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BUDGET

BUDGET OF THE UNITED STATES GOVERNMENT

Fiscal Year 


THE BUDGET DOCUMENTS
Budget of the United States Government, Fiscal Year 1998 includes for each agency: the proposed text of appropriations lan-
contains the Budget Message of the President and information on guage, budget schedules for each account, new legislative proposals,
the President’s 1998 budget proposals. In addition, the Budget in- explanations of the work to be performed and the funds needed,
cludes a descriptive discussion of Federal programs organized by func- and proposed general provisions applicable to the appropriations of
tion, i.e., by the primary purpose of the activity. entire agencies or group of agencies. Supplemental and rescission
proposals for the current year are presented separately. Information
Analytical Perspectives, Budget of the United States Govern- is also provided on certain activities whose outlays are not part
ment, Fiscal Year 1998 contains analyses that are designed to high- of the budget totals.
light specified subject areas or provide other significant presentations
of budget data that place the budget in perspective. A Citizen’s Guide to the Federal Budget, Budget of the Unit-
The Analytical Perspectives volume includes economic and account- ed States Government, Fiscal Year 1998 is an Office of Manage-
ing analyses; information on Federal receipts and collections; analyses ment and Budget (OMB) publication that provides general informa-
of Federal spending; detailed information on Federal borrowing and tion about the budget and the budget process for the general public.
debt; the Budget Enforcement Act preview report; current services
estimates; and other technical presentations. It also includes informa- Budget System and Concepts, Fiscal Year 1998 contains an
tion on the budget system and concepts and a listing of the Federal explanation of the system and concepts used to formulate the Presi-
programs by agency and account. dent’s budget proposals.

Historical Tables, Budget of the United States Government,


Fiscal Year 1998 provides data on budget receipts, outlays, sur- AUTOMATED SOURCES OF BUDGET INFORMATION
pluses or deficits, Federal debt, and Federal employment covering
an extended time period—in most cases beginning in fiscal year 1940 The information contained in these documents is available in
or earlier and ending in fiscal year 2002. These are much longer electronic format from the following sources:
time periods than those covered by similar tables in other budget CD-ROM. The CD-ROM contains all of the budget documents and
documents. As much as possible, the data in this volume and all software to support reading, printing, and searching the documents.
other historical data in the budget documents have been made con- The CD-ROM also has many of the tables in the budget in
sistent with the concepts and presentation used in the 1998 Budget, spreadsheet format.
so the data series are comparable over time. Internet. All budget documents, including documents that are
released at a future date, will be available for downloading in several
Budget of the United States Government, Fiscal Year 1998— formats from the Internet. To access documents through the World
Appendix contains detailed information on the various appropria- Wide Web, use the following address:
tions and funds that constitute the budget and is designed primarily
for the use of the Appropriations Committee. The Appendix contains http://www.access.gpo.gov/su_docs/budget/index.html
more detailed financial information on individual programs and ap- For more information on access to the budget documents, call toll-
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GENERAL NOTES

1. All years referred to are fiscal years, unless otherwise noted.


2. Detail in this document may not add to the totals due to rounding.

U.S. GOVERNMENT PRINTING OFFICE


WASHINGTON 1997

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402

1
TABLE OF CONTENTS

Page

I. The Budget Message of the President ............................................................. 1

II. Building a Bridge to the 21st Century ............................................................ 11

III. Putting the Building Blocks in Place .............................................................. 21

IV. Improving Performance in a Balanced Budget World ................................ 35

V. Creating Opportunity, Demanding Responsibility, and Strengthening


Community

1. Strengthening Health Care .................................................................. 49


2. Investing in Education and Training .................................................. 57
3. Protecting the Environment ................................................................. 67
4. Promoting Research .............................................................................. 77
5. Enforcing the Law ................................................................................. 85
6. Restoring the American Community ................................................... 95
7. Implementing Welfare Reform ............................................................. 105
8. Promoting Tax Fairness ....................................................................... 111
9. Supporting America’s Global Leadership ............................................ 117
10. Supporting the World’s Strongest Military Force .............................. 123

VI. Investing in the Common Good: The Major Functions of the Federal
Government

11. Overview ................................................................................................ 131


12. National Defense ................................................................................... 137
13. International Affairs ............................................................................. 141
14. General Science, Space, and Technology ............................................. 145
15. Energy .................................................................................................... 149
16. Natural Resources and Environment .................................................. 153
17. Agriculture ............................................................................................. 159
18. Commerce and Housing Credit ............................................................ 163
19. Transportation ....................................................................................... 169
20. Community and Regional Development .............................................. 173
21. Education, Training, Employment, and Social Services .................... 177
22. Health .................................................................................................... 181
23. Medicare ................................................................................................ 185
24. Income Security ..................................................................................... 189
i
ii

TABLE OF CONTENTS—Continued

Page

25. Social Security ....................................................................................... 193


26. Veterans Benefits and Services ........................................................... 199
27. Administration of Justice ..................................................................... 203
28. General Government ............................................................................. 207
29. Net Interest ........................................................................................... 211
30. Undistributed Offsetting Receipts ....................................................... 215
31. Detailed Functional Tables .................................................................. 217

VII. Summary Tables

Budget Aggregates ......................................................................................... 303


1998 Budget Proposals .................................................................................. 309
Summaries by Agency ................................................................................... 323
Other Summary Tables ................................................................................. 329

VIII. List of Charts and Tables .................................................................................... 333

IX. OMB Contributors to the 1998 Budget ............................................................ 343


I. THE BUDGET MESSAGE
OF THE PRESIDENT

1
2 THE BUDGET FOR FISCAL YEAR 1998

THE FEDERAL GOVERNMENT DOLLAR


FISCAL YEAR 1998 ESTIMATES

WHERE IT COMES FROM...

CORPORATE
INCOME
SOCIAL TAXES
INSURANCE 11 %
RECEIPTS
33 %
OTHER
4%
BORROWING
7% EXCISE
TAXES
4%
INDIVIDUAL
INCOME
TAXES
41 %

WHERE IT GOES...

DIRECT BENEFIT
PAYMENTS FOR
OTHER
INDIVIDUALS
FEDERAL
50 %
OPERATIONS
5%

NATIONAL
GRANTS TO DEFENSE
STATES NET 15 %
& LOCALITIES INTEREST
15 % 15 %

Table I–1. RECEIPTS, OUTLAYS, AND SURPLUS OR DEFICIT


(In billions of dollars)

Estimate
1996
Actual 1997 1998 1999 2000 2001 2002

Receipts ........................................ 1,453 1,505 1,567 1,643 1,727 1,808 1,897


Outlays ......................................... 1,560 1,631 1,687 1,761 1,814 1,844 1,880
Surplus/Deficit (–):
Unified ...................................... –107 –126 –121 –117 –87 –36 17
On-budget ................................. –174 –199 –197 –205 –183 –139 –93
Off-budget ................................. 67 74 76 87 96 103 110
THE BUDGET MESSAGE OF THE PRESIDENT
To the Congress of the United States: path. Today, the United States is safer,
stronger, and more prosperous. Our budget
The 1998 Budget, which I am transmitting
deficit is much smaller, our Government
to you with this message, builds upon our
successful economic program of the last four much leaner, and our policies much wiser.
years by balancing the budget while investing The economic plan that we put in place
in the future. in 1993 has exceeded all expectations. Already,
My budget reaches balance in 2002 the it has helped to reduce the deficit by 63
right way—cutting unnecessary and lower- percent—from the record $290 billion of 1992
priority spending while protecting our values. to just $107 billion in 1996—and it has
It strengthens Medicare and Medicaid, im- spurred a record of strong growth, low interest
proves last year’s welfare reform law, and rates, low inflation, millions of new jobs,
provides tax relief to help Americans raise and record exports for four years.
their children, send them to college, and
While cutting the deficit, we also have
save for the future. It invests in education
cut the Federal work force by over 250,000
and training, the environment, science and
positions, bringing it to its smallest size
technology, and law enforcement to raise
in 30 years and, as a share of the civilian
living standards and the quality of life for
average Americans. work force, its smallest since the 1930s.
We have eliminated Federal regulations that
Over the last four years, my Administration we don’t need and improved the ones we
and Congress have already done much of do. And we have done all this while improving
the hard work of reaching balance in 2002. the service that Federal agencies are providing
We have reversed the trend of higher deficits to the American people.
that we inherited, and we have gone almost
two-thirds of the way to reaching balance. We have cut wisely. We have, in fact,
Now, I want to work with Congress to cut enough in unnecessary and lower-priority
achieve the final increment of deficit cutting spending to find the resources to invest
and bring the budget into balance for the in the future. That’s why we were able
first time since 1969. to cut taxes for 15 million working families,
to make college more affordable for 10 million
Building a Bridge to the 21st Century students, to put tens of thousands of young
For four years, my Administration has people to work through national service, to
worked to prepare America for the future, invest more in basic and biomedical research,
to create a Government and a set of policies and to help reduce crime by putting more
that will help give Americans the tools they police on the street.
need to compete in an increasingly competi- My plan to reach balance in 2002 provides
tive, global economy.
the resources to continue these important
We have worked to create opportunity for investments. We must not only provide tax
all Americans, to demand responsibility from relief for average Americans, but also increase
all Americans, and to strengthen the American access to education and training; expand
community. We have worked to bring the health insurance to the unemployed and
Nation together because, as Americans have children who lack it; better protect the envi-
shown time and again over the years, together ronment; enhance our investments in bio-
we can overcome whatever hurdles stand medical and other research; beef up our
before us. law enforcement efforts; and provide the
Working with Congress and the American needed funds for a thriving global policy
people, we have put America on the right and a strong defense.

3
4 THE BUDGET FOR FISCAL YEAR 1998

Putting the Building Blocks in Place budget into balance for the first time since
1969 while continuing to invest in the Amer-
When my Administration took office in
1993, we inherited an economy that had ican people. My budget does that.
barely grown over the previous four years
while creating few jobs. The budget deficit Improving Performance in a Balanced
had hit record levels, and experts in and Budget World
out of Government expected it to go higher.
Savings and investment were down, interest Led by the Vice President’s National Per-
rates were up, and incomes remained stag- formance Review, we are truly creating a
nant, making it harder for families to pay Government that ‘‘works better and costs
their bills. less.’’

We put in place a comprehensive set of We have cut the Federal work force by
policies that are bearing fruit. By cutting over 250,000 positions, eliminated over 200
the deficit from $290 billion to $107 billion programs and projects, closed nearly 2,000
last year, my economic program (and the obsolete field offices, cut red tape, and elimi-
strong economy it helped create) has brought nated thousands of pages of regulations while
the deficit to its lowest level since 1981. dramatically simplifying thousands more. We
As a share of Gross Domestic Product (GDP), also are providing better service for Ameri-
we have our smallest deficit since 1974 cans—at the Social Security Administration,
and the smallest of any major industrialized the Department of Veterans Affairs, and
nation. other agencies.
Other parts of my economic policy also Our efforts to balance the budget will
are helping to create jobs and raise living continue to put a premium on spending
standards. With regard to trade, for instance, wisely. I am determined that we will provide
my Administration not only completed the the highest-quality service to Americans for
Uruguay Round of the General Agreement
the lowest price. And I will demand that
on Tariffs and Trade and the North American
agencies continue to search for better and
Free Trade Agreement, but also more than
better ways to achieve results for the Amer-
200 separate trade agreements, helping to
ican people.
raise exports to record levels. By opening
overseas markets to American goods—by en- As we move ahead, we plan to follow
couraging free and fair trade—we are creating a series of strategies that build upon our
high-wage jobs at home. successes to date. We will, for instance,
Taken together, our budget and trade poli- restructure agencies to make them more
cies have helped to create over 11 million flexible and decentralized. We will work to
new jobs in the last four years. After two ensure that Federal employees and their
decades of troubling stagnation, incomes have managers work together to achieve common
begun to rise again while inequality shrinks. goals. We will expand competition to ensure
Also, partly due to a strong economy (and that agencies perform their functions as effi-
partly to our policies), poverty, welfare, and ciently as possible.
crime are down all across America.
Government cannot solve all of our prob-
With strong growth, low interest rates, lems, but it surely must help us solve
low inflation, millions more jobs, record ex- many of them. We need an effective Govern-
ports, more savings and investment, and ment to serve as a partner with States,
higher incomes, the Nation is enjoying what localities, business and labor, communities,
such experts as Alan Greenspan, the chairman schools, and families. Only when we can
of the Federal Reserve, have described as show the American people that Government
the healthiest economy in a generation. can, in fact, work better for them can we
Now, our challenge is to complete the restore their confidence in it. And I am
job that we began in 1993—to bring the determined to do just that.
THE BUDGET MESSAGE OF THE PRESIDENT 5

Creating Opportunity, Demanding Over the last four years, we have produced
Responsibility, and Strengthening both. Now, we want to go further. In this
Community budget, I am proposing the funds to speed
up toxic waste clean-ups, to redevelop aban-
I worked with the last Congress to ensure doned and contaminated sites known as
that as many as 25 million Americans no ‘‘brownfields,’’ to improve the facilities at
longer have to fear that they will lose our national parks, to advance our salmon
their access to health insurance if they lose recovery efforts, to invest in energy efficiency
their jobs or change jobs; that people no and renewable energy, to further our environ-
longer will be denied coverage because they mental efforts overseas, and to expand our
have preexisting medical conditions; that in- work with States, localities, private groups,
surance companies will sell coverage to small and others to restore such sensitive ecosystems
employer groups and to individuals who lose as the South Florida Everglades and Califor-
group coverage; and that self-employed people nia’s Bay-Delta area between San Francisco
will find it easier and cheaper to get health and Sacramento.
insurance. Now, I want to strengthen both
Medicare and Medicaid to ensure that they We must maintain our leadership in re-
continue to serve the tens of millions of search, the results of which have so greatly
Americans who rely on them, to expand improved our health and well-being. Federal
health care coverage to help the growing research, in concert with the private sector,
numbers of American children and families creates new knowledge, trains our workers,
who lack insurance, and to promote public generates new jobs and industries, solves
health. My budget invests more in biomedical many of our health care challenges, strength-
research, in programs to combat infectious ens our ability to address environmental
diseases, in the Ryan White AIDS program issues, enables us to teach our children
that provides potentially life-extending drug better, and ensures that we can maintain
therapies to many people with AIDS, and a strong, capable national defense. I am
in community health centers and Indian proposing to increase our investments in
Health Service facilities that serve critically basic research in health sciences at the
underserved populations. National Institutes of Health, in basic research
and education at the National Science Founda-
We have to ensure that every American tion, in research at other agencies that depend
has the skills and education needed to win on science and technology, and in cooperative
in the new economy, and we can do that ventures with industry, such as through the
only if every American is ready for a lifetime successful Advanced Technology Program and
of continuous learning. My budget expands Manufacturing Extension Partnerships.
Head Start, increases our investments in
I want to build on our efforts to fight
Federal elementary and secondary education
crime, curb the scourge of illegal drugs,
programs, launches a new effort to jump-
and secure the Nation’s borders. Crime is
start needed school renovation and construc-
falling all across America. And, under the
tion, and provides funds for America Reads
Brady Bill that I fought so hard to achieve,
to ensure that all children can read well
we have prevented over 100,000 felons, fugi-
and independently by the end of third grade.
tives, and stalkers from obtaining guns. Now,
To expand higher education and training
I want to make further progress and, in
to all Americans, I propose HOPE scholarship
particular, target juvenile crime and violence.
tax credits of up to $1,500 for two years,
My budget continues our progress toward
tax deductions of up to $10,000, the largest
putting 100,000 more police on the street.
increase in Pell Grant scholarships in two
It renews our efforts to fight drug abuse,
decades, lower student loan fees and interest
particularly by focusing on youth prevention
rates, and the G.I. Bill for America’s Workers
programs to reverse the recent trends of
so they can choose where to get the best
softening attitudes toward drugs and more
job training available.
drug use by young Americans. It also strength-
We do not have to choose between a ens our efforts to control illegal immigration
stronger economy and a cleaner environment. by stopping those who want to enter illegally,
6 THE BUDGET FOR FISCAL YEAR 1998

quickly removing those who slipped by, and my tax plan offers a $500 per child tax
making it harder for illegal immigrants to credit for all children under 13, a $1,500-
get jobs. a-year tax credit to help families send their
children to college for two years, a $10,000
Because some American communities have tax deduction for tuition and fees for higher
grown disconnected from the opportunity and education and training, and expanded Individ-
prosperity that most of us enjoy, I want ual Retirement Accounts to encourage saving
to help communities attract private investment and enable families to cope with unforeseen
to spur their revitalization. Because perma- problems. I am also proposing to ensure
nent solutions must come from the community that homeowners do not have to pay capital
level, my budget proposes to create opportuni- gains taxes on 99 percent of all home sales.
ties and offer incentives for individuals and My tax plan would promote the hiring of
businesses to participate directly in addressing long-term welfare recipients in order to help
local problems. I want to expand my national move people from welfare to work, restore
service program so that more Americans the tax credit that encourages business re-
can volunteer and earn money for college. search and development, and expand tax
I want to expand Empowerment Zones and credits for Empowerment Zones and Enter-
Enterprise Communities, making more and prise Communities. And it would help finance
more communities eligible for the tax incen- my tax relief by eliminating unwarranted
tives and other support that can spur a tax loopholes and preferences.
return of business and jobs. I also want
to expand the Community Development Finan- On the international front, we must continue
cial Institutions Fund to enhance credit and to project our leadership abroad while we
other services to distressed areas. In addition, advance our national goals. With the Cold
the Nation’s capital, which suffers from a War over, we have a great opportunity to
unique set of challenges, would benefit greatly expand democracy overseas, but we will have
from the groundbreaking proposal that I a much better chance to succeed if we
have previously outlined. fulfill our international commitments. In this
budget, I am proposing that we pay our
I am pleased that, today, 2.1 million fewer arrears to the United Nations and other
Americans are on welfare than the day international organizations, so that our leader-
I took office, both because of a strong economy ship is not undermined at this crucial time.
and because I have helped States to test But I will also insist that these institutions
innovative ways to move people from welfare control their budgets and enact the reforms
to work and protect children. I am also that our Government and others have called
pleased that I could sign last year’s welfare for. In addition, we must continue our support
reform legislation, because I believe it will for Russia and the New Independent States
promote my basic goals of work, family, of the Soviet Union as they make the difficult
and responsibility. I have directed my Admin- transition to free markets and democracy,
istration to work closely with States so that and we must be prepared to do whatever
we can make welfare reform succeed. Last we can to advance the difficult, but vital,
year’s law, however, also included excessive peace process in the Middle East. A strong,
budget cuts, mainly affecting nutrition pro- coherent foreign policy also will help us
grams, legal immigrants, and children, that further our progress in opening markets
had nothing to do with welfare reform. In abroad, and my budget proposes strong, con-
signing the bill, I said that I would seek tinued support for the Federal efforts that
legislation to address those problems. My help to expand exports.
budget does that.
Finally, our goals both at home and abroad
Over the last four years, we have provided must rest on the firm foundation of a strong
tax relief to millions of working Americans national defense. It is a strong defense that
and to small businesses. But I want to safeguards our interests, prevents conflict,
go further by helping middle-income Ameri- and secures the peace. We must ensure
cans raise their children, send them to college, that our armed forces are highly ready and
and save for the future. For those Americans, armed with the best equipment that tech-
THE BUDGET MESSAGE OF THE PRESIDENT 7

nology can provide. They must be prepared we have helped to spur four years of strong
and trained for the new threats to our economic growth, providing vast new opportu-
security—from the proliferation of weapons nities for millions of Americans. Jobs, incomes,
of mass destruction, to ethnic and regional savings, investment, exports, and homeowner-
conflicts, to terrorism and drug trafficking ship are all up. Crime, poverty, teen preg-
that directly threaten our free and open nancy, and inequality are all down. Clearly,
society. My budget continues to sustain and we are moving in the right direction.
modernize the world’s strongest and most
ready military force, a force capable of prevail- But our work is not done. For too long,
ing in two nearly simultaneous regional con- the Federal Government has spent much
flicts. It fully funds our commitment to more than it received, creating deficits that
maintain the highest levels of training and cast doubt on both our economic future
readiness, and to equip our uniformed men and our ability to govern. In the last four
and women with the most advanced tech- years, we have made huge progress, cutting
nologies in the world. We must never fall the deficit by nearly two-thirds. I urge Con-
short when it comes to defense. gress to help me finish the job and balance
the budget by 2002—giving the American
Conclusion
people the balanced budget they deserve.
Our policies are working. By dramatically
cutting the deficit and investing in the future,

WILLIAM J. CLINTON

February 6, 1997
II. BUILDING A BRIDGE TO THE
21ST CENTURY

9
II. BUILDING A BRIDGE TO THE 21ST
CENTURY

I would like to be remembered as the President who prepared America for . . . the 21st Century
where we had opportunity available to all Americans who were responsible enough to exercise it;
where we lived with the diversity of this country and the diversity of the world on terms of respect
and honor, giving everyone a chance to live up to the fullest of his or her own ability in building
a stronger sense of community, instead of becoming more divided, as so many countries are; and
where we continue to be the indispensable Nation in the world for peace and freedom and pros-
perity.
President Clinton
December 13, 1996

Nearly a century ago, America struggled the 1930s gave way to a new approach
through what was, up to then, its most prompted by the Cold War. So, what worked
profound change—from an economy rooted then must, in turn, give way to a new
in the farm to one powered by the machine. approach for the times that we now face.
As our economy changed, so did the lives
The Nation stands at one of those truly
and habits of our people. Once mostly isolated
unique moments in its history—a moment
in small areas or small communities, Ameri-
that demands new thinking. The traditional
cans moved to towns and cities, transforming
debates between liberals and conservatives
how they lived, how they worked, and how
seem not to hold the answers for the chal-
they related to one another.
lenges before us. We should not move left
With such change came new challenges. or right; rather, we must move forward.
Theodore Roosevelt and then Woodrow Wil-
As the President has said, ‘‘the era of
son—two former governors, the first a Repub-
big Government is over.’’ And we are, in
lican and the second a Democrat—provided
fact, cutting the size and scope of Government
the responses for what eventually became
as we move toward a balanced budget. But,
known as the Progressive Era. What this
as the President also has said, the issue
burst of Federal activity represented was
is not solely bigger versus smaller. It is
a new way of thinking—of using Government
also how to make Government better. For
to address the wrongs, and shape the future,
if Americans do not want a Government
of a growing Nation.
that tries to solve every problem, they just
Today, the Nation faces an upheaval that as surely do not want one that retreats
is just as great, as its economy moves from its proper role.
from one rooted in machines to one in
Generally speaking, governments do certain
which information spreads from person to
things well. They ‘‘promote the general wel-
person, city to city, nation to nation, at
fare’’ by safeguarding the public, financing
lightning speed. Like the upheaval of 100
education, building roads and bridges, distrib-
years earlier, this one, too, is transforming
uting benefit checks, and so on. The Federal
the lives of our people, changing the way
Government, in particular, defends the Nation
we live, the way we work, and the way
against attack, engages in international diplo-
we relate to one another.
macy, ensures retirement income, provides
But what worked in the Progressive Era health coverage for the elderly, the poor,
was inadequate for the demands prompted and people with disabilities, expands access
by the Great Depression. What worked in to education and housing, protects the environ-
11
12 THE BUDGET FOR FISCAL YEAR 1998

ment, encourages business investment, and debt, meanwhile, had quadrupled, to $4 tril-
more. lion, in the 12 years before the President
took office. By all accounts, the deficit was
But the Federal Government does not—
on a path ever higher, about to heap more
indeed, cannot—do it all. Today, Federal
debt on our children and grandchildren and
spending totals less than 25 percent of the
to force the Government to use more of
Nation’s income, as measured by the Gross
its taxpayer dollars not for anything useful
Domestic Product (GDP). To promote the
but, rather, to pay interest on the debt.
goals that Americans share, the Federal Gov-
ernment must work with State and local Then in 1993, the President worked with
governments, business and labor, non-profits, Congress to enact his economic program of
communities, schools, and families. lower deficits and, at the same time, more
public investment. Largely due to the plan,
and to the strong economic performance that
I believe that the Federal Govern- it has helped to spur, the deficit fell by
ment should give people the tools and a whopping 63 percent, to just $107 billion
try to establish the conditions in which in 1996—its lowest level since 1981 and,
they can make the most of their own as a share of GDP, its lowest since 1974.
lives. That, to me, is the key.
The plan slowed the growth of entitlements,
President Clinton raised taxes almost entirely on the wealthiest
October 6, 1996
1.2 percent of Americans, and extended the
annual limits, or ‘‘caps,’’ on discretionary
Nor, in this budget, should we think about spending for five years. While helping to
Government solely in terms of what it spends. dramatically reduce the deficit, the plan also
The Government provides services and benefits cut taxes for 15 million working families,
in all sorts of ways. Not only does it distribute made 90 percent of small businesses eligible
cash and provide services, but it also allocates for tax relief, and invested in the future.
tax incentives to achieve certain goals, such (For a full discussion of the Administration’s
as expanded home ownership and more re- fiscal policy, see Section III, ‘‘Putting the
search and development. At the same time, Building Blocks in Place.’’)
it pursues social goals through responsible
By limiting total discretionary spending,
regulation, such as protecting children by
the caps put a premium on spending wisely—
reducing their access to cigarettes. (For a
on eliminating wasteful and lower-priority
discussion of the full range of Federal activi- programs while emphasizing investments in
ties, see Section VI, ‘‘Investing in the Common the Nation’s future. Thus, the Administration
Good: The Major Functions of the Federal has worked with Congress to invest in edu-
Government.’’) cation and training, and in research, in
For four years, this Administration has order to enhance productivity and, in turn,
been creating a Government for the 21st promote higher living standards; to protect
Century. It is leaner, but not meaner. It the environment and fight crime in order
spends money more wisely. It is no longer to improve the quality of life for all Americans;
wrapped in the red tape and bureaucracy and to secure the resources for a global
of yesterday. And it provides better service policy that has brought peace to certain
to its ‘‘customers,’’ be they Social Security troublespots and has expanded markets for
recipients or victims of natural disasters. U.S. goods.

Shrinking the Size of Government Facing the challenge of global competition,


American businesses are forcing themselves
Nowhere is our success more dramatic to do more with less. The Federal Government
than on the fiscal front. The budget deficit— is doing the same. Led by Vice President
for too long a kind of public metaphor Gore’s National Performance Review, the Ad-
for waste and mismanagement—had hit a ministration has worked hard to ‘‘create a
record $290 billion in 1992, the year before Government that works better and costs
President Clinton took office. The national less.’’
II. BUILDING A BRIDGE TO THE 21ST CENTURY 13

As business downsizes, so does the Federal Order 12866 of 1993—using better data and
Government. Four years after the President analysis to make their decisions, considering
and Vice President assumed office, and largely the costs and benefits of alternative ways
due to their efforts, the Federal work force to reach their goals, and opening the decision-
stands at 1.9 million civilian employees 1— making process to those affected by the
its smallest size in 30 years and, as a rules.
share of civilian employment, its smallest
What do Americans find when they call
since 1931. The Administration has cut the
their Government? Compared to four years
work force by over 250,000 full-time equiva-
ago, they are likely to find a friendlier,
lents (FTE),2 and it will continue shrinking
more responsive voice on the other end.
as the President and Congress finish the
job of balancing the budget. Agencies are making real progress in improv-
ing service to their customers, the American
The shrinking work force focuses the spot- people. They are finding new, innovative
light on those Federal workers who remain ways to deliver service, and they are reaching
on the job. It is they who must work out to learn more about what their customers
more effectively if the Federal Government want.
is to work better. From our efforts to reinvent
Government, which these workers have led, If anything, the challenges will only grow
the Administration knows that the vast major- for departments and agencies. They face
ity of them want to do a good job. The a future of severely constrained resources.
President and Vice President will continue As a result, the Administration has developed
to view them as partners in a great quest a set of strategies (or tools) by which agencies
to give the American people the best Govern- will try to make even more progress in
ment that they can create. this environment. (For a full discussion of
these seven tools, see Section IV, ‘‘Improving
To the average American, however, the Performance in a Balanced Budget World.’’)
size of Government involves more than the
size of its budget or of its work force. Achieving Our Goals
It involves the regulations (or rules) with
which millions of businesses and individuals But can smaller really be better? Can
must comply. It also involves the responses we really do more with less? As the Adminis-
they receive when they call the Government tration has proved across a broad spectrum
for help. of areas, the answer is a resounding ‘‘Yes!’’
The right kind of Government, making the
Regulations are not inherently good or
right kind of decisions, can have a demon-
bad; potentially, they can be either. Good
strably better effect on the lives of millions
rules bring us safer cars and workplaces,
of Americans.
cleaner air and water, and fairer business
practices. But bad rules—those that are too Opportunity for all, responsibility from all,
costly, too intrusive, and too inflexible—can and a stronger American community—those
impede businesses and other institutions from have been the underpinnings for what the
doing their jobs. Administration has sought to achieve. In
pursuing these goals, Administration policies
The President has sought to develop a
have helped to produce a strong economy
more sensible regulatory program, one that
with better jobs, higher incomes, more pension
reduces the burden of existing and new
and health security, greater educational oppor-
rules while improving their effectiveness. Spe-
tunity, safer streets, and a cleaner environ-
cifically, the Administration has nearly
ment.
reached its goal of eliminating 16,000 pages
of regulations and dramatically simplifying By cutting the deficit, for instance, the
31,000 others. In addition, agencies are effec- President’s 1993 economic plan helped cut
tively implementing the President’s Executive interest rates, spurring strong growth with
1 Not included in this figure are 1.5 million uniformed men and
steady prices. The result: over 11 million
women and 0.9 million employees of the Postal Service new jobs (most of them high-wage); the
2 As of September 1996. lowest inflation of any Administration in
14 THE BUDGET FOR FISCAL YEAR 1998

over 30 years; the highest rate of homeowner- already prevented over 100,000 felons, fu-
ship in 15 years; rising incomes; falling gitives, and stalkers from buying hand-
inequality; and record numbers of exports guns;
and new small businesses.
• Ban the import and manufacture of 19
With the 1993 plan limiting spending, the deadly assault weapons, keeping them
President has worked with Congress to spend from would-be killers; and
the available resources most wisely, helping
• Overhaul the immigration system, crack-
to produce real results in education, the
ing down on illegal immigration without
environment, research, and law enforcement.
punishing legal immigrants.
• His direct lending program has helped
make college more affordable for 10 mil- The Administration also has acted on its
lion students. own to improve the lives of average Americans.
It has:
• His national service program has enabled
70,000 Americans to earn money for col- • Approved waivers (before last year’s wel-
lege while building houses, helping chil- fare reform law) to let 43 States find inno-
dren to read, patrolling the streets, and vative ways to move recipients off welfare
performing other vital community work. and into the economic mainstream. (Due
to those efforts and a strong economy, 2.1
• His investments in research are helping million fewer Americans are on welfare
to build new, high-powered supercomput- than when President Clinton took office.);
ers, and to develop drugs that could ex-
tend the life expectancy of those with HIV • Approved waivers to let 15 States pursue
and AIDS. major State-wide health reform initiatives
under Medicaid;
• His community policing program has al-
ready put 64,000 more police (out of • Protected the border by deporting a record
100,000 under the program) on the streets 206,000 illegal and criminal aliens from
of America’s communities, helping to re- 1993 to 1996; and
duce serious and violent crime for five • Completed the General Agreement on Tar-
straight years. iffs and Trade and the North American
The President worked with Congress to: Free Trade Agreement, as well as over 200
other trade agreements, helping to spur
• Raise the minimum wage, giving 10 mil- exports to record levels and, in turn, cre-
lion Americans a pay raise; ate high-wage jobs at home.
• Enact the Family and Medical Leave Act, Our trade agreements, and the benefits
enabling 67 million workers to take up to they produce, point to a growing reality—
12 weeks of unpaid leave from work to we live in an increasingly inter-connected
care for a newborn or a sick family mem-
world, one in which our prosperity at home
ber;
depends on our leadership abroad. Over the
• Adopt the Kassebaum-Kennedy bill, ensur- last four years, the Administration has re-
ing that as many as 25 million American duced tensions in the world’s troublespots
workers would not lose their health insur- through the deft use of diplomacy and, when
ance when they change jobs; necessary, the deployment of troops. Democ-
racy in Haiti, peace in Bosnia, more dialogue
• Reform the Federal pension insurance sys-
in the Middle East—they are all due to
tem, protecting the pensions of over 40
American leadership.
million Americans;
Yet, despite his impressive four-year record
• Take a vital first step ‘‘to end welfare as
of accomplishment both at home and abroad,
we know it’’ by requiring able-bodied re-
the President understands that his work
cipients to work;
is not done. Most importantly, we must
• Adopt the Brady bill, imposing a five-day finish the job of balancing the budget. For
waiting period on gun purchases that has only when we balance the budget can we
II. BUILDING A BRIDGE TO THE 21ST CENTURY 15

hope to assure a healthy economic future • saves $22 billion in Medicaid, building
for all Americans. And only then can we upon the substantial savings that Federal
hope to restore the public’s confidence in and State experimentation in this jointly-
Government. run program is already generating, and
continuing the guarantee of essential
health and long-term care coverage for the
The Task Ahead: Balancing the Budget
most vulnerable Americans (see Chapter
This budget fulfills the President’s commit- 1);
ment to reach balance in 2002. In fact,
• saves $76 billion by ending corporate sub-
under the Administration’s economic and tech-
sidies and other tax loopholes, extending
nical assumptions, it would generate a $17 expired tax provisions, and improving tax
billion surplus that year. compliance (see Chapter 8);
The budget builds on the balanced budget • saves $36 billion by continuing the Admin-
proposals that the President outlined in his istration’s successful policy of auctioning
negotiations with the bipartisan congressional segments of the broadcast spectrum (for
leadership over the last two years. The other proposals on mandatory programs,
negotiations brought the two sides close to see below);
an agreement, and the President is determined
to finish the job this year. He views this • provides $18 billion to correct the harsh
budget proposal as the next step in the provisions that Congress attached to last
march to reach balance. year’s welfare reform law, protecting those
in need and helping recipients to find self-
Specifically, the President continues to seek supporting work (see Chapter 7); and
cuts in unnecessary and lower-priority spend-
• cuts taxes by $98 billion, providing tax re-
ing in both discretionary and mandatory
lief to tens of millions of middle-income
programs, and to eliminate unwarranted tax
Americans and small businesses (see
loopholes and preferences. His $388 billion
Chapter 8).
in total savings would do more than bring
the budget into balance by 2002. They also With regard to other mandatory programs,
would provide enough savings to finance the budget proposes to more fully fund the
a modest tax cut to help middle-income costs of Federal civilian employee retirement;
Americans raise their children, send them extend previously-enacted savings in veterans’
to college, and save for the future; and benefits; cut subsidies to financial institutions
to correct the harsh provisions that Congress that make and hold student loans while
attached to last year’s welfare reform legisla- reducing the costs to borrowers; impose fees
tion. to recover the costs of services that the
Federal Government provides to private busi-
Among its major elements, the budget: nesses; and privatize or sell, rather than
• saves $137 billion in discretionary spend- give away, valuable public resources.
ing, cutting unnecessary and lower-prior- All budget plans—the President’s, Congress’,
ity programs while investing in education and others—rest on a set of assumptions
and training, the environment, science and about how the economy will perform over
technology, law enforcement, and other the next five years, and about technical
priorities that would raise living standards matters such as how fast Medicare spending
and the quality of life for average Ameri- will grow. Those assumptions, in turn, help
cans (see Chapters 2–6); shape projections about the future direction
of the deficit and, thus, the size of the
• saves $100 billion in Medicare ($138 bil-
challenge ahead in balancing the budget.
lion over six years), ensuring the solvency
of the Part A trust fund until 2007 while Since the President took office, the Adminis-
maintaining the essential quality of Medi- tration has worked hard to develop a set
care services for the elderly and people of conservative assumptions each year and,
with disabilities (see Chapter 1); in fact, our economic assumptions generally
16 THE BUDGET FOR FISCAL YEAR 1998

have proved too conservative. The economy of living for average Americans, both now
has performed better than most analysts and in the future.
expected in the past four years, providing
So, too, do the spending priorities of this
strong growth, low interest rates, and stable
budget. Details matter. How the Government
prices. The Government has received more
spends money—for whom, for what purpose—
tax revenues, and spent less on certain
is just as important as whether it does.
social programs—and, as a result, the deficit
has fallen far more than projected. Within tight constraints, the budget contin-
ues the President’s policy of the last four
The Administration’s assumptions also
years in shifting Federal resources to edu-
proved more accurate than the even-more
cation and training, science and technology,
conservative assumptions of the Congressional
Budget Office (CBO)—although both sets of and other investments to enable Americans
assumptions were quite reasonable. The Ad- to get the skills to acquire good jobs, and
ministration is confident that its own assump- to give businesses the tools to become more
tions will continue to prove the more accurate. competitive, in the new economy. The budget
also continues to shift resources to the environ-
Nevertheless, the budget includes a mecha- ment and law enforcement, raising the quality
nism to ensure that the President’s plan of life for average Americans.
reaches balance in 2002 under OMB or
CBO assumptions. If OMB’s assumptions For education and training, the budget
prove correct, as we expect, then the mecha- proposes to fulfill the President’s commitment
nism would not take effect. If, however, to put one million disadvantaged children
CBO proves correct—and the President and in the Head Start program by 2002; to
Congress cannot agree on how to close the create safe learning environments for more
gap through expedited procedures—then most children; to help more school systems extend
of the President’s tax cuts would sunset, high academic standards, better teaching,
and discretionary budget authority and identi- and better learning to all students; to enable
fied entitlement programs would face an more Americans to serve their communities
across-the-board limit. and earn money for college; to bring technology
into more classrooms; to expand college work-
With this mechanism in place, the American study to one million students by the year
people can rest assured that we will reach 2000; to create a $1,000 merit scholarship
balance in 2002—no matter which set of for the top five percent of graduates in
assumptions are used in the budget process. every high school; to let more parents, teach-
ers, and communities create public schools
The Task Ahead: Investing in the Future
to meet their own children’s needs; to make
Balancing the budget is not an end in it easier for parents and students to borrow
itself. Rather, it helps fulfill the President’s and repay college loans; to create the largest
central economic goal—to raise the standard increase in Pell Grant scholarships in 20

Comparisons between this budget and the President’s earlier balanced budget plans can be
misleading.
Over the last two years, the President’s goal has not changed. He has consistently sought to
reach balance by 2002. But with each passing year, the time frame has, by definition, shrunk.
Thus, the seven-year plan that he first proposed was followed by a six-year plan, followed by a
five-year plan in this budget.
Is the task of reaching balance easier now? Yes and no. On one hand, the continued strength
of the economy, slower spending in key programs (such as Medicare and Medicaid), and savings
enacted last year have lowered the projected deficits through 2002, reducing the amount of sav-
ings needed to reach balance. On the other hand, the shorter time frame makes it harder to
phase in savings in entitlement programs, thus making the entitlement cuts deeper than they
otherwise would have to be.
II. BUILDING A BRIDGE TO THE 21ST CENTURY 17

years; and, finally, to provide Skill Grants a new $1,500-a-year HOPE scholarship tax
to adults for job training. credit to make two years of college univer-
sal. The budget also proposes to increase
On other priorities, the budget proposes
Pell Grants for lower-income families who
to maintain environmental enforcement; pro-
lack the tax liability to benefit from the
tect national parks and other sensitive re-
tax cuts.
sources; and provide tax incentives to encour-
age companies to clean up ‘‘brownfields’’— • The President proposes the America Reads
abandoned, contaminated industrial properties Challenge to help ensure that all children
in distressed areas. The budget would put can read by the third grade, and a five-
17,000 more police on the street, bringing year, $5 billion school construction fund
the total to 81,000 and moving closer to to help States and communities address
the President’s goal of 100,000 by the year the serious problem of dilapidated school
2000; and it would provide more funds to buildings.
combat juvenile crime and step up the fight
• Building on his earlier proposal to help
against drugs, largely by focusing on treatment
the unemployed keep their health care
and prevention aimed at youth. It would
coverage for six months, the President now
increase the number of Border Patrol agents
proposes to help expand health care cov-
and workplace investigations to prevent illegal
erage to uninsured children.
immigration and deter the hiring of illegal
immigrants. • Having taken the first step to reform wel-
fare, the President now proposes to en-
The budget invests in research, including
hance the Work Opportunity Tax Credit
biomedical research at the National Institutes
to encourage employers to hire long-term
of Health, in programs to combat infectious
welfare recipients.
diseases at the Centers for Disease Control,
in the Ryan White AIDS program that pro- • The President proposes to reshape the
vides potentially life-extending drug therapies Federal Government’s relationship with
to many people with AIDS, and in community the District of Columbia by assuming re-
health centers and Indian Health Service sponsibility for certain pension, justice,
facilities. The budget funds full participation and other functions. In exchange, the Gov-
in the Special Supplemental Nutrition Pro- ernment no longer would make an annual
gram for Women, Infants, and Children (WIC), discretionary payment to the city, and it
which would be 7.5 million people by the also would expect the city to be more ac-
end of 1998. countable for how it uses its resources.
Finally, the budget proposes to add $1 A Look Ahead
billion to the Community Development Finan-
A balanced budget; a leaner, more effective
cial Institutions Fund over five years to
Government; investments to help secure a
create jobs and foster development in low-
brighter future—these are the priorities that
income urban and rural communities. For
pervade this budget, and that are outlined
the same purpose, the budget proposes to
in the pages that follow. They are the
expand the number of Empowerment Zones
priorities that will, in the President’s words
and Enterprise Communities, providing tax
that began this section, ‘‘prepare America
relief and other assistance for distressed
for . . . the 21st Century.’’
urban and rural areas.
But to fully appreciate the President’s agen-
Over the last year, the President also
da for the future, it helps to know what
has proposed a series of initiatives to more
the Administration has already accomplished.
quickly, and more effectively, meet his goal
The President’s economic policies, including
of higher living standards and a better quality
a dramatic cut in the deficit, have helped
of life for all Americans.
to revive an economy that was suffering
• Along with his earlier tax deduction pro- from over a decade of debt and other burdens.
posal of up to $10,000 for college tuition It is to that record—four years of significant
and job training, the President proposes accomplishment—that we now turn.
III. PUTTING THE BUILDING
BLOCKS IN PLACE

19
III. PUTTING THE BUILDING BLOCKS IN
PLACE

To reclaim our future, we must strive to close both the budget deficit and the investment gap.
Governor Bill Clinton
Senator Al Gore
Putting People First
1992

With regard to Congress, if I could do one thing, I would pass a balanced budget that would
open the doors of college to all Americans and continue the incremental progress we’ve made in
health care reform.
President Clinton
November 10, 1996

President Clinton has pursued a disciplined accumulated deficits that have not been offset
but fair budget policy, working with Congress by surpluses over the years.
to make the tough choices that have dramati-
At first blush, deficits may appear painless;
cally cut the deficit while protecting the
they allow the Nation’s leaders to avoid
values that Americans share. He has cut
the hard choices needed to bring spending
wasteful and lower-priority spending while
in line with revenues. But the Government
protecting safety net programs and investing
must finance the debt that it accumulates,
in the future.
and the cost of doing so prevents the Nation
The results are clear: The deficit has from meeting future spending needs or cutting
fallen by a whopping 63 percent—from $290 taxes.
billion in 1992, the year before the President
The Government finances the deficit mainly
took office, to $107 billion last year. Now,
by borrowing from the public, including foreign
with this budget, the President proposes
investors. The large deficits of the 1980s
to build on that progress by balancing the
and early 1990s quadrupled the Federal debt.
budget for the first time since 1969.
At the end of 1980, Federal debt held by
Why must we finish the job? the public was $710 billion. By the end
of 1992, it had grown by $2.289 trillion—
to $2.999 trillion.1 Because the deficit has
What the Administration Inherited
fallen under this Administration, the debt
Large budget deficits damage the economy, has risen more slowly, and, in fact, the
hurting taxpayers and discouraging busi- ratio of the debt to our Gross Domestic
nesses. The sharply higher deficits that began Product (GDP) has declined. But until we
in 1981 have been a serious drag on the balance the budget, the debt will keep growing.
Nation’s economic performance ever since.
In a sense, today’s deficits are the legacy
The Debt and What It Means for the of the much larger deficits of the years
Average Citizen: The budget deficit is the an- from 1981 to 1992. The budget would be
nual amount that the Government spends in 1 This measure excludes the debt held in Federal trust funds. It
excess of what it receives in revenues. The counts only the debt held directly by private investors and the Fed-
Federal debt, by contrast, is the total of the eral Reserve System.

21
22 THE BUDGET FOR FISCAL YEAR 1998

balanced today if not for the interest that investments. With its massive deficits in
we pay on the deficits accumulated in those the 1980s, the Government drained much
12 years. of the pool. Worse, as Federal deficits were
rising, private saving was falling, exacerbating
The Federal Government paid $241 billion
the overall saving problem.
in interest last year—$241 billion that it
could have spent in far more productive In each year of the 1960s, net national
ways. If the Government were not paying saving 3 totaled at least 10 percent of GDP
interest at all, it could have used those (see Chart III–1). Since then, net saving
funds to have a balanced budget and still has fallen substantially. After averaging about
have $134 billion left over—which equals eight percent of GDP in the 1970s, the
half of the military budget, or about 40 net national saving rate fell to five percent
percent of Social Security payments, or about of GDP in the 1980s, and hit a low point
20 percent of income taxes. of just 2.4 percent of GDP in 1992.
How Deficits Have Damaged the Econ- With less saving, interest rates remained
omy: The economy did not perform as well high in the 1980s, choking off demand for
from 1980–1992 as before, partly due to the private investment. Why? Because lower sav-
rise in Federal debt that marked the period. ing shrinks the pool of available funds. The
As this experience shows, persistent deficits Federal Government taps the pool first by
reduce saving, raise interest rates, stifle in- selling its bills, notes, and bonds at auction,
vestment, and cut the growth of productivity, leaving private borrowers to compete for
output, and incomes. what’s left. With so many would-be borrowers,
and so little left to borrow, the competition
During recessions, when private consump- forces interest rates higher.
tion and investment declines, Government
borrowing to finance unemployment and other Real interest rates—that is, the portion
benefits and to make up for reduced income of the rate that exceeds inflation—were mark-
taxes maintains demand and helps to turn edly higher in the 1980s than in the prior
the economy around. But if deficits become three decades. In real terms, short-term rates
‘‘structural’’—that is, they persist even in had actually been negative for much of the
good times—they can cause harm. That’s 1970s, but they averaged almost four percent
what happened in the 1980s. in the 1980s; long-term real interest rates
were as much as much as two to three
A structural deficit—especially when sus- percentage points higher than in the prior
tained for a long time, as in the 1980s— three decades (see Chart III–2).
depletes the Nation’s pool of saving. Saving
provides the resources to build the new Under this Administration, saving has re-
factories and machinery that generate tomor- bounded, mainly due to lower deficits. In
row’s incomes. National saving has two compo- the first three quarters of calendar 1996,
nents: net national saving averaged 5.4 percent
of GDP. In fact, over 90 percent of the
• private saving (by individuals and busi- improvement in the net saving rate in the
nesses—the net result of millions of sav- last four years is attributable to lower deficits.
ings decisions); and
Higher real interest rates in the early
• public saving (by Federal, State, and local 1980s attracted foreign capital into the United
governments, which save when they run States, driving up the dollar in foreign ex-
surpluses and dis-save when they run defi- change markets. The foreign capital helped
cits). 2 offset some of the fall in domestic saving
If the Government taps the savings pool and helped to cushion U.S. investment. But
to finance its deficit, that borrowed saving it came at a price. The higher dollar pushed
is not available to make productive private up the U.S. trade deficit significantly, causing
competitive problems for American manufac-
2 Recently, the Commerce Department’s Bureau of Economic

Analysis modified the national income accounts to measure more 3 That is, gross saving minus depreciation of the Nation’s capital

accurately how government at all levels contributes to saving. stock.


III. PUTTING THE BUILDING BLOCKS IN PLACE 23

Chart III-1. SAVING RATES


PERCENT OF GDP

14

12
NET NATIONAL SAVINGS

10

NET PRIVATE SAVINGS


6

0
1960 1965 1970 1975 1980 1985 1990 1995

Chart III-2. REAL INTEREST RATES


PERCENT

10

REAL 10-YEAR TREASURY NOTE RATE


5

-5
REAL 91-DAY TREASURY BILL RATE

-10
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996
24 THE BUDGET FOR FISCAL YEAR 1998

turers and industrial workers. The Nation By 1992, the ratio of net investment to
entered the 1980s as the world’s largest GDP had dropped to just 2.5 percent.
creditor; it left as the largest debtor.
With the rise in net saving since then,
Thus, big deficits unsettle potential inves- net investment has rebounded. Equipment
tors—they raise interest rates, increase the investment, which includes computer pur-
risk of ballooning future Government credit chases, has risen especially rapidly—with the
demands and higher inflation, and create increases averaging 11 percent a year in
uncertainty in the currency markets. In re- inflation-adjusted terms.
sponse, business decision makers and other
The economy grew much slower in the
investors will likely buy safer, shorter-term
1980s than in prior decades, partly due
securities rather than risk their money in
to the fall in saving and investment. From
long-term commitments for new factories, ma-
the business cycle peak in 1960 to the
chines, and other productive investments. As
peak in 1980, real economic growth averaged
a result, investment declines, and the economy
3.7 percent a year—compared to 2.6 percent
is poorer for the foreseeable future.
during the business cycle of the 1980s. By
And, in fact, despite the increase in borrow- reducing national saving, the 1980s-era deficits
ing from abroad, net investment 4 fell in held down capital formation enough to cut
the 1980s. The share of net private domestic real potential GDP at the end of the decade
investment (including residential and nonresi- by an estimated 2.5 to 3.5 percent. If incomes
dential spending) fell from over seven percent had been three percent higher in 1996, the
to five percent of GDP (see Chart III–3). average person would have had $600 more
in disposable income to spend.
4 That is, gross investment minus depreciation of the Nation’s

capital stock.

