationaland personnel costs, $2.4 billion in information technology investments, and $130 million for aviation

research. In 2006, FAA plans to hire approximately 600 new air traffic controllers and 97 safetyinspectors to ensure that FAA maintains high standards of aviation safety and efficiency.

Surface Transportation Safety

1980 1983 1986 1989 1992 1995 1998 20010

10

20

30

40

50

60

70

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5Total Annual Fatalities

Fatality Rate Per 100 millionVehicle Miles Traveled

inHighway Fatalities Remain ConstantRecent YearsFatalities in thousands Per 100 million miles


In calendar year 2003, the vehicle fatality ratereached a record low—1.48 deaths per 100 mil-lion vehicle miles traveled, while the number of

vehicle miles traveled increased by 24 millionmiles. Despite this improvement, the total num-ber of surface fatalities has remained essentiallyunchanged since calendar year 2001. An esti-

mated 42,643 lives were lost in traffic accidentsin calendar year 2003, approximately 117 peo-ple per day.

Two major contributing factors to vehiclefatalities are alcohol-impaired driving and thefailure to use safety belts. In both of theseareas, the statistics are improving. Alcohol-re-lated traffic deaths decreased by three percentin calendar year 2003, to the lowest level since calendar year 1999. In calendar year 2004, safetybelt use reached an all-time high of 80 percent, but thousands died or were injured because theyfailed to buckle up. Approximately 59 percent of those killed in motor vehicle crashes were not using

any type of occupant restraints.To build on safety gains, the Administration’s surface transportation reauthorization proposal

Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA) wouldcombine several safety programs administered by the National Highway Traffic Safety Admin-istration (NHTSA) into a consolidated grant program. States would have greater flexibility touse safety program funds for occupant protection, impaired driving countermeasures, and othersafety programs if they develop performance-based highway safety plans. SAFETEA also proposesa safety belt incentive program to encourage States to enact tough safety belt laws and achievesubstantially higher safety belt usage rates. The Budget requests $231 million for NHTSA safetyoperations and research programs and $465 million for grants to States for targeted highway safetyprograms, which is $23 million more than enacted for 2005. Funding increases are also directed

toward improving the Fatalities Analysis Reporting System, the Department of Transportation’s(DOT’s) database used to measure and analyze trends in vehicle fatalities.

In addition, the Administration proposes more than doubling funding for highway safety improve-ments over levels in the previous six-year authorization law, the Transportation Equity Act for the21st Century (TEA 21). SAFETEA dedicates approximately $7.5 billion over six years to help Stateseliminate hazardous roadway conditions.





Motor carrier grants are used by States to hire and train safetyinspectors.

Motor carriers (commercial trucks and buses)represent about four percent of registered vehi-cles, eight percent of vehicle miles traveled, and

11 percent of all fatal vehicle crashes. Whilefatality rates have decreased, the Federal Mo-tor Carrier Safety Administration (FMCSA) fellshort of meeting its target levels for calendaryear 2003, but will continue working to reducethe rate from 2.8 per 100 million truck-milestraveled in calendar year 1996 to 1.65 by cal-endar year 2008.

Consistent with the SAFETEA proposal,the President’s Budget requests $232 millionfor aggressive State enforcement of interstate

commercial truck and bus regulations, and$233 million to support oversight of hazardous materials transportation, Federal safety enforcementprograms, and border safety inspections. These funds will support commercial vehicle safety andresearch to enhance the quality, stability, and uniformity of State commercial vehicle safety andenforcement programs. Additional funding in 2006 will support motor carrier safety grants toStates, and improvements to FMCSA’s safety database.

SAFETEA expands and improves safety auditing of new motor carriers. Studies show that newmotor carriers are less likely to comply with safety regulations and are more likely to be involved incrashes than well-established motor carriers. FMCSA is implementing a safety auditing initiativefor every new commercial motor carrier company that applies to operate within the United States.New entrants will be subjected to a safety audit in the first 18 months of operation before they receivea permanent safety decal.

To improve rail safety, the Budget includes an additional $14 million to substantially complete theNational Differential Global Positioning System (NDGPS) broadcast station network in the conti-nental United States. NDGPS, which relays GPS coordinates at one to three meter accuracy, willenable railroads to use Positive Train Control (PTC) technology to track the location and speed of trains on crowded tracks more accurately. Employing PTC systems should reduce the likelihood of collisions between trains, casualties to roadway workers, and speed-related accidents. The NationalTransportation Safety Board has named PTC as one of its "most-wanted" initiatives for nationaltransportation safety.

Improving Transportation Mobility

Relieving congestion continues to be a major challenge. To address this problem, and to enhanceinfrastructure conditions, the Department proposes investing in system improvements and smarttechnology. Initiatives supported in this Budget include expanding “intelligent” highway system tech-nology and modernizing the airspace control system. DOT’s total requested spending for improvingmobility is approximately $38 billion for 2006.




Over the next 20 years, many airports will need additional capacity tomeet growth in air traffic demand.

Air Mobility. The demand for air transporta-tion is outpacing increases in capacity in someU.S. airports. FAA forecasts that air traffic de-mand has the potential to triple by 2025. Thisgrowth has been fueled by the airline industry’sability to offer safe, affordable, and fast service.

The 2006 Budget proposes $3 billion forthe Grants-in-Aid for Airports program (AIP),which provides funding to airports for safetyand capacity-enhancement projects. AIPfunding assists airports in constructing newrunways or taxiways, extending existingrunways, and constructing and improvingterminal buildings. Providing additional

runways and deploying improved technology will help meet future customer needs and reduce flightdelays. FAA will continue to use its authority to work with airlines at selected airports to easeairline delays. It will also expand the Free Flight program which provides air traffic controllers

with air traffic management tools to direct planes to their destinations more efficiently. These toolsreduce air traffic congestion, delays, and the cost of flying.

In addition, the 2006 Budget requests $18 million for the FAA to begin to integrate the Govern-ment’s disparate air traffic enhancement efforts; leverage investments in civil aviation, homelandsecurity, and national security; and build upon current air traffic management initiatives.

Surface Mobility. Highway and road congestion is an aggravating problem in all parts of the coun-try. Congestion is also a growing problem at intermodal freight transfer facilities, like sea ports andrail yards. Despite localized congestion problems, the condition and quality of the Nation’s highwaysha ve improved in recent years.

1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

5

10

15

20

25

30

35

40Actual Projected Target

Highway Congestion is WorseningPercent congested conditionsof highway miles traveled under


To ease gridlock, the Budget proposes

highway and transit infrastructure spendingof $283.9 billion over six years. This marks a35-percent increase over the TEA 21 six-yearspending totals. This figure reflects the emerg-ing consensus in Congress that was developedin a conference committee in 2004, and the

Administration looks forward to working withthe Congress to complete action on legislationto improve the surface transportation system.

In addition to relying on new constructionto reduce congestion, SAFETEA would fund

research and development to increase the ca-pacity of the existing highway system. Throughadvanced traffic management techniques, wecan improve the performance and operation of existing transportation systems.

SAFETEA would facilitate private investment in transportation projects. Encouraging private par-ticipation is a critical step in the improvement of the surface transportation system. SAFETEA alsoenvisions new methods to achieve better use of our highways. For example, SAFETEA would allowStates to permit Single Occupancy Vehicles in High Occupancy Vehicle lanes, as long as time-of-day

variable charges are assessed on lone drivers for such access.




Highlights of the Passenger Rail Investment Reform Act:

• Amtrak would split into a private infrastructure company and train operating company, effectively sep-arating the Northeast Corridor (NEC) infrastructure from long-distance train operations.

• DOT would lease the NEC infrastructure to a compact of States that would be responsible for managing

the infrastructure and train operations along the corridor.• Outside the Northeast where Amtrak does not own track, individual States and interstate compacts

could negotiate with the freight rail companies to develop new routes. This should lead to the devel-opment of short-corridor routes between major population centers.

• After a transition period, States would bid contracts for infrastructure maintenance and train operationsamong the former Amtrak companies and other private companies. States would cover train operatingsubsidies. Federal matching grants would help pay for infrastructure, which is similar to the Federal-State cost sharing arrangement of other DOT transportation programs.

This has occurred at the same time as Federal funding for Amtrak has increased substantially. For

2001, Amtrak received $520 million in Federal funding. For 2005, Amtrak received $1.2 billion.In 2003, the Administration proposed the Passenger Rail Investment Reform Act, which built

on the successful State-Federal partnerships that are hallmarks of other transportation programs.Ultimately, States and localities would have the freedom to develop custom rail services demandedby their citizens. The Federal Government’s role would be to assist in funding capital investments.

1997 1998 1999 2000 2001 2002 2003 20040

500

1,000

1,500Operating Loss

Cash Loss

...While Amtrak's Losses Continue to Grow

Millions of dollars


Until such reforms are enacted, the Admin-istration will not propose continued Federalsubsidies for Amtrak. On its current course,

Amtrak’s performance will decline and itsinfrastructure will deteriorate even with wellover $1 billion in annual Federal appropri-ations. With no subsidies, Amtrak wouldquickly enter bankruptcy, which would likelylead to the elimination of inefficient operationsand the reorganization of the railroad throughbankruptcy procedures. Ultimately, a morerational passenger rail system would emerge,with service on routes where there is realridership demand and support from localgovernments—such as the Northeast Corridor.The 2006 Budget proposes $360 million for theSurface Transportation Board to maintain existing commuter services and freight traffic along the

Northeast Corridor and elsewhere.The Administration would endorse increased funding in subsequent years for intercity passenger

rail, on the condition that real legislative reforms are enacted. This amount could fund the reformsenvisioned in the Administration’s restructuring proposal, including addressing the Northeast Cor-ridor deferred maintenance backlog, and investing in new state-sponsored capital projects.





Aviation Transportation

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

200

400

600

800

1,000

1,200

1,400


FAA Projects Dramatic Increase in RetiringAir Traffic Controllers

The FAA’s newly created Air Traffic Organ-ization (ATO) has improved the managementof the FAA through several initiatives. The

ATO finalized a comprehensive workforce planto address the upcoming wave of air trafficcontroller retirements. This plan helps ensurethat the FAA will have the right people to fillopen positions as they develop. In addition,the ATO has launched an initiative to increaseworker productivity by 10 percent over thenext five years. The ATO will increase theproductivity of its staff by decreasing the timeand expense taken to hire and train new airtraffic controllers, establishing flexible staffingstandards to better use the existing workforce,and by better managing other compensation costs such as sick leave, disability claims, and timespent on union activities. The ATO will also improve productivity by handling expected air trafficincreases through 2009 using existing staffing levels and automation programs. Consolidation of some facilities and a possible expansion of the contract tower program will also help the Departmentbecome more productive.

Surface Transportation

For 2005, grants for highway construction, public transit, and highway safety programs—the De-partment’s largest program—must be reauthorized by the Congress. The reauthorization will definefederal highway policy, and also set funding levels for upcoming projects. The Budget updates the

Administration’s proposed reauthorization legislation—Safe, Accountable, Flexible, and Efficient,Transportation Equity Act (SAFETEA)—by supporting reauthorization at a level of $283.9 billionthrough 2009.

The Budget supports improved organizational performance and productivity for all DOT surfacetransportation programs. For example, through its oversight program, the Federal Transit Admin-istration (FTA) helps transit agencies develop disciplined cost estimates, focusing on best practicesand better metrics, emphasizing risk assessment practices, and evaluating procurement practices.Currently, all of FTA’s major capital projects are within 10 percent of baseline cost estimates and

most of the projects are within 5 percent. Likewise, the Federal Highway Administration (FHWA) ismore closely monitoring progress of large construction projects over $1 billion.

Nevertheless, DOT needs to improve its oversight of the tens of billions of dollars in highway andtransit grants made to States and localities each year. DOT field staffers are focusing on makingsure grant recipients control project costs and schedules. To help meet this goal, DOT is implement-ing an action plan to ensure that Federal grant dollars are properly accounted for by grantees andsub-grantees. For example, the Budget includes funds for additional personnel to provide oversight of large highway construction projects, such as the “mixing bowl” project in Springfield, Virginia. Addi-tionally, SAFETEA would strengthen FHWA’s stewardship while respecting States prerogatives by:




• Having States submit project management plans for all Federal aid projects costing $1 billionor more.

• Requesting States to prepare annual financial plans for all projects receiving $100 million ormore in Federal aid funds.

• Establishing cost-estimate standards to provide more reliable and consistent project cost expec-

tations.• Strengthening the Department’s suspension and debarment policies to prevent contractors from

continuing to defraud the Government.

• Allowing States to share in monetary recoveries from Federal fraud cases.

SAFETEA would also establish a new highway pilot program where States could manage as ablock grant funds from the following programs: Interstate Maintenance, National Highway System,Surface Transportation (except for the Transportation Enhancement funds), Highway Safety Im-provement, Highway Bridge, and Minimum Guarantee. Under the pilot program, States would workwith the Department to develop and meet specific system performance measures.

Credit Programs

DOT operates loan programs that provide substantial financing for rail, highway, maritime, andmultimodal projects that improve mobility and safety, and enhance the environment. Over the pastyear, DOT has established a process to better manage its loan portfolio and limit its credit risk. DOTuses a standardized process for reviewing loan applications, regardless of the loan program, and topagency management make final recommendations. DOT also employs independent financial advisorsto assess the financial viability of applicants. The result is consistent standards and better decision-making. On a related issue, the 2006 Budget proposes to de-authorize the Railroad Rehabilitationand Improvement Financing loan program because recent tax law changes will better advance railinfrastructure investment.

Research and Special Programs Administration Reorganization

The recent enactment of the Research and Special Programs Improvement Act will permit the Administration to improve coordination and strengthen oversight by realigning the Department’sresearch, pipeline safety, and hazardous materials safety programs. The restructuring will createtwo new operating administrations in place of the existing Research and Special Programs Admin-istration. The new Research and Innovative Technology Administration will focus on research anddevelopment activities, transportation analysis, and statistics. Inspection and policy responsibilitiesfor pipeline and hazardous materials transportation safety programs will be placed within the othernewly established operating administration: the Pipeline and Hazardous Materials Safety Adminis-tration.

Managing for Results

The Administration continues to assess the management and performance of DOT programs usingthe Program Assessment Rating Tool (PART). Last year, nine programs were assessed using PART,which reviews each program’s design and purpose, strategic planning, internal management, andwhether they are generating positive results for taxpayers. For example, the PART review of FAA’sFacilities and Equipment program found that, despite appropriate long-term goals, projects consis-tently experience large cost and schedule overruns. In response to the PART recommendations, FAAwill focus on increasing the use of performance-based contracts as a means of controlling costs. Eval-uations of the Maritime Administration’s Maritime Security Program found a need for a new measure





of the program’s contribution to the total commercial sealift capacity requirement. This new mea-sure will help DOT, which is working with the Department of Defense, evaluate whether the currentmix of vessel types in the Maritime Security Program fleet are appropriate to meet the needs of the

Department of Defense.


The table below provides an update on DOT’s implementation of the President’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

Through the Human Capital initiative, DOT has established a new strategic plan for managing its humancapital and is progressing toward implementing multi-tier employee evaluation systems for each of its operatingadministrations. DOT completed its first two standard competitions in August 2003, with expected savingsof $9 million over 10 years. DOT has implemented a Department-wide integrated financial system to makethe Department’s accounting practices more streamlined and accurate. The Department still faces severalchallenges relating to financial management, including a need to improve the oversight of highway and transitgrants. DOT has created an Enterprise Architecture that focuses on information technology (IT) investments andplans to address “at risk” programs in the Department. Over the next year, DOT will work towards achieving thechallenging goal of securing all of its IT systems. DOT’s 2006 Budget submissions incorporated PART findingsand are structured to show full costs by strategic goal.




FAA holds over 98 percent of the DOT property and leads the Department’s Real Property Initiative. There aremany challenges ahead, including a gap analysis between the FAA asset management plan, inventory system,and performance measures and the Federal Real Property Council standards. FAA will use this assessment todetermine an aggressive strategy for addressing deficiencies. For its Improper Payment Initiative, DOT’s majorchallenge is to gain insight into how grantees and subgrantees spend DOT funds. Currently, DOT has limitedinformation for its major grant programs. (Because this is the first quarter that agency efforts in the EliminatingImproper Payments Initiative were rated, progress scores were not given.)




Department of Transportation(In millions of dollars)

Estimate2004

Actual 2005 2006

SpendingDiscretionary Budgetary Resources:

St. Lawrence Seaway Development Corporation

Existing law ........................................................................................................ 13 15 7Legislative proposal to collect user fees .................................................. — — 8

Federal Aviation Administration ........................................................................... 13,841 13,834 13,779FAA Obligation Limitation (non-add) ................................................................. 3,379 3,472 3,000

Rescission of 2005 and 2006 unused contract authority ...................... — — 1,069 Federal Highway Administration .......................................................................... 33,919 33,734 34,700

Federal-Aid Highway Obligation Limitation (non-add) ........................... 33,949 34,263 34,700 Federal Motor Carrier Safety Administration (Obligation limitation) ....... 364 443 465

National Highway Traffic Safety Administration (Obligation limitation) .. 298 452 696Federal Transit Administration .............................................................................. 7,264 7,647 7,781FTA Obliga tion Limitation (non-add) ............................................................. 5,813 6,691 6,825

Federal Railroad Administration .......................................................................... 1,450 1,425 552Amtrak (non-add) ................................................................................................ 1,218 1,207 360

Maritime Administration .......................................................................................... 220 304 295Rescissi on of unused balances .......................................................................... — — 74 Pipeline and Hazardous Materials Safety Administration 1 ....................... 112 112 116Research and Innovative Technology Administration 2 ............................. — 4 6Surface Transportation Board............................................................................... 18 20 23All other programs (includes offsetting collections) ...................................... 163 1 216Total, Discretionary budgetary resources 3 .................................................... 57,662 57,991 57,501

Total, Surface Obligation Limitation (non-add) .............................................. 40,420 41,849 42,686

Memorandum: Budget authority from enacted supplementals ............... — 1,227 —


Mandatory Outlays:

St. Lawrence Seaway Development Corporation:

Legislative proposal to collect user fees .................................................. — — 8Federal Highway Administration...................................................................... 946 1,296 1,330Office of the Secretary ........................................................................................ 8 117 51All other (including offsetting receipts).......................................................... 206 433 176

Total, Mandatory outlays ........................................................................................ 1,160 980 1,197

Total, Outlays .............................................................................................................. 54,547 58,215 60,585




Department of Transportation—Continued(In millions of dollars)

Estimate2004

Actual 2005 2006

Credit activity

Direct Loan Disbursements:Transportation Infrastructure Finance and Innovation Program .......... 65 396 818Railroad Rehabilitation and Improvement Program ................................. 227 250 —

Total, Direct loan disbursements ......................................................................... 292 646 818

Guaranteed Loan Commitments:Transportation Infrastructure Finance and Innovation Program .......... — — 200Maritime Guaranteed Loans (Title XI)........................................................... 212 140 —Minority Business Resource Center .............................................................. 8 18 18

Total, Guaranteed loan commitments ................................................................ 220 158 2181

To be transferred to the Surface Transportation Board.

2 Reflects reorganization of programs under the Research and Special Programs Improvement Act.3

Includes both discretionary budget authority, obligation limitations, and rescissions.



DEPARTMENT OF THE TREASURY

AT A GLANCE:


Major Programs:

Collecting taxes

• Managing and accounting for the public debt

• Administering Federal finances

• Combating financial crime and terrorist financing

• Regulating and supervising financial institutions

• Producing coins and currency



Reforming the tax code to make it simpler and fairer for average taxpayers.

• Ensuring a safe and sound banking system through regulation and supervision of banks andthrifts.

• Promoting and coordinating efforts of Federal agencies and the private sector to increase finan-cial literacy for all Americans.

Protecting America

• Combating terrorist financing and financial crime, especially through efforts of the new Officeof Terrorism and Financial Intelligence, which will provide a comprehensive approach toTreasury’s contribution to the War on Terror.


• Producing the world’s most accepted coins and currency and ensuring the integrity of the U.S.dollar.


• Providing new tax enforcement initiatives to promote fair and equitable tax enforcement andincrease revenue.

249



250 DEPARTMENT OF THE TREASURY


• Reducing paper processing as more people file electronically with the Internal Revenue Service.

• Consolidating the Community Development Financial Institutions Fund with other communityand economic development programs.

• Focusing Internal Revenue Service customer service on telephone and Internet and away fromwalk-in service centers.





President Bush has brought tax relief to Americans in each year since 2001 and is working on mak-ing this tax relief permanent while reforming the complex tax system. The President has appointed

a bipartisan panel to advise the Secretary of the Treasury on options to reform the tax code. The re-port that the panel will present this year should help move the Nation toward a simpler, fairer, morepro-growth system, which recognizes the importance of home ownership and charity to Americansociety. Meanwhile, the Internal Revenue Service (IRS) is working to make it easier for taxpayersto comply with Federal income tax rules. Taxpayers used the IRS.gov website 739 million times in2004 to download forms and publications, up 32 percent from 2003. Electronic filing, which is faster,easier, and far less prone to error than paper filing, increased by 16 percent in 2004 to more than 61million individual tax returns. IRS estimates that 68 million, or half of all individual returns will beelectronically filed in 2005.

Need Customer Assistance?

Treasury’s Office of the Comptroller of the Currency (OCC) as-sists consumers in resolving complaints about national banks andthe credit cards issued by those banks. By resolving consumercomplaints, OCC returned $4.4 million in fees and charges tonational bank customers last year. You can contact OCC’s Cus-tomer Assistance Group toll-free by telephone, 1–800–613–6743,or by e-mail at [email protected]. For more

information about the OCC’s Customer Assistance Group,including information on how to file a formal complaint againsta national bank, visit OCC’s Customer Assistance web page atwww.occ.gov/customer.htm.

A healthy banking system is fundamental to a strong national economy. Treasury maintains thehealth of the national banking and thrift system through the Office of the Comptroller of the Cur-rency (OCC) and the Office of Thrift Supervision (OTS). OCC and OTS conduct on-site examinationsand regulate financial institutions to ensure that institutions are properly capitalized and soundlymanaged. In addition, OCC and OTS ensure that bank and thrift customers have fair access tofinancial services by examining banks and thrifts for compliance with consumer banking laws. Fi-nally, OCC and OTS act in conjunction with the Financial Crimes Enforcement Network (FinCEN)to enforce laws and regulations that prevent banks and thrifts from allowing criminals to launder





money through their institutions. In the next few years, the banking regulators will work on updat-ing international uniform safety and soundness standards for banking institutions.

The Administration will again propose broad reform of the supervisory system for Government-sponsored enterprises (GSEs) in the mortgage market: Fannie Mae, Freddie Mac, and the FederalHome Loan Bank System. Part of this reform includes establishing a new safety and soundnessregulator for the housing GSEs with powers comparable to other world-class financial regulators,and with the stature and resources necessary to carry out its responsibilities. The Budget places thisnew regulator in the Department of the Treasury. The Administration’s proposal promotes a strong,resilient financial system and increased opportunities for affordable homeownership. (See the Creditand Insurance chapter in the Analytical Perspectives volume for a background discussion.)

Treasury’s Office of Financial Education contributes to the Administration’s pro-growth agendaby equipping Americans with the knowledge needed to improve management of their finances. The2006 Budget continues its commitment to the Office of Financial Education, which facilitates privatesector efforts to raise the level of financial literacy of Americans. Treasury coordinates the financial

education efforts of 20 Federal agencies.




PROTECTING AMERICA

The Power of Sanctions: The Commercial Bank of Syria

In 2004, analysts and investigators from the FinancialCrimes Enforcement Network, the Office of ForeignAsset Control, and the Internal Revenue Service CriminalInvestigation division identified the Commercial Bank ofSyria as an acute financial threat. The Commercial Bankof Syria served as a haven for the laundering of proceedsgenerated from violations of United Nations (UN)sanctions against the Saddam Hussein regime in Iraqand the UN’s Oil For Food program in Iraq, and retainedthese proceeds in contravention of international law.Moreover, terrorists and their supporters used the bank

and suspicious transactions were processed withoutoversight. On May 11, 2004, Treasury designated theCommercial Bank of Syria a “primary money launderingconcern” under the USA PATRIOT Act. This designationexposed the bank to potentially serious countermea-sures, including cutting the bank off entirely from the U.S.financial system. Since May, the Government of Syriahas sought to avert such countermeasures by enteringinto negotiations with Treasury aimed at bringing thecountry into compliance with international anti-moneylaundering standards.

The President’s Budget commits over $100 million to Treasury’s efforts to protect America throughdetecting and stopping financial crimes, money laundering, and terrorist financing. The Office of Terrorism and Financial Intelligence (TFI) fully integrates the operations and assets of the Officeof Terrorist Financing and Financial Crime (TF/FC), the Office of Foreign Assets Control (OFAC),the Financial Crimes Enforcement Network (FinCEN), the Office of Intelligence and Analysis (OIA),and the Treasury Executive Office for Asset Forfeiture (TEOAF). The aims of the consolidated TFIorganization are safeguarding the financial system against illicit use and wielding Treasury’s arrayof economic tools against rogue nations, terrorist facilitators, money launderers, drug kingpins, andother national security threats. TFI is divided into two functional areas: intelligence and enforce-ment. OIA provides focused and operable intelligence in support of the Department’s mission andpolicies. TFI’s enforcement responsibilities—executed by the TF/FC, OFAC, and FinCEN—include

designating and freezing the accounts of terrorists, drug kingpins, and their support networks; im-plementing U.S. sanctions policy; administering and enforcing the Bank Secrecy Act (BSA); linkinglaw enforcement agencies with financial institutions to uncover illegal activities and schemes; andhelping strengthen U.S. and international standards to prevent money laundering and terrorist fi-nancing. Finally, TFI provides policy guidance for IRS’ Criminal Investigation’s expert investigatorsin their anti-money laundering, terrorist financing, and financial crimes cases.





Internal Revenue Service Criminal Investigation (IRS-CI) divisionspecial agents display possible hawala symbols found stamped on U.S.currency seized from Saddam Hussein upon his capture. Hawala is aninformal funds-transfer system sometimes used by money launderersand terrorist financiers.

One of the most visible and effective tacticsof the comprehensive strategy has beenpublic designation of terrorists and terrorist

organizations. Since September 2001, theUnited States and our allies have designated397 terrorist-related entities and frozen nearly$147 million in terrorist assets worldwide.

IRS’ special agents are experts at gatheringand analyzing complex financial informationfrom numerous sources and applying theevidence to tax, money laundering, and BSA

violations. These agents apply their training,skills, and expertise to support the nationaleffort to combat terrorism and participate in

the Joint Terrorism Task Forces and similarinteragency efforts focused on disrupting anddismantling terrorist financing.





In 2005, there will be a new face on theNation’s nickel. It will still be PresidentThomas Jefferson, but unlike we haveever seen him before.

The U.S. Mint (Mint) and the Bureau of Engraving and Printing(BEP) are responsible for ensuring that our Nation continues to pro-

duce the world’s most accepted coin and currency. At the end of 2005,the Mint will end its highly successful production of nickels in com-memoration of the bicentennials of the Louisiana Purchase and theLewis and Clark expedition. All nickels issued in 2006 will bear thelikeness of Thomas Jefferson on one side, and an image of Monticelloon the other side. During 2006, the Mint will also roll out the nextinstallment of the popular 50 State quarters program, with quartersfor Nevada, Nebraska, Colorado, North Dakota, and South Dakota.

