EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET WASHINGTON, D.C. 20503

July 24, 2000
(Senate)

The President's FY 2001 Budget is based on a balanced approach that maintains fiscal discipline, eliminates the national debt, extends the solvency of Social Security and Medicare, provides for an appropriately sized tax cut, establishes a new voluntary Medicare prescription drug benefit in the context of broader reforms, expands health care coverage to more families, and funds critical investments for our future. An essential element of this approach is ensuring adequate funding for discretionary programs. To this end, the President has proposed discretionary spending limits at levels that we believe are necessary to serve the American people.

Unfortunately, the FY 2001 congressional budget resolution provides inadequate resources for discretionary investments. We need realistic levels of funding for critical government functions that the American people expect their government to perform well, including education, national security, law enforcement, environmental protection, preservation of our global leadership, air safety, food safety, economic assistance for the less fortunate, research and technology, and the administration of Social Security and Medicare. Based on the inadequate budget resolution, the Committee bill does not address critical needs of the American people. In addition, the Committee bill includes several objectionable provisions.

Across the appropriations bills, there is a pattern of underfunding core government operations such as air traffic operations, park maintenance, and the administration of Social Security and Medicare. The Committee bill continues this pattern by underfunding the Internal Revenue Service, counterterrorism programs, firearms enforcement programs, an important anti-drug program, and necessary construction and repair of Federal facilities. If the bill were presented to the President in its current form, his senior advisers would recommend that he veto it.

The attachment provides a discussion of our specific concerns with the Committee bill. We look forward to working with the Senate to address our mutual concerns.

Attachment

Attachment

Department of the Treasury

The Administration is very concerned with the large reductions in the Committee bill for key priorities of the Department of the Treasury. The bill provides $940 million less than the President's request for Treasury's programs, which would significantly reduce funding for vital programs in the IRS, counterterrorism, firearms enforcement, Customs, and other activities. Specific funding issues include:

• Internal Revenue Service. The Administration strongly objects to the deeply inadequate funding level provided for the IRS and urges the Committee to fully fund the President's budget request. The Senate Committee mark provides $8.5 billion for the IRS, $409 million (4.6 percent) below the President's request. The mark would halt many of our current efforts to modernize the IRS and to improve both customer service and compliance. In 1998, an overwhelming, bipartisan majority of the Congress passed the IRS Reform and Restructuring Act (RRA) and joined the Administration in calling for changes that would improve service to taxpayers and enhance the ability of the IRS to administer our Nation's tax system in a fair and efficient manner. The Committee mark would make it impossible to implement many of the critical improvements contemplated under the RRA. Instead, the mark would require the IRS to reduce its current staffing by up to 500 full-time employees. It would eliminate numerous customer service initiatives and reduce audit rates to an unacceptably low 0.26 percent. We urge the Senate to restore the funding necessary to carry through on the bipartisan commitment to improve the ability of the IRS to serve its customers and administer the tax code in a fair and efficient manner.

• Counterterrorism. The Administration appreciates the inclusion of $55 million for Treasury's Counterterrorism Fund but is deeply concerned that the Committee has not provided the other $47 million in initiatives sought in the recent counterterrorism budget amendment. These funds would enhance Treasury's work to deter and detect terrorist activity and continue the high level of effort undertaken during the Millennium celebration events. Because of its unique financial investigative capabilities and role in border control, Treasury is a critical component of the enhanced Government-wide effort to combat terrorism. What we learned during the Millennium New Year period concerns many of us. There is consensus that the threat of domestic terrorist attack has increased significantly and that we need to increase our efforts to protect against it. The Administration is very concerned that the Committee has failed to address this heightened threat.

• United States Secret Service. The Administration strongly urges the Senate to restore the $46.2 million reduction to the President's request for the Secret Service. This reduction, among other things, would eliminate funding for increased staffing to address workforce retention and workload balancing of the Service's agents, who perform critical protective and investigative missions. In addition, the Committee has not provided vital funding to support the Service's expanded responsibilities associated with Presidential Decision Directive-62 on National Special Security Events. For example, the Committee has not funded $3.5 million for the Service's protective air security program and has not provided $2.4 million for overtime and travel associated with protecting the President as well as Vice President and the President-elect and Vice President-elect.