Chart III-3. NET PRIVATE DOMESTIC INVESTMENT


PERCENT OF GDP

10

0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996
III. PUTTING THE BUILDING BLOCKS IN PLACE 25

Growth has improved in the past four But, largely because the economy has per-
years, compared to 1988–1992. In fact, private- formed better than expected, the Administra-
sector GDP has grown since 1992 faster tion now projects that the plan will cut
than in either of the two previous Administra- the 1994–98 deficits by $924 billion (see
tions. Because the government component Chart III–4). Specifically, the plan helped
of GDP is shrinking now, whereas it rose cut interest rates and spur growth, thereby
rapidly in the 1980s, the overall numbers generating more Federal revenues and less
do not fully reflect this strength. spending on unemployment compensation and
other social benefits. Lower interest rates
Still, several factors continue to hold the
also helped to cut Federal costs for deposit
economy back. First, the stagnant saving
insurance and for servicing the debt. Mean-
and low investment of the 1980s and early
while, the Administration’s push for health
1990s are still having an effect. Only years
care reform helped to slow the rise in health
of higher investment will offset the capital
care inflation, thus helping to slow the growth
that was not put in place over the preceding
in Medicare and Medicaid.
12 years. Second, the labor force is growing
more slowly. And third, the recent slow While cutting the deficit, the President’s
growth of the major European economies plan also shifted resources toward Administra-
and Japan has constrained the exports of tion priorities in education and training,
even the newly revitalized and competitive the environment, science and technology, and
U.S. economy. law enforcement. These investments were
intended to raise living standards and the
What the Administration Has quality of life, both now and in the future.
Accomplished Budget Cuts Since OBRA 1993: The Presi-
When the President took office, the deficit dent has continued to cut the budget the right
was high and rising. It had reached almost way—eliminating wasteful and lower-priority
five percent of GDP in 1992, and projections spending while preserving key investments.
suggested that it would not fall below four The President and Congress have scrapped
percent of GDP even during the anticipated over 200 programs and projects entirely, while
economic recovery over the following four cutting hundreds more. Spurred by the Vice
years. Then, according to the projections, President’s National Performance Review, de-
the deficit would rise again, and continue partments and agencies also have cut their
rising without limit in the future. workforces, streamlined programs, reduced pa-
perwork, and overhauled their procurement
The President took action. systems.
The Omnibus Budget Reconciliation Act The Economic Benefits: The President’s
of 1993 (OBRA 1993): Upon taking office, the success in cutting the deficit is paying huge
President proposed a five-year deficit reduction dividends.
program that was largely enacted later that
year as OBRA 1993. Falling deficits enabled the Federal Reserve
to hold short-term interest rates low in
The law was designed to cut projected
1993. In addition, the markets also reacted
deficits from 1994 to 1998 by a total of
favorably, cutting long-term rates. Just as
$505 billion, cutting spending and raising
rising deficits increase investor uncertainty
revenues about equally. Of the spending cuts,
about credit demands, inflation, and currency
about $100 billion came in entitlement pro-
fluctuations, the prospect of continually falling
grams, mostly in health care programs (al-
deficits into the future eases uncertainty,
though expanded health coverage offset some
prompting investors to risk their money on
of the savings); other cuts came in discre-
the new factories and equipment that enhance
tionary spending and interest costs. All income
productivity and, thus, make the economy
tax rate increases fell on the top 1.2 percent
grow.
of families. At the same time, the plan
cut taxes for 15 million working families Short-term rates stayed low through the
by expanding the Earned Income Tax Credit. President’s first year in office. As for long-
26 THE BUDGET FOR FISCAL YEAR 1998

Chart III-4. BUDGET DEFICITS


PERCENT OF GDP

7
PRE-OBRA BASELINE
6

3
ACTUAL DEFICIT PATH
2

0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

term rates, the yield on 10-year Treasury in-hand with economic growth—if the deficit
notes fell below six percent in 1993—the cutting allows the Federal Reserve to maintain
first time since 1972 that the rate was low interest rates, and if it’s credible in
this low. Lower long-term rates helped to the financial markets. In the months between
stimulate investment in housing and business the announcement and enactment of the
equipment, spurring the recovery. President’s 1993 economic plan, economic ac-
Interest rates later rose somewhat as the tivity picked up. As shown in the monthly
economy expanded, but they remained at employment reports, job gains accelerated,
very low levels for a rapidly growing economy and over the next four years, the economy
with such low unemployment. In fact, the created over 11 million new jobs—about 93
last time the economy had unemployment percent of them in the private sector (see
as low as today, the rate on the 10-year Chart III–5).
Treasury bond was about two percentage The job gains occurred without an increase
points higher. in inflation, which has been remarkably stable
Future interest rates likely will depend for several years. Although the Consumer
on the success of efforts to balance the Price Index (CPI) rose a bit more last year,
budget over the next five years. A bipartisan the increase was due to faster increases
agreement this year would greatly foster in volatile food and energy prices, which
chances of further cuts in both short- and experts do not expect to see again this
long-term rates. year. If anything, the underlying rate of
inflation has fallen (see Chart III–6).
What have we learned? That, contrary
to some views, deficit cutting can go hand-
III. PUTTING THE BUILDING BLOCKS IN PLACE 27

Chart III-5. JOB CREATION


MILLIONS OF JOBS

4 3.8

3 2.8
2.6
2.2
2
2

1.1
1
0.3

-1 -0.8

-2
1989 1990 1991 1992 1993 1994 1995 1996

Chart III-6. UNDERLYING RATES OF INFLATION


CPI: ALL ITEMS LESS FOOD AND ENERGY

12-MONTH PERCENT CHANGE

6
5.31

5
4.44 4.39

4
3.38
3.14
2.96
3 2.65 2.63

0
1989 1990 1991 1992 1993 1994 1995 1996
28 THE BUDGET FOR FISCAL YEAR 1998

Family Incomes, Poverty, and Inequality: payments and a slowdown in employers’ health
More jobs, low inflation, and steady growth insurance costs.
can foster a widely shared rise in living stand- To be sure, the strong economy is not
ards, as witnessed by the last two years. After due to the President’s budget policy alone.
many years of, at best, modest gains in median But just as surely, his policies have contrib-
family income, 1995 witnessed one of the larg- uted to a stronger financial climate, enabled
est real gains in two decades—1.8 percent. the Federal Reserve to maintain low interest
Moreover, people in all kinds of households rates, released extra saving for private invest-
gained. Poverty fell for the second straight ment, and showed skeptics that the Nation’s
year (see Chart III–7), and groups at the bot- leaders could cut the deficit. These successes
tom of the income distribution actually enjoyed have played their part in revitalizing the
larger percentage gains than those at the top. economy in the last four years.
The stronger investment climate also sent What Remains To Be Done
stocks much higher. The Dow-Jones Industrial
Average has risen an average of 18 percent The best way to preserve and strengthen
a year from December 1992 to December the current economic expansion is to cut
1996—more than half again as fast as in the deficit further. This budget reaches bal-
ance in 2002—a goal widely shared by Con-
the prior 12 years. Corporate profits, the
gress and the public. The President is commit-
underpinning for the value of stocks, also
ted to achieving it, and his previous success
have soared. Just as important, the profit
in cutting the deficit puts it well within
gains have not come at the expense of
reach.
wages, which have risen in this period,
but are mainly due to falling corporate interest But the goal of reaching balance is not
without controversy. Some observers would

Chart III-7. POVERTY RATES


PERCENT

16

15.1
14.8
15
14.5
14.2
13.8
14
13.5

12.8
13

12

11

0
1989 1990 1991 1992 1993 1994 1995
III. PUTTING THE BUILDING BLOCKS IN PLACE 29

balance the budget every year—no matter Today, the Nation is benefitting from its
what the circumstances; they even would demography. Its largest population group—
enshrine the goal in the Constitution by the ‘‘baby-boom’’ generation, born between
passing an amendment to that effect. Others 1946 and 1964—is entering its highest-earning
argue that further deficit cutting is unneces- years. They pay much more to the Government
sary, if not economically harmful. Both of than they receive in direct benefits. But
these visions are misguided. the situation will begin to change in about
12 years.
A Balanced Budget Requirement: A re-
quirement to reach balance every year is po- At that point, the oldest baby-boomers
tentially harmful. Virtually all taxes, and will become eligible for early retirement under
many spending programs, respond automati- Social Security. Because the next generation
cally to changing economic conditions. That is, of taxpayers is smaller in size, they will
when the economy is weak and incomes fall, contribute relatively less to the Government
income tax revenues fall as well; unemploy- in revenues, making it harder to support
ment compensation and other benefits also the baby-boomers in their retirement. The
cushion the effect of the downturn on President has already called for a bipartisan
consumer buying power. Without these ‘‘auto- process to address that problem. But if we
matic stabilizers,’’ economic downturns would don’t balance the budget beforehand, the
be much worse. challenge of supporting the baby boomers
will only grow larger.
Consider what could happen under a bal-
anced budget amendment. A weak economy A balanced budget by 2002 will add a
would mean fewer tax revenues and more margin of safety into the budget to absorb
spending on unemployment and other pro- the coming demographic burden—and any
grams. As a result, a balanced budget require- unforeseen problems before then. As illus-
ment could force a tax increase or spending trated in Chart III–8, if Congress enacts
cuts—or both—in the middle of a recession. the President’s budget and continues his
proposed limits on Medicaid while controlling
Those steps would make a weak economy
discretionary spending beyond 2002, the Gov-
even weaker.
ernment should be able to avoid an explosion
Nor are any ‘‘escape hatches’’ from the of debt when the baby-boomers retire. (See
budget-balancing requirement—for times of Chapter 2 of Analytical Perspectives for a
economic distress—guaranteed to work. One full discussion of the methodology underlying
reason is that economists are notoriously these projections.)
slow to recognize economic downturns. Con-
sequently, by the time they saw the slowdown The Administration’s Economic
and Congress acted to ease the balanced- Assumptions
budget requirement, the economic damage This budget, like the Administration’s pre-
would be done. The better practice is to vious budgets, is based on prudent assump-
aim for balance, but to adjust budget policy tions about economic growth, interest rates,
according to circumstances. inflation, and unemployment for the foresee-
A Reversal of Course: Allowing the deficit able future. As with the previous budgets,
to begin rising again would be economically the assumptions are close to the consensus
damaging. Admittedly, as some analysts argue, among private forecasters. While the Adminis-
tration believes that, with sound policies,
continued economic growth and low interest
our economy can do even better, we also
rates could keep Federal debt growing more
believe that we should use prudent, main-
slowly than the economy as a whole, and that
stream economic assumptions for budget plan-
would help to keep Federal interest costs
ning.
under control. The problem is, the Nation faces
some important challenges in the not-so-dis- The Congressional Budget Office (CBO) also
tant future for which we should begin to pre- prepares economic assumptions with which
pare. A balanced budget would be a good first to evaluate budget proposals. In the past
step. four years, CBO’s assumptions generally have
30 THE BUDGET FOR FISCAL YEAR 1998

Chart III-8. LONG-RUN DEFICIT PROJECTIONS


PERCENT OF GDP

40

30

20 CURRENT OUTLOOK
PRE-OBRA BASELINE WITHOUT A
BALANCED BUDGET

10

PRESIDENTIAL POLICY

-10
1980 1986 1992 1998 2004 2010 2016 2022 2028 2034 2040 2046 2050

been quite close to this Administration’s, in the year, will decline to 5.1 percent and
although small differences can generate large then stabilize; on a discount-basis, the 90-
gaps in budget projections over five to seven day Treasury bill rate will drop to four
years. percent, from around 5.1 percent. The
long-term real rate will be about 2.5 per-
In recent years, the economy generally
cent, and the short-term real rate about
has performed somewhat better than either
the Administration or CBO had projected, 1.5 percent. These real interest rates are
showing faster growth and lower unemploy- consistent with U.S. experience during
ment and inflation. past periods of steady growth and low in-
flation.
The Administration’s assumptions include
the following: • Inflation: Inflation will remain fairly sta-
ble. The CPI will rise an average of 2.7
• Growth: Real growth will dip slightly percent a year from 1997 through 2002,
below the trend for the next two years, down slightly from the 3.3 percent in-
averaging two percent on a fourth quarter crease in 1996 (which was aggravated by
over fourth quarter basis. Later, real GDP special factors). The price index for GDP
growth will average 2.3 percent per year— (measured on a chain-weighted basis) will
the Administration’s estimate of its poten- rise at a 2.6 percent annual rate—some-
tial growth rate. what faster than in 1996. The gap between
• Interest rates: If Congress enacts the these two measures of inflation, which has
President’s budget plan, interest rates will been large in the past, will narrow due
fall as the budget approaches balance. The to recent and forthcoming changes to the
yield on 10-year Treasury notes, 6.3 per- methodology underlying both indexes—in-
cent at the end of 1996 and higher earlier cluding improved measures of health care
III. PUTTING THE BUILDING BLOCKS IN PLACE 31

inflation (due later this year) and an up- no sign of an impending downturn. If the
date of the CPI market basket (effective economy continues to grow for the entire
in 1998). forecasting period, the current expansion
• Unemployment: Civilian unemployment would become the longest in this century.
will be 5.5 percent by the start of 1998, In some years, growth may exceed 2.3
very near the current rate, and the aver- percent; in others, it may fall a bit short.
age level will remain there. But, the Administration’s assumptions should
The Administration does not forecast the be, on average, close to correct for this
economy’s cyclical pattern beyond the next period, and should provide a sound basis
few quarters; within that horizon, it sees for reaching balance by 2002.

Table III–1. ECONOMIC ASSUMPTIONS 1


(Calendar years; dollar amounts in billions)

Projections
Actual
1995 1996 1997 1998 1999 2000 2001 2002

Gross Domestic Product (GDP):


Levels, dollar amounts in billions:
Current dollars ....................................... 7,254 7,577 7,943 8,313 8,717 9,153 9,610 10,087
Real, chained (1992) dollars ................... 6,743 6,901 7,056 7,197 7,355 7,525 7,699 7,877
Chained price index (1992 = 100), an-
nual average ........................................ 107.6 109.9 112.7 115.7 118.7 121.8 125.0 128.2
Percent change, fourth quarter over
fourth quarter:
Current dollars ....................................... 3.8 5.0 4.6 4.7 5.0 5.0 5.0 5.0
Real, chained (1992) dollars ................... 1.3 2.8 2.0 2.0 2.3 2.3 2.3 2.3
Chained price index (1992 = 100) ........... 2.5 2.3 2.5 2.6 2.6 2.6 2.6 2.6
Percent change, year over year:
Current dollars ....................................... 4.6 4.5 4.8 4.7 4.9 5.0 5.0 5.0
Real, chained (1992) dollars ................... 2.0 2.3 2.2 2.0 2.2 2.3 2.3 2.3
Chained price index (1992 = 100) ........... 2.5 2.2 2.5 2.6 2.6 2.6 2.6 2.6
Incomes, billions of current dollars:
Corporate profits before tax ................... 599 652 676 714 757 796 816 849
Wages and salaries ................................. 3,431 3,628 3,808 3,982 4,168 4,374 4,590 4,810
Other taxable income 2 ........................... 1,532 1,612 1,684 1,748 1,809 1,882 1,967 2,068
Consumer Price Index (all urban): 3
Level (1982–84 = 100), annual average 152.5 156.9 161.2 165.5 170.0 174.6 179.3 184.1
Percent change, fourth quarter over
fourth quarter ...................................... 2.7 3.1 2.6 2.7 2.7 2.7 2.7 2.7
Percent change, year over year ............. 2.8 2.9 2.7 2.7 2.7 2.7 2.7 2.7
Unemployment rate, civilian, percent:
Fourth quarter level ............................... 5.5 5.3 5.4 5.6 5.5 5.5 5.5 5.5
Annual average ....................................... 5.6 5.4 5.3 5.5 5.5 5.5 5.5 5.5
Federal pay raises, January, percent:
Military .................................................... 2.6 2.6 3.0 2.8 3.0 3.0 3.0 3.0
Civilian 4 .................................................. 2.6 2.4 3.0 2.8 NA NA NA NA
Interest rates, percent:
91-day Treasury bills 5 ........................... 5.5 5.0 5.0 4.7 4.4 4.2 4.0 4.0
10-year Treasury notes .......................... 6.6 6.5 6.1 5.9 5.5 5.3 5.1 5.1

NA=Not Available.
1 Based on information available as of mid-November 1996.
2 Rent, interest, dividend and proprietor’s components of personal income.
3 CPI for all urban consumers. Two versions of the CPI are now published. The index shown here is that currently used,
as required by law, in calculating automatic adjustments to individual income tax brackets. Projections reflect scheduled
changes in methodology.
4 Overall average increase, including locality pay adjustments. Percentages to be proposed for years after 1998 have not
yet been determined.
5 Average rate (bank discount basis) on new issues within period.
IV. IMPROVING PERFORMANCE
IN A BALANCED BUDGET WORLD

33
IV. IMPROVING PERFORMANCE IN A
BALANCED BUDGET WORLD

We still have work to do, for while the era of big Government is over, the era of big challenges
is not. Achieving educational excellence, finishing welfare reform and our campaign for safe
streets, helping families to succeed at home and at work, balancing the budget, keeping America
strong and prosperous, reforming campaign finance and modernizing Government operations so
that, together, we can meet the challenges and seize the opportunities of this remarkable time.
President Clinton
December 11, 1996

The President’s challenge is an awesome work force, eliminating needless regulations


one—literally, how to do more with less, and improving the ones we need, streamlining
and how to do it better. bureaucracies, cutting red tape, and finding
numerous ways to better serve Government’s
But it is the challenge that we face, ‘‘customers’’—the American people.
shaped by the fiscal and political realities
of our times. The President has worked Costs Less
hard to reduce the deficit, and he wants
The Administration has:
to work with Congress to finish the job
and balance the budget by 2002—a goal • Saved over $100 billion, largely through
that is widely shared in Congress and across a series of management reforms.
the Nation. Consequently, departments and • Cut the Federal work force by over
agencies no longer can count on more funding 250,000 employees,1 creating the smallest
each year. For the foreseeable future, their work force in 30 years and, as a share
resources will be constrained, perhaps severely of total civilian employment, the smallest
so. since 1931. Thirteen of the 14 Cabinet De-
And yet, the Federal Government has a partments have cut their permanent work
legitimate role to play in fulfilling the Presi- forces between 1993 and 1996; the Justice
dent’s goals. Over the last four years, the Department is growing because of the Ad-
President has used Federal resources and ministration’s expanded war on crime and
the power of his office to begin achieving drugs.
educational excellence, expanding opportunity, • Eliminated over 200 programs and
cleaning up the environment, investing in projects—major programs like the Bureau
promising research, ending welfare as we of Mines, and smaller special-interest or
know it, protecting health care and pensions, narrowly-focused activities like wool and
making the tax system fairer, and keeping mohair subsidies and the Tea-Tasters
America strong. The public wants further Board.
progress on these and other issues and,
• Closed nearly 2,000 obsolete field offices.
with limited resources, the Federal Govern-
ment must be able to respond effectively. • Negotiated better deals for Government
purchases. The Government now pays
Led by Vice President Gore’s National Per-
$3.62 for a three-pound commercial over-
formance Review, the Administration promised
night delivery, compared to the $27 retail
to create a Government that ‘‘works better
rate, and as little as two-cents-a-minute
and costs less.’’ And we have made a good
start. We are saving money, cutting the 1 As of September 1996.

35
36 THE BUDGET FOR FISCAL YEAR 1998

for long-distance calls, compared to the 16- convert Federal listings by agency to list-
cents-a-minute retail rate. ings according to services, such as Food
Stamps or AIDS information. Over 18 mil-
Works Better lion Americans will get such listings this
year.
Departments and agencies are:
• Launching pilot projects to shift regulatory
• Eliminating 16,000 pages of regulations enforcement approaches from adversarial
and dramatically simplifying 31,000.2 relationships to partnerships. In the
• Improving customer service. Spurred by Maine 200 partnership program, in which
the President’s challenge to be the ‘‘best both companies and workers look for haz-
in the business,’’ over 200 agencies have ards, workman’s compensation claims
committed to meet over 3,000 customer have dropped 40 percent.
service standards. The Social Security Ad- • Cutting ‘‘red tape’’ and paperwork. The
ministration was rated first in a 1995 President and Congress strengthened the
independent survey of selected public and Paperwork Reduction Act, establishing
private 1–800 services. Agencies including goals for agencies to cut by 25 percent,
the Postal Service, Veterans Affairs De- by 1998, the hours that the public spends
partment (VA), and the Bureau of Engrav- filling out Government forms and paper-
ing and Printing have surveyed over a mil- work.
lion customers in the past year to learn
how they can improve services. A Toolkit of Strategies and Techniques
• Using emerging technologies, particularly The Administration is proud of its accom-
the Internet and its World Wide Web, to plishments, but our work is not done. As
make Government information readily ac- we move forward, the challenge will only
cessible and easier to find. The White get harder. Spurred by the Vice President,
House expanded its home page the Administration has identified many ways
(www.whitehouse.gov) to provide access to for agencies to improve their performance
commonly requested services. For exam- and cut costs. Some of these tools focus
ple, citizens can get passport applications, on eliminating obsolete processes; others focus
their earnings records from the Social Se- on improving the ones we have. Because
curity Administration, or student loan ap- agencies and programs operate in such dif-
plications. The Commerce Department’s ferent ways, not all of these tools, techniques,
‘‘FedWorld’’ system connects users to hun- and strategies apply to each agency and
dreds of agency resources and informa- department. But every agency and program
tion—from Federal job opportunities, to can benefit from a number of them.
automobile emission system repair instruc- Based on what we have learned over the
tions, to information on starting a small past four years, we plan to employ the
business. Users downloaded over 250,000 following seven tools, as shown in Table
tax forms and instruction booklets from IV–1.
the IRS’ home page during the 1996 tax
season. 1. Restructure Agencies
• Creating ‘‘one-stop shops,’’ such as the new A smaller Government is not an end in
U.S. General Stores, which give the public itself. We want to change the way it operates.
walk-in access to services across a wide In place of highly-centralized, inflexible organi-
range of agencies while cutting agency zations that focused on inputs, the Administra-
overhead costs. Similarly, the National tion is creating more flexible, decentralized
Performance Review and the General management structures within agencies to
Services Administration are working with focus on results. Agencies are streamlining
phone companies across the country to their work forces, collapsing redundant layers,
2 As of December 31, 1996, agencies had eliminated, or proposed
increasing spans of control, and creating
for elimination, 87 percent of the 16,000; they had improved, or leaner headquarters. Many are closing small,
proposed for improvement, 78 percent of the 31,000. inefficient field offices while strengthening
IV. IMPROVING PERFORMANCE IN A BALANCED BUDGET WORLD 37

Table IV–1. STRATEGIES TO IMPROVE PERFORMANCE


AND REDUCE COSTS

1. Restructure Agencies
2. Improve Effectiveness of the Federal Workplace
3. Reform Federal Purchasing Practices
4. Expand Competition to Improve Services and Reduce Costs
5. Follow the Best Private Sector Practices in Using Information Technology
6. Improve Credit Program Performance
7. Improve Business Management Practices

the services they provide to customers through tion’s performance. The British, who have
increased electronic communications and sys- extensive experience with this concept,
tems. And some agencies are fundamentally have found that such agencies have im-
changing the way they work with State proved performance and cut administra-
and local governments and with the private tive costs.
sector by creating partnerships to focus on
joint goals and the progress toward meeting • Consolidate intergovernmental funding
them. streams into Performance Partnerships:
Performance Partnership grants with larg-
• Create more efficient, performance-based er, more flexible funding pools can replace
organizations (PBOs): PBOs, which the small categorical grants, improving finan-
President has labeled a priority for his sec- cial incentives, rewarding results, elimi-
ond term, are discrete units of a depart-
nating overlapping authorities, and cut-
ment that commit to clear management
ting Federal overhead, micro-management,
objectives, measurable goals, customer
and paperwork. States or Tribes can now
service standards, and specific targets for
combine up to 15 separate Environmental
improved performance (see Table IV–2).
Protection Agency funding streams across
Once designated, they would have greater
personnel and procurement flexibilities water, air, hazardous waste, and similar
and a competitively-hired CEO, who would programs to improve environmental out-
sign an annual performance agreement comes. Agriculture Department (USDA)
with the Secretary and have a share of State Directors can combine funding for
his or her pay depend on the organiza- 18 programs into three funding streams

Table IV–2. PROPOSED PERFORMANCE-BASED ORGANIZATIONS

Department or Agency Function

Commerce .................................................. Technical information dissemination (National Tech-


nical Information Service)
Commerce .................................................. Intellectual property rights (Patent and Trademark
Office)
Commerce .................................................. Seafood inspection
Defense ...................................................... Defense Commissary Agency
Housing and Urban Development ........... Mortgage insurance services (GNMA)
Housing and Urban Development ........... Mortgage insurance services (FHA)
Transportation .......................................... St. Lawrence Seaway Development Corporation
Treasury .................................................... United States Mint
Office of Personnel Management ............ Retirement benefit services
38 THE BUDGET FOR FISCAL YEAR 1998

for rural housing, utilities and business 30,000 separate field offices that vary
or cooperative services. greatly in size. Although the average field
office houses 30 employees, over 11,000
• Accelerate implementation of existing
offices house five or fewer.
streamlining plans: The President and
Congress are ahead of schedule on plans
2. Improve Effectiveness of the Federal
to cut 272,900 Federal positions, or 12 per-
Workplace
cent of the work force, by the end of this
decade (see Chart IV–1). As Chart IV–2 What was true in 1993 remains true today.
shows, agencies are working hard to im- The main agents for change are Federal
plement their streamlining plans—de- employees themselves. With a quarter of
signed to cut overhead, eliminate vertical a million fewer of them than in 1993, we
layers and redundant structures, particu- are asking those who remain to do more
larly in headquarters operations, and in- with less. They are working harder and
crease spans of control. smarter each and every day, and our efforts
to reinvent Government would be nowhere
• Eliminate excess field offices: Several agen- near as successful were it not for their
cies, including the Departments of Agri- enthusiastic leadership and support. We must,
culture, Transportation, and the Treasury, however, continue to downsize and restructure,
and the Small Business Administration, if only because of the limited resources that
have developed proposals to streamline a balanced budget will offer. As with the
their field office structures, while improv- previous personnel cuts, the Administration
ing operations and customer service. Over plans to closely manage and target further
890,000 Federal employees work in almost downsizing. Agencies need to avoid workplace

Chart IV-1. EXECUTIVE BRANCH CIVILIAN EMPLOYMENT, 1965 - 1996


(Excluding Postal Service)

EMPLOYEES IN MILLIONS

2.4

2.3

2.2

2.1

1.9

0
1.8

1965 1970 1975 1980 1985 1990 1995


Note: Data is end-of-year count.
IV. IMPROVING PERFORMANCE IN A BALANCED BUDGET WORLD 39

Chart IV-2. CIVILIAN FTE CHANGES


ON A PERCENT BASIS, 1993 - 1996
CABINET DEPARTMENTS AND SELECTED INDEPENDENT AGENCIES
PERCENT

-45 FTE LEVELS


-40 (in thousands)
Percent
1993 1996 Reduction Reduction
-35
Cabinet 1,880 1,651 -229 -12.2
-30 Depts.
All Other 275 241 -34 -12.5
-25 Agencies
Exec. 2,155 1,892 -263 -12.2
Branch
-20 Total

-15
-10
-5
0
5 Exec. Branch Average
Defense--Military

Corps of Engineers
All Other Agencies

Veterans Affairs
Transportation
Smithsonian

Commerce
Agriculture

Education
Treasury
Interior

Energy

Justice
Labor
USIA

State
OPM

HUD
NASA

SSA
HHS

EPA
TVA
GSA

Notes: The Executive Branch total excludes Postal Service. The 1993 base, which is the starting point for calculating the 272,900 FTE reduction
required by the Federal Workforce Restructuring Act, is 2.2 million.

disruptions and employee disputes and, when focused on doing its job better and more
they occur, resolve them quickly and fairly. efficiently.
Employees and managers need to plan and
• Use buyouts to adjust the size and skill
work together for common goals. In addition,
mix of the work force: A well-planned,
the President proposes a 2.8 percent pay well-executed buyout program can mini-
raise for both civilian employees and the mize the need for involuntary layoffs by
military. 3 increasing attrition in targeted occupa-
• Increase the number and effectiveness of tions, organizations, or locations. In re-
labor-management partnerships: The sponse to changed conditions, missions,
Administration plans to add to the more and resources, private and public organi-
than 850 labor-management partnerships zations have used buyouts to make needed
already in place to improve relations be- adjustments in the composition of the
tween agencies and the unions represent- work force. Generally, they are less costly
ing their employees. With these partner- than formal reductions-in-force and are al-
ships, the two sides work together toward ways less disruptive to workers—to those
a common goal—providing the highest- who elect to leave and those who remain.
quality service at the lowest cost. The two • Replace formal grievance procedures with
sides cooperate to solve problems, imple- Alternative Dispute Resolution (ADR): The
ment changes, and jointly resolve worksite early, voluntary use of ADR can quickly
issues. Good partnerships breed good orga- resolve workplace disputes, eliminating
nizations, with an energized work force the costs, delays, and adverse effects on
3 Once again, the Administration will consult employee organiza-
workplace morale of formal administrative
tions and others before recommending how to allocate the civilian procedures or litigation. ADR encompasses
pay raise between locality pay and a national schedule adjustment. various techniques to resolve disputes and
40 THE BUDGET FOR FISCAL YEAR 1998

reach negotiated settlements and, at the volved have expressed more satisfaction
Federal level, ADR has resolved a wide with contractor performance.
range of workplace disputes, including em-
• Use past performance in selecting contrac-
ployee grievances and allegations of dis-
crimination. For example, a Postal Service tors: Agencies have realized, as have suc-
alternative mediation pilot program in cessful companies, that they need not set-
Florida resolved 77 percent of cases using tle for mediocrity when they can get better
ADR, and generally reached settlements overall value from stronger performers. By
within two weeks of the offer of mediation paying more attention to a contractor’s
services. ADR’s expanded use can produce past performance, agencies are beginning
quicker, better settlements and significant to do business only with firms that provide
savings. quality performance in exchange for tax-
payers dollars. For example, a Navy in-
stallation in Seattle reports that its use
3. Reform Federal Purchasing Practices
of past performance has improved on-time
Prior to this Administration, efforts to delivery from 20 to over 70 percent and
make Government work better and cost less significantly reduced defects in the past
were often hindered by the Government’s 18 months.
unique acquisition system. It was heavily
• Apply successful commercial buying strate-
rule-driven, leaving little leeway for Federal
managers and employees to exercise good gies: Recent legal and regulatory reforms
business judgment and common sense and are letting agencies more easily and effec-
providing too much incentive for wasteful tively use commercial purchasing prac-
and costly litigation. With leadership from tices. Many agencies, for instance, are
the National Performance Review, the Admin- leveraging the Government’s buying power
istration issued an early call for fundamental as a large customer of commercial prod-
reform and—with strong bipartisan support ucts, often by consolidating their orders.
that helped produce the 1994 Federal Acquisi- VA entered into a single national contract
tion and Streamlining Act—is transforming for one of its pharmaceuticals, cutting its
the system into one that operates much costs from about $2.5 million a year to
more like private sector acquisition. The Ad- just $550,000. By consolidating its require-
ministration seeks a Government acquisition ments for lab testing services in the
system that performs like those of our most Southeast region, the Army cut its bill in
successful companies and, to achieve it, is half. The Defense Logistics Agency is
pursuing important reforms. using another approach—a ‘‘prime vendor’’
• Use performance-based service contracting strategy in which customers order and re-
(PBSC): The Government spends over ceive products directly from distributors—
$100 billion a year for contracted services. reducing the value of its pharmaceutical
PBSC is a valuable tool that can not just inventories by nearly $85 million.
save money, but also better enable agen- • Streamline the buying process: The Admin-
cies to achieve their missions. PBSC em- istration is revising the rules for source
phasizes what the Government wants from selection, letting contracting officials more
a contractor in measurable, mission-relat- easily get the best deals while still allow-
ed, results-oriented terms, rather than ing all interested firms to participate.
prescribing how to do the work. PBSC also
These changes will save the Government
cuts costs by moving the Government
the cost of fruitless negotiations with
away from cost reimbursement contracts,
offerors who are not leading contenders,
which are open-ended, to fixed price con-
and allow firms to focus resources on situ-
tracts. An ongoing Government-wide pilot
ations in which they likely will be the
project already has generated savings of
15 to 20 percent, and the agencies in- most competitive.
IV. IMPROVING PERFORMANCE IN A BALANCED BUDGET WORLD 41

4. Expand Competition to Improve Services ment converted its background investiga-


and Reduce Costs tion staff to an Employee Stock Ownership
corporation, saving money, protecting jobs,
Competition spurs efficiency. Agencies that
and letting those former Government em-
provide administrative and other commercial
ployees expand services into State, local,
or industrial products or services to ‘‘captive
and private markets.
customers’’—be they other agencies, or individ-
uals or businesses—lack the stimulus of com-
petition to sharpen their performance and 5. Follow the Best Private Sector Practices
control their costs. The Administration’s effort in Using Information Technology
to expand competition encourages agencies Well-managed information technology should
to compete with one another, and with the improve the Government’s productivity while
private sector, to provide common administra-
cutting its costs. Table IV–3 at the end
tive support services. More competition will
of this chapter lists some of the most impor-
bring new technologies, capital, management
tant investments in information technology
techniques, and opportunity to Federal em-
for which the President is proposing funding.
ployees and their customers.
To ensure the maximum return on investment,
• Accelerate and expand the use of competi- agencies can now copy the successful practices
tion: Agencies are using competition to of private firms, due to their new authority
purchase support services from their own under the 1996 Clinger-Cohen Act. These
employees, from ‘‘franchise funds’’ in other practices—reengineering, buying and manag-
agencies, and from the private sector. ing smart, integrating information—ensure
Competition allows agencies to focus on that the technology provides workable solu-
their core mission requirements while giv- tions to real problems at a reasonable cost.
ing them access to the best service provid-
ers, both public and private, and it encour- • Re-engineer before automating: Agencies
ages employees to organize themselves to can redesign how they do business to en-
cut costs and meet performance standards. sure that automation cuts costs, improves
The Social Security Administration, for ex- effectiveness, and uses commercial, off-the-
ample, recently chose to purchase payroll shelf technology as much as possible. The
services from the Interior Department at Census Bureau, for example, moved its in-
lower annual operating costs. Through formation to the World Wide Web to let
competition, the Defense Department researchers draw from the vast stores of
(DOD) is cutting costs without cutting Census data. The Weather Service restruc-
service. Indeed, experience here and tured the duties of its forecasters, using
abroad has shown that a greater use of advanced workstations to increase their
competition can cut costs by as much as productivity, and the accuracy and timeli-
30 percent. ness of weather forecasts. The warning
time for tornados has risen significantly,
• Spin off or privatize functions: Agencies giving communities more time to take ap-
are spinning off or otherwise converting propriate precautions, such as moving chil-
to the private sector a range of assets and dren off playgrounds.
activities that the Government no longer
needs to own or perform, including the • Acquire systems in phases: By acquiring
Alaska Power Administration, the Interior information technology systems in pieces,
Department’s helium processing, the rather than all at once, agencies can reap
Naval Petroleum Reserve known as Elk immediate benefits while increasing the
Hills, and, eventually, the U.S. Enrich- chance of having an integrated, working
ment Corporation. Similarly, VA relied on system at the end. A General Accounting
‘‘just in time’’ deliveries in buying medical Office (GAO) study found that buying sys-
supplies, eliminating its internal ware- tems in phases was one of the most impor-
housing system and saving about $100 tant strategies followed by companies that
million a year. In a new, innovative ap- have most successfully acquired new infor-
proach, the Office of Personnel Manage- mation technology systems.
42 THE BUDGET FOR FISCAL YEAR 1998

• Buy off-the-shelf: Agencies can reduce their together to better coordinate program in-
risks of problems by avoiding custom-de- formation across major Federal benefit
signed components. The broad range of in- programs, in order to prevent overpay-
formation technology equipment, software, ments and avoid the costs of trying to re-
and services now commercially available coup them after the fact.
provides new opportunities to use commer-
cial, off-the-shelf technology, rather than 6. Improve Credit Program Performance
designing and building more-costly custom To fulfill its stewardship responsibilities
systems from the ground up. Through con- to taxpayers, the Government must manage
tracts with the General Services Adminis- its cash and loan assets as wisely as possible.
tration (GSA), agencies can get standard Specifically, it must design and administer
commercial software packages for financial its loan programs prudently, and provide
systems. incentives to ensure that it can collect its
‘‘receivables’’ (that is, the amounts owed)
• Consolidate and out source: The Govern-
in a timely fashion. At the end of 1995,
ment can close over half of its larger com-
contingent liabilities (that is, outstanding
puter centers and eliminate duplicative
guaranteed loans) totaled $737 billion, and
communications links. The National Aero-
non-tax receivables totaled $245 billion, of
nautics and Space Administration cut its
which $50 billion was delinquent. The 1996
data center processing costs by 30 percent
Debt Collection Improvement Act gives agen-
in its first year of consolidation, and ex-
cies a range of new tools to improve credit
pects to save another 35 to 40 percent next
program performance.
year. GSA will close 11 data centers,
outsourcing all of its data center require- • Lower costs with improved loan servicing:
ments to the private sector. The Debt Collection Improvement Act lets
agencies withhold Federal payments to
• Monitor progress with performance-based
those who are delinquent on loans from
management systems: Agencies are estab-
the Federal Government, refer delinquent
lishing performance-based monitoring sys-
accounts to a private collection agency or
tems, enabling managers to track whether
a private attorney, or sell the ‘‘account re-
major system acquisitions are meeting ex-
ceivable’’ to the private sector. Agencies
pectations for costs, schedules, and capa-
also can keep up to five percent of any
bilities. The Federal Aviation Administra-
increase in their collections in 1997, com-
tion’s Air Traffic Modernization System is
pared to their average annual collections
using performance measures that are
in 1993–96, but they must use the funds
linked to design and procurement deci-
they keep to improve their credit manage-
sions.
ment and debt collection.
• Integrate information: By integrating their
• Obtain higher recoveries on delinquencies
information, agencies can stop duplicating
with enhanced payment offset: Also under
each others’ efforts while making their
the Act, the Treasury Department has
critical information more accurate. Many
begun to implement its new authority to
agencies collect information that other
intercept any Federal payment to a delin-
agencies use. Over 40 agencies, for exam-
quent individual or entity to offset the
ple, collect and use trade data for analysis
delinquent amount. Through agency refer-
and for processing imports and exports.
rals of such debt to the Treasury Depart-
Those agencies are integrating information
ment, the Government expects to recover
about shippers, bills of lading, types of
over $300 million in the next three years,
cargo, exports, imports, and duties into a
which it will credit to agency accounts.
cohesive, coordinated system. The new sys-
tem will eliminate duplicative import • Consolidate Government-wide debt collec-
forms, speed cargo clearance, and improve tion: The Act enables Treasury to des-
our trade statistics. Similarly, eight agen- ignate agencies as Federal Debt Collection
cies administering programs that deliver Centers to compete for delinquent account
cash benefits to individuals are working referrals and, in turn, be paid from recov-
IV. IMPROVING PERFORMANCE IN A BALANCED BUDGET WORLD 43

eries. By October 1997, Treasury will des- and approval of new drugs; and Food Safe-
ignate up to five agencies to provide ty and Inspection Service fees to fund the
comprehensive account maintenance and costs of meat and poultry inspection in
special collection services. For agencies production plants.
with decentralized account servicing oper-
• Re-engineer travel policies and procedures:
ations or few loans, the centers will offer
The Federal Government spends over $7
a low-cost alternative to in-house servic-
billion a year for travel (almost $5 billion
ing.
in the Defense Department). GAO found
• Coordinate and expedite asset sales: The that DOD spends an additional 30 percent
Act encourages agencies to sell loan assets of its direct travel costs to manage its
when the Federal Government will benefit travel system, while the private sector
financially. In 1996, the Department of spends about six percent. DOD has begun
Housing and Urban Development received implementing the recommendations of a
over $300 million more by selling collater- two-year study to streamline its travel
alized loans than it would have—had it management procedures. GSA also has
continued to hold these delinquent loans begun implementing the recommendations
in its portfolio. VA sells over $1 billion of a similar study of civilian agency travel
in collateralized loan assets each year. The management policies and practices. Both
Small Business Administration will under- efforts likely will dramatically cut travel
take loan sales in 1998. administrative costs throughout the Gov-
ernment.
7. Improve Business Management
• Use electronic means to improve purchas-
Practices
ing and capture financial data for easier
The Administration is trying to transform accounting: Purchase cards and electronic
a Federal Government with vestiges of early data interchange let buyers buy items
20th Century thinking into one suited for cheaply and conveniently, while they cap-
the next century, and seeking to provide ture the needed financial data from the
financial accountability for Government spend- buyers. USDA estimates that a paper pur-
ing. An efficient, effective Government needs chase costs $77 to process, while the same
sound financial management, reliable informa- purchase by card costs $33; USDA hopes
tion, and, where appropriate, fees from those to cut the card cost to $17 per transaction.
who benefit from Government’s business-like At the same time, information technology
activities. The Administration is taking a makes it easier for buyers to learn about
coordinated approach to electronic process items for sale. The ‘‘GSA Advantage’’
initiatives in order to re-engineer financial World Wide Web site lets Government em-
services; aggressively implement electronic ployees browse through thousands of prod-
purchasing, payment, and funds transfer; and uct listings and order with the Govern-
improve the quality and timeliness of financial ment’s ‘‘IMPAC’’ credit card, and agencies
reporting. can order high-end computer equipment
and software through the Web page of
• Collect fees from the beneficiaries of Gov-
NASA’s ‘‘Scientific and Engineering
ernment’s business-like activities: The Fed-
Workstation Procurement’’ contract. The
eral Government provides services to busi-
Administration wants to adopt ‘‘smart
nesses and others in the private sector.
card’’ technology so that, ultimately, every
The budget would impose or raise fees on
employee will be able to use one card for
these recipients because, where possible,
a wide range of purposes, including travel,
those who benefit from the Government’s
small purchases, and building access.
business-like activities should finance the
services—not the general taxpayer. Spe- • Phase-in electronic funds transfer: The
cifically, the budget proposes Federal Debt Collection Improvement Act supports
Aviation Administration fees to fund the agencies’ efforts to modernize their pay-
air traffic control system; Food and Drug ment processes by requiring the Federal
Administration fees to finance the testing Government, by 1999, to make payments
44 THE BUDGET FOR FISCAL YEAR 1998

to individuals and businesses by electronic Government Performance and Results Act


funds transfer, thereby eliminating the (GPRA)—the landmark legislation that enjoyed
costs and inconvenience of lost and stolen broad bipartisan support in Congress before
paper checks. the President signed it in 1993—makes agen-
cies more accountable for, and focused on,
• Accelerate implementation of Electronic
Benefits Transfer (EBT): EBT replaces what their programs achieve. The law provides
multiple Federal and State paper-based the Administration, working with Congress,
benefit delivery systems with a single card an unprecedented opportunity to give the
system, cutting overhead costs by stream- American people a comprehensive picture of
lining processes and replacing multiple what they are getting for their taxes.
government delivery systems with the pri- GPRA requires all agencies to send strategic
vate banking infrastructure. EBT also plans to Congress by September 30, 1997
brings dignity, security, and access to ben- and make them available to the public.
efit recipients. Over half of the States will Each agency will define its mission, and
issue EBT cards in 1997. The Administra- set out its long-term goals for fulfilling it.
tion’s EBT Task Force has estimated that Complementing the strategic plans, agencies
Nation-wide implementation of EBT will also will create annual performance plans,
save $195 million a year by 1999. establishing performance targets for the year
• Assure integrity of data (with audited fi- ahead. Agencies will send the first of these
nancial statements): Government man- performance plans, for 1999, to Congress
agers need management and reporting and make them available publicly in February
systems that produce reliable information. 1998. Finally, at year-end, GPRA requires
The basic set of Federal accounting stand- agencies to compare actual performance
ards is now complete, and agencies are against target levels in the performance plan,
improving the accuracy and reliability of and to feature the comparisons in annual
their financial information. Sixty percent reports on performance to the President and
of entities that prepared audited financial Congress. Agencies will complete the first
statements for 1995 received unqualified of those reports, for 1999, by March 2000.
opinions. Agencies are also making those
statements more timely by completing and For the challenges ahead, agencies now
releasing them earlier. have many of the tools they need from
not only GPRA but, as illustrated above,
Public Confidence in Government from the Federal Acquisition and Streamlining
Act, the Debt Collection Improvement Act,
The tools discussed above are designed
the Clinger-Cohen Act, and the Paperwork
to do more than let agencies function better
Reduction Act. Others, however, will require
for their own sake. Ultimately, they are
legislation. Working together, the Administra-
designed to help agencies provide better,
tion and Congress can build on the ground-
more effective services to the American people.
work they have laid. Working together, we
Already, agencies are assessing what their can help agencies improve the Federal Govern-
programs actually accomplish and what we ment’s performance in a balanced budget
must do to improve their performance. The world.
IV. IMPROVING PERFORMANCE IN A BALANCED BUDGET WORLD 45

Table IV–3. PROGRAM PERFORMANCE BENEFITS FROM MAJOR


INFORMATION TECHNOLOGY INVESTMENTS
(Budget authority, in millions of dollars)

1996 1997 1998


Program/Project Program Performance Benefits
Actual Estimate Proposed

Agriculture: Field Service Center 132 91 101 Allows ‘‘one-stop service’’ for farmers and producers.
Initiative.
Commerce: Advanced Weather 58 100 117 Improves the timeliness and accuracy of forecasts. Lowers
Interactive Processing System. the costs of generating forecasts through reduced staff-
ing requirements.
Commerce: Census 2000 ................... 6 20 67 Reduces errors, the number of temporary employees need-
ed, and publication costs.
Defense: Defense Messaging System 121 167 203 Provides timely, reliable, standardized, and secure com-
munications worldwide and in the field.
Education: Direct Student Loan 85 135 172 Provides efficient and accurate servicing and record keep-
Servicing System. ing for direct student loans.
Education: National Student Loan 23 28 32 Identifies institutions with high default rates for correc-
Data System. tive action or elimination from student loan programs.
Prevents students with previously defaulted student
loans from receiving additional aid.
Education: PELL Grant Systems ..... 6 11 11 Distributes grant funds to institutions and supports sound
financial management.
Education: Guaranteed Student 24 23 20 Makes payments and maintains records for transactions
Loan Data System. between the Education Department, guaranty agencies,
and banks, as well as improving debt collection of stu-
dent loans.
Education: Student Aid Application 50 50 52 Assists institutions and students by providing a standard-
System. ized way to determine financial aid eligibility.
Energy: Telecommunications Inte- — 2 4 Lowers operating and maintenance costs and improves
grator Services contract. sharing of information by promoting interoperability of
telecommunications systems.
Health and Human Services: Medi- 20 75 89 Simplifies and streamlines claims processing, eligibility,
care Transaction System. and managed care information systems while improving
service to Medicare customers.
Health and Human Services: Na- — — 30 Will help locate non-custodial parents who flee their home
tional Directory of New Hires. state to avoid making child support payments.
Housing and Urban Development: 40 43 66 Provides better internal controls and oversight of Federal
Information Technology Invest- grants, verification of the eligibility of recipients, timely
ments. and accurate payment of funds, and oversight and serv-
icing of FHA mortgages.
Interior: Automated Land Manage- 51 42 33 Improves the quality of, and access to, land, resources,
ment Records System. and title information for public land managers and the
public.
Interior: American Indian Trust — 13 17 Ensures that trust income is collected, invested, and dis-
System. tributed accurately.
Justice: Integrated Automated 84 84 84 Allows the FBI to process routine identification requests
Fingerprinting Identification Sys- in 24 hours and urgent requests in two hours.
tem.
Justice: National Criminal Informa- 62 39 — Provides the criminal justice community Nation-wide with
tion Center 2000. immediate access to documented information on crimi-
nals and criminal activity.
Labor: ERISA Filing Acceptance — 6 3 Increases the speed, accuracy, and integrity of information
System. that three agencies use to safeguard private pensions.
State: Diplomatic and Consular Sys- 100 144 191 Improve delivery and management of information re-
tems Modernization. quired by diplomatic and consular officers overseas to
support the Nation’s foreign policy goals and ensure
U.S. border security. (Includes user fees and budget au-
thority.)
46 THE BUDGET FOR FISCAL YEAR 1998

Table IV–3. PROGRAM PERFORMANCE BENEFITS FROM MAJOR


INFORMATION TECHNOLOGY INVESTMENTS—Continued
(Budget authority, in millions of dollars)

1996 1997 1998


Program/Project Program Performance Benefits
Actual Estimate Proposed

Transportation: FAA Air Traffic 1,368 1,233 1,306 Maintains and improves capability to promote the safe,
Control System Modernization. orderly, and expeditious flow of air traffic
Treasury: Information Technology — — 500 Provides advanced funding for reengineering and redesign
Investments. of tax administration systems and operations.
Treasury: Treasury Communications 46 115 118 Provides secure data transmission and information serv-
System. ices worldwide for Treasury bureaus. (Funded through
Treasury’s working capital fund, not annual appropria-
tions.)
Treasury: Automated Commercial 15 15 15 Supports business process redesign, systems architecture,
Environment. development, and implementation for systems to replace
Customs’ Automated Commercial System.
Veterans Administration: Benefits 6 6 7 Ensures that benefits are delivered timely and establishes
Payment System transition. a modern information technology infrastructure.
Veterans Administration: VA Clini- 430 450 456 Allows clinicians at VA hospitals and clinics easy access to
cal Workstation Information Sys- complete medical records.
tem.
Environmental Protection Agency: 7 7 8 Helps to improve the environment by maintaining data
Toxic Release Inventory System. related to the release of certain toxic chemical uses. The
data is available to EPA staff, State and local govern-
ments, educational institutions, industry, environmental
and public interest groups, and the general public.
National Aeronautics and Space Ad- 247 255 245 Archives, manages, and distributes earth science data
ministration: Earth Observing from NASA missions and provides spacecraft control
System Data Information System. and science data processing for the earth-observing
mission systems.
Social Security Administration 167 235 200 Funds national implementation of a new computing net-
(SSA): Automation Investment work of intelligent workstations for SSA and the State
Fund. Disability Determination Services and related techno-
logical enhancements, including electronic sharing of
information.
General Services Administration: 10 21 31 Beginning in 1998, will offer the Federal Government low-
Post-FTS 2000. cost, state-of-the-art, integrated voice, data, video, and
long-distance telecommunications. (Cost numbers are
not budget authority, but agency contributions to the
Information Technology Fund for expenses associated
with the FTS 2000 Program.)
Nuclear Regulatory Commission: 1 2 2 Implements workprocess improvement review and in-
Agency Document Access and creases staff efficiency through improved information
Management System. access and elimination of redundant data entry. Re-
duces maintenance costs by replacing aging legacy hard-
ware and minimizing custom software.
Office of Personnel Management: — — — Improves product accuracy, customer service, and staff
Retirement System Modernization. efficiency by reengineering current paper-laden Federal
employee retirement processes.
Interagency: Simplified Tax and — — — Reduces employers’ tax and wage reporting burden.
Wage Reporting System.
Interagency: International Trade — — 6 Reduces burden on exports and imports, speeds up ship-
Data System. ments, and improves the quality of trade statistics.
Data Center Consolidation ............... — — –56 Saves money by requiring all Federal agencies to consoli-
date or co-locate their data processing centers to fewer
larger, more efficient, and cost effective locations, either
within the Government or with a private sector pro-
vider.