During 2006, BEP will continue to focus its resources on produc-ing the most secure currency for the Nation. BEP will pursue theredesign of the $100 note as part of its current multi-year initiative

to implement the most ambitious currency redesign in U.S. history.The planned redesign of the $100 note follows successful redesigns of the $20 and $50 notes withsubtle background colors and other counterfeit deterrence features. A redesigned $10 note will be inproduction and introduced into circulation in 2005.





Treasury is working to reduce duplicative programs and maximize the efficiency of all its bureaus.For example, IRS officials are working to increase the effectiveness of their programs by helping to

bring about fairer and more efficient tax compliance at a lower cost. The Budget invests $265 mil-lion in new initiatives for these programs. This investment will provide additional audits, collectionefforts, and tax fraud enforcement to increase revenue and promote compliance.

Enforcement Revenue

Source: IRS.

2001 2002 2003 2004 2005 20060

10

20

30

40

50

Billions of dollars

-----Projection-----

33.8 34.1

37.6

43.1 43.345.9

To attack tax evasion most effectively, IRSis targeting its enforcement resources onhigh-risk taxpayers such as those potentiallyinvolved in abusive trusts or offshore taxevasion schemes. This focus on higher risktaxpayers has resulted in increased auditson higher income individuals and businesses.

Audits of high-income taxpayers—those

earning $100,000 or more—topped 195,000 in2004, a 40-percent increase from 2003 and a74-percent increase from 2002. Audits of thelargest businesses—those corporations withassets of $10 million and over—climbed to9,560, up 34 percent from 2003. One in six of these large corporations were audited in 2004.One sign of the success of this crackdown on

tax evasion is the increase in revenue resulting from enforcement actions, which reached a record$43 billion in 2004 (see accompanying chart).

The American Jobs Creation Act of 2004 included an important new tax enforcement tool. Like

many States and other Federal agencies, IRS will now be able to hire private collection contractorsto supplement its own collection staff ’s efforts to ensure that all taxpayers pay what they owe. Thelegislation ensures contractors respect taxpayer rights. Treasury estimates these contractors willincrease delinquent tax collections by at least $1.4 billion over the next 10 years.

IRS has already achieved impressive successes in productivity improvements. Since 2002, IRShas improved its productivity in tax collection (by telephone and mail) and correspondence auditsby more than 15 percent. The Budget proposes to streamline IRS’ taxpayer service programs byreducing dependence on walk-in service centers and increasing reliance on more efficient telephoneand Internet service. This proposal was developed, in part, as a result of a 2004 Program AssessmentRating Tool analysis of taxpayer service.

The Federal Government is working with the States to make filing taxes easier by providing more

forms that can be filed electronically. The Budget funds the Modernized E-File Project at an esti-mated $56 million, which has demonstrated success over the past several years.

Electronic filing also benefits the Government through reduced processing costs. The Budget in-cludes a legislative proposal to increase the Secretary of the Treasury’s authority to mandate elec-tronic filing from businesses and tax exempt organizations. This measure will assist the IRS in





The Budget provides funding for FMS’ electronic initiatives, such as: Pay.gov, which is a Govern-ment-wide web portal to collect non-tax revenue electronically; Paper Check Conversion, which con-

verts checks into electronic debits thereby moving funds more quickly; and Stored Value Cards, which

directly support military operations overseas. FMS also collects the Government’s non-tax delinquentdebt such as: loans owed to the Government, fines or penalties assessed by an agency, and overpay-ments made by Federal agencies. FMS collected $3 billion in non-tax delinquent debt in 2004.

In 2006, The Bureau of Public Debt (BPD) will continue its efforts to improve the efficiency of thesecurities services it offers to retail investors. The cornerstone of this effort is BPD’s new Treasury-Direct system, which, when fully implemented, will enable investors to purchase and manage all of their Treasury securities holdings online through a single portfolio account. The system currentlyoffers both Series I and EE savings bonds in electronic form and holds more than $1.3 billion in morethan 250,000 accounts.

The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible for the regulation of the al-cohol and tobacco industries, and the collection of approximately $15 billion annually in alcohol,

tobacco, firearms, and ammunition excise taxes. TTB protects the consumer by ensuring that alcoholbeverages are labeled, advertised, and marketed in accordance with the law, facilitates the importand export trade in beverage and industrial alcohols, promotes voluntary tax compliance, and en-forces the provisions of the Federal Alcohol Administration Act. In 2006, TTB anticipates receivingand screening more than 100,000 label applications, more than 400,000 tax returns and operationalreports, and more than 4,000 applications for permits to enter the alcohol and tobacco industries. In2006, TTB will process an estimated 16 percent of its label applications electronically, up from justthree percent in 2003. The Budget proposes to establish user fees to cover the costs of TTB’s regula-tory functions under its Protect the Public line-of-business. The new user fees include filing fees forCertificate of Label Approvals, proposed formulas, and permit applications. The industry should payfor the benefits it receives from TTB’s regulatory efforts.

The 2006 Budget proposes to consolidate the Community Development Financial Institutions Fundinto a new economic and community development program to be administered by the Department of Commerce. The new program would be designed to achieve greater results and focus on communitiesmost in need of assistance. Treasury will continue to oversee the New Markets Tax Credit program.





The table below provides an update on the Department of the Treasury’s implementation of thePresident’s Management Agenda as of December 31, 2004.


SourcingFinancial



Integration

Status

Progress

Arrow indicates change in status since evaluation on September 30, 2004.

Treasury has strengthened its management and is working to achieve results at all its bureaus. Treasuryimplemented a new Department-wide comprehensive human capital strategic plan and accountability system,setting the stage for continued progress in narrowing skills gaps, establishing leadership succession strategies,

and ensuring that employees are held accountable for results. As a result of competitive sourcing studies, theTreasury Department anticipates savings of $185 million over the next five years. IRS employees developed anefficient organization plan. The Department has a strong competitive sourcing plan to generate more savingsover the next year. In financial performance, Treasury received a clean audit opinion on its financial statementsfor the fifth year in a row, performed monthly three-day closes, and for the past three years, completed itsaccountability report in just 45 days after the end of the fiscal year. In addition, the Department has improvedthe security of its information technology systems and is improving its capital planning process. This year theDepartment will focus its efforts on developing an Enterprise Architecture and ensuring that its informationtechnology projects are within 10 percent of cost, schedule, and performance goals. Finally, the Departmentimproved its budgeting by reporting the full cost of program performance.



In 2005, an estimated 22 million families will receive $39 billion in Earned Income Tax Credit (EITC) payments toreward work and lift them out of poverty. Unfortunately, due to mistakes and fraud, more than one EITC dollar infour is paid in error. The IRS is piloting new strategies, such as qualifying child certification, to target the mostsignificant causes of error. (Because this is the first quarter that agency efforts in the Eliminating ImproperPayments Initiative were rated, progress scores were not given.)




Department of the Treasury—Continued(In millions of dollars)

Estimate2004

Actual 2005 2006

Direct Loan Disbursements:Community Development Revolving Loan Fund ....................................... 7 7 —

Total, Direct loan disbursements ......................................................................... 7 7 —

Guaranteed Loan Commitments:Air transportation stabilization fund ............................................................... 30 — —

Total, Guaranteed loan commitments ................................................................ 30 — —



DEPARTMENT OF VETERANS AFFAIRS

AT A GLANCE:

2006 Discretionary Budget Authority (with collections):

$33.4 billion (Increase from 2005: 3 percent)

Major Programs:

Health care for veterans

• Disability compensation

• Pensions for low-income veterans

• Vocational rehabilitation training and employment services

• National cemeteries



Providing timely compensation and job assistance to veterans with disabilities.

• Helping veterans and active-duty members own a home.


• Providing health care to veterans with service-related injuries.

• Serving veterans through homeless assistance programs in all 50 States.


• Providing health care services in more convenient locations, using information technology toserve patients more quickly and more accurately.

• Working with the Department of Defense to help service members gain access to veteran servicesand benefits.

263



264 DEPARTMENT OF VETERANS AFFAIRS


Replacing Lost Income for Disabled Veterans

Veterans’ disability compensation is a monthly benefit payment to veterans who are disabled as aresult of their military service. It is the workers’ compensation program for military members, whichcomplements retired pay and disability annuities provided by the Department of Defense (DOD). In2006, 2.7 million veterans will receive $26 billion of these tax-free benefits from the Department of

Veterans Affairs (VA), 57 percent more than when the President came to office.

When President Bush took office, the number of claims waiting to be processed had risen to morethan 600,000. As a result, many veterans were waiting an average of over 230 days for a claim tobe processed. One of the President’s top priorities was to significantly reduce this processing time.

VA trained nearly 1,800 employees in proper claims processing procedures and created specializedteams to process claims for those veterans who had been waiting the longest. Uniform measurementtools were established to evaluate quality and timeliness, and employee evaluations were re-designed

to hold VA personnel accountable for meeting the President’s goal. Further, VA worked with bothDOD and the National Records Center in St. Louis to expedite the exchange of information neededto process claims. As a result, the number of days to process a claim will drop from 230 when thePresident took office to an average of 145 days in 2006—an improvement that the Department iscommitted to continuing in the years ahead.

Providing Education Opportunities to Veterans

Vocational rehabilitation counselors visit patient.

The Vocational Rehabilitation and Employ-ment (VR&E) program helps disabled veteransfind suitable employment, so they can live inde-

pendently. The program provides comprehensiveservices and assistance, such as tuition, books, vocational counseling, and assistive technology.

In March 2004, a comprehensive review of the VR&E program was completed which led toseveral changes now underway. For example,instead of waiting for veterans to contactthe VR&E program, counselors visit servicemembers at military and VA hospitals andalso call recently discharged veterans to offertheir services. In 2004, 11,000 veterans were

successfully rehabilitated with approximately8,300 veterans employed and the remaining 2,700 achieving independent living goals, an increaseof approximately 1,500 veterans above those successfully rehabilitated in 2003.

For almost 20 years, the Montgomery GI Bill has provided education benefits to help members of the Armed Forces adjust to civilian life after leaving active service. On December 27, 2001, PresidentBush signed into law the Veterans Education and Benefits Expansion Act. The Act contained sev-eral improvements to the Montgomery GI Program, including an increase in the maximum monthlybenefit amount of more than 46 percent by 2003 (see accompanying chart), a broader choice of edu-cation opportunities, and an expansion of education programs paid for by the scholarships to include




2000 2001 2002 2003 20040

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Maximum Education Benefit has Increased

Source: Department o f Veterans Affairs.

Dollars per person

non-traditional educational settings such assoftware certification programs and distancelearning courses. As a result, approximately421,000 veterans, service members, andreservists used their benefits in 2004 toobtain degrees, certifications, and licenses, an

increase of five percent since the Presidenttook office. In 2004, President Bush requestedlegislation to increase monthly education bene-fits for reservists mobilized for 90 days or morein response to a war or national emergencydeclared by the President or the Congress.

Veterans are also receiving faster service.Since 2001, claims processed have increasedfrom 89,000 to 105,000 per month and themaximum monthly benefit has increased byalmost 50 percent. In the same period, the average processing time for education benefits dropped

from 50 days to 26 days for original claims. The 2006 Budget provides almost $3 billion to assist veterans, active duty members, and reservists for educational benefits.

Promoting Home Ownership Among Veterans

The Veterans Housing Benefit Program provides guaranteed home loans to veterans, active-dutyservice members, and reservists. In addition to the loan guarantee program, the Veterans HousingBenefits Program also includes assistance to veterans living on Indian Reservations and veteransneeding wheelchair accessible homes that are specially adapted to their needs.

There is no limit to the number of loans issued in a year. In 2006, VA expects to issue 300,000guaranteed loans for nearly $46.2 billion, including 183,000 no down payment loans. The programalso offers options with 5-percent and 10-percent down payments.





Providing Medical Care to Veterans

Treating veterans with military disabilities, low incomes, and special needs (such as substanceabuse or spinal cord injury) has historically been VA’s core medical care mission and its highest pri-ority. The President is fulfilling his promise to deliver high-quality, accessible health care to these

veterans. As shown in the accompanying chart, the President’s 2006 VA medical care budget is morethan 47 percent greater than when he took office, and VA will treat about 950,000 more patients in2006 than it did in 2001. The Budget assumes that most new veterans enrolling in the VA medicalcare system will fall under VA’s core medical care mission, and that all other veterans will pay anannual enrollment fee and increased prescription drug co-payments that are still low but more inline with other public and private health care programs.

2001 2002 2003 2004 2005 2006

0

5

10

15

20

25

30

35

Medical Care Budget IncreasingBillions of dollars

Source: Department of Veterans Affairs.

Appropriations

Collections

The best way to guarantee that veterans un-derstand the benefits to which they are entitled

is with outreach and education. VA instituteda program to provide information on all veter-ans’ benefits—not just medical care—to servicemembers as they leave military service, espe-cially those with service-related special needs.This outreach effort includes a special empha-sis on Reserve and National Guard personnelcalled to active duty.

To date, about 32,000 returning servicemembers from Iraq and Afghanistan have re-ceived medical care from VA, and all returning

service members receive a day of orientationon VA benefits and programs. At the major

To assist and complement the work of VA staff, the Department coordinates a large volunteerprogram. Last year, 133,000 Americans donated about 14 million hours of their time to volunteer at

VA facilities, providing transportation to and from VA hospitals, delivering mail and medical records,and visiting patients.

DOD hospitals, injured service members are assigned a VA case worker (stationed at the hospital),who assists them in accessing their VA benefits and easing their transition to VA hospitals if needed.Case workers also assist the families of injured service members. VA and DOD now electronical-ly share medical information, thus providing these patients with better, more timely care.

VA has been a leader in implementing health information technology to improve patient care. Pa-tients have benefited from innovative safety and quality systems implemented by VA. For example,

VA has developed a bar-code drug dispensing system—similar to that used in most stores today.This system assures that patients receive the correct drugs at the right times, and prevents themfrom receiving potentially dangerous drug combinations. In addition, VA has implemented a patient

safety program that encourages physicians, nurses, and other providers to report problems or errorsin care. As a result of the many innovative programs that were introduced in recent years, in 2003the Institute of Medicine recognized VA as a leader in assuring patient safety and providing qualityand cited VA as one of the best Government programs based on a 2004 national survey of customersatisfaction.




VA prepares patient for independent living.

VA’s research program is known worldwidefor its work in areas such as prosthetics,spinal cord injuries, and diseases such asParkinson’s and diabetes. Care provided at VAfacilities also helps patients have the medicalequipment and understanding they need to

live independently. For example, many VAhospitals have rooms set up similar to anapartment to prepare veterans to live on theirown.

Helping Homeless Veterans

VA estimates that there are more than250,000 homeless veterans in the Nation, orone-third of the adult homeless population. VA’s homeless assistance programs now constitutethe largest integrated network of services in the United States and serve approximately 40,000

homeless veterans annually. The Budget provides $231 million to directly support VA’s homelessnetwork and an additional $1.5 billion for medical care to homeless veterans.

Almost three-fourths of homeless veterans suffer from a mental illness and/or substance abuseproblem, making it difficult for them to keep a job and live independently. VA’s programs provide acontinuum of services including mental health care, substance abuse counseling, and employmenttraining. These comprehensive programs often require VA cooperation with Federal, State, and localgovernments, and the private sector.

VA has expanded community grants to all 50 States and the District of Columbia to improve accessto housing and health care for homeless veterans. In addition, VA has created partnerships with theDepartments of Health and Human Services and Housing and Urban Development to support newinitiatives that provide permanent housing, a full range of medical care, and support services for

chronically homeless veterans. VA, in partnership with States, continues to support transitional,community-based housing in a program that emphasizes stronger collaboration with communityorganizations, including faith-based organizations.

National Cemeteries

In 2006, approximately 100,000 veterans and eligible family members will be buried in the nationalcemetery system. From 2001 to 2006, there is estimated to be a 21-percent increase in the number of burials due to the advancing age of our World War II, Korean War, and Vietnam War veterans. In thenext 20 years, one-third of our veterans will pass away. To make sure these veterans are accordeda proper burial, VA continues to evaluate the national cemetery system to make sure we have theappropriate number and location of national and State cemeteries. The 2006 Budget provides over35 percent more funding for burial services and national cemeteries than five years ago. The 2006Budget provides funding to acquire land to build six new cemeteries, including one each in Alabama,Pennsylvania, California, South Carolina, and two in Florida. VA has also expanded its partnershipwith States over the last four years to give veterans more burial options. Grants for construction andequipment are provided to establish or improve State cemeteries in areas where national cemeteriesdo not exist. In return, these States agree to adhere to VA standards of eligibility and maintenance.The Department takes pride in the service provided to the families of our veterans; a recent surveyof family members and funeral directors showed 95 percent rated the service they received from ournational cemeteries as excellent.





Providing More Convenient and Timely Medical Care

Many veterans have mo ved to the South and Southwest, yet VA maintains underused hospitalsthroughout the northern and eastern regions of the country where fewer veterans live. VA com-pleted a nationwide study of its facilities in 2004 to better align resources with patient needs byincreasing services where veterans live, and converting large underused hospitals to more efficientclinics. Construction decisions were completed, and VA will spend $1.5 billion in 2004 and 2005 onthis effort. The 2006 Budget includes an additional $750 million for this purpose.

When President Bush took office, waiting lists for new patients were six months or longer. At onepoint, the number of patients waiting for care peaked at 300,000. There was no system in placeto ensure that veterans with military disabilities, low incomes, and special needs received prompttreatment unless they were facing a medical emergency. VA moved to prioritize those waiting forappointments and implemented a temporary program to fill non-VA prescriptions for the first time.

This year, the list of veterans waiting more than six months for an appointment for basic medicalcare has been essentially eliminated.

VA is a leader in developing electronic medical records to ensure that critical patient informationis not stored in a paper file somewhere but is accessible easily to all providers that may see a vet-eran, while appropriately protecting medical privacy. When a veteran receives care at VA, the doctoror nurse quickly enters all important information into a computer system and reads information onthe patient’s test results, drugs, and other vital information. As a result of these and other improve-ments, in most situations veterans can go to any facility for care and know that the medical staff can immediately access their records. They also receive drugs more quickly, safely, and easily. Forexample, after having an exam, a patient can go directly to the pharmacy and pick up any neededdrugs that were electronically ordered by the physician.

Increasing Coordination Between DOD and VA

DOD medical staff treat veteran patient.

President Bush has placed a great emphasison improving cooperation between DOD and

VA in providing care to our veterans. BothDepartments have made significant progressin meeting this goal. VA and DOD establisheda high-level Executive Council to develop andimplement significant collaborative efforts. Thecouncil has focused on three major system-wideissues: 1) sharing “real-time” computer infor-

mation on the enrollment and eligibility statusfor services and benefits; 2) continually placingall critical medical information for each patientin computer files that can be shared by DODand VA; and 3) increasing the number of placeswhere DOD and VA share medical facilities andstaff.

Sharing information and technology speeds up service, ensures safer healthcare, and informs vet-erans of earned entitlements and services—such as eligibility and enrollment status for medical care,




disability benefits, home loans, life insurance, burial benefits, vocational rehabilitation, and educa-tion benefits.

The Departments are aggressively moving towards electronic patient medical records so both DODand VA doctors and nurses have rapid access to patients’ records. Since all veterans start out in themilitary system and almost 700,000 use both systems annually, this coordinated effort is critical. The

first phase was implemented in June 2002 with an electronic exchange of former military members’patient health information available at VA. The next step, expected in 2005, is the two-way sharingof this information.

DOD and VA are working together to solve mutual problems in the Greater Chicago area, wherefive VA hospitals and one DOD hospital are located. DOD originally planned to build a new hospitalwithin walking distance of an underutilized VA hospital. DOD now plans to share VA’s hospital—en-suring military members, their families, and veterans will have access to quality care in a fiscallyresponsible way. In addition, the two Departments have made progress in sharing personnel. Insome locations, such as Albuquerque, New Mexico and Chicago, Illinois, they share many personnel.In other smaller areas, one or two shared staff may be key to maintaining critical capacity. For exam-ple, the Air Force Base in Grandforks, North Dakota needed a doctor for its family practice clinic. An

agreement was reached for a VA doctor to provide care to service members at the military hospital.This lowered overall cost to taxpayers and improved access to care at the military hospital.

DOD and VA are working together to ensure that all separating service members who file a VAdisability claim at discharge sites receive a discharge physical that meets requirements of both the

VA and the Services, prior to separation. This allows one physical examination that saves time later.


The table below provides an update on VA’s implementation of the President’s Management Agendaas of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress


While VA continues to make progress on many aspects of each of the initiatives, its overall status in

implementing the President’s Management Agenda has remained largely unchanged over the past year. VAdeveloped a comprehensive human capital plan, completed testing of an on-line self-evaluation program,and redesigned an appraisal system for many of its employees. Ongoing negotiations with the labor unionhave resulted in some delays in implementing the new performance appraisal system for all employees.Improvements in financial performance and E-Government were delayed due to serious failures in the rollout ofa new financial management information technology system. VA is assessing its options for next steps but hashalted implementation of this massive system and has reverted back to its old system. VA has been unableto use Competitive Sourcing to achieve efficiency improvements since under law it is not able to carry outany such comparisons. The Administration is working with the Congress to find a solution so that resourcescan be better spent on direct services to veterans.








Coordination of VA and DOD Programs and Systems


In regard to the Real Property Initiative, VA has an Asset Management Plan where it has inventoried andproposed changes to right-size its massive network of buildings across the Nation to ensure that veterans aretreated in the most convenient places for the veteran. The total dollar value at risk of Improper Payments atVA is approximately $43.6 billion. After its initial assessment, VA determined that six high-risk programs exist.Of those six programs, four have completed remediation plans that are actively being implemented and the

remaining two plans are likely to be completed in the second quarter of 2005. (Because this is the first quarterthat agency efforts in the Eliminating Improper Payments Initiative were rated, progress scores were not given.)As discussed earlier, VA and DOD have taken numerous steps to improve the coordination of medical care andtransition of injured service members to VA for healthcare and other benefit programs.




Department of Veterans Affairs(In millions of dollars)

Estimate2004

Actual 2005 2006


Medical Programs ................................................................................................ 27,365 28,784 28,903Medical Services .............................................................................................. 18,468 19,764 19,789

Medical Serv ices Collections (non-add)

Existing law ................................................................................................... 1,708 1,953 2,164 Legislative proposal ................................................................................... — — 424

Medical Administration ................................................................................... 4,027 4,377 4,439Medical Facilities .............................................................................................. 4,004 3,858 3,888Medical Research ............................................................................................ 866 784 786

Benefit Programs .................................................................................................. 1,429 1,453 1,548Disability Compensation ................................................................................ 659 652 701

Pension ................................................................................................................ 143 138 148Education ............................................................................................................ 76 90 100Vocational Rehabilitation and Employment ............................................ 124 139 147Housing................................................................................................................ 157 156 157Insurance ............................................................................................................ 4 4 5Burial Benefits ................................................................................................... 265 272 290

Departmental Administration............................................................................ 343 371 401General Administration .................................................................................. 280 301 330Inspector General ............................................................................................ 62 70 71

Total, Discretionary budget authority (no collections) .................................. 29,137 30,607 30,852Total, Discretionary budget authority (with new collections) ..................... 29,137 30,607 31,274Total, including all collections .............................................................................. 30,845 32,560 33,440


Mandatory Outlays:

Medical Programs:

Existing law .................................................................................................... 29 33 35Legislative proposal .................................................................................... — — 424

Benefit Programs and Receipts:

Disability Compensation ................................................................................ 26,297 31,153 30,643Pension ................................................................................................................ 3,334 3,674 3,470Education ............................................................................................................ 2,137 2,454 2,579Vocational Rehabilitation and Employment ............................................ 551 604 632

Housing................................................................................................................ 218 1,904 65Insurance ............................................................................................................ 1,260 1,298 1,330Burial Benefits ................................................................................................... 153 168 171Other Receipts and Transactions ............................................................... 2,771 1,650 648

Departmental Administration............................................................................ 151 — —Total, Mandatory outlays ........................................................................................ 31,057 39,638 37,853

Total, Outlays .............................................................................................................. 59,554 68,046 68,281




Department of Veterans Affairs—Continued(In millions of dollars)

Estimate2004

Actual 2005 2006

Credit activity

Direct Loan Disbursements:Vocational Rehabilitation Loans ...................................................................... 3 4 4Native American and Transitional Housing Loans .................................... 6 9 26Vendee and Acquired Loans ............................................................................ 123 915 1,675

Total, Direct loan disbursements ......................................................................... 132 928 1,705

Guaranteed Loan Commitments:Veterans Home Loans ........................................................................................ 35,315 43,802 46,173




CORPS OF ENGINEERS—CIVIL WORKS

AT A GLANCE:


Major Programs:

Commercial navigation

• Flood and storm damage reduction

• Aquatic ecosystem restoration



• Establishing clear, performance-based guidelines for allocating funds among construction

projects in order to increase the net economic and environmental return of the Army Corps of Engineers’ (Corps) construction program.


• Prioritizing construction funding for projects with the highest net economic and environmentalreturn.

• Reducing the large backlog of construction work, by providing $114 million in the Budget tocomplete 20 projects by the end of 2006, yielding an average return of $6.64 per dollar invested.

• Using innovative means to strengthen partnerships with local stakeholders to improve thequality of Corps recreation services through a Recreation Modernization Initiative.

• Restoring aquatic ecosystems, with an emphasis on the Florida Everglades, the Louisianacoastal area, and the Upper Mississippi River; and assisting recovery efforts for endangeredand threatened fish and wildlife on the Columbia and Missouri Rivers.

• Protecting the Nation’s waters and wetlands.

273



274 CORPS OF ENGINEERS—CIVIL WORKS


A Performance Budgeting Initiative for Construction

The 2006 Budget proposes an initiative that improves the performance of th e Corps construc-tion program. The initiative establishes objective, performance-based guidelines for developing theCorps construction budget, which will maximize the overall net economic and environmental returnfrom the construction program. These funding guidelines are based on sound financial managementprinciples similar to those used by private industry to rank and select investments. The initiativewould improve the program’s overall performance and benefit to the Nation by redirecting funds fromlow-performing to high-performing construction projects.

The 2006 Budget provides $1.4 billion for the Corps construction program, with an additional $0.2billion available for the highest performing projects contingent upon congressional adoption of thisinitiative. The President’s Budget directs resources to construction projects based on guidelines sum-marized below.

The Performance Budgeting Initiative: Guidelines for Making Better, Smarter Construction

Investments

1. Budgeting by mission area. Projects compete for funding in each of the Corps’ three main missionareas: commercial navigation, flood and storm damage reduction, and aquatic ecosystem restoration.

2. Performance-based project rankings. Projects are ranked based on objective performance criteria.

• In all mission areas except aquatic ecosystem restoration, projects are ranked based on their remainingbenefits, relative to their remaining costs.