• BATF Firearms Enforcement. The Administration is very concerned that the Committee has provided only $75.6 million of the $94.0 million requested for gun enforcement initiatives. The $18.4 million cut would reduce the number of new cities that participate in the Youth Crime Gun Interdiction Initiative (YCGII) by 50 percent (from 12 to 6), underfund the Administration's request for new ATF agents, and hinder our efforts to build towards comprehensive crime gun tracing by State and local law enforcement. The proposed level would also threaten BATF's ability to deploy the estimated 147 ballistic imaging systems to State and local law enforcement in a timely manner. Gun violence is a complex issue that requires a comprehensive approach. The expansion of YCGII and the deployment of ballistic imaging systems to State and local law enforcement are essential in the effort to identify the most violent predators plaguing our communities and the gun traffickers that supply firearms to them.

• United States Customs Service. We urge the Senate to provide the full $210 million needed to fully fund the first year development of the Automated Commercial Environment (ACE). To provide this funding, we urge the Senate to consider the fee proposed in the President's budget. The Customs Service must meet the demands of an increasing volume of trade, expected to double by 2005. The Customs Service can accomplish this task, vital to the success of American business operations, only by converting to a paperless process and an account-based system, such as ACE.

While we appreciate the Committee's recognition of the importance of Customs work to combat international child labor by funding a $2.5 million increase, we urge the Congress to fully fund the requested $5 million increase in order to enforce the ban on the importation of goods made with forced or indentured child labor, denying such products access to the lucrative U.S. marketplace.

We are concerned about additional reductions that would impair Customs programs to improve mission training for its officers, address integrity problems that have been of concern to Congress and the American public, and assure the safety of aircraft operated by Customs employees. We urge the Senate to restore the full President's request.

• Interagency Crime and Drug Enforcement. The Committee's reduction of $12.5 million below the request would affect IRS' ability to participate fully in the Organized Crime and Drug Enforcement Task Forces (OCDETF) program. These funds will allow IRS to continue current efforts toward the war on drugs where its unique financial investigative expertise allows tracing of funds and financial transactions.

• First Accounts. While the Administration is pleased that the Committee has provided $0.4 million for the President's First Accounts initiative, we urge the Committee to provide the full $30.0 million requested. The First Accounts initiative would expand access to mainstream financial services for millions of "unbanked" Americans families who lack this basic passport to the modern American economy. Access to bank accounts, ATMs, and consumer education can help to reduce costs for low-income families, and can also help families to manage household finances and plan and save for the future. Failure to fully fund this bipartisan initiative would result in millions of families being denied access to the financial services mainstream.

• Federal Public Key Infrastructure. The Committee bill does not allocate the requested $7.0 million to fund the full-scale development and implementation of a Federal Public Key Infrastructure, which is critical to providing a secure environment for electronic government. We urge the Senate to provide funding for this important initiative in the Administration's request.

• Money Laundering. While the Administration is pleased that the Committee has provided $6.5 million in funding to the Financial Crimes Enforcement Network and the Customs Service for implementation of the Money Laundering Strategy, we urge the Senate to provide the full $15.0 million requested for the Money Laundering Strategy. The fight against money laundering is critical. Counter-money laundering efforts allow us to pursue those who commit the underlying crimes that produce dirty money -- whether drug dealing, fraud, corruption, or other forms of organized crime.

• Treasury Building and Annex Repair and Restoration (TBARR). The Treasury Department is in the midst of a major renovation and restoration effort of its main Treasury building facilities. The reduction of $8.3 million to the request would stretch out this important effort and significantly add to the overall cost to complete the project. We urge the Congress to fully fund this request.

National Youth Anti-Drug Media Campaign

The Administration strongly objects to the proposed reduction in funding for the National Youth Anti-Drug Media Campaign. To reduce the Campaign's funding by almost one-half would imperil the positive momentum the program has demonstrated just when the Campaign is beginning to take hold. The proposed reduction, coupled with increased advertising costs of almost 40 percent in the past two years, would significantly undercut our ability to meet our goal of reaching 90 percent of the youth audience with a Campaign message four times a week, every week. Cuts of the magnitude proposed also would require cancellation or major reduction of many of the Campaign's integrated communications programs.

The Campaign needs five years of adequate and consistent funding to reach its goal of educating America's youth and enabling them to reject illicit drugs. Not only would the Campaign lose the message recognition and cumulative audience impact it has built, but the interruption in sustained level messaging would make less effective much of the more than $500 million the Congress has invested in this Campaign thus far.