Note: This report is required by the Information Technology Management Reform Act of 1996, 40 USC 1412(c)).
V. CREATING OPPORTUNITY,
DEMANDING RESPONSIBILITY,
AND STRENGTHENING
COMMUNITY

47
1. STRENGTHENING HEALTH CARE

We can, and we must, work together to reform Medicare and Medicaid so they continue to meet
the promise to our parents and our children and continue to expand health care step by step to
children in working families who don’t have it. We can do that and balance the budget, and take
advantage of the fact that new models are clearly making it possible to lower the rate of medical
inflation in a way that advances the quality of health care as well as the quality of our long-term
objectives in balancing the budget and investing in the future of America. I know it can be done,
and I am determined to get it done.
President Clinton
December 11, 1996

Americans have good reason to be optimistic health care system. One of the most significant
about the Nation’s health care as we approach was last year’s passage of the Health Insur-
the new millennium. ance Portability and Accountability Act of
Medicare ensures that older Americans re- 1996 (HIPAA), also known as the Kassebaum-
ceive high quality health care and can look Kennedy bill. Now, as many as 25 million
forward to a longer life expectancy. Medicaid Americans have health benefit portability they
provides vital health services to low-income did not have before; no longer will people
pregnant women and children, people with who have been sick have to fear that they
disabilities, and elderly Americans. Together, will lose their access to health insurance
Medicare and Medicaid serve over 71 million if they lose their job or change jobs. Nor
Americans. Meanwhile, the Federal Govern- can they be denied coverage because they
ment is investing more in biomedical research have a preexisting medical condition. More-
and technology, furthering our knowledge over, the law requires insurance companies
about the prevention and treatment of diseases to sell coverage to small employer groups
and providing new insights into the genetic and to individuals who lose group coverage
basis of diseases such as breast cancer as without regard to their health status. It
well as threats from food-borne illnesses newly also made it easier and cheaper for self-
emerging infectious diseases. employed people to get health insurance,
And just in the past year, we have witnessed simplified health care paperwork, strength-
the rapid development of new prescription ened Medicare’s fraud and abuse efforts,
drugs to help people with AIDS and other and helped make long-term care insurance
debilitating diseases. These new developments more affordable.
hold the potential for a vastly increased
Other significant health care initiatives
life expectancy for these Americans.
enacted in the last four years include laws
Our private health system, already the requiring health plans to allow new mothers
world’s most dynamic, is undergoing a dra- and their babies to remain in the hospital
matic transformation—much of it positive. at least 48 hours following most deliveries,
The best private sector innovations have and prohibiting health plans from establishing
helped make our delivery system more effi- separate lifetime and annual limits for mental
cient, and have improved quality by increasing health coverage.
consumer choice, stressing accountability, and
focusing on medical outcomes. With this budget, the President takes the
next critical steps toward a better health
In his first term, the President and Congress care future:
took important steps to improve our Nation’s

49
50 THE BUDGET FOR FISCAL YEAR 1998

• Preserving Medicare and Medicaid, while the budget proposes a new managed care
reforming and strengthening both pro- payment methodology in light of substan-
grams in important ways. tial evidence that Medicare pays too much
for managed care plans and, in fact, loses
• Helping the growing numbers of American
money for every beneficiary who opts for
children and families who lack health in-
managed care. The budget would reduce
surance coverage.
Medicare reimbursement to managed care
• Strengthening the health care infrastruc- plans from its current rate of 95 percent
ture by investing more in biomedical re- of fee-for-service rates to 90 percent. To
search, in programs to combat infectious enable the industry to prepare for this
diseases, in the Ryan White AIDS pro- change, the Administration would not im-
gram that provides life-extending drug plement it until the year 2000. The Ad-
therapies to many people with AIDS, and ministration views this reform as a first
in programs such as community health step and will continue to work with the
centers and Indian Health Service facili- industry to create a better reimbursement
ties that serve critically underserved popu- mechanism for Medicare managed care
lations. plans.

Preserving Medicare • Physicians: The budget reforms physician


payments by paying a single update for
The budget preserves and improves Medi- all physician services—based on a single
care, extending the life of the Part A Hospital ‘‘conversion factor,’’ or base payment
Insurance Trust Fund into 2007. Like the amount, and replacing the current three
President’s previous two budgets, it gives conversion factors, effective January 1,
beneficiaries more choices among private 1998. The budget replaces current ‘‘volume
health plans, makes Medicare more efficient performance standards’’ with a sustainable
and responsive to beneficiary needs, slows growth rate.
the growth rate of provider payments, and
maintains the Part B Supplementary Medical • Home Health Agencies/Skilled Nursing
Insurance premium at 25 percent of program Facilities: The budget implements pay-
costs. The plan saves $100 billion over five ment reforms, leading to separate prospec-
years (and $138 billion over six years), accord- tive payment systems for home health care
ing to the Health Care Financing Administra- and skilled nursing facilities. Prospective
tion’s Office of the Actuary. payments would begin to bring the current
double-digit rise in spending on these serv-
The President also wants to work with ices under control. The budget also pro-
Congress on a bipartisan basis to address poses to reform the home health benefit
the longer-term problem of financing Medicare by paying for services following a hospital
to support the health care needs of the stay from the Part A Trust Fund and pay-
‘‘baby boom’’ generation. ing for other services from Medicare’s Part
B Trust Fund. Beneficiaries would not be
Provider Payment Reforms and Program
affected by the change. In addition, the
Savings
change will not count towards the budget’s
• Hospitals: The budget reduces the annual proposed $100 billion in Medicare savings
inflation increase, or ‘‘update,’’ for hos- through 2002, but will help to extend the
pitals; reduces payments for hospital cap- solvency of the Part A Trust Fund.
ital; reforms payments for graduate medi-
• Other Providers: The budget makes pay-
cal education; and begins to reform the
ments for durable medical equipment and
payment methodology for outpatient de-
laboratory services more consistent with
partments while protecting beneficiaries
private market rates and reduces payment
from increasing charges for those services.
updates to ambulatory surgical centers.
• Managed Care: Along with the Adminis- The budget also proposes to address Medi-
tration’s previous proposals to reduce the care’s overpayment for prescription drugs
current geographic variation in payments, that are provided in a physician’s office
1. STRENGTHENING HEALTH CARE 51

by making payments more competitive higher than their actual costs. In effect,
with what private purchasers pay. beneficiaries pay about a 50-percent copay-
ment for hospital outpatient services, as
• Beneficiaries: The budget continues, but
opposed to the 20-percent copayment made
does not increase, the requirement that
for other Part B services. Medicare’s pay-
beneficiaries pay 25 percent of Part B
ments are not always reduced to account
costs through the monthly Part B pre-
fully for these high copayments. The budg-
mium. The budget imposes no new cost
et corrects these flaws by establishing a
increases on beneficiaries. The budget also
prospective payment system for outpatient
would maintain current law to prevent
services and ensuring that, by 2007, bene-
‘‘balance billing,’’ ensuring that doctors in
ficiaries pay the same 20-percent copay-
the new managed care plan options may
ment as they do for other Part B services.
not charge above Medicare’s approved
amount and leave the elderly vulnerable • Medigap Protections: The budget adds pro-
to higher costs. tections, such as new open enrollment re-
quirements and prohibitions against the
• Private Plan Choices: The budget increases
use of pre-existing condition exclusions, to
the numbers of plans—including Preferred
help Medicare beneficiaries who wish to
Provider Organizations and Provider
opt for managed care but fear they will
Sponsored Networks—available to seniors
be ‘‘locked in’’ and unable to access their
and people with disabilities. These new op-
old Medigap protections if they switch
tions will meet strong quality standards
back to a fee-for-service plan.
and include consumer protections. The
plans would be required to compete on cost • The Working Disabled: The budget pro-
and quality, not on the health status of poses a Medicare demonstration project to
enrollees. encourage Social Security Disability Insur-
ance (SSDI) beneficiaries to return to
Beneficiary Improvements work. Under the four-year, Nation-wide
The budget proposes reforms to improve demonstration project, SSDI beneficiaries
and increase services to beneficiaries, to pro- who return to work beginning in 1998
tect them from the burden of additional would receive Part A coverage through
costs, and to offer them a wider choice 2001 without paying the premiums.
of private plans.
Additional High-Priority Initiatives
• Preventive Health Care: The budget covers
The budget contains other reforms to im-
new preventive health benefits including:
prove the Medicare program as well as adjust-
colorectal screening; diabetes manage-
ments to Medicare payments to ensure that
ment; preventive injections like pneu-
rural beneficiaries have access to health care
monia, influenza, and hepatitis B; and an-
services.
nual mammograms without coppayments.
• Rural Health Care: The budget would ex-
• Alzheimer’s Respite Benefit: The budget es-
pand access to, and improve the quality
tablishes a new respite benefit for the fam-
of, health care in rural areas. It would
ilies of Medicare beneficiaries with Alz-
extend the Rural Referral Center program;
heimer’s disease. Medicare beneficiaries
allow direct Medicare reimbursement for
would be eligible to receive non-medical
nurse practitioners, clinical nurse special-
care, giving family members a much-need-
ists, and physician assistants; improve the
ed break from the constant demands of
Sole Community Hospital program; ex-
caring for them.
pand the Rural Primary Care Hospital
• Outpatient Department Payments: Pay- program; and provide grants to promote
ments to hospitals for outpatient services telemedicine and rural health outreach.
are one of Medicare’s fastest growing com- The proposed changes in managed care
ponents. Due to flaws in the current reim- payment methodology also would promote
bursement methodology, hospital out- access to managed care plans in rural
patient departments get a reimbursement areas.
52 THE BUDGET FOR FISCAL YEAR 1998

• Fraud and Abuse: The budget proposes Medicaid spending, based on spending per
strong fraud and abuse provisions, includ- beneficiary in a base year, increased by
ing measures to eliminate fraud in home an annual growth limit. The cap protects
health care—such as by ensuring that States facing population growth or eco-
home health agencies are reimbursed nomic downturns because it ensures that
based on the location of the service, not dollars follow people, allowing Medicaid
the billing office, and by enabling the Sec- spending to respond to changes in caseload
retary of Health and Human Services to and the economy.
deny payments for excessive home health
use. The budget also would repeal several • Disproportionate Share Hospital Payments:
provisions in last year’s HIPAA law that Medicaid DSH spending doubled each year
weakened anti-fraud enforcement. To- from 1988 to 1993. Although this rapid
gether, these initiatives would save about growth has slowed, due to 1993 legislation
$9 billion. that modified the program, the DSH pro-
gram is still large, and the payments could
Strengthening Medicaid be targeted better. The budget proposes
reforms to reach this goal without under-
The budget would reform Medicaid to give
mining the important role these funds
States much more flexibility to manage their
programs, while preserving the guarantee play for providers who serve a dispropor-
of high-quality health care and long-term tionate number of low-income and Medic-
services for the most vulnerable Americans— aid beneficiaries.
millions of children, pregnant women, people
with disabilities, and older Americans. The Provisions to Increase State Flexibility
budget would ensure that as we control
the costs of Medicaid, we do not compromise The budget continues the President’s strong
what is right with the program. commitment to giving States the flexibility
to design their own Medicaid program. The
The growth in Medicaid spending has slowed budget would ensure accountability for high-
significantly over the past two years. The quality health care while enabling States
budget, however, ensures that our success to develop programs that meet the special
in bringing Medicaid spending under control needs of their populations.
will not be lost in future years, when the
actuaries project that Medicaid spending will • Coverage for Children: The budget would
again begin to rise. The budget would save let States provide continuous coverage for
$22 billion from a combination of policies one year after eligibility is determined,
to impose a per capita limit on spending guaranteeing more stable coverage for
and reduce Disproportionate Share Hospital children and more continuity of health
(DSH) payments and retarget them to hos- care services. In addition, it will reduce
pitals that serve large numbers of Medicaid the administrative burden on Medicaid of-
and low-income patients. The budget also ficials, health care providers, and families
makes a number of improvements to the required to refile paperwork to determine
Medicaid program, including changes to last their children’s eligibility.
year’s welfare reform law, costing $13 billion • Coverage Without Waivers: The budget
over the same period. would let States, without a waiver, expand
coverage to any person whose income is
Program Savings
under 150 percent of the poverty line,
• Per Capita Cap: Even though the growth within their per-capita spending limits.
in Medicaid spending has fallen in recent
• Managed Care: The budget would allow
years, aggregate Medicaid spending still
States to enroll people in managed care
will grow at an average annual rate of
without Federal waivers.
7.2 percent from 1997 to 2002. To ensure
that Medicaid’s explosive growth of the • Home- and Community-based Care: The
1980s and early 1990s does not resume, budget would allow States to serve people
the budget would set a per capita cap on needing long-term care in home- and com-
1. STRENGTHENING HEALTH CARE 53

munity-based settings without Federal the loss of health insurance while their
waivers. breadwinner is between jobs can make it
financially impossible for them to regain
• Boren Amendment: The budget would re-
coverage.
peal the ‘‘Boren amendment’’ for hospitals
and nursing homes, giving States more The budget proposes a national demonstra-
flexibility to negotiate provider payment tion program to help States finance up to
rates. six months of coverage for the unemployed
and their families. The program would be
• The Working Disabled: The budget would
available to recipients, based on need, who
let States establish an income-related pre-
had employer-based coverage in their prior
mium buy-in program under Medicaid for
jobs. Eligible individuals and their families
people with disabilities who work. It would
would have access to a policy generally
let eligible Supplemental Security Income
beneficiaries who earn more than certain equivalent to the Blue Cross/Blue Shield
amounts purchase Medicaid coverage by Standard Option plan available through the
paying a premium that States would set Federal Employees Health Benefits program.
on an income-related sliding scale. The plan gives States flexibility to administer
their own programs (e.g., through Medicaid,
Maintaining and Expanding Coverage for COBRA, or an independent program). It would
Working Families cost $1.7 billion in 1998, $9.8 billion from
1998 to 2002.
The President’s budget plan would help
an estimated 3.2 million families, including Health Coverage for Children
700,000 children, keep their health care cov-
erage for to six months up until their bread- The budget proposes several measures to
winners find new jobs. The budget also expand health care coverage to more children.
would help provide health coverage for millions Combined with the proposal to help the
of children who do not now have it. Finally, families of unemployed workers (discussed
the budget proposes to help States to create above), and the ongoing phase-in of Medicaid
voluntary health insurance purchasing co- coverage for a million older children, these
operatives. additional proposals could add coverage for
as many as five million children. The Presi-
Health Insurance for the Families of dent is pleased with the widespread congres-
Workers Who are In-Between Jobs sional interest in expanding health care cov-
erage for children, and he looks forward
While unemployment remains low and job
to working with both Democrats and Repub-
creation remains high, the fast-moving econ-
licans to develop and implement proposals
omy creates rapid job turnover and job elimi-
to reach that goal.
nation. An estimated one in four workers
will make an unemployment claim at least • State Grants to Develop Innovative Pro-
once in four years. grams: The budget provides $750 million
a year in grants to States ($3.8 billion
With health care coverage in this country
from 1998 to 2002) to build on recent State
usually linked to employment, many workers
successes in working with insurers, provid-
lose their health care coverage during these
ers, employers, schools, and others to de-
brief periods of unemployment. Nearly half
velop innovative ways to provide coverage
of workers with one or more job interruptions
to children. This proposal would cover an
experienced at least a month without health
estimated one million children.
insurance between 1992 and 1995. Nearly
half of children who lose their health insur- • Continuous Medicaid Coverage to Chil-
ance do so because of a change in their dren: The budget provides funds to let
parent’s employment status. A family experi- States extend one year of continuous Med-
encing a catastrophic illness during this transi- icaid coverage to children, potentially help-
tion loses the benefit of years’ worth of ing one million children who would other-
premiums. Worse, for families with an ill wise have lost coverage to keep it. The
child or a worker with a chronic condition, proposal would reduce administrative bur-
54 THE BUDGET FOR FISCAL YEAR 1998

dens on States, families, and health care lations, such as American Indians and Alaska
plans who now must determine eligibility Natives.
at least every six months.
Expanding Biomedical and Behavioral
• Medicaid Outreach: About three million Research
children are now eligible for Medicaid, but
not enrolled. The Administration will ask The budget continues the Administration’s
the Nation’s Governors to work with us longstanding commitment to biomedical and
to find ways to reach and sign up such behavioral research, which advances the
children. health and well-being of all Americans. For
the National Institutes of Health (NIH), it
• School Health Centers and Consolidated proposes $13.1 billion for biomedical research
Health Centers (CHCs): The budget pro- that would lay the foundation for future
vides more funds for CHCs to expand and innovations that improve health and prevent
enhance services to working families and disease. The budget includes funding for
their children through school-based health high-priority research areas such as HIV/
clinics. AIDS (including efforts to develop an AIDS
vaccine), breast cancer, spinal cord injury,
Voluntary Purchasing Cooperatives high performance computing, prevention and
Employees in small businesses and their genetic medicine.
families are far likelier to be uninsured The Office of AIDS Research will continue
than other Americans. Small businesses have to coordinate all of NIH’s AIDS research.
more difficulty providing health care coverage The budget also includes the second year
for their workers because they have higher of funding for a new NIH Clinical Research
per capita costs due to increased risk and Center, which would give NIH a state-of-
extraordinarily high administrative costs. the-art research facility in which researchers
The budget would make it easier for small would bring the latest discoveries directly
businesses to provide health care coverage to patients’ bedsides. NIH’s top priority contin-
for their employees, by helping them to ues to be financing investigator-initiated re-
band together to reduce their risks, lower search project grants.
their administrative costs, and improve their
purchasing power with insurance companies. Providing Direct Services and Preventive
The budget proposes to empower small busi- Care to Special Populations
nesses to access and purchase more affordable While basic biomedical research lays the
health insurance through voluntary health foundation for medical advances, direct health
purchasing cooperatives—providing $25 mil- services and prevention activities reduce the
lion a year in grants that States can use cost of medical care, and directly benefit
for technical assistance, and setting up vol- Americans by preventing disease outbreaks
untary purchasing cooperatives and allowing and promoting the population’s health. The
them to access Federal Employees Health budget proposes funding increases for the
Benefit Plans. following health service and prevention activi-
ties:
Promoting Public Health
• Preventing and Treating AIDS through
The budget invests in preventive steps Ryan White HIV/AIDS Treatment Grants/
that show the greatest promise of ameliorating HIV Prevention: The budget proposes just
pain and suffering while controlling future over $1 billion for activities authorized by
costs. In particular, the budget focuses on the Ryan White CARE Act, $40 million
preventing teen smoking; substance abuse; more than in 1997, to help our most hard-
teen pregnancy; the spread of AIDS and hit cities, States, and local clinics provide
HIV infections; food-borne diseases; the spread medical and support services to individ-
of infectious diseases; and infant mortality. uals with HIV/AIDS. Under this Adminis-
The budget also invests in health care services tration, funding for Ryan White grants has
for low-income and other vulnerable popu- risen by 158 percent. The proposed level
1. STRENGTHENING HEALTH CARE 55

would fund grants to cities and States to food safety system in the meat, poultry,
help finance medical and support services and seafood industries.
for individuals infected with the HIV
• Promoting Full Participation in Women,
virus; to community-based clinics to pro-
Infants, and Children (WIC): WIC reaches
vide HIV early intervention services; to pe-
over seven million women, infants, and
diatric AIDS and HIV dental activities;
and to HIV education and training pro- children a year, providing nutrition assist-
grams for health care providers. The budg- ance, nutrition education and counseling,
et also includes $167 million dedicated to and health and immunization referrals.
State AIDS drug assistance programs WIC provides prenatal care to those who
funded under Title II of the Ryan White would not otherwise get it, while reducing
Care act, to improve access to protease in- the incidence of premature birth and in-
hibitors and other life-extending AIDS fant death. As a result, Medicaid saves
medications. The budget also proposes significant sums that it would otherwise
$637 million for the Centers for Disease spend in the first 60 days after childbirth.
Control’s (CDC) HIV prevention activities, Because of funding increases in the last
$20 million more than in 1997. The in- four years, WIC participation has grown
creased funding will help prevent HIV by over 25 percent. The budget proposes
among drug users, who face the greatest $4.1 billion to serve 7.5 million people by
risk of HIV infection. the end of 1998, fulfilling the President’s
goal of full participation in WIC.
• Reducing Tobacco Use Among Young Peo-
ple: Tobacco is linked to over 400,000 • Promoting Childhood Immunizations: The
deaths a year from cancer, respiratory budget proposes $794 million for the
illness, heart disease, and other health Childhood Immunization Initiative, includ-
problems. Each year, another million ing the Vaccines for Children program and
young people become regular smokers, and CDC’s discretionary immunization pro-
over 300,000 of them will die earlier as gram. The Nation is ahead of schedule to
a result. Consequently, in August 1996, meet the Administration’s goal of raising
the Administration approved an FDA reg- immunization rates to 90 percent for two-
ulation that aims to cut tobacco use among year old children for each basic childhood
young people by half over seven years; the vaccine. The incidence of vaccine-prevent-
budget includes $34 million to implement able diseases among children, such as
the regulation. The budget also provides diphtheria, tetanus, measles, and polio,
$36 million for the CDC and $50 million are at all-time lows. The budget also in-
for NIH for State grants and technical cludes $47 million to eradicate polio—pre-
support for tobacco control and cancer pre- ventable through immunizations—
vention activities. throughout the world.
• Enhancing Food Safety: Too many Ameri- • Improving Substance Abuse Treatment and
cans get sick from preventable food-borne Prevention: The budget proposes to in-
diseases. The Nation faces new challenges crease support for the Substance Abuse
in this area as we enter the 21st Century. and Mental Health Services Administra-
New pathogens are emerging and familiar tion’s substance abuse treatment and pre-
pathogens have grown resistant to treat- vention activities by $33 million, to $1.7
ment. We consume record levels of im- billion, enabling hundreds of thousands of
ported foods, some of which moves across pregnant women, high-risk youth, and
the globe overnight. The budget proposes other under-served Americans to get drug
$42 million for a new interagency food treatment and prevention services. The
safety initiative to establish a national budget proposes a coordinated approach to
early warning system for food-borne ill- combating substance abuse among youth
nesses Nation-wide, and to improve Fed- with a comprehensive prevention initia-
eral-State coordination when food-borne tive, focusing on State-level data docu-
disease outbreaks occur. The budget also menting trends in drug use. The Adminis-
proposes to continue implementing a new tration again calls on Congress to enact
56 THE BUDGET FOR FISCAL YEAR 1998

Performance Partnerships, which would • Promoting Better Health Care for Native
give States more flexibility to better target Americans through Indian Health Service
Federal resources to priorities. (IHS): The budget proposes $2.4 billion for
the IHS, $70 million over 1997. IHS clini-
• Enhancing Abstinence Education and cal services are often the only source of
Family Planning: For each of the next five medical care on remote reservation lands,
years, the budget includes $50 million in and this increase maintains our commit-
mandatory funding for States to conduct ment to American Indians and Alaska Na-
abstinence education projects to help re- tives.
duce out-of-wedlock pregnancies. The
budget also includes a $5 million increase, • Caring for Veteran’s Health Needs through
to $203 million, to support voluntary fam- Veterans Medical Care: Continuing its
ily planning services. longstanding commitment to veterans
programs, the Administration proposes
• Preventing and Containing Infectious Dis- $17.5 billion for the Department of Veter-
eases: The budget includes $103 million, ans Affairs’ (VA) health system, $0.5 bil-
$15 million more than in 1997, for CDC’s lion more than in 1997. The budget would
cooperative efforts with States to address enable the VA health system to retain,
infectious disease. It would support train- and spend for itself, all first- and third-
ing and applied research, and the States’ party medical collections. In the past,
disease surveillance capability. All Ameri- these collections have gone to the Treas-
cans face threats from infectious disease ury; in 1998, they would support health
problems, such as drug resistant bacteria, services for veterans. The budget would
and from emerging viruses, such as the enable the VA to implement eligibility re-
hantavirus. CDC works with State health form legislation that the President signed
departments to monitor and prevent such in October 1996, and pursue ambitious
problems and to contain outbreaks. plans to restructure the health system to
better deliver care.
2. INVESTING IN EDUCATION AND
TRAINING

I want to build a bridge to the 21st Century in which we expand opportunity through edu-
cation, where computers are as much a part of the classroom as blackboards, where highly-
trained teachers demand peak performance from our students, where every eight-year-old can
point to a book and say, I can read it myself.
President Clinton
August 29, 1996

Today’s most successful workers are those throughout their working lives can get those
with skills and a firm educational footing opportunities; and that States and commu-
who continue to learn throughout their careers nities that receive Federal funds can use
in order to compete successfully in this them more flexibly, with fewer regulations
fast-changing economy. and less paperwork.
In recent years, education and wages have Federal resources help States improve the
become increasingly intertwined. Generally, quality of education and training for the
those with the best skills and education disadvantaged and for people with disabilities;
have made steady progress, enjoying higher support State- and locally-designed elementary
living standards. Those without the requisite and secondary school reform; and help low-
skills and education have fallen behind. To- and middle-income families gain financial
morrow’s workers face an even greater chal- access to postsecondary education and skill
lenge. As the very nature of work changes training through loans and grants. To help
with technological innovation, employers will States raise student achievement, the Presi-
demand even more highly-skilled and flexible dent has worked hard to make schools safer,
workers. The best-paying jobs increasingly improve teacher quality, move technology into
will go only to those with education and the classroom as quickly as possible, raise
training beyond high school. academic standards, and better prepare stu-
dents for college and the new workplace.
For the most part, our Nation places respon-
sibility for education and training on State The budget reaffirms the President’s com-
and local governments, families and individ- mitment to America’s children by increasing
uals, and the private sector. Nevertheless, the investment in Head Start and in Federal
the Federal Government plays a crucial, if elementary and secondary education pro-
limited, role in providing education for a grams—focusing on innovation and tech-
lifetime—from pre-school to adult career train- nology—and launching a new effort to jump-
ing. start needed school renovation and construc-
tion. In addition, the President has begun
The President’s goals are to help families,
a national, volunteer-based challenge called
communities and States ensure that every
America Reads, to ensure that all children
child is prepared to make the best use
can read well and independently by the
of education; that the education system en-
end of third grade.
ables every child to learn to his or her
potential; that those who need resources To ensure that all Americans have access
to pay for postsecondary education and train- to the high-skill training needed for today’s
ing can get them; that those who need workplace, the President proposes to make
a second chance at training and education two years of postsecondary education univer-
or a chance to improve or learn new skills sally available, through HOPE scholarship
57
58 THE BUDGET FOR FISCAL YEAR 1998

tax credits of up to $1,500 for two years. than the time parents spend reading to, and
And to encourage lifelong learning, the budget with, them. Research shows that the first
proposes: tax deductions of up to $10,000 three years of a child’s life are crucial to his
for tuition and fees for college, graduate or her development. An early exposure to
school, or job training; a $300 increase in books, even for infants, is important to prepare
the maximum Pell Grant college scholarship children for pre-reading activities as toddlers.
(to $3,000), marking the largest increase Reading to them for 20 minutes a day can
in two decades and providing grants for make a big difference in their readiness for
at least 348,000 more students; lower student school. To give parents help and information
loan fees and interest rates for parents in teaching their children, the Administration
and students; the G.I. Bill for America’s proposes a Parents as First Teachers Chal-
Workers so they can choose where to get lenge Grant Fund of $300 million over five
the best job training available; and new years, building on the current Even Start Fam-
resources to help move welfare recipients ily Literacy program to support effective, prov-
from welfare to work (see Table 2–1 and en efforts that help parents help their children
Chart 2–1). become successful readers.

America Reads Head Start

Many of our children are falling short A healthy, caring family environment is
of meeting standard educational levels—a the best preparation for school. For over
failure that they often have trouble overcoming 30 years, Head Start has helped low-income
later. In 1994, for instance, two-fifths of families create this environment by taking
fourth-graders failed to reach the ‘‘basic’’ a comprehensive approach to child develop-
reading level on the National Assessment ment—improving children’s learning skills,
of Educational Progress and only 30 percent health, nutrition, and social competency. Head
attained the ‘‘proficient’’ level. In response, Start involves parents in their children’s
the President has launched the America Reads learning, and links children and their families
Challenge, a multi-part effort to help States to a wide array of services in their commu-
and communities ensure that all children nities. Over the last four years, the President
are reading well and independently by the has secured a 43-percent increase in funds
end of the third grade. Business and academic for Head Start, enabling the program to
leaders already have pledged their support, serve 800,000 children in 1997.
and the budget proposes the Federal funding The budget proposes $4.3 billion for Head
component. The Administration will measure Start, $324 million more than in 1997, to
the success of this effort on a national enable 86,000 more children to participate
basis through the biennial administration than in 1996 and raising program quality
of the National Assessment of Educational (see Chart 2–2). With this funding, the Admin-
Progress fourth grade reading assessment. istration would be well on its way toward
America’s Reading Corps: One-on-one tu- meeting the President’s commitment of a
toring is one key to better reading. America’s million children in Head Start by 2002.
Reading Corps will provide individualized In addition, the Early Start component
after-school and summer help for over three of Head Start extends comprehensive early
million children in grades K-3 who want and development services to infants aged 0 to
need it. A five-year, $2.45 billion investment, 3 in a way that supports families, builds
through the Education Department and the parenting skills, and extends a safe, nurturing,
Corporation for National and Community Serv- and stimulating environment to very young
ice, would help communities mobilize 30,000 children.
reading specialists and volunteer coordinators
to recruit and train over a million tutors, in- Elementary and Secondary Education
cluding 100,000 college work-study students.
The Administration has energized State
Parents as First Teachers: Nothing is and local efforts to raise student achievement
more important to children’s reading skills by boosting funds for various programs that
2. INVESTING IN EDUCATION AND TRAINING 59

Table 2–1. THE BUDGET INCREASES RESOURCES FOR MAJOR EDUCATION AND
TRAINING PROGRAMS BY $15 BILLION, OR 56 PERCENT OVER 1993
(Dollar amounts in millions)

Percent
1993 1997 1998 Change:
Actual Estimate Proposed 1993 to
1998

MANDATORY OUTLAYS/TAX EXPENDITURES:


HOPE scholarships tax credit/deduction ........................................ ............... 100 4,100 NA
America Reads (Education Department) ........................................ ............... ................. 31 NA
School construction .......................................................................... ............... ................. 1,250 NA
Work Opportunity Tax Credit ......................................................... ............... 120 160 NA
Welfare-to-Work Jobs Challenge ..................................................... ............... ................. 600 NA

Total, mandatory outlays and tax expenditures ............... ............... 220 6,141 NA
DISCRETIONARY BUDGET AUTHORITY:
Head Start ...................................................................................... 2,776 3,981 4,305 +55%
Elementary and secondary education:
America Reads (Corp. for National and Community Service) ............... ................. 200 NA
Goals 2000 ..................................................................................... ............... 491 620 NA
Education technology ................................................................... 23 305 545 +2,270%
Title I Education for Disadvantaged ........................................... 6,709 7,698 8,077 +20%
Eisenhower Teacher Training ..................................................... 289 310 360 +25%
Special education .......................................................................... 2,966 4,036 4,210 +42%
Safe and drug free schools ........................................................... 582 540 620 +7%
Charter schools ............................................................................. ............... 51 100 NA
After-school learning centers ....................................................... ............... ................. 50 NA
Postsecondary student aid:
Pell Grants .................................................................................... 6,458 5,919 7,635 +18%
College Work Study ...................................................................... 616 830 857 +39%
Other campus-based aid ............................................................... 845 811 771 –9%
Presidential Honors Scholarships ............................................... ............... ................. 132 NA
Training and employment:
Vocational education .................................................................... 1,176 1,131 1,172 –*%
Adult education ............................................................................. 304 354 394 +30%
School-To-Work (Education and Labor Departments) ............... ............... 400 400 NA
Summer Jobs for Youth ............................................................... 849 871 871 +3%
Job Corps ....................................................................................... 966 1,154 1,246 +29%
Youth Opportunity Areas ............................................................. ............... ................. 250 NA
JTPA adult/dislocated worker training ....................................... 1,666 2,181 2,415 +45%
Employment service and One-Stops ............................................ 975 974 993 +2%

Total, budget authority ........................................................ 27,200 32,037 36,223 +33%

Total, mandatory outlays, tax expenditures, and


budget authority ............................................................. 27,200 32,257 42,364 +56%

STUDENT LOAN VOLUME (loan amount):


Direct loans ....................................................................................... ............... 9,938 12,037 NA
Guaranteed loans ............................................................................. 16,029 16,965 16,774 +5%
Consolidation loans .......................................................................... 1,527 6,803 7,729 +406%

Total, loan volume ........................................................................ 17,556 33,706 36,540 +108%

NA = Not applicable.
* Less than 0.5 percent.

States and localities then combine with their initiative (discussed earlier in this chapter)
own funds to help all students achieve at and the new school construction initiative
high levels in a safe, modern learning environ- (discussed later).
ment. The budget builds on this momentum
The Administration’s goal for elementary
by proposing additional funds for all major
and secondary education is to help States
programs, and for the new America Reads and communities raise the quality of education
60 THE BUDGET FOR FISCAL YEAR 1998

Chart 2-1. INVESTMENT IN EDUCATION DEPARTMENT PROGRAMS,


HOPE SCHOLARSHIPS AND TAX DEDUCTIONS
WILL INCREASE 56 PERCENT BETWEEN 1996 AND 2002
DOLLARS IN BILLIONS

50

45

40 NEW MANDATORY AND TAX INITIATIVES

35
CURRENT MANDATORY OUTLAYS

30

25 DISCRETIONARY OUTLAYS

20
1996 1997 1998 1999 2000 2001 2002

for all children. Administration initiatives The President proposes to leverage new con-
launched in 1994 are designed to establish struction or renovation projects through a $5
a framework for comprehensive reform and billion fund for school districts with substan-
to help States finance their role in it. The tial need. The fund would support interest sub-
goals include: high State standards for all sidies or similar assistance to cut borrowing
children; new curriculum and teaching meth- costs for States and localities in order to reach
ods to help all children achieve those stand- higher levels of infrastructure investment.
ards; teacher and administrator training to Goals 2000: Enacted in 1994, this Adminis-
support the standards; assessments of each tration initiative helps participating States es-
child’s progress; and a safe, technologically tablish high standards for all children and
up-to-date learning environment. The budget plan and implement steps to raise educational
proposes to increase funds for programs that achievement. It builds on the National Edu-
support these goals, and proposes more flexi- cation Goals, first articulated by the Nation’s
bility to enhance the success of State and governors (led by then-Governor Clinton) and
community efforts. President Bush in 1989, which provide clear
School Construction: The General Ac- national targets but encourage States to de-
counting Office found that a third of all schools velop their own means to achieve them. All
States have now chosen to receive Goals 2000
across the country, with 14 million students,
funding.
have one or more buildings needing extensive
repair. School districts also face the cost of The program is working. In Maryland,
upgrading schools to accommodate computers 40 percent of all students met challenging
and modern technology, and of constructing State academic standards in 1995, a 25
new classrooms and schools to meet expected percent gain over 1993. Over the next two
record enrollment levels over the next decade. years, the Education Department seeks to
2. INVESTING IN EDUCATION AND TRAINING 61

Chart 2-2. 36 THOUSAND NEW HEAD START OPPORTUNITIES FOR


CHILDREN IN 1998 OVER 1997; ONE MILLION BY 2002
SLOTS IN THOUSANDS
1050

1000

950

900

850

800

750

700

650

600

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

ensure that at least half of all school districts schools are public schools that parents, teach-
are implementing reforms based on State- ers, and communities create—and that States
developed standards, and that the number free from most rules and regulations and, in-
of students meeting or exceeding their State’s stead, hold accountable for raising student
standards continues to rise. Goals 2000 also achievement. Begun as a grassroots movement
supports individual school reforms. The budget in 1991, and supported by Federal start-up
would finance aid for 4,000 more schools funds since 1995, charter schools now number
than in 1997—for a total of 16,000 schools. over 400, and some are now showing results
The budget provides $620 million for Goals in higher student test scores and lower drop-
2000, 26 percent more than in 1997. It out rates. For example, in the Vaughn Next
includes $15 million for parental information Century Learning Center, a Los Angeles public
and resource centers in 42 States to help charter school, median scores on a 4th-grade
parents become more involved in their chil- standardized reading test rose from the 19th
dren’s education and gain skills in child to 37th percentile in one year. The budget pro-
rearing through parent-to-parent training, hot- poses $100 million for public charter schools,
lines, and other activities. Each center also nearly double the 1997 level, in order to fund
provides information and training to parents start-up costs for as many as 1,100 schools
of pre-school aged children, either through and to make further progress towards the
the Home Instruction Program for Preschool President’s goal of 3,000 schools by 2001.
Youngsters or the Parents as Teachers pro-
Title I—Education for the Disadvan-
gram.
taged: Title I provides funds to raise the edu-
Charter Schools: One way to improve the cational achievement of disadvantaged chil-
quality of public schools is to introduce variety dren. In 1994, the President proposed, and
and competition into the system. Charter Congress adopted, changes to focus Title I re-
62 THE BUDGET FOR FISCAL YEAR 1998

sources more on low-income children, to set violence programs in our schools. It helps stu-
the same high standards for those children as dents resolve conflicts before they escalate into
for all others, to hold schools accountable for tragedy, teaches them the dangers of drug use,
progress toward achieving those standards, and helps schools increase security. The budg-
and to give States and schools great flexibility et proposes to spend $620 million for the pro-
in using Title I funds. The budget includes gram, 12 percent over the 1997 level, and to
$8.1 billion for Title I, five percent more than encourage States to adopt models of proven
in 1997. excellence.
Education Technology: Education tech- Special Education: States have made real
nology can expand learning opportunities for progress in giving children with disabilities a
all students, helping to raise student achieve- ‘‘free appropriate public education,’’ as the In-
ment, but many districts lack the resources dividuals with Disabilities Education Act
to integrate technology fully into their school (IDEA) calls for. The Administration will pro-
curricula. In February 1996, the President pose amendments that will help improve edu-
challenged the public and private sectors to cational results for children with disabilities
work together to ensure that all children are by promoting accountability for performance
technologically literate by the dawn of the 21st and focusing resources on teaching and learn-
Century, with the communication, math, ing. The budget provides $4.2 billion for spe-
science, and critical thinking skills essential cial education, four percent more than in 1997.
to succeed in the Information Age. The budget
proposes substantial increases in two tech- Bilingual and Immigrant Education:
nology programs, for a total 1998 investment The Bilingual Education program helps schools
of $500 million. improve the quality of instructional services
for limited English proficient (LEP) students,
First, the President has committed $2 billion teaching them English and preparing them to
over five years for the Technology Literacy meet the same challenging academic standards
Challenge Fund. For 1998, the budget proposes as all other students. The Immigrant Edu-
$425 million, more than doubling the $200 cation program helps States with large con-
million that Congress provided in 1997. Sec- centrations of immigrant students who have
ond, the budget proposes $75 million, 32 recently arrived, helping to offset their finan-
percent more than in 1997, for the Technology cial impact on school systems. The budget pro-
Innovation Challenge Grant program, which poses $199 million for Bilingual Education and
gives matching Federal funds to school-cen- $150 million for Immigrant Education, 27 per-
tered, public-private partnerships to develop cent and 50 percent more than in 1997, respec-
and implement innovative applications of tech- tively.
nology in the curriculum.
Teacher Training: The Eisenhower Profes- Postsecondary Education and Training
sional Development program helps States in-
Education beyond high school is increasingly
vest in training teachers and other educators
a prerequisite for success in the rapidly
so that they can help all children reach the
changing job market. The rising rate of
State’s challenging academic standards. The
college attendance over the last half-century
President proposed, and Congress enacted,
was fueled by State efforts to expand the
major improvements in 1994 to ensure that
public college system, and Federal efforts
the training is of high enough quality and suf-
to help families pay for college. The post-
ficient duration to pay off in the classroom.
World War II GI Bill was a watershed
The budget increases funding to $360 million,
event in Federal investment in higher edu-
16 percent more than in 1997.
cation, greatly increasing benefits for return-
Safe and Drug-Free Schools and Com- ing servicemen. Since then, through the High-
munities: Students can reach their full poten- er Education Act of 1965 and subsequent
tial only in safe, disciplined learning environ- amendments, the Federal Government has
ments. The Safe and Drug-Free Schools and vastly expanded grant and work-study aid
Communities program helps 97 percent of to all low- and middle-income students, and
school districts implement anti-drug and anti- made it possible for every American to borrow
2. INVESTING IN EDUCATION AND TRAINING 63

enough money to attend college. The President would put over $36 billion back in the hands
wants to ensure that financial barriers to of Americans for education and training be-
higher education continue to fall for all tween 1997 and 2002.
Americans. The budget provides substantial
Pell Grants: The President proposes to
new support to low- and middle-income fami-
raise the maximum Pell Grant award by $300,
lies through a new tax credit and tax deduc-
to $3,000, marking the largest increase in two
tion for education costs (see Chart 2–3).
decades. The Administration’s changes also
HOPE Scholarships: More than ever, to- would bring at least 348,000 more students
day’s employers look for job applicants with into the program, reaching a total of over four
more than a high school diploma. HOPE schol- million low- and middle-income undergradu-
arships would make the 13th and 14th years ates. Such help is particularly important to
of education the norm for students by offering, raise participation and graduation rates of low-
to most working families, up to a $1,500 per income students. With Pell Grants, they are
student tuition tax credit for postsecondary as likely to stay in school and earn a degree
education or training. Students would have to as middle-income students without grants.
maintain at least a B average to receive the
Student Loans: An estimated 5.5 million
credit in the second year.
individuals will borrow $37 billion through the
Tuition Deduction: To encourage Ameri- Federal student loan programs in 1998. Fami-
cans to pursue higher education and to pro- lies at any income level can receive loans, but
mote lifelong learning, the budget proposes to students who show greater financial need re-
give families a tax deduction for postsecondary ceive greater interest subsidies. The loans fi-
tuition and fees of up to $5,000 in 1997 and nance study toward undergraduate or grad-
1998, and $10,000 starting in 1999. Together, uate degrees, or short-term vocational training
the tuition deduction and HOPE scholarship programs. The annual maximum loan amount

Chart 2-3. THE FEDERAL GOVERNMENT WILL PROVIDE NEARLY


$60 BILLION IN STUDENT AID IN 2002, MORE THAN DOUBLE
THE 1993 LEVEL
DOLLARS IN BILLIONS

60

RES
50 DITU
XEXPEN
H IP TA
LARS
SCHO
HOPE
40
ITY
THOR
DGET AU
AR Y BU
30 ETION
DISCR

20

STUDENT LOAN VOLUME

10

0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
64 THE BUDGET FOR FISCAL YEAR 1998

varies from $2,625 for a first-year student fi- percent of graduating students in every sec-
nancially dependent on his or her parents, to ondary school in the Nation, making clear the
$18,500 for a graduate or professional program Government’s commitment to excellence. The
student. Under this Administration, the rate budget requests $132 million for this program.
of student loan defaults within the first two
College Work-Study: Work-study gives stu-
years after borrowers leave college has reached
dents additional aid through subsidized jobs,
an all-time low.
including an increasing number of community
Before 1993, students and parents paid service positions. The budget proposes $857
fees of up to eight percent of their loan million for Work-study, three percent more
proceeds. The Student Loan Reform Act of than in 1997, and continues the President’s
1993, which the President initiated, cut the commitment to raise the number of Work-
fees to four percent and has already saved study recipients to a million by the year 2000,
families nearly $2 billion. The 1993 reforms including 100,000 reading tutors to support
also created the simpler, less costly, and America Reads.
more accountable Federal Direct Loan Pro-
gram (FDLP), and gave borrowers a way G.I. Bill for America’s Workers
to afford payments on their student loans For the past two years, the President
based on their actual post-college income— has sought to dramatically overhaul the com-
which the existing guaranteed loan program plex, inefficient structure of Federal job train-
could not do. ing programs through his proposed G.I. Bill
The budget proposes to cut the loan fees for America’s Workers. It would consolidate
again—by half for needy students, and by multiple programs into a single, integrated
a quarter for other students and parents. work force development system and provide
The budget also would continue to allow Skill Grants (i.e., vouchers) to adults who
schools to choose to participate in either need training so that they, not bureaucracies,
the FDLP or the guaranteed loan program— choose where to get it. It also would streamline
the Federal Family Education Loan Program program administration, while improving ac-
(FFELP). In addition, it would reform FFELP countability by freeing States and localities
to improve Federal management and give to focus on results, not process.
lenders and intermediaries financial incentives
Although Congress did not enact these
to prevent defaults. It also would ensure
essential reforms, the Administration has
that all borrowers receive a variety of repay-
pressed ahead to reform the job training
ment options.
system under current law. The Administration
Presidential Honors Scholarships: The is making grants to establish One-Stop Career
President proposes an achievement-based Center systems and School-to-Work systems;
scholarship program, rewarding the best and developing America’s Labor Market Informa-
the brightest of high school students. It would tion System; expanding America’s Job Bank
grant $1,000 honors awards to the top five to help match workers to jobs across the

The President’s Principles for Work Force Policy Reform:


1. Give resources for training directly to adults so they can make informed choices, without
bureaucratic interference.
2. Consolidate and streamline Federal programs for adults, organize them within the One-
Stop Career Center delivery system, and ensure that the private sector is a full partner.
3. Ensure strong accountability to taxpayers by establishing high standards for program
quality and giving States and localities responsibility for results.
4. Organize Federal programs for youth within the School-to-Work Opportunities Act sys-
tems being established in States and local communities.
5. Increase funding for work force development each year, commensurate with the needs of
workers and the economy.
2. INVESTING IN EDUCATION AND TRAINING 65

country; and implementing new authority to off the streets and out of trouble. The Presi-
waive certain Federal legal and regulatory dential initiative will provide $50 million to
requirements in order to help States and keep public schools open during non-school
local communities make changes to the job hours, giving students access to after-school
training system. tutoring and other educational and rec-
Comprehensive reform still requires legisla- reational activities in a crime-free environment
tion. The President will again seek legislation within their own communities.
that reflects the principles of his G.I. Bill. Youth Opportunity Areas Program: Rec-
Because enactment would not occur before ognizing the special problems of out-of-school
the fiscal 1998 appropriations process begins youth, especially those in inner-city neighbor-
in Congress, the budget presents funding hoods where jobless rates can exceed 50 per-
proposals under the current program struc- cent, the budget proposes $250 million for new
ture.
competitive grants to selected high-poverty
Youth Programs urban and rural areas with major youth unem-
ployment problems. The Labor Department
The President is deeply committed to help- would award funds to high-poverty areas, in-
ing States and communities help young people cluding designated Empowerment Zones or En-
make a successful transition to the world terprise Communities, based on the quality of
of work and family responsibility. As discussed
the local applications—that is, those that show
earlier in this chapter, the budget includes
the best chance of substantially increasing em-
major new proposals to eliminate financial
ployment among youth. These ‘‘seed’’ funds
barriers to postsecondary education and train-
would leverage State, local, and private re-
ing for all youth. In addition, the budget
sources to sustain public-private efforts to
continues to support the goal by helping
States develop and implement their school- train and employ youth in private sector jobs.
to-work systems. And it proposes additional (For more information on Empowerment Zones
resources to aid disadvantaged youth who and Enterprise Communities, see Chapter 6.)
have left school, or are on the verge of Summer Youth Employment and Train-
doing so, and have entered the labor force. ing Program: The summer jobs program
School-to-Work: This initiative, which the gives many urban and rural disadvantaged
Education and Labor Departments fund and students their first work experiences, and lo-
administer jointly, gives States and commu- calities may include an academic component
nities competitive grants to build comprehen- that re-enforces the skills they have learned
sive systems to help young people move from during the school year. The budget provides
high school to careers or postsecondary train- $871 million to finance 530,000 job opportuni-
ing and education. School-to-Work supports re- ties for the summer of 1998, assuming that
forms to the education system and its links localities spend this flexible funding entirely
to employers, so that young people can better on summer jobs.
prepare for high-skill, high-wage careers; re-
Disadvantaged Youth Year-Round Pro-
ceive top-quality academic and occupational
training; and pursue more postsecondary edu- gram: The year-round program helps low-in-
cation or training. Businesses get the trained come youth who have dropped out of school,
workers they need to stay globally competitive. are at risk of dropping out, or are in families
By 1996, 37 States and 133 local partnerships on public assistance. The Administration will
had already received grants to implement expand upon ongoing efforts to refocus this
School-to-Work systems. The budget proposes program to stress local programs of proven ef-
$400 million, maintaining the 1997 level, in fectiveness. Local service delivery areas that
accord with the strategy of phasing in School- receive these funds under the Job Training
to-Work in all States by early in the next Partnership Act can shift resources between
decade. the summer and year-round programs, as local
needs dictate. The budget proposes $130 mil-
After-School Program: Young people need
lion for the year-round program.
access to after-school activities that keep them
66 THE BUDGET FOR FISCAL YEAR 1998