• Aquatic ecosystem restoration projects are ranked based on the extent to which they use resources

effectively to address a significant regional or national ecological problem.

3. Performance-based funding allocations. The performance rankings will determine what level of fund-ing projects will receive. Projects ranking at, or near, the top will be funded at very high levels, whilelow-performing projects will receive reduced funding levels, and in some cases, may be suspended.

• Highest ranking projects will receive at least 80 percent of the amount that the Corps can efficientlyspend.

• Low-ranking projects that do not meet baseline performance thresholds will be considered for deferral.

4. Limitations on multiyear contracts. The Budget proposes appropriations language to repeal the Corps’continuing contract authorities. The proposal will reduce out-year funding commitments, while allowing theCorps to issue multiyear contracts where appropriate.

Reducing the Construction Backlog. Between 2000 and 2005, funding for the Corps constructionprogram increased by 30 percent in nominal terms. Much of this increase was for work on projectswith relatively low benefits or outside of the Corps’ three main mission areas: 1) facilitating commer-cial navigation; 2) reducing damages caused by floods and storms; and 3) restoring aquatic ecosys-tems. During the same period, the Corps construction workload grew at an unmanageable rateand more projects faced construction delays, as additional projects were authorized without fund-ing for timely completion. This growth trend has resulted in a $50 billion cost to complete authorized




projects, of which only $15 billion is for projects that are both within the Corps’ main mission ar-eas and meet current economic and environmental performance standards. Funding new projectsfurther stresses the Corps’ workload as these projects inevitably compete for funding with ongoingprojects that offer much greater benefits, relative to their costs. As a result, some projects cost morethan they need to, and most projects are completed many months—and sometimes years—later thanthey could.

The Administration’s performance budgeting initiative will reduce the construction backlog overtime by placing a higher priority on completing high-return projects and limiting the start of newprojects to the highest performing projects that are consistent with long-term fiscal managementgoals. In addition, the Administration’s principles for improving program performance, which werein the President’s 2004 Budget, will contribute significantly to achieving this objective. Those princi-ples emphasize the need for using sound economic analysis in the formulation and design of proposedprojects, funding only those new projects that have a very high net economic and environmental re-turn and developing a process for de-authorizing projects that are inactive, have low return, or falloutside the Corps’ mission areas.

Priority Funding for High-Ranking National Projects. Based upon the performance rankings

within each mission area, the Budget focuses funding on the highest-performing projects, includingnine projects that are national priorities.

Priority Projects

2006 Budget

Authority

(in millions

of dollars)

Project Purpose

Sims Bayou, Houston (TX) .................................................................... 18 Flood Damage Reduction

West Bank, New Orleans (LA) ............................................................. 28 Flood/Storm Damage Reduction

New York/New Jersey Harbor (NY, NJ)............................................. 101 Commercial Navigation

Oakland Harbor (CA)............................................................................... 48 Commercial NavigationOlmsted Locks and Dam, Ohio River (IL, KY)................................ 90 Commercial Navigation

Missouri River Fish and Wildlife Recovery (IA, NE, KS, MO) . 83 Hydropower, Flood DamageReduction, CommercialNavigation/Mitigation

Upper Mississippi River Restoration (IL, IA, MN, MO, WI) ........ 34 Commercial Navigation/ Mitigation

Columbia River Fish Recovery (OR, WA, ID) ................................. 102 Hydropower, CommercialNavigation/ Mitigation

Everglades (FL) ......................................................................................... 137 Aquatic Ecosystem Restoration

A Five-Year Plan for Corps Investments

The Corps is developing a comprehensive five-year budget plan for future spending that meets thegoals set by the Administration’s performance budgeting initiative. This effort will encourage greaterfiscal discipline by requiring current budget decisions to be made in light of their long-term fundingimplications. It also will establish an important link between Corps spending projections and theagency’s annual and long-term performance targets. The plan will include a summary of projectedcivil works funding by both appropriation and program area, disaggregated to the individual projectlevel.





Program Performance

Several Corps programs were assessed this year using the Program Assessment Rating Tool

(PART). The PART analyses helped shape the Budget by reviewing the programs’ design, purpose,and strategic planning efforts; how well they are managed; and whether they are generating positivereturns for taxpayers. The PART analysis of the storm damage reduction program, for example,concluded that the Budget should continue to limit funding for long-term beach re-nourishment,and the Corps should better coordinate its beach nourishment activities with Federal, State andlocal plans for hazard mitigation, to reduce overall storm damages more cost-effectively. In addition,the reassessment of the Corps hydropower program concluded that in response to deficiencies citedin the initial PART, the Corps has since developed an overall asset management plan for plantand program managers to use in making risk-based hydropower investment decisions and settingregional and national hydropower investment priorities.


The table below provides an update on the Corps’ implementation of the President’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

The Corps is assessing implementation of its 2012 Reorganization Plan to determine whether organizationalchanges are achieving intended results. The Corps also developed a leadership guide to focus leadershiptraining and development efforts. The Corps has ensured the security of 87 percent of its Information Technology(IT) systems and expects to be fully accredited by 2005. The Corps has two ongoing competitions for IT andFacilities Management and has completed plans for three more. To address problems identified in its financialaudit, the Corps is aggressively working to correct past audit deficiencies. To advance Budget and PerformanceIntegration, the Corps revised the Civil Works strategic plan and is using performance measurement to guidebudget and management decisions, such as in the wetlands permitting program.



The Corps has completed its initial assessment of its Real Estate Management Systems and has madeimportant progress in developing its real property inventory analysis and asset management plan.





Facilitating Commercial Navigation

The Corps manages nearly 11,000 miles of commercial waterways and about 300 ports and harbors,typically through lock and dam operations and dredging. In allocating operation and maintenancefunds, priority is given to maintaining key infrastructure, which yields the highest economic returns.The average return on investment from completing the construction of ongoing commercial naviga-tion projects included in the 2006 Budget is 6.4 to one.

The Port of Oakland in California is a priority navigation project in the2006 Budget.

Ports and Harbors. The Budget provides$921 million for ports and harbors, including$588 million for maintaining existing channelsand $260 million for continuing construction.The Budget also includes funding for high-re-turn harbor deepening projects, such as New

York/New Jersey Harbor and Oakland Harbor.

Inland Waterways. The Budget provides$932 million for inland waterway navigation,including $369 million to continue progress onhigh performing inland projects such as Olm-sted Locks and Dam, Illinois and Kentucky;Marmet Lock, West Virginia; and McAlpineLocks and Dam, Illinois and Kentucky.

Flood and Storm Damage Reduction

Flood Damage Reduction. The 2006 Budget provides $390 million to continue construction onhighly cost-effective flood damage reduction projects, such as Sims Bayou, Texas and West Bank,Louisiana. Upon completion, both ownership and maintenance responsibility for such projects willbe turned over to local sponsors. In addition, the Budget proposes a new flood damage reductionproject in Washington, D.C., for which the estimated benefits are 4.1 times greater than the costs.

Storm Damage Reduction. The Budget also provides $54 million to continue progress on beachnourishment projects based on the degree to which they will reduce storm damage. Similar to thePresident’s 2005 proposal, the Budget funds the initial construction phase of those projects, whilelocal sponsors will have the responsibility for financing long-term follow-up re-nourishment. TheBudget includes $14 million for beach nourishment and re-nourishment to mitigate the impacts of Federal navigation projects.

Aquatic Ecosystem Restoration

The 2006 Budget provides $510 million for aquatic ecosystem restoration work, focusing resourceson nationally significant projects such as the Florida Everglades and Coastal Louisiana.





A Budgetary Priority: Implementing the Missouri River

Master Manual

The Budget provides funds to create sand bar habitat along the MissouriRiver.

In the Missouri River basin, a series of Corps actions over morethan a century contributed to the economic growth of the re-gion, but also dramatically altered the natural ecosystem.

Three Missouri River species are of particular concern: twobirds, the interior least tern and the piping plover, which nestalong the river; and a large fish called the pallid sturgeon. The2006 Budget requests $83 million—an increase of $64 mil-lion above 2005—to enable the Corps to manage the flow ofthe river as provided in recent revisions to the Missouri River

Master Manual, without jeopardizing the continued existenceof these species. The Administration is committed to investthese funds to improve the environment in a manner that willreflect the best available science, consistent with commercialnavigation and other needs. These investments include:

• Creating side channels that provide shallow water habi-tat under a range of river conditions and support healthyforage fish and insect populations;

• Purchasing low-lying land from willing sellers to re-es-tablish a hydrologic connection between the river and itsfloodplain and improve the biological productivity of theside channels;

• Assisting pallid sturgeon recovery below Fort Peck Damand on the Yellowstone River;

• Establishing sand bar habitat for the nesting birds; and

• Collecting baseline and annual biological data.

Everglades. The Administrationcontinues its commitment to re-store the fragile Florida Everglades

ecosystem in partnership withthe State of Florida. Specifically,the Budget provides $137 millionfor restoration of the Everglades,including $68 million for the Com-prehensive Everglades RestorationPlan (CERP). Under CERP, theCorps will support the State’sdecision to use its own funds toaccelerate certain work on therestoration project. In addition,the Corps will broaden its role

in the Modified Water DeliveryProject, which will make morewater available for the EvergladesNational Park and is a prerequisitefor CERP. The Corps will sharefunding responsibilities with theDepartment of the Interior whilecontinuing to manage constructionefforts.

Louisiana Coast. Over the past75 years, more than one million

acres of the Louisiana coastalplain have submerged into theGulf of Mexico. Another third of a million acres could be lost by2050. The affected area supports acoastal wetlands and barrier islandecosystem that is an environmentalresource of national significance.The Corps is continuing to workclosely with the State of Louisianato address its coastal problems. The2006 Budget provides $20 million,

an increase of $11.5 million over the2005 level, with emphasis on thescience and technology program; along-term hydrodynamic study of the Mississippi River; and studiesand design work on one or moresignificant restoration projects.




Regulating Development that Affects Wetlands

The Corps manages a permitting program that plays an important role in the status of our Nation’swetlands. It requires real estate developers and builders of roads, bridges, and shopping centers toavoid, minimize or mitigate any damage they cause to aquatic resources, including wetlands. Theagency processes some 80,000 permits annually. In 2003, developers received permits for projectsthat will adversely affect 21,300 acres of wetlands nationwide, in return for which they were requiredto create or restore 43,400 acres (roughly the size of the District of Columbia) of wetlands. The 2006Budget proposes $160 million for the agency’s regulatory program, an increase of 11 percent overthe 2005 level, which will help improve the speed and quality of permit processing and increase theCorps’ mitigation and compliance activities.

The Corps maintains navigation infrastructurein Illinois.

Maintaining Key Infrastructure

The 2006 Budget provides $2.0 billion for the operation andmaintenance of existing Corps projects, including funding forcontinued security improvements at Corps facilities to reduce

their vulnerability to terrorist threats. In order to allow moretimely maintenance at Corps hydropower facilities, the Budgetproposes that the Corps’ hydropower-related operation andmaintenance expenses be directly financed by the Departmentof Energy’s Power Marketing Administration receipts, whichare generated by the sale of power from these Corps facilities.This will enable the Corps to reduce downtime and increasethe reliability of power generation. In addition, the 2006Budget proposes to create an emergency maintenance reservefund—managed directly by the Assistant Secretary of the Armyfor Civil Works—to meet high-priority, unexpected, and urgentmaintenance needs at key Corps facilities each year. Under the

proposed arrangement, the Assistant Secretary for Civil Workswill be able to respond to these emergency situations promptly,without interfering with other program commitments.

Recreation Management that Draws on Local Resources and Local Leadership

The Corps is one of the largest Federal providers of outdoor recreation services, managing 4,300recreation areas at 465 projects in 43 States. The Corps spends about $268 million each year tosupport this popular program.

The 2006 Budget proposes a Corps recreation modernization initiative, based on a promising modelnow used by other major Federal recreation providers such as the National Park Service and theForest Service. The agency would use a portion of the recreation fees that it collects (such as entrancefees) to upgrade the site where the fees are collected. In addition, the Corps will seek legislativeauthority to conduct a limited number of demonstration projects such as lake improvement districts.These public/private partnerships encourage local community leaders and property owners to workwith the Corps to maintain and upgrade Corps recreation facilities. The work would be performedin a collaborative manner, similar to the approach taken in the President’s cooperative conservationefforts. The demonstration projects could be expanded subsequently if they prove to be an effectiveway to pay for and improve the program.




Corps of Engineers—-Civil Works(In millions of dollars)

Estimate2004

Actual 2005 2006

SpendingDiscretionary Budget Authority by Program:

Construction ................................................................................................................ 1,730 1,782 1,637Operation and Maintenance.................................................................................. 1,955 1,943 1,979Flood Control, Mississippi River and Tributaries............................................ 322 322 270Flood Control and Coastal Emergencies ......................................................... 3 — 70General Investigations............................................................................................. 116 143 95Regulatory Program ................................................................................................. 139 144 160Formerly Utilized Sites Remedial Action Program........................................ 139 164 140General Expenses .................................................................................................... 159 166 162Office of Assistant Secretary (Civil Works)...................................................... — 4 —

Subtotal, Discretionary budget authority .......................................................... 4,563 4,668 4,513Reclassification of PMA Receipts, Operation and Maintenance ............. — — 181Total, Discretionary budget authority ................................................................. 4,563 4,668 4,332



Mandatory Outlays:

Existing law ............................................................................................................. 142 18 27Legislative Proposal, Recreation Program User Fee .............................. — — 9


Total, Outlays .............................................................................................................. 4,838 4,891 4,643



ENVIRONMENTAL PROTECTION AGENCY

AT A GLANCE:


Major Programs:

Superfund

• Clean Water and Drinking Water State Revolving Funds

• Brownfields

• Air, Water, and Hazardous Waste Regulatory Programs

• Homeland Security



Encouraging business investment and job creation in local communities by increasing fundingto continue brownfields clean-up.

• Using market forces to protect public health and support economic growth through thePresident’s Clear Skies Initiative and the related Clean Air Interstate Rule and Clean AirMercury Rule.

Protecting America

• Improving lab coordination and expanding research for the Environmental Protection Agency’s(EPA’s) homeland security decontamination program.

•

Implementing a new water security monitoring pilot program in five major cities and providingemergency training to the operators of large drinking water systems.


• Providing competitive grants to States and Tribes for projects that can demonstrate environ-mental and public health benefits.

• Establishing more stringent accountability measures and reforms for the Alaska Native VillagesProgram to address systemic financial and programmatic deficiencies.

281



282 ENVIRONMENTAL PROTECTION AGENCY



• Preventing the emission of an estimated 1,200 tons of particulate matter annually by supporting

diesel engine retrofits, rebuilds and replacements, anti-idling measures, clean fuel infrastruc-ture projects, and other activities.

• Working with partners to clean up contaminated sediments at approximately six sites in theGreat Lakes region, two to three more sites than in 2005.





Brownfields Clean-up

Vibrant, healthy communities encourage business investment and job creation. However, manycommunities’ revitalization efforts are hindered by abandoned industrial properties that blight thelandscape and pose the threat of contamination. The EPA’s Brownfields programs help States, Tribes,and local communities redevelop these sites and make them productive, vital parts of the neigh-borhood. Brownfields grants support revitalization efforts by funding environmental assessment,cleanup, and job training activities, eventually allowing the property to be used for business, parks,or housing. From 1995 through mid-2004, program participants have reported that more than 6,000brownfields sites have been assessed and over 2,100 properties have been made ready for reuse. ThePresident’s Budget provides $210 million, $46 million more than 2005, funding brownfields work atabout 600 sites.

EPA Brownfields Grant Spurs Redevelopment in Minnesota

The city of Virginia, Minnesota has a long history of iron ore and taconite mining that has created potentialcontamination and redevelopment issues in some areas. To help address these problems, the city used anEPA Brownfields grant to assess a former mine waste dumping site known as the Oneida Addition property.The city found minimal contamination that was easily addressed, spurring developer interest. The city even-tually sold a portion of the property to a firm that constructed an Alzheimer’s patient care unit and assistedliving complex. This redevelopment provided a needed care and retirement facility and leveraged $12 millionin clean-up and redevelopment funding, as well as 115 new jobs.

Clear Skies

Often the most cost-effective way to protect the environment and public health while encouragingeconomic growth lies with market forces. The Acid Rain program, enacted in 1990, is a highly suc-cessful illustration of the value of flexible solutions. With a compliance rate of nearly 100 percent,the Acid Rain program reduced the electric power industry’s nitrogen oxides (NO X) and sulfur dioxide(SO2) emissions by 37 and 32 percent, respectively, from 1990 levels. In recognition of the program’s





accomplishments, the Administration proposed the Clear Skies Act. The Clear Skies legislation ex-pands the Acid Rain program to dramatically reduce nationwide power plant emissions of SO2, NO X,and, for the first time ever, mercury emissions from power plants.

2000 2010 20200

2

4

6

8

10

12

SO (millions of tons)2

NO (millions of tons)X

Mercury (tens of tons)

Pollutant Emissions DeclineUnder Clear Skies

Source: EPA.

Emissions (units as specified)

While significant progress has been madeunder the existing Clean Air Act, furtherhealth benefits could be achieved faster, withmore certainty, and at less cost to consumersthrough Clear Skies. Clear Skies wouldreduce SO2, NO X, and mercury emissions bynearly 70 percent. The legislation would setnational caps on these three pollutants anddistribute allowances to emitters that totalthe cap amounts. Clear Skies would encourageinnovation and the deployment of cleaner, more

cost effective technologies by requiring that theemissions caps decline over time and allowingemitters the flexibility to choose whether toreduce their emissions or purchase allowancesfrom other sources. By 2020, Clear Skies couldresult in the avoidance of up to 14,000 premature deaths annually, virtual elimination of chronicacidity in northeastern lakes, and noticeable air visibility improvements in a large portion of theMidwest and East.

Clear Skies was submitted to the Congress in 2002 and the Administration continues to promoteits enactment. Although the legislation is the strongly preferred solution, the Administration is pur-suing a regulatory path that would achieve many of the same health and clean air benefits. EPA

has proposed the Clean Air Interstate Rule (CAIR), which uses a market-based system to reduce SO2and NO X emissions by up to 70 percent, the steepest emissions cuts in more than a decade. CAIR,together with EPA’s clean diesel rules and other clean air programs, will ultimately bring 278 addi-tional counties into compliance with the ozone and particulate matter National Ambient Air Qualitystandards. This will result in cleaner air for the Nation as a whole, and especially for the 120 millionpeople currently living in those counties.

EPA also has proposed the Clean Air Mercury Rule, which will require the first ever reduction of mercury emissions from power plants. Reductions will be obtained by using one of two approaches.One approach requires coal-fired power plants to install currently available pollution controls knownas “maximum achievable control technologies.” The second, more flexible approach, sets a manda-tory cap on the total mercury emissions allowed from coal-burning power plants nationwide. This

approach would reduce mercury emissions by nearly 70 percent from current levels. Altogether, theClean Air rules, like the Clear Skies legislation, would create a multi-pollutant strategy to improveair quality throughout the United States. The proven, market-based approach of emissions caps andallowance trading will make emissions reductions further, faster, cheaper, and more effective thancurrent Clean Air Act regulations.




PROTECTING AMERICA

An EPA scientist prepares to test real-time, online sensors for waterdistribution systems. The sensors detect changes in water quality thatwould result from the intentional release of chemical and biologicalcontaminants.

Protecting Water Systems

EPA is the lead Federal agency for coordi-nating security of America’s water systems.Since the enactment of the Bioterrorism Actof 2002, EPA has provided assistance to waterutilities, including over 9,000 drinking watersystems, to help them complete vulnerabilityassessments and update their emergencyresponse plans. For 2006, the Administrationproposes the Water Sentinel Initiative tofurther protect the Nation’s water supply.Water Sentinel will develop an operationalwater monitoring and surveillance system for

dangerous contaminants. The program willdemonstrate a standardized, cost-effectiveapproach that States can implement toenhance water security. These efforts willhelp protect hundreds of thousands of miles of

drinking water systems and provide an early chemical and biological terrorism warning mechanismfor millions of drinking water consumers. The Administration requests $44 million to fund WaterSentinel as a pilot program in five major cities. Lessons learned from this program will be used infuture State and local water system protection efforts.

EPA’s Environmental Response Team provides technical and scientific

expertise in air, soil, and water monitoring and sampling to deal with thehuman health and environmental impacts of terror attacks.

Detection of Terror Attacks

The agency also has responsibility formanaging the decontamination of buildings,equipment, and the environment in the eventof a chemical, biological, or radiological attack.For 2006, the Administration requests $19million to develop the necessary capabilitiesfor detection and decontamination of threatagents. This investment in decontaminationwill advance the Federal Government’s rolefrom solely response to being more preparedfor emergencies. With this funding, EPAwill be able to better respond following acontamination event. Additionally, $12 millionis dedicated to the Environmental LaboratoryPreparedness and Response program todevelop a network to standardize analytical testing methods, provide surge capacity, and establishconnectivity between laboratories. This laboratory capability will ensure that we can monitor watersystems and the environment quickly and accurately. The Budget maintains resources of $107million to continue support for investigation and training activities, technical assistance to States,cooperative research, and EPA’s national response teams. In total, the President’s Budget requests$185 million for EPA’s homeland security activities, a 73-percent increase over 2005.





Through the State and Tribal Performance Fund,additional funds will be awarded on a competitivebasis for projects that can demonstrate publichealth and environmental benefit. Wetlands andhabitat restoration projects, such as the onepictured above, are among eligible activities.

Accountability in Environmental Programs

To assist States and Tribes in protecting the environment,the Budget includes $23 million for a new State and Tribal Per-formance Fund. This program will award competitive grantsto States and Tribes for projects that can demonstrate envi-ronmental or public health benefits. The Performance Fundwill allow States and Tribes to receive additional funding fortheir highest priority, most beneficial projects, while ensuringaccountability and results. Eligible projects will include activi-ties such as air quality assessments, wetlands restoration, andhazardous waste management.

To help evaluate programs’ results and accountability,

the President implemented the Program Assessment RatingTool (PART). A PART analysis of the Alaska Native VillagesProgram rated the program Ineffective. In particular, thePART found poor program management had resulted insignificant contracting, accounting, and performance prob-lems. To address these problems, the 2006 Budget reducesfunding to $15 million, a $30 million reduction from 2005, andrecommends the program develop regulations that will providea framework for improved management and innovation. Thefunding reduction may be reconsidered once the program candemonstrate improved effectiveness and management.

EPA’s Ecosystem Research Program was evaluated during the development of the 2005 Budget.The PART scored the program Results Not Demonstrated and noted that it did not coordinate effec-tively within EPA and with other Federal agencies. It also lacked appropriate performance measuresto track the program’s progress. EPA is working to address these findings but has not yet imple-mented any changes. As a result, the 2005 Budget proposed, and the Congress supported, fundingthe program at $94 million, $22 million less than the 2004 level. The 2006 President’s Budget pro-poses to fund it at $84 million in order to fund higher priority programs such as homeland securityand the Great Lakes Legacy Act.

The Administration is also taking other steps to improve program performance and accountability.The President’s Budget includes $24 million for a water quality monitoring initiative that willprovide grants to States to implement statistically valid, probabilistic monitoring programs.Probabilistic monitoring would allow States to develop a statistically valid sampling methodology

that would provide consistent water quality information across States. EPA will award theseadditional funds to States ready to adopt probabilistic monitoring programs to help them andEPA better target Federal, State, and local resources and make scientifically-defensible decisionsregarding water quality.





The table below provides an update on EPA’s implementation of the President’s Management Agenda as of December 31, 2004.

Human Capital CompetitiveSourcing FinancialPerformance E-Government

Budget and

PerformanceIntegration

Status

Progress

EPA’s focus on management reforms has resulted in strong performance in financial managementand E-Government (E-Gov). EPA has linked financial and performance information to aid in day-to-daydecision-making, and has also submitted a timely and clean financial audit. In E-Gov, EPA has acceptablebusiness cases for its major systems and has demonstrated, using Earned Value Management or operationalanalysis, that overruns and shortfalls average less than 10 percent for all major information technology projects.

EPA is also establishing a Government-wide electronic regulatory docket which, when fully implemented, willincrease public participation and access to Government information. To support the Human Capital initiative,EPA is implementing a multi-level performance appraisal system, and identifying mission critical occupations;however, further work is needed to implement its workforce planning strategy at the local level and reduceskill gaps in mission critical areas. EPA announced its first standard competition and has an acceleratedtimeline for additional competitions so that it can achieve savings in commercial activities. For Budget andPerformance Integration, EPA continues to focus on demonstrating results and improving programs based onrecommendations from PART evaluations. Approximately 89 percent of programs that were reassessed for the2006 Budget showed improvements and received a higher rating, and over 80 percent of assessed programshave been able to demonstrate results.



EPA identified two programs at risk for improper payments and completed a preliminary measurement planand corrective action plan for reducing improper payments to primary recipients. They initiated an enhancedmeasurement strategy to better detect improper payments in all recipient transactions. (Because this is the firstquarter that agency efforts in this Initiative were rated, progress scores were not given.)





The Great Lakes

The Great Lakes are the largest system of fresh surface water on Earth, and the basin is hometo more than one-tenth the population of the United States, one-quarter the population of Canada,and heavy concentrations of industry. Over the years, industrial development has contaminatedsediments throughout the lakes with toxic pollutants such as polychlorinated biphenyls (PCBs) andheavy metals, putting large populations and the tremendous water resource at risk. Currently, theGreat Lakes States have among the highest number of fish consumption advisories in the countrydue to the accumulation of toxics in fish tissue.

The Great Lakes form the largest surface freshwater system on Earth,but their health is threatened by contaminated sediments and otherenvironmental problems.

In recognition of the Great Lakes’ nationalsignificance and the extent of its contaminatedsediment problem, President Bush signed anExecutive Order in May 2004, establishing a

Great Lakes Interagency Task Force. Chairedby the EPA Administrator, one of the primaryassignments of the Task Force is to convene aregional collaboration of States, local communi-ties, Tribes, regional bodies, and other groupsregarding policies, strategies, and priorities forthe environmental health of the Great Lakes.EPA formally launched the collaboration onDecember 3, 2004, convening over 400 regionalleaders and stakeholders that publicly pledgedto support an intergovernmental partnershipto protect the Great Lakes ecosystem.

The Great Lakes Legacy Act, signed by the President in 2002, is one of the primary means of pro-tecting the ecosystem. This program authorizes EPA to clean up contaminated sediments, protectingwater quality and keeping toxic pollutants from entering the food chain. For 2006, the President’sBudget funds sediment clean-up activities under the Great Lakes Legacy Act at its fully authorizedlevel of $50 million, an increase of $28 million over 2005 levels.

Clean Diesel

Uncontrolled exhaust from old diesel engines can exacerbate the symptoms of people suffering fromserious respiratory illnesses, and can negatively impact the environment. During President Bush’sfirst term, the Administration issued strict new rules to significantly reduce air pollutant emissionsfrom diesel fuel and engines so that the black puff of smoke from diesel tailpipes will become a thingof the past. These rules will ensure that the next generation of trucks, buses, and offroad equipmentwill be cleaner, quieter, more powerful, and more fuel efficient. The new engine and fuel standards,which begin to take effect in 2007, are expected to reduce harmful emissions by as much as 95 percentwhen the rules are fully implemented.