General Services Administration

The Administration is disappointed by the Committee's funding levels for key priorities of the General Services Administration (GSA). The Committee bill provides $853 million less than the President's request for GSA's programs, which would reduce construction and other program activities. Specific funding issues include:

• Construction and Repair and Alteration Funding. Although advance appropriations have been provided for select courthouse and other construction projects, the Committee bill fails to fund in FY 2001 any new design or construction, including courthouses, the FDA, NOAA, and ATF headquarters, and several border stations. In addition, the Committee bill does not provide $30 million for additional window protection as recommended by the Department of Justice's "Vulnerability Assessment of Federal Buildings." The Administration is concerned that delaying these projects not only would leave unaddressed important safety, security, and health concerns but also would increase costs in the future. The Administration strongly urges the Senate to provide funds for these needed projects.

• Policy and Operations. The Committee bill cuts funding for the GSA Policy and Operations account by $22 million below the request. While the bill provides $10.0 million for critical infrastructure protection programs, it does not provide funding for some new initiatives, such as the requested $3.3 million for protection and maintenance at the Lorton Correctional Complex and $2.0 million for the RISC/OIRA Consolidated Information System. We urge the Senate to provide funding for these important initiatives.

• National Health Museum. The Administration is concerned about section 639, which would transfer a Federal building at 2nd and C Streets, S.W., in Washington, D.C. to the National Health Museum. The Administration supports the establishment of a National Health Museum and recognizes the potential value of locating that Museum along the Mall. Although this provision requires the National Health Museum to pay fair market value for the property, it does not require the Museum to compensate taxpayers for the other substantial costs that such a transfer would entail. The Administration encourages the Congress to address this issue either here or in the context of H.R. 3171, the "National Health Museum Site Selection Act."

National Archives and Records Administration

While the Committee bill is $94 million below the request, and would delay the Archives I renovation, the Administration appreciates the Committee's action to provide $88 million in advance appropriations for the project. However, the bill still does not provide funding for essential repairs needed to the Kennedy Library due to severe water damage.

Office of Personnel Management

The Administration strongly objects to the Committee's failure to provide the full request for the Office of Personnel Management. Specific funding issues include:

• Federal Cyber Services (FCS) Initiative. The President's overall critical infrastructure protection initiative is essential to ensuring that the Federal Government is protected from acts of cyber-terrorism and can maintain its information security infrastructure with a highly trained and competent workforce. FCS is a key element to ensure that adequate numbers of people are recruited, trained, and motivated to remain in Federal service. The Administration urges the Senate to provide the full $6.2 million requested for OPM's responsibilities in this initiative.

• Retirement Systems Modernization. The Administration strongly urges the Senate to restore the $2.0 million reduction made by the Committee in funding for upgrading and modernizing the systems used for providing retirement benefits to Federal annuitants. The current systems infrastructure -- technology, organization, and processes -- is badly outdated and inefficient. In addition, OPM faces a significant workload increase in the years ahead as more and more employees retire under the Federal Employees' Retirement System (FERS). Failure to invest now in retirement systems upgrades will lead to unacceptable cost increases and service degradations in the future.

Office of Special Counsel

The Administration is concerned that the Committee bill does not include $414,000 requested by the Office of Special Counsel (OSC) to fully support all 10 FTEs needed to continue the Office's efforts to reduce its pending backlog. In 1994, Congress imposed upon the OSC a 240-day deadline for processing and investigating complaints, including those involving prohibited personnel practices and reprisal for whistleblowing. The request for additional staff is an essential part of an aggressive, multi-year strategy by the agency to meet the congressional mandate, in the face of an escalating number of complaints.

Morris K. Udall Foundation

The Administration objects to the Committee's 65 percent reduction to the request for the Morris K. Udall Scholarship and Environmental Dispute Resolution Funds, and urges the Senate to restore the level of funding to the President's request of $4.25 million. In particular, we are concerned with the cut in funding for the Environmental Dispute Resolution Fund of $750,000, or 60 percent, from the President's request. The Fund provides for the operation of the U.S. Institute for Environmental Conflict Resolution, established in 1999. The requested funding is necessary for the Institute's continued operation. Such a decrease in funding from the President's request would result in significant reductions in Institute personnel, preventing the Institute from carrying out existing commitments to Federal agencies for case work, including assistance in current mediation projects. The Institute's goal is to become self-sustaining, but it is still in a start-up mode. Without the requested funding level, it would be difficult for the Institute to continue operating.