Job Corps: The Job Corps provides inten- Transitional Assistance to Needy Families
sive, work-related vocational skills training, block grant. (For more information on this new
academic and social education, and support block grant, and on the related Welfare-to-
services to severely disadvantaged young peo- Work Challenge Fund and tax credit, see
ple in a structured residential setting. The Chapter 7.)
budget proposes $1.2 billion to fund opportuni-
ties for 70,000 young people. Adult Education: The Adult Education pro-
gram helps educationally disadvantaged adults
Adult Programs develop basic skills (including literacy), achieve
certification of high school equivalency, and
Most adults change jobs and get new
learn English. In 1993–94, the program served
skills by themselves or through their employ-
over 3.75 million adult learners—over 1.4 mil-
ers. But, many others—particularly welfare
lion enrollments in adult basic education pro-
recipients and those permanently laid off
from jobs—need help to get the services grams, about 1.1 million in adult secondary
and information they need to successfully education programs, and over 1.2 million in
manage their careers. The budget proposes English-as-a-second-language programs. The
sizable new support for grants to States budget proposes $394 million, nine percent
and localities to finance a training and employ- more than in 1997 (and over 50 percent more
ment system that adequately serves these than in 1996), to meet the demand for literacy
adults, and helps build the job skills of training that the new welfare and immigration
American workers and job seekers into the laws have stimulated.
21st Century. These activities are the core One-Stop Employment Service: The budg-
of the adult portion of the G.I. Bill for et proposes $843 million for grants to the Em-
America’s Workers. ployment Service—the Nation’s public labor
Dislocated Workers and Low-Income exchange—and $150 million to continue build-
Adult Training: The budget proposes $2.4 ing One-Stop Career Center systems to
billion for Job Training Partnership Act pro- streamline re-employment and career develop-
grams that provide training, job search assist- ment service delivery. To date, 24 States have
ance, and related services to laid-off workers received grants to implement One-Stop sys-
and economically disadvantaged adults, a $233 tems and nine more States will receive grants
million increase over 1997. The dislocated in July 1997. The budget would permit One-
worker program provides readjustment serv- Stops to expand to all States in 1998. While
ices, job search assistance, training, and other the One-Stop grants provide seed money for
services to help dislocated workers find new systems-building and increased automation,
jobs as quickly as possible. The program for Employment Service grants provide the core
disadvantaged adults helps welfare recipients operating funds for the new system. They help
and other low-income adults, giving them the States to match employers and job seekers,
skills and support to become employed. States and to provide counseling and re-employment
and localities likely will continue to use a siz- assistance to unemployment insurance claim-
able portion of these resources to supplement ants and others who need more help finding
training for welfare recipients under the new jobs.
3. PROTECTING THE ENVIRONMENT

None of our children should have to live near a toxic waste dump or eat food poisoned by pes-
ticides. Our grandchildren should not have to live in a world stripped of its natural beauty. We
can and we must protect the environment while advancing the prosperity of the American people
and people throughout the world.
President Clinton
April 22, 1996

The President believes that the Nation New Approaches for Environmental
does not have to choose between a strong Success
economy and a clean environment. In fact,
Working with Congress on a bipartisan
while the President’s policies have contributed
basis whenever possible, the Administration
greatly to four years of strong economic
has pioneered ways to protect the environment
growth with low inflation, they also have
that are cleaner, cheaper, and smarter, while
produced a cleaner, healthier environment. preserving natural resources for current and
The Administration has helped ensure that future generations.
the air is cleaner for tens of millions of Reinventing Drinking Water Legislation:
people. It has protected Yellowstone, one In August 1996, the President signed the Safe
of our national treasures and our first national Drinking Water Act Amendments, fulfilling
park, from the ravages of nearby mining. the goals he outlined in 1993—to reinvent the
It also has cleaned up more toxic waste Nation’s safe drinking water legislation to bet-
sites in its first three years than the previous ter protect public health, and to authorize the
two administrations did in 12 years. Mean- creation of new Drinking Water State Revolv-
while, American industry has continued reduc- ing Funds (SRFs) to help hundreds of commu-
ing toxic emissions, which have fallen 43 nities protect their citizens from harmful con-
percent in the last decade. taminants.
While Americans want a Government that In several respects, the new law is a
helps protect the environment and our natural model for regulatory reform. It gives the
resources, they do not want to burden business Environmental Protection Agency (EPA) more
unduly, choke innovation, or waste taxpayer flexibility to act on contaminants of greatest
dollars. The Administration has reinvented risk, and to analyze costs and benefits while
the regulatory process, cutting excessive regu- maintaining public health as the paramount
lation and targeting investments in programs concern. It institutes a cost-effective, commu-
that will have the biggest impact on improving nity-based approach for ensuring safe drinking
the environment, protecting public health, water. Further, it affirms the right of all
providing more opportunities for outdoor recre- Americans to know the quality of their drink-
ation, and enhancing natural resources. The ing water and the potential threats to its
President’s strategy for environmental protec- safety, and it authorizes resources to address
tion is reflected in not just the creative Federal mandates under the law.
approaches the Administration is pursuing, Reforming Food Quality Protection: Also
but in the priorities that the budget proposes in August, based on his proposal of 1993, the
to fund. President signed legislation to revolutionize

67
68 THE BUDGET FOR FISCAL YEAR 1998

the way our food supply is protected from will be able to lease and manage hundreds
harmful pesticides. The law overhauls the sys- of unused buildings in a manner consistent
tem that kept harmful pesticides on the mar- with park purposes, but which reduces the
ket too long and safer alternatives off the mar- burden on taxpayers. In addition, the budget
ket, and it will ensure that families have the supports other partnership arrangements by
safest possible food on the dinner table. Spe- including funds, matched by non-Federal
cifically, the law replaces conflicting and out- sources, to implement newly authorized non-
dated pesticide residue standards with a sin- Federal heritage areas and to restore historic
gle, health-based standard for all food. It pro- structures at historically black colleges and
vides incentives for swift approval of safe, new universities.
pesticide alternatives for farmers. And, it in-
cludes provisions to better protect children Creating a New National Monument:
from pesticide risks. The budget provides funds for start-up activi-
ties at the Grand Staircase-Escalante National
‘‘Greening’’ America’s Farm Programs: Monument, which the President created by
The 1996 Farm Bill, which the President proclamation in September 1996, in the pris-
signed in April 1996, was the most conserva- tine canyonlands of south-central Utah. The
tion-oriented farm legislation ever enacted. It National Monument encompasses 1.7 million
created five new mandatory conservation pro- acres of public lands and will preserve for fu-
grams, including the Environmental Quality ture generations hundreds of millions of years
Incentives Program (EQIP) that consolidates of geologic and cultural history. Over the next
four cost-sharing conservation programs into three years, the Bureau of Land Management
one and focuses cost-sharing and technical as-
will consult with State, local, and Tribal gov-
sistance on locally-identified conservation pri-
ernments; the private sector; the public; and
ority areas, and to areas where agricultural
other Federal agencies in preparing a land use
and natural resource management improve-
management plan for the Monument.
ments will help meet water quality goals. The
law provides $200 million in 1998 ($1.3 billion Reinventing Regulation: In March 1995,
from 1996 to 2002) for EQIP, dedicating half the President announced a comprehensive pro-
of the funds to conservation associated with gram to improve the regulatory system and
smaller livestock operations. It also authorizes move toward a better environmental manage-
the Wildlife Habitat Incentives Program to ment system for the 21st Century. One promi-
help landowners improve wildlife habitat on nent element is Project XL (for Excellence and
private lands. Leadership), which fulfills the President’s chal-
Enhancing the National Park System: lenge to EPA and industry to make it easier
Although the budget provides higher funding for businesses to better protect the environ-
for parks, available resources can barely keep ment. This national pilot program enables a
up with the system’s new responsibilities and limited number of regulated entities to adopt
with ongoing needs to maintain an aging infra- alternative strategies to current regulations, as
structure. Consequently, the National Park long as they produce superior environmental
Service is using creative new approaches to results.
manage the parks, enabling it to protect our For example, Intel’s new computer chip
natural and cultural treasures with limited re- manufacturing plant in Chandler, Arizona—
sources. which recently signed a Project XL agreement
The 1996 Omnibus Parks and Public Lands with EPA—will adopt a five-year Environ-
Management Act includes several examples mental Management Plan that outlines specific
of these creative approaches. It will, for steps to meet tough standards of superior
instance, establish the Tallgrass Prairie Na- environmental performance. The agreement
tional Preserve in Kansas as a partnership will eliminate the red tape of the normal
with a private group that owns most of permit modification process, enabling Intel
the land—at far less cost than establishing to quickly change its manufacturing operations
a traditional park. Also, at the Presidio and, in turn, better compete in its fast-
in San Francisco, a government corporation paced industry.
3. PROTECTING THE ENVIRONMENT 69

Establishing Performance Partnerships: servation and development, it should more


In April 1996, Congress enacted the Presi- fully utilize HCPs. As a result, from 1993 to
dent’s proposal for EPA Performance Partner- 1997, the number of HCPs issued or under
ship Grants, allowing States or Tribes to com- development soared to 300—covering 8.4 mil-
bine several categorical grants—each of which lion acres in the Pacific Northwest alone.
addresses only air, water, hazardous waste, or
Creating Sustainable Fisheries: Last Oc-
similar programs—into a multimedia environ-
tober, the President signed the Sustainable
mental grant. Twenty States used this ap-
Fisheries Act, reinventing the way the Nation
proach in 1996, and 24 States have expressed
addresses the problems facing its commercial
interest for 1997. As more States recognize the
and recreational fisheries. The Act brings the
benefits, we expect most, if not all, to partici-
Nation closer to achieving the vast long-term
pate. The grants build on the National Envi-
benefits of sustainable fisheries with new
ronmental Performance Partnership System,
measures to prevent overfishing and to ensure
which EPA established with the States in 1995
that already depressed stocks are rebuilt to
to give them more leeway to achieve environ-
levels that produce maximum sustainable
mental results and emphasize less-intensive
yields. The Act also establishes a new national
EPA oversight for States that show strong per-
standard to minimize the unintentional catch
formance. Six States participated in 1996 and
of non-target fish, and highlights the long-term
28 more have expressed interest for 1997.
importance of habitat to fish stocks by requir-
Restoring the Everglades: The budget sup- ing fishery management plans to identify es-
ports the continued Federal, State, local, and sential fish habitat.
Tribal efforts to implement the restoration
Protecting the Northwest Forests: The
project for the South Florida ecosystem, which
President’s Forest Plan—a balanced, science-
the Administration began in 1993 and which
based blueprint—is protecting natural re-
Congress authorized in the 1996 Water Re-
sources and providing new economic opportuni-
sources Development Act. During 1999, the
ties in the Pacific Northwest. It represents the
Army Corps of Engineers will complete the
first region-wide application of ecosystem man-
Central and Southern Florida Comprehensive
agement on the part of Federal, State, and
Review Study, providing long-term direction
local agencies; Tribes; non-governmental orga-
for restoration efforts.
nizations; and individuals. The Administration
Along with improved water management, is offering sustainable volumes of timber sales,
the budget recognizes the need for more restoring thousands of acres of key habitat and
science and for land acquisition to restore watersheds, providing training and short-term
the Everglades’ hydrologic functions. The Ad- jobs to displaced timber workers, spurring
ministration is re-proposing a four-year, $100 small business through grants and job train-
million-a-year Everglades Restoration Fund ing, and strengthening local economies. The
to provide a steady source of funding, mainly Federal Government plans to spend $369 mil-
for land acquisition. It is also re-proposing lion in the region in 1997 through the coordi-
a one-cent per pound assessment on Florida- nated efforts of 12 Federal agencies, and the
produced sugar to help finance the Fund. budget proposes to increase this level of sup-
The budget proposes $331 million, 163 percent port to $408 million in 1998.
more than Congress approved in 1997.
The recent expiration of the July 1995
Making the Endangered Species Act timber ‘‘rider’’ to a 1995 spending bill restores
Work: The Endangered Species Act (ESA) public participation in the salvage timber
gives Federal, State, and local governments, program. As the timber program again faces
and the private sector the flexibility to protect the full range of environmental laws, the
endangered species and conserve habitat, Administration will address the concerns that
while allowing for development, by establish- its 1996 Interagency Salvage Review Report
ing Habitat Conservation Plans (HCPs). From identified. The budget modifies the use of
1983 to 1992, such parties created only 14 the Forest Service Salvage Sale Fund, estab-
HCPs. But the Administration recognized that, lishes a new Forest Ecosystem Management
to reduce conflict between the needs of con- Fund, and provides more funding for wildlife
70 THE BUDGET FOR FISCAL YEAR 1998

and fish management (especially sensitive Environmental and Natural Resource


species), watershed improvements, and mon- Investments
itoring.
The budget proposes to boost funding for
Saving Yellowstone Park: To protect Yel- high-priority environmental and natural re-
lowstone, the Federal Government last August sources programs to levels that would be
agreed to exchange Federal land or other as- 17 percent over those in place when the
sets for Crown Butte, Inc.’s interest in the President took office (see Table 3–1).
New World Mine. The development of the gold
Kalamazoo Initiative: The President an-
mine posed a severe environmental threat to
nounced a new national commitment last Au-
Yellowstone’s unique landscape and wildlife re-
gust to protect communities from toxic pollu-
sources. The agreement protected Crown
tion by the year 2000, and the budget provides
Butte’s property rights while preserving one
almost $800 million in 1998 to help carry it
of the crown jewels of the National Park Sys-
out. The key components are:
tem. Following the exchange with the Federal
Government, Crown Butte will dedicate $22 • Accelerating Superfund Cleanups: The
million to clean up contamination at the site budget proposes $2.1 billion for Superfund,
from earlier mining activities. The Administra- including a $650 million increase over
tion is working to identify appropriate assets 1997 to begin meeting the President’s
to execute the agreement, and to appraise pledge to nearly double the pace of
their value in order to ensure a fair exchange. Superfund cleanups (see Chart 3–1). The
Administration proposes to clean up an-
Protecting Headwaters Forest: The Fed-
other 500 sites in the next four years,
eral Government and California agreed in Sep-
meaning that about two-thirds of the Na-
tember 1996 to negotiate an exchange of land
tion’s worst toxic waste dumps would be
and other assets with a private company, ena-
cleaned up by the year 2000. To ensure
bling them to jointly acquire 7,500 acres, in-
available funding, the budget proposes to
cluding the Headwaters Grove in northern
extend the Superfund taxes that have ex-
California—the largest privately-owned grove
pired. The budget also funds the ‘‘orphan
of old-growth redwoods—to protect it from tim-
share’’ cleanup costs, which are attrib-
ber harvesting. The negotiations involve com-
utable to insolvent parties.
plex issues, including asset appraisals and the
development of Habitat Conservation Plans for • Expanding Brownfields Redevelopment
endangered species. The Administration be- Initiative: The budget proposes a major ex-
lieves that all parties are working in good faith pansion of the President’s brownfields ini-
to negotiate a fair and equitable exchange, and tiative, which promotes local cleanup and
is fully committed to taking all necessary steps redevelopment, by providing a $75 million
to reach a successful conclusion. increase. First, the budget proposes that
EPA receive a $50 million increase, to
Providing a Fair Return for Taxpayers:
nearly $88 million, to expand grants to
The Administration proposes a five-percent
communities for site assessment and rede-
royalty fee on the ‘‘net smelter return’’ from
velopment planning, and to support re-
producing hardrock minerals on Federal lands.
volving loan funds to finance brownfield
The royalties would go into a new reclamation
cleanup efforts of contaminated and aban-
fund to finance the restoration of abandoned
doned urban properties at the local level.
mine sites on Federal lands. The budget also
Second, the budget proposes $25 million
proposes to eliminate the percentage depletion
in Department of Housing and Urban De-
tax allowance for non-fuel mineral rights ac-
velopment funding to leverage State, local,
quired from the Federal Government for only
and private funds to redevelop the
nominal cost under the 1872 Mining Act. In
cleaned-up sites and create jobs. Also, the
addition, the budget would continue the mora-
President again proposes a targeted tax
torium on patenting hardrock mineral rights
incentive to spur the cleanup of brownfield
on Federal lands.
sites.
3. PROTECTING THE ENVIRONMENT 71

Table 3–1. ENVIRONMENTAL/NATURAL RESOURCE INVESTMENTS AND OTHER HIGH-


PRIORITY PROGRAMS
(Discretionary budget authority unless otherwise noted; dollar amounts in millions)

Percent Percent
1993 1997 1998 Change: Change:
Actual Estimate Proposed 1993 to 1997 to
1997 1998

Environmental Protection Agency (EPA):


Operating Program ................................................................................................ 2,767 3,109 3,402 +12% +9%
State Revolving Funds (SRFs):
Clean Water1 ..................................................................................................... 1,928 625 1,075 –68% +72%
Drinking Water 1 ................................................................................................ — 1,275 725 NA –43%
Superfund ............................................................................................................... 1,589 1,394 2,094 –12% +50%
Other ...................................................................................................................... 639 396 349 –38% –12%

Subtotal, EPA ................................................................................................. 6,923 6,799 7,645 –2% +12%


Department of the Interior (DOI):
National Park Service Operating Program ......................................................... 984 1,155 1,220 +17% +6%
Bureau of Land Management Operating Program ............................................. 638 673 688 +5% +2%
Fish and Wildlife Service Operating Program .................................................... 531 524 562 –1% +7%

Subtotal, DOI (Select programs) ...................................................................... 2,153 2,352 2,470 +9% +5%
Department of Agriculture (USDA):
Forest Service Operating Program ...................................................................... 1,319 1,275 1,342 –3% +5%
Investment Non-Operating Program (NW Forest Plan, infrastructure, other) 276 241 211 –13% –12%
Rural Water and Wastewater 2 ............................................................................ 508 565 555 +11% –2%
Wetlands ................................................................................................................ 115 212 213 +84% +*%
Environmental Quality Incentives Program (Mandatory) ................................. — 200 200 NA +*%
Wetlands Reserve Program (Mandatory) ............................................................ — 128 176 NA +38%
Conservation Reserve Program (Mandatory) ...................................................... 1,579 1,862 1,943 +18% +4%

Subtotal, USDA (Select programs) ................................................................... 3,797 4,483 4,640 +18% +4%
Land Acquisition: LWCF (DOI/USDA) and Everglades Restoration
Fund (DOI) ........................................................................................................... 286 149 301 –48% +102%
Other Everglades Restoration (DOI, Corps, USDA, DOC, EPA) ................ 70 114 196 +63% +72%
Department of Energy (DOE):
Energy Conservation and Efficiency .................................................................... 592 550 688 –7% +25%
Solar and Renewable Energy R&D ...................................................................... 257 270 330 +5% +22%
Federal Facilities Cleanup (Environmental Management) ................................ 6,396 6,027 7,246 –6% +20%

Subtotal, DOE (Select programs) ..................................................................... 7,245 6,847 8,264 –5% +21%
Department of Defense (DOD):
Cleanup .................................................................................................................. 1,604 2,043 2,114 +27% +3%
Environmental Compliance/Pollution Prevention/Conservation ........................ 2,227 2,411 2,486 +8% +3%
Environmental Technology ................................................................................... 393 182 171 –54% –6%

Subtotal, DOD (Select programs) ..................................................................... 4,224 4,636 4,771 +10% +3%
Department of Commerce (DOC)/National Oceanic and Atmospheric
Administration (NOAA):
Fisheries and Protected Species ........................................................................... 232 297 313 +28% +5%
Ocean and Coastal Management ......................................................................... 121 128 154 +6% +20%
Ocean and Atmospheric Research ........................................................................ 138 222 223 +61% +*%

Subtotal, DOC/NOAA (Select programs) ......................................................... 491 647 690 +32% +7%
California Bay-Delta Ecosystem Rest. (DOI, DOC, EPA, Corps, USDA) 20 70 213 +250% +204%
Pacific Northwest Forest Plan (USDA, DOI, EPA, DOC, DOL) .................. — 369 408 NA +11%
Army Corps of Engineers Regulatory Program (wetlands) ........................ 86 101 112 +17% +11%
Partnership for a New Generation of Vehicles (DOE, DOC, NSF, EPA,
DOT) ...................................................................................................................... — 263 281 NA +7%
U.S. Global Change Research (NASA, DOE, NSF, DOC, others) ................ 1,464 1,810 1,878 +24% +4%
Climate Change Action Plan (EPA, DOE, USDA) .......................................... — 183 277 NA +51%
GLOBE—Global Environmental Education (DOC, NASA, EPA, NSF) ..... — 13 15 NA +15%
Montreal Protocol (State/EPA) ........................................................................... 25 40 49 +60% +23%
Global Environment Facility (Treasury) ......................................................... — 35 100 NA +186%
Multilateral and Bilateral Assistance (Funds Appropriated to the
President/AID) .................................................................................................... 272 264 314 –3% +19%
Border Environmental Activities (State/Treasury) ...................................... 30 83 88 +177% +6%

Total 3 ................................................................................................................. 25,295 26,334 29,485 +4% +12%


1 Reflects
a one time transfer of clean water funds to drinking water in 1997.
2 Excludes funding for Rural Community Advancement Program grants to States; 1998 funding would be nine percent higher otherwise.
3 Totaladjusted to eliminate double counts and mandatory spending.
NA = Not applicable.
*Less than 0.5 percent.
72 THE BUDGET FOR FISCAL YEAR 1998

Chart 3-1. MAJOR PROGRESS IN SUPERFUND CLEANUPS


CUMULATIVE COMPLETIONS
900
900
250
800
705
700
115
600 555 650

475 590
500 540
410
400 346
278
300
217
200 149

100

0
THROUGH 1992 1993 1994 1995 1996 1997 1998 1999 2000

CUMULATIVE COMPLETIONS CUMULATIVE COMPLETIONS


(WITHOUT KALAMAZOO INITIATIVE) (WITH KALAMAZOO INITIATIVE)

• Improving Americans’ Right to Know Within the operating program, the budget
About Toxics: The budget proposes $49 proposes important increases to carry out
million to expand the information that recently-enacted legislation to protect drinking
people can get about toxic threats to their water and food quality. It proposes significant
families—without imposing more reporting investments to assess the health risks to
requirements on anyone. It would make children, identify new ways to apply advanced
the information available for the 75 larg- technology to environmental needs, and pro-
est metropolitan areas in the country vide urban areas with tools to develop commu-
through a comprehensive monitoring sys- nity-based solutions to environmental issues.
tem, with computer links to schools, librar- It also maintains a strong environmental
ies, and home computers. enforcement program to ensure that polluters
find an environmental cop on the beat, and
EPA Operating Program: The budget pro-
fully funds EPA’s part of the Climate Change
poses $3.4 billion, a nine-percent increase over
Action Plan.
1997, for EPA’s operating program, which in-
cludes most of EPA’s research, regulatory, Water Quality Infrastructure: The budget
partnership grants (with States and Tribes), proposes $725 million in capitalization grants
and enforcement programs. The program rep- for the new Drinking Water State Revolving
resents the backbone of the Nation’s efforts Funds (SRFs), which make low-interest loans
to protect public health through standard set- to municipalities to help them meet the re-
ting, enforcement, and other means, ensuring quirements of the new Safe Drinking Water
that our water is pure, our air clean, and our Act Amendments. These funds will help ensure
food safe. that Americans have a safe, clean drinking
3. PROTECTING THE ENVIRONMENT 73

water supply—our first line of defense in pro- the fully authorized amount under the 1996
tecting public health. law for 1999 and 2000.
EPA also proposes $1.1 billion in capitaliza- Wetlands Reserve Program (WRP): The
tion grants to Clean Water SRFs to help WRP is a voluntary USDA program in which
municipalities comply with the Clean Water willing sellers receive the fair market value
Act, thus helping to reduce beach closures to permanently retire wetland acres from farm
and keeping our waterways safe and clean. production. Under the 1996 Farm Bill, WRP
In addition, the budget proposes targeted will use permanent easements on one-third of
wastewater funds for areas facing unique the acres enrolled, 30-year easements on an-
circumstances—$100 million for Boston Har- other third, and cost-sharing agreements on
bor, $150 million for Mexican border projects, the remaining third. In this last category,
and $15 million for Alaskan Native villages. landowners will agree to restore wetlands on
The Administration will request a final $100 cropland without an easement, receiving only
million of special Federal assistance for Boston cost-sharing assistance. For 1998, the budget
Harbor for 1999—provided EPA finds that proposes to enroll 212,000 acres, an increase
the project still requires the funds. of 82,000 acres over 1997, bringing cumulative
WRP enrollment to over 655,000 acres by the
Department of Agriculture (USDA)
end of 1998. Retiring cropland through the
Water 2000: The budget proposes to continue
WRP will directly benefit the recovery of
funding the USDA’s Water 2000 initiative—
threatened or endangered species, almost 35
to bring safe drinking water to 2.5 million
percent of which depend on wetlands (see
rural Americans with some of the Nation’s
Chart 3–2).
most serious problems of water availability, de-
pendability, and quality—within its $1.3 bil- Conservation Reserve Program (CRP):
lion for rural water and wastewater loans and The CRP pays producers to temporarily retire
grants. In addition, the budget proposes to from production environmentally sensitive
fund, through the Rural Community Advance- lands. Producers sign 10-year CRP contracts
ment Program (RCAP), rural development and agree to convert their enrolled acres to
grants that States can use to meet their par- approved conservation uses, receiving rental
ticular rural development needs. With pro- payments in return. After the contracts expire,
posed RCAP funding eight percent above the producers can return lands back to production.
1997 levels, the Administration expects to fund The 1996 Farm Bill enables USDA to maintain
227 new water treatment systems in 1998. a 36-million-acre CRP, or roughly the current
CRP level. Contracts on about 21 million acres
California Bay-Delta Ecosystem Restora-
will expire in 1997 and USDA will hold a sign-
tion: In December 1994, Federal and Califor-
up to begin to replace them in early spring
nia officials signed the historic Bay-Delta Ac-
1997. Through new program rules, the Admin-
cord, calling for a comprehensive series of
istration will seek to enroll land with the high-
steps to restore and protect the San Francisco
est environmental benefits and release from
Bay and the Sacramento-San Joaquin Delta
the CRP less erodible land that is better suited
ecosystem while strengthening the State’s
for production. CRP’s benefits have been sig-
long-term economic health. With Administra-
nificant—after falling by 35 to 50 percent in
tion support, Congress then adopted the Cali-
the 1970s and 1980s, wild-duck populations
fornia Bay-Delta Environmental Enhancement
bounced back with a 12-percent increase in
and Water Security Act in 1996 to authorize
the mid-1990s.
more Federal spending for restoration activi-
ties in the ecosystem. Later that year, Califor- National Parks: The budget proposes over
nia voters approved a $995 million bond issue $1.2 billion for park operations and mainte-
to cover State cost-sharing for past and future nance, six percent more than in 1997. This
Bay-Delta restoration and other water-related level would maintain current services at exist-
activities. The budget proposes $213 million ing parks and support commitments for new
for Bay-Delta ecosystem restoration activities, parks and responsibilities under the 1996 Om-
a 204-percent increase over 1997. As it did nibus Parks and Public Lands Management
for 1998, the Administration plans to request Act. Budgeted funds alone, however, cannot
74 THE BUDGET FOR FISCAL YEAR 1998

Chart 3-2. USDA WETLANDS CONSERVATION

ACRES IN THOUSANDS

1100

1000 975

900

800

700 655
CUMULATIVE
600 WETLANDS

500

400
313
300
212
200
154
129 130
100 94 80 80 80 80
42
0 0
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

ANNUAL WRP ACRES ANNUAL EMERGENCY WRP ACRES

meet the growing demand for recreational and have declined so much that the Commerce De-
visitor services, as illustrated in Chart 3–3. partment’s National Marine Fisheries Service
lists three runs as endangered. The Adminis-
Consequently, the Administration is using
tration has supported a regional bipartisan ef-
its temporary demonstration fee authority fort to help restore the runs, including a sta-
to finance facility and resource management ble, multi-year contribution from the Bonne-
improvements. Not only do user fees raise ville Power Administration’s (BPA) customers
funds for repairs and improvements that because BPA’s hydro-power operation has
enhance the visitor experience, they give helped to foster the decline. The Administra-
parks an incentive to please their customers tion is carrying out an agreement with con-
by improving their facilities and operations. gressional and regional interests under which
The Administration will seek permanent fee BPA customers would pay, on average, up to
authority and legislation to reform park con- $435 million a year for salmon recovery.
cessions—to increase competition between
companies that want to conduct business The budget also provides funds to fully
in the parks, and to give parks an added implement the 1992 Elwha River Ecosystem
incentive to negotiate higher returns from and Fisheries Restoration Act. The Elwha
concessioners by allowing the National Park River, a major waterway within Olympic
Service to keep all new receipts. National Park in Washington State, holds
tremendous potential for restoring abundant
Salmon Recovery: Salmon runs throughout salmon runs. The budget provides $25 million
the Pacific Northwest are a major part of the in funding for 1998—enough to complete
region’s ecosystem and economy. Salmon runs acquisition of the river’s two dams and perform
that originate in the Columbia/Snake River planning and design activities associated with
3. PROTECTING THE ENVIRONMENT 75

Chart 3-3. RECREATIONAL VISITS TO SELECT FEDERAL LANDS


MILLIONS

800
709
700
606

600
512 522

500 436
401

400

300

200

100

0
1970 1975 1980 1985 1990 1995
Note: Includes National Park Service, Fish & Wildlife Service, Bureau of Land Management, and Forest Service.

their removal—and seeks future-year funding change, massive extinction of valuable species,
at levels that would complete dam removal and dramatic collapse of the oceans’ fish popu-
and river restoration. lation. The $100 million budget proposal would
meet the 1998 portion of the U.S. pledge to
Multilateral and Bilateral Environ-
the GEF’s four-year (1995–1998) funding pro-
mental Assistance: The budget proposes $314 gram, and doing so is vital to maintaining U.S.
million, 19 percent more than in 1997, for bi- leadership of the program.
lateral and multilateral environment assist-
ance. Bilateral assistance includes Agency for Energy Efficiency and Renewable En-
International Development activities to ad- ergy: The budget proposes $688 million for en-
dress climate change, biodiversity, and sus- ergy conservation and efficiency programs, and
tainable agriculture in developing countries. $330 million for solar and renewable energy
Multilateral assistance funds U.S. voluntary programs, increases of 25 percent and 22 per-
contributions to the U.N. environment system cent, respectively. These Energy Department
and other international organizations to ad- (DOE) programs reduce greenhouse gases and
dress various international environmental ac- other pollutants by increasing energy efficiency
tivities. and expanding the use of non-fossil-based en-
ergy sources. The energy conservation pro-
Global Environment Facility (GEF): U.S. grams include both near-term efforts to dem-
participation in the GEF is a cornerstone of onstrate and promote the best available tech-
U.S. foreign policy on the environment. The nologies, and longer-term efforts to develop
GEF has become the world’s leading institu- breakthrough technologies and products. A
tion for protecting the global environment and prominent example of the latter is the Partner-
avoiding economic disruption from climate ship for a New Generation of Vehicles, a joint
76 THE BUDGET FOR FISCAL YEAR 1998

government-industry effort to develop cars ate the Formerly Used Sites Remedial Actions
with triple the fuel economy of today’s models. Program (FUSRAP), which is cleaning up
The solar and renewable energy research and private properties contaminated during the
development activities include substantial sup- weapons production process in order to allow
port for reducing the costs of photovoltaics, their speedier return to productive use. By
wind energy, and biofuels. the end of 1998, DOE will complete clean-
Federal Facilities Cleanup and Compli- up at 28 of 46 FUSRAP sites and 44
ance: The Federal Government continues to of 86 other DOE sites and facilities.
face an enormous challenge in cleaning up DOD, which operates one of the Nation’s
Federal facilities contaminated with radio- most diverse and successful environmental
active or hazardous waste. DOE faces the most programs, is focusing its cleanup efforts on
complex and costly problems from over 40 reducing relative risk at its active and closing
years of research, production, and testing of installations. It is conducting studies or clean-
nuclear weapons. The Defense Department’s ups at 15,240 sites on 770 military installa-
(DOD) problems include hazardous wastes tions and 2,641 formerly-used properties.
similar to those found at industrial and com- Moreover, it has determined that 10,970
mercial sites.
other sites require no further action. DOD
The budget proposes over $7.2 billion for also is making real progress in its compliance/
DOE’s Environmental Management program, pollution prevention, conservation, and envi-
20 percent more than in 1997, including ronmental technology programs. The budget
over $1 billion to implement a privatization proposes over $4.7 billion for all DOD environ-
strategy to cut costs and speed cleanup mental activities, three percent more than
and waste disposal. In 1998, DOE will acceler- in 1997.
4. PROMOTING RESEARCH

. . . We must harness the remarkable forces of science and technology that are remaking our
world. . . . We can make this age of science and technology a true age of possibility for all the
American people, but we must invest in it and do it wisely if we expect to get a return.
President Clinton
December 11, 1996

Technological innovation has accounted for private investment in innovative S&T. The
at least half of the Nation’s productivity budget continues the record of S&T investment
growth in the last 50 years. We enjoy the that has helped to keep the economy strong
fruits of this innovation every day in the over the last four years.
many technologies that we have come to
depend on for our way of life—including The Federal Role in S&T
lasers, computers, x-rays, teflon, weather and
communication satellites, jet aircraft, micro- The post-Cold War era is one of intense
wave ovens, solar-electric cells, human insulin, global economic competition. The United
and a plethora of pharmaceutical products. States also faces new national security chal-
These advances have generated millions of lenges, including the proliferation of nuclear
high-skilled, high-wage jobs and significantly and biological weapons, regional conflicts,
improved the quality of life for Americans. threats from environmental degradation, and
emerging infectious diseases.
Because our investments in science and
technology (S&T) have paid such rich divi- Thus, the Federal Government has an indis-
dends, U.S. leadership in S&T is a cornerstone pensable role to play in investing in S&T—
of the President’s vision for America. Thus, a role critical to the country’s economy,
the budget continues these vital S&T invest- national security, environment, health, and
ments—investments that contribute signifi- other social needs. This is especially true
cantly to many of the Administration’s broader when the risk is too great for individual
goals, including creating new knowledge, train- companies to make the needed investment,
ing our workers, creating new jobs and indus- or when the public benefit is large but
tries, solving our many health challenges, private return is small. Our Nation also
enhancing our ability to address environ- must support a balanced mix of S&T invest-
mental issues, improving our ability to teach ments (i.e., basic research, applied research,
our children, and maintaining a strong, capa- and technology development), because the
ble national defense. steps involved in scientific discovery and
technological innovation are so profoundly
Specifically, the budget adds funds for interwoven.
basic research in health sciences at the
The Administration has initiated or ex-
National Institutes of Health (NIH), for basic
panded public-private partnerships to spur
research and education at the National Science
innovations with broad economic impact. These
Foundation (NSF), for research at other agen-
partnerships have traditionally served our
cies that depend on S&T for their missions,
Nation well, not only in building transpor-
and for cooperative projects with industry
tation infrastructure (e.g., highways, airways,
and universities.
harbors, and railroads), but in nurturing
As the President has said, we need to new types of technological infrastructure (e.g.,
balance the budget in a way that boosts the Internet, global positioning satellites, and
economic growth and encourages public and environmental monitoring systems). They also
77
78 THE BUDGET FOR FISCAL YEAR 1998

enable the private sector to translate new health, environment, national security, and
knowledge into novel technologies that benefit education goals. This chapter describes the
its bottom line as well as society at large. contributions in greater detail. Overall re-
search and development investment totals
Science and Technology Highlights are displayed in Table 4–1, while selected
S&T highlights are displayed in Table 4–2.
As noted above, S&T investments contribute
significantly to the Administration’s economic,
Table 4–1. RESEARCH AND DEVELOPMENT INVESTMENTS
(Budget authority, dollar amounts in millions)

Dollar Percent
1993 1997 1998 Change: Change:
Actual Estimate Proposed 1997 to 1997 to
1998 1998

By Agency:
Defense ..................................................................................................... 38,898 37,461 36,780 –681 –2%
Health and Human Services .................................................................. 10,472 12,933 13,478 +545 +4%
National Aeronautics and Space Administration ................................. 8,873 9,314 9,603 +289 +3%
Energy 1 .................................................................................................... 6,896 6,186 7,312 +1,126 +18%
National Science Foundation ................................................................. 2,012 2,458 2,553 +95 +4%
Agriculture ............................................................................................... 1,467 1,545 1,485 –60 –4%
Commerce ................................................................................................ 793 1,050 1,115 +65 +6%
Interior ..................................................................................................... 649 581 605 +24 +4%
Transportation ......................................................................................... 613 639 754 +115 +18%
Environmental Protection Agency ......................................................... 511 504 555 +51 +10%
Other ........................................................................................................ 1,308 1,150 1,229 +79 +7%

Total ........................................................................................................ 72,492 73,821 75,469 +1,648 +2%

By R&D Theme:
Basic Research ......................................................................................... 13,362 14,885 15,303 +418 +3%
Applied Research ..................................................................................... 13,608 14,529 15,159 +630 +4%
Development ............................................................................................ 42,795 42,153 41,636 –517 –1%
Equipment 2 ............................................................................................. NA 937 960 +23 +2%
Facilities 1,2 ............................................................................................... 2,727 1,317 2,411 +1,094 +83%

Total ........................................................................................................ 72,492 73,821 75,469 +1,648 +2%

By Civilian Theme:
Basic Research ......................................................................................... 11,951 13,747 14,112 +365 +3%
Applied Research ..................................................................................... 9,130 10,469 11,125 +656 +6%
Development ............................................................................................ 7,269 7,860 8,117 +257 +3%
Equipment 2 ............................................................................................. NA 492 506 +14 +3%
Facilities 2 ................................................................................................ 1,979 984 1,128 +144 +15%

Subtotal .................................................................................................... 30,329 33,552 34,988 +1,436 +4%


By Defense Theme:
Basic Research ......................................................................................... 1,411 1,138 1,191 +53 +5%
Applied Research ..................................................................................... 4,478 4,060 4,034 –26 –1%
Development ............................................................................................ 35,526 34,293 33,519 –774 –2%
Equipment 2 ............................................................................................. NA 445 454 +9 +2%
Facilities 1,2 .............................................................................................. 748 333 1,283 +950 +285%

Subtotal .................................................................................................... 42,163 40,269 40,481 +212 +1%


By R&D Share:
Defense ..................................................................................................... 42,163 40,269 40,481 +212 +1%
Civilian ..................................................................................................... 30,329 33,552 34,988 +1,436 +4%

Total ........................................................................................................ 72,492 73,821 75,469 +1,648 +2%


Civilian (percent) ........................................................................................ 42 45 46 NA NA
R&D Support to Universities ............................................................... 11,674 12,979 13,268 +289 +2%
Merit (Peer) Reviewed R&D Programs ............................................. NA 22,220 22,717 +497 +2%
NA = Not applicable.
1 1998 estimates reflect an extra $1 billion for Department of Energy (DOE) facilities acquisition (primarily in defense) as part of DOE’s
move to fully funding acquisitions up front.
2 Equipment and Facilities were not collected separately in 1993.
4. PROMOTING RESEARCH 79

Table 4–2. SELECTED SCIENCE AND TECHNOLOGY HIGHLIGHTS


(Budget authority, dollar amounts in millions)

Dollar Percent
1993 1997 1998 Change: Change:
Actual Estimate Proposed 1997 to 1997 to
1998 1998

National Science Foundation ............................................................... 2,734 3,270 3,367 +97 +3%


National Institutes of Health ............................................................... 10,326 12,741 13,078 +337 +3%
Environmental Protection Agency:
Particulate matter in ambient air research .......................................... NA 19 26 +7 +37%
Science to achieve results ....................................................................... NA 95 115 +20 +21%
National Aeronautics and Space Administration:.
International Space Station ................................................................... 2,262 2,149 2,121 –28 –1%
Mission to Planet Earth .......................................................................... 1,062 1,362 1,417 +55 +4%
Space science ........................................................................................... 1,756 1,971 2,044 +73 +4%
X-33 reusable launch vehicle technology program ............................... NA 245 330 +85 +35%
Aeronautics initiative .............................................................................. 129 417 456 +39 +9%
Department of Energy:
Science-based stockpile stewardship ..................................................... NA 1,439 1,444 +5 +*%
Civilian basic science programs ............................................................. 2,583 2,035 2,067 +32 +1%
Large Hadron Collider project ............................................................... NA 15 35 +20 +133%
Department of Commerce:
Advanced Technology Program .............................................................. 68 225 275 +50 +22%
Manufacturing Extension Partnerships ................................................ 18 95 129 +34 +36%
National Information Infrastructure ..................................................... NA 22 36 +14 +64%
Department of Defense: Dual Use Application Program .................... NA 181 225 +44 +24%
Department of Agriculture: National Research Initiative 98 94 130 +36 +38%
Department of Transportation: Intelligent Transportation Infra-
structure ................................................................................................... 143 235 250 +15 +6%
National Science and Technology Council initiatives:
High performance computing and communications: 1
Defense ................................................................................................. 298 334 357 +23 +7%
Health and Human Services ............................................................... 47 90 97 +7 +8%
National Aeronautics and Space Administration .............................. 82 114 128 +14 +12%
Energy .................................................................................................. 100 117 152 +35 +30%
National Science Foundation .............................................................. 233 278 294 +16 +6%
Commerce ............................................................................................. 12 32 35 +3 +9%
Transportation ..................................................................................... NA 20 25 +5 +25%
Education ............................................................................................. NA 12 12 +* +*%
Veterans ............................................................................................... NA 22 22 +* +*%
Environmental Protection Agency ...................................................... NA 6 6 +* +*%

Subtotal .................................................................................................... 772 1,025 1,128 +103 +10%


U.S. global change research program: 2
Health and Human Services ............................................................... 1 4 4 +* +*%
National Aeronautics and Space Administration .............................. 1,062 1,362 1,417 +55 +4%
Energy .................................................................................................. 118 112 110 –2 –2%
National Science Foundation .............................................................. 124 164 166 +2 +1%
Agriculture ........................................................................................... 55 57 61 +4 +7%
Commerce ............................................................................................. 66 60 62 +2 +3%
Interior ................................................................................................. 38 29 29 +* +*%
Environmental Protection Agency ...................................................... NA 14 21 +7 +50%
Smithsonian ......................................................................................... NA 7 7 +* +*%
Tennessee Valley Authority ................................................................ NA 1 1 +* +*%

Subtotal .................................................................................................... 1,464 1,810 1,878 +68 +4%


Partnership for a new generation of vehicles ........................................... NA 263 281 +8 +7%
Construction and building .......................................................................... NA 176 203 +27 +15%
Educational technology ............................................................................... NA 499 524 +25 +5%
Emerging infectious diseases research ..................................................... NA 260 280 +20 +8%

NA = Not collected in this year.