Innovative emission control technology can reduceemissions from existing diesel engines, such as the oneabove, by as much as 90 percent. EPA’s Clean DieselInitiative will fund diesel retrofit and replacement projectsthat deliver immediate air quality improvements.

To achieve more immediate air quality improvements,the Budget provides $15 million for a Clean DieselInitiative to support diesel engine retrofits, rebuildsand replacements, anti-idling measures, clean fuelinfrastructure projects, and other activities to reduceemissions. The Clean Diesel Initiative will maximize

Federal resources and achieve significant environmentalresults by working collaboratively with State, local,non-profit, and private sector partners to leverageadditional support. EPA estimates that the program willgenerate $360 million in health benefits by preventing1,200 tons of particulate matter emissions.

Clean-up Programs

In 1980, the Comprehensive Environmental Response,Compensation, and Liability Act, also known as Super-

fund, was enacted to address abandoned hazardous wastesites. Since Superfund’s inception, over 46,500 sites havebeen assessed and 33,500 that do not require Federal ac-tion have been removed from EPA’s waste site inventoryto help promote economic redevelopment of these prop-erties. Over 8,200 clean-up actions have been taken toreduce immediate threats to health and safety at the re-maining sites. By the end of 2004, clean-up projects were underway or completed at 82 percent of thesites on the National Priorities List (NPL). For 2006, the Administration is proposing $1.3 billion forthe Superfund program, $32 million over the 2005 level.

1990 1992 1994 1996 1998 2000 2002 20040

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Clean-Up Construction Completed

at 900 Listed Superfund Sites

Source: EPA.

NPL sites

NPL Sites

Construction Completions

The remaining sites on the NPL are large,

complex sites that present more challenges.Cleaning up these sites, which generally cost$50 million or more, requires an innovativeapproach. In 2003, funding needs for eightsuch sites (out of a total of 94 such sites re-ceiving funding) accounted for approximately50 percent of the money available for Super-fund-led remedial actions. EPA estimates thatclean-up at an average site costs $18 million,while a large site costs $132 million. The

Administration will work with the Congress,communities, and citizens over the upcoming

year to find ways to effectively and efficientlyaddress this growing challenge.





1992 1995 1998 2001 2004

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Releases Awaiting Clean-up

Clean-ups Underway

Remaining Work Declines as LUST ProgramCleans Up Contaminated Sites

Source: EPA.

Clean-ups Completed (Cumulative)

In 2004, EPA and States reduced thenumber of leaking underground storagetank sites requiring remedial action to fewer

than 130,000—the lowest level since 1992.Preventative measures, State inspections, andincreased training of underground storagetank owners and operators contributed to over4,000 fewer leaks reported in 2004. Coupledwith the effectiveness of the program’spreventative measures, EPA expects to reducethe backlog of sites requiring remedial actionto below 120,000 by the end of 2006. The

Administration proposes $73 million in 2006for the Leaking Underground Storage Tank(LUST) Program, $4 million above the 2005

enacted level.

Community Action for a Renewed Environment

Many cities and towns have expressed concerns about exposure to toxic pollutants. EPA’s Commu-nity Action for a Renewed Environment (CARE) program is geared to help address these concerns.Through cooperative agreements, the CARE program provides communities with technical supportand assistance in implementing local solutions that reduce exposures to toxic pollutants. In 2006,EPA will increase the scope of the program by establishing cooperative agreements with up to 80communities while still achieving much of the risk reduction through application of existing success-ful voluntary programs. CARE empowers communities to reduce exposure risks and encourages the

formation of self-sustaining community-based partnerships that will continue to improve local envi-ronments.

Clean and Safe Water

2004 2005 2006 2007 2008 2009 2010 2011

0

1

2

3

4

5

6

7

2004 Budget

2006 Budget, adjusted for enacted

2006 Budget Meets Capitalization Goalfor Clean Water State Revolving Fund

6.8Billions of dollars (cumulative)

The Clean Water State Revolving Fund(CWSRF) provides grants to States to capitalizetheir municipal wastewater State revolvingfunds. States provide matching funds and thenmake loans to communities at below-marketrates for wastewater infrastructure projects

such as sewer rehabilitation and treatmentplant expansion. Loan repayments and interestare recycled back into the program.

The 2006 Budget funds the CWSRF at $730million. Due to significant additional fundsprovided by the Congress in 2004 and 2005,at this funding level, the total capitalizationprovided between 2004-2011 will remain thesame as committed to in the 2004 Budget. This




will ensure communities have access to capital to finance their wastewater infrastructure needs. Ad-ditionally, the program will meet its long-term revolving level target of $3.4 billion. The revolvinglevel is the amount of loans available annually over the long term after Federal capitalization endsand an indicator of the CWSRF’s financial stability.

EPA has made the protection of drinking water a priority since enactment of the initial Safe Drink-

ing Water Act (SDWA) in 1974, and continues to work to improve its drinking water programs. Sta-tistics show that drinking water quality is improving, and the Centers for Disease Control and Pre- vention recently estimated that 31 drinking water-related waterborne disease outbreaks occurred in2001-2002, down from 39 outbreaks in 1999-2000. The 1996 SDWA amendments created the Drink-ing Water State Revolving Fund (DWSRF) which, like the CWSRF, provides grants to States to helpcapitalize revolving loan funds. Communities use these funds to finance drinking water systems andinfrastructure improvements, including compliance with regulatory drinking water requirements.The Budget provides $850 million to fund the DWSRF in 2006.

Environmental Protection Agency(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending


Operating Program .............................................................................................. 4,325 4,268 4,439Clean Water State Revolving Fund ................................................................ 1,342 1,091 730Drinking Water State Revolving Fund ........................................................... 845 843 850Brownfields cleanup funding ............................................................................ 93 89 121Diesel School Bus Retrofit Program .............................................................. — 7 10Targeted water infrastructure funding ........................................................... 429 408 69

Requeste d (non-add) .................................................................................... 98 94 69 Unrequested (non-add) ................................................................................ 331 314 —

Superfund ................................................................................................................ 1,258 1,247 1,279Leaking Underground Storage Tanks ........................................................... 76 69 73




Mandatory Outlays:

Superfund Recoveries ........................................................................................ 74 60 60

All other .................................................................................................................... 21 6 53Total, Mandatory outlays ........................................................................................ 95 66 113

Total, Outlays .............................................................................................................. 8,334 7,862 8,202



NATIONAL AERONAUTICS AND SPACE

ADMINISTRATION

AT A GLANCE:


Major Programs:

Exploration and science

• Space Shuttle and Space Station operations• Aeronautics


Agency-Specific Goals

Pursuing a bold vision for sustained and affordable human and robotic exploration of space, with

the Moon as a first step toward human missions to Mars and beyond.• Developing a new space vehicle to transport humans to the Moon.

• Focusing research and technology development activities, including those conducted on theInternational Space Station, on enabling human and more productive robotic exploration of thesolar system.

• Returning the Space Shuttle safely to flight, completing construction of the International SpaceStation, then retiring the Shuttle.

• Exploring the universe to understand its origin, structure, evolution, and destiny.

• Improving lives through Earth science and aeronautics research and education programs.


• Improving the reliability of the National Aeronautics and Space Administration’s financialmanagement system.

• Implementing new agency-wide policies and processes to increase the accuracy of program costestimates and, in turn, improve program management.

• Reformulating or eliminating programs that do not directly advance the President’s spaceexploration vision or other agency priorities, have not performed as well as others, or areunsustainable given their high projected costs.

293



294 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION


The National Aeronautics and Space Administration’s (NASA’s) activities center on four majorareas: exploration, science, Space Shuttle and Space Station operations, and aeronautics research.

Gearing Up for Exploration

Recognizing the need to reinvigorate the Nation’s civil space program and keep NASA focused oncompelling and inspiring goals, President Bush outlined a bold, new vision for human and roboticspace exploration on January 14, 2004. NASA will develop the necessary capabilities to move humansbeyond Earth orbit, where we have been confined for more than 30 years, and on to the Moon, Mars,and destinations beyond. Both human and robotic explorers will help broaden scientific understand-ing of the universe and the possible existence of life beyond Earth.

Inspired by all that has come before, and guided by clear objectives, today we set a new course for America’s space pro-

gram. We will give NASA a new focus and vision for future

exploration. We will build new ships to carry man forward into

the universe, to gain a new foothold on the moon, and to pre-

pare for new journeys to worlds beyond our own.

President George W. Bush

January 14, 2004

With work on some needed sys-

tems already underway, the agencyis taking action on many of therecommendations of the President’sCommission on Implementation of United States Space ExplorationPolicy, a commission the Presidentassembled to help guide the vision’simplementation. In keeping withthose recommendations, NASAhas undergone an organizationaltransformation and has initiatedstudies and discussions with industry and academic stakeholders to better understand the agency’s

options and opportunities for achieving the vision’s goals. The agency is also paying close attentionto the Commission’s call to engage private industry and other nations in space flight operations andexploration activities.

New Vehicles and Technologies. To reach the Moon, Mars, and destinations beyond, NASA mustdevelop technologies and perform research that will sustain human and advanced robotic explorersfar from Earth. Among the key systems NASA must acquire is a vehicle that will transport crews ina safe and reliable manner. The agency has identified the major requirements for a Crew Exploration

Vehicle to carry astronauts to the Moon and has asked industry to propose designs. NASA plans toperform flight tests in 2008 and stage its first crewed flight in 2014.

Still other technologies will play vital roles in the success of the President’s vision. NASA willcontinue to work with industry, academia, and other Government agencies to develop nuclear tech-nologies to provide energy sources for tools and instruments, lunar and planetary surface roving

vehicles, and extended human stays on the Moon and Mars. While high costs and technical concernsprompted NASA to defer a nuclear-powered mission to study Jupiter’s icy moons, the agency willstart on a new nuclear technology demonstrator with direct applications to exploration. In addition,NASA will pursue technologies such as optical communications and radiation shielding. Followingthe model of the privately-run X Prize competition that led in 2004 to a small company successfullylaunching its own piloted rocket into suborbital space, NASA’s new Centennial Challenges programwill offer cash prizes to spur companies to compete to make several of the technology breakthroughsnecessary for exploration.




In an artist’s rendering, a lunar exploration team attaches an inflatablelaboratory to its landing vehicle.

Understanding the effects of space on humans.Equally important to the agency’s technologyefforts is improving our understanding of howlong-duration space flight may affect humanhealth and physiology. NASA will engage inresearch on the International Space Station

and on Earth to learn about and develop waysto improve human tolerance of the space envi-ronment. The agency is currently reevaluatingits biological and physical research activities todetermine how they can best serve explorationneeds.

Making Scientific Sense of Space and Earth

Building on a strong performance record, the

agency will continue to launch probes to improvescientific understanding of our planet and universe. Among the questions NASA’s space and Earthscience missions are helping to answer are: What scientific processes shaped the universe, stars, andplanets? Could life exist beyond Earth? How is Earth’s climate changing? NASA has combined itsspace and Earth science organizations to facilitate data exchanges among scientists and maximizetechnological investments in spacecraft that will study the Earth, Sun, planets, stars, and cosmos.

Unlocking Secrets of the Solar System and Universe. The President’s 2006 Budget provides NASAwith resources to pursue a program of exploration of the solar system and worlds beyond that not onlywill broaden scientific understanding of the Sun, Earth, and planets but also will inform decisionsof where in the solar system human explorers should travel, the conditions they will endure, andthe technologies necessary to support them. NASA’s recent successful robotic investigations of Mars

and Saturn will soon be followed by spacecraft bound for the planets Mercury and Pluto, asteroids,comets, and still other locations that have yet to be decided. The agency also will build on its legacyof revolutionizing the science of astronomy. NASA will continue to operate prolific space telescopessuch as Hubble, Chandra, and Spitzer while planning for the next generation of spacecraft that willenhance our ability to find planets around other stars, peer deep into the history of the universe, andimprove our understanding of its structure.

A Focus on the Moon and Mars. The President’s vision for space exploration calls for a series of robotic spacecraft to explore the Moon starting in 2008 to advance lunar science, provide detailedmaps of the Moon’s physical geography and natural resources, and identify the best locations forhumans to visit. NASA plans to return humans to the Moon by 2020 to learn how to live and workover the long periods of time that will be required for human visits to more distant locations. Allthe while, NASA will build on the success of spacecraft currently orbiting Mars as well as the Spirit

and Opportunity rovers to develop and launch a series of increasingly capable spacecraft to orbit,land, and travel on Mars to sharpen our scientific understanding and test many of the technologiesnecessary to support future human exploration of the planet.





Saturn and its rings, as imaged by NASA’s Cassini spacecraft, which

is currently in orbit around the planet.

Studying Earth and the Sun. The 2006 Budgetcontinues to fund NASA’s critical investmentsin Earth science satellites, technologies, and

research. NASA plays a major part in theinteragency Climate Change Science ResearchProgram, contributes to the internationalinitiative on the Global Earth Observing Systemof Systems, and has pioneered new methods toimprove forecasting of the weather, monitoringof forest fires, and tracking of the spread of pollutants. The agency will also continue todevelop space probes to study the Sun’s influenceon Earth and the space environment.

Capitalizing on Existing Space Infrastructure

The Space Shuttle has served as the centerpiece of the Nation’s human space flight program formore than two decades. This vehicle is instrumental to the continued assembly of the InternationalSpace Station, the unique in-space laboratory shared by multiple international partners. NASA iscommitted to returning the Shuttle safely to flight for this purpose. Having worked diligently formore than a year to address the safety recommendations of the Columbia Accident InvestigationBoard, NASA anticipates that the Shuttle will resume operations during 2005.

NASA will retire the Space Shuttle once its role in Space Station assembly is complete. On January

14, 2004, the President said in announcing his Vision:

The Shuttle’s chief purpose over the next several years will be to help finish assemblyof the International Space Station. In 2010, the Space Shuttle—after nearly 30 yearsof duty—will be retired from service.

International Space Station assembly will be completed by the end of the decade. NASA is examin-ing configurations for the Space Station that meet the needs of both the new space exploration visionand our international partners using as few Shuttle flights as possible. This assessment is critical toallowing NASA to continue work on Space Station assembly safely and retire the Shuttle as plannedto make way for the Crew Exploration Vehicle.

In concert with the new exploration vision, NASA will refocus U.S. Space Station research on ac-

tivities that prepare human explorers to travel beyond low Earth orbit, such as developing counter-measures against space radiation and understanding the long-term physiological effects of reducedgravity.




Keeping America at the Forefront of Safe, Secure, Environmentally Sound Flight

NASA’s X-43A research craft set a speed record when its air-breathingengine propelled the vehicle to nearly Mach 10, or 7,000 miles per hour,in November 2004.

In 1903, the Wright brothers initiated theera of aviation with their breakthrough flightat Kitty Hawk, North Carolina. Since 1917,when it was established as the National Ad-

visory Committee for Aeronautics, NASA hasled the world in the development of advancedaeronautics technologies that have improvedthe Nation’s aircraft and air transportationsystem. Most recently NASA has focused onways to improve the safety and security of aircraft and the National Airspace Systemwhile reducing airport congestion, aircraftnoise, and air pollution.

Today, NASA is transforming its aeronau-tics program to emphasize development and

demonstration of technologies critical to theNation’s future aviation requirements, inareas where NASA has unique capabilities.

NASA will continue working closely with other Government agencies, academia, and industry tomodernize equipment, software, and procedures for significant improvements in air traffic and itsmanagement both in the air and on the ground.





NASA is undergoing a major transformation into a stronger, better managed Federal agency. Asits high ratings on several initiatives of the President’s Management Agenda show, the agency has

taken much-needed actions, such as improving the security of its computer systems, better managingof its human capital needs, and justifying budget requests in terms of the results the agency expectsits programs to achieve. NASA is working toward improving the reliability of its financial manage-ment system while strengthening the processes it uses to estimate its program and project costs.In addition, the agency has addressed several of the management challenges uncovered by programanalyses using the Program Assessment Rating Tool. For example, the Space Station program hasimproved management of its budget reserves and has developed new measures with which to gaugeits performance, while the Mars exploration program has begun to examine the technical feasibility,potential schedules, and estimated costs associated with mission options for the next decade of Marsexploration.


The table below provides an update on NASA’s implementation of the President’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress

NASA remained strong in Human Capital by rolling out a multi-level employee performance appraisal systemand beginning to address workforce need changes resulting from its organizational transformation to focus onthe exploration vision. In support of Competitive Sourcing, the agency received and began to evaluate proposalsunder standard competitions for business functions agency-wide and testing and machining services at theLangley Research Center. NASA advanced E-Government by migrating from agency-specific informationtechnology (IT) systems to more efficient, Government-wide IT solutions, including ePayroll, and supportedBudget and Performance Integration by releasing new cost management standards to increase the accuracy ofproject cost forecasting. NASA’s 2004 financial statements received a disclaimer. Embracing the challenge of afinancial management overhaul that began with the implementation of a new, integrated financial managementsystem, the agency will strive to improve in Financial Performance by developing a plan with credible milestonesto strengthen its financial management.

The 2006 President’s Budget includes $16.5 billion for NASA to make progress toward realizing thePresident’s vision for space exploration and other agency priorities in a fiscally responsible manner.In support of the President’s goal to make Government spending more effective, some programs thatare not directly relevant to the vision or other agency priorities, have not performed as well as others,or are unsustainable given their high projected costs will be reformulated or terminated to allow forgreater focus on the vision’s high-priority programs, as discussed previously in the chapter.






NASA is an active participant on the Federal Real Property Council, which helps inform and developGovernment-wide best practices. The agency is currently developing a comprehensive asset management plan

to guide planning, acquisition, operation, and disposal of real property.

National Aeronautics and Space Administration(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending


Science, Aeronautics, and Exploration ......................................................... 7,873 7,681 9,661Science (non-add) .......................................................................................... 5,600 5,527 5,476 Aeronautics (non-add) .................................................................................. 1,057 906 852 Biological Sciences Research (non-add) ............................................... 986 1,004 —Exploration Systems (non-add) ................................................................. — 25 3,165 Education (non-add) ...................................................................................... 230 217 167

Exploration Capabilities...................................................................................... 7,478 8,358 6,763Space Operations (non-add) ...................................................................... 5,890 6,704 6,763 Exploration Systems (non-add) ................................................................. 1,588 1,654 —

Inspector General ................................................................................................. 27 31 32Total, Discretionary budget authority ................................................................. 15,378 16,070 16,456




Total, Outlays .............................................................................................................. 15,189 15,719 15,744



NATIONAL SCIENCE FOUNDATION

AT A GLANCE:


Major Programs:

Research and related activities

• Education and human resources

• Major research equipment and facilities construction



Fostering innovations that will yield significant long-term economic benefits, especially in areassuch as nanotechnology and information technology research and development.

Protecting America

• Supporting research and training in cyber security to respond to threats to information technol-ogy systems and infrastructure.


• Underwriting science and engineering research.

• Strengthening a diverse, competitive U.S. workforce of scientists and engineers.

• Providing broadly accessible, state-of-the-art science and engineering facilities, tools, and otherinfrastructure.


• Using automated systems to promote effectiveness and efficiency in the agency’s grant-makingprocess.

• Promoting the quality, relevance, and performance of research and development programs bymaintaining practices that are consistent with the Administration’s research and developmentinvestment criteria.

301



302 NATIONAL SCIENCE FOUNDATION


The 2006 Budget provides a 2.4-percent increase for the National Science Foundation’s (NSF’s)investments in science and engineering. Similar investments in the past have yielded important

scientific discoveries, which boost economic growth and enhance Americans’ quality of life. NSF sup-ports a broad portfolio of fundamental research, ranging from the behavioral and social sciences tomathematics and the physical sciences. This research keeps our Nation at the scientific forefront,providing opportunities for growth in both small and large technologically based companies.

The Administration is reinforcing NSF investment in areas that will link discovery to innovation. NSF leads two Administration priority research areas that are particularly likely tofurther strengthen the economy: the National Nanotechnology Initiative and the Networking andInformation Technology Research and Development (NITRD) program. NSF-funded nanotechnologyresearch, funded at $344 million in 2006, a 1.6-percent increase over 2005, has advanced ourunderstanding of materials at the molecular level and has provided insights into how innovativemechanisms and tools can be built atom by atom. This emerging field holds promise for a broad

range of developing technologies, including higher-performance materials, more efficient manu-facturing processes, higher-capacity computer storage, and microscopic biomedical instrumentsand mechanisms. NSF’s investments in NITRD, funded at $803 million in 2006, a one-percentincrease over 2005, support all major areas of basic information technology (IT) research. NSF alsoincorporates IT advances into its scientific and engineering applications, supports using computingand networking infrastructure for research, and contributes to IT-related education for scientists,engineers, and the IT workforce.




PROTECTING AMERICA

Security from Imperfection

Determining whether a given message has originated from aspecific computer is an important but difficult security chal-lenge. NSF-funded research at the Massachusetts Institute ofTechnology (MIT) addresses this challenge by exploiting a de-vice’s manufacturing irregularities. Imperfections and minutecharacteristics of a computer’s components can provide aunique “fingerprint” that can be used to let others confirm theyare communicating with that computer. MIT researchers havedeveloped protocols that use these fingerprints to establishtwo-way secure connections between remote computers, aninnovation relevant to a wide range of secure applications,such as improving email security and protecting software

copyrights.

NSF funding for research relatedto cyber security is critical to

staying ahead of threats to ITinfrastructure. Growing concernsabout the vulnerability of com-puters, networks, and informationsystems have prompted increasedNSF investments in cyber securityresearch, education, and training.The 2006 Budget provides $94million for these activities. Basicresearch in this area is motivatedby broad interest in informationsecurity and reliability, but it hasapplications including encryption,intrusion detection, and networksecurity.

NSF’s Cybercorps program funds grants for graduate and undergraduate education in cyber secu-rity that will strengthen the future IT security workforce. Cybercorps’ scholarships require commit-ments for a period of Government service, ensuring that Federal agencies have access to these skilledworkers. For Cybercorps, the 2006 Budget provides $10 million, which will support 660 students.

Other areas of NSF research have potential relevance to homeland security, including research ondiverse topics such as: microbes and the ecology of infectious diseases; sensor networks; threat antic-ipation and behavioral response; mathematical algorithms for extracting information from massivedata sets; and organization and disruption of social networks.





Underwriting Science and Engineering Research

The 2006 Budget provides $4.3 billion in research and related activities to sustain the Nation’sleadership in science and engineering, an increase of $113 million. Increased funding for “core” re-search will also increase the share of well-rated grant proposals NSF can fund. The agency considersthree factors in evaluating the productivity of its research portfolio: award size, award duration, andthe share of proposals funded. In 2006, NSF will place greater emphasis on increasing its share of proposals it can fund while striving to maintain recent gains in award size and duration.

NSF provides sustained funding to accelerate progress in areas that hold exceptional promisefor advancing knowledge and addressing national interests. In 2006, investments are focused infour interdependent NSF priority areas: Biocomplexity in the Environment; Nanoscale Science andEngineering; Mathematical Sciences; and Human and Social Dynamics.

Strengthening the U.S. Science and Engineering Workforce

The Nanobiotechnology Center, an NSF-funded Science andTechnology Center led by Cornell University, created a travelingmuseum exhibition to explain nanotechnology to the public in aninteractive and entertaining way. About 800,000 visitors toured theexhibition in its first six months.

The 2006 Budget will continue NSF’s effortsto prepare U.S. students for the science andengineering workforce, with a focus on broad-ening participation in these fields. NSF fundingfor basic research at U.S. academic institutionssupports the education of future U.S. scientistsand engineers. NSF also makes strategic invest-ments in K–12, undergraduate, graduate, andpostdoctoral education. The President’s Budgetwill fund graduate fellowships and traineeshipsfor approximately 4,600 graduate students acrossthe country.

NSF’s programs support participation inscience and engineering by individuals and byinstitutions that serve significant numbers of underrepresented students and communities. Anincreasing emphasis on educational programming and outreach by NSF-supported investigators isexpanding the resources available to the Nation’s K–12 and postsecondary institutions to developand strengthen programs in science, technology, engineering, and mathematics.

The President’s Budget seeks to attract the most promising U.S. students into science and engi-neering programs by providing more competitive graduate stipends. NSF provides annual stipends of $30,000 for fellowship and trainee programs, which is significantly higher than the average stipendof $18,000 just five years ago.

Producing Tools for Science and Engineering

NSF invests in research tools critical to scientists and engineers, including instruments, equip-ment, facilities, databases, and large surveys. NSF makes awards primarily to universities and non-profit organizations to construct, manage, and operate large scientific and engineering facilities. ThePresident’s Budget enhances science infrastructure in a wide range of fields, including astronomy,earthquake research, and environmental research.




The Budget provides $509 million for NSF’s targeted investments in cyberinfrastructure—the advanced computing, networking, and information tools and resources intended to broadly benefit sci-ence and engineering. Examples of these technologies include: supercomputers, advanced networks,techniques to visualize complex phenomena, massive data repositories, modeling and simulation,and advanced digital sensor technologies. Because these investments support science and engineer-ing broadly, rather than a single facility or project, they increase productivity across the Nation’s

entire science and engineering community.

The Budget continues support for facilities initiated in 2005, including the National EcologicalObservatory Network (NEON), the Scientific Ocean Drilling Vessel, and the Rare Symmetry Violat-ing Processes (RSVP) installation. NEON is a proposed national network of observatories that willtransform ecological research and environmental forecasting. The Scientific Ocean Drilling Vesselwill provide a new resource to examine geological and biological processes beneath the ocean floor.RSVP will address important questions in particle physics that have the potential to transform ourbasic understanding of the universe, such as the nature of dark matter.

Each year, heavy icebreakers plow through thick ice to provide accessto NSF’s Antarctic stations, which support research on the continent.NSFalso employs research icebreakers such as theNathanielB.Palmer(shown here) to support research in Antarctic waters.

Other continuing facility-constructionefforts include the Atacama Large Millimeter

Array (ALMA), EarthScope, and the IceCubeNeutrino Observatory. ALMA is a telescopecomposed of as many as 64 antennas, each12 meters across. ALMA’s imaging qualitiesand its ability to change the configuration of its antennas will make it astronomy’s most

versatile imaging instrument. EarthScope isplanned as a distributed, multi-purpose arrayof seismic and other geophysical instrumentsthat will allow researchers to make majoradvances in our knowledge and understandingof the structure and dynamics of the North

American continent. IceCube is a neutrinoobservatory buried in the Antarctic ice sheetthat will provide hitherto unseen insights onthe most active and energetic astrophysicalobjects, such as supermassive black holes.

In order to most effectively and efficiently support the Nation’s polar research activities in Antarc-tica, funding for three polar icebreakers is being transferred from the U.S. Coast Guard to NSF. Inthe future, this will permit NSF to define the options for refurbishment or replacement of two of the ships (30-year old heavy icebreakers), which have been critical to maintaining access to NSF’s

Antarctic research stations, as well as operational options for the third (Arctic) icebreaker.