Unanticipated Needs

The Committee bill includes neither the $1.0 million requested to meet general unanticipated needs related to the national interest, security, or defense, nor the $2.5 million specifically requested to facilitate public education in Puerto Rico on the islands' status options and a local choice among them. Although Puerto Rico became part of the U.S. over a century ago, its ultimate status still has not been determined. The situation raises questions of democracy and the appropriate economic and social policies for the islands. A primary reason for the situation -- and the requested funding -- is that Puerto Ricans have been unsure of the possible options for the islands' status. The United States has a responsibility to ensure that Puerto Ricans are aware of and can seek a fully democratic governing arrangement if they wish. The Administration will work with the Congress to address this concern as the bill moves forward.

Objectionable Language Provisions

The Administration objects to several language provisions in a variety of programs. Specific issues include:

• Firearms Procurement. We strongly oppose a provision of the bill and a further amendment that may be offered that would restrict the Department of the Treasury, while pursuing the procurement of the highest quality firearms and ammunition, from working with the gun industry to reform the way gun manufacturers design, distribute, and market their products. Such reforms, like those being implemented through the Administration's historic agreement with Smith & Wesson, can make significant progress in the fight to reduce gun violence in America and save lives. At a time when our Nation loses nearly 12 children per day in gunfire, Congress should be doing all it can to move forward, not backward, in the fight to reduce gun violence.

• Federal Employees Health Benefits Program (FEHBP) Abortion Coverage. The Administration supports the Committee's exclusion of any restriction on FEHBP coverage of abortions except in situations where the life of the mother is endangered or the pregnancy is the result of rape or incest. The Administration would strongly oppose an amendment that would restrict such coverage. While the President believes that abortion should be safe, legal, and rare, the Administration does not believe that Federal employees and their families should be precluded from choosing to purchase health insurance that includes broader coverage.

• FEHBP Contraceptive Coverage. The Administration supports the language in the Committee bill that continues requirements in current law for coverage of prescription contraceptives by health plans participating in the FEHBP and would oppose an amendment that may be offered that would strike this authority.

• FEHBP Cost Accounting Standards. The Administration has consistently opposed a broad-based statutory waiver of the cost accounting standards (CAS). CAS provide a mechanism for experience-rated carriers to accumulate and report consistently Federal Employees Health Benefits Program (FEHBP) administrative costs (i.e., overhead), along with other financial data, to OPM. This information provides a means for ensuring that the carriers are accurately allocating these costs between their FEHBP business line and their other business lines, so that, among other things, OPM can ensure that taxpayers and participating Federal employees are paying an equitable amount of administrative costs in their health insurance premiums.

• Section 514. The Administration opposes the inclusion of section 514 as unnecessarily duplicating two reports that will already be submitted to Congress -- the Information Collection Budget for FY 2001, and the benefit-cost report on Federal regulation required by section 627 of this bill. Paragraph (1) in section 514 would have OMB evaluate the extent to which implementation of the Paperwork Reduction Act (PRA) has reduced reporting burden imposed by all of the agency rules issued since 1981. However, OMB does not generally participate in agency rule development prior to E.O. 12866 review and does not have records of how the PRA was applied during the development of a regulation.

Paragraph (2) in section 514 calls for recommendations on how to amend the PRA to better achieve its purposes and calls for this report to be submitted six months after enactment. The timing of this report under section 514 would require the current Administration to begin developing a report it will not complete and would require the next Administration to submit a report it did not have the opportunity to develop. If this provision is to be included in the final bill, the next Administration should be given sufficient opportunity to develop legislative recommendations in accordance with its own prerogatives and be allowed to offer its recommendations and suggested amendments to the PRA through the normal legislative process.

• Federal Contracting. The Administration appreciates the Committee not including a provision that would keep the Executive Branch from clarifying the current legal requirement that Federal contractors have a record of integrity and business ethics. In order to help contracting officers carry out their responsibilities and avoid forcing them to do business with businesses that are untrustworthy because they have broken the law, the proposed regulation provides guidance to contracting officers, combined with extra due process protections for small business and other contractors. Unfortunately, the House-passed bill includes a provision that would prevent implementation, even though the regulation is only at the proposal stage and public comments are still being solicited. The Administration would oppose a potential floor amendment. GAO has concluded that violations of laws by contractors doing business with the Government resulted in the assessment of hundreds of millions of dollars in fines for procurement fraud and other violations. Delaying implementation will undermine attempts to reform Federal procurement, encourage responsible behavior by contractors and reduce fraud, waste and abuse.

• Infringement on Executive Authority. The Administration objects to a number of provisions in the Committee bill that would require congressional approval before Executive Branch execution. The Administration will interpret these provisions to require only notification of Congress, since any other interpretation would contradict the Supreme Court ruling in INS v. Chadha.

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