* Less than $500 thousand or 0.5 percent.
1 Listing by agency required by law; estimates include $100 million in 1998 for the Next Generation Internet.
2 Listing by agency required by law.
80 THE BUDGET FOR FISCAL YEAR 1998

Increasing Total Support for Science Partnerships to help small businesses battle
and Technology: This budget marks the fifth foreign competition by adopting modern tech-
straight year that the President has proposed nologies and production techniques; and for
increases in research and development other programs.
(R&D)—at $75.5 billion, $1.6 billion or two
Investing in Environmental Research:
percent more than in 1997.1 Continuing pre-
vious efforts, the budget also provides an in- S&T investments are critical for enhancing en-
creasing share for civilian R&D investments, vironmental quality and assuring a sustain-
with those investments at 46 percent of the able future. While the Nation is making
total. progress on many pollution fronts, emerging
global environmental problems pose new risks.
Boosting Funding for Basic Research The budget maintains vital research to provide
and Applied Research: The budget proposes safe food, clean air, and pure water. It sup-
$15.3 billion for basic research and $15.2 bil- ports programs to increase energy efficiency
lion for applied research—increases of $418 and the development of renewable energy
million and $630 million over 1997, respec- sources that cut demand for foreign oil and
tively. These investments, which include in- reduce greenhouse emissions, and partnerships
creases of three percent each for NIH and with industry to develop cars that use less
NSF, reflect the Administration’s commitment fuel. The budget invests in programs that pre-
to create new knowledge that will pay eco- serve biological diversity and help us under-
nomic dividends down the road and address stand and prepare for changing climate condi-
many of the health challenges that face the tions and natural disasters. These investments
nation, such as breast cancer. also provide a sound scientific basis for ration-
Strengthening University-Based Re- al rule-making on, and cost-effective imple-
search: University-based research (a mixture mentation of, environmental regulations. (For
of basic, applied, development R&D, equip- information on energy efficiency and renewable
ment, and facilities) is key to America’s future; energy R&D programs, see Chapter 3.)
simultaneously, it provides new knowledge and Investing in a 21st-Century Education:
new technology, and it trains the next genera- Information technology has revolutionized
tion of scientists and engineers. The budget America’s businesses, but it has not been wide-
proposes $13.3 billion for university-based re- ly adopted in America’s classrooms. We must
search, an increase of $289 million over 1997. use this new technology to help children pre-
It also proposes $22.7 billion for merit-re- pare for the challenges of the 21st Century.
viewed research (two percent more than in Building on the experience of earlier Federal
1997), comprising 18 percent of the R&D budg- investment in educational technology, the
et. Increases in merit-reviewed research en- budget includes a second installment for the
sure that the Nation receives the highest qual- President’s new five-year, $2 billion Tech-
ity return on these investments. nology Literacy Challenge Fund to encourage
Investing in Innovation to Create New States and communities, working with private
Jobs and Industries: Many of the new jobs sector partners, to develop and implement
created under this Administration have been plans for fully integrating educational tech-
high-tech, high-wage jobs in industries like nology into their school curricula. (For more
biotechnology and computing—jobs that didn’t information, see Chapter 2.)
exist a decade or two ago. The budget main- Enhancing Programs to Keep Our Na-
tains a strong investment in technology to fos- tion Secure: While the budget continues in-
ter these high-priority civilian S&T industries vestments in defense research that ensure our
and jobs. Funding continues or expands for strong, future military capabilities, it also fos-
high-performance computing research; for the ters key programs to keep nuclear weapons
Advanced Technology Program, which works out of the hands of terrorists, to comply with
with industry to develop high-risk, high-payoff the Comprehensive Test Ban Treaty by using
technologies; for Manufacturing Extension science-based techniques to ensure the safety
1 Research and Development (R&D) is a widely-accepted measure and reliability of our nuclear weapons stock-
of investment in S&T. piles, and to bolster strong international S&T
4. PROMOTING RESEARCH 81

cooperation to improve global stability. The fect human health. It will launch research into
budget also supports the Dual Use Applica- three areas: (1) evaluating the relationship be-
tions Program (DUAP), which puts the tech- tween health effects and PM exposures; (2) de-
nical know-how and economies of scale from termining the amount and size of particles in-
commercial industry at the service of national haled and retained in the lungs; and (3) inves-
defense. tigating biological mechanisms by which PM
concentrations in outdoor air may induce
Agency Highlights
health effects and, in doing so, evaluating po-
National Science Foundation: NSF, rec- tential links between PM exposures and health
ognized world-wide for its high standards of effects.
quality and efficiency, funds proposals based
on a rigorous, competitive process of merit re- Science to Achieve Results (STAR) Program:
view. Reflecting the high quality of NSF- The budget proposes $115 million (21 percent
backed science, NSF supported five of the six more than in 1997) for EPA’s STAR program,
1996 U.S. Nobel prize winners early in their which awards grants and fellowships on the
careers. Alone among Federal agencies, NSF basis of rigorous peer review. The program
has the broad mission of promoting science funds research proposals from scientists out-
and engineering research and education across side the Federal Government that focus on the
all fields and disciplines. It supports nearly most pressing environmental concerns. EPA
half of the non-medical basic research con- funds the proposals independently or in co-
ducted at academic institutions, and provides operation with NSF and other Federal agen-
30 percent of Federal support for mathematics cies.
and science education. Because most NSF
awards go to colleges and universities, they
National Aeronautics and Space
generate knowledge and train the next genera-
Administration (NASA):
tion of scientists and engineers. The budget
proposes $3.4 billion for NSF, three percent NASA has been on the forefront of Adminis-
more than in 1997. tration efforts to reshape the Federal Govern-
National Institutes of Health: The budget ment—to make it work better, cost less,
continues the President’s commitment to bio- and better service its customers, the American
medical research, which promotes the health people. The budget proposes balanced and
and well-being of all Americans. NIH support sustainable funding for NASA over the next
for biomedical research grew by $2.4 billion, five years, permitting NASA not only to
or by 23 percent, between 1993 and 1997. For continue improving its operations but also
1998, the budget proposes $13.1 billion for to support important strategic research efforts,
NIH, a three-percent increase over 1997. NIH’s including the efforts highlighted below:
highest priority continues to be funding inves-
Space Science: The space science program
tigator-initiated, peer-reviewed research
has achieved impressive successes this past
project grants. The budget proposal would en-
year—meteoric evidence of possible life on an-
able NIH to increase HIV/AIDS-related re-
search, research into breast cancer and other cient Mars, the possible detection of water on
health concerns of women, minority health ini- the Moon and a moon of Jupiter, and the iden-
tiatives, high performance computing, preven- tification of possible planets around other
tion research, spinal cord injury, and devel- stars. To build on these successes and imple-
opmental and reproductive biology. ment the President’s directives in his recently-
released space policy, the Administration pro-
Environmental Protection Agency (EPA): poses $2 billion for space science, a four-per-
Particulate Matter (PM) in Ambient Air Re- cent increase over 1997. The additional fund-
search: The budget proposes $26.4 million for ing will enhance NASA’s Origins program,
PM research, a 37-percent increase over 1997. which seeks to understand the creation of the
To reduce the great uncertainty about PM’s universe, stars, solar system, and life, and de-
health effects, EPA will continue its efforts to termine if life once existed or still exists be-
identify the mechanisms by which particles af- yond Earth.
82 THE BUDGET FOR FISCAL YEAR 1998

International Space Station: The Adminis- the National Ignition Facility at the Lawrence
tration continues to support the development Livermore National Laboratory. The President,
of the International Space Station—a U.S.-led who plans to submit the CTBT for Senate rati-
collaborative effort with the European Space fication in 1997, also is committed to funding
Agency, Canada, Japan, and Russia—that will a comprehensive R&D program over the next
provide an unique laboratory to explore inno- decade to improve treaty monitoring capabili-
vative research on materials and biological ties and operations.
processes, on promising new technologies, and
Civilian Basic Science Programs: The Ad-
on how people can live and work in a low-
ministration has designated High Energy and
gravity environment. The budget proposes $9
Nuclear Physics, Basic Energy Sciences, and
billion in advanced, multi-year appropriations
Biological and Environmental Research as
to complete the $17.4 billion Space Station de-
high-priority areas of DOE basic science in
velopment and assembly, helping to ensure
1998. These programs, which have a large uni-
that the program is completed, as promised,
versity-based component, contribute to both
within budget and on schedule.
our national basic research enterprise and to
Mission to Planet Earth (MTPE): MTPE is DOE’s core activities. In addition, these pro-
NASA’s effort to observe, understand, and pre- grams build and operate large user facilities
dict natural and human-induced changes to that serve over 15,000 university, government,
the environment. The budget proposes $1.4 bil- and industry scientists. The budget proposes
lion for MTPE, four percent more than in $2.1 billion in 1998 for these activities.
1997. MTPE programs include the Earth Ob-
Large Hadron Collider Project: When it
serving System satellites, the Landsat sat-
comes on-line in 2005, the Large Hadron
ellite, and a broad range of scientific research
Collider (LHC) at the European high-energy
and data analysis activities.
physics laboratory CERN, in Switzerland, will
X-33 Reusable Launch Vehicle (RLV) Tech- be by far the world’s most powerful accelera-
nology: The budget proposes $719 million in tor. Its scientific goals are to search for the
advanced multi-year appropriations to com- origin of mass, to explore in detail the struc-
plete development of the RLV X-33 test vehi- ture and interactions of the top quark (the
cle, that should dramatically cut the cost of heaviest of the known subatomic particles),
getting into space by demonstrating the use and to probe high-energy conditions beyond
of new materials, reusable components, and the Standard Model—the remarkably success-
new operations management approaches. ful physics theory that describes all the forces
of nature, except gravity. Hundreds of U.S.
Aeronautics Initiative: The budget proposes
high energy physicists plan to participate in
$456 million for NASA’s aeronautics initia-
the LHC project. The Administration proposes
tives, a nine-percent increase over 1997. These
$394 million in advanced, multi-year appro-
initiatives are partnerships with industry and
priations over eight years for DOE, which it
include advanced subsonic technology and high
designated as the lead Federal agency for U.S.
speed research that may revolutionize the next
participation. U.S. funding for the LHC would
generation of commercial aircraft.
support U.S. scientists and technicians, and
Department of Energy (DOE): support the purchase of U.S. goods and serv-
ices necessary for our contribution to con-
Stockpile Stewardship: The President’s com- structing the accelerator and two detectors.
mitment to a Comprehensive Test Ban Treaty
(CTBT) is closely linked to the Administra-
Department of Commerce:
tion’s plan to maintain the safety and reliabil-
ity of the nuclear weapons stockpile through Advanced Technology Program (ATP): ATP
scientific experiments and computer modeling is a rigorously competitive, industry-led, and
(i.e., no explosive testing of nuclear weapons). cost-shared R&D program that fosters tech-
The budget proposes $1.4 billion for Stockpile nology development, promotes industrial alli-
Stewardship activities in 1998, plus $1.3 bil- ances, and creates jobs. ATP pursues tech-
lion for related construction projects. Among nologies that are critical to the competitive po-
these projects, $900 million would go to build sition of U.S. industries, but where the risk
4. PROMOTING RESEARCH 83

is so high that industries will not likely invest safety, plant and animal genetics, water qual-
enough to ensure continued U.S. leadership. ity, integrated pest management, and sustain-
The projects have led to significant technology able food and fiber production systems. Of par-
advances that have improved our daily lives. ticular concern is the need to expand the
With ATP funding, for example, a consortium science base for reducing food-borne illness due
of several large and small companies recently to microbial pathogens and to the many food
developed techniques to make better cars, thus and fiber production practices that contribute
increasing customer satisfaction. The budget to environmental degradation, such as the ex-
proposes $275 million in 1998 for ATP, grow- cessive use of pesticides, fertilizers and tillage.
ing to $500 million by 2002. As a result, the Administration proposes to
The Manufacturing Extension Partnerships target $4 million to expand research in food
(MEP): MEP gives the Nation’s 381,000 small- safety, $10 million to expand research in envi-
er manufacturers the technological information ronmentally sound production practices, and
and expertise to improve their operations. Ex- $22 million to expand research on enhancing
tension centers are helping to improve the per- plants through genetics.
formance of small manufacturers across the Department of Transportation Intel-
country, leading to more sales, more jobs, and ligent Transportation System (ITS) Initia-
savings in labor and materials. The budget tive: The budget proposes $250 million for the
proposes $129 million in 1998 to support 78 ITS initiative—a package of technologies de-
extension centers and over 300 field offices na- signed to enhance the efficiency of our surface
tionwide. transportation infrastructure. The request in-
National Telecommunications and Informa- cludes $100 million for a new Deployment In-
tion Administration National Information In- centives program to encourage integrated im-
frastructure (NII) Grants Program: The budget plementation of ITS. The Administration also
proposes $36 million for grants to help develop proposes to make ITS projects eligible for sur-
the NII, which provides the infrastructure face transportation funds and, in 1997, to com-
that enables computers to connect to one plete 77 operational tests of ITS standards and
another and to information systems across technology and a demonstration of the tech-
the country. These grants help fund innovative nical feasibility of the Automated Highway
demonstration projects to show how informa- System.
tion technology can improve the delivery
of educational, health, and other social serv- National Science and Technology Council
ices. Interagency Initiatives
Department of Defense Dual Use Appli- Next Generation Internet (NGI) Pro-
cations Program: The budget proposes $225 gram: The budget proposes $100 million for
million for DUAP, which will build on previous each of the next three years to support the
Federal dual-use technology development pro- NGI, which seeks to develop a research net-
grams and allow the military services to de- work that can reach speeds 100 to 1,000 times
velop and use technologies, processes, and faster than today’s Internet and greatly im-
products available to the commercial sector. prove the quality of service. The NGI proposal
Dual-use technologies can enhance the per- is a part of an overall request for $1.1 billion,
formance and reduce the costs of military ap- 10 percent more than in 1997, for research
plications. and development in computers and commu-
nications technologies under the rubric of the
Department of Agriculture (USDA) Na-
Administration’s High Performance Computing
tional Research Initiative: The budget pro-
and Communications initiative.
poses a 38-percent increase, to $130 million,
for the National Research Initiative (NRI), U.S. Global Change Research Program
USDA’s major peer-reviewed competitive (USGCRP): The budget continues strong Ad-
grants program. The NRI supports fundamen- ministration support for the USGCRP, propos-
tal research on key agricultural problems that ing $1.9 million for 1998. Program priorities
will help our Nation’s farmers retain their include research on seasonal to interannual cli-
technological edge, such as research in food mate variability, climate change over decades
84 THE BUDGET FOR FISCAL YEAR 1998

to centuries, and on changes in atmospheric mobiles and auto components into the market-
chemistry and ecosystems. The program also place quickly; (2) use new technologies for
will continue to increase its focus on under- near-term improvements in auto efficiency,
standing the consequences of change, particu- safety, and emissions; and (3) lead to produc-
larly at regional levels. tion prototypes of vehicles that are three times
Emerging Infectious Diseases: The budget more fuel efficient than today’s cars, with no
proposes $280 million, eight percent over 1997, sacrifice in comfort, performance, or price.
for research on the development of new tools Construction and Building: The budget
to detect and control emerging infectious dis- proposes $203 million, a 15-percent increase
eases and on the biology and pathology of in- over 1997, for research to develop better con-
fectious agents. Focus areas include: surveil- struction technologies to improve the competi-
lance; screening and quarantine; diagnostics,
tive performance of U.S. industry, raise the
treatment, and prevention measures; training;
life cycle performance of buildings, and protect
antibiotic resistance; zoonotic infectious
public safety and the environment.
agents; and health effects of climate change.
Educational Technology: The budget pro-
Partnership for a New Generation of Ve-
poses $524 million, a five-percent increase over
hicles: The budget proposes $281 million, a
seven-percent increase over 1997, for research 1997, for research and development on edu-
to: (1) develop advanced manufacturing tech- cation and training to improve learning in
niques that make it easier to get new auto- schools, workplaces, and homes.
5. ENFORCING THE LAW

At the beginning of my Administration, we set out to change the country’s approach to crime by
putting more officers on our streets through community policing, and taking guns out of the
hands of criminals. We are making a difference. Today, our neighborhoods are safer, and we are
restoring the American people’s confidence that crime can be reduced.
President Clinton
January 5, 1997

The budget extends the Administration’s Finally, the budget strengthens the Adminis-
commitment to cut crime, curb the scourge tration’s aggressive efforts to control illegal
of illegal drugs, and secure the Nation’s immigration by targeting resources to stop
borders. those who want to enter the United States
illegally, detain and quickly remove those
With overall crime dropping, the budget who slipped by, and make it harder for
proposes to make further progress while illegal immigrants to get jobs. It proposes
targeting a remaining area of concern—juve- to strengthen border enforcement in the South
nile crime and violence. In addition, the and West, to continue Port Courts to expedite
budget continues the President’s progress to- removals, and to expand efforts to verify
ward putting 100,000 more police on the the employment eligibility of newly hired
street, while increasing State grants for prison non-citizens.
construction and for preventing violence
against women. While crime remains mainly Fighting Crime
a State and local responsibility, the success
of the Brady bill in preventing over 100,000 The Administration’s efforts to work with
felons, fugitives, and stalkers from obtaining communities and local police forces are paying
off. Serious and violent crime dropped for
guns shows the Federal Government also
the fifth year in a row in 1996, marking
has an important role to play.
the longest period of decline in 25 years.
The budget renews the Administration’s
But, while overall crime rates are dropping,
efforts to fight drug abuse, particularly by
young people are increasingly the perpetrators
focusing on youth prevention programs to and victims of some of society’s most violent
reverse the recent trends of softening attitudes crimes. As a result, the Administration’s
towards drugs and increased drug use by crime-fighting agenda includes a major focus
youth. It also continues efforts to stress on reducing juvenile crime and violence. Its
treatment and prevention, domestic law en- programs recognize that youth violence has
forcement, international programs, and inter- to be addressed in the home, on the street,
diction. It would increase funds for the innova- and in the community.
tive Drug Courts initiative, for drug testing,
for the Safe and Drug-Free Schools and The budget proposes $24.9 billion to control
Communities Program, for targeted interdic- crime, an increase of $1.1 billion over 1997,
as illustrated on Chart 5–1. Of the total,
tion efforts along the Nation’s Southern bor-
the Violent Crime Reduction Trust Fund
der, and for disrupting the drug industry
(VCRTF) provides $5.5 billion toward pro-
and its leadership overseas. The budget pro-
grams authorized in the 1994 Crime Act,
poses to increase spending for these purposes
an increase of $817 million over 1997, as
by over $800 million in 1998, and by more
shown on Table 5–1. Federal spending, how-
than $6 billion between 1997 and 2002. ever, accounts for only 17 percent of all
85
86 THE BUDGET FOR FISCAL YEAR 1998

Chart 5-1. ANTI-CRIME BUDGET HISTORY

DOLLARS IN BILLIONS

30

24.9
23.8
25
21.1 5.5
4.7
18.8
20 4.1
19.1 19.4
15.2 2.4
16.4 17.0
15

10

0
1993 1995 1996 1997 1998

VIOLENT CRIME REDUCTION TRUST FUND GENERAL APPROPRIATIONS

law enforcement resources. Thus, the Adminis- hire support personnel. These purchases, in
tration proposes to continue empowering turn, allow communities to deploy more offi-
States and communities, which play the cers. To enhance State and local law enforce-
central role in controlling crime, particularly ment recruitment, retention, and education,
violent crime. the budget proposes $20 million each for
the Police Corps and for police scholarships,
Community Policing: The cornerstone of
increasing the number of police officers with
the President’s program to fight crime, particu-
advanced education and training.
larly violent crime in our communities, is his
plan to place 100,000 more police officers on Juveniles: The budget proposes a $50 mil-
the streets by 2000. Putting the idea of com- lion increase to support more local community
munity policing into action, the program seeks prevention programs such as mentoring, tru-
to cut crime, violence, and disorder by applying ancy prevention, and gang intervention. To
proven, effective programs and strategies. By prevent young people from becoming involved
the end of 1997, the Community Oriented Po- in the juvenile justice system, the budget ex-
licing Services (COPS) initiative will have pands programs that provide supervised after-
funded about 64,000 additional police officers. noon and evening activities for youth. These
For 1998, the budget proposes $1.4 billion to programs include $63 million for community
put nearly 17,000 more officers on the street schools, supervision, and youth services
in local communities. grants—an increase of $50 million over 1997.
In addition to funding new police officers, Gangs: The President has worked hard to
COPS enables local law enforcement agencies get guns off the streets and out of the hands
to buy sophisticated crime equipment and of children, to crack down on violent teen
5. ENFORCING THE LAW 87

Table 5–1. VIOLENT CRIME REDUCTION TRUST FUND SPENDING


BY FUNCTION
(Budget authority, dollar amounts in millions)

Dollar Percent
1996 1997 1998 Change: Change:
Actual Estimate Proposed 1996 to 1996 to
1998 1998

Prevention:
Violence Against Women ........................................ 228 259 381 +153 +67%
Drug Courts ............................................................. 18 30 75 +57 +317%
Prison Drug Treatment ........................................... 27 30 63 +36 +133%
Other Prevention Programs .................................... 4 34 57 +53 +1,483%

Subtotal, Prevention ............................................ 277 353 576 +299 +108%


State and Local Assistance:
Community Policing ................................................ 1,400 1,420 1,545 +145 +10%
Incarceration of Violent Offenders ......................... 618 670 710 +93 +15%
Incarceration of Undocumented Criminal Aliens 300 330 350 +50 +17%
Other State and Local Assistance .......................... 690 790 707 +17 +2%

Subtotal, State and Local Assistance ................. 3,008 3,210 3,312 +304 +10%
Federal Law Enforcement Assistance:
Department of Justice ............................................. 702 1,002 1,444 +742 +106%
Department of the Treasury ................................... 69 89 118 +49 +70%
Judiciary ................................................................... 30 30 50 +20 +67%

Subtotal, Federal Law Enforcement Assistance 801 1,121 1,612 +811 +101%

Total, Violent Crime Reduction Trust Fund ..... 4,085 4,683 5,500 +1,415 +35%

Note: The Violent Crime Reduction Trust Fund received appropriations for the first time in 1995.

gangs, and to teach children that drugs are lice departments to investigate street
wrong, illegal, and dangerous. As gangs be- crime and violence.
come an increasingly powerful and deadly
• One Strike, You’re Out: The President be-
force, the Administration is pursuing a coordi-
lieves that public housing is a privilege,
nated national strategy to combat them. For
not a right, and residents who commit
example, the budget proposes $100 million for
crime and peddle drugs should be imme-
prosecutorial offices to hire more prosecutors
diately evicted. The budget provides $290
and take other steps, $50 million for a new
million to support anti-drug and anti-
juvenile court initiative, and $75 million for
crime activities in public housing, includ-
a local youth crime intervention initiative. The
ing enforcement of the President’s One
budget also proposes programs specifically tar-
Strike, You’re Out initiative.
geted to stem violence on the street and in
public housing, including: Violent Offenders: The Administration
seeks to ensure that convicted violent offenders
• Safe Streets Task Forces: The budget pro- serve at least 85 percent of their sentences
poses $93 million to continue the Safe behind bars. To reach this goal, the budget
Streets program, which blends the efforts proposes $710 million in State grants to build
of the Federal Bureau of Investigation new prisons and jail cells under two pro-
(FBI) and other Federal law enforcement grams—the Violent Offender Incarceration and
agencies with those of State and local po- the Truth in Sentencing Programs. Nation-
88 THE BUDGET FOR FISCAL YEAR 1998

wide, the prison population is growing by over Counter-terrorism: While acts of domestic
1,700 inmates a week, and will likely grow terrorism have been isolated incidents, the Ad-
faster as tougher sentencing laws and prac- ministration has sought more Federal re-
tices that these grant programs require are sources to ensure the safety and security of
implemented. The 1998 funding level finances the Government and public from these violent,
about 9,500 new prison beds. It includes $150 illegal acts. The President sought additional
million to reimburse States for the costs of resources last year to fight terrorism, and Con-
incarcerating criminal aliens and $35 million gress overwhelmingly agreed, providing $1.1
to improve State and local correctional facili- billion in new counter-terrorism funds. The
ties that hold Federal prisoners. budget would continue these programs.

Crime Prevention: The President’s Crime Methamphetamine: Methamphetamine is


Prevention Council, which the Vice President quickly becoming the growth drug of the
chairs, seeks to coordinate Federal approaches 1990s. Also known on the street as ‘‘crank,’’
to preventing crime. It helps communities get ‘‘ice,’’ and ‘‘speed,’’ methamphetamine is a dan-
information about crime prevention programs, gerous stimulant that generates the same
develops strategies for integrating programs addiction cycle and psychological trauma asso-
and simplifying grants, publishes a catalog of ciated with crack cocaine. The Drug Enforce-
ment Administration (DEA) trains its agents,
prevention programs, and provides grants to
as well as State and local law enforcement
communities for youth crime prevention pro-
agencies, to seize clandestine methamphet-
grams.
amine laboratories. Since 1994, the DEA has
Violence Against Women: The Administra- devoted almost 10 percent more work hours
tion recognizes that violence against women to methamphetamine investigations. The budg-
is a growing problem. To combat gender-based et proposes to increase funding by $11 million
crime, the budget proposes $381 million—the to continue DEA’s anti-methamphetamine ef-
full authorized level and an increase of $123 forts.
million over 1997. Programs in this category Digital Telephony: The Communications
include grants to encourage mandatory arrest Assistance for Law Enforcement Act ensures
policies and to encourage coordination among that law enforcement agencies can conduct
law enforcement officials, prosecutors, and vic- court-authorized wiretaps as the Nation con-
tims assistance organizations. Academic stud- verts from analog to digital communications
ies show that mandatory arrest policies often technology. With $100 million available in
break the cycle of violence and reduce subse- 1997 to help develop the technology changes
quent incidents of domestic violence. The ex- to provide this capability, the President pro-
pansion of these programs will enable States poses another $100 million in 1998 to continue
to enhance their efforts to respond to violent the effort.
crimes committed against women, and to fur-
ther expand access to previously under-served Combating Drug Abuse and Drug-Related
Indian and other minority populations. Crime
State Prison Drug Testing: The budget Drug abuse and drug-related crime cost
proposes $63 million for this program, a $33 our society an estimated $67 billion a year 1
million increase over 1997. The funding would and destroy the lives and futures of our
allow States to increase the number of residen- most precious resource—our children. Illicit
tial substance abuse programs and treat about drug trafficking breeds crime, violence, and
23,000 prisoners. Experts generally agree that corruption across the globe, drug use facilitates
drug treatment programs aimed at prisoners the spread of AIDS and other deadly diseases,
are among the most cost-effective programs and addiction erodes the user’s dignity and
available in the fight against crime. In 1997, productivity. The effects of drug use and
the President proposed and Congress agreed drug-related crime are felt acutely by all
to require States to test prisoners and parolees 1 ‘‘Substance Abuse: The Nation’s Number One Health Problem,’’
as a condition for receiving State prison Key Indicators for Policy, Institute for Health Policy, Brandeis Uni-
grants. versity (1993).
5. ENFORCING THE LAW 89

Americans, transcending economic, geographic, • National Media Awareness Campaign: The


and other boundaries. Office of National Drug Control Policy
(ONDCP) will develop a media campaign—
The budget proposes $16.0 billion for anti-
to include public service announcements,
drug abuse programs, a five-percent increase
targeted at youth and their parents, on
over 1997. It builds on earlier initiatives
the consequences of drug use and the use
by renewing the emphasis on drug treatment
of alcohol and tobacco. ONDCP will fi-
and prevention, especially for children and
nance the campaign from the $175 million
adolescents; domestic law enforcement; inter-
in discretionary funds that the budget pro-
national programs; and interdiction. (For sum-
poses for ONDCP’s Director to combat
mary information, see Table 5–2.) emerging drug abuse threats.
In particular, the budget proposes a coordi- • The Safe and Drug Free Schools and
nated, multi-agency approach to combating Communities Program: The Safe and
all types of substance abuse among youth— Drug-Free Schools and Communities pro-
including tobacco and alcohol—with a com- gram is the Federal Government’s largest
prehensive prevention initiative that focuses, effort to inoculate children against drug
in particular, on State-level data documenting abuse and ensure that schools are safe and
trends in drug use. This comprehensive ap- disciplined learning environments. The
proach, consistent with the President’s Na- program supports drug and violence pre-
tional Drug Control Strategy, comes in re- vention efforts in 97 percent of all school
sponse to national surveys showing a dramatic districts through educational activities,
rise in substance abuse among adolescents. teacher training, curriculum development,
Community-Based Prevention: The Ad- peer counseling, security services, and
ministration is committed to reversing the other activities. The budget proposes to
trend of increased drug use by our youth, and spend $620 million for this program, 12
it proposes $2.2 billion for drug prevention pro- percent more than in 1997, and to encour-
grams, 15 percent more than in 1997. After age States to adopt models of proven effec-
significant and consistent declines through the tiveness.
1980s, teenage drug use is rising and anti- Drug Intervention: The budget proposes
drug attitudes have softened—due in part to $3.3 billion to treat drug abuse, seven percent
drug glamorization in the popular culture and more than in 1997. The Administration seeks
the recent debate concerning drug legalization. to address drug abuse where the battle is
In light of the recent ‘‘medicinal marijuana’’ toughest—in the streets, in jails, and in urban
initiatives adopted in California and Arizona, and rural drug markets. A priority is treating
the Administration believes it is more impor- chronic, hard-core drug users; they consume
tant than ever to continue sending a single a disproportionate amount of illicit drugs and
‘‘no use’’ message and to focus on keeping impose a disproportionate share of drug-relat-
America’s youth drug free. ed costs on society.

Table 5–2. DRUG CONTROL FUNDING


(Budget authority, dollar amounts in millions)

Dollar Percent
1996 1997 1998 Change: Change:
Actual Estimate Proposed 1996 to 1996 to
1998 1998

Demand Reduction ............................................... 4,441 4,977 5,474 +1,034 +23%


Supply Reduction ................................................. 9,013 10,182 10,502 +1,489 +17%

Total, Drug Control Funding ..................... 13,454 15,159 15,977 +2,523 +19%
90 THE BUDGET FOR FISCAL YEAR 1998

• Drug Courts: The budget proposes $75 mil- other efforts; and providing incentives to
lion, a 150-percent increase over 1997, for States and localities to adopt proven drug con-
the Drug Courts initiative. These courts trol methods. The number of High Intensity
offer an alternative to incarceration for Drug Trafficking Areas has risen from five in
non-violent offenders who are willing to 1993 to 15 in 1997.
participate in, and would benefit from, re-
Interdiction and International Pro-
habilitative drug treatment. Drug Court
grams: The Administration has launched a
programs rely on sanctions, such as incar-
multi-faceted international strategy, making it
ceration and increased drug-testing and
harder for traffickers to smuggle illicit drugs
supervision, to encourage treatment. into the United States for sale.
• Substance Abuse Treatment: The budget • Southern Tier of the United States: The
proposes $1.3 billion, one percent more Administration is working to stem the flow
than in 1997, to support State substance of narcotics through land and seaports
abuse activities, which target resources to along the Nation’s Southern tier. The
local user populations. In addition, the budget would reinforce efforts by the Cus-
budget maintains support for treatment toms Service to strengthen border enforce-
and prevention services for everyone in ment along the Southern tier by providing
need, including pregnant women, high-risk $36 million for increased drug interdiction
youth, and other under-served Americans. efforts. The budget also increases support
(For a discussion of funding proposals for for other Southwest border interdiction ef-
the Substance Abuse and Mental Health forts, including $16 million for the Immi-
Administration, see Chapter 1.) gration and Naturalization Service (INS),
• Arrestee Drug Testing: The budget includes $46 million for the DEA’s and the FBI’s
$42 million, 40 percent more than in 1997, Southwest border drug interdiction efforts,
for the costs associated with drug-testing and $47 million for Coast Guard interdic-
Federal, State, and local arrestees. With tion activities.
these funds, the Administration would es- • Source Nation Efforts: Internationally, the
tablish Federal demonstration pre-trial United States is focusing on not just inter-
drug testing programs and promote new, diction in source countries and transit
comprehensive drug testing programs at zones, but also on disrupting the drug
the State and local levels, for both pre- leadership and its production, marketing,
trial and post-conviction populations. In and money laundering structure. In-
addition, the Administration has begun re- creased U.S. efforts in Colombia helped se-
quiring, as a condition of receiving Federal cure the arrest of several Cali Cartel lead-
highway funds, that every State make it ers. The budget proposes to increase fund-
illegal for anyone under 21 to drive with ing for counter-narcotics programs in Peru
alcohol in his or her bloodstream. to $40 million, 74 percent more than in
Domestic Drug Law Enforcement: The 1997, to encourage that nation to grow
budget proposes $8.4 billion for domestic drug crops other than drugs. The budget also
law enforcement, four percent more than in proposes to continue funding for the same
1997. The funds would enhance Federal law purpose in Bolivia.
enforcement efforts while targeting new re-
Deterring Illegal Immigration
sources to community-based law enforcement,
stopping the flow of illegal drugs through the The President has put a high priority
Southwest border, and training Federal, State, on controlling our Nation’s borders, reversing
and local law enforcement agencies to seize decades of neglect. He has launched an
clandestine methamphetamine laboratories. aggressive strategy of deterrence and has
The Federal role would continue to focus on fought successfully for a dramatic increase
providing leadership and training; fostering in INS resources to stop illegal entry, detain
intergovernmental cooperation through the and promptly remove those here illegally,
High Intensity Drug Trafficking Areas pro- and end the easy access to the Nation’s
gram, DEA’s Southwest border initiative, and job market that illegal workers have enjoyed.
5. ENFORCING THE LAW 91

As a Nation of immigrants, the United that the border deters illegal immigration,
States continues to welcome those who seek drug trafficking, and alien smuggling, while
legal entry and refugees who seek protection facilitating legal immigration and commerce.
from harm in their home countries. In 1996 The President’s immigration initiative included
alone, the Nation welcomed over a million a strategy to gain control at the Southwest
new naturalized U.S. citizens. As a Nation border and restore the rule of law, and the
of laws, however, we are committed to main- Administration backed it up with unprece-
taining the integrity of our borders, and dented increases in Border Patrol agents, ad-
deterring and removing those who are here vanced technology, and investments in infra-
illegally. structure. The budget would fulfill the Presi-
Over the past five years, in coordination dent’s commitment to a Border Patrol staffing
with Congress, the Administration has in- goal of 7,000 agents—an 85–percent increase
creased funding for INS by 111 percent. from 1993 to 1998 (see Chart 5–2).
The budget continues support for efforts that • Border Enforcement Strategy: Over the
advance border control and illegal alien deten- past four years, the Administration has
tion and removal, and the efficient processing launched targeted enforcement initiatives
of those seeking citizenship. The budget pro- in Texas, California, and Arizona to con-
poses $3.6 billion for INS, 13 percent more trol parts of the border that were histori-
than in 1997 and 41 percent more than cally the major corridors for illegal immi-
in 1996 (see Table 5–3). gration. In the San Diego, El Paso, and
Securing the Border: Controlling the Na- Tucson areas—sites that account for over
tion’s 6,000–mile border with limited resources 75 percent of illegal crossings and where
is a continuing challenge for INS. The Admin- the Border Patrol has focused more re-
istration’s goal is unambiguous—to ensure sources over the past few years—violent

Table 5–3. IMMIGRATION AND NATURALIZATION SERVICE


FUNDING BY PROGRAM
(Budget authority, dollar amounts in millions)

Dollar Percent
1993 1996 1998 Change: Change:
Actual Actual Proposed 1996 to 1996 to
1998 1998

Appropriated Funds:
Border Patrol .................................................... 354 536 818 +282 +53%
Investigations and intelligence ........................ 142 190 277 +87 +46%
Land border inspections ................................... 83 116 157 +41 +35%
Detention and deportation ............................... 161 289 581 +292 +101%
Program support and construction ................. 227 600 624 +24 +4%

Subtotal, Appropriated Funds ..................... 967 1,731 2,457 +726 +42%


Fee collections and reimbursements:
Citizenship and benefits .................................. 308 523 648 +125 +24%
Air/sea inspections and support ...................... 243 320 419 +99 +31%
Detention and support ..................................... 12 11 117 +106 +964%

Subtotal, Fee Collections and Reimburse-


ments .......................................................... 563 854 1,184 +330 +39%

Total, Immigration and Naturalization


Service ............................................................. 1,530 2,585 3,641 +1,056 +41%
92 THE BUDGET FOR FISCAL YEAR 1998

Chart 5-2. IMMIGRATION AND NATURALIZATION SERVICE BORDER


PATROL AND LAND BORDER INSPECTION STAFFING
STAFF IN THOUSANDS
12

11
1,885
10 1,885
9
1,493
8
1,644
1,443
7 7,359
1,129 1,092 6,859
6
1,099
1,088 909 5,878
5
830 4,881
785
4 4,226
3,965
3

0
1993 1994 1995 1996 1997 1998

LAND BORDER INSPECTORS BORDER PATROL SUPPORT BORDER PATROL AGENTS

and property crime rates have dropped by 8,600 ground sensors, and 8,000 encrypted
a dramatic 15 to 39 percent. This targeted radios to support enhanced border enforce-
use of Border Patrol agents in urban areas ment.
has forced illegal crossers to rural, moun-
• Border Control and Detention Construc-
tainous, and desert locations where the tion: For too long, INS has worked from
difficult terrain gives the Border Patrol an decrepit and inadequate Border Patrol sta-
advantage in apprehending them. tions, and has been forced to incarcerate
• Border Infrastructure and Technology: The illegal aliens in antiquated and unsafe de-
Administration has, along the entire tention facilities. The budget supports an
Southwest border, expanded advanced INS construction program that would com-
technology to support enforcement. The plete six Border Patrol projects and two
technology includes the IDENT system, an detention facility projects. Along with the
automated fingerprint identification sys- military, INS also would fund 11 fencing,
tem that allows INS, for the first time, border lighting, vehicle barrier, and road
to readily identify criminal aliens, track projects to secure the Southwest border.
illegal crossing patterns, and collect data Detaining and Removing Illegal Aliens:
on repeat crossers. With the help of the Last year’s immigration reform law requires
National Guard and military personnel, mandatory incarceration, pending deportation,
the INS also has built over 63 miles of for aliens involved in crime. The Administra-
fencing and 1,200 miles of roads, and in- tion is moving quickly to implement the law,
stalled over 17 miles of lighting to control funding 1,864 more jail beds in 1998 and add-
drug trafficking, alien smuggling, and ille- ing investigators and detention staff. The
gal immigration. And, since 1993, INS has budget would bring total detention bedspace
added over 165 infrared night scopes, to over 13,900 beds in 1998 and fund nearly
5. ENFORCING THE LAW 93

3,200 staff to support detention and deporta- ‘‘job magnet,’’ drawing hundreds of thousands
tion activities. INS removed over 68,200 aliens, of illegal aliens to this country each year. The
including 37,000 criminal aliens, in 1996 and Administration has built a strong foundation
estimates that it will remove over 93,000 for an effective worksite enforcement strategy
aliens, at least 55,000 of them criminal aliens, to reduce the draw of illegal aliens.
in 1997.
• Employment and Data Verification: In
• Port Courts: The Port Court program, ini- 1995, INS launched a pilot employment
tiated in 1995 in San Diego, imposes im- verification system with over 200 employ-
mediate consequences—including exclu- ers in Orange County, California. It al-
sion and deportation—for those who at- lowed employers to quickly verify the em-
tempt to enter the United States with
ployment eligibility of newly hired non-
fraudulent documents or small amounts of
citizens. INS expanded the pilot in 1996
drugs. In its first full year of operation,
to over 1,000 employers and into Florida.
over 8,000 aliens were removed through
expedited proceedings at the Port Court. The budget proposes over $30 million in
The budget provides funds to continue the additional funding to correct INS data and
Port Court concept in San Diego and at expand verification efforts.
the Miami Airport. • Worksite Enforcement: In 1996, INS re-
• Institutional Hearing Program (IHP): moved over 15,000 illegal workers from
Under this program, criminal aliens have the workplace through such enforcement
a deportation hearing while serving time initiatives as Operation JOBS and South-
in a Federal or State institution, paving PAW (Protecting American Workers).
the way for immediate deportation upon Worksite enforcement is the third leg of
completion of a criminal sentence. The the Administration’s enforcement strategy,
program ensures that criminal aliens are and INS is committed to showing both em-
not released onto the streets. INS has ex- ployers who knowingly violate the law as
panded this program, which began in Cali- well as illegal workers that we mean busi-
fornia, to States with large incarcerated ness and will enforce the law. INS’ efforts
alien populations. In 1995, INS began co- have focused on industries with a history
operative IHPs in California, Texas, New of hiring illegal workers. In the past year
York, and Florida. The budget continues alone, INS has targeted over 900 employ-
funding for IHP programs in these States ers and apprehended 8,700 illegal workers,
and in New Jersey and Arizona. freeing up over $117 million in wages for
• State and Local Alien Incarceration: legal workers. Since 1993, INS has re-
Through the State Criminal Alien Assist- moved over 30,000 illegal workers from
ance Program (SCAAP), the President has their jobs.
provided unprecedented help to reimburse
Encouraging Naturalization and Citi-
State and local governments for the costs
of incarcerating illegal criminal aliens. In zenship: In 1995, in response to an unprece-
1996, the Federal Government provided dented increase in citizenship applications, the
$495 million to reimburse 49 States and Administration launched a major naturaliza-
94 localities—covering most costs associ- tion initiative—Citizenship USA. The initia-
ated with incarcerating aliens in non-Fed- tive, targeted in five key cities where over 75
eral facilities. The budget extends the com- percent of naturalization applications came in
mitment, providing $500 million for reim- and where a naturalization backlog was build-
bursements. The Federal Government ing, led to streamlined citizenship procedures
plans to ensure that States and localities and reduced applicant processing times. In
receiving SCAAP funds fully cooperate 1996, over 1.2 million naturalization appli-
with INS in its efforts to expedite criminal cants became U.S. citizens—the highest ever.
alien removals. The average application process, which in the
past exceeded a year, is now six months.
Reducing the Job Magnet for Illegal
Entry: The U.S. economy acts as a powerful
6. RESTORING THE AMERICAN COMMUNITY

We said in 1991 we would offer opportunity for all, demand responsibility from all, build a
stronger American community. We said that this era requires a Government that neither attempts
to solve problems for people, nor leaves them alone to fend for themselves. Instead, we envision a
Government that gives people the tools to solve their own problems and make the most of their
own lives . . . I intend to spend the next four years doing everything I can to help communities to
help themselves, to educate all Americans about what is working, and to create, in the process, a
national community of purpose.
President Clinton
December 11, 1996

Some American communities have grown under 20 percent in non-poverty neighbor-


disconnected from the opportunity and pros- hoods.
perity of their States, their regions, their
• Over half of all adults have less than a
Nation, and the global economy. The polariza-
high school education, compared to under
tion of communities—isolating the poor from
20 percent in non-poverty neighborhoods.
the well-off, the unemployed from those who
work, and people of one race or ethnicity • Over 40 percent of working age men are
from others—frays the fabric of our civic not working, compared to just over 19 per-
culture and depletes the strength of our cent in non-poverty neighborhoods.
economy. Poverty also remains a persistent problem
The problem affects all Americans; we in rural America. Of the 765 rural counties
cannot and should not wall ourselves off with poverty rates of at least 20 percent
from it. If we do not address the problem in 1990, 535 had such poverty rates in
in our communities, connecting residents of 1980, 1970, and 1960. Because they often
distressed neighborhoods and rural areas to live in remote areas, and do not live near
the jobs and opportunities of the regional one another, rural residents often have a
marketplace, the Nation cannot compete and hard time receiving critical services or connect-
win in the global economy. ing themselves to urban and suburban centers
of economic activity.
While poverty overall is down in America,
the concentration of urban poverty has risen On the other hand, the 1990s have brought
in recent decades (see Chart 6–1). From signs of progress—in alleviating poverty and
1970 to 1990, the number of people living creating opportunity both across the Nation
in areas of concentrated poverty (where over as well as in the isolated areas in which
40 percent of the residents are poor) grew the obstacles are so imposing. Across the
from 3.8 million to 10.4 million.1 The share Nation, poverty, welfare, and inequality are
of people living in our 100 largest cities all down, while incomes and homeownership
who were concentrated in these extreme- are up. In the last four years, the economy
poverty neighborhoods also rose—from five has created over 11 million jobs and record
percent in 1970 to eight percent in 1980 numbers of small businesses, bringing new
to 11 percent in 1990. In such neighborhoods, hope and opportunity to millions of Americans.
social conditions are bleak. The Administration recognizes, however, the
barriers that still stand in the way of work
• Over 60 percent of families with children
and self-sufficiency for many poor Americans,
are headed by single women, compared to
and it proposes important steps to address
1 The President’s Urban Policy Report, 1995. them and to provide more opportunity.
95
96 THE BUDGET FOR FISCAL YEAR 1998

Chart 6-1. CONCENTRATION OF POVERTY IN URBAN AREAS


REACHED A 30-YEAR HIGH IN 1990
(Population living in census tracts with more than 40 percent poverty)
PERCENT

14

12 10.8

10
8.1
8

6 5.1

0
1970 1980 1990
Source: U.S. Census data for 1970, 1980, and 1990, as compiled by John Kasarda, Urban Underclass Database Machine Readable Files,
Social Science Research Council, New York, 1992 and 1993.

In particular, communities need help to tunity for those who make a substantial
attract the kind and amount of private invest- commitment to service.
ment that could spur their revitalization.
Although Federal programs can provide sup- The budget proposes $809 million for the
port, solutions must come from the community. Corporation, a 31-percent increase over 1997,
As a result, the budget proposes to create with the increase targeted to the President’s
opportunities and offer incentives for individ- America Reads initiative—an effort through
uals and businesses to participate directly which volunteer tutors will help children
in addressing local problems. read well and independently by the third
grade. Along with support from the Depart-
National Service ments of Education and Health and Human
Services, the Corporation’s funding will finance
National service is rooted in the American
11,000 AmeriCorps tutor coordinators and
tradition of neighbor helping neighbor to
logistical support to help recruit, organize,
build communities, reward personal respon-
and manage an army of a million volunteers
sibility, and expand educational opportunity.
who will tutor over three million children—
The Corporation for National and Community
from kindergarten through third grade—after
Service, established in 1993, encourages Amer-
school, on weekends, and during the summer.
icans of all ages and backgrounds to engage
Every Corporation program will participate
in community-based service, addressing the
in this effort. America Reads builds on the
Nation’s educational, public safety, environ-
demonstrated success of national service in
mental, and other needs to achieve direct
helping to solve real problems.
and demonstrable results. In doing so, the
Corporation fosters civic responsibility, AmeriCorps, the Corporation’s signature ini-
strengthens the ties that bind us together tiative that includes Volunteers in Service
as a people, and provides educational oppor- to America (VISTA) and the National Civilian
6. RESTORING THE AMERICAN COMMUNITY 97

Community Corps, has proven cost-effective. that the Nation’s governors appoint to carry
Investment in AmeriCorps members returns out service programs. The commissions run
$1.60 to $3.90 for each dollar invested, accord- competitions to determine what programs will
ing to independent evaluations. AmeriCorps participate, and States manage and oversee
enables young Americans of all backgrounds them. In the Learn and Serve program,
to serve in local communities full- or part- State education agencies set priorities and
time, generally for at least a year. In return, resource allocations for service learning pro-
they earn a minimum living allowance set grams. In the National Senior Service Corps,
at about the poverty level of a single individual communities define the activities that Senior
and, when they complete their service, they Corps members will conduct.
earn an education award to help pay for
Most important of all, national service
postsecondary education or repay student
participants are getting things done.
loans. About 70,000 individuals will have
participated in AmeriCorps in its first three • In one Ohio project, nine AmeriCorps
years, and the budget supports an AmeriCorps members conducted home visits with 1,449
program of about 35,000 members. students. As a result, school attendance
increased, more students applied to college
Among other national service programs:
than were originally planning to, and more
• Learn and Serve America grants help parents were involved in their children’s
school districts and communities engage education.
youth to serve their communities and
• In California, 12 AmeriCorps members
learn citizenship. The budget proposes to
tutored 230 students, and drop-out rates
fund opportunities for almost 900,000
fell from 50 to 20 percent. Teachers also
school-age youth.
noted improved attention and behavior
• The National Senior Service Corps en- among students.
gages senior citizens—an untapped re-
• In Olympia, Washington, three teams of
source with time, talent, and energy to
retired volunteers tutored 400 students
meet community needs. The budget funds
who were reading below grade levels and
the Retired and Senior Volunteer Pro-
almost all were reading at their appro-
gram, the Foster Grandparent Program,
priate grade level by the end of the year.
and the Senior Companion Program, ena-
bling nearly 600,000 older Americans to Empowerment Zones (EZs) and
serve. Enterprise Communities (ECs)
Corporation programs strengthen commu- As part of his 1993 economic program,
nities in several ways. AmeriCorps, for exam- the President proposed, and Congress enacted,
ple, is run by national, State, and local the Empowerment Zones and Enterprise Com-
organizations such as Habitat for Humanity, munities program. Under it, communities de-
the Christian Children’s Fund, the American velop a strategic plan to help spur economic
Red Cross, the National Coalition of Homeless development and expand opportunities for
Veterans, the YMCA, and local United Ways their residents, and in return they receive
across the country. These institutions select Federal tax benefits, social service grants,
AmeriCorps members to work alongside the and more flexibility in how they use Federal
men and women already working to solve funds.
problems at the local level. AmeriCorps mem-
EZs and ECs are parts of urban or rural
bers provide a regular source of service
areas with high unemployment and high
that most volunteers, with their own time
poverty rates. For EZs, the Federal Govern-
constraints, cannot offer. AmeriCorps members
ment provides tax benefits for businesses
also recruit traditional, unpaid volunteers,
that set up shop, and grants to community
then help organize and manage these volun-
groups for job training, day care, and other
teers as they perform direct service.
purposes. For ECs, the Government provides
The Corporation operates in a decentralized grants to community groups for the same
fashion, working with bipartisan commissions array of purposes. Both EZs and ECs can
98 THE BUDGET FOR FISCAL YEAR 1998

apply for waivers from Federal regulations, a combination of tax incentives, direct grants,
enabling them to better address their local and priority consideration for funds from
needs. Federal economic development programs and
The 1994 competition for the first round for waivers of Federal requirements from
of EZ and EC designations generated over the President’s Community Empowerment
500 applications and created new local part- Board, chaired by Vice President Gore.
nerships for community revitalization—even
in communities that were not chosen. The Community Development Financial
105 selected communities made well over Institutions (CDFIs)
$8 billion in private-public commitments (aside
from the promised Federal resources). In Proposed by the President in 1993 and
the six urban EZs, the private sector has created a year later, the CDFI Fund is
made or committed over $2 billion in new designed to expand the availability of credit,
investment, bringing greater economic oppor- investment capital, financial services, and
tunity to those cities. One of the six, Detroit, other development services in distressed urban
has announced over 21 private developments and rural communities. By stimulating the
in its zone, with one linen and supply creation and expansion of a diverse set of
manufacturer announcing a $5.5 million ex- CDFIs, the Fund will help develop new
pansion over the next two years that will private markets, create healthy local econo-
create over 100 jobs for zone residents. mies, promote entrepreneurship, restore neigh-
borhoods, generate tax revenues, and empower
But many communities that were not des- residents.
ignated as EZs or ECs lack the seed capital
to begin their revitalization efforts. Thus, CDFIs provide a wide range of financial
in last year’s budget, the President proposed products and services, such as mortgage fi-
a second round of EZs/ECs to stimulate nancing to first-time home buyers, commercial
further private investment and economic op- loans and investments to start or expand
portunity in distressed urban and rural com- small businesses, loans to rehabilitate rental
munities and to connect residents to available housing, and basic financial services. CDFIs
local jobs. Because Congress did not act also include a broad range of institutions—
on the proposal, this budget again proposes e.g., community development banks, commu-
a second round of EZs/ECs. nity development credit unions, community
The second round would again challenge development loan funds, community develop-
communities to develop their own comprehen- ment venture capital funds, and microenter-
sive, strategic plans for revitalization, with prise loan funds. These institutions, not the
input from residents and a wide array of CDFI Fund, decide which individual projects
community partners. The Administration to finance.
would invest in communities that develop The budget proposes $125 million for the
the most innovative plans and secure signifi- CDFI Fund, $75 million more than in 1997,
cant local commitments. The second round and gradual increases each year to bring
would build on the President’s ‘‘brownfields’’ the five-year total to $1 billion by 2002.
tax incentive, which would encourage busi- Private sector interest in the program has
nesses to clean up abandoned, contaminated dramatically exceeded expectations. In 1996,
industrial properties in distressed commu- the CDFI Fund received requests for $300
nities. This round would also offer a competi-
million in assistance—about 10 times what
tive application process that would stimulate
was available for the first round—from 270
the public-private partnerships needed for
new and existing CDFIs. Of these applicants,
large-scale job creation, business opportunities,
the CDFI Fund selected 32 institutions, serv-
and job connections for families in distressed
ing 46 states and the District of Columbia,
communities. (For more information on the
to receive $37.2 million in financial and
brownfields program, see Chapter 3.)
technical assistance. In addition, the Fund
The Administration proposes to seek 100 awarded $13 million to 38 traditional banks
new designations, with communities receiving and thrifts for increasing their activities in
6. RESTORING THE AMERICAN COMMUNITY 99

economically distressed communities and in- sector organizations to form a National Home-
vesting in CDFIs. ownership Strategy.
Additional resources would enable the Fund The partners are reducing the barriers
to implement a new initiative to support to homeownership by lowering mortgage clos-
private institutions that provide secondary ing costs and down payment requirements;
markets for CDFIs, leveraging public resources by simplifying the process of financing home
with private capital. This initiative would purchases and repairs; and by opening mar-
increase the resources to provide incentives, kets for women, minorities, central-city home-
through the Bank Enterprise Award program, buyers, and others traditionally locked out
for traditional banks to expand their commu- of the conventional lending markets. Coupled
nity development lending and support local with a stable economy and low interest
CDFIs. The funds also would substantially rates, this initiative has helped the Nation
enhance the CDFIs’ capacity to take advantage reach an all-time high national homeowner-
of coordinated, multi-faceted community devel- ship rate. The rate is now 65.6 percent—
opment efforts, such as EZs and ECs. its highest level in nearly 16 years—and
4.4 million Americans have become home-
A similar program at the Department of owners in the last four years, including
Housing and Urban Development (HUD), the record numbers of minorities.
Community Empowerment Banking Initiative,
also helps economically distressed neighbor- For housing programs in general, HUD
hoods establish financial institutions. Through has focused on initiatives that ‘‘build from
a competitive process, the cities of Washington the ground up’’—giving communities the power
and Baltimore, and a six-county area in and responsibility to assess their housing
rural Mississippi, received funding for empow- and economic development needs, and to
erment banks in 1997. These recipients will tailor their responses accordingly. HUD has
use $20 million as seed money and try paid particular attention to streamlining and
to leverage much larger investments from simplifying Federal requirements in exchange
conventional banks, foundations, non-profit for demanding a higher level of performance.
groups, investors, and residents. Area resi- In addition, the Administration has worked
dents and businesses will have controlling closely with Congress to advance the most
interest in the banks by purchasing affordably profound changes to public housing in over
priced stock. a generation. This effort reflects HUD’s four-
Finally, the budget proposed $100 million part transformation agenda:
in non-refundable tax credits that the CDFI • Replace the most dilapidated, distressed
Fund would allocate among equity investors developments with smaller-scale, afford-
in community development banks and venture able housing and portable housing vouch-
capital funds. Investors could take the credit— ers;
up to 25 percent of their investments—
in the year they invest. This initiative should • Restore management excellence to housing
help leverage over $1 billion of private invest- agencies that are systematically troubled;
ment in distressed urban and rural commu- • Provide incentives for tenants to become
nities. self sufficient by rewarding work, and con-
necting them to educational and employ-
Federal Relationship With Communities ment opportunities; and
The Administration has worked to give • Place conditions on public housing resi-
communities the flexible tools they need to dency through tougher occupancy and evic-
develop affordable housing and revitalize their tion rules.
economies.
The budget builds on the progress to date
Hoping to reverse a decline in the rate by supporting efforts to demolish 54,000 of
of homeownership, for instance, the Adminis- the worst public housing units in the next
tration in 1994 entered into an unprecedented three years and, rather than operate or
partnership with 58 key public and private modernize those units, provide portable sub-
100 THE BUDGET FOR FISCAL YEAR 1998

sidies to residents and construct a limited is spent. The budget proposes $689 million
amount of mixed-income housing. Portable for the RCAP, which also would give States
subsidies, now held by nearly 1.5 million block grants for rural community and economic
households, give recipients a greater range development.
of housing and neighborhood choices, reducing
the isolation of poor families and the con-
Government-to-Government Commitment
centration of poverty (see Chart 6–2).
to Native Americans
But, because their needs can be so different,
The Administration continues to strengthen
no single approach will help both urban
the Government-to-government relationship
and rural communities. Nor, in fact, will
with Native Americans.
any single approach help all rural areas.
The Administration had proposed giving In the past year, the Administration pro-
States, localities, and Tribes more flexibility posed steps to advance and protect Tribal
in how they use the community and economic interests; negotiated an historic settlement
development assistance they receive from the to the century-old land dispute between Nava-
Agriculture Department (USDA). In last year’s jos and Hopis; and fought attempts to cut
Farm Bill, Congress adopted the proposal Tribal funding and undermine Tribal sov-
as part of the new Rural Community Advance- ereignty. For 1998, the budget proposes $6.5
ment Program (RCAP), thus combining 12 billion, six percent more than in 1997, for
separate USDA programs into Performance Government-wide programs that address basic
Partnerships in which the Federal Government Tribal needs and encourage self-determination
provides more flexibility in exchange for re- (see Table 6–1).
quiring more accountability for how the money