NSF ensures quality in its funding programs by using a competitive awards process based on themerit of individual grant proposals, coupled with periodic external review of its programs that ap-

prove those grants. The President’s Management Agenda recognizes the importance of external review and competition for funding; all eight NSF programs assessed using the Program AssessmentRating Tool in the last two years have been rated Effective. These practices also help ensure qual-ity, relevance, and performance, which are key components of the Research and Development (R&D)Investment Criteria.

NSF Proposals Increased 54 Percent in 5 Years

1999 2000 2001 2002 2003 2004

0

400

800

1,200

1,600

2,000

0

10

20

30

40

50Full-time equivalents (FTEs) Proposals in thousands

Source: NSF.

Proposals Received

FTEs

The 2006 Budget enhances the tools NSFuses to solicit, process, and review, as well asmonitor its awards. The number of researchproposals the agency receives has grownsignificantly in recent years, while the agency’sstaffing level has remained relatively flat.

The agency has accommodated the increase infunding and responsibilities through effectiveuse of information technology. NSF’s FastLanegrants-processing system enables NSF toelectronically process virtually all of the morethan 45,000 proposals the agency receiveseach year. Over 200,000 scientists, engineers,educators, and research administrators usethis system to submit and review proposals

and report project results. But while the information technology investments of recent years haveprovided impressive gains in efficiency, dramatic increases in both the number and complexity of proposals submitted to NSF pose increasing administrative challenges. To address these challenges,

NSF continues to enhance existing systems, while also rethinking fundamental agency processesto pursue an integrated approach to human capital, competitive sourcing, and E-Government. The2006 Budget requests funds to improve information technology to further modernize and coordinatethe systems and processes NSF uses for merit review and grant management.





The table that follows provides an update on NSF’s implementation of the President’s Management Agenda as of December 31, 2004.


SourcingFinancial



Integration

Status

Progress

Arrow indicates change in status since evaluation as of September 30, 2004.

NSF continues to improve its management of human capital, recently documenting that it had significantlyreduced gaps in skills that are critical to NSF’s mission. The agency receives virtually all of its researchproposals electronically, has a comprehensive plan for continued improvement of its information technology

security program, and continues as an active partner in several interagency E-Gov initiatives, includinggrants.gov and E-authentication. NSF prepared its 2004 audited financial statements in 45 days and earnedan unqualified opinion in its 2004 audits. NSF can report the full cost of achieving its performance goals. NSFdelayed developing a competitive sourcing strategy until it completed its human capital plan, but expectsto move forward with competitive sourcing in 2006.



NSF has an improper payment rate of less than one percent to its awardees (typically colleges and universities),but NSF will have to demonstrate that its methods are adequate to ensure that colleges and universities thatreceive funding exercise fiscal responsibility consistent with Government-wide standards. (Because this isthe first quarter that agency efforts in this initiative were rated, progress scores were not given.) NSF is oneof 12 major R&D agencies that strive to plan, manage, and assess their R&D programs consistent with theR&D Investment Criteria, which are discussed in detail in the chapter on Research and Development in theBudget’s Analytical Perspectives volume.




National Science Foundation(In millions of dollars)

Estimate2004

Actual 2005 2006


Research and Related Activities ..................................................................... 4,263 4,221 4,334Education and Human Resources ................................................................. 939 841 737Major Research Equipment and Facilities Construction ........................ 155 174 250Salaries and Expenses....................................................................................... 219 223 269National Science Board...................................................................................... 4 4 4Inspector General ................................................................................................. 10 10 12



Mandatory Outlays:H–1B Fee Programs ............................................................................................ 1 100 100All other .................................................................................................................... 89 49 26


Total, Outlays .............................................................................................................. 5,118 5,641 5,666



SMALL BUSINESS ADMINISTRATION

AT A GLANCE:

2006 Discretionary Budget Authority: $593 million(Decrease from 2005: 3 percent)

Major Programs:

Small Business Loans

• Small Business Development Centers

• Disaster Loans



Guaranteeing small business loans in 2006 through the 7(a) program.

• Providing fixed-rate loans for land, equipment, and buildings through the Section 504 program.

• Assisting and training approximately 700,000 entrepreneurs in 2006 through Small BusinessDevelopment Centers.

• Helping more than 410,000 business owners receive counseling and mentoring from businessexecutives under the SCORE program.

• Streamlining Federal regulations and reducing paperwork burdens, reducing the growth of regulatory costs for small businesses by nearly $6 billion.


• Issuing approximately 25,000 low-interest loans to businesses and homeowners under theDisaster Loan program to cover uninsured losses resulting from natural disasters.

309



310 SMALL BUSINESS ADMINISTRATION


Small businesses account for more than half of existing private sector jobs, two-thirds of net newprivate sector jobs, and more than half of the United States’ Gross Domestic Product. The Small Busi-

ness Administration’s (SBA’s) mission is to promote small business development and entrepreneur-ship through business credit and technical assistance programs. In addition, SBA works with otherFederal agencies to reduce regulatory and paperwork burdens.

In order to meet the demand of the growing small business sector, the Budget supports more than$25 billion in small business lending. The 7(a) program, which received an Adequate rating underthe Program Assessment Rating Tool, is being increased to support $16.5 billion in guaranteed loan

volume in 2006, the largest level in the history of the program. This will provide financing to en-trepreneurs who could not obtain affordable loans without a Government guarantee. A 10-percentincrease in the Section 504 program, to $5.5 billion in loan volume, will increase borrower accessto fixed-rate financing for fixed assets such as land, equipment, and buildings. SBA will also sup-plement the capital of Small Business Investment Companies with $3 billion in long-term loans for

venture capital investments in small businesses.

Economic Opportunity

For more than 20 years Beth Harshfield worked for prominent marketing and advertising companies. In Juneof 2000, she formed a small business of her own, Exhibit Arts LLC, providing exhibit design and fabrication,and conference and event management services

As an American Indian, she received her 8(a) certification in the fall of 2003. With this assistance, her oncepart-time and home-based business now occupies a 7,000-square foot facility in downtown Wichita, Kansas.Her clients include the Air Force, Army, and Environmental Protection Agency, in addition to numerouscommercial customers.

SBA and its partners provide technical assistance programs, including training, counseling,mentoring, and information services to more than four million existing and potential entrepreneursannually. SBA also provides guidance to the new Urban Entrepreneurs Partnership, announcedby President Bush in July 2004. SBA provides grants to a network of over 1,100 Small BusinessDevelopment Centers; 389 SCORE chapters, which match executives with entrepreneurs forbusiness counseling; and 84 Women’s Business Centers. The Budget requests nearly $108 millionfor technical assistance programs in 2006.

Regulatory and paperwork requirements are especially cumbersome on small businesses. SBA’s

studies have found that small businesses with fewer than 20 employees spend an average of $6,975per employee complying with regulations as compared to $4,463 per employee for firms with morethan 500 employees. SBA works with Federal agencies to minimize the burden of regulations. As aresult of the Administration’s efforts since 2001, SBA estimates that the growth of regulatory costsfor small businesses has been reduced by over $50 billion. In 2006, SBA efforts are expected to reducesuch cost growth by an additional $5.6 billion.

In addition to SBA’s programs, the Administration is championing small business interests throughtax cuts and health care reform. As a result of the Jobs and Growth Tax Relief Reconciliation Actof 2003 (JGTRRA), 25 million small businesses and their owners received tax relief averaging more




than $3,000 each in 2004. JGTRRA quadrupled the expensing provision to $100,000, raised the ex-pensing phase-out threshold to $400,000, and increased the first year “bonus” depreciation deductionfrom 30 to 50 percent. The first two provisions were extended through 2007 by the American JobsCreation Act of 2004. The Administration also supports legislation enabling creation of AssociationHealth Plans, which will allow small businesses to band together and purchase insurance at lowerrates, and making insurance premiums associated with Health Savings Accounts tax deductible. In

addition, the proposed comprehensive reform of the Nation’s medical liability laws will make insur-ance costs more affordable and reasonable for small businesses.

Procurement Policy

The Federal Government annually buys over $200 billion in goods and services, and has a statutorygoal of awarding at least 23 percent of its purchases to small businesses. The Federal Governmentmaintains its strong commitment to achieving and exceeding this goal.

As part of this effort, SBA assists agencies by negotiating agency-specific procurement goals,monitoring performance, and encouraging use of small business sources. In addition, as part of the President’s commitment to help small businesses, the Administration implemented a strategy

to minimize the adverse effects of inappropriate contract bundling—the grouping of separate andoften unrelated purchasing activities into a single contract, a practice that increased among Federalagencies in the 1990s.





Florida building damaged by Hurricane Charlie.

SBA’s disaster loans help homeowners,renters, businesses of all sizes, and non-

profit organizations finance rebuilding andrecovery efforts. Working primarily with theDepartment of Homeland Security’s FederalEmergency Management Agency, SBA setsup temporary field offices in disaster areasto help issue low-interest construction andeconomic-assistance loans.

As a result of the four hurricanes in thesoutheastern United States in August andSeptember 2004, SBA received supplementalappropriations adequate to issue approxi-

mately 80,000 loans totaling about $4 billionin 2005. These loans will assist homeowners and businesses in repairing their damaged propertyand provide businesses with operating funds during the recovery period. The 2006 Budget requestsfunding to support $810 million in disaster loans based on the five-year average demand under theprogram, excluding large scale events such as the recent hurricanes in the Southeast.





Consistent with the President’s Management Agenda, SBA is administering its programs moreefficiently to improve customer service and reduce program costs. Building upon its success in con-

solidating loan liquidation functions from 69 district offices to a single location, SBA is also workingto consolidate other loan origination and management functions. While providing administrativecost savings, these changes ensure that loans are managed more consistently and efficiently. Theconsolidation of loan liquidation activities in 2004 reduced agency costs for this function from $32million to $16 million per year.

SBA seeks to target assistance more effectively to credit-worthy borrowers who would not get loansfrom the commercial markets in the absence of a Government guarantee. SBA is actively encouragingfinancial institutions to increase lending to start-up firms, low-income entrepreneurs, and borrowersin search of financing below $150,000. Preliminary evidence shows that SBA’s outreach for the 7(a)program has been successful. Average loan size has decreased from $241,000 in 2000 to $167,000 in2004, while the number of small businesses served has grown from 43,748 to 81,133 during the same

time.SBA has also begun monitoring and managing its portfolio risk through the Loan Monitoring Sys-

tem. The implementation of this system enables the agency to track the performance of lendersrelative to the credit scores of borrowers in their guaranteed loan portfolio. This provides the agencywith a tool to identify lenders that pose the greatest risk to Federal taxpayers for similar types of borrowers, and to suggest intervention when necessary to avoid further risk.

The 2006 Budget proposes termination of the Microloan program, which has been excessivelyexpensive relative to other programs. The 7(a) program is capable of serving similar clientelethrough the Community Express program at a much lower cost to the Government.

The 2006 Budget supports $3 billion in new guaranteed venture capital investments for smallbusinesses through the Small Business Investment Company Debenture program, which provides

credit financing. However, with realized and projected losses exceeding $2 billion in the ParticipatingSecurities program, which provides equity-type venture capital financing, the 2006 Budget does notsupport new guaranteed investments in this program. Rather than make new investments throughthis program, SBA will continue to improve efforts to monitor and mitigate risk in the outstanding$9 billion Participating Securities portfolio.






The table below provides an update on SBA’s implementation of the President’s Management



Sourcing

Financial


Budget and

Performance

Integration

Status

Progress


SBA has made solid progress in most areas of the President’s Management Agenda. To improve service to thepublic, the agency assessed its staff’s skills, contracted for training, increased accountability of managers, andconducted competitive sourcing competitions in 2004. As the leader of the Business Gateway, SBA has launchedthe website www.Business.gov , which helps small business owners easily find, understand, and comply withFederal regulations. SBA is working with other Federal agencies to reduce the paperwork burden on businesses.In the area of Budget Performance and Integration, SBA is making progress by improving its ability to measure,monitor, and mitigate risk in its loan portfolio. SBA has also made progress in developing new estimation modelsto improve financial management and more accurately measure the cost of providing credit to small businesses.



SBA developed targets for the Disaster Loan and Small Business Investment Company programs and is in theprocess of developing new ones for the 7(a) General Business Loan program. (Because this is the first quarterthat agency efforts in this Initiative were rated, progress scores were not given.)




Small Business Administration(In millions of dollars)

Estimate2004

Actual 2005 2006

SpendingTotal, Discretionary budget authority ................................................................. 757 610 593Memorandum: Budget authority from enacted supplementals ............... 30 929 —

Total, Discretionary outlays ................................................................................... 796 1,373 823

Total, Mandatory outlays ........................................................................................ 3,279 1,663 33

Total, Outlays .............................................................................................................. 4,075 3,036 790

Credit activity

Direct Loan Disbursements:

Direct Disaster Loans..........................................................................................

467 2,900 1,100Direct Business Loans ........................................................................................ 21 15 5Total, Direct loan disbursements ......................................................................... 488 2,915 1,105

Guaranteed Loan Commitments:Guaranteed Business Loans ............................................................................ 14,067 21,000 21,000

Total, Guaranteed loan commitments................................................................ 14,067 21,000 21,000



SOCIAL SECURITY ADMINISTRATION

AT A GLANCE:


Major Programs:

Old-Age and Survivors Insurance

• Disability Insurance

• Supplemental Security Income



Helping people with disabilities make the transition to work.


• Providing Supplemental Security Income payments, Social Security Disability Insurancebenefits, and Survivor Insurance benefits to eligible individuals.

• Assisting in the administration of the new Medicare prescription drug benefit by determiningeligibility for low-income subsidies.

• Extending eligibility for Supplemental Security Income for roughly 4,000 refugees and asyleeswho have not yet become U.S. citizens.


• Converting from paper to electronic disability application folders to speed decision-making andreduce administrative costs.

• Providing access to video hearings for some people who live a long distance from a hearing office,allowing them to have hearings scheduled sooner when they appeal decisions made by the SocialSecurity Administration.

• Ensuring that more than 99 percent of benefits are paid correctly.


• Improving the timeliness and accuracy of the Social Security Administration’s disabilitydecision-making process while continuing to improve productivity.

317




The Budget proposes to require full-time school attendance as a condition of entitlement for SocialSecurity child’s benefits for children beginning at age 16. Current policy allows eligible children toreceive Social Security benefits up to the month they reach age 18, regardless of school attendance.School attendance is required for children ages 18 and 19 to continue receiving benefits. Changingthe policy to age 16 will further encourage eligible children to remain in school.

SSA has put a priority on helping people get back to work, as evidenced by the new performancemeasure it developed for the Supplemental Security Income (SSI) program. SSA is committed toincrease the number of SSI and DI beneficiaries with “tickets” who go to work, relative to 2003,by 20 percent in 2004, 40 percent in 2005, and 60 percent in 2006. Tickets allow beneficiaries tochoose employment services, whether from a more traditional vocational rehabilitation agency orother participating public and private providers.





Electronic Disability (eDib) Process Becoming a Reality

Speedier service of disability claims is proving to be a reality.In January 2004, the Mississippi Disability Determination Ser-vice (DDS) received a premature baby boy’s SSI claim, alongwith medical evidence from the local children’s hospital. Thisbaby weighed less than 1,200 grams and had serious med-ical complications. The formal SSA application was submit-ted electronically and the medical evidence was scanned intoa document repository. The disability examiner had access toall documents on her computer screen and made an allowancethat same day. Social Security expects eDib to be used in allDDSs by June 2005.

Electronic Disability Folder

Starting in January 2004,SSA began implementation of anelectronic disability file folder. Thisincreased use of technology willreplace a paper-driven process witha more efficient one, resulting insignificantly reduced processingtimes and improved decisionalaccuracy for initial disabilityclaims and hearings. So far, SSAhas implemented the electronic

disability folder in 25 States andplans to complete implementationin 2006. Once fully implemented,SSA will have the largest repository of medical records in the world, and will see greater progressin eliminating avoidable delays in the disability claims process.

Performance Evaluation of Select Programs

Stopping Fraud

Another challenge faced by SSA is weeding out fraudulent

claims of disability among the applications it gets every year.

The Federal Government filed suit last year against a womanwho had received $190,000 in disability payments. In January1999, she claimed that even lifting a gallon of milk caused herto suffer migraines that prevented her from reading and writing,and that she was unable to walk more than 10 minutes withoutexperiencing debilitating pain. In March 1999, she competedand won the “Mrs. Minnesota International” pageant in whichshe engaged in stage walking, a production number, and com-peted in the aerobic and evening gown competitions.

A Federal jury convicted her in August 2004 on nine counts ofdefrauding SSA.

Source: U.S. Department of Justice, Office of the U.S. Attorney, District ofMinnesota, Press Release.

SSA assessed for 2006 theSSI program using the Program

Assessment Rating Tool (PART).

The PART found that SSI has aclear purpose and addresses aspecific need. SSA is working toensure that the correct benefitsare paid to the right persons on atimely basis. SSA evaluated theDI program previously and is con-

verting from using a paper folder toan electronic one for the disabilityclaims process, as discussed above.The PART evaluation cited a needto implement an improved claims

process.

Stewardship and Program Integrity

A crucial aspect of good management in income support programs is ensuring that only eligibleindividuals receive benefits, and that they receive the correct benefits. SSA undertakes a varietyof program integrity activities to minimize improper payments by verifying beneficiaries’ eligibilitystatus, collecting debt, investigating and deterring fraud, and other methods.



322 SOCIAL SECURITY ADMINISTRATION


The Budget proposes to improve payment accuracy by requiring that SSA review at least 50percent of favorable SSI disability and blindness decisions before starting payments. Further, the

Administration will conduct more continuing disability reviews (CDRs) in 2006. This is a proven,

sound investment since SSA generates savings of approximately $10 for each $1 spent on suchactivities. SSA’s 2003 CDRs are expected to yield over $5 billion in program savings.

Improved Productivity and Efficiency

Processing Time for Initial Disability Claims

1999 2000 2001 2002 2003 2004 2005 2006

85

90

95

100

105

110

Number of Days

Source: SSA.

Average Processing Time

SSA is committed to improve its productivityand efficiency in providing services to citizens.SSA performs a variety of tasks for citizens,such as processing applications for retirementand disability benefits, answering questionsthrough its 1–800 number, and conductinghearings for people who have appealed thedecision SSA makes on their application forbenefits. SSA measures its productivity inconducting all of these transactions, and pushesfor greater efficiencies through increased use of technology and changes in business processes.SSA, for example, measures the number of applications for disability benefits the averageworker processes each year, and strives to

increase this number. Using these kinds of measures, SSA has documented that the agencyincreased productivity by an annual average of nearly three percent from 2000-2004. In addition,SSA has reduced average processing time for initial disability claims by over 10 percent since 2001

(see accompanying chart).

A claimant and representative (not shown) watch froma remote hearing site as expert witnesses are swornin for a video hearing.

Video Hearings Save Time and Money

In 2004, individuals who were initially denied disabilitybenefits and who appealed to an Administrative Law Judge(ALJ) had to wait over a year before a final decision wasmade. Wait times can be especially long for individuals liv-ing long distances from major cities; ALJs may only visitrural areas a few times per year since they need to sched-ule enough hearings to justify the expense of their travel.

Also, it can be difficult obtaining the appropriate expert wit-

nesses outside major cities. Video hearings can benefit claimants in two ways. Their

hearings may be scheduled sooner than if they choose face-to-face hearings, and there may be a broader range of expertwitnesses available. For example, a claimant in Sioux City,Iowa, can go to a video hearing location in his or her localcommunity, rather than traveling nearly 200 miles to thehearing office in West Des Moines or waiting many monthsbefore an ALJ could travel to Sioux City. Video hearings




save travel expenses and time for both the claimant and the ALJ. In 2006, SSA plans to schedule30,000 hearings via video.


The table that follows provides an update on SSA’s implementation of the President’s Management Agenda as of December 31, 2004.


Sourcing

Financial


Budget and

Performance

Integration

Status

Progress


SSA has achieved some significant milestones in its effort to implement the President’s Management Agenda.The agency now has a multi-tiered performance appraisal system for executives and managers that effectivelydifferentiates between different levels of performance. SSA is working to include all employees under such asystem. Further, SSA is able to determine full and marginal cost of achieving performance goals and uses thatinformation to make decisions. In the area of Financial Performance, SSA is improving the quality, consistency,and timeliness of data so managers can drive better results such as reducing the administrative costs of SSA’sbenefit programs. In Competitive Sourcing, SSA completed it first full competition, the Systems Help Desk(covering 68 positions). The estimated savings from this competition is $35 million over a five-year period. Inaddition, SSA identified a number of challenges involved in completing small competitions, and proposed analternate study approach to better address these competitions that was approved as a limited pilot.



SSA measures improper payments for its three major benefit programs: Old Age and Survivors Insurance(OASI), Disability Insurance, and Supplemental Security Income (SSI). SSA has a corrective action plan andreduction targets in place. The OASI program consistently has a very low improper payment rate. SSA did notmeet its target for improper payments for SSI in 2003. SSA is working to meet future targets with initiatives thatwould allow for quicker and more accurate eligibility determinations. (Because this is the first quarter that agencyefforts in the Eliminating Improper Payments Initiative were rated, progress scores were not given.)



324 SOCIAL SECURITY ADMINISTRATION


SSA sets goals to provide high-quality service, which is reflected in the Agency’s commitment toincrease productivity, timeliness, and accuracy in processing applications for disability benefits. With

this Budget, SSA expects to achieve the performance targets outlined in the table below.

Goal

Goal2004

Actual 2005 2006

Productivity:

Disability Decisions, Per Worker Per Year 1 ........................................................ 273 278 284

SSA Hearings Decisions, Per Worker Per Year ................................................. 100 103 105

Timeliness (in days):

Average Processing Time for Initial Disability Claims ...................................... 95 93 91

Average Processing Time for Hearing Decisions .............................................. 391 442 442

Accuracy:

Disability Determination Services Accuracy Rate ............................................. NA 97% 97%Accuracy Rate for Hearing Decisions .................................................................... NA 90% 90%

1In 2004, an SSA worker on average made 273 disability decisions. A higher number in a given year represents greater productivity.

Social Security Administration(In millions of dollars)

Estimate2004

Actual 2005 2006

Spending

Discretionary Budget Authority:Limitation on Administrative Expenses (LAE) Base 1 ............................ 8,313 8,733 9,083Office of the Inspector General ....................................................................... 88 90 93Research and Development ............................................................................. 40 28 20

Subtotal ............................................................................................................................. 8,441 8,851 9,196Medicare Reform Administrative Expenses 1 ..................................................... 500 — 320Total, Discretionary budget authority ...................................................................... 8,941 8,851 9,516

Mandatory Outlays:

Old-age, Survivors, and Disability Insurance ............................................. 491,623 515,126 540,121Supplemental Security Income........................................................................ 33,725 39,027 38,314Special Benefits for Certain World War II Veterans ................................. 10 11 10

Offsetting Collections .......................................................................................... 2,583 2,613 2,727Undistributed Offsetting Receipts ................................................................... 10,601 10,911 11,357

Legislative proposals ...................................................................................... — — 13Total, Mandatory outlays ........................................................................................ 512,174 540,640 564,374

1The LAE account includes funding from the Hospital Insurance and Supplementary Medical Insurance trust funds for services that support theMedicare program, including implementation of Medicare Reform.



OTHER AGENCIES

COMMODITY FUTURES TRADING COMMISSION

Price Manipulation in Energy Markets

Since December 2002, CFTC filed charges against a total of30 companies and individuals and assessed over $267 millionin civil monetary penalties for illegal activity in the energymarkets. In 2004, CFTC actions resulted in a $35 million civil

monetary penalty against Enron. Among other claims, theCFTC alleged that Enron and a natural gas trader engaged ina manipulative scheme to buy an extraordinarily large amountof natural gas in a short period of time. The complaint allegedEnron’s actions had a direct and adverse effect on the NewYork Mercantile Exchange natural gas futures contract, in-cluding causing prices to become artificial. In announcing thepenalty, Gregory G. Mocek, the Director of Enforcement forthe CFTC stated, “This settlement demonstrates the CFTC’sexhaustive efforts to identify and root out manipulation of thenatural gas and energy markets.”

The Commodity Futures TradingCommission (CFTC) protects theintegrity and effectiveness of theU.S. futures and options markets.It protects investors by preventingfraud and abuse and ensuring

adequate disclosure of information.Major activities of the agencyinclude: promulgating regulationsgoverning commodities futuresmarkets; detecting and prosecutinginvestor fraud; and monitoring themarkets in order to prevent illegalprice manipulation efforts. In2004, CFTC filed 83 enforcementactions against suspected violatorsof commodity trading laws. The2006 Budget provides $99 million

to fund CFTC’s activities.

CONSUMER PRODUCT SAFETY COMMISSION

Safety helmets are one of 15,000 types of consumer products underCPSC’s jurisdiction.

The Consumer Product Safety Commission(CPSC) is the Federal agency responsiblefor protecting families from hazards relatedto consumer products under its jurisdiction.CPSC collects data to monitor injuries anddeaths resulting from consumer products,works with industry to develop voluntarystandards to make products safer, andeducates consumers on potentially dangerousproducts. Where these steps are insufficientto protect Americans from unnecessary risks,CPSC develops mandatory rules and conductsproduct recalls. The President’s Budgetincludes $62 million for CPSC to sustainexisting safety efforts and continue providingnational consumer product safety leadership.

325



326 OTHER AGENCIES

CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

Each year, the Corporation for National and Community Service (CNCS) engages more than 2.5million Americans in service opportunities. Through AmeriCorps, Senior Corps, and Learn and Serve

America, CNCS helps Americans answer the President’s Call to Service. The 2006 Budget proposes$921 million for CNCS to support 75,000 AmeriCorps members, provide service opportunities forsome 500,000 Senior Corps members, and engage over one million youth in service learning throughLearn and Serve America. The Corporation’s programs work with community- and faith-based orga-nizations to meet local needs. Its programs support activities ranging from tutoring and mentoringchildren, assisting the elderly, preserving the environment, building homes for low-income families,and mobilizing volunteers to respond to disasters.

Strengthening AmeriCorps for the Future

Helping the Hurricane-weary

Reeling from one of the worst hurricane seasons in its history,Florida needed a rapid, flexible response. In 2004, more than700 AmeriCorps, Senior Corps, and Learn and Serve Americamembers were deployed to help Floridians survive the stormsand repair the damage. For example, teams of AmeriCorpsNational Civilian Community Corps members from all five cam-puses were deployed to cover approximately 1,500 roofs withplastic sheeting to protect storm-damaged homes in Tallahas-see from the weather until permanent repairs could be made.Senior Corps volunteers worked with Orlando’s EmergencyOperations Center and the Red Cross to create a volunteer

reception center to help special needs residents who did notevacuate during the storms.

Launched 10 years ago, the

AmeriCorps program has enabledmore than 400,000 Americans toaddress pressing community needswhile earning an education awardto help finance college or re-paystudent loans. In 2003, AmeriCorpsmembers tutored nearly a half million children, helped buildand rehabilitate more than 3,300homes for low-income families,and helped restore and conservemore than 41,000 acres of public

lands. In 2004, CNCS launcheda comprehensive rulemakingprocess to implement AmeriCorpsgrantmaking reforms, programmanagement improvements, andlong-term financial sustainability. The final rule will be published in 2005 and will promotelong-term growth as well as sustainability of national service programs by local communities andthe private sector. The 2006 Budget requests $421 million to support the President’s goal of 75,000

AmeriCorps members, including $146 million in the National Service Trust to support membereducation awards.

Fostering a Culture of Service

In conjunction with the USA Freedom Corps, a White House office created by President Bushfollowing the attacks of September 11th, CNCS is helping Americans of all ages and backgroundsanswer the President’s Call to Service to dedicate at least 4,000 hours, or two years, of their lives inservice. The 2006 Budget will enable an estimated 500,000 older Americans to volunteer through theSenior Corps program. The Budget proposes $220 million for the Senior Corps program, which meetsa wide range of community needs such as helping seniors live independently in their homes, men-toring children of prisoners, and tutoring children. The Budget also proposes $40 million for Learnand Serve America to engage more than 1 million American youth in service learning education. In



328 OTHER AGENCIES

In 2006, the Administration will also work with the District to review the current portfolio of Federal lands in the District of Columbia to determine whether any of these parcels would be bet-ter utilized by the District. In addition, the Administration continues to support enactment by theCongress of a law to allow the D.C. government’s proposed local budget to take effect without aseparate annual appropriations bill, subject to limitations imposed by the Congress by law.

DISTRICT OF COLUMBIA COURTS

The District of Columbia (D.C.) Courts continue to work on capital improvements necessary for theFamily Court Division of the D.C. Superior Court. The President’s Budget provides $267 million tothe Courts, which includes $83 million for significant capital improvements in the Judiciary Squarearea. Judiciary Square is the center of many criminal justice functions in the District and is the homeof the D.C. Superior Court, as well as a variety of other city and Federal criminal justice agencies.Improvements planned for the area include a full restoration of the city’s Old Courthouse. The OldCourthouse was originally built between 1821 and 1881 and is listed on the National Register of Historic Places. Restoration work on the Old Courthouse began in early 2005. In addition, the Courtscompleted renovation work on Building B in December 2003. This allowed the Small Claims and

Landlord courts to move from the H. Carl Moultrie Courthouse to Building B. As a result of thismove, an interim Family Court facility opened in the H. Carl Moultrie Courthouse in the Fall of 2004. The D.C. Courts will continue to undertake significant design and renovation work on theH. Carl Moultrie Courthouse in preparation for opening a permanent Family Court.

ELECTION ASSISTANCE COMMISSION

The Election Assistance Commission provides funding to States to improve election equipmentand the administration of Federal elections. Since enactment of the Help America Vote Act of 2002, the Federal Government has provided approximately $3.1 billion to upgrade voting systems,develop electronic voter registration lists, assure access for individuals with disabilities, and train

election officials for all 50 States, the District of Columbia, and four territories (Puerto Rico, Guam, American Samoa, American Virgin Islands). The 2006 President’s Budget proposes $17.6 million forthe Commission to develop voluntary standards and initiate an accreditation program for electronic

voting machines.

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

The Equal Employment Opportunity Commission (EEOC) enforces Federal laws that prohibitemployment discrimination based on race, color, sex, religion, national origin, age, and disability.EEOC also seeks to prevent discrimination through outreach, education, and technical assistancethat promote employers’ voluntary compliance with the law. One of EEOC’s responsibilities is to

hold hearings and resolve appeals related to Federal employees. During 2004, EEOC reduced theinventory of pending hearings and appeals requests from about 12,300 at the end of 2003 to 9,600at the end of 2004.

The 2006 Budget provides $331 million for EEOC, which is $4 million, or one percent, more thanthe level in the 2005 Consolidated Appropriations Act. The Budget would allow EEOC to continueits outreach to workers and employers, and to reposition the agency for improved service. To supportthe President’s New Freedom Initiative—a strategy to integrate people with disabilities fully intothe Nation’s life—EEOC will continue its project to identify States’ best practices for removing em-ployment barriers faced by people with disabilities. The agency will publish a final report in 2006.




Teaching Teens about Equal Opportunity

EEOC’s Youth@Work Initiative promotes equal employment opportunity for the next generation of workers.The Youth@Work website (www.youth.eeoc.gov) explains job discrimination that young workers may en-counter and suggests strategies to respond to it. In addition, the New York District Office’s T.E.A.C.H. (Teen

Education, Assistance, Compliance and Help) program has taught students of several local universities andhigh schools about their rights and responsibilities as potential employees and employers.

EXECUTIVE OFFICE OF THE PRESIDENT

The Executive Office of the President (EOP) includes a number of organizations dedicated to serv-ing the President. As part of the 2006 Budget, the Administration requests a three-part financialrestructuring initiative, which would:

Consolidate the annual appropriations in the Departments of Transportation, Treasury, Inde-pendent Agencies, and General Government appropriations bill for EOP components that mostimmediately serve the presidency—the White House Office, the Office of Policy Development,Executive Residence, the Office of Administration, White House Repair and Restoration, Privacyand Civil Liberties Oversight Board, National Security Council, and the Council of Economic Ad-

visers—into a single appropriation called The White House.

• Extend the general provision for limited transfer authority in section 533 of the Departmentsof Transportation, Treasury, Independent Agencies, and General Government Appropriations

Act, 2005 (Division H of Public Law 108-447), to provide for a 10-percent transfer authorityamong all of the following accounts: The White House, Special Assistance to the President andOfficial Residence of the Vice President, Office of Management and Budget, United States TradeRepresentative, Office of National Drug Control Policy, Council on Environmental Quality, and

Office of Science and Technology Policy. Transfers from the Special Assistance to the Presidentand the Official Residence of the Vice President account are subject to the approval of the VicePresident.

• Continue centralization of rent, after-hours utilities, and health unit funding for the EOP intothe Office of Administration program.

This initiative provides enhanced flexibility in allocating resources and staff in support of thePresident and the Vice President, and permits more rapid response to changing national needs andpriorities.

Resources requested for the EOP, and for executive functions and official residence of the VicePresident (see 3 U.S.C. 106 and Public Law 93-346), in 2006 total $329 million, or 1.7 percent, below

the 2005 appropriated level. These resources will support approximately 1,840 personnel, as well asinformation technology and other infrastructure needs to serve the President and the Vice President.

FEDERAL COMMUNICATIONS COMMISSION

The President’s 2006 Budget proposes $304 million for the Federal Communications Commission(FCC), of which $299 million would be offset directly by regulatory fees. This funding provides infla-tionary increases and supports the Commission’s ongoing work to ensure that Americans have rapidand efficient communications services.



330 OTHER AGENCIES

Demanding that Government Programs Demonstrate

Results

The Telecommunications Development Fund (TDF) wascreated by the Congress in 1996 with the mandate to

finance small businesses in the telecommunicationssector, help develop new technologies, and promote uni-versal service. It started operations in 1998 as an equityinvestment venture capital fund focusing on early-stagecompanies. Over the years, the firm has been capitalizedby the Federal Government; it retains the interest earnedon deposits made by bidders in FCC spectrum auctions.Between 1998 and 2003, TDF received nearly $50 millionin interest on these deposits.

Through the end of calendar year 2003, TDF had in-vested a total of $14.5 million in about 14 companies.TDF has already written off more than $10 million of

these investments. TDF spent approximately $9 millionon salaries and other administrative expenses during thesame period. As of December 2003, TDF also held $29million in cash equivalents.

Over the same period, private markets provided billions ofdollars in early-stage venture capital to the telecommuni-cations sector. Also, the Universal Service Fund providesover $6 billion annually to promote universal service.

As a result of TDF’s disappointing performance, lack of im-pact, and high administrative costs, the Budget proposesterminating the fund and returning remaining assets to theTreasury.

Recent years have witnessedenormous growth in advanced commu-nications technologies. Following theFCC decision to deregulate broadband,companies announced over $6 billion inplanned investment to bring broadband

to an additional 20 million homes,supporting the Administration’s goalof universal, affordable access tobroadband by 2007. The FCC plansto auction 90 MHz of spectrum foradvanced wireless services, half of which represents spectrum movingfrom Federal to private use. This spec-trum will allow multiple companiesthe opportunity to become broadbandproviders—stimulating vigorous com-

petition and bringing lower prices andimproved services to consumers.

Spectrum auctions have proven tobe an effective mechanism to assignlicenses for certain spectrum-basedservices. Since 1994, communicationsservice providers have won over25,000 licenses and paid over $14billion into the Treasury through FCCauctions. The Administration supportslegislation to extend indefinitely theFCC’s auction authority, which expiresin 2007.

To continue to promote efficientspectrum use, the Administration also supports granting the FCC authority to set user fees onunauctioned spectrum licenses based on public-interest and spectrum-management principles. Feecollections are estimated to begin in 2007 and total $3.1 billion in the first 10 years.

To encourage the digital transition, the Administration seeks to create incentives for televisionbroadcasters to vacate the analog spectrum, as required by law, in a timely fashion. The Administra-tion supports authorizing legislation for the FCC to establish an annual lease fee for analog spectrumuse by commercial broadcasters starting in 2007. Individual broadcasters would be exempt as theyreturn their analog spectrum, and collections would decline.

FEDERAL DEPOSIT INSURANCE CORPORATION AND NATIONALCREDIT UNION ADMINISTRATION

The purpose of deposit insurance is to maintain stability and public confidence in the Nation’sbanking system. Federal deposit insurance, offered by the Federal Deposit Insurance Corporation(FDIC) and the National Credit Union Administration (NCUA), is designed to protect depositors fromlosses due to failures of insured commercial banks, thrifts (savings institutions), and credit unions.




Individual deposits of up to $100,000 are covered in most U.S. banks, savings associations, and creditunions.

Currently, the Federal Government, through FDIC and NCUA, insures $4 trillion in deposits atmore than 18,000 institutions. These agencies maintain insurance reserves to reimburse depositorsat failed institutions. FDIC and NCUA fund these reserves through assessments on insured institu-

tions, recoveries of assets liquidated from failed institutions, and interest credited to these reservesfrom U.S. Treasury securities. At the end of 2004, the insurance reserves at the FDIC exceeded $46billion, while the insurance fund balance at the NCUA was over $6 billion. In 2004, 27 commercialbanks and credit unions, worth approximately $300 million in combined assets, failed. This comparesto 2003, when 12 institutions with $1.2 billion in assets failed.

While the deposit insurance system for banks and thrifts is generally sound and well managed, ithas structural weaknesses that, in the absence of reform, could deepen over time. The Administra-tion supports reforms that would strengthen the deposit insurance system managed by FDIC. The

Administration supports the proposal submitted by the Treasury Department and Federal bankingregulatory agencies to the Senate in 2003 that would accomplish this objective. The proposal drewon a framework outlined by the FDIC and discussed in congressional testimony and elsewhere bythe Department of the Treasury officials.

• FDIC has been prohibited from charging premiums to well-capitalized and well-run institutionssince 1996. Therefore, under the current pricing structure, fewer than 10 percent of banks andthrifts pay regular insurance premiums. The proposal would restore the FDIC’s ability to levypremiums for the benefit of deposit insurance, and to vary those premiums according to therelative risks to the insurance fund posed by each institution. It also would enable the FDIC toensure that institutions compensate the fund for insured deposit growth.

• Under the current system, FDIC is required to maintain a designated reserve ratio (DRR), theratio of insurance fund reserves to total insured deposits, of 1.25 percent. When the reserveratio falls below the DRR, the FDIC must charge premiums that are sufficient to restore thereserve ratio to the DRR within one year. If the reserve ratio remains below the DRR for morethan one year, FDIC must charge premiums that average no less than 23 basis points. Such apremium increase could occur when the banking system, and probably the economy, are underserious stress. The proposal would permit FDIC to alter the DRR within a range and give FDICbroad discretion in managing reserves within this range. This flexibility will enable reservesto grow when economic conditions are good, in order to enable the fund to better absorb lossesunder adverse conditions without sharp premium increases.

• The Administration supports merging the bank and thrift insurance funds, which offer an iden-tical product. A single merged fund would be stronger and better diversified than either fundalone, and, therefore, would improve the system’s ability to withstand future losses.

FEDERAL ELECTION COMMISSION

The Federal Election Commission (FEC) administers the Federal laws governing financing of can-didates for the Presidency, Vice Presidency, the U.S. Senate, and the U.S. House of Representatives.FEC requires candidate disclosure of campaign finance information, enforces financing and contribu-tion limits, and oversees the public funding of Presidential elections. The President’s Budget proposes$54.6 million to fund these activities in 2006.



332 OTHER AGENCIES

FEDERAL TRADE COMMISSION

The Federal Trade Commission (FTC) enforces consumer protection laws that prevent fraud, de-ception, and unfair business practices, and promotes consumer choice and public understanding of

free markets. The Commission also enforces Federal antitrust laws, which prohibit anticompeti-tive mergers and other business practices that restrict competition and harm consumers. The 2006President’s Budget proposes $212 million for the FTC, which will be partially offset by fee collectionsfrom businesses for merger filings, and from telemarketers for access to the Do-Not-Call list in orderto avoid calling registered phone numbers.

The Budget includes funding for the FTC to continue enforcing the National Do-Not-Call Registry,in partnership with States and the Federal Communications Commission. Since its inception, morethan 73 million numbers have been signed up for the Do-Not-Call Registry, which has stopped over835 million unwanted telemarketing calls each month.

Experts estimate that unsolicited email (spam) costs U.S. businesses between $10 billion and$87 billion annually. The FTC currently is pursuing cases under the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act), which the President signed inDecember 2003 to provide the FTC with new tools to address the negative economic and socialimpacts of unsolicited email.

Identity theft has affected the lives of more than 27 million victims over five years and has resultedin billions of dollars in losses for businesses and consumers. As part of its continued efforts to stemidentity theft and increase consumer credit protection, the FTC is establishing new rules pursuantto the Fair and Accurate Credit Transactions Act, including a rule to allow certain servicemembersto place an alert on their credit report to help protect them from identity theft while deployed.

As part of its efforts to monitor the marketplace for anticompetitive mergers and practices, FTCpursues administrative remedies in antitrust cases regarding a variety of consumer issues, such ashigh technology, health care, and oil and gasoline.

The Budget supports the FTC’s continued work to help ensure that American businesses andconsumers reap the full benefits of our free market.

GENERAL SERVICES ADMINISTRATION

The General Services Administration (GSA) assists Federal agencies in operating more efficientlyand effectively by providing superior workplaces, expert information technology solutions, and best

value acquisition services.

GSA owns approximately 1,600 buildings, accounting for about 180 million square feet of space.GSA continues its efforts to assess the financial and physical condition of its existing inventory andis restructuring its real estate portfolio to focus primarily on those income-producing properties that

meet capital reinvestment needs. Since 2001, GSA has completed 30 construction projects and 32 major repair and alteration projects. In 2006, the Budget proposes funding for 12 construction projectsand 10 major repair and alteration projects. The most sizable project is funding for a new Federalcourthouse in San Diego, California ($231 million).

In 2006, GSA will significantly advance the President’s Management Agenda. GSA will spend$45 million on E-Government projects that use improved Internet-based technology to make it easyfor citizens and businesses to interact with the Government, save taxpayer dollars, and streamlinecitizen-to-Government contact. Furthermore, GSA has begun to make greater use of performanceinformation in management by developing a performance-based budget request and implementing a




new performance appraisal system that holds employees accountable for their contributions to over-all agency performance.

The 2006 President’s Budget also proposes changes to the funding mechanism and organization of the Federal Technology and Supply Services. First, the Budget proposes to establish a new GeneralServices Fund by merging the Information Technology Fund and the General Supply Fund. This

action will improve accountability by bringing oversight of the Fund under the agency’s Chief Fi-nancial Officer. Due to the evolution of how information technology is acquired—buying solutionsthat are a mix of products and services rather than stand-alone hardware or services—two separateSupply and Technology organizations are no longer needed. Therefore, the Budget proposes break-ing down these artificial barriers by merging the two services into a Federal Supply and TechnologyService. The result of this restructuring includes increasing organizational efficiencies, improvingcoordination by streamlining functions, and achieving savings for customer agencies by modifyingfee structures. GSA will develop an aggressive action plan to achieve these objectives by July 2005.

Also, in January 2006, GSA will reduce the fee agencies pay when using Government-wide contractsto procure commercial services and products.

INSTITUTE OF MUSEUM AND LIBRARY SERVICES

The Institute of Museum and Library Services (IMLS) is established within the National Founda-tion on the Arts and Humanities. Through its grant programs and leadership activities, IMLS assistsmuseums and libraries in sustaining their contributions to educating our citizens and strengthen-ing our communities. The Administration continues to support the important role of libraries andmuseums with a 2006 Budget proposal of $262 million, including nearly $22 million in increases forpriority programs and activities. The request does not continue support for the nearly $40 million inunrequested, noncompetitive projects that were funded in 2005.

The Budget proposes a $10 million increase for the Library State Grants program, which supportsState efforts to promote access, for individuals of all ages, to learning and information resources atall types of libraries. The Administration is requesting $26 million for the Librarians for the 21stCentury program, a $3 million increase, to support partnerships between libraries and institutions of higher education for the recruitment and education of a new generation of library professionals whoare prepared to tackle the technological challenges of the information age. In addition, the Budgetproposes $15 million in increases for IMLS museum programs to support initiatives that enhancethe educational and technological linkages between museums and their communities, and to fosterbetter evaluation of the impact of these programs on the communities they serve.

NATIONAL ARCHIVES AND RECORDS ADMINISTRATION

The National Archives and Records Administration (NARA) safeguards records of all threebranches of the Federal Government and ensures ready access to records documenting the actionsof Government officials and agencies. In 2006, the Budget proposes $314 million for NARA. Of thisfunding, $36 million will go toward development of the initial deployment of the Electronic Records

Archives project, a comprehensive means for preserving and providing access to the Government’selectronic records. The Budget level also includes $3 million to improve the security of NARA’sholdings.



334 OTHER AGENCIES

NATIONAL ENDOWMENT FOR THE ARTS

The National Endowment for the Arts (NEA) supports excellence in the arts, brings the arts toall Americans, and provides leadership in arts education. In 2006, the Budget requests $121 mil-

lion for programs and associated costs, including Challenge America: Reaching Every Communitygrants and national initiatives such as American Masterpieces: Three Centuries of Artistic Genius.Funds in the Budget will expand the American Masterpieces Initiative to celebrate our Nation’sgreat artistic achievements with special touring programs in dance, visual arts, and music; local pre-sentations; in-school arts education programs; and student visits to exhibitions, presentations, andperformances. NEA will support projects that extend the reach of the arts by supporting works of artistic excellence and promoting projects in communities that have not had access to quality artsprogramming. These projects will be supported with public and private partners, including Statearts agencies and regional arts organizations.

NATIONAL ENDOWMENT FOR THE HUMANITIES

NEH Chairman Bruce Cole congratulating winners of the 2004 The Ideaof America essay contest for high school students, a new We the Peopleprogram.

The National Endowment for the Human-ities (NEH) serves and strengthens our Nationby promoting excellence in humanities andconveying the lessons of history to all Amer-icans. NEH supports research, education,preservation, and public programs in thehumanities. In 2006, the Budget requests$138 million for NEH. Of this, $11 million isfor the continued support of the agency’s Wethe People Initiative, which is strengtheningthe teaching, study, and understanding of

our Nation’s history and culture. NEHfunding also will support partnerships withState humanities councils; the enrichmentof humanities education; efforts to preserveand increase access to important referencematerials; and museum exhibitions, television

and radio documentaries, and reading programs in the humanities that reach millions of Americans.

NATIONAL LABOR RELATIONS BOARD

The National Labor Relations Board (NLRB) regulates private-sector employer and union relations

to minimize interruptions to commerce caused by strikes and worker-management discord. NLRBsupervises elections in which employees determine whether to be represented by a union. The Boardis also authorized to prevent and remedy unlawful acts, called unfair labor practices, by unions oremployers. In 2006, NLRB expects to receive 29,000 unfair labor practice cases and 5,100 represen-tation cases.

Fair and expeditious case resolution is NLRB’s highest priority. The agency is more effective whenit can achieve a voluntary resolution of meritorious cases, thereby reducing the need for time-con-suming and costly litigation. NLRB will continue its goal of settling 95 percent of its unfair laborpractice cases before they require a decision by the five-member Board; in 2004, the settlement rate




was 96.1 percent. Through its performance goals, NLRB will continue to place a high priority onreducing its case backlog, especially on the oldest pending cases.

The 2006 Budget provides $252 million for NLRB’s primary activities, including $208 million forpay and benefits, which make up 82 percent of the agency’s budget. This amount also includes $8million for information technology projects, such as automated case management, and the mainte-

nance of key administrative systems.

NATIONAL TRANSPORTATION SAFETY BOARD

The National Transportation Safety Board (NTSB) is charged with determining the probablecauses of transportation accidents and promoting transportation safety. The Board investigatesaccidents, conducts safety studies, issues recommendations, and evaluates the effectiveness of otherGovernment agencies in preventing transportation accidents. The agency also coordinates Federalassistance to the families of victims of catastrophic domestic transportation accidents. The 2006Budget provides funding for NTSB to investigate more than 2,500 accidents.

The 2006 Budget provides $77 million for salaries and expenses for the NTSB to fulfill its role of

improving the Nation’s transportation safety.

NUCLEAR REGULATORY COMMISSION

The Nuclear Regulatory Commission (NRC) regulates the commercial use of nuclear material inthe United States. Its programs facilitate the Nation’s safe and effective use of nuclear materials forcivilian purposes. Consistent with the National Energy Policy (May 2001), the Budget provides NRCwith the funds it needs to keep pace with the industry’s interest in the renewal of nuclear power re-actor licenses and the possible construction of new nuclear power plants. To date, NRC has renewedthe operating licenses for 26 of the existing 104 nuclear power plants, and at least 18 more plantsare under review or anticipated through 2005. NRC will continue to improve the effectiveness and

efficiency of its review of designs for advanced reactors and to prepare for potential combined licenseapplications. In addition to licensing, NRC also performs inspections on all existing nuclear powerplants to ensure that safety issues are identified and resolved before they affect safe plant operation.

Since September 2001, NRC has strengthened its regulatory programs in support of the Nation’sefforts to enhance homeland security and preparedness, including actions to improve security at theNation’s civilian nuclear power plants, nuclear fuel facilities, and other licensed users of radioactivematerials. These efforts will continue in 2006.

NRC also expects to receive from the Department of Energy in 2005 an application to build ahigh-level waste repository at Yucca Mountain, Nevada. Upon receipt of the application, NRC’sworkload will expand significantly. This first-of-a-kind undertaking will involve conducting thoroughsafety and security evaluations, performance assessments, adjudicatory hearings, and site inspec-tions. NRC will complete its review and reach a license decision in a timely manner.

To carry out these and other activities, the Budget proposes $702 million in 2006 for NRC. Userfees from NRC licensees will recover approximately 90 percent of NRC’s budget. Appropriations fromthe Nuclear Waste Fund will cover the costs of the high-level waste repository effort.



336 OTHER AGENCIES

OFFICE OF PERSONNEL MANAGEMENT

The Office of Personnel Management (OPM) is the central human resources agency for the FederalGovernment and the primary policy agency supporting the President as he carries out his responsi-

bilities for managing the Federal workforce. OPM oversees and safeguards merit system principlesand veterans’ preference and leads Federal agencies in the strategic management of their humancapital. It also proposes and implements human resources management policy, and provides agen-cies with ongoing advice and technical assistance for implementing these policies and initiatives.Furthermore, OPM administers Federal employee benefits programs and manages personnel secu-rity and background checks for suitability and national security clearances.

The 2006 Budget requests $242 million to finance OPM’s efforts to continue its leadership in themanagement and oversight of Government-wide human capital systems, initiatives and strategies,and administration of the Federal employees’ benefit trust funds (retirement, health benefits, andlife insurance).

Through the Strategic Management of Human Capital, one component of the President’s Manage-ment Agenda, OPM is leading efforts to transform the way agencies manage the Federal workforceand enhance the value of the civil service. In this capacity, OPM provides agencies the tools to man-age their workforce and implements new human resources management policies. In 2006, it willfurther streamline the Federal hiring process, decrease the time agencies use to hire new Federalemployees, and change how Federal employees are paid and how their job performance is evaluated.Many of these new policies will be informed by lessons being learned from OPM’s partnerships withthe Departments of Homeland Security and Defense in setting up new human resources manage-ment systems in these two large agencies.

In addition, OPM is the managing partner for the Human Resources Line of Business, which in-cludes five projects under the President’s E-Government initiative: Recruitment One S top, E-Train-ing, E-Clearance, Enterprise Human Resources Integration, and E-Payroll. These initiatives willsave the Government about $2.7 billion dollars over the next 10 years. For example, RecruitmentOne Stop reduces the complexity of Federal hiring and decreases the cost per hire. To date, theUSAJOBS website has received over 100 million visits by citizens to locate and apply for Federal

jobs. In addition, the E-Training project offers the convenience of web-based training to the Federalworkforce, leading to savings in tuition and travel costs and by compressing learning time. Over440,000 users have registered on the GoLearn.gov site and completed over 310,000 courses, since itsinception. The E-Clearance project will reduce the time to process clearances and reduce duplicativeinvestigative efforts, while the E-Payroll project alone will save the Government $1.1 billion dollarsover the next decade by consolidating civilian payroll processing. The Enterprise Human ResourcesIntegration project will reduce the need for paper personnel documents and improve the currency andaccuracy of Federal human resources data. Recruitment One Stop and E-Clearance are funded fully

now by user fees paid by agencies. The Administration anticipates that in 2006, E-Payroll will becompleted and that E-Training will mature to a level that will allow it to operate on a fully fee-fundedbasis in 2007.

OPM will pay out $94 billion in benefits in 2006: $59 billion to more than 2.5 million Federal re-tirees, survivor annuitants, and other beneficiaries; $33 billion in health benefits for about 8 millionenrollees and dependents; and about $3 billion in life insurance claims from policy holders. OPM willenhance the competitiveness and value of these programs in 2006 as it implements dental and visioncoverage. These new offerings will join other recent additions to the suite of employee benefits, includ-ing Health Savings Accounts, Flexible Spending Accounts, and long-term care insurance, ensuring




that the Federal Government continues to be a competitive and model employer that balances workand family needs and offers choices to employees as consumers.

OPM will continue its internal emergency preparedness planning and maintain its leadership inthis arena Government-wide. It will continue to be a strong advocate for such planning in all Federalagencies.

POSTAL SERVICE

The Administration continues to support the enactment of comprehensive postal reform legislationthat is consistent with the report of the President’s Commission on the United States Postal Serviceand is guided by the principles of Best Governance Practices, Transparency, Flexibility, Accountabil-ity, and Self-Finance, as expressed by the President on December 8, 2003. The Postal Service providesan important service to the American people and the economy, and the Administration believes thatthe Postal Service should continue providing affordable and reliable universal service, while limitingexposure to taxpayers and operating appropriately in the competitive marketplace.