Chart 6-2. HOUSING VOUCHER RECIPIENTS ARE LESS LIKELY TO LIVE IN


HIGH POVERTY NEIGHBORHOODS THAN ARE RESIDENTS OF PUBLIC
HOUSING
PERCENT

50 47

40
34

30 27

19 18
20
15
13
11
10
8
6

0
LESS THAN 10% 10-20% 20-30% 30-40% MORE THAN 40%

VOUCHERS TRACT POVERTY RATE


PUBLIC HOUSING
6. RESTORING THE AMERICAN COMMUNITY 101

Table 6–1. GOVERNMENT-WIDE NATIVE AMERICAN PROGRAM


FUNDING
(Budget authority, dollar amounts in millions)

Percent Percent
1993 1997 1998 Change: Change:
Actual Estimate Proposed 1993 to 1997 to
1997 1998

BIA ..................................................................... 1,647 1,607 1,732 –2% +8%


IHS 1 ................................................................... 2,022 2,342 2,412 +16% +3%

Subtotal, BIA/IHS ......................................... 3,669 3,949 4,144 +8% +5%


All other ............................................................. 1,833 2,138 2,309 +17% +8%

Total .............................................................. 5,502 6,087 6,453 +11% +6%


1 IHS program level includes both budget authority and Medicaid, Medicare, and private insurance collec-
tions.

The Interior Department’s (DOI) Bureau have worked together to enhance IHS’ ability
of Indian Affairs (BIA) and the Health and to receive Medicare and Medicaid reimburse-
Human Services Department’s Indian Health ments, thus helping to ensure that IHS
Service (IHS) comprise two-thirds of Federal facilities provide quality medical care. The
funding for Native American programs. For budget also allows Tribes to continue taking
the BIA, the budget proposes $1.7 billion, greater responsibility for managing their own
eight percent more than in 1997, to help hospitals. And the budget invests in construc-
improve the living conditions on reservations, tion to replace two antiquated IHS facilities—
promote Tribal self-sufficiency, and continue Ft. Defiance on the Navajo reservation and
to meet the Federal trust responsibility to Keams Canyon on the Hopi reservation—
Native Americans. Over 90 percent of BIA thereby helping IHS provide high-quality med-
operations funding goes for basic, high-priority ical services to Native Americans.
reservation-level programs such as education,
BIA and IHS will continue to promote
social services, law enforcement, housing im-
Tribal self-determination through local deci-
provement, and natural resource management.
sion-making. Tribal contracting and self-gov-
The budget also would enable DOI’s Office ernance compacting now represent half of
of Special Trustee to continue to improve the BIA operations budget, and over a third
the management of Indian trust funds. In of the IHS budget. Self-governance compact
December 1996, DOI sent a report to Congress agreements, which give Tribes greater flexibil-
that outlined legislative settlement options ity to administer Federal programs on reserva-
for resolving disputed balances in Tribal tions, will likely grow in number to over
trust accounts. For any settlement, the Admin- 70 in BIA in 1998, a 40-percent increase
istration is determined to achieve fairness from 1997, and to over 35 in IHS.
and justice with respect to these accounts.
Finally, the Administration continues to
DOI will continue consulting with Tribes
stress the spirit of consultation and recognition
on settlement options and submit a follow-
of the unique status of Native Americans.
up report to Congress this Spring.
In August 1996, Tribal leaders attended the
For the IHS—whose clinical services are second annual White House meeting—marking
often the only source of medical care available the anniversary of President Clinton’s historic
on remote reservation lands—the budget pro- April 1994 meeting with over 300 Tribal
poses $2.4 billion, three percent more than leaders. At last year’s meeting, the First
in 1997. Along with higher funding, IHS Lady and three Cabinet officials highlighted
and the Health Care Financing Administration progress on improving Government-to-govern-
102 THE BUDGET FOR FISCAL YEAR 1998

ment relations with Tribes and assisting $4.3 billion unfunded liability. The District
the Native American community. In addition, would establish new plans for its current
the Administration unveiled a number of and future employees.
initiatives to improve Federal programs for
• Criminal justice: The Federal Government
Tribes.
would provide full funding for the Dis-
trict’s Court System (which would remain
The District of Columbia self-managed), take over the District’s
The Nation’s capital, which should serve Lorton prison facility and its currently
as a symbol of pride to all Americans, sentenced felons, and assume responsibil-
has fallen on hard times. It faces not only ity for incarcerating District felons in the
serious budget problems, but even serious future who are sentenced in accordance
obstacles to providing the most basic services with Federal standards.
to its residents. • Medicaid: The Federal Government would
But no simple solution will do. For as assume the roles normally played by the
the President said recently, the District of Federal and State governments under this
Columbia suffers from the ‘‘not quite’’ syn- Federal-State program, paying 70 percent
drome—‘‘not quite a State, not quite a city, of Medicaid spending in the District (com-
not quite independent, not quite dependent.’’ pared to the current 50 percent share).
In managing its resources and performing In exchange, the Federal Government would
public functions, the District is not like end the Federal payment to the District,
other cities, which receive assistance from which most recently was $712 million. The
their States. In fact, the District has broad Federal Government, however, would agree
responsibilities for what are, elsewhere in to this exchange of responsibilities only if
the Nation, separate State, county, and local the District took specific steps to improve
functions. And while Congress has voted its management and performance. The Admin-
to give the city a lump sum annual payment istration, the Mayor, the City Council, and
in recent years, it has kept the payment the District of Columbia Financial Assistance
basically flat while imposing strict limits Authority would enter a Memorandum of
on the District’s budget and taxing powers. Understanding, setting forth the District’s
Clearly, the current structure does not obligations to meet specific criteria.
work. The Administration proposes to signifi-
Second, the Federal Government would es-
cantly re-order the relationship between the
tablish the National Capital Infrastructure
Federal and city governments in order to
Fund (NCIF), and would provide seed money
revitalize the Nation’s capital and to improve
from the Federal Highway Trust Fund to
self-government within the District. Specifi-
fund it. The NCIF would fund transportation
cally, the Administration proposes a three-
infrastructure projects in the District to benefit
part strategy to improve the city’s financial,
residents and commuters alike—including the
managerial, and economic resources.
construction of local roads, bridges, and transit
First, the Federal Government would di- facilities.
rectly assume certain public functions in
Third, the Federal Government would create
which it has a clear interest:
an economic development corporation (EDC)
• Pensions: The Federal Government would to provide grants and tax incentives for
take over the District’s pension plans for economic development. The EDC would craft
law enforcement officers and firefighters, a strategic economic development plan for
teachers, and judges, thus resuming re- the District, and recommend how to use
sponsibility for the unfunded pension li- various financial incentives that the Federal
ability that it transferred to the District Government would provide. It would build
in 1979. The District would transfer to the local economic markets, develop strategies
Federal Government (or its designee) $3.3 to link District residents to newly-created
billion in associated pension assets, leav- jobs, and help the District foster regional
ing the Federal Government to assume the economic strategies.
6. RESTORING THE AMERICAN COMMUNITY 103

And fourth, Federal departments and agen- through the President’s inter-agency Task
cies would give the District more intensive Force on the District of Columbia.
technical assistance in education and training,
housing, transportation, health care, and pro- The President’s plan for the District of
curement, in order to contribute more to Columbia reflects his overall goals for the
the District’s success. For instance, the Inter- Nation. It would increase opportunity for
nal Revenue Service would assume responsibil- District residents, demand responsibility from
ity to collect the District’s individual income the District government, and build a strong
and payroll taxes. This fourth step would community in the Nation’s capital that all
build on the Administration’s activities Americans can look to with pride.
7. IMPLEMENTING WELFARE REFORM

. . . [W]e have an historic opportunity to make welfare what it was meant to be—a second
chance, not a way of life. And even though the bill has serious flaws that are unrelated to welfare
reform, I believe we have a duty to seize the opportunity it gives us to end welfare as we know it.
President Clinton
July 31, 1996

Not long ago, America’s welfare system that are unrelated to reforming welfare. With
was broken. It did not serve the taxpayers this budget, the President provides $18 billion
or those trapped in it. And it undermined over five years to address these problems.
the values of work and family. In the meantime, the essential long-term
task of building the new work-based system
The President made welfare reform a key
is underway in every State.
goal of his first term—reform that would
promote the basic goals of work, family, The new welfare law has laid the ground-
and responsibility. When Congress twice sent work for moving those who can work to
him welfare legislation that did not meet independence by focusing on tough, but realis-
those goals, he was forced to veto the bills. tic, work requirements. The law repealed
When, however, Congress finally produced Aid to Families with Dependent Children
a bill that did meet the basic goals, the (AFDC), a 60-year-old, joint Federal-State
President signed it into law on August 22, program, and created the time-limited, work-
1996 as the Personal Responsibility and Work oriented Temporary Assistance for Needy Fam-
Opportunity Reconciliation Act. ilies (TANF) program. States must now imple-
ment the new law by tailoring a reform
During the many months that Congress
plan that works for their communities. The
worked to devise a good bill, the President
plans must require and reward work, impose
acted on his own. He helped States advance
time limits, increase child care payments,
the goals of welfare reform by letting them
and demand personal responsibility. By mid-
test innovative ways to move people from
December 1996, the Federal Government al-
welfare to work and to protect children.
ready had certified 21 State plans as complete.
The Administration’s actions, combined with
the falling unemployment rate that a strong To better enable welfare recipients to move
economy has generated, are having an impact. off, and stay off, welfare, the new law
Since the President took office, welfare case- provides additional resources for child care
loads have fallen by 2.1 million persons— and Medicaid—the health insurance program
the biggest such drop in history (see Chart for low-income Americans. It ensures that
7–1). low-income people do not lose Medicaid as
a result of changes to AFDC and extends
The Administration is determined to help
the transitional Medicaid program that pro-
States make the most of this historic welfare
vides health insurance coverage for those
reform revolution, and to hold them account-
leaving welfare for work.
able for results. The new law gives States
and individuals unprecedented opportunities Finally, the law gives States vast flexibility
to build a new system that rewards work, to design welfare programs suitable to their
invests in people, and demands responsibility. own needs and circumstances, but it also
Unfortunately, the law also included overly holds States accountable for making welfare
deep budget cuts—primarily affecting nutrition reform a success. The law requires a sustained
programs, legal immigrants, and children— State financial contribution, but also recog-
105
106 THE BUDGET FOR FISCAL YEAR 1998

Chart 7-1. WELFARE ROLLS DECLINED AS THE ECONOMY IMPROVED


AND AS STATES EXPERIMENTED WITH WELFARE INNOVATIONS
PARTICIPANTS IN MILLIONS

28
FOOD STAMPS

27

26

25

AFDC
14

13

12

JAN-93 DEC-93 NOV-94 OCT-95 SEP-96

nizes that State welfare systems need an Welfare-to-Work Jobs Challenge: The
incentive to focus on the central goal of Jobs Challenge is designed to help States and
moving people from welfare to work. Con- cities move a million of the hardest-to-employ
sequently, the law provides $800 million welfare recipients into lasting jobs by the year
in performance bonuses by the year 2002 2000. It provides $3 billion in mandatory fund-
to reward States that best achieve that ing for job placement and job creation. States
goal. and cities can use these funds to provide sub-
sidies and other incentives to private business.
Moving From Welfare to Work The Federal Government also will encourage
States and cities to use voucher-like arrange-
To help welfare recipients move from welfare ments to empower individuals with the tools
to work, and to help communities help them and choices to help them get jobs and keep
do so, the President proposes two new initia- them.
tives:
Work Opportunity Tax Credit: For States
• a performance-based Welfare-To-Work and cities, TANF and the Jobs Challenge pro-
Jobs Challenge to help States and cities vide new resources to create jobs and prepare
create job opportunities for the hardest- individuals for them. For employers, the budg-
to-employ welfare recipients; and et proposes incentives to create new job oppor-
• a greatly-enhanced and targeted Work Op- tunities for long-term welfare recipients. The
budget would first create a much-enhanced
portunity Tax Credit (WOTC) to provide
credit that focuses on those who most need
powerful new, private-sector financial in-
help—long-term welfare recipients. The new
centives to create jobs for long-term wel-
credit would let employers claim a 50-percent
fare recipients.
credit on the first $10,000 a year of wages,
7. IMPLEMENTING WELFARE REFORM 107

for up to two years, for workers they hire who information about the Fund, see Chapter
were long-term welfare recipients. In addition, 6.)
the budget expands the existing WOTC tax
credit by including able-bodied childless adults Helping To Make Work Pay
aged 18 to 50 who, under the Administration’s
Food Stamp proposal, would face a more rigor- Earned Income Tax Credit (EITC): As an
ous work requirement in order to continue re- important component of helping people move
ceiving Food Stamps. These changes to the from welfare to work, the Federal Government
credit would cost $552 million from 1998 to can help ensure that those who work can sup-
2002. port their children. The EITC, a 20-year-old
Federal program, supplements earnings to
Additional Support: The budget also pro- meet this goal. In 1993, the President pro-
poses additional support to help move people posed, and Congress enacted, legislation to
from welfare to work. substantially expand the EITC, helping 40 mil-
lion Americans in 15 million lower-income
• Transportation: The budget proposes to ex-
working families (see Chart 7–2). The welfare
pand programs that will transport thou-
law maintains these gains for hard-working,
sands of welfare recipients to jobs and
low-income families.
training. It provides $100 million for a
new Access to Jobs and Training initiative Minimum Wage: President Clinton consist-
in the Transportation Department. The ently supported an increase in the minimum
Administration also will propose legisla- wage for all low-wage earners. Before he took
tion to offer grants to States and local en- office, the last increase came in 1991. Due to
tities for new or modified transportation inflation, the minimum wage shrank in value
services that ensure access to work for by 13 percent from 1991 to 1996. As a result,
low-income individuals, especially current Congress responded to the President’s request
welfare recipients. last year by raising the minimum wage from
$4.25 to $5.15 an hour over two years—in two
• Housing: The budget proposes $10 million steps. The first step of 50 cents went into ef-
to expand the Department of Housing and fect in October 1996; the second step of 40
Urban Development’s (HUD) Bridges-to- cents will occur in October 1997.
Work demonstration project, which links
This 90-cent rise means over $1,800 a
low-income people in central cities to job
year in higher earnings for full-time, full-
opportunities in surrounding suburbs. In
year minimum wage workers, who previously
addition, HUD will award new portable
earned less than $9,000 a year. By October
rental assistance to localities that link
1997, nearly 10 million working Americans
their housing assistance with their efforts
will have received an immediate pay raise.
to move welfare recipients to work.
Millions of other low-wage workers making
• Adult Education: The budget proposes to slightly more than the new minimum also
increase funding by more than 50 percent may benefit if employers raise their paychecks
over the 1996 level for basic skill, high in step with the minimum wage increase—
school equivalency, and English classes for as employers have done in the past.
disadvantaged adults—helping to meet de-
mands for literacy training stimulated by Protecting the Most Vulnerable
last year’s welfare and immigration re-
Several provisions in last year’s Personal
forms.
Responsibility and Work Opportunity Act have
• Community Development: The budget also nothing to do with the goals of welfare
proposes to expand the Community Devel- reform—moving people from welfare to work.
opment Financial Institutions Fund, there- Rather, they were misguided cuts in Federal
by expanding the availability of credit, in- support to vulnerable populations, including
vestment capital, financial services, and the elderly, children, and people with disabil-
other development services in distressed ities. To address them, the President proposes
urban and rural communities. (For more to better protect children, people with disabil-
108 THE BUDGET FOR FISCAL YEAR 1998

CHART 7-2. 1993 EXPANSION OF THE EITC HELPS 15 MILLION


LOWER-INCOME WORKING FAMILIES

EITC AMOUNT
$4,000
OBRA 1993
$3,500

$3,000

$2,500
OBRA 1990
$2,000

$1,500
TAX REFORM, 1986

$1,000

$500

$0

0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000

1996 DOLLARS INCOME

ities, legal immigrants, and those who try Another 2.5 million children a day receive
to find work but cannot. nutritious subsidized meals in child care
settings.
Nutrition Safety Net: Throughout its nego-
tiations with Congress over welfare reform, the As the President stated clearly last summer,
Administration insisted on maintaining the Congress cut Food Stamps too deeply. Many
nutritional safety net because it provides an of these cuts have nothing to do with moving
essential tool to enable lower-income families people from welfare to work—they affect
and individuals to buy food and obtain nutri- working families with children, the elderly,
tious meals for their school-age children. Due and people with disabilities.
to the Administration’s efforts, Food Stamps
The deep cuts disproportionately affect those
remains the most extensive Federal safety net
with high housing costs, especially families
program for low-income individuals and fami-
with children. With these cuts, families will
lies.
see their real benefits erode over time as
Throughout their history, the Agriculture living costs rise, forcing them to choose
Department’s Food Stamp and Child Nutrition between paying the rent and eating. The
programs have produced significant, measur- President proposes to ameliorate these cuts
able benefits in the nutrition of children by restoring the link between benefits for
and families. Food Stamps reach almost one such families and housing costs. He also
in 10 Americans every month—including over proposes to raise the vehicle asset limit
12 million children and two million elderly. for Food Stamp program participants so that
In addition, about 26 million children receive benefits do not fall when working families
subsidized nutritious lunches each school day. and others secure a means to get to work.
7. IMPLEMENTING WELFARE REFORM 109

To achieve savings, the new law also limited The President believes that legal immigrants
Food Stamps for able-bodied childless adults should have the same opportunity, and bear
to three months of assistance in a 36- the same responsibility, as other members
month period. This time limit does not reflect of society. Thus, the budget proposes to
the reality that most Food Stamp recipients revise the law so that legal immigrants
face—that finding work takes time. Nearly who become disabled after entering our coun-
60 percent of all new participants in the try can get the basic assistance offered by
Food Stamp program leave within six months. Supplemental Security Income (SSI)—as well
Only 13 percent of the childless adults enter- as by Medicaid. The Nation should protect
ing the program still receive benefits after legal immigrants and their families—people
18 months. Once they leave, most childless admitted as permanent members of the Amer-
adults do not return. The President proposes ican community—when they suffer accidents
to limit Food Stamps to six months out or crippling illnesses that prevent them from
of 12, a policy that would encourage work earning a living. Similarly, the Nation should
while giving those out of work the transitory provide Medicaid to legal immigrant children
help they need to get back on their feet. if their family is impoverished. The Adminis-
tration also proposes to delay the ban on
The time limit also punishes those who Food Stamps for legal immigrants until the
want to work, but who cannot find a job end of September 1997 in order to give
at all. The budget proposes to restore Food immigrants more time to naturalize.
Stamps for those who are looking for work
but cannot find it and for whom the State Finally, the budget would lengthen, from
does not provide workfare or a training five to seven years, the exemption to the
opportunity. The President proposes to make ban against refugees and asylees receiving
Food Stamp work requirements real by giving Federal benefits. The Nation admits refugees
States new funding to support nearly 400,000 and asylees on a humanitarian basis, and
more work slots from 1998 to 2002, and we should be sensitive to their special needs.
by adding tough new sanctions for those Many refugees and asylees may need more
who are offered jobs by the State but refuse time to naturalize than the law allows.
to accept them. In addition, the budget would Supplemental Security Income: The SSI
allow States, at their option, to provide program provides critical financial support to
funds with which employers would supplement the needy who are elderly, are blind, or who
the wages of childless adult recipients. have disabilities. The new law was designed
Equity in Benefits for Legal Immigrants: to target disability benefits to needy children
By specifically cutting benefits to low-income with the most severe limitations by changing
legal immigrants as a source of savings, the the general definition of childhood disability.
new law affected legal immigrants—many of The Administration and Congress agree that
them children, elderly, and people with disabil- most children now receiving disability benefits
ities—more adversely than any other group. deserve them. In implementing the law
The law denies most legal immigrants access through regulation, the Social Security Admin-
to fundamental safety net programs unless istration will closely monitor its impact to en-
they become citizens—even though they are in sure that children with the most severe dis-
the United States legally and are making abilities retain eligibility. In addition, the
President will propose legislation to allow dis-
every effort to become productive members of
abled children now receiving Medicaid to re-
society. Many legal immigrants may face un-
tain their coverage if they lose their SSI eligi-
foreseen problems before they can naturalize.
bility due to changes in the definition of child-
Nevertheless, the bill punishes those who have
hood disability.
worked, but who no longer can through no
fault of their own. It makes short-sighted cuts The Ongoing Challenge of Improving
by barring cash and medical assistance to im- Welfare: The Administration is committed to
migrant children with disabilities. Finally, it working with Congress and the States to im-
places significant new administrative burdens plement welfare reform effectively. Implemen-
on State and local service providers. tation will be both challenging and exciting.
110 THE BUDGET FOR FISCAL YEAR 1998

If the Administration discovers significant im- foster care to safe, permanent homes—with
pediments to successful welfare reform, such the goal of doubling, by the year 2002,
as inadequate funding for States during reces- the number of children adopted or perma-
sions, we will work with Congress to address nently placed. It would provide incentives
them. to States for increasing adoption while stress-
ing permanent placement and the safety
Promoting Security and Stability for
of children.
Children
The Administration proposes a new initia-
tive to move children more quickly from
8. PROMOTING TAX FAIRNESS

We should cut taxes for the family sending a child to college, for the worker returning to col-
lege, for the family saving to buy a home or for long-term health care, and [provide] a $500 per-
child credit for middle-income families raising their children . . . . That is the right way to cut
taxes—pro-family, pro-education, pro-economic growth.
President Clinton
August 29, 1996

The President proposes a tax plan that working families by expanding the Earned
would promote a fairer tax system and encour- Income Tax Credit (EITC), and to help small
age activities that contribute to economic business by increasing ‘‘expensing’’ 1 of invest-
growth—in short, a plan focused on fairness ment and capital gains incentives. A year
and America’s future. later, he proposed his Middle Class Bill
of Rights, including child tax credits, deduc-
The plan calls for tax cuts that would
tions for higher education, and expanded
benefit middle-class families with children,
Individual Retirement Accounts. Then in 1996,
encourage investment in higher education,
he signed into law a number of other tax
and promote long-term saving. It would benefit
benefits for small businesses and their employ-
millions of homeowners by ensuring that
ees—including even more expensing for small-
over 99 percent of home sales are exempt
business investments, greater deductibility of
from capital gains taxes. It would provide
health insurance premiums for the self-em-
incentives for employers to hire economically
ployed, and expanded and simplified opportu-
disadvantaged Americans, so they would bene-
nities for retirement savings. Also in 1996,
fit from wages rather than welfare. It would
the President signed into law a $5,000 tax
provide targeted relief to promote economic
credit for adoption expenses ($6,000 for adopt-
development and environmental cleanup in
ing children with special needs) and higher
distressed areas. It would give estate tax
limits for tax-deductible contributions by
relief to small businesses and farmers. And
spouses to Individual Retirement Accounts.
it would make the tax system more equitable
for people with disabilities who are seeking This year, the budget again proposes the
refunds. President’s Middle Class Bill of Rights. It
The proposal is also fiscally responsible. would immediately and significantly benefit
The budget fully offsets the costs of these families with young children, encourage invest-
tax cuts by making cuts in spending and ment in post-secondary education and training,
in unnecessary corporate subsidies and other and promote long-term saving. This year’s
unwarranted tax breaks. tax plan also goes further—it includes more
tax incentives and relief with regard to
This chapter provides an overview of the education and training, work opportunities,
President’s tax plan. (See Table 8–1 for capital gains on home sales, and the legal
a summary of the plan.) Chapter 3 of Analyt- limits faced by people with disabilities who
ical Perspectives provides further details. seek tax refunds.
The Middle-Class Tax Cut Tax Credit for Dependent Children: The
budget proposes an income tax credit for each
The President has long considered tax cuts dependent child under age 13, as the President
for middle-income Americans and small busi- first proposed in 1994. The credit would bene-
nesses a top priority. In 1993, he worked
with Congress to cut taxes for 15 million 1 That is, up-front deductions.

111
112 THE BUDGET FOR FISCAL YEAR 1998

Table 8–1. THE PRESIDENT’S TAX PLAN


(In billions of dollars)

Estimate Total,
1998–
1997 1998 1999 2000 2001 2002 2002

Provide tax relief:


Middle Class Bill of Rights:
Tax credit for dependent children ............................. –0.7 –9.9 –6.8 –8.6 –10.4 –10.4 –46.0
Expand individual retirement accounts .................... .......... –1.5 –0.5 –0.8 –1.2 –1.7 –5.5
Incentives for education and training ....................... –0.1 –4.0 –6.2 –7.8 –8.6 –9.4 –36.1

Subtotal, Middle Class Bill of Rights ............. –0.8 –15.4 –13.5 –17.2 –20.2 –21.4 –87.6
Additional targeted tax relief:
Capital gains exclusion on sale of principal residence –0.1 –0.3 –0.3 –0.3 –0.3 –0.2 –1.4
Extend the work opportunity tax credit for one year .......... –0.1 –0.2 –0.1 –* –* –0.4
Targeted welfare-to-work tax credit ............................. .......... –0.1 –0.1 –0.2 –0.1 –0.1 –0.6
Tax incentives for distressed areas .............................. –* –0.4 –0.5 –0.5 –0.5 –0.4 –2.3
Tax credit for investment in community development
institutions and venture capital funds ..................... .......... –* –* –* –* –* –*
Extend the R&E tax credit for one year ...................... –0.4 –0.8 –0.5 –0.2 –0.1 –* –1.7
Extend the orphan drug credit for one year ................ –* –* –* –* –* –* –*
Extend the income exclusion for employer-provided
educational assistance through 2000 ........................ –0.1 –0.6 –0.7 –0.8 –0.2 .......... –2.3
Extend and modify credit for corporations in U.S.
possessions .................................................................. .......... –* –0.1 –0.1 –0.1 –0.1 –0.4
District of Columbia tax incentive ................................ .......... –* –* –0.1 –0.1 –0.1 –0.3
Estate tax relief for small business .............................. .......... –* –0.2 –0.2 –0.2 –0.2 –0.7
Equitable tolling ............................................................. .......... .......... .......... .......... –* –* –0.1
Tax benefits to Foreign Sales Corporations for soft-
ware licenses ............................................................... –* –0.1 –0.1 –0.1 –0.1 –0.1 –0.6
Extend the deduction for contributions of appreciated
stock to private foundations for one year ................. .......... –* –* .......... .......... .......... –0.1

Total, Provide tax relief ........................................ –1.4 –17.9 –16.2 –19.6 –21.9 –22.8 –98.4
Eliminate unwarranted benefits ................................ 0.6 4.1 6.3 7.3 7.6 8.9 34.3
Other changes affecting receipts ............................... .......... 1.0 1.1 1.1 1.2 1.1 5.5
Extension of expired excise tax provisions ............. 2.4 5.8 7.5 7.5 7.7 7.8 36.2
Total proposals ............................................................... 1.6 –7.0 –1.4 –3.7 –5.5 –4.9 –22.4

* Less than $50 million.

fit about 18 million families with 34 million This tax cut would benefit middle-income
dependent children. It would be phased in, families; they have not enjoyed large gains
starting at $300 per child in tax years 1997 in their incomes over the past 25 years.
through 1999, and rising to $500 in 2000 and For a two-parent, two-child family with
beyond. It would be phased out for taxpayers $50,000 of income and $12,500 of itemized
with adjusted gross incomes between $60,000 deductions, the credit would cut taxes by
and $75,000. Starting in the year 2001, the 25 percent when fully in place in 2000.
credit and the phase-out range would be in- In total, the credit would lower families’
dexed for inflation. The credit would be non- taxes by $46 billion from 1998 to 2002.
refundable, but working families would first
deduct the child credit from their income taxes HOPE Scholarships and the Education
before deducting the refundable EITC—mak- and Job Training Tax Deduction: The
ing it easier for them to get the benefit of President believes that the tax system should
both credits. better encourage investment in college edu-
8. PROMOTING TAX FAIRNESS 113

cation and job training. Therefore, the budget $50,000 and $70,000. The plan also would
proposes: index for inflation both of these limits and the
current maximum contribution of $2,000.
• HOPE scholarships, which are tuition tax
credits of up to $1,500 per year, available In addition, the budget proposes that eligible
for the first two years of post-secondary taxpayers be able to contribute to a ‘‘Special
education. To receive the credit in the sec- IRA’’ as an alternative to a deductible IRA.
ond year, the student must maintain at Contributions to Special IRAs would not be
least a B average. The $1,500 amount (for tax deductible, but distributions of the con-
each of two years) is a per student cap.2 tributions would be tax-free. If contributors
HOPE scholarships are modeled after a kept their funds in the account for at least
successful program in Georgia. five years, earnings on the contributions
would be available tax-free, too. Many tax-
• The education and job training deduction,
payers would be eligible to convert deductible
which would be available to families for
tuition and fees for any college, graduate IRAs to Special IRAs. Also, contributors to
school, or qualified lifelong learning pro- both types of IRAs could, under this proposal,
gram. The deduction, which the President withdraw funds without penalty at any time
first proposed in 1994, would phase up to pay for higher education, first-time home
from an annual cap of $5,000 per family purchases, or expenses during a long period
in 1997 and 1998 to $10,000 in 1999 and of unemployment.
beyond. It would cover tuition at any edu- The greater availability of IRAs would
cation or training program that is at least enable many two-earner families to cut their
half-time or related to a worker’s career. taxes by up to $1,120 a year, if they make
Students who use the HOPE scholarships the maximum allowable IRA contributions.
in their first two years of schooling could From 1998 to 2002, it would cut taxes
claim the tax deduction in their remaining by an estimated $5.5 billion.
years of qualified education or training (al-
though families could not claim both the Additional Targeted Tax Incentives and
credit and the deduction for the same stu- Relief
dent at the same time).
Targeted Homeownership Tax Cut: The
Both the credit and the deduction would budget proposes to allow married taxpayers to
be phased out for joint filers with incomes exclude from capital gains taxes up to
between $80,000 and $100,000. For single $500,000 in gains from selling a home; single
filers, the benefits would phase out between
taxpayers could exclude up to $250,000. The
$50,000 and $70,000. From 1998 through
exclusion would replace both the one-time ex-
2002, these two provisions would save tax-
clusion of $125,000, now available for tax-
payers $36.1 billion.
payers over age 55, and the deferral of capital
Expanded Individual Retirement Ac- gains, now available when purchasing a more
counts (IRAs): The budget also repeats an- expensive home.
other proposal from 1994—to expand IRAs to
This change would exempt over 99 percent
provide greater incentives for long-term sav-
of home sales from capital gains taxes, and
ings for retirement and other important pur-
dramatically simplify taxes and record-keeping
poses. Currently, for taxpayers who participate
for over 60 million homeowners. It would
in employer-sponsored retirement plans and
benefit, in particular, older Americans moving
file joint returns, the tax code phases out the
to smaller homes and families moving to
availability of deductible IRAs between
lower-cost areas. Taxpayers could use the
$40,000 and $50,000 of adjusted gross income.
exclusion every two years.
The President’s plan would double this range
over time, to $80,000 and $100,000, and double Work Opportunity Tax Credit: The Presi-
the range for single taxpayers to between dent wants to replace welfare with work, and
2 The budget also would increase Pell Grant college scholarships
to promote the hiring of the economically dis-
for low-income families who lack the tax liability to benefit from advantaged. The President and Congress last
the tax cuts. year enacted the Work Opportunity Tax Credit
114 THE BUDGET FOR FISCAL YEAR 1998

(WOTC) to replace the Targeted Jobs Tax investments in qualified CDFIs. (For more
Credit. Employers can claim a tax credit of information on CDFIs, see Chapter 6.)
35 percent of the first $6,000 that they pay
Research and Experimentation Tax
to members of target groups during their first
Credit (R&E): The budget proposes to extend
year of employment.
the R&E tax credit for one year, from its cur-
In August, the President also unveiled rent expiration date of May 31, 1997 to May
a Welfare-to-Work initiative, with two propos- 31, 1998. 3 It provides a credit against 20 per-
als that would build on the WOTC: cent of a business’s qualified research spending
above a base level. Research and experimen-
• A new Welfare-to-Work Credit, targeted to
tation contribute greatly to the Nation’s
long-term welfare recipients. It would let
growth in productivity, and the private sector
employers claim a 50-percent credit on the
may under-invest in this activity in the ab-
first $10,000 of annual wages that they
sence of this Federal incentive.
pay to long-term welfare recipients for up
to two years. It would treat education and Employer-Provided Education: The budg-
training, health care, and dependent care et proposes to extend, through December 31,
benefits as wages eligible for the credit. 2000, the income exclusion for employer-pro-
vided educational assistance that Congress re-
• An expansion of the WOTC to include
cently extended through mid-1997, and to ex-
able-bodied childless adults aged 18 to 50
pand the exclusion to cover graduate edu-
who, under the Administration’s Food
cation. The exclusion enables employees to get
Stamp proposal, would face a more rigor-
additional forms of training and education ben-
ous work requirement in order to continue
efits without facing income taxes on those ben-
receiving Food Stamps.
efits. Small businesses also would be able to
Tax Incentives to Boost Investment in claim a 10-percent tax credit for providing
Distressed Areas: The budget proposes a such benefits to their employees.
three-part strategy to increase investment in
disadvantaged areas: Economic Incentives for U.S. Businesses
in Puerto Rico: The budget proposes to mod-
• Expanded Empowerment Zones (EZs) and ify Section 936 of the tax code, which allows
Enterprise Communities (ECs): The budget U.S. companies to claim a credit against the
proposes a second round of competition to tax they pay for income that they derive in
designate additional EZs and ECs and pro- Puerto Rico—specifically, to extend the avail-
vides over $1 billion in tax incentives to ability of the economic activity credit and to
these areas through 2002. Among other allow new firms to claim it.
things, the plan would create 20 new EZs
and 80 new ECs. The plan promises to Estate Tax Benefits for Closely Held
mobilize communities to promote business Businesses: The budget proposes to ease the
development and create jobs. (For more in- burden of estate taxes on farms and other
formation on EZs and ECs, see Chapter small businesses, allowing their owners to
6.) defer taxes on $2.5 million of value, up from
$1 million under current law. The deferred
• Brownfields Cleanup: The budget proposes taxes could be paid over 14 years, at a favor-
to allow businesses to deduct, in the year able interest rate. In addition, the budget
incurred, certain costs associated with would expand the types of businesses eligible
cleaning up ‘‘brownfields’’—contaminated, for such treatment by making the form of busi-
and often abandoned, industrial sites—in ness organization irrelevant. It also would cut
economically distressed urban and rural the administrative burden on taxpayers who
areas. (For more information on elected deferral.
brownfields, see Chapter 3.)
• Community Development Financial Insti-
3 The credit, which was first enacted in 1981, expired in mid-

1995. The Small Business Job Protection Act of 1996, however, re-
tution (CDFI) Tax Credits: The budget pro- instated the credit for the period from July 1, 1996 to May 31,
poses non-refundable tax credits for equity 1997.
8. PROMOTING TAX FAIRNESS 115

Equitable Tolling: The budget proposes to • Clarifies the treatment of new financial
extend the period during which taxpayers with instruments that aim to exploit the dif-
serious disabilities can file claims for refunds, ferent tax treatment of equity and debt,
helping to ensure that such taxpayers are not by denying or deferring interest deduc-
unfairly disadvantaged by the tax system. tions on certain instruments that have
substantial equity features.
Unwarranted Benefits and Other • Limits the ability of some corporations to
Measures deduct the cost of interest associated with
purchasing tax-exempt debt.
The budget eliminates or shrinks a wide
range of tax loopholes and preferences that • Increases the penalty for substantial un-
are no longer warranted. Some involve highly derstatement of taxes, to reduce incentives
specialized financial and accounting tech- for excessively aggressive tax planning by
niques. Restricting them would help balance corporations with tax liabilities of $100
the budget, increase the equity and efficiency million or more.
of the tax system, and keep corporations Finally, the plan extends the Airport and
focused on productivity and profits, rather Airway excise taxes, the Leaking Underground
than on tax minimization. Storage Tank excise tax, and the Hazardous
Substance Superfund excise and corporate
For example, the plan:
income taxes, through 2007. The Administra-
• Prevents certain tax-motivated financial tion, however, will propose legislation to re-
manipulations, used to avoid capital gains place the Airport and Airway excise taxes
taxes. with fees for services that the Federal Aviation
Adminstration provides.
9. SUPPORTING AMERICA’S GLOBAL
LEADERSHIP

The challenge before us plainly is two-fold—to seize the opportunities for more people to enjoy
peace and freedom, security and prosperity, and to move strongly and swiftly against the dangers
that change has produced.
President Clinton
September 24, 1996

This budget fully supports America’s global have a great opportunity to expand the
leadership and advances our national goals— scope of democracy, further ensuring that
protecting our vital strategic interests and our interests remain unthreatened. Facing
expanding the reach of democratic governance, the dilemmas of peacekeeping, regional crises,
ensuring our influence in the international and economic change, the international com-
community, promoting sustainable develop- munity needs the United States as a leader
ment and the expansion of free markets and a full partner, meeting its international
and American exports, and responding to commitments. Advancing U.S. interests in
new international problems and humanitarian a global economy brings expanded missions
emergencies that can undermine our security. to our diplomacy and trade strategy. A less-
orderly world also creates new challenges
Protecting America’s key strategic interests
to our security—from regional and ethnic
remains a timeless goal of our diplomacy.
conflicts, the proliferation of weapons of mass
As we move toward the 21st Century, we

Table 9–1. INTERNATIONAL DISCRETIONARY PROGRAMS


(Budget authority, dollar amounts in millions)

Percent Percent
1993 1997 1998 2002 Change: Change:
Actual Estimate 1 Proposed Proposed 1993 to 1997 to
1997 2002

International development and hu-


manitarian assistance ....................... 8,900 6,644 7,712 6,978 –25% +5%
International security assistance ........ 6,148 5,928 5,959 6,041 –4% +2%
Conduct of foreign affairs .................... 4,300 3,890 4,164 4,026 –10% +3%
Foreign information and exchange ac-
tivities ................................................ 1,247 1,098 1,087 1,070 –12% –3%
International financial programs ........ 12,662 549 4,052 647 –96% +18%
IMF programs ................................... (12,063) ............... (3,521) .............. NA NA

Total, International discretionary


programs .......................................... 33,257 18,109 22,974 18,762 –46% +4%
Total, excluding IMF programs ..... 21,194 18,109 19,453 18,762 –15% +4%

NA = Not applicable.
1 Consistent with changes in the 1996 Farm Bill, the P.L. 480 Title I direct credit program has been re-
classified from International Affairs programs to Agriculture programs starting in 1996.

117
118 THE BUDGET FOR FISCAL YEAR 1998

destruction, international terrorism and crime, opposition that derived its strength from
narcotics, and environmental degradation. Russia’s severe economic distress. The Admin-
istration believes it is absolutely critical,
With such a broad agenda for leadership,
America must not withdraw into isolationism at this turning point, to demonstrate our
and protectionism or fail to provide the continuing support for democratic reform and
resources required to carry out this mission. free markets in Russia and throughout the
The budget proposes $19.5 billion for ongoing NIS; the ultimate success of this process
international affairs programs. While this is vital to our national security. Moreover,
request is seven percent above the 1997 we must begin to shape our assistance pro-
level, it constitutes only slightly over one gram in ways that support the mature trade
percent of the budget and 0.25 percent of and investment relationship that is starting
Gross Domestic Product. to emerge between the United States and
the countries in this region. Thus, the budget
Protecting American Security and proposes $900 million for NIS funding, a
Promoting Democracy 44-percent increase over 1997. The increase
The first goal of America’s international includes a Partnership for Freedom initiative,
strategy must be to promote and protect designed to initiate a new phase of U.S.
our interests in regions that historically have engagement with NIS countries focused on
been critical to our security. The Administra- trade and investment, long-term cooperative
tion’s record is encouraging. Through skilled activities, and partnerships.
diplomacy, the judicious use of military force,
The region at the heart of the Cold War
and carefully targeted bilateral and multilat-
conflict—Central Europe—has made enormous
eral economic assistance, the United States
has advanced the peace process in Europe progress toward institutionalizing free markets
and the Middle East, reducing threats to and democracy. It is no longer a threat
our interests in these key regions. Through to American and European security; it is
diplomatic leadership, economic assistance, starting to be a partner in the transatlantic
and trade negotiations, we have maintained community. The economies of the Northern
our leadership in Asia. Our goals are to tier countries, such as Poland, the Czech
secure these achievements, advance the peace Republic, and Hungary, are largely free and
process, and deepen regional cooperation in privatized; they are moving from direct assist-
the future. ance, which soon they will no longer require,
to significant economic integration with the
Perhaps the most serious national security
United States and Western Europe. At the
threat facing the Nation today hinges on
same time, countries in this region are reshap-
the course of events over the next few
ing their security relationships with the West
years in the New Independent States (NIS)
as they move toward potential membership
of the former Soviet Union. We have made
in NATO.
substantial progress in helping encourage the
emergence of free markets and democracy Central European countries in the Southern
in the NIS. In particular, our relations with tier also have made great progress. U.S.
Russia are strong. The United States has leadership has been critical in ending the
provided unwavering support for the emer- bloody hostilities in Bosnia, establishing new
gence of democracy in Russia, leading this governments through free elections, and begin-
past year to the first free presidential reelec- ning economic reconstruction. The pace of
tion in Russian history. Some other NIS reconciliation and recovery remains gradual,
countries are progressing more slowly toward and the need for continued American leader-
democracy and free markets, but overall re- ship is great. The other countries in the
gional progress has been remarkable.
southern part of this region also look to
Nevertheless, the June 1996 Russian elec- the United States to remain committed to
tions represent not only a success but a their struggle to create democratic govern-
warning—the latter embodied in the large ments and free, open markets.
vote for President Yeltsin’s opposition, an
9. SUPPORTING AMERICA’S GLOBAL LEADERSHIP 119

The budget proposes to increase funding and economic needs. It took an alliance
for economic assistance in Central Europe to win the war, and it clearly would take
to $492 million—including the final $200 an alliance to ensure the peace. We sponsored
million installment on the U.S. commitment and provided significant funding for the United
to Bosnian reconstruction. While programs Nations, the International Monetary Fund,
for the Northern tier are phasing down, and the World Bank, along with specialized
we must continue to support implementation and regional security and financial institutions
of the Dayton Peace Accords and to sustain that became the foundation of international
the emergence of free market democracies cooperation during the Cold War.
in the Southern tier. In addition, the budget
To ensure financial stability for this inter-
seeks to increase support for foreign military
national community, the members of many
financing for the countries of Central and
of these organizations entered into treaties
Eastern Europe through the President’s Part-
or similar instruments committing them to
nership for Peace initiative, which will facili-
pay shares (or ‘‘assessments’’) of the organiza-
tate their efforts to meet the conditions
tions’ budgets. Congress ratified these agree-
for membership in NATO.
ments, making them binding on us. For
Our strategic interest in peace in the international financial institutions, like the
Middle East is as strong as ever. The peace World Bank and its regional partners, the
process has achieved much already. The need United States has made firm commitments
for reconciliation remains urgent, and America to regular replenishments, subject to the
continues to play a leadership role in the congressional authorization and appropriations
effort to craft a durable, comprehensive re- processes.
gional peace. The budget proposes $5.3 billion
for military financing grants and economic Now, America’s leadership in this inter-
support to sustain the Middle East peace national institutional network is threatened.
process. The proposed increase of nearly $100 In recent years, Congress has not fully appro-
million includes $52.5 million for an initial priated the funds needed to meet the treaty-
U.S. contribution for the Bank for Economic bound assessments of international organiza-
Cooperation and Development in the Middle tions or our commitments to the multilateral
East and North Africa, which will play a banks. As a result, U.S. arrears now total
key role in promoting regional economic inte- over $1 billion to the United Nations and
gration. The budget also provides additional other organizations, much of it for peacekeep-
security assistance to Jordan, recognizing that ing operations, and over $850 million to
country’s needs and its important contribution financial institutions. Congress has raised
to the peace process. some legitimate concerns about how these
organizations operate, but America’s failure
The rest of our economic and security to meet its obligations has undercut our
assistance programs are designed to support efforts to achieve reforms on which the Admin-
peace and democracy in countries and regions istration and Congress agree. Today, our
where our leadership has helped those proc- ability to lead, especially in the process
esses emerge: consolidating democratic gains of institutional reform, is being seriously
in Haiti; supporting reconciliation and peace undermined.
in Guatemala and Cambodia; and strengthen-
ing the capacity of African governments to The Administration believes that we must
provide regional peacekeeping on that troubled end the stalemate this year—and that we
continent. can do so consistent with our goal of institu-
tional reform. With new leadership in the
United Nations, we have a unique opportunity.
Ensuring America’s Leadership in the
The budget proposes to fully fund the 1998
International Community
assessments for the United Nations, affiliated
Following World War II, the United States organizations, and peacekeeping, and to pay
assumed a unique leadership role in building $100 million of our arrears. It also seeks
international institutions to bring the world’s a one-time, $921 million advance appropriation
nations together to meet mutual security for the balance of U.N. and related organiza-
120 THE BUDGET FOR FISCAL YEAR 1998

tion arrears, to become available in 1999. national financial crises. As the Mexican
The release of these appropriated arrears peso crisis demonstrated, the increased inter-
would depend on the adoption of a series dependence of our trading and monetary
of reforms in the coming year, specific to systems means that a monetary crisis in
each organization, that should reduce the any major trading nation affects all nations.
annual amount that we must pay these Consequently, the G-10 nations and a number
organizations, starting with their next biennial of other current and emerging economic pow-
budgets. These reforms would include a reduc- ers have negotiated the New Arrangements
tion in the U.S. share of organizational to Borrow (NAB), in order to provide a
budgets, management reforms yielding lower credit line for the International Monetary
organizational budgets, and the elimination Fund (IMF) in cases when a monetary crises
of, or U.S. withdrawal from, low-priority
in any country could threaten the stability
programs and organizations.
of the international monetary system. The
The Administration wants to work closely budget proposes a one-time appropriation of
with Congress to shape this package, lowering $3.5 billion in budget authority for the U.S.
out-year funding requirements while maintain- share, but it will not count as an outlay
ing strong U.S. leadership in organizations or increase the deficit; the United States
and programs important to our national inter- will receive an increase in its international
ests. Enacting the advance appropriation is reserve assets that corresponds to any transfer
an essential step in achieving these objectives. to the IMF under the NAB.
It would show that we recognize our legal
obligations and are determined to maintain
the sanctity of our treaty commitments as Promoting an Open Trading System
we press for changes in the organizations. The Administration remains committed to
It would give us the leverage to mobilize opening global markets and integrating the
support from other nations for the reforms global economic system, which has become
we seek and for the lowering of our future a key element of continuing economic prosper-
assessments. Failure to arrive at an agreed-
ity here at home. Achieving this goal is
upon solution this year will put U.S. inter-
increasingly central to our global diplomatic
national leadership at risk in the next century.
activities.
We are equally committed to restoring
our leadership in, and reforming, the multilat- We are helping to lay the groundwork
eral development banks (MDBs). Our commit- for sustained, non-inflationary growth into
ments to them represent America’s full-faith the next century by implementing the North
pledge. Moreover, the MDBs already have American Free Trade Agreement and the
undertaken significant reforms in response multilateral trade agreements concluded dur-
to Administration and congressional concerns, ing the Uruguay Round. We are conducting
including cuts in administrative expenses. a vigorous follow-up to ensure that we receive
The budget would eliminate our arrears over the full benefit of these agreements. At
the next three years while meeting ongoing the December 1996 World Trade Organization
commitments that were negotiated down by ministerial meeting in Singapore, for example,
40 percent from previous funding agreements. negotiators reached agreement on lowering
The budget also includes funds to eliminate many of the remaining barriers to trade
all arrears to the World Bank’s International in information technology, which will signifi-
Development Association affiliate that lends cantly benefit U.S. firms and workers. We
to the world’s poorest countries, many of are finalizing our anti-dumping and counter-
them in Africa. Future budgets would seek vailing duty regulations, which implement
to eliminate all of the arrears, while continu- commitments made in the Uruguay Round.
ing our success in lowering the level of
future U.S. commitments. To promote other, mutually-beneficial trade
relationships, the Administration will propose
Our leadership in international institutions
legislation for ‘‘fast-track’’ authority to nego-
also has been critical in preventing inter-
9. SUPPORTING AMERICA’S GLOBAL LEADERSHIP 121

tiate greater trade liberalization.1 It also operate as economically as possible, the Bank
will propose to extend the authorization of is considering raising some fees, thereby
the Generalized System of Preferences for lowering net spending in 1998 while maintain-
developing countries beyond its current expira- ing a strong overall level of export support.
tion date of May 31, 1997 and to give The Overseas Private Investment Corporation
the eligible countries of the Caribbean Basin (OPIC) provides political risk insurance for,
Initiative expanded trade benefits. and finances, U.S. investment in developing
countries, leading to greater U.S. exports.
We are more closely integrating the Govern-
The budget proposes to maintain 1998 OPIC
ment’s trade promotion activities through the
funding close to the 1997 level. The Trade
Trade Promotion Coordinating Committee
(TPCC), creating a synergy among agency and Development Agency (TDA) makes grants
trade programs that will significantly improve for feasibility studies of capital projects
American business’ ability to win contracts abroad; subsequent implementation of these
overseas, and creating export-related jobs at projects can generate exports of U.S. goods
home. The budget puts a high priority on and services. The budget increases funding
programs that help U.S. exporters meet foreign for TDA over the 1997 level. With the
competition, and TPCC agencies are develop- new emphasis on trade and investment in
ing rigorous performance measures to help the NIS, the Export-Import Bank, OPIC,
ensure that programs in this area are effective. and TDA may well become important channels
for further funding directed at this region.
As discussed earlier in this chapter, U.S.
assistance is important in encouraging the Along with the Government’s financial sup-
emergence of free market economies in Central port for U.S. exports, the Commerce Depart-
Europe and the NIS, where our programs ment’s International Trade Administration
increasingly focus on facilitating a mature (ITA) promotes U.S. trade through its network
trade and investment relationship with the of Export Assistance Centers and overseas
United States. offices. These centers and offices provide
export counseling to the American sector.
Over time, our bilateral development assist- The budget proposes a slight increase for
ance, provided through the U.S. Agency for ITA compared to 1997.
International Development (USAID), likewise
promotes the emergence of growing market
Leading the Response to New
economies in developing countries by support-
International Challenges
ing market-friendly policies and key institu-
tions. Economic growth and market-oriented Another fundamental goal of our inter-
policy reforms in the developing world create national leadership, and an increasing focus
growing demand for U.S. goods and services of our diplomacy, is meeting the new
as well as investment opportunities for U.S. transnational threats to U.S. and global secu-
businesses. On a larger scale, the multilateral rity—the proliferation of weapons of mass
development banks also promote economic destruction, drug trafficking and the spread
growth and increased demand for our exports. of crime and terrorism on an international
The budget proposes that our bilateral devel- scale, unrestrained population growth, and
opment assistance and contributions to the environmental degradation. We also must
multilateral development banks grow by 25 sustain our leadership in meeting the continu-
percent—from $2.6 billion to $3.3 billion. ing challenge of refugee flows and natural
and human-made disasters.
Three smaller agencies provide U.S. Govern-
ment financial support for American exports. In 1997, the Administration will seek Senate
The Export-Import Bank is a principal source ratification of the Comprehensive Test Ban
of export assistance, offering loans, loan guar- Treaty and the Chemical Weapons Convention,
antees, and insurance for exports, primarily both critical to our long-term security and
of capital goods. To assure that its programs to preventing the spread of weapons of mass
1 Fast track is a procedure designed to expedite congressional ap-
destruction. The budget supports the imple-
proval of trade agreements between the United States and other mentation of these agreements. U.S. diplomacy
nations. and law enforcement activities are playing
122 THE BUDGET FOR FISCAL YEAR 1998

a key role in preventing the spread of Conducting Foreign Affairs


such weapons to outlaw states such as Libya,
An effective American diplomacy is the
Iraq, Iran, Syria, and North Korea. The
critical foundation for meeting our foreign
Defense Department’s Nunn-Lugar program
policy goals. The budget supports a strong
and the State Department’s Nonproliferation
U.S. presence at over 250 embassies and
and Disarmament Fund help support these
other posts overseas, promoting U.S. interests
efforts. (For more information on the Nunn-
abroad and protecting and serving Americans
Lugar program, see Chapter 10.) In addition,
by providing consular services. These activities
U.S. support for such organizations as the
include the basic work of diplomacy—the
International Atomic Energy Agency and the
reporting, analysis, and negotiations that often
Korean Peninsula Energy Development Orga-
go unnoticed but that allow us to anticipate
nization is critical to meeting our non-pro-
and prevent threats to our national security
liferation goals. as well as discover new opportunities to
U.S. bilateral assistance programs are also promote American interests. The budget pro-
critical to tackling other important poses $2.7 billion for the State Department
transnational problems. Our international to maintain its worldwide operations, modern-
counter-narcotics efforts are making real ize its information technology and communica-
progress in drug-producing countries. After tions systems, and accommodate security and
several years of deeply cutting the Administra- facility requirements at posts abroad.
tion’s budget requests for counter-narcotics The budget also proposes two significant
purposes, Congress provided the full requested innovations in State Department management.
amount for 1997, permitting the United States
to intensify its efforts to curb cocaine produc- • One would make about $600 million in im-
tion in the Andean countries by offering migration, passport, and other fees, which
growers attractive economic alternatives. The now go to the Treasury Department, avail-
budget proposes $230 million for the State able to finance State Department oper-
Department’s narcotics and anti-crime pro- ations directly. Improvements in how
grams, eight percent more than in 1997, these State Department operations per-
with most of the increase focussed on pro- form will, thus, be directly linked to the
grams in Peru. receipts they generate.

In addition, USAID development assistance • The other innovation restructures the


and U.S. contributions to international efforts, management of the diplomatic platform to
such as the Global Environment Facility, support the overseas activities of other
support large and successful programs to Federal agencies. This reform recognizes
improve the environment and reduce popu- the magnitude of the State Department’s
lation growth. The United States is the overseas administrative workload, the
recognized world leader in promoting safe need to carry it out efficiently, and the
and effective family planning projects. need to allocate the costs of overseas sup-
port fairly among agencies. With approval
Disasters, humanitarian crises, and refugee of the President’s Management Council,
flows are certain to remain central challenges the various agencies represented abroad
to our leadership. The budget continues our have designed a new overseas administra-
historically strong commitment to refugee tive arrangement—the International Coop-
and disaster relief, proposing $1.7 billion, erative Administrative Support Services
which sustains these programs at the 1997 program. The Administration will propose
level. This assistance, which reflects the hu- to fund this new arrangement in a budget
manitarian spirit of all Americans, has long amendment that it will send to Congress
enjoyed bipartisan support. shortly after transmitting the budget.
10. SUPPORTING THE WORLD’S
STRONGEST MILITARY FORCE

I want America to enter the 21st Century as the world’s strongest force for peace, freedom and
prosperity.
President Clinton
October 1996

Our defense capability sustains America’s required conflicts that undermine stability.
global leadership and provides the backbone Some of these post-Cold War threats, such
of our national security policy, safeguarding as the proliferation of weapons of mass
America’s interests, deterring conflict, and destruction, terrorism, and drug trafficking,
securing the peace, where necessary. know no national borders and can directly
threaten our free and open society.
• When America’s diplomatic leadership
helped achieve the Dayton Peace Accord, Sustaining a Strong Military Capability
our military led the effort that has
brought a year of peace in Bosnia. With The United States is the only nation with
our NATO, central European, and Russian the logistics, mobility, intelligence, and com-
partners, our military continues to secure munications capabilities required to conduct
the Bosnian accord. large-scale, effective military operations on
a global scale. Coupled with our unique
• America’s armed forces remain in the Per- position as the security partner of choice
sian Gulf, deterring war in that critical in many regions, America’s military capability
region of the world. provides a foundation for regional stability
• In Asia and the Pacific region, U.S. mili- through mutually beneficial partnerships.
tary forces provide the critical foundation The budget continues to support the defense
for peace, security, and stability, in part- policy laid out by the Administration over
nership with Japan and other nations. the past four years—to sustain and modernize
• In our own region, America’s soldiers have the world’s strongest and most ready military
supported the return of democracy in Haiti force, a force capable of prevailing in two
and helped end the exodus of refugees to nearly simultaneous regional conflicts. It fully
our shores. funds our commitment to maintain the highest
levels of training and readiness for that
To fulfill such missions, support our allies, force, and to equip our uniformed men and
and reassure our friends that America is women with the most advanced technologies
prepared to use force in defense of our in the world (see Table 10–1). The Quadren-
common interests, our armed forces must nial Defense Review, now underway in the
be highly ready and armed with the best Department of Defense (DOD), will ensure
equipment that technology can provide. In that the armed forces are shaped, trained,
the 21st Century, we also must be prepared and armed for emerging threats and missions,
and trained for new post-Cold War threats and remain capable of global military oper-
to American security, such as ethnic and ations in the next century.

123
124 THE BUDGET FOR FISCAL YEAR 1998

Table 10–1. MILITARY FORCE TRENDS


Cold War 1998 Force Target
(1990)

Army:
Divisions (active/National Guard) ........................... 18/10 10/8 1 10/8 1
Air Force:
Fighter wing (active/reserve) ................................... 24/12 13/7 13/7
Navy:
Aircraft carriers (active/training) ............................ 15/1 11/1 11/1
Air wings (active/reserve) ........................................ 13/2 10/1 10/1
Total battle force ships 2 .......................................... 546 346 330–346
Marine Corps:
Divisions (active/reserve) ......................................... 3/1 3/1 3/1
Wings (active/reserve) .............................................. 3/1 3/1 3/1
Strategic nuclear forces:
Intercontinental ballistic missiles/warheads .......... 1,000/2,450 550/2,000 500/500 3
Ballistic missile submarines .................................... 31 18 14 3
Sea-launched ballistic missiles/warheads .............. 568/4,864 432/3,456 336/not
over 1,750 3
Heavy bombers ......................................................... 324 87 4 92 4
Military personnel:
Active ......................................................................... 2,069,000 1,431,000 1,422,000
Selected reserve ........................................................ 1,128,000 892,000 889,000
1 Plus15 enhanced readiness brigades.
2 Includesactive and reserve ships of the following types: aircraft carriers, surface combatants, sub-
marines, amphibious warfare ships, mine warfare ships and combat logistics force and other support ships.
3 Upon entry-into-force of START II.
4 Does not include 95 B-1 bombers dedicated to conventional missions.

Providing the Necessary Funding the continued modernization of our military


forces.
For the Defense Department’s military func-
tions, the budget proposes discretionary fund- The budget also proposes $2 billion in
ing of $251.6 billion in budget authority 1997 emergency supplemental appropriations
and $248.4 billion in outlays for 1998. Through to fund continuing operations in Bosnia and
2002, the budget continues the Administra- Southwest Asia, and a $4.8 billion rescission
tion’s plan of the last four years, completing of 1997 defense resources to offset the cost
the careful resizing of our military forces, of the supplemental and other funding require-
ensuring full support for military readiness ments.
and quality of life programs in the near-
term, and providing for the modernization Ensuring the Nation’s Security
of our forces as new technologies become
available later in this decade and after the Expanding Arms Control.—The President
turn of the century. is strongly committed to reducing the threat
of weapons of mass destruction through arms
DOD funding keeps pace with inflation control agreements. Over the past four years,
in 1999, and then increases slightly faster the Administration has worked hard to imple-
than inflation through 2002. Over this period, ment the START I treaty, indefinitely and un-
the budget reflects the impact of marginally conditionally extend the Nuclear Nonprolifera-
lower estimates of inflation, offset by increases tion Treaty, obtain the signing of the Com-
in procurement programs necessary to ensure prehensive Test Ban Treaty (CTBT), and
10. SUPPORTING THE WORLD’S STRONGEST MILITARY FORCE 125

achieve a Conventional Forces in Europe the Department of Energy (DOE) to ensure


(CFE) Flank Agreement and terms of reference the safety and reliability of our nuclear weap-
for follow-on CFE adaptation. The START II ons stockpile. The $20.1 billion reflects the
treaty, which the Senate approved 87 to 4 on President’s commitment to $4 billion a year
January 26, 1996, awaits approval by the Rus- for five years. The year-to-year stream in the
sian Republic. Following Russian acceptance, budget reflects full ‘‘up-front funding’’ for
implementing this treaty in combination with major construction projects, which allocates a
START I will reduce the number of warheads larger share of the total cost to 1998 and lower
deployed on long-range missiles and bombers costs to later years. DOE will continue build-
to a third of the Cold War level and will elimi- ing new facilities to ensure safety and reliabil-
nate all land-based, multiple-warhead ICBMs. ity without underground testing. The Presi-
Securing the Senate’s support of the Chemi- dent is committed to the CTBT, which would
cal Weapons Convention (CWC) is one of prohibit all nuclear testing and which he
the President’s top legislative priorities for signed in September at the United Nations.
this year. It is vital to national security The Administration plans to submit the treaty
for the United States to be an original to the Senate for ratification.
party to this landmark agreement, which Developing and Deploying Defenses
will become effective on April 29, 1997. Against Tactical Ballistic Missiles.—With
The CWC will dramatically reduce the chemi- over $2 billion in proposed funding for 1998,
cal threat to U.S. servicemembers and civilians the Administration’s Theater Missile Defense
by requiring parties to eliminate existing (TMD) program will provide defenses against
stockpiles and restricting the flow of dual- missiles that directly threaten American and
use chemicals that can be used to make allied ground, naval, and air forces deployed
chemical weapons. Furthermore, a global ban abroad. Funding for TMD supports initial pro-
on the use, production, stockpiling, and trans- curement of an advanced version of the Patriot
fer of anti-personnel landmines remains a missile, as well as development of advanced
Presidential priority. systems to meet future threats.
Reducing Weapons of Mass Destruction Developing Technologies to Defend
in the Former Soviet Union.—The Coopera- Against Strategic Ballistic Missiles.—The
tive Threat Reduction program (also called the
budget proposes $0.5 billion in 1998 for a vig-
Nunn-Lugar program) has made a major con-
orous effort to develop the elements of a na-
tribution to U.S. security by ensuring a safe
tional missile defense system to protect the
and speedy relocation and dismantling of nu-
United States. Although we do not need such
clear forces in the former Soviet Union. The
a system now, the development of a contin-
budget proposes $382 million to continue this
gency capability will ensure that deployment
important program in 1998.
could proceed rapidly, if a missile threat to
Countering Proliferation of Weapons of the United States should emerge sooner than
Mass Destruction.—The budget also proposes our intelligence community now estimates. A
almost $600 million to develop capabilities to decision now to force early deployment would
locate and neutralize weapons of mass destruc- not only waste billions of dollars, it would force
tion before they can be used, and to protect adoption of immature technologies that are un-
our troops against their effects. High-priority likely to provide an effective defense.
efforts include developing the means to iden-
Ensuring Successful Contingency Oper-
tify and destroy underground storage sites,
ations.—U.S. forces have provided leadership
and methods to detect and track weapons ship-
in contingency operations that support Amer-
ments. Key efforts to protect troops against
ican interests—from monitoring U.N. sanctions
chemical and biological agents include develop-
on Iraq, to permitting the return of democracy
ing advanced detection devices, vaccines, and
to Haiti, to implementing the Dayton Peace
protective clothing.
Accord in Bosnia. The budget funds ongoing
Maintaining the Nation’s Nuclear Deter- contingency operations in Southwest Asia and
rent: The budget proposes $5.1 billion in 1998, Bosnia. Congressional approval of these funds
and $20.1 billion over the next five years, for would allow DOD to avoid redirecting funds
126 THE BUDGET FOR FISCAL YEAR 1998

from operations and maintenance programs to operational flexibility. Also, this budget is
these operations, thereby maintaining our the first to provide funds for the newly
force’s high level of readiness. established National Imagery and Mapping
Agency (NIMA), which will consolidate dispar-
Though Congress provided funding for con-
ate imagery processing and mapping activities
tingency operations in 1997, unfunded 1997
throughout DOD and the Central Intelligence
costs (mainly for Bosnia) total about $2
Agency. NIMA will more efficiently use im-
billion. To fund them, the budget proposes
agery resources and ensure that imagery
a 1997 emergency supplemental appropriation.
products are more responsive to military
The budget also proposes $2.2 billion for
commanders and civilian decision-makers.
the cost of contingency operations in 1998.
Of the $2.2 billion, $0.7 billion is included Maintaining Military Readiness
in the Services’ operation and maintenance
accounts for ongoing operations in Southwest Ensuring Adequate Resources for Readi-
Asia, and the remaining $1.5 billion is in- ness.—Maintaining the readiness and sustain-
cluded in the Overseas Contingency Oper- ability of U.S. military forces remains the
ations Transfer Account for operations in Administration’s top defense priority. The
Bosnia. budget provides full funding for operations and
support programs critical to sustaining the
Providing Humanitarian and Disaster military’s current high readiness levels. These
Assistance.—The unique capabilities and programs include unit training activities, re-
global presence of U.S. forces often dictate that cruiting and retention programs, joint exer-
DOD respond to international disasters and cises, and equipment maintenance.
human tragedies. Such responses may occur
at the direction of U.S. commanders who have DOD continues to improve its capacity
the only assets in place to respond quickly to to assess current and future military readi-
a regional problem, or at the President’s direc- ness, particularly through the Senior Readi-
tion when he determines that DOD is the ap- ness Oversight Council and the Joint Monthly
propriate agency to provide U.S. support. The Readiness Review process. These efforts en-
proposed $80 million for the Overseas Humani- hance DOD’s ability to ensure that critical
tarian, Disaster, and Civic Aid account would readiness programs receive sufficient resources
allow DOD to provide support without divert- and that our forces remain prepared to
ing readiness-related resources from their in- accomplish their missions.
tended use. Enhancing Quality of Life of Military
Establishing Information Dominance.— Personnel.—The Administration strongly sup-
Our preeminence in information technology ports quality of life programs that help attract
has helped us field the world’s strongest mili- and retain motivated and enthusiastic high-
tary force. The Administration seeks to pre- quality personnel. The budget continues this
serve information dominance in order to sup- commitment by providing a 2.8 percent mili-
port our military operations and national secu- tary pay raise, effective January 1998, and
rity strategy. substantial funding to continue upgrading and
improving barracks and family housing.
Intelligence is critical to information domi-
Protecting our Forces and Combating
nance, and it continues to play a large
Terrorism.—The protection of U.S. service
role in both military operations and national
members, whether deployed or at home,
security decision-making. This year’s intel-
against the threat of terrorism is a fundamen-
ligence budget is guided by explicit intelligence
tal task of our defense planning. The terrorist
priorities that the President established for
attack against U.S. forces at Khobar Towers
the post-Cold War era.
in Saudi Arabia reminded all Americans of the
A new intelligence initiative exemplifies increasing terrorist threat that we face—at
the Administration’s efforts. The National home and abroad. In light of the threat, the
Reconnaissance Office will develop a new Administration amended the 1997 budget to
generation of smaller intelligence satellites propose $1 billion for anti-terrorism programs
that will increase coverage and permit greater across the Federal Government, which Con-
10. SUPPORTING THE WORLD’S STRONGEST MILITARY FORCE 127

gress approved. The DOD portion, $350 mil- in the middle of the next decade. The Air
lion, consisted of specific Persian Gulf security Force, Navy, and Marine Corps are developing
measures; general overseas facilities and force a Joint Strike Fighter as a cost-effective re-
protection upgrades; and training, awareness, placement for today’s tactical fighter and at-
and other programs designed to combat terror- tack aircraft. Other major weapons in develop-
ism. ment include the Army’s Comanche helicopter,
The budget fully funds DOD’s anti-terrorism/ a new surface ship for the Navy, and an ad-
force protection program at $4.5 billion. The vanced amphibious-assault vehicle for the Ma-
funds are designed to improve our prepared- rine Corps.
ness to respond to a terrorist attack that
employs weapons of mass destruction, and Managing Our Defense Resources More
they will enable DOD to initiate a sweeping Efficiently
vulnerability assessment program to identify
and respond to force protection needs beyond As we shape U.S. defense strategy for
those already identified and funded. managing conflict and ensuring peace in
the post-Cold War era, the Nation also must
Modernizing Our Military Forces develop new, innovative approaches to manag-
Modernizing Equipment.—As the armed ing our defense program. DOD is launching
forces prepare to enter the 21st Century, mod- various efforts to meet this challenge, which
ernizing U.S. military hardware is a central would help ensure that we can afford our
goal of our defense budget planning. The next defense program.
generation of military equipment promises to Redesigning Military Strategy.—As the
provide greater combat capabilities, and en- 1997 Defense Authorization Act requires, the
hance the readiness of our forces. Most impor- Quadrennial Defense Review will reassess cur-
tant, the marked technological advantage of
rent defense strategy and the defense program
the next generation will mean fewer casualties
in light of U.S. interests, fiscal constraints,
and a quicker resolution of conflict.
and emerging new technologies. Areas that it
Providing Adequate Modernization will review include force structure, readiness,
Funding.—The budget proposes that procure- modernization, and infrastructure. The law re-
ment funding grow, in real terms, by over 40 quires that DOD report the results of this re-
percent from 1998 to 2002. Critical moderniza- view by May 15, 1997.
tion programs that are now in production
would continue—including DDG-51 guided- Implementing the Information Tech-
missile destroyers and precision munitions nology Management Reform Act
such as the Joint Standoff Weapon. Low-rate (ITMRA).—By implementing ITMRA, DOD
production of Marine Corps V-22 aircraft and will bring modern command, control, commu-
the Navy’s multi-role F/A-18E/F fighter would nications, and computing systems into oper-
continue in 1998. Initial procurement of the ational use. DOD is restructuring work proc-
Navy’s New Attack Submarine would begin in esses and applying modern technology to im-
1998, and low-rate production of the Air prove performance and cut costs. In addition,
Force’s F-22 Advanced Tactical Fighter would DOD’s new Chief Information Officer is estab-
begin in 1999. Full-rate production of the V- lishing information technology investment cri-
22, F/A-18E/F, and the F-22 would start at, teria and performance measures to ensure that
or near, the turn of the century. DOD would DOD’s $10 billion investment in information
modernize and improve U.S. mobility forces technology and processes produces measurable
through continued acquisition of large, me- results and a significant return on investment.
dium speed roll-on/roll-off sealift ships and the For example, DOD’s Office of Health Affairs
highly capable C-17 strategic airlift aircraft. and the Defense Logistics Agency have used
Providing Modernization for the Long- information technology to enable them to work
Term.—The budget proposes major invest- with commercial suppliers to significantly re-
ments in research and development for ad- duce supply delivery times and on-hand DOD
vanced systems that would enter production stocks, thus greatly cutting costs.
128 THE BUDGET FOR FISCAL YEAR 1998

Implementing Base Closure and Re- budget reflects a cut of almost 218,000, or
alignment.—Since 1988, four Base Closure about 25 percent, in DOD civilian positions
and Realignment Commissions have approved from 1993 to 1999. Consistent with the prin-
the elimination of about 20 percent of our de- ciples of the Vice President’s National Perform-
fense infrastructure (recommending the clo- ance Review, DOD is reducing headquarters,
sure of 97 out of 495 major military installa- procurement, finance, and administrative
tions and over 200 smaller installations). The staffs.
$5.6 billion in projected annual savings (after
all closure activities are completed by 2001) Implementing the Government Perform-
would help fund the modernization of our mili- ance and Results Act (GPRA).—DOD con-
tary forces. To achieve these savings, the budg- tinues to incorporate performance evaluation
et fully funds the implementation of the final into its decision-making for such broad-based
recommendations of the 1995 Base Closure programs as weapons purchases, transpor-
and Realignment Commission. tation methods, and inventory control. It has
designated seven programs as demonstration
Improving Financial Management.—The
projects to provide a blueprint for full GPRA
Administration remains committed to reform-
implementation.
ing DOD’s financial management activities and
systems. DOD must overcome major impedi- Using the Private Sector for Support
ments to create an effective agency-wide ac- Functions.—To cut costs and make operations
counting system structure and to produce more efficient, the Commission on Roles and
auditable financial statements. It has, how- Missions of the Armed Forces recommended
ever, taken steps to improve its financial man- that DOD increase its use of the private sector
agement in such areas as problem disburse- to provide support functions. In August 1995,
ments, contractor overpayments, fraud detec- the Deputy Secretary of Defense established
tion and controls, and standardized accounting an Integrated Product Team for Privatization,
systems. For example, DOD has cut the cat- which now includes senior representatives
egory known as problem disbursements from from the military departments, defense agen-
a total of $51.2 billion in June 1993 to $18.1 cies, OMB, and the Secretary’s staff. Also,
billion in June 1996. DOD and OMB are working together to de-
Streamlining the Civilian Work Force.— velop competition, outsourcing, and other
DOD will continue to streamline its civilian privatization initiatives by forming an inter-
work force while maintaining its quality. The agency Senior Policy Group for Privatization.
VI. INVESTING IN THE COMMON
GOOD: THE MAJOR FUNCTIONS
OF THE FEDERAL GOVERNMENT

129
11. OVERVIEW
The President’s determination to balance The Administration also will continue to
the budget—a determination that Congress look for ways to provide better service. (For
shares—will continue to place a spotlight a detailed discussion of the Administration’s
on every Federal agency and program, forcing effort to improve performance, see Section
each to justify its existence. As part of IV.)
these efforts, the President will continue
All too often, however, the focus of political
his practice of the past four years and
debate revolves almost exclusively around
work with Congress to eliminate or scale
proposals for incremental change: How much
back unnecessary and lower-priority programs.
more does the President want to spend
Balancing the budget goes hand-in-hand on program X? How much less on program
with another of the President’s major efforts— Y? How do his proposals compare to what
improving Government’s performance. In an Congress proposes to do?
era of limited resources, the President wants
Such proposals capture only a portion of
to make sure that the programs the Govern-
what the Federal Government does from
ment funds do, in fact, accomplish the goals
year to year. The base of Federal activity—
set out for them.
from Social Security to defense to interest
Led by Vice President Gore’s National Per- on the Federal debt—does not change much,
formance Review (NPR), the Administration if at all. Nor does the base of activity
has made real progress in creating a Govern- include just the estimated $1.7 trillion that
ment that, in the words of the NPR, ‘‘works the Federal Government will spend in 1998.
better and costs less.’’ We have eliminated The Government provides hundreds of billions
layers of bureaucracy, cut paperwork burdens, of dollars in benefits through the tax code,
scrapped thousands of pages of regulations and it seeks to accomplish other goals through
and, most important, improved service to regulation.
Government’s customers—the American peo-
If we want to continue improving perform-
ple.
ance, to ensure that taxpayers get the high-
These efforts will continue. Federal depart- quality Government they deserve, we have
ments and agencies are implementing the to understand the full range of Federal
landmark 1993 Government Performance and Government activities. This section provides
Results Act, which will hold them more a broad overview, categorizing the activities
accountable for what their programs achieve. according to their budget ‘‘function.’’

131
132 THE BUDGET FOR FISCAL YEAR 1998

Table 11–1. FEDERAL RESOURCES BY FUNCTION


(In billions of dollars)

Estimate
1996
Function Actual 1997 1998 1999 2000 2001 2002

NATIONAL DEFENSE:
Spending:
Discretionary Budget Authority ....................................... 265.0 263.1 266.0 269.8 275.5 282.0 289.8
Mandatory Outlays:
Existing law .................................................................... –0.2 –0.8 –0.7 –0.7 –0.5 –0.5 –0.5
Proposed legislation ....................................................... .............. .............. .............. .............. .............. .............. –0.2
Credit Activity:
Guaranteed loans ............................................................... 0.3 * 0.2 0.5 0.8 0.8 0.8
Tax Expenditures:
Existing law ........................................................................ 2.1 2.1 2.1 2.1 2.1 2.2 2.2

INTERNATIONAL AFFAIRS:
Spending:
Discretionary Budget Authority ....................................... 18.1 18.1 23.0 20.1 19.1 18.8 18.8
Mandatory Outlays:
Existing law .................................................................... –4.8 –4.7 –4.4 –4.0 –3.8 –3.7 –3.5
Proposed legislation ....................................................... .............. .............. * .............. .............. .............. ..............
Credit Activity:
Direct loan disbursements ................................................ 1.7 2.2 1.9 2.2 2.2 2.0 2.0
Guaranteed loans ............................................................... 8.4 12.7 12.1 13.1 13.7 13.7 14.0
Tax Expenditures:
Existing law ........................................................................ 6.5 7.0 7.6 8.2 8.8 9.4 10.1
Proposed legislation ........................................................... .............. * –0.8 –1.4 –1.5 –1.7 –1.8

GENERAL SCIENCE, SPACE, AND TECHNOLOGY:


Spending:
Discretionary Budget Authority ....................................... 16.7 16.6 16.4 16.4 16.2 16.2 16.2
Mandatory Outlays:
Existing law .................................................................... * * * * * * *
Tax Expenditures:
Existing law ........................................................................ 0.8 0.9 1.5 0.8 0.8 0.8 0.8
Proposed legislation ........................................................... .............. 0.4 0.8 0.5 0.2 0.1 *

ENERGY:
Spending:
Discretionary Budget Authority ....................................... 4.9 4.3 4.7 4.9 4.6 4.5 4.4
Mandatory Outlays:
Existing law .................................................................... –3.1 –2.9 –2.8 –3.7 –2.8 –3.0 –3.7
Proposed legislation ....................................................... .............. .............. .............. –* –* –0.1 –1.2
Credit Activity:
Direct loan disbursements ................................................ 1.0 2.5 2.1 1.7 2.7 1.8 1.7
Tax Expenditures:
Existing law ........................................................................ 2.2 2.3 2.2 2.4 2.5 2.5 2.5
Proposed legislation ........................................................... .............. –* –0.1 –0.1 –0.1 –0.1 –0.1

NATURAL RESOURCES AND ENVIRONMENT:


Spending:
Discretionary Budget Authority ....................................... 20.7 21.1 22.4 22.4 21.8 21.7 21.8
Mandatory Outlays:
Existing law .................................................................... 0.7 1.0 1.0 0.9 0.9 0.9 0.8
Proposed legislation ....................................................... .............. .............. 0.1 0.1 0.1 0.1 0.1
Credit Activity:
Direct loan disbursements ................................................ * * * * * * *
Tax Expenditures:
Existing law ........................................................................ 1.6 1.7 1.7 1.7 1.7 1.7 1.7
Proposed legislation ........................................................... .............. –* –0.1 –0.1 –0.1 –0.1 –0.1
11. OVERVIEW 133

Table 11–1. FEDERAL RESOURCES BY FUNCTION—Continued


(In billions of dollars)

Estimate
1996
Function Actual 1997 1998 1999 2000 2001 2002

AGRICULTURE:
Spending:
Discretionary Budget Authority ....................................... 4.2 4.1 4.1 4.0 3.9 3.9 3.9
Mandatory Outlays:
Existing law .................................................................... 5.0 6.1 8.2 7.6 7.2 6.1 5.9
Proposed legislation ....................................................... .............. .............. * * * * *
Credit Activity:
Direct loan disbursements ................................................ 6.2 7.1 8.7 8.6 8.3 7.7 7.2
Guaranteed loans ............................................................... 5.1 7.9 8.1 8.0 8.0 8.0 8.0
Tax Expenditures:
Existing law ........................................................................ 0.3 0.3 0.3 0.3 0.4 0.4 0.4
Proposed legislation ........................................................... .............. –* –0.1 –0.1 –0.1 –0.1 –0.1

COMMERCE AND HOUSING CREDIT:


Spending:
Discretionary Budget Authority ....................................... 3.7 2.4 3.3 3.8 5.2 3.2 3.2
Mandatory Outlays:
Existing law .................................................................... –13.8 –11.4 0.7 2.5 6.9 5.7 6.8
Proposed legislation ....................................................... .............. .............. –0.7 0.1 0.3 –1.7 –1.9
Credit Activity:
Direct loan disbursements ................................................ 1.6 8.8 5.0 1.7 1.9 2.3 2.4
Guaranteed loans ............................................................... 181.3 169.0 161.6 161.5 163.4 166.2 169.2
Tax Expenditures:
Existing law ........................................................................ 182.4 188.9 195.9 204.8 213.5 222.0 229.7
Proposed legislation ........................................................... .............. 0.1 0.2 0.2 0.2 0.2 0.1

TRANSPORTATION:
Spending:
Discretionary Budget Authority ....................................... 13.6 13.8 13.5 14.6 14.7 15.0 15.2
Mandatory Outlays:
Existing law .................................................................... 2.5 2.4 2.4 2.3 2.2 2.0 2.0
Proposed legislation ....................................................... .............. .............. * * * –0.1 –0.7
Credit Activity:
Direct loan disbursements ................................................ * 0.2 0.6 0.8 0.9 0.9 0.9
Guaranteed loans ............................................................... 0.8 1.1 0.5 0.5 0.5 0.5 0.5
Tax Expenditures:
Existing law ........................................................................ 1.3 1.4 1.4 1.5 1.5 1.6 1.6

COMMUNITY AND REGIONAL DEVELOPMENT:


Spending:
Discretionary Budget Authority ....................................... 11.6 9.3 10.9 8.3 7.7 7.8 7.9
Mandatory Outlays:
Existing law .................................................................... 0.3 0.3 –0.1 0.1 0.1 0.3 0.1
Proposed legislation ....................................................... .............. 0.2 * * .............. –* –*
Credit Activity:
Direct loan disbursements ................................................ 2.0 2.3 2.5 1.9 2.1 2.2 2.1
Guaranteed loans ............................................................... 0.8 1.5 1.9 2.1 2.1 2.2 2.0
Tax Expenditures:
Existing law ........................................................................ 2.6 2.7 2.7 2.7 2.7 2.6 2.4
Proposed legislation ........................................................... .............. * 0.4 0.6 0.6 0.5 0.5

EDUCATION, TRAINING, EMPLOYMENT, AND


SOCIAL SERVICES:
Spending:
Discretionary Budget Authority ....................................... 36.1 42.4 46.4 47.4 48.5 49.5 50.3
Mandatory Outlays:
Existing law .................................................................... 13.9 10.5 10.8 10.5 10.6 10.8 11.3
Proposed legislation ....................................................... .............. –0.3 2.8 4.6 5.0 4.5 1.9
134 THE BUDGET FOR FISCAL YEAR 1998

Table 11–1. FEDERAL RESOURCES BY FUNCTION—Continued


(In billions of dollars)

Estimate
1996
Function Actual 1997 1998 1999 2000 2001 2002

Credit Activity:
Direct loan disbursements ................................................ 9.1 12.0 14.5 17.6 20.2 21.7 23.1
Guaranteed loans ............................................................... 19.8 21.0 21.3 20.5 20.5 21.5 22.9
Tax Expenditures:
Existing law ........................................................................ 25.2 27.0 27.9 29.2 30.5 31.9 33.3
Proposed legislation ........................................................... .............. 0.2 4.9 7.2 8.9 9.0 9.5

HEALTH:
Spending:
Discretionary Budget Authority ....................................... 23.3 25.0 25.1 25.1 25.1 25.2 25.2
Mandatory Outlays:
Existing law .................................................................... 96.8 103.5 109.6 116.3 124.8 134.6 145.1
Proposed legislation ....................................................... .............. * 3.9 3.7 2.1 –0.2 –5.0
Credit Activity:
Direct loan disbursements ................................................ * * .............. .............. .............. .............. ..............
Guaranteed loans ............................................................... 0.2 0.3 0.1 * .............. .............. ..............
Tax Expenditures:
Existing law ........................................................................ 72.7 79.2 85.1 91.2 97.3 103.7 110.4
Proposed legislation ........................................................... .............. * * * * * *

MEDICARE:
Spending:
Discretionary Budget Authority ....................................... 2.9 2.6 2.8 2.8 2.7 2.7 2.7
Mandatory Outlays:
Existing law .................................................................... 171.3 191.6 208.6 228.2 248.8 271.1 295.1
Proposed legislation ....................................................... .............. .............. –4.3 –11.4 –22.2 –27.8 –34.6

INCOME SECURITY:
Spending:
Discretionary Budget Authority ....................................... 27.8 26.0 32.6 36.1 38.9 40.4 41.8
Mandatory Outlays:
Existing law .................................................................... 188.0 197.4 203.6 212.4 222.2 225.6 235.4
Proposed legislation ....................................................... .............. 0.6 2.3 2.2 2.3 1.9 2.6
Credit Activity:
Direct loan disbursements ................................................ 0.1 0.1 0.1 * .............. .............. ..............
Guaranteed loans ............................................................... * * * * * * *
Tax Expenditures:
Existing law ........................................................................ 83.0 84.8 86.3 87.9 89.5 91.3 93.0
Proposed legislation ........................................................... .............. 0.7 11.3 7.3 9.3 11.5 12.0

SOCIAL SECURITY:
Spending:
Discretionary Budget Authority ....................................... 3.1 3.5 3.3 3.3 3.2 3.2 3.3
Mandatory Outlays:
Existing law .................................................................... 347.1 364.2 380.9 398.6 417.7 438.0 459.7
Proposed legislation ....................................................... .............. .............. .............. –* * * *
Tax Expenditures:
Existing law ........................................................................ 22.9 24.2 25.3 26.5 27.8 28.9 29.9

VETERANS BENEFITS AND SERVICES:


Spending:
Discretionary Budget Authority 1 ..................................... 18.4 18.9 18.8 18.7 18.7 18.7 18.7
Mandatory Outlays:
Existing law .................................................................... 18.8 20.6 21.7 22.8 24.4 21.5 23.2
Proposed legislation ....................................................... .............. .............. 0.6 0.3 0.7 1.1 1.5
Credit Activity:
Direct loan disbursements ................................................ 1.4 1.9 2.2 2.2 2.3 2.3 2.3
Guaranteed loans ............................................................... 28.7 30.2 28.9 25.5 25.0 24.6 24.1
11. OVERVIEW 135

Table 11–1. FEDERAL RESOURCES BY FUNCTION—Continued


(In billions of dollars)

Estimate
1996
Function Actual 1997 1998 1999 2000 2001 2002

Tax Expenditures:
Existing law ........................................................................ 2.8 2.9 3.1 3.3 3.5 3.7 3.9

ADMINISTRATION OF JUSTICE:
Spending:
Discretionary Budget Authority ....................................... 20.7 22.8 24.4 25.2 24.4 24.8 25.5
Mandatory Outlays:
Existing law .................................................................... –* 0.8 0.6 0.5 0.4 0.4 0.4

GENERAL GOVERNMENT:
Spending:
Discretionary Budget Authority ....................................... 11.5 11.8 12.8 12.5 12.1 11.8 11.8
Mandatory Outlays:
Existing law .................................................................... 0.1 0.9 0.8 0.8 0.9 0.7 0.7
Proposed legislation ....................................................... .............. .............. –* 0.1 0.2 0.3 0.4
Credit Activity:
Direct loan disbursements ................................................ 0.4 0.5 .............. .............. .............. .............. ..............
Tax Expenditures:
Existing law ........................................................................ 46.7 48.1 49.5 50.8 52.1 53.6 55.1
Proposed legislation ........................................................... .............. .............. * * * 0.1 0.1

NET INTEREST:
Spending:
Mandatory Outlays:
Existing law .................................................................... 241.1 247.5 249.8 251.8 248.1 244.9 238.6
Proposed legislation ....................................................... .............. –0.2 * 0.1 0.1 0.1 0.1
Tax Expenditures:
Existing law ........................................................................ 1.3 1.3 1.3 1.3 1.2 1.2 1.2

UNDISTRIBUTED OFFSETTING RECEIPTS:


Spending:
Mandatory Outlays:
Existing law .................................................................... –37.6 –46.5 –52.9 –41.1 –41.6 –43.2 –45.3
Proposed legislation ....................................................... .............. .............. –2.7 –2.4 –4.4 –6.9 –22.7

FEDERAL GOVERNMENT TOTAL:


Spending:
Discretionary Budget Authority ....................................... 502.5 505.8 530.5 535.4 542.5 549.4 560.6
Mandatory Outlays:
Existing law .................................................................... 1,026.0 1,080.7 1,137.9 1,205.9 1,266.5 1,312.2 1,372.0
Proposed legislation ....................................................... .............. 0.3 2.1 –2.7 –16.0 –28.7 –59.5
Credit Activity:
Direct loan disbursements ................................................ 23.6 37.6 37.5 36.8 40.5 40.9 41.7
Guaranteed loans ............................................................... 245.4 243.6 234.7 231.7 234.0 237.5 241.5

Notes:
Revenue estimates for proposed legislation affecting tax expenditures are not directly comparable to estimates for cur-
rent law tax expenditures, because the current law estimates do not reflect behavioral effects.
* $50 million or less.
1 Proposed legislation will supplement budget authority with receipts (estimated at $0.5 billion in 1998).
12. NATIONAL DEFENSE

Table 12–1. FEDERAL RESOURCES IN SUPPORT OF NATIONAL


DEFENSE
(In millions of dollars)

Estimate
1996
Function 050 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 265,007 263,072 265,974 269,834 275,517 281,997 289,760
Mandatory Outlays:
Existing law .................................... –208 –782 –740 –682 –542 –528 –514
Proposed legislation ....................... ................ ................ ................ ................ ................ ................ –200
Credit Activity:
Guaranteed loans ............................... 276 50 250 500 800 800 800
Tax Expenditures:
Existing law ........................................ 2,060 2,080 2,095 2,120 2,140 2,160 2,180

Through its budget, the Federal Government Again and again in the past three years,
in recent years has provided about $265 U.S. troops have demonstrated the continued
billion a year to defend the United States, readiness and strength required to achieve
its citizens, and its allies, and to protect these objectives:
and advance American interests around the
• Our forces maintain a continuous presence
world. National defense programs and activi-
in the Persian Gulf, providing security for
ties are designed to ensure that the United a volatile region of the world; in 1994,
States maintains strong, ready, and modern rapid deployment of additional U.S. forces
military forces that will promote U.S. objec- to the Persian Gulf turned back a poten-
tives in peacetime, deter and prevent war, tial Iraqi threat to Kuwait;
and successfully defend our Nation and its
interests in wartime, in conjunction with • With the 82nd Airborne division en route
our allies, when necessary. to Haiti, we forced the Cedras regime to
relinquish power, and the peaceful intro-
Over the past half-century, our defense duction of U.S. forces to the island estab-
program has deterred both conventional and lished a secure environment for the Hai-
nuclear attack upon U.S. soil and brought tian people to find freedom and re-create
a successful end to the Cold War. Today, a democratic government;
the United States is the sole remaining
superpower in the world, with unique military • Hundreds of thousands of lives in Rwanda
capabilities unsurpassed by any nation. As and Somalia were saved through U.S. hu-
the world’s best trained and best equipped manitarian missions; and,
fighting force, the U.S. military continues • By helping to enforce United Nations man-
to provide the strength and leadership that dates in the former Yugoslavia and by
serves as the foundation upon which to subsequently deploying a substantial U.S.
promote peace, freedom, and prosperity around force under NATO command, the United
the globe. States is helping to successfully implement
the Dayton Peace Agreement.