The Administration is committed to working with the Congress and postal stakeholders in early

2005 to bring about needed reforms that ensure that we have a healthy Postal Service for futuregenerations. To this end, the Budget proposes to use the pension savings provided to the PostalService by the Postal Civil Service Retirement System Funding Reform Act of 2003 (P.L. 108-18) thatwould otherwise be held in escrow in 2006 and beyond, to put the Postal Service on a path that fullyfunds its substantial retiree health benefits liabilities.

REGIONAL ECONOMIC DEVELOPMENT AGENCIES

The President’s 2006 Budget proposes $78 million for three regional economic developmentagencies: the Appalachian Regional Commission, the Delta Regional Authority, and the DenaliCommission. The President’s proposal recognizes the constructive role of the regional economic

development agencies in coordinating, planning, and fostering partnerships among the Federal,State, local, and private sectors. This coordination has a positive impact on the effectiveness andefficiency of Federal activities targeted to improve the quality of life and remedy severe and chroniceconomic distress within Appalachia, the Mississippi Delta area, and Alaska.

SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission (SEC) protects investors and works to maintain fair,honest, and efficient markets. SEC’s activities are critical to the health of our securities markets,which in turn are a vital part of our national economy. In calendar year 2004, the dollar volume of shares traded on the New York Stock Exchange and the Nasdaq Stock Market was almost $19 trillion.

SEC oversees key participants in the securities world, including stock exchanges, broker-dealers, investment advisors, mutual funds, and public companies. During that year, SEC oversaw roughly5,330 broker-dealers with approximately 96,000 branch offices and 664,100 registered representa-tives. SEC also oversaw an estimated 5,000 investment companies with 36,500 portfolios and $8.1trillion in assets, and 8,550 investment advisers with $23 trillion in assets under management. In2006, the President’s Budget makes available $888 million for SEC.



338 OTHER AGENCIES

Protecting Investors

SEC is the preeminent enforcement agency in investor markets. SEC works to prevent fraud andmanipulation in securities markets by reviewing corporate disclosure data, investigating investorcomplaints, and monitoring exchanges for unusual activities. In addition, SEC recently created anew Office of Risk Assessment designed to improve the agency’s ability to anticipate potential prob-lem areas across the securities industry by focusing on early identification of new or resurgent formsof fraud and illegal or questionable activities. In 2004, SEC opened 973 investigations and initiatedan estimated 610 enforcement actions against individuals and companies for violations of securitieslaws. Through these efforts, SEC was able to halt fraudulent activities quickly, seek civil penalties,and order violators to disgorge ill-gotten gains. Major enforcement actions in 2004 included:

• Seventeen actions against a variety of persons associated with mutual funds, including invest-ment advisers, fund directors and brokers, and registered investment advisors. These actionsinvolved late trading of mutual fund shares, abusive market timing arrangements, or both. Asa result, SEC ordered $477 million in disgorgement and $457 million in penalties in abusivemarket timing and late-trading cases to be distributed to injured investors.

• Charges against former Enron and WorldCom executives whose allegedly fraudulent activities

contributed to the collapse of the two companies and resulted in losses of billions of investordollars.

• More than $246 million in penalties and disgorgements against New York Stock Exchange spe-cialist trading firms for profiting from improperly executing customer trading orders. Theseactivities resulted in customers receiving inferior prices or having orders that went unexecutedaltogether.

The SEC is also an active participant in the President’s Corporate Fraud Task Force, an intera-gency working group, led by the Department of Justice, designed to aggressively pursue joint civiland criminal actions against corporate wrong-doers.

Improving Transparency

SEC works to ensure that all investors have access to certain basic facts about an investment andto prevent fraud and misrepresentation of those facts in securities markets. SEC requires that publiccompanies submit detailed financial information, which it makes available to the public through itswebsite (www.sec.gov/edgar.shtml).

SEC focuses on making sure that rules and regulations are clear for market participants, especiallysmall business and individual investors. It is important to the health of the economy and the rolethat public companies play in job creation that the benefits of securities regulation outweigh thecosts. SEC recently established the Advisory Committee on Smaller Public Companies to examinethe benefits and costs of the Sarbanes-Oxley Act and other Federal securities laws on smaller publiccompanies. For example, the advisory committee will review the impact of new internal control rules,

financial reporting regulations, and corporate governance requirements to evaluate the net benefitsto investors. Its members will also make recommendations to SEC to ensure that smaller companiesare able to grow and succeed by accessing capital in the public markets.




SMITHSONIAN INSTITUTION

In 1829, James Smithson, a British scientist, bequeathed his estate to the American people for the“increase and diffusion of knowledge.” Today, the Smithsonian Institution supports that goal through

its operation of National museums and research institutes. Approximately two-thirds of the Smith-sonian’s funding is from direct Federal appropriations; the remainder comes from its endowmentfund, private donations, business activities, and grants from other Federal agencies. In September2004, the Smithsonian opened its eighteenth museum, the National Museum of the American Indian,dedicated to celebrating the culture of the Native peoples of the Western Hemisphere.

The National Museum of the American Indian.

The 2006 Budget provides $615 millionin Federal funding for the Smithsonian.Funds are provided to prepare for the July2006 reopening of the newly renovatedPatent Office Building, continue a majorrevitalization project at the National Museum

of American History and continue ongoing im-provements at the National Zoo. The Budgetalso accommodates lease costs, maintenancerequirements and inflation-related adjust-ments across the Institution. Addressingthese increases in a time of fiscal constraintrequires that the Smithsonian continue toprioritize and seek out innovative cost-savingmechanisms.

The Smithsonian continues to receive low ratings in many of the President’s Management Agendainitiative areas, in part due to its long history of decentralization and unique management struc-

ture. However, the Institution continues to implement management reforms and best practices andhas made marked progress in coordinating its information technology portfolio, assessing its futureworkforce needs, and linking its budget and senior staff compensation to performance measures.

TENNESSEE VALLEY AUTHORITY

The Tennessee Valley Authority (TVA) is a wholly owned agency of the United States Governmentcreated in 1933 by the TVA Act. TVA serves the people of the Tennessee Valley by providing powerto the Tennessee Valley region, and supports navigation, flood control, and economic developmentin the area. TVA operates the largest public electric power system in the United States. It serves a

population of more than eight million customers throughout most of Tennessee, northern Alabama,northeastern Mississippi, southwestern Kentucky, and small portions of Georgia, North Carolina,and Virginia. TVA is the exclusive wholesale power provider within this geographic region.

TVA’s 2004 operating revenues totaled approximately $7.7 billion and its receipts and expendi-tures are included in the Federal Budget. TVA uses its internally generated proceeds to fund powergeneration and transmission operations as well as its resource stewardship programs. Annual ex-penditures of $87 million are devoted to TVA’s resource stewardship program, which includes recre-ational activities, river stewardship, and navigation services. The remaining funds are devoted topower generation and transmission services.



340 OTHER AGENCIES

TVA transmission lines.

TVA faces several operating and financial challenges posed by thedynamic business environment and changing electricity market inwhich it functions. Some of these challenges were addressed by theConsolidated Appropriations Act of 2005, which includes reformsthat will assist TVA in moving toward a more efficient managementand business structure. It also requires TVA to file statements with

the Securities and Exchange Commission (SEC) to allow for moretransparency of its business operations.

The 2006 Budget proposes additional reforms for TVA that will helpposition it for a more competitive market in the future, strengthen itsfinancial position, and better serve its customers and investors. Pro-posals include legislation that would require TVA to register its debtsecurities with the SEC to provide investors with greater insight intothe characteristics and risks inherent in TVA securities. In addition,the Budget proposes granting the Federal Energy Regulatory Com-mission (FERC) jurisdiction over TVA’s transmission system, similarto that which FERC has over public utilities.

TVA continues to be burdened by its excessive debt level, currently estimated at $26 billion. The2005 Budget included a goal endorsed by the TVA Board of reducing TVA’s debt by $3 billion to $5billion over the next 10 to 12 years. In order to increase TVA’s financial flexibility and minimize itsrisk exposure, the Budget maintains that goal. In addition, fulfilling a commitment in the President’s2005 Budget, the 2006 Budget includes specific legislative language that clarifies the definition of TVA’s debt. Some agency transactions, such as equipment lease/leasebacks and long-term power pre-payment agreements, result in liabilities that make a claim on future agency resources and have risksimilar to traditional debt, and therefore constitute a form of debt which should be counted towardTVA’s statutory debt limitation. To ensure the integrity and usefulness of TVA’s debt cap, the Ad-ministration is proposing legislation to ensure that these types of debt-like transactions are treatedas debt and counted toward TVA’s $30 billion statutory debt limit.

In 2000, TVA’s Inspector General (IG) became Presidentially-appointed. TVA’s IG funding level issubject to TVA Board approval and is derived directly from TVA revenues. All other Presidentially-appointed IGs are funded through annual appropriations. The Budget reproposes to appropriatefunds for TVA’s IG out of TVA’s revenues beginning in 2006.



SUMMARY TABLES



Table S–1. Budget Totals(Dollar amounts in billions)

2004 2005 2006 2007 2008 20

Budget Totals:

Receipts ....................................................... 1,880 2,053 2,178 2,344 2,507

Outlays ......................................................... 2,292 2,479 2,568 2,656 2,758 Deficit ..................................................... 412 427 390 312 251

Gross Domestic Product (GDP) .............. 11,553 12,227 12,907 13,617 14,349 1

Budget Totals as a Percent of GDP:

Receipts ....................................................... 16.3% 16.8% 16.9% 17.2% 17.5% 1Outlays ......................................................... 19.8% 20.3% 19.9% 19.5% 19.2% 1

Deficit ..................................................... 3.6% 3.5% 3.0% 2.3% 1.7%



Table S–2. Discretionary Totals(Net budget authority; dollar amounts in billions)

Actual

2001 2002 2003 2004 E

Discretionary budget authority:Department of Defense ................................................................................ 303 328 365 376 Homeland Security (non-Department of Defense) ............................. 10 13 24 28 Other Operations of Government.............................................................. 331 351 370 386

Total, Discretionary budget authority .................................................... 644 691 758 790

Percent change by category:Department of Defense............................................................................ 5% 8% 11% 3% Homeland Security (non-Department of Defense)......................... 14% 21% 85% 21% Other Operations of Government ......................................................... 15% 6% 5% 4%

Total, Percent change.................................................................................... 10% 7% 10% 4%

Enacted supplemental and emergency funding:

Defense and Other Global War on Terror .............................................. 14 18 80 114

Homeland Security (non-Department of Defense) ............................. 3 12 6 *Non-Defense, Non-Homeland.................................................................... 3 14 5 3Allowance for anticipated 2005 supplemental ...................................... — — — —

Total, Supplemental and emergency funding .................................... 20 44 91 117

Memorandum: Budget authority enacted for Project BioShield .................................. — — — 1

2006 2007 2008 Discretionary Outyears by Category:

Department of Defense ................................................................................ 419 443 462 Homeland Security (non-Department of Defense) ............................. 32 34 35 Other Operations of Government.............................................................. 389 389 389

Total, Discretionary budget authority....................................................

840 866 887

Percent change by category:Department of Defense............................................................................ 6% 4% Homeland Security (non-Department of Defense)......................... 5% 5% Other Operations of Government ......................................................... 0% 0%

Total, Percent change.................................................................................... 3% 2%

*$500 million or less.



Table S–4. Discretionary Proposals By Appropriations Subcommit(Net budget authority in billions of dollars)

Appropriations Subcommittee2004

Actual2005

Enacted

2006Reque

Agriculture and Rural Development ................................................................ 17.8 18.3 16

Commerce, Justice, State and the Judiciary................................................

39.2 40.8 44Defense ..................................................................................................................... 366.4 390.4 407District of Columbia ............................................................................................... 0.5 0.6 0Energy and Water Development....................................................................... 27.4 28.3 27Foreign Operations................................................................................................ 17.5 19.5 22Homeland Security ................................................................................................ 27.9 29.0 29Interior and Related Agencies........................................................................... 20.2 20.2 19Labor, Health and Human Services, and Education ................................. 140.9 142.4 141Legislative Branch.................................................................................................. 3.5 3.5 4Military Construction ............................................................................................. 9.4 10.0 12Transportation, Treasury, and General Government ................................. 27.7 26.3 25Veterans Affairs, Housing and Urban Development .................................. 91.6 93.5 90

Allowances ............................................................................................................... — — 0Total, excluding supplemental and emergency funding ............ 790.1 822.7 840




Table S–6. Mandatory Proposals(In millions of dollars)

2005 2006 2007 2008 2009 2

Programmatic Reforms:

Agriculture:Commodity Credit Corporation:

Limit Loan Deficiency Payments to historicalproduction........................................................................ — 432 509 106 4

Tighten payment limits .................................................... — 200 190 175 150 Cut Crop Payments by 5 percent ................................ — 383 629 468 351 Sugar marketing assessment 1.2 percent ............... — 42 43 43 43 Tilt adjustment requirement........................................... — 130 80 50 50 Extend Milk Income Loss Compensation ................. — 600 600 — —

Crop insurance coverage change.................................... — — 140 140 140 Forest Service:

Facilities working capital fund ....................................... — 5 1 1 —Enhanced facilities disposal authority .......................

— 9 — — 5 Limit Food Stamp categorical eligibility ......................... — 57 113 112 111 Allow State Food Stamp Agencies to use the

National Directory of New Hires (NDNH) ................. — — 2 2 2 Subtotal, Agriculture .................................................... — 658 1,107 1,097 856

Education:Reform the Federal Student Aid Programs:

Payoff Pell Shortfall (non-add BA only) .................... — (4,301) — — — Increase the Pell Grant Maximum Award by $500

over Five Years .............................................................. — 101 509 915 1,321 Increase Borrowing Limits and Other Benefits to

Students........................................................................... — 221 660 762 811 Recall Federal Perkins Loan Revolving Funds ......

— 580 642 675 735 Increase Lender Risk Sharing and ImproveProgram Efficiency ....................................................... — 171 601 785 838

Adjust Guaranty Agency Reinsurance and DefaultRetention Rates ............................................................ — 43 116 152 168

Reform Federal Consolidation Loans ........................ — 269 610 544 484 Extend the Taxpayer-Teacher Extension Act .......... — 254 411 449 459 Other Student Loan Reforms........................................ 557 178 790 824 783

Subtotal, Education...................................................... 557 1,172 2,001 1,752 1,337



Table S–6. Mandatory Proposals—Continued(In millions of dollars)

2005 2006 2007 2008 2009 2

Energy:

Allow Power Marketing Administrations to Chargeup to Market Rates ........................................................... — 40 157 446 1,145

Bonneville Power Administration borrowingauthority................................................................................ — — — — — Subtotal, Energy ................................................................ — 40 157 446 1,145

Health and Human Services:Medicaid and State Children’s Health Insurance

Program Proposals........................................................... 225 1,112 1,549 3,699 4,214 State grants and demonstrations..................................... — 400 500 594 605 Temporary Assistance for Needy Families

Reauthorization.................................................................. 100 277 329 352 361 Child Support Enforcement: Increase Collections

and Improve Program Effectiveness .......................... — 63 1 54 31 Healthy Marriage and Fatherhood Initiative ................. 71 21 37 23 40 State-Based Abstinence Grants....................................... 9 30 46 50 50 Foster Care Clarify Statutory Eligibility Definition ...... — 72 74 77 79 Foster Care Modify DC FMAP Rate ............................... — 7 7 8 8 Child Welfare Program Option .......................................... — 7 67 135 3

Subtotal, Health and Human Services ...................... 263 1,677 636 2,560 3,195 Housing and Urban Development:

Repeal Federal Housing Administration’s Generaland Special Risk Insurance Authorities .................... — 60 100 100 100

Interior:Southern Nevada Land Sales ........................................... — 227 418 636 641 Arctic National Wildlife Refuge, lease bonuses:

State of Alaska’s share:Receipts ........................................................................... — — 1,201 1 101 Expenditures .................................................................. — — 1,201 1 101

Federal share:Receipts ........................................................................... — — 1,201 1 101 Royalties Conservation Fund Outlays................... — — — — —

Pick-Sloan Project Cost Repayment .............................. — 33 33 31 31




2005 2006 2007 2008 2009 2

User Fee Proposals:

Agriculture:Animal Plant and Health Inspection Service * ............ — 11 11 11 12 Food Safety and Inspection Service * ............................ — 139 142 145 148 Grain Inspection, Packers and Stockyards

Administration *.................................................................. — 25 26 26 27 Agricultural Marketing Service Standardization * ...... — 3 3 3 3

Justice:Bureau of Alcohol, Tobacco, Firearms and

Explosives’ Explosives Regulation * .......................... — 120 120 120 120 Transportation:

St. Lawrence Seaway Development Corporation * ... — 8 17 17 17 Treasury:

Tax and Trade Bureau Regulatory Activity * ................ — 29 29 29 29 Veterans Affairs:

Annual Medical Fees for higher income veteranswith non-service-connected disabilities * ................. — 248 248 248 248

Drug Copay Increase * ........................................................ — 176 178 180 181 Total Medical Services (illustrative discretionary

spending authority—non-add) ..................................... — (424) (426) (428) (429)

Environment Protection Agency:

Premanufacture Notification Fee Cap Removal * ...... — 4 8 8 8 Pesticide Tolerance * ............................................................ — 20 20 21 21 Pesticide Registration * ....................................................... — 26 27 27 28

Federal Communications Commission:

Authorize Spectrum License Fees .................................. — — 50 150 300 Analog Spectrum Lease Fees .......................................... — — 500 500 480

Total, User Fees ............................................................. — 809 1,379 1,485 1,622

Total, Programmatic Reforms and User Fee

Proposals ............................................................................... 820 5,315 12,648 12,558 15,417 1




2005 2006 2007 2008 2009 2

Outlay Effects of Tax Proposals: 1

Health tax credits .......................................................................— 99 3,757 5,762 6,934

Earned income tax credit ........................................................ — 81 105 118 137 Child tax credit ............................................................................ — 34 45 50 59

Total, Outlay effects of tax proposals ............................. — 16 3,607 5,594 6,738

User Fee Proposals with Mandatory Spending:

Immigration Examination Fees.............................................. — 6 — — —Increase Indian Gaming Commission Fees 1

.................. — — 4 4 5 Foreign Labor Certification User Fees ............................... — — — — —Army Corps of Engineers:

Additional Recreation User Fees and Contributions. — 9 9 1 — Total, User fee proposals with mandatory

spending .......................................................................... — 15 5 3 5

Other Mandatory Proposals:

Black Lung Disability Trust Fund debt refinancing:

Black Lung Disability Trust Fund ...................................... — 3,343 459 452 448 Interest receipts on repayable advances ...................... — 3,343 459 452 448

Use Escrow Account for USPS Retiree HealthBenefits:On-budget effect .................................................................... — 3,081 3,398 3,716 3,888 Off-budget effect .................................................................... — 3,081 3,398 3,716 3,888

Unified budget effect ........................................................ — — — — —




2005 2006 2007 2008 2009 2

Full-time School Attendance Required for Child’s

Social Security Benefits at Age 16 (off-budget) ......... — 10 75 135 140 Correct trust accounting deficiencies in individual

Indian money investments (non-paygo) ........................ 6 — — — —Third scorecard effects............................................................. — 31 31 32 32

Total, Other mandatory proposals............................... 6 21 44 103 108

Grand Total (including outlay costs of tax proposals).......................................................................................................... 826 5,325 9,090 7,064 8,782

Memorandum:Paygo.............................................................................................. 820 5,346 9,046 6,961 8,674 Non-Paygo ....................................................................................

6 21 44 103 108 * The Administration will work with the Congress to reclassify the enacted fees as discretionary beginning in 2007. Once reclassified, the Admi

proposes to offset these fees against discretionary spending. Discretionary totals in those years will be reduced by these fees.1

Affects both receipts and outlays. Only the outlay effect is shown here.



Table S–7. Effect of Proposals on Receipts(In millions of dollars)

2005 2006 2007 2008 2009 2

Make Permanent Certain Tax Cuts Enacted in 2001

and 2003 (assumed in the baseline):Dividends tax rate structure ............................................... 309 509 547 537 16,725 Capital gains tax rate structure......................................... — — — 5,268 7,473 Expensing for small business............................................ — — — 3,402 5,417 Marginal individual income tax rate reductions .......... — — — — — Child tax credit 1

................................................................... — — — — — Marriage penalty relief 2

..................................................... — — — — — Education incentives ............................................................ — — — — — Repeal of estate and generation-skipping transfer

taxes, and modification of gift taxes ........................... 4 557 910 1,514 1,847 Modifications of pension plans ......................................... — — — — — Other incentives for families and children ..................... — — — — —

Total make permanent certain tax cutsenacted in 2001 and 2003................................ 313 48 363 9,647 31,462 1

Tax Incentives:Simplify and encourage saving:

Expand tax-free savings opportunities .......................... — 3,709 7,151 4,069 1,693 Consolidate employer-based savings accounts ......... — 224 335 357 382 Establish Individual Development Accounts (IDAs) .. — — 134 286 326

Total simplify and encourage saving...................... — 3,485 6,682 3,426 985 Invest in health care:

Provide a refundable tax credit for the purchase ofhealth insurance 3

............................................................ — 19 1,435 1,543 1,370 Provide an above-the-line deduction for

high-deductible insurance premiums ......................... — 200 2,029 2,316 2,636 Provide a refundable tax credit for contributions of

small employers to employee HSAs 4...................... — 61 304 834 1,545

Improve the Health Coverage Tax Credit 5................. — — 3 4 5

Allow the orphan drug tax credit for certainpre-designation expenses.............................................. — — — — —

Total invest in health care .......................................... — 280 3,771 4,697 5,556



Table S–7. Effect of Proposals on Receipts—Continued(In millions of dollars)

2005 2006 2007 2008 2009 2

Provide incentives for charitable giving:

Permit tax-free withdrawals from IRAs for charitablecontributions........................................................................ 70 335 318 318 313

Expand and increase the enhanced charitablededuction for contributions of food inventory .......... 42 87 96 106 116

Reform excise tax based on investment income ofprivate foundations ........................................................... — 148 98 105 111

Modify tax on unrelated business taxable income of

charitable remainder trusts............................................ 6 5 6 6 6 Modify basis adjustment to stock of S corporations

contributing appreciated property ............................... 4 20 21 25 28 Repeal the $150 million limitation on qualified

501(c)(3) bonds ................................................................. 3 6 10 11 10

Repeal certain restrictions on the use of qualified501(c)(3) bonds for residential rental property ....... — 2 5 9 16

Total provide incentives for charitable giving ...... 125 603 554 580 600 Strengthen education:

Extend, increase, and expand the above-the-linededuction for qualified out-of-pocket classroomexpenses.............................................................................. — 27 267 279 282

Encourage telecommuting:

Exclude from income the value of employer-providedcomputers, software, and peripherals ....................... — 29 50 50 55

Provide assistance to distressed areas:Establish Opportunity Zones ............................................. — 433 806 853 899

Provide disaster relief:Provide tax relief for FEMA hazard mitigation

assistance programs........................................................ 20 40 40 40 40 Increase housing opportunities:

Provide tax credit for developers of affordablesingle-family housing ....................................................... — 7 84 342 815




2005 2006 2007 2008 2009 2

Protect the environment:

Extend permanently expensing of brownfieldsremediation costs .............................................................. — 138 215 203 195

Exclude 50 percent of gains from the sale ofproperty for conservation purposes ........................... — 47 92 105 60

Total protect the environment................................... — 185 307 308 255 Increase energy production and promote energy

conservation:Extend the tax credit for producing electricity from

wind, biomass, and landfill gas and modify the taxcredit for electricity from biomass ............................... 48 144 321 260 160

Provide tax credit for residential solar energysystems................................................................................. 5 11 19 24 34

Modify treatment of nuclear decommissioning funds 47 166 162 170 177 Provide tax credit for purchase of certain hybrid and

fuel cell vehicles 6............................................................ 13 260 447 614 680

Provide tax credit for combined heat and powerproperty ................................................................................ 17 109 84 105 114

Total increase energy production and promote

energy conservation................................................ 130 690 1,033 1,173 1,165 Restructure assistance to New York City:

Provide tax incentives for transportationinfrastructure....................................................................... — 200 200 200 200

Repeal certain New York City Liberty Zoneincentives ............................................................................. — 200 200 200 200

Total restructure assistance to New York City....

— — — — —Total tax incentives.............................................. 275 1,191 230 4,896 8,682 1

Simplify the Tax Laws for Families:

Simplify adoption tax benefits................................................ — 4 40 42 43 Clarify eligibility of siblings and other family members

for child related tax benefits 7.......................................... 11 51 78 77 60

Total simplify the tax laws for families ........................ 11 47 38 35 17




2005 2006 2007 2008 2009 2

Strengthen the Employer-Based Pension System:

Ensure fair treatment of older workers in cash balanceconversions and protect defined benefit plans ........... — 57 62 78 92

Strengthen funding for single-employer pension plans — 151 1,432 869 2,699 Reflect market interest rates in lump sum payments .... — — 3 8 15

Total strengthen the employer-based pensionsystem .............................................................................. — 208 1,491 799 2,622

Close Loopholes and Improve Tax Compliance:

Combat abusive foreign tax credit transactions .............. 1 2 2 2 2 Modify the active trade or business test ............................ 2 6 8 8 8 Impose penalties on charities that fail to enforce

conservation easements..................................................... 3 8 8 8 9

Eliminate the special exclusion from unrelatedbusiness taxable income for gain or loss on the saleor exchange of certain brownfields ................................. 1 4 12 23 37

Apply an excise tax to amounts received under certainlife insurance contracts........................................................ 2 7 12 17 23

Limit related party interest deductions ............................... 74 128 134 141 148 Clarify and simplify qualified tuition programs ................. — 4 12 13 14

Total close loopholes and improve tax compliance 83 159 188 212 241

Tax Administration, Unemployment Insurance, and

Other:Improve tax administration:

Implement IRS administrative reforms and initiatecost saving measures 8

................................................. — — — — —Strengthen financial integrity of unemployment

insurance:Strengthen the financial integrity of the

unemployment insurance system by reducingimproper benefit payments and tax avoidance 6

... — — 6 6 129




2005 2006 2007 2008 2009 2

Other proposals:

Modify pesticide registration fee....................................... — — — — — Increase Indian gaming activity fees .............................. — — 4 4 5

Total tax administration, unemployment insurance,

and other.......................................................................... — — 10 2 124

Reauthorize Funding for the Highway Trust Fund:

Extend excise taxes deposited in the Highway TrustFund 6

........................................................................................ — 10 11 11 11 Allow tax-exempt financing for private highway

projects and rail-truck transfer facilities ......................... 5 22 47 75 92 Total reauthorize funding for the Highway Trust

Fund .................................................................................. 5 12 36 64 81

Promote Trade:Implement free trade agreements with Bahrain,

Panama and the Dominican Republic 6.................... — 56 84 91 97

Extend Expiring Provisions:

Research & Experimentation (R&E) tax credit ........... — 2,097 4,601 5,944 6,889 Combined work opportunity/welfare-to-work tax

credit ...................................................................................... — 131 166 65 16 First-time homebuyer credit for DC ................................. — 1 18 — — Authority to issue Qualified Zone Academy Bonds ... — 3 8 13 18 Deduction for corporate donations of computer

technology ........................................................................... — 73 49 — —

Disclosure of tax return information related toterrorist activity 8

............................................................... — — — — —LUST Trust Fund taxes 6

.................................................... 74 152 77 — — Abandoned mine reclamation fees.................................. — 304 312 318 322 Excise tax on coal 6

.............................................................. — — — — — Total extend expiring provisions .............................. 74 1,849 4,453 5,704 6,601




2005 2006 2007 2008 2009 2

Total budget proposals, including proposals

assumed in the baseline................................................ 201 360 3,439 20,956 49,411 3

Total budget proposals, excluding proposalsassumed in the baseline ................................................ 112 312 3,076 11,309 17,949 2

1Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $37,319 million for 2006–2015.

2Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $7,491 million for 2006–2015.

3Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $78 million for 2006, $3,660 million for 2007, $5,514$7,035 million for 2010, $22,816 million for 2006–2010 and $64,078 million for 2006–2015.

4Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $18 million for 2006, $87 million for 2007, $237 milmillion for 2010, $1,323 million for 2006–2010 and $4,930 million for 2006–2015.

5Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $3 million for 2006, $10 million for 2007, $11 million ffor 2010, $51 million for 2006–2010 and $130 million for 2006–2015.

6Net of income offsets.

7Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$115 million for 2006, -$150 million for 2007, -$16

-$258 million for 2010, -$887 million for 2006–2010 and -$2,239 million for 2006–2015.8No net budgetary impact.



Table S–8. Receipts By Source—Summary(In billions of dollars)

EstimateSource

2004Actual 2005 2006 2007 2008 20

Individual income taxes............................... 809.0 893.7 966.9 1,071.2 1,167.2 1,Corporation income taxes .......................... 189.4 226.5 220.3 229.8 243.4 Social insurance and retirement

receipts......................................................... 733.4 773.7 818.8 866.2 911.7 (On-budget) ................................................ (198.7) (212.4) (225.6) (237.0) (247.2) (2

(Off-budget) ................................................ (534.7) (561.4) (593.2) (629.2) (664.6) (7

Excise taxes .................................................... 69.9 74.0 75.6 77.2 79.0 Estate and gift taxes .................................... 24.8 23.8 26.1 23.5 24.3 Customs duties .............................................. 21.1 24.7 28.3 30.6 31.9

Miscellaneous receipts................................ 32.6 36.4 41.6 45.6 49.5 Total receipts .......................................... 1,880.1 2,052.8 2,177.6 2,344.2 2,507.0 2,

(On-budget)............................................ (1,345.3) (1,491.5) (1,584.4) (1,715.0) (1,842.4) (1,9

(Off-budget)............................................ (534.7) (561.4) (593.2) (629.2) (664.6) (7



Table S–9. Comparison of Economic Assumptions(Calendar years)

Projections

2005 2006 2007 2008 2009 2010

GDP (billions of current dollars):

2006 Budget ........................................................... 12,392 13,083 13,797 14,537 15,306 16,11CBO January.......................................................... 12,396 13,059 13,766 14,486 15,210 15,94Blue Chip Consensus January 1

.................... 12,398 13,066 13,763 14,496 15,265 16,09Real GDP (chain-weighted): 2

2006 Budget ........................................................... 3.6 3.5 3.3 3.2 3.1 3CBO January.......................................................... 3.8 3.7 3.7 3.4 3.1 2Blue Chip Consensus January 1

.................... 3.6 3.4 3.2 3.2 3.1 3Chain-weighted GDP Price Index: 2


.................... 2.0 2.0 2.1 2.1 2.1 2Consumer Price Index (all-urban): 2


.................... 2.5 2.3 2.4 2.4 2.4 2Unemployment rate: 3


.................... 5.3 5.2 5.1 5.1 5.1 5

Interest rates: 3

91–day Treasury bills:


.................... 3.0 3.8 4.1 4.3 4.2 4

10–year Treasury notes:2006 Budget ........................................................... 4.6 5.2 5.4 5.5 5.6 5CBO January.......................................................... 4.8 5.4 5.5 5.5 5.5 5Blue Chip Consensus January 1

.................... 4.7 5.3 5.6 5.6 5.6 5

Sources: Congressional Budget Office; Blue Chip Economic Indicators, Aspen Publishers, Inc.1

January 2005 Blue Chip Consensus forecast for 2005 and 2006; Blue Chip October 2004 long-run extension for 2007—22

Year-over-year percent change.3

Annual averages, percent.



Table S–10. Budget Summary by Category(In billions of dollars)

2004 2005 2006 2007 2008 20

Outlays:

Discretionary:DOD military........................................... 436 443 424 426 445

Non-DOD ................................................ 459 487 497 491 488

Total, Discretionary ......................... 895 930 922 917 932

Proposed Supplemental......................... — 35 25 18 2

Mandatory:

Social Security ...................................... 492 515 540 567 596

Medicare.................................................. 265 290 340 381 407

Medicaid and SCHIP .......................... 181 194 199 209 225

Other......................................................... 299 337 331 319 324

Total, Mandatory .............................. 1,237 1,337 1,410 1,476 1,551

Net Interest ................................................. 160 178 211 245 272

Total Outlays ................................................... 2,292 2,479 2,568 2,656 2,758

Receipts............................................................ 1,880 2,053 2,178 2,344 2,507

Deficit ............................................................ 412 427 390 312 251

On-budget deficit ........................................... 567 589 560 506 466

Off-budget surplus ........................................ 155 162 170 194 215



Table S–11. Current Services Baseline Summary by Category(in billions of dollars)

2004 2005 2006 2007 2008 2

Discretionary:DOD military .................................................. 436 443 417 416 428

Homeland security ...................................... 25 30 33 34 34

Other ................................................................ 434 457 464 473 480

Total, Discretionary................................. 895 930 914 923 942

Mandatory:

Social Security.............................................. 492 515 540 567 596

Medicare ......................................................... 265 290 340 381 407

Medicaid and SCHIP .................................. 181 194 198 211 229

Other ................................................................ 299 337 337 327 327

Total, Mandatory...................................... 1,237 1,336 1,416 1,485 1,558

Net Interest ......................................................... 160 177 209 242 269

Total Outlays ...................................................... 2,292 2,443 2,539 2,650 2,770

Receipts............................................................... 1,880 2,053 2,178 2,347 2,518

Surplus/deficit ............................................... 412 390 361 303 251

On-budget deficit ......................................... 567 552 534 500 469

Off-budget surplus....................................... 155 162 173 197 218



Table S–12. Impact of Budget Policy(In billions of dollars)

2005 2006 2007 2008 2009 201

Current Services Baseline Deficit .......... 390 361 303 251 229 2

Proposals:

Discretionary policy:

Department of Defense..................... — 8 11 18 29 Homeland security.............................. — 1 * 1 2 Other spending .................................... * 1 16 29 41

Subtotal, discretionary ........................... * 8 5 10 10

Proposed supplemental ........................ 35 26 21 6 5

Revenue proposals 1............................. * * 7 18 26

Mandatory proposals ............................. 1 5 13 14 17

2006 Budget Deficit ..................................... 427 390 312 251 233 2


Note: Each line includes debt service.1

Includes outlay impact of revenue proposals.



Table S–13. Baseline Adjustments(In billions of dollars)

2005 2006 2007 2008 2009 2

391 369 315 256 213

Extend certain tax provisions:

— — — — — Permanently extend estate and tax gift changes ............ * 1 1 2 2 Extend other provisions of the 2001 and 2003 tax

acts 1.......................................................................................... * 1 1 8 30

Subtotal, tax extenders......................................................... * * * 10 31

Assume all emergencies are one-time only ........................... — 5 9 11 12

Adjust pay factors to more accurately reflect changes

in pay costs ................................................................................... — 2 2 3 3

Remove special rule for administrative expenses for

certain benefit programs........................................................... — * * * 1

Debt service related to all changes .......................................... * * 1 1 1

Current Services Baseline Deficit.............................................. 390 361 303 251 229

*$500 million or less.1

Table S–7 provides a detailed listing of expiring tax provisions in the baseline.

Budget Enforcement Act Baseline Deficit...............................

Permanently extend individual income tax rate cuts ......



Table S–14. Federal Government Financing and Debt(In billions of dollars)

EstActual2004 2005 2006 2007

Financing:

Unified budget deficit ( ) ....................................................................................... 412 427 390 312

Financing other than the change in debt held by the public:

Net purchases ( ) of non-Federal securities by

the National Railroad Retirement Investment Trust ............................. 3 1 1 1Changes in: 1

Treasury operating cash balance ............................................................... 1 1 — —Compensating balances 2

........................................................................... 22 — — —Checks outstanding, etc. 3

.......................................................................... 7 — — —Seigniorage on coins........................................................................................... 1 1 1 1Less: Net financing disbursements:

Direct loan financing accounts .................................................................... 5 9 13 20Guaranteed loan financing accounts ........................................................ 9 9 2 2

Total, financing other than the change in debt held by thepublic ........................................................................................................... 30 1 10 21

Total, requirement to borrow from the public ............................ 382 426 400 333

Change in debt held by the public....................................................................... 382 426 400 333

Changes in Debt Subject to Limitation:

Change in debt held by the public....................................................................... 382 426 400 333Change in debt held by Government accounts .............................................. 213 251 277 309Change in other factors .......................................................................................... 1 13 * 1

Total, change in debt subject to statutory limitation ................................. 596 663 676 643

Debt Subject to Statutory Limitation, End of Year:

Debt issued by Treasury ......................................................................................... 7,328 8,005 8,682 9,325Adjustment for discount, premium, and coverage 4

.................................... 6 8 8 8Total, debt subject to statutory limitation 5

................................................. 7,333 7,997 8,673 9,316



GLOSSARY Accrual Method of Measuring Cost

This accounting method records cost when the liability is incurred. As applied to Federalemployee retirement benefits, cost is recorded when the benefits are earned rather than whenthey are paid at some time in the future.

Appropriation

An appropriation provides legal authority for Federal agencies to incur obligations and to makepayments out of the Treasury for specified purposes. Thirteen regular appropriations bills areconsidered every year by the Congress and supplemental appropriations are considered from

time to time.

Authorization

An authorization is an act of the Congress that establishes or continues a Federal program oragency and sets forth the guidelines to which it must adhere.

Balanced Budget

A balanced budget occurs when total receipts equal total outlays for a fiscal year.

Budget Authority

Budget authority is the authority provided by law to incur financial obligations that will resultin outlays.

Budget Enforcement Act (BEA) of 1990

The BEA is a recently expired law that was designed to limit discretionary spending whileensuring that any new entitlement program or tax cut did not increase deficits. It set annuallimits on discretionary spending.

Budget Resolution

The budget resolution is Congress’ annual framework that sets targets for total budget authority,total outlays, total revenues, and the deficit (on-budget), as well as discretionary and mandatory

allocations within the spending targets. These targets guide the committees’ deliberations. Abudget resolution does not become law and is not binding on the Executive Branch.

Cap

A “cap” is a legal limit on annual discretionary spending.

Continuing Resolution

A continuing resolution provides for the ongoing operation of the Government in the absence of enacted appropriations, usually at the same spending rate as the prior year.

369



370 GLOSSARY

Debt

Debt Held by the Public—The cumulative amount of money the Federal Government hasborrowed from the public and not repaid.

Debt Held by Government Accounts—The debt the Treasury Department owes to other

accounts within the Federal Government. Most of it results from the surpluses of the SocialSecurity and other trust funds, which are required by law to be invested in Federal securities.

Debt Limit—The maximum amount of Federal debt that may legally be outstanding at anytime. It includes both the debt held by the public and the debt held by Government accounts.When the debt limit is reached, the Government cannot borrow more money until the Congresshas enacted a law to increase the limit.

Deficit

A deficit is the amount by which outlays exceed receipts in a fiscal year.

Discretionary Spending

Discretionary spending is what the President and the Congress decide to spend through annualappropriations bills. Examples include spending for such activities as the FBI, the Coast Guard,education, space exploration, highway construction, defense, and foreign aid. (See MandatorySpending.)

Entitlement

An entitlement program is one in which the Federal Government is legally obligated to makepayments or provide aid to any person who meets the legal criteria for eligibility. Examplesinclude Social Security, Medicare, Medicaid, and Food Stamps.

Fiscal Year

The fiscal year is the Federal Government’s accounting period. It begins on October 1st andends on September 30th. For example, fiscal year 2006 begins on October 1, 2005, and ends onSeptember 30, 2006.

Full-time Equivalents (FTEs)

Civilian employment in the Executive Branch is measured on the basis of full-time equivalents.One FTE is equal to one work year or 2,080 non-overtime hours. Thus, one full-time employeecounts as one FTE, and two half-time employees also count as one FTE.

Gross Domestic Product (GDP)

GDP is a measure of the market value of goods and services produced within the United States.It is the standard measure of the size of the economy.

Mandatory Spending

Mandatory spending is provided by permanent law rather than annual appropriations. Exam-ples are Social Security and the Student Loan Program. The President and the Congress canchange the law with respect to the eligibility criteria or the payment formula, and thus changethe level of spending on mandatory programs, but they don’t have to take annual action to ensurethe continuation of spending. (See Discretionary Spending.)



372 GLOSSARY

Budget and Performance Integration—ensuring that performance is routinely consideredin funding and management decisions, and that programs achieve expected results and worktoward continual improvement.

Receipts

Governmental receipts (often simply “receipts”) are the collections of money that primarily resultfrom taxes and similar Government powers to compel payment. Examples of governmental re-ceipts include income taxes, payroll taxes, excise taxes, and customs duties. They do not includeoffsetting receipts or collections from the Federal Government’s business-like activities, such asthe entrance fees at national parks, or collections by one Government account from another.

Surplus

A surplus is the amount by which receipts exceed outlays in a fiscal year.

Trust Funds

Trust funds are Federal Government accounts designated as “trust funds” by law andwhich record receipts for spending on specified purposes.

Unified Budget

The unified budget includes receipts from all sources and outlays for all programs of the FederalGovernment, including both on- and off-budget programs. It is the most comprehensive measureof the Government’s finances.

Unobligated Balance

Funding that has been approved or is available, but not yet obligated for any particular purpose.



OMB CONTRIBUTORS TO THE 2006 BUDGETThe following personnel contributed to the preparation of this publication. Hundreds, perhaps

thousands, of others throughout the Government also deserve credit for their valuable contributions.

Note: This list has been modified to add several names that were unintentionally omitted from theprinted document.

A

Rein AbelDavid Abraham

Andrew AbramsMarsha D. AdamsBrenda AguilarRicardo AguileraMichele AhernSteven D. AitkenJameela Raja AkbariDavid AleksonSusan AlesiTyrone P. Alion

Victoria AllredStephanie Alonzo

Lois E. Altoft Vickie AlvoRobert B. AndersonBill ApgarDonald R. ArbuckleKatherine T. AstrichLisa L. AugustRenee AustinPatrick Aylward

B

Peter BabbPaul W. BakerMatthew BalazikLesia M. BanksJorge BarciaMary C. Barth

Adrienne N. BartlewitzJohn BartrumJuliana Basile

Amy BassanoRobert BatsonRichard B. BavierJennifer Wagner Bell

Stuart BenderMeredith BensonShalini BensonElizabeth BernhardEvett F. BestPamela L. BeverlyTerrence BlackburneMathew C. BlumJames BodenJoshua B. BoltenMelissa B. BombergerDavid S. Bortnick

Evangelia BouzisConstance J. BowersThomas A. BowmanJames Bradford, Jr.Betty I. BradshawIrene T. BrahmakulamDenise M. Bray

Anna M. BriaticoGenefer BriceDerwin BronsonDustin S. BrownJames A. BrownJennifer E. BrownRuby BrownThomas M. BrownJoanne BuenzliPaul Bugg

Andrew S. BurnettBenjamin BurnettJohn D. BurnimJohn Burton

Robert A. BurtonNancy S. BushiMark Bussow

C

Basilio CabradillaKathleen CahillSteven CahillPatricia L. CainChrista CapozzolaKaryn CarsonMichael CasellaMary I. CassellMichael J. Cassidy

Alejandra O. Ceja

Jeffrey ChamberlinEdward H. ChaseRichard Chasez

Anita ChellarajJoanne W. ChowMargaret B. Davis

ChristianEvan W. ChristmanDean F. ClancySally ClarkToni M. ClaudBarry T. ClendeninRobin ClevelandNorris CochranDebra M. CollinsDaniel CostelloSiobhan CrawfordSusan G. CrawfordDennis CraythornJoseph CrilleyMichael F. Crowley

Francis R. CrumlishCraig CrutchfieldJ. Anthony CurcioEdna Falk Curtin

William P. Curtis

D

Josie R. DadePhilip R. DameJ. Michael DanielElizabeth Flanigan

DavisBrandon Davisson

Arline P. Dell

Jun De LeyosBruce DengCarol R. Dennis

Yvette M. DennisMary Derr

Aurelia A. DeRubisMelissa DettmerShivani DesaiHoward DickensonMonique Dilworth

Anthony S. DobbinsClare C. Doherty

Angela DonatelliKevin DouglasCatherine DuRantLouise Dyer

E

Jacqueline A. EasleyEugene M. Ebner

373



374 LIST OF CONTRIBUTORS AND IMAGE CREDITS

Jeanette EdwardsStephen G. ElmoreRocco EmelioRichard P. Emery Jr.Noah EngelbergMichelle A. Enger

Elizabeth EricksonDinee EriksenDanny A. ErmannDiana EspinosaCatherine H.

EvangelistiKaren EvansRowe Ewell

F

Chris FairhallLisa B. FairhallRobert S. FairweatherMichael FalkenheimWilliam (Dick) FeezleChad FergusonJohn FerrariPatricia A. FerrellJennifer N. FieldLesley A. FieldE. Holly FitterDarlene B. Fleming

Joseph A. FlemingEllen Fletcher-ShieldsKeith FontenotJennifer M. ForsheyJ. D. FosterWanda J. FosterKatherine FoxRusty FranciscoSteve FranciscoSara FrankfurtJason Freihage

G

Anne GablePat GalvinMarc GarufiDarlene O. GaymonKimberly A. GeierCindy GeorgeJennifer Gera

Michael D. Gerich Alexandra GianinnoBrian GillisUrsula Gillis

Adam GoldbergBarbara Goldberg

Robert GoldbergJeffrey GoldsteinOscar GonzalezSusana GonzalezChauncey GossJohn D. GrahamMegan A. GrassoJason GrayTye Gray

Arecia A. GraytonPierre Green

Richard E. Green Aron GreenbergHester Grippando

Adam Grom

H

Kelli A. HagenCurtis HamlinEric V. HansenJennifer Hanson-

Kilbride

Linda W. HardinDionne M. HardyDavid HarmonCraig HarperKen HaskinsErin HassingDavid J. HaunDonald HawkinsHans HeidenreichGregory G. HenryMichael Hickey

Vivian C. HickmanStacie HigginsMary Lou Hildreth

Andrew HireJoanne Cianci Hoff

Adam HoffbergMarilyn HollandJames S. HolmChristine P. HolmesRebecca Hooper

Edith D. HopkinsLibby HoranSarah HorriganPatrick HoughEmily A. HouseKathy M. Hudgins

Eric Hunn Alexander T. HuntJames C. HurbanJaki Mayer HurwitzLawrence W. HushToni S. Hustead

I

Danilo Ibanez

J

Andrea E. JacobsonLaurence R. JacobsonDana M. JamesDon JansenCarol D. JenkinsChristopher S. JohnsClay Johnson IIIKim A. JohnsonKim I. Johnson

Sandy F. JohnsonJames F. JordanJames J. Jukes

K

Natasha KallayDerek KanJoel D. KaplanStanley KaufmanJames B. KazelJohn W. KellyKenneth S. KellyKaryn Kendall

Ann H. Kendrall Virginia M. KennamerMarc L. KesselmanJames KestonIrene KhoRobert W. KilpatrickRobin Kitterman

Carole KittiEva KleedermanBrian S. KleinmanJohn KnepperNathan KnuffmanJack Koller

Chad KoltonElissa KonoveEmily M. KornegayJohn KraemerLori A. KraussJennifer KronJames M. KulikowskiSara E. KuncaitisRoss M. Kyle

L

Brian LabonteJoseph F. Lackey Jr.Christina LagdameoLeonard L. LainhartKristy L. LaLondeJames C. Langdon

Adam H. LangtonDaniel LaPlacaLauren LarsonJustin B. LatusJackie Lawson

Karen LeeSarah S. LeeSusan LeetmaaWayne LeissDaniel A. LernerDerrick LettSheila D. LewisRichard A.

LichtenbergerTung-Yen LinSusanne D. LindConstance LindsayLin C. LiuLauren C. LobranoPatrick G. LockeRichard C. Loeb

Aaron M. LopataCarolyn L. Lovett

Adrienne C. ErbachLucas

Vernell Lucas




Kimberley LuczynskiSarah LybergRandolph M. Lyon

M

Debbie MacaulayLisa MacecevicRobert MahaffiePaul MahoneyMikko MakarainenMargaret A. MalanoskiPaul MamoDominic J. ManciniKaren A. MarisBrendan A. MartinChristopher J. Martin

James R. MartinKathryn MartinKate MasseyLarry R. MatlackBrian MattesonKathryn Thompson

MaxwellShelly McAllisterErin McCartney

Alexander J.McClelland

Anthony W. McDonald

Christine McDonaldKatrina A. McDonald

Andrew McIlroyMatthew McKearnStephen S. McMillinErin McNeeceWilliam J. McQuaidInna L. MelamedMark David MenchikRichard A. MertensSteven M. MertensKeith MertzP. Thaddeus

MessengerJames D. MietusJulie L. MillerKen MillerKimberly MillerNeile MillerDaniel MoncadaJoe Montoni

John B. MooreJohn F. Morrall IIIMike MorrisDelphine C. MotleyJennifer C.

Moughalian

Jane T. MoyKevin MurphyChris MusicDavid L. Muzio

N

Larry J. NaglMelany Nakagiri-

YeungMateo Naldo

Barry NapearRobert J. Nassif Chandra NavneetaKim NelsonNoam NeusnerKimberly A. NewmanJennifer G. NewsteadKevin F. NeylandTeresa NguyenPaul NoeS. Aromie NoeDouglas A. Norwood

O

Kathleen E. O’ConnellLewis W. OleinickMarvis G. OlfusSandera D. OliverDerek J. Orban

P

William D. PalmerMax J. Pangborn

Anna K. PannellKristy ParkSangkyun ParkSera H. ParkJoel R. ParriottJohn PasquantinoMarcus Peacock

Jacqueline M. PeayRobert J. PellicciJack PenningtonKathleen Peroff

Andrea M. PetroNicole S. Petrosino

John R. PfeifferStacey Que-Chi PhamCarolyn R. PhelpsElizabeth C. Phillips

Anthony R. PiccininnoCandice PinderJoseph G. PipanPamela L. PiperJames Michael PippinDouglas PitkinMeera V. Popat

Benjamin PowellClifford PrestonSharon PriceJamie Price-O’DonnellLarry ProctorJason Pugh

R

David P. RadzanowskiLatonda G. RaftTerrill W. Ramsey

Lorenzo RasettiBeatrice A. ReaudFrancis S. RedburnThomas M. ReillyRosalyn J. Rettman

Alan B. RhinesmithKeri RiceSarah B. RichardsonRenee P. RichburgShannon RichterNancy S. Ridenour

Antonio RiversCrystal RoachLara RobillardDonovan O. RobinsonRod RobinsonMarshall RodgersJustine F. RodriguezKathleen RomigTimothy A. RosadoElizabeth L. Rossman

David RostkerJason RothenbergDavid RoweMario D. Roy

S

David SafavianRobert L. SandoliNarahari SastryRuth D. SaundersSusan SchechterSuzanne K. ScheeleGlenn Schlarman

Andrew M. SchoenbachCarrie A. SchroederIngrid M. Schroeder

Kenneth L. SchwartzMark J. SchwartzNancy Schwartz

Ardy Diann ScottLonda L. Scott-ForteJasmeet K. SeehraMelissa SeeleyDedra SeibelPaul ShawcrossRobert J. SheaChristopher P. SheedyMaiselle (Mary D.)

ShortleyMary Jo SiclariLeticia SierraRonald SilbermanGarrette SilvermanPamula L. SimmsDiana SimpsonJack A. SmalliganBryan Smith

Augustine T. SmytheJoanne SnowSilvana SolanoScott SorensenLinda M. SpringerLillian S. SpuriaKathryn B. StackNorman H. StarlerMargaret B. StewartGretchen StiersCarla B. StoneJackie Strasser



376 LIST OF CONTRIBUTORS AND IMAGE CREDITS

Bobby StricklandRobert StricklandShannon StuartStephen SuhKevin J. SullivanLevin C. Sullivan Jr.

Tony SummerlinThomas SuperTalisa Sutton

Adrian Swann Amy SweeneyCarolyn Swinney

Amy Synder-Kaminski

T

Sahar Taman

Teresa A. TancreMyra L. TaylorJudy ThomasLaTina ThomasJeanette ThorntonCourtney B.

TimberlakeThomas Tobasko

Sara MeadowsTolleson

Gilbert TranMaurice C. TraversDarryl TrentDavid Trinkle

Donald L. TuckPhillip Turner

U

Lauren UherDarrell J. Upshaw

V

Matthew J. VaethOfelia M. ValerianoCynthia A. VallinaElizabeth VanDersarl

Areletha L. VensonMark Vinkenes

W

Wendell Waites

Joyce M. WakefieldRichard W. WalkerKatherine K. WallmanMaureen WalshElizabeth WardLisa Ward

LaTonya R. WareSharon A. WarnerMark A. WassermanIratha H. WatersGary WaxmanRebecca A. WayneMark A. WeatherlyBessie M. WeaverTawana F. WebbJeffrey A. WeinbergJason Weller

Dianne M. WellsPhilip R. WengerDaniel Werfel

Arnette C. WhiteKamela WhiteKim S. WhiteMatt WhiteSherron R. White

Ora L. Whitman Amber WichowskyDebra L. WilliamsGary WillisPhilip Ryan WilsonJennifer Winkler

Emily Woglom Adam WrightLauren WrightErin Wuchte

Amber Wurz

Y

Fumie YokotaLouise D. YoungTim Young

Julia E. YuilleKathryn Yurkanin

Z

David M. ZavadaJackie ZeiherGail S. Zimmerman

Image Credits

Jocelyn AugustinoJim Beer, Meta HouseLouai Beshara/AFP/Getty ImagesPeter BishopTerrence Blackburne, Office of Management and BudgetMatthew Cavanaugh, Middle East Broadcasting NetworksTSGT Brian ChristiansenSSGT Shane A. CuomoMelissa Dettmer, Office of Management and BudgetSonja Ervin, Central City ConcernCPL Paula M. FitzgeraldBob Flynn, City of FresnoBud Force, Texas Engineering Extension ServiceJohn Frassanito & Associates/NASASGT Jose L. GarciaPhotographer’s Mate 1C William R. GoodwinTSGT Lee HarshmanThomas Hartwell

Al Hickey, National Science FoundationSteve Hillebrand, U.S. Fish and Wildlife ServiceMonique Holiday, Financial Management Service

2006 federal budget document

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