137
138 THE BUDGET FOR FISCAL YEAR 1998

Department of Defense prepositioning of equipment and supplies at


sea or on land near the location of a potential
The Department of Defense (DOD) budget
crisis. This allows U.S. forces that must re-
provides for the pay, training, operation and
spond rapidly to crises overseas to quickly
maintenance, and support of U.S. military
draw upon these prepositioned items. Major
forces, and for the development and acquisition
acquisitions in this area include the C–17 stra-
of modern equipment to:
tegic airlift aircraft and large medium-speed
• Assure that the U.S. military remains the roll on/roll off ships.
world’s most ready and capable force;
Strategic Forces.—Funding for nuclear
• Sustain U.S. defense forces at levels suffi- forces is at its lowest level in over 30 years.
cient to meet post-Cold War challenges; Nonetheless, strategic forces are an important
• Give U.S. forces the military hardware component of our capability. Within treaty-im-
that employs the best available tech- posed limits, the primary mission of strategic
nologies; and forces is to deter nuclear attack against the
United States and its allies, and to convince
• Assure the Nation’s security by seeking potential adversaries that they will never gain
arms control agreements, reducing weap- a nuclear advantage against the United States.
ons of mass destruction while preventing The budget enhances land, air, and sea-based
their proliferation, and combating terror- forces by supporting service life extension pro-
ism. grams for the Minuteman III intercontinental
To achieve these objectives, DOD supports ballistic missile, continued modifications to
these capabilities: B–2 bombers, and procurement of additional
Trident II (D–5) submarine launched ballistic
Conventional Forces.—The Nation needs missiles.
conventional forces to deter aggression and,
when that fails, to respond to it. Funds to Supporting Activities.—Supporting de-
support these forces cover pay and benefits for fense activities include research and develop-
military personnel; the purchase, operation, ment, communications, intelligence, training
and maintenance of conventional systems such and medical services, central supply and main-
as tanks, aircraft and ships; the purchase of tenance, and other logistics activities. The goal
ammunition and spare parts; and training. of defense research and development programs
Major acquisitions in the President’s budget is to provide new and better weapons systems
plan include combat vehicle and aircraft en- that will be superior to the weapons of poten-
hancements for the Army, such as the Abrams tial adversaries.
tank and the Apache helicopter; ships for the
Navy, such as DDG–51 destroyers and the Department of Energy
New Attack Submarine; aircraft for the Air
The unifying mission of the Energy Depart-
Force, such as F–15E multi-role fighters and
ment’s (DOE) defense activities is to reduce
a JSTARS surveillance aircraft; and the V–22
the global nuclear danger. DOE works to
aircraft for the Marine Corps.
accomplish this goal by:
Mobility Forces.—Mobility forces provide
• Supporting and maintaining a safe, se-
the airlift and sealift that transport military
cure, reliable, and smaller nuclear weap-
personnel and materiel throughout the world.
ons stockpile without nuclear testing,
They play a critical role in current U.S. de-
within the framework of the Comprehen-
fense strategy and are a vital component of
sive Test Ban Treaty;
America’s response to contingencies that range
from humanitarian relief efforts to major re- • Dismantling excess nuclear weapons;
gional conflicts. Airlift aircraft provide a flexi-
• Providing technical leadership for national
ble, rapid way to deploy forces and supplies
and global nonproliferation efforts; and
quickly to distant regions, while sealift ships
allow the deployment of large numbers of • Reducing the environmental, safety, and
heavy forces together with their fuel and sup- health risks from current and former fa-
plies. The mobility program also includes cilities in the nuclear weapons complex.
12. NATIONAL DEFENSE 139

Defense-Related Activities • Maritime Administration, which helps


Other activities in this function that support maintain a fleet of active, military-useful,
national defense include programs of the: privately owned U.S. vessels that would
be available in times of national emer-
• Coast Guard, which supports the defense gency; and the
mission through training, aids to naviga-
tion, international icebreaking, equipment • Selective Service System, which is initiat-
maintenance, and support of the Coast ing a Service to America program that will
Guard Reserve; give almost two million young Americans
a year the chance to volunteer for
• Federal Bureau of Investigation, which
Americorps or the Armed Services.
conducts counterintelligence and surveil-
lance activities;
13. INTERNATIONAL AFFAIRS

Table 13–1. FEDERAL RESOURCES IN SUPPORT OF


INTERNATIONAL AFFAIRS
(In millions of dollars)

Estimate
1996
Function 150 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 18,122 18,109 22,974 20,079 19,095 18,811 18,762
Mandatory Outlays:
Existing law .................................... –4,840 –4,744 –4,433 –3,963 –3,839 –3,655 –3,487
Proposed legislation ....................... ................ ................ 37 ................ ................ ................ ................
Credit Activity:
Direct loan disbursements ................ 1,674 2,150 1,900 2,191 2,162 2,013 2,023
Guaranteed loans ............................... 8,418 12,692 12,059 13,093 13,736 13,702 14,000
Tax Expenditures:
Existing law ........................................ 6,520 6,980 7,565 8,165 8,790 9,445 10,125
Proposed legislation ........................... ................ 10 –820 –1,408 –1,484 –1,674 –1,773

The International Affairs function, for which The major achievement of American diplo-
the Administration proposes $23 billion for macy over the past half century was creating
1998, encompasses a wide range of activities and sustaining the alliances, notably NATO,
that advance American interests through di- that successfully countered the Soviet bloc’s
plomacy, foreign assistance, support for Amer- threat to world security. More recently, diplo-
ican exports, and the activities of international matic objectives include establishing viable
organizations. Certain tax provisions also sup- democracies in formerly totalitarian countries
port American business. The conduct of foreign such as in Eastern Europe and the former
relations is inherently a governmental func- Soviet Union, curbing regional instability in
tion, which explains the need for sustained areas of importance to U.S. security such
Government activity and budgetary support. as Bosnia, promoting the American economy
through trade negotiations and the support
Diplomacy of U.S. businesses, and addressing transna-
The State Department and its overseas tional issues such as the environment through
operations are at the heart of international multilateral and bilateral negotiations. Amer-
affairs activities and programs, and they ican diplomacy also has been critical over
consume $2.7 billion, or 14 percent, of the the past 20 years in promoting peace and
resources. These funds finance the salaries reconciliation in the Middle East. Finally,
and related operating expenses of the Foreign the Department has the continuing respon-
Service and other Department personnel, and sibility to protect and assist U.S. citizens
the costs of overseas facilities. The Department abroad.
carries out foreign policy planning and over-
sight in Washington, conducts diplomacy, and Foreign Assistance
represents the United States at over 250
overseas embassies and other posts. Overseas The largest single part of international
posts also provide administrative support to affairs spending—$13.7 billion, or 74 percent
about 25 other Federal departments and of the total—goes for a wide variety of
agencies. overseas assistance programs traditionally cat-
141
142 THE BUDGET FOR FISCAL YEAR 1998

egorized as security assistance, development Soviet Union), and Latin America. All but
aid, and humanitarian assistance. the European bank have concessional loan
programs. Two special programs also re-
Security Assistance: International Security
ceive U.S. contributions: the Global Envi-
Assistance comes mainly through the Foreign
ronment Facility, which supports environ-
Military Financing program (FMF, which the
State Department oversees and the Defense mental activities related to development
Security Assistance Agency manages) and the projects; and the North American Develop-
Economic Support Fund (ESF, which State ment Bank, which was established in con-
oversees and the U.S. Agency for International junction with the North American Free
Development manages). Over the past 50 Trade Agreement and which supports en-
years, security aid helped support the military vironmental projects along the U.S.-Mexi-
establishments of friendly countries, mainly can border.
around the perimeter of the Soviet Union, and • The bilateral development assistance pro-
helped ease the economic strain of their de- grams of the U.S. Agency for International
fense forces. On the whole, these countries Development (USAID) target five sectors:
played a critical role in containing the Soviet broad-based economic growth, population
Union. (for which the United States is the leading
The FMF program finances the transfer donor worldwide), health, the environ-
of military goods and services to eligible ment, and democracy building. In recent
countries, using grant funds and a small years, USAID has significantly restruc-
loan program. The ESF program provides tured its program to focus on countries
only grant funding. Currently, these two most likely to adopt economic reforms, in
programs devote an overwhelming share of order to encourage free markets along
their resources to supporting the Middle with improvements in democratic govern-
East peace process. For a number of years, ance. USAID has developed performance
over $5 billion a year has gone for this measures to help it allocate resources, and
purpose. This funding demonstrates strong has made major internal management re-
U.S. support for the actions that regional forms to improve its effectiveness and cut
leaders are taking to advance the peace costs.
process. Most of the remaining funds support • State, USAID, and other agencies (the
the transition of Eastern European countries U.S. Information Agency, Export-Import
to NATO membership, the establishment of Bank, Peace Corps, and Overseas Private
democracy in countries such as Angola, Cam- Investment Corporation) also carry out
bodia and Haiti, and the training of foreign grant and lending programs similar to de-
military personnel, primarily from developing velopment assistance to support the tran-
countries. sition to free market democracy in Central
Development Assistance: Development Europe and the New Independent States.
assistance is carried out through a range of
Encouraging economic development has
programs:
proven a difficult task, requiring far more
• The Treasury Department manages con- time for success than policy makers assumed
tributions to multilateral development in the early 1960s when they initiated many
banks. A major portion of them support of the current programs. Nevertheless, a
the World Bank group of institutions, number of developing countries have shifted
which make development loans both at from grants and highly concessional loans
near-market rates and on highly- to near-market rate loans, and a few countries
concessional terms, and which provide fi- have graduated from the ranks of foreign
nancing and investment insurance for pri- assistance recipients. Some early recipients
vate sector activity in the developing of U.S. bilateral assistance in East Asia
world. Contributions also go to four re- are now among the world’s most dynamic
gional development banks for Africa, Asia, economies, and the major Latin American
Europe (lending to Eastern Europe and countries no longer require large-scale grant
the New Independent States of the former aid.
13. INTERNATIONAL AFFAIRS 143

Humanitarian Assistance: Humanitarian U.S. exports, primarily exports of capital


assistance programs also encompass various goods. Bank support is designed to remedy
activities: imperfections in private capital markets, and
to counter financing by the official export
• USAID manages two food aid programs
credit agencies of other countries. The Over-
under Public Law 480, first enacted in
1954. The agency makes humanitarian seas Private Investment Corporation provides
food donations, under Title II of the law, loans, guarantees, and insurance for U.S.
through U.S. voluntary agencies and the business investment overseas. The Trade and
United Nations World Food Program, and Development Agency provides grant financing
directly to foreign governments. Depend- for feasibility studies on major infrastructure
ing on the circumstances each year, about and other development projects abroad. These
half of this program goes to disaster re- agencies’ activities generate considerable pay-
lief—with recent large donations in such offs for U.S. exports.
areas as central Africa and Bosnia—and A series of tax preferences also benefit
half to longer-term development projects. U.S. trade activities. Americans working
Under Title III, USAID provides food to abroad, for example, often may exclude
governments that sell it, then use the pro- $70,000 of income and a portion of their
ceeds to carry out agricultural reforms. housing costs from taxes. In addition, U.S.
• State and USAID also manage funds for exporters who work through Foreign Sales
refugee support and disaster assistance. Corporations may exempt significant portions
State manages humanitarian refugee relief of their income from U.S. taxes. U.S. exporters
funding —mainly grants to international also may allocate more of their earnings
agencies such as the United Nations High abroad (and thereby reduce their tax obliga-
Commissioner for Refugees and the Inter- tions). Finally, earnings from U.S.-controlled
national Committee of the Red Cross. foreign corporations benefit from a tax defer-
USAID manages the Office of Foreign Dis- ral—they are not subject to U.S. taxes until
aster Assistance, which provides grants to they are received by U.S. shareholders as
deal with natural and human disasters dividends or other distributions.
overseas. In a crisis, these two programs
and Title II of Public Law 480 are closely International Organizations
coordinated.
The United States promotes its foreign
The United States continues to lead the
policy goals through a wide variety of inter-
world in responding to humanitarian crises,
national organizations, to which it makes
due to Americans’ support for such assistance
both assessed and voluntary contributions.
and U.S. voluntary agencies’ unequaled capac-
While our global leadership is most clear
ity to implement relief programs quickly
in the United Nations, other organizations
and effectively. This humane concern and
are important to U.S. interests.
excellent program delivery has, over the years,
countered world food shortages, alleviated The International Atomic Energy Agency,
the impact of major droughts in particular for example, strongly supports America’s non-
countries, managed surges of refugees, and proliferation goals, while the World Health
dealt with man-made disasters such as geno- Organization pursues our goal of eradicating
cide in Rwanda. disease. NATO advances our national security
goals in Europe. We support our development
Export Promotion
assistance goals as a leading contributor
While U.S. diplomacy and foreign assistance to the United Nations Development Program.
promote open markets and export opportuni- Finally, our assessed contributions to U.N.-
ties for U.S. business, three other international supported peacekeeping operations, and our
affairs agencies more directly support or voluntary contributions to such peacekeeping
finance American exports. The Export-Import efforts as the Multilateral Force in the Sinai,
Bank provides short- and long-term loans support peace-keeping in regions that are
and loan guarantees and insurance to support important to our interests.
14. GENERAL SCIENCE, SPACE, AND
TECHNOLOGY

Table 14–1. FEDERAL RESOURCES IN SUPPORT OF GENERAL


SCIENCE, SPACE, AND TECHNOLOGY
(In millions of dollars)

Estimate
1996
Function 250 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 16,692 16,629 16,439 16,427 16,246 16,235 16,226
Mandatory Outlays:
Existing law .................................... 28 38 38 31 31 31 31
Tax Expenditures:
Existing law ........................................ 845 880 1,475 830 790 780 770
Proposed legislation ........................... ................ 430 787 540 234 111 41

Technology has become a major engine Energy Department’s (DOE) general science
of economic growth, a significant contributor programs. The Government also seeks to
to our national security, a generator of new stimulate private investment in these activi-
knowledge, and a critical tool in protecting ties through nearly $1 billion to $2 billion
our health and environment. Not only has a year in tax credits and other preferences
technological innovation accounted for at least for research and development (R&D).
half of the Nation’s productivity growth in
the last 50 years, but the development of National Aeronautics and Space
such new technologies as computers and Administration
jet aircraft has created new industries as The Government created NASA in 1958
well as millions of high-skilled, high-wage as the successor to the National Advisory
jobs. Committee on Aeronautics, which had sup-
All too often, though, companies will not ported aeronautical technology since World
make the investments that could benefit War I. NASA, for which the budget proposes
all of us down the road—either the risk $12.1 billion in 1998, is the lead Federal
is too great, or the return to the companies agency for R&D in civil space activities,
is too small. Thus, by making such invest- working to expand frontiers in air and space
in order to serve America and improve the
ments, the Federal Government plays an
quality of life on Earth.
indispensable role in science and technology.
Federal investments must run the gamut NASA pursues this vision through balanced
from basic research, to applied research, investment in:
to technology development—because scientific
Space Science: These programs are de-
discovery and technological innovation are
signed to enhance our understanding of the
so profoundly interwoven.
creation of the universe, the formation of plan-
The budget proposes $16.5 billion in 1998 ets, and the possible existence of life beyond
to conduct science, space, and technology Earth. NASA has enjoyed major successes of
activities through the National Aeronautics late, including its discovery of possible evi-
and Space Administration (NASA), the Na- dence of past life on Mars. Also, NASA’s
tional Science Foundation (NSF), and the Galileo spacecraft arrived at Jupiter, dropped
145
146 THE BUDGET FOR FISCAL YEAR 1998

a probe into Jupiter’s atmosphere, and found computer-assisted-design, genetics, polymers,


evidence of ice, possibly liquid waters, and vol- plate tectonics, and global climate change.
canic activities on Jupiter’s moons. NASA is While NSF represents just three percent
shifting away from large, once-a-decade space- of Federal R&D spending, it supports nearly
craft missions and is instead focusing on half of the non-medical basic research con-
smaller, cheaper missions that can fly fre- ducted at academic institutions. NSF also
quently. provides 30 percent of Federal support for
Environmental Research: These programs mathematics and science education.
focus on examining Earth’s natural and The budget proposes $3.3 billion in 1998
human-induced environmental changes for NSF, which it would invest in four
through long-term observation, research, and key program functions:
analysis of Earth’s land, oceans, and atmos-
pheric processes. NASA will launch the first Research: Support for research projects,
in a series of environmental monitoring space- comprising 56 percent of NSF’s budget, in-
craft in 1998. cludes individual, small group, and center-
based activities.
Space Transportation Technology: Work-
ing with the private sector, these programs Education and Training: Education and
explore technologies that could help produce training activities, accounting for 20 percent
an ambitious experimental launch vehicle— of NSF’s budget, revolve around efforts to im-
X–33—which should complete its first test prove teaching and learning in science, mathe-
flight by March 1999 and dramatically cut the matics, engineering, and technology at all edu-
costs of putting payloads in space. cational levels.
Human Exploration: These programs focus Facilities: Investments in facilities, rep-
on establishing a permanent human presence resenting nearly 20 percent of NSF’s budget,
in Earth’s orbit by developing and operating include support for large, multi-user facilities
the International Space Station. What we for cutting-edge research, such as observ-
learn from the Space Station also will support atories, supercomputing facilities, and oceano-
future decisions on whether to conduct further graphic research vessels.
human space exploration. In 1996, this pro-
gram supported the successful launch of eight Administration: Administration, covering
Space Shuttle flights, three missions to the four percent of NSF’s budget, includes internal
Russian Mir space station, and continued con- salaries and expenses.
struction of the International Space Station. NSF, recognized around the world for its
NASA has about 21,000 employees at its high standards of quality and efficiency, relies
headquarters and Federal research centers, on a rigorous, competitive process of merit
and it conducts about 90 percent of its review to choose which among the 30,000
work through procurements with the private proposals it receives each year to fund. NSF
sector, leading to jobs for another 175,000 funds about a third (although it views about
people. With a constrained budget, NASA 70 percent as deserving support). NSF-sup-
has cut redundant operations, privatized some ported activities leverage over $1.4 billion
operations, improved its management proc- a year in cooperative investments from outside
esses, and reformed its procurement process. sources, including $250 million by some 600
private corporations.
National Science Foundation NSF funds support over 25,000 senior sci-
The Government created the NSF in 1950 entists, and its research funds support over
to support research and education in science 50,000 other professionals and graduate and
and engineering. NSF-supported activities undergraduate students. NSF education pro-
have led to breakthroughs and advances grams reach over 120,000 teachers in kinder-
in many areas, including superconducting garten through 12th grade. As evidence of
materials, Doppler radar, the Internet and the high quality of science that NSF supports,
World Wide Web, medical imaging systems, five of the six U.S. Nobel prize winners
14. GENERAL SCIENCE, SPACE, AND TECHNOLOGY 147

in 1996 received NSF support early in their at any given time, and about 250 students
careers. a year earn their Ph.D.’s for research sup-
ported by these programs.
Department of Energy General Science
Programs Scientists supported by DOE’s high-energy
and nuclear physics programs, or who con-
DOE’s general science programs, for which ducted their research in DOE’s laboratories,
the budget proposes just over $1 billion, have been recognized around the world for
fund its high-energy and nuclear physics their contributions to a variety of important
R&D to expand knowledge about the fun- fields. Thirty researchers have won Nobel
damental nature of matter and energy. DOE Prizes since 1939 (most recently in 1995),
is responsible for long-range planning for and 49 researchers have won DOE’s own
the Federal Government’s program in general highly-prestigious prizes—the Enrico Fermi
science, for maintaining a balanced national Awards and the E.O. Lawrence Awards—
program between investing in new facilities demonstrating the excellence of DOE’s pro-
and supporting researchers, for assuring U.S. grams.
leadership in the world, and for coordinating
its efforts with NSF—the other leading Fed- Tax Incentives
eral supporter of these programs.
Along with direct spending on R&D, the
DOE provides over 90 percent of total Federal Government has sought to stimulate
Federal support for high-energy physics and private investment in these activities with
85 percent for nuclear physics. It also supports nearly $1 billion to $2 billion in tax pref-
the premiere scientific facilities in both fields. erences a year. The law provides a 20–percent
DOE-supported research in these fields is tax credit for private research and experimen-
conducted by 4,100 scientists and students tation expenditures above a certain base
from over 150 universities, 12 national labora- amount. The credit, which has expired in
tories, and other nations. About 2,000 U.S. the past, is due to expire once again on
users tap DOE’s nuclear physics research May 31, 1997, but the President’s tax plan
facilities, and 2,500 U.S. users tap DOE’s would extend it for one year—that is, through
high-energy physics research facilities. DOE’s May 31, 1998. The law also enables companies
high-energy and nuclear physics laboratories to deduct, up front, the costs of certain
host about 500 visiting foreign scientists kinds of research and experimentation.
15. ENERGY

Table 15–1. FEDERAL RESOURCES IN SUPPORT OF ENERGY


(In millions of dollars)

Estimate
1996
Function 270 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 4,900 4,256 4,703 4,891 4,645 4,498 4,391
Mandatory Outlays:
Existing law .................................... –3,122 –2,913 –2,766 –3,703 –2,823 –3,021 –3,715
Proposed legislation ....................... ................ ................ ................ –24 –35 –65 –1,226
Credit Activity:
Direct loan disbursements ................ 1,036 2,527 2,093 1,731 2,663 1,814 1,682
Tax Expenditures: 1
Existing law ........................................ 2,200 2,255 2,230 2,425 2,505 2,490 2,520
Proposed legislation ........................... ................ –14 –64 –96 –99 –101 –102
1 Excludes alcohol fuels excise tax.

The Federal Government’s energy programs long-term, high-risk problems that lack any
contribute not just to energy security, but obvious short-term payoff and, thus, are pro-
to economic prosperity. Funded mainly grams that industry has no incentives to
through the Department of Energy (DOE), fund.
they range from protecting against disruptions
in petroleum supplies, to conducting research Energy Security, and Energy Research
on renewable energy sources, to developing and Development
radioisotope power sources for space missions,
to restructuring wholesale electricity markets DOE maintains the Strategic Petroleum
throughout the United States. The Administra- Reserve (SPR) and operates various research
tion proposes $4.7 billion for these programs and development (R&D) investments to protect
in 1998. In addition, the Federal Government against disruptions in petroleum supplies and
allocates about $3 billion a year in tax reduce the environmental impacts of energy
breaks mainly to encourage the development production and use.
of both traditional and alternative sources
Created in 1975, SPR now has 563 million
of energy.
barrels of crude oil in underground salt
The Federal Government has a longstanding caverns at four Gulf Coast sites. In an
role in energy, one that has changed over emergency, the oil reserves would meet mili-
the last half-century and will continue to tary needs and cut the economic costs of
evolve. Most of the programs and agencies large, sudden oil price increases caused by
identified below perform functions that have a severe interruption of our oil supply. As
no State or private counterparts, and that the United States was entering the Persian
clearly involve the national interest. The Gulf War in early 1991, for instance, the
federally-owned petroleum reserves, for in- President announced an energy emergency,
stance, protect against supply disruptions and prompting an SPR drawdown that—along
consumer price shock, while Federal regulators with the allied nations’ early and overwhelm-
protect the public’s heath and environment ing military success—caused oil prices to
as they ensure fair, efficient energy rates. drop by $10 per barrel (or, by about a
DOE’s basic research programs focus on the third of their price).
149
150 THE BUDGET FOR FISCAL YEAR 1998

DOE’s R&D energy investments cover a try to develop advanced technologies to


broad array of resources and technologies produce and use coal, oil, and gas resources
to make the production and use of all forms more efficiently and cleanly. The program’s
of energy—including renewables, fossil, and successes will affect many consumers. For
nuclear—more efficient and less environ- instance, the federally-funded development of
mentally damaging. Federal R&D support clean, highly-efficient gas-fired generating sys-
can help develop these technologies, which tems will make electricity production less
benefit society by cutting emission rates of expensive than other technologies. The pro-
greenhouse gases, acid rain precursors, and grams also help boost the domestic production
air pollutants. Investments in these areas of oil and natural gas by funding R&D
are not only laying the foundation for a projects with industry to cut exploration,
more sustainable energy future, but also development, and production costs.
opening major international markets for man-
ufacturers of advanced U.S. technology. Basic Energy Research
Energy conservation programs, for which The Nation receives enormous benefits from
the budget proposes $688 million in 1998, investing in DOE’s basic research and special-
are designed to improve the fuel economy ized research facilities, for which the budget
of various transportation modes, increase the proposes $1.5 billion. The programs focus
productivity of our most energy-intensive in- on research related to energy production,
dustries, and improve the energy efficiency conversion, and use, and to identifying and
of buildings and appliances. They also include mitigating the health and environmental ef-
grants to States to fund energy-efficiency fects of those activities. One Federally-funded
programs and low-income home weatheriza- basic research project discovered how to cut
tion. Many of these programs rely on private- energy losses from electric grid transformers
sector partners to cut Federal spending and by 90 percent, thus paving the way for
increase the likelihood that these technologies about $1 billion less in lost power for electric
will be used commercially. Energy-efficiency companies and, in turn, lower prices for
technologies that have already come to market consumers.
include heat-reflecting windows, high-efficiency
DOE’s state-of-the-art scientific facilities also
lights, geothermal heat pumps, high-efficiency
provide the cutting-edge experimental and
electric motors and compressors, and software
theoretical techniques that provide insights
for designing energy-efficient buildings. Mean-
into dozens of applications—from next-genera-
while, five other technologies that have been
tion semi-conductors to microbiological studies
available for at least five years have gen-
of tumor growth. The facilities are available
erated, to date, $11 billion in total consumer
on a competitive basis for researchers funded
and business savings on energy bills.
by the National Science Foundation, other
Solar and renewable energy programs, for Federal agencies, and public and private
which the budget proposes $330 million, focus entities. DOE also invests in research to
on technologies that will help the Nation develop the scientific and technological founda-
use its abundant renewable resources such tion for the next generation of user facilities.
as wind, solar, and biomass, to produce
low-cost, clean energy. The United States Environmental Management and
is the world’s technology leader in wind Stewardship
energy, with a growing export market. In
DOE manages the Nation’s most complex
addition, utilities are producing some solar
environmental cleanup program, the result
thermal power, photovoltaics are becoming
of over four decades of research and production
increasingly useful in remote power applica-
of nuclear energy technology and materials
tions, and DOE is now working with Amoco
at both Federal and private sector locations.
on producing ethanol from wood and paper
The Department also faces the crucial task
wastes.
of developing a long-term solution to the
Fossil fuel energy R&D programs, for which problem that the Nation’s commercial spent
the budget proposes $346 million, help indus- nuclear fuel poses.
15. ENERGY 151

Environmental Management: The budget Government plans to finish selling the Alaska
proposes $934 million to reduce the environ- Power Administration, as Congress authorized,
mental risk and manage the waste at: (1) sites to the State of Alaska and current customers
run by DOE’s predecessor agencies that in- in 1998. The PMAs sell about six percent
volved researching and producing uranium and of the Nation’s total electricity, and sell
thorium; (2) sites contaminated with uranium it at preferred rates to such public entities
production from the 1950s to the 1970s; and as counties, cities, and publicly-owned utilities
(3) DOE’s uranium processing plants that the and power authorities. The PMAs, however,
United States Enrichment Corporation runs. face growing challenges as the electricity
In recent years, the clean-up and safe disposal industry moves toward open, competitive mar-
of radioactive and hazardous wastes and mate- kets—and away from regulated monopolies.
rials has progressed substantially. Over 60
In 1998, the PMAs will begin to use
percent of private sites contaminated during
their receipts from selling electric power
the research, processing, and production of
to cover the full costs of Civil Service Retire-
uranium and thorium will be cleaned up by
ment System and Post-Retirement Health
the end of 1998, allowing these private sites
Benefits for their employees. Curently, the
and facilities to return to productive use.
PMAs cover the full costs for employees
Civilian Radioactive Waste Management who work under the Federal Employees Retire-
Program (RW): RW oversees the manage- ment System.
ment and disposal of spent nuclear fuel from
commercial nuclear reactors, and high-level ra- The Tennessee Valley Authority (TVA) is
dioactive waste from Federal cleanup sites. In a Federal Government corporation and the
1998, DOE expects to complete the first stage Nation’s largest electric utility, serving 7.3
of evaluating a Nevada site as a possible geo- million customers in seven States. TVA sup-
logic repository—representing an important plies power through 11 coal-fired plants,
step in a long process that eventually will 30 hydropower facilities, and three nuclear
produce a DOE site recommendation to the power plants. It also operates a series of
President and a DOE license application to the water supply, flood control, recreation, and
Nuclear Regulatory Commission. economic development programs. TVA power
sales will grow an estimated 3.7 percent—
from $5.8 billion in 1997 to an estimated
Energy Production and Power Marketing
$6 billion in 1998. For the first time, TVA
The Federal Government is reshaping pro- in 1997 will reduce the debt it owes to
grams that produce, distribute, and finance the investing public. The planned $50 million
oil, gas, and electric power—hoping to eventu- debt repayment in 1997 and the planned
ally de-Federalize them and their agencies. $225 million debt repayment in 1998 reflect
The Naval Petroleum Reserve, commonly TVA’s efforts to ensure the agency’s financial
known as Elk Hills, is a federally-owned health, position itself to succeed as competition
oil and gas field located in California. Set increases in the Nation’s electricity markets,
aside early this century to provide an oil and serve the interests of TVA’s customers
reserve for Navy ships, the Government no and bondholders and the Federal Government.
longer needs it for that purpose. Congress (For information on TVA’s non-power activi-
voted in 1996 to require the sale of Elk ties, see Chapter 20, Community and Regional
Hills, which produced $368 million of oil, Development.)
gas, and other products in 1995. The Govern-
In 1997, the Agriculture Department’s Rural
ment plans to sell the reserve in 1998
Utilities Service (RUS) will make $1.4 billion
and deposit the proceeds to the Treasury.
in direct loans to nonprofit associations, rural
The five Federal Power Marketing Adminis- electric cooperatives, public bodies, and other
trations (Alaska, Bonneville, Southeastern, utilities in rural areas for generating, trans-
Southwestern, and Western) market electricity mitting, and distributing electricity. RUS
generated at 129 multi-purpose Federal dams charges interest at or below Treasury rates
through over 33,000 miles of federally-owned for debt of comparable maturity, in order
transmission lines, located in 34 States. The to cut the high cost of electric service to
152 THE BUDGET FOR FISCAL YEAR 1998

rural customers that results from the low The Nuclear Regulatory Commission (NRC),
customer density in rural areas. an independent agency, regulates nuclear fa-
cilities—commercial nuclear reactors, the med-
DOE also has large reserves of uranium
ical and industrial use of nuclear materials,
that the Government no longer needs for and the transport and disposal of nuclear
their original purpose, including high enriched waste. The NRC seeks to protect public
uranium (HEU) from dismantled nuclear health and the environment from nuclear
weapons. The Government plans to sell some materials. The companies and other entities
of that material in a manner that will that the NRC regulates finance most of
not disrupt uranium markets—$100 million its budget through fees.
worth of natural uranium a year through
2001 and $200 million in 2002. If, after DOE also seeks to improve the Nation’s
an inter-agency review, the President declares use of energy resources through its appliance
that the remaining HEU exceeds national energy efficiency program. Federal regulations
security needs, DOE will sell, in 2002, another specify minimum levels of energy efficiency
$750 million of low enriched uranium, derived for all major home appliances, such as water
from HEU for commercial use through 2007. heaters, air conditioners, and refrigerators.

Tax Incentives
Energy Regulation
Federal tax incentives are mainly designed
The Federal Government’s regulation of to encourage the domestic production or use
energy industries is designed to protect public of fossil and other fuels, and to promote
health and safety, and promote fair and the vitality of our energy industries and
efficient interstate energy markets. The Fed- diversification of our domestic energy supplies.
eral Energy Regulatory Commission (FERC), The largest incentive lets certain fuel produc-
an independent agency within DOE, regulates ers cut their taxable income as their fuel
the transmission and wholesale prices of resources are depleted. An income tax credit
electric power, including non-Federal hydro- helps promote the development of certain
electric power, and the transportation of oil non-conventional fuels. It applies to oil pro-
and natural gas by pipeline in interstate duced from shale and tar sands, gas produced
commerce. Over the long run, FERC seeks from a number of unconventional sources
to increase economic efficiency by promoting (including coal seams), some fuels processed
competition in the natural gas industry and from wood, and steam produced from solid
in wholesale electric power markets. FERC’s agricultural byproducts. Another tax provision
recent reforms give consumers competitive provides a credit to producers who make
choices in services and suppliers that were alcohol fuels—mainly ethanol—from biomass
not available just a few years ago. Its actions materials. The law also allows a partial
will cut consumer energy bills by $3 billion exemption from Federal gasoline taxes for
to $5 billion a year. gasolines blended with ethanol.
16. NATURAL RESOURCES AND
ENVIRONMENT

Table 16–1. FEDERAL RESOURCES IN SUPPORT OF NATURAL


RESOURCES AND ENVIRONMENT
(In millions of dollars)

Estimate
1996
Function 300 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 20,668 21,071 22,393 22,393 21,848 21,741 21,829
Mandatory Outlays:
Existing law .................................... 667 1,045 1,012 863 911 907 843
Proposed legislation ....................... ................ ................ 113 74 62 97 104
Credit Activity:
Direct loan disbursements ................ 34 45 38 37 37 39 40
Tax Expenditures:
Existing law ........................................ 1,650 1,670 1,680 1,690 1,705 1,685 1,655
Proposed legislation ........................... ................ –8 –89 –92 –94 –96 –97

The Federal Government spends over $20 Canyon National Park, Everglades National
billion a year to protect the environment, Park, Yellowstone National Park and Gettys-
conserve Federal resources, provide rec- burg National Military Park; the 156 National
reational opportunities, and construct and Forests that the Forest Service manages
operate water projects. 1 The Federal Govern- for various uses, including timber harvesting,
ment manages about 700 million acres— wildlife habitat, and recreation; the National
a third of the U.S. continental land area— Wildlife Refuge System, comprising 510 ref-
including 25 million acres managed by the uges for the conservation of migratory birds
Defense Department (DOD) and 56 million and other important species; and the 264
that the Interior Department holds in trust million acres that the Bureau of Land Manage-
for Indian Tribes and individual Indians. ment (BLM) manages in 11 Western States
The lands generate about $2.7 billion in for economic, conservation, and recreational
receipts a year, mainly from royalties and purposes. Visitors make about 700 million
revenues from the oil and gas, coal, and recreational visits a year on Federally-owned
timber industries. About half of the receipts lands.
go to the Federal Treasury, the rest to
States and to various Federal land and Federal spending on natural resources and
water resource programs. The Government the environment also includes the Environ-
also allocates nearly $1 billion a year in mental Protection Agency (EPA), for which
tax incentives for natural resource industries, the budget proposes $7.6 billion in 1998.
especially timber and mining. EPA implements most of the Nation’s major
environmental laws, including the Clean Air,
Federal lands include the National Park Clean Water, and Safe Drinking Water Acts;
System, with such unique resources as Grand administers the Superfund program; and fi-
1 The Natural Resources and Environment function does not re- nances water infrastructure projects.
flect total Federal support for the environment and natural re-
sources. It does not include, for instance, the environmental clean- Largely due to Federal efforts, the air
up programs at the Departments of Energy and Defense. and water are cleaner across most of the
153
154 THE BUDGET FOR FISCAL YEAR 1998

United States, and a much larger share donate their time and money to help protect
of Americans are served by secondary national parks. Finally, NPS is seeking addi-
wastewater treatment. Our natural resources tional resources by asking Congress for perma-
are better conserved—with national forests nent authority to collect fees and retain
and public rangelands returned to sustainable all the receipts from new fees, and for
levels of productivity, soil erosion substantially reforms in park concessions policies to increase
reduced, thousands of wetland acres restored, competition for concessions contracts and pro-
unique ecosystems protected, contaminated vide incentives for parks to negotiate higher
areas cleaned up by a record rate, and returns from concessioners.
billions of dollars in flood damages averted.
Formerly endangered or threatened species Conservation and Land Management
like bald eagles, wolves, and condors again
grace the landscape in the lower 48 States. How we use the public lands that BLM
Finally, one of America’s best inventions— manages (the 264 million acres in 11 Western
its national park system—has been improved States) has evolved over time—and continues
and preserved for future generations. to. To meet changing and diverse demands,
BLM is promoting both biological diversity
Parks and Recreation and the sustainable development of natural
resources. In 1996, BLM provided for nearly
The Federal Government invests over $1.4
65 million recreational visits while accommo-
billion a year to maintain the National Park
dating more traditional users, including 20,000
System, which has 374 parks, covering over
Western ranchers, the timber industry, and
83 million acres in 49 States, the District
other commercial interests.
of Columbia, and various territories. The
popularity of national parks has prompted BLM and the Forest Service, with combined
a steady rise in congressional funding (almost annual budgets of about $3 billion, manage
five percent a year since 1986) for the Federal forests for multiple purposes. Federal
National Park Service (NPS), but has gen- forest lands in the Pacific Northwest and
erated even faster growth in the number northern California were plagued by conflict
of new parks and other NPS responsibilities. between environmentalists and industry over
Since 1986, the number of national parks logging and, eventually, a court injunction
has grown by 10 percent, including the that brought Federal timber sales to a virtual
five designated in the 1996 Omnibus Parks halt in 1991. To end the impasse, the Presi-
Act. NPS also maintains an infrastructure dent established his Northwest Forest Plan
of aging facilities, fragile ruins, and declining in 1994. Now, Federal forest management
historic structures. is nearing a fully sustainable level. The
Federal Government offered for sale over
So, with demands growing faster than avail-
1.7 billion board feet from Federal forest
able funding (and with an estimated 280
lands in Washington, Oregon, and northern
million park visitors in 1996), NPS is taking
California from 1994 to 1996—enough to
new, creative approaches to managing parks,
build 142,000 average homes and employ
including broader cooperative arrangements
about 11,700 people. The Forest Plan also
with public and private groups. The Govern-
supports area communities by distributing
ment, for instance, is establishing the
grants and loans to help over 100 communities
Tallgrass Prairie National Preserve in Kansas
further diversify their economies.
at substantially less cost than a traditional
national park unit, due to a partnership Federal and non-Federal agencies also are
with a private group that owns most of implementing long-term restoration plans for
the land. At the Presidio of San Francisco, the South Florida and Bay-Delta, California
a government corporation will be able to ecosystems. The South Florida ecosystem is
lease and manage hundreds of unused build- a national treasure that includes the Ever-
ings in a manner consistent with park pur- glades, Florida Bay, and other internationally-
poses, but that cuts taxpayer costs. More renowned natural resources. Its long-term
park managers also are accepting the support viability and sustainability is critical for the
of individuals and corporate citizens that tourism and fishing industries, as well as
16. NATURAL RESOURCES AND ENVIRONMENT 155

for the water supply, economy, and quality and sound management of this land. Other
of life for South Florida’s population of over USDA programs mainly provide financial con-
six million people. As with South Florida, servation assistance, the largest of which
the lack of enough clean water in the San is the Conservation Reserve Program (CRP)
Francisco Bay-San Joaquin Delta ecosystem through which USDA can maintain up to
has reduced the quality and quantity of 36 million acres under land retirement con-
wildlife habitat, endangered several species, tracts, reducing soil erosion by over 600
and reduced the estuary’s reliability as a million tons a year. The 1996 Farm Bill
source of high quality water. should greatly enhance CRP’s conservation
benefits. Under it, for instance, producers
The Interior Department’s Fish and Wildlife
may enroll partial fields into the CRP (e.g.,
Service (FWS) and Commerce Department’s
filterstrips, riparian buffer areas, and grassed
National Marine Fisheries Service (NMFS)
waterways) to gain the maximum conservation
protect species under the Endangered Species
for the least cost.
Act (ESA) while allowing economic develop-
ment to continue. To protect species on
non-Federal lands, these agencies work with Pollution Control and Abatement
States and local governments, private groups, The Federal Government helps achieve the
and landowners to develop Habitat Conserva- Nation’s pollution control goals in three ways.
tion Plans (HCPs), which provide the flexibility It (1) takes direct action, (2) funds action
and certainty that everyone needs to plan by State, local, and Tribal governments, and
for, and use, their land. From 1983 to the private sector, and (3) imposes mandates
1992, such parties devised only 14 HCPs on these parties. The Environmental Protec-
but, from 1993 to 1997, the number issued tion Agency’s (EPA) $7 billion discretionary
or under development soared to 300—covering budget and the Coast Guard’s $100 million
8.4 million acres in the Pacific Northwest Oil Spill Liability Trust Fund (which funds
alone. To protect species on Federal lands, oil spill clean-ups in U.S. waters) finance
Federal agencies consult with State and local the first two activities. EPA’s discretionary
governments, groups, and others before allow- budget, in turn, has three major parts—
ing private parties to use the land. the operating program, Superfund, and water
infrastructure financing.
Another important land conservation pro-
gram is the Land and Water Conservation • EPA’s $3 billion operating program is the
Fund (LWCF), which uses the royalties of main Federal funding source to implement
offshore oil and gas leases to help Federal, most Federal pollution control laws, in-
State, and local governments acquire land cluding the Clean Air, Clean Water, Solid
for conservation and outdoor recreation. From Waste Disposal, Safe Drinking Water, and
its inception in 1964, the program has helped the Toxic Substance Control Acts. EPA
Federal, State, and local governments to protects public health and the environ-
acquire about seven million acres of parks ment by developing national pollution con-
and other lands. The program, for instance, trol standards, which States largely imple-
is funding the acquisition of Sterling Forest ment and enforce under the authority that
in New York and New Jersey, the largest EPA delegates. These standards have led
undeveloped tract of forest and open lands to major environmental improvements.
within 45 miles of downtown New York EPA’s pollution abatement efforts since
City, thus creating vast new recreational 1970 also have generated major environ-
opportunities for the whole area. mental improvements (see Chart 16–1).
Half of the continental United States is • Superfund’s $2 billion program pays for
cropland, pastureland, and rangeland owned cleaning up hazardous substance spills
and managed by two percent of Americans— and abandoned hazardous waste sites, and
farmers and ranchers. The Agriculture Depart- for compelling responsible parties to clean
ment’s (USDA) Natural Resources Conserva- up inactive sites—with a goal of 900 com-
tion Service provides these private interests pleted cleanups by the year 2000 of the
with technical assistance to ensure the health roughly 1,400 sites on EPA’s high-priority
156 THE BUDGET FOR FISCAL YEAR 1998

Chart 16-1. AIR QUALITY TRENDS IN URBAN AREAS

NUMBER OF DAYS PSI EXCEEDED 100*

2250
2,055
2000

1750 1,584 1,572

1500
1,266
1250
1,034 1,017
1000

691 694 707


750 629

500

250

0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

LOS ANGELES OTHER MSAs

MSA= Metropolitan Statistical Area PSI=Pollutant Standards Index (Air Quality)


*Note: A PSI level greater than 100 is the level which denotes that residents are breathing unhealthy air.

list. Private parties subject to Superfund’s ernments to issue tax-exempt bonds to


enforcement spend another $2 billion a construct private waste disposal facilities.
year, and Federal agencies (largely DOD
and the Energy Department) spend about Water Resources
$5 billion a year on hazardous waste
cleanup. Superfund also supports the Fed- The Army Corps of Engineers and Interior’s
eral brownfields program, designed to as- Bureau of Reclamation are the main Federal
sess, clean up, and re-use former contami- agencies that build and operate multi-purpose
nated sites. water projects. The Corps operates Nation-
wide, while the Bureau operates in the 17
• Federal water infrastructure funds go pri- western States. They both seek to develop
marily for capitalization grants to State or manage water resources to meet changing
revolving funds, which make low-interest needs. The budget proposes $4.6 billion for
loans to help municipalities pay for the agencies in 1998—$3.7 billion for the
wastewater treatment and drinking water Corps, $0.9 billion for the Bureau.
treatment systems, as Federal law re-
quires. The more than $67 billion in Fed- • While navigation and flood damage reduc-
eral assistance since the 1972 Clean Water tion remain the Corps’ major focus, its
Act has dramatically increased the per- projects, programs, and regulatory respon-
centage of Americans served by secondary sibilities increasingly address environ-
treatment (as shown in Chart 16–2) and mental objectives, including wetlands pro-
better water quality. State and local gov- tection. The Administration will work with
ernments (and private companies) also Congress to develop a consensus on prior-
benefit from a tax break (costing $700 mil- ities for the Corps Civil Works program
lion in 1998) allowing State and local gov- in an era of stable or falling budgets.
16. NATURAL RESOURCES AND ENVIRONMENT 157

Chart 16-2. POPULATION SERVED BY SECONDARY


TREATMENT OR BETTER
MILLIONS

180 171 173

159
160
146

140 128

120
104

100
85

80

60

40

20

0
1972 1977 1982 1987 1992 1997 1998

ACTUAL ESTIMATES

• The Bureau was designed to support eco- State, local, and Tribal governments and
nomic development in the West by financ- the private sector devote considerable re-
ing and constructing reliable water sup- sources to comply with Federal environmental
plies for irrigation and hydropower genera- laws and regulations to make the air and
tion. With the West developed, the Bureau water cleaner and reduce risks from hazardous
has sought since the late 1980s to remake wastes.
itself into a customer-oriented ‘‘water re-
sources management’’ agency, operating
Tax Incentives
projects more efficiently and providing ex-
pertise on the best way to manage water The tax code offers incentives for natural
resources, consistent with sound environ- resource industries, especially timber and min-
mental and economic objectives. ing. The timber industry can deduct certain
costs for growing timber, pay lower capital
Regulation
gains rates on profits, take a credit for
Millions of Americans have benefited not investment, and quickly write-off reforestation
just from the spending programs discussed costs—all told, costing about $500 million
above, but from Federal regulations that in 1998. The mining industry benefits from
are designed to protect the environment and percentage depletion provisions (which allow
public health. In issuing regulations, however, deductions that exceed the economic value
the Administration has sought to carefully of resource depletion) and can deduct certain
protect the public without unduly burdening exploration and development costs—together,
private interests. In this area and in others, costing about $335 million in 1998.
the Administration has worked to eliminate
unnecessary regulations while improving the
regulations that are clearly necessary.
17. AGRICULTURE

Table 17–1. FEDERAL RESOURCES IN SUPPORT OF AGRICULTURE


(In millions of dollars)

Estimate
1996
Function 350 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 4,206 4,140 4,115 4,014 3,944 3,905 3,914
Mandatory Outlays:
Existing law .................................... 5,023 6,132 8,181 7,605 7,156 6,069 5,866
Proposed legislation ....................... ................ ................ 17 43 23 10 13
Credit Activity:
Direct loan disbursements ................ 6,183 7,074 8,670 8,573 8,294 7,670 7,159
Guaranteed loans ............................... 5,082 7,880 8,075 7,988 7,974 7,970 7,969
Tax Expenditures:
Existing law ........................................ 320 325 330 345 350 355 360
Proposed legislation ........................... ................ –28 –136 –121 –124 –124 –124

Early in our history, the Federal Govern- Conditions on the Farm


ment helped improve food production. Today,
In the 1980s, record-high Federal price
it aims to do much more for agriculture supports, global recession, and the strong
and its related activities, which account for dollar led to steep declines in farm exports,
16 percent of the Gross Domestic Product. market prices, and cropland values, creating
The Government helps our bountiful human, the most severe financial crisis in the farm
natural, and capital resources work together sector since the 1930s. The Government re-
to produce the highest possible benefit at sponded with the largest-ever Federal acreage
the lowest cost for Americans and others. idling program, more market-oriented and
Federal programs disseminate economic and lower price supports, and export subsidies
agronomic information, ensure the integrity to counteract unfair foreign trade practices.
of crops and safety of meat and poultry, At the same time, the demand for food
and help farmers face risks from weather increased around the world.
and unfamiliar export conditions. The results
U.S. agriculture has now recovered. In
are found in the public welfare that Americans 1995 and 1996, short supplies of corn and
enjoy, free of severe dislocations that can wheat lifted the sector’s economic indicators,
occur when commodity markets are left to and agricultural exports hit a record $60
take their natural time to correct themselves. billion in 1996. Market prices for major
The Federal Government spends about $10 crops such as corn and wheat reached their
billion a year for agriculture, but the Agri- highest levels in recent history; farmer debt-
culture Department’s (USDA) $50 billion a to-asset ratios are low; farm land prices
are high; and net farm income rose to
year in other spending includes investments
record levels in 1996, despite the cyclical
that support farms and farmers’ income (noted
downturn in livestock.
below and in other chapters). The tax code
also offers $500 million a year in incentives Exports are key to future farm incomes.
for farmers. The Nation now exports 30 percent of U.S.
farm production, and agriculture produces
the greatest balance of payments surplus,
159
160 THE BUDGET FOR FISCAL YEAR 1998

for its share of national income, of any payments were tied to the gap between
economic sector. The farm sector generally market prices and a legislated ‘‘target price’’
supported the North American Free Trade for major commodities, such as wheat, corn,
Agreement and the recent Uruguay Round cotton, and rice. The program distorted market
of the General Agreement on Tariffs and signals, as farmers planted ‘‘for the program.’’
Trade, believing that U.S. agriculture can The Farm Bill eliminated most planting re-
compete successfully in a world market free strictions. Further, the Government will pro-
of trade barriers and export subsidy distor- vide fixed, but declining payments to eligible
tions. farmers for the next seven years, regardless
of market prices or production. Thus, the
Federal Farm Programs and Markets law ‘‘decouples’’ Federal income support from
The farm sector can grow when markets planting decisions and market prices.
send signals to plant crops, buy machines, Because commodity prices were high in
hire workers, and sell food. The historic 1996, the fixed payments provided an esti-
1996 Farm Bill will greatly increase the mated $3 billion to $4 billion more in income
market’s influence in U.S. farm policy. transfers than farmers would have received
Known officially as the Federal Agriculture under the old law (see Chart 17–1). Payments
Improvement and Reform Act of 1996, the in 1997 likely will exceed previous law levels
Farm Bill will significantly alter the basis by similar amounts, but the excess will
for planting decisions and Federal income decline in later years. In signing the Farm
support for most farmers. Under previous Bill, the President expressed concern that
laws dating to the 1930s, farmers who reduced it did not provide an adequate ‘‘safety net’’
plantings when prices were low could get for farm income. As a result, the budget
income support payments. These ‘‘deficiency’’

Chart 17-1. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS


EXCEED PROJECTED DEFICIENCY PAYMENTS
MILLIONS

7
6.4
5.8
6 5.6
5.3
5.1
5
4.1 4.0
4

3
2.3 2.4
2.0
2 1.5 1.5
1.1
1 0.5

0
1996 1997 1998 1999 2000 2001 2002

PROJECTED DEFICIENCY PAYMENTS UNDER PREVIOUS LEGISLATION 1/


PRODUCTION FLEXIBILITY CONTRACT PAYMENTS

1/ Source: USDA Long-term Projections, February 1996.


17. AGRICULTURE 161

proposes to strengthen the safety net, largely Inspection and Market Regulation: A
in partnership with private sector approaches. half-billion dollars a year in Federal spending
helps secure U.S. cropland from pests and dis-
The Farm Bill also uses incentives to
eases and make U.S. crops more marketable.
encourage farmers to protect the natural
In addition, USDA’s Food Safety and Inspec-
resource base of U.S. agriculture. For example,
tion Service ensures that U.S. meat and poul-
the new $200 million-a-year Environmental
try do not threaten consumers’ health (as de-
Quality Incentive Program helps farmers ad-
scribed in Chapter 22, Health.) The Animal
dress water quality concerns; the new Flood
and Plant Health Inspection Service inspects
Risk Reduction Program provides incentives
agricultural products that enter the country;
to move farming operations from frequently-
controls and eradicates diseases and infesta-
flooded land; and the revised Conservation tions; helps control damage to livestock and
Farm Option gives producers incentives to crops from animals; and monitors plant and
create comprehensive conservation farm plans. animal health and welfare. The Agricultural
USDA’s conservation programs give tech- Marketing Service and the Grain Inspection,
nical and financial help to farmers and Packers, and Stockyards Administration help
communities. They include the Conservation to market U.S. farm products in domestic and
and Wetlands Reserve Programs, which re- global markets, ensure fair trading practices,
move land from farm uses; and the Natural and promote a competitive and efficient mar-
Resources Conservation Service, which pro- ketplace.
vides technical assistance. For more informa- Economic Research and Statistics: An-
tion on conservation, and USDA’s investments nual Federal spending of about $150 million
in forestry and public land management, aims to improve U.S. agricultural competitive-
see Chapter 16, Natural Resources and Envi- ness by reporting and analyzing economic
ronment. USDA programs also help to main- information. The Economic Research Service
tain vital rural communities, as described provides economic and other social science in-
in Chapter 20, Community and Regional formation and analysis for decision-making on
Development. agriculture, food, natural resources, and rural
Risk Management: USDA helps farmers America. The National Agricultural Statistics
manage their financial risks by providing sub- Service develops estimates of production, sup-
sidized crop insurance, delivered mainly ply, price, and other aspects of the farm econ-
through the private sector. On average, farm- omy. In 1998, it will fund the Census of Agri-
ers pay no premiums for coverage against cata- culture, conducted every five years.
strophic losses, and the Government subsidizes Agricultural Research: The Federal Gov-
their premiums for additional coverage. USDA ernment plays an important role in supporting
pays private companies for all costs associated agricultural research and the enhanced pro-
with administering Federal crop insurance. ductivity it can foster, and spends over $1.5
Over the past three years, an average 80 per- billion a year for that purpose. The Agricul-
cent of eligible acres have been insured, with tural Research Service is USDA’s in-house
losses averaging $1.10 for every $1 in pre- research agency, addressing a broad range of
miums—down from the historical average of food, farm, and environmental issues. It puts
$1.40. Since the Farm Bill ended USDA’s tra- a high priority on transferring its research
ditional price and income support programs, findings to the private sector, and in 1998 it
producers now bear the added price risk. In expects to submit 70 new patent applications,
1996, USDA began to pilot-test to farmers, participate in 75 new Cooperative Research
through the private sector, several products and Development Agreements, license 25 new
that mitigate revenue risk, along with the tra- products, and develop 70 new plant varieties
ditional coverage for production risk. Initial re- to release to industry for further development
sults indicate that farmers generally want and marketing. The Cooperative State Re-
these types of products. Crop insurance costs search, Education, and Extension Service pro-
the Federal Government about $1.7 billion a vides grants for agricultural, food, and envi-
year. ronmental research; higher education; and ex-
tension activities. The National Research Ini-
162 THE BUDGET FOR FISCAL YEAR 1998

tiative competitive research grant program, ket Access Program or USDA-organized trade
launched in 1990 on the recommendation of shows, firms are better placed to export dif-
the National Research Council, works to im- ferent products to new locations on their own.
prove the quality and increase the quantity The programs are working. U.S. firms, espe-
of USDA’s farm, food, and environmental re- cially the smaller ones, are exporting more ag-
search. The average annual return to publicly- gressively, and high-value products now com-
funded agricultural research exceeds 35 per- prise a growing share of export value. Overall,
cent, according to recent academic estimates. the trade surplus for agriculture in recent dec-
Agricultural Credit: USDA provides about ades has grown faster than for any other civil-
$500 million a year in direct loans and over ian sector of the economy.
$2.5 billion in guaranteed loans for farm oper- Personnel, Infrastructure, and the Regu-
ating and ownership purposes. Direct loans latory Burden: USDA administers its many
generally go to beginning or socially disadvan- farm programs through 2,500 county offices
taged farmers. Participants must be unable to with over 17,000 staff. The Farm Bill signifi-
secure credit, and the loans carry interest cantly cut USDA’s workload, prompting the de-
rates at or below the rates on Treasury securi- partment to re-examine its staff-intensive field
ties, depending on the farmer’s expected in- office-based infrastructure. In 1997, USDA will
come. In addition, the Farm Credit System and launch three efforts: (1) conduct a study to
‘‘Farmer Mac’’—which are Government-Spon- find ways to operate more efficiently, (2) un-
sored Enterprises—enhance the supply of farm dertake an Administration initiative to scrap
credit through ties with national and global duplicative and unnecessary regulations and
credit markets. The Farm Credit System paperwork, and (3) review and upgrade its
(which lends directly to farmers) has recovered computer systems to streamline its collection
strongly from its financial problems of the of information from farmers and better dis-
1980s, in part through Federal help. Farmer seminate information across USDA agencies.
Mac increases the liquidity of commercial
banks and the farm credit system by purchas-
ing agricultural loans. In 1996, Congress gave Tax Incentives
the institution authority to pool loans and ad- Farmers can deduct certain costs in the
ditional years to attain required capital stand- year they incur them, even for inventories
ards. or for items that provide future benefits
Trade: USDA spends over $1 billion a year and, thus, normally would be deducted over
on export activities, including subsidies to U.S. time. In addition, solvent farmers do not
firms facing unfairly-subsidized overseas com- have to recognize the forgiveness of their
petitors and loan guarantees to foreign buyers farm debt as income. And farmers can pay
of U.S. farm products. Much of USDA’s export lower, capital gains rates on their gains
promotion, however, comes through other ave- from selling certain assets, including
nues. It helps firms overcome technical re- unharvested crops. Under Federal estate taxes,
quirements, trade laws, and customs that often farmers benefit because their land is valued
discourage the smaller, less experienced ones based on its current use as farmland—not
from taking advantage of export opportunities. its market potential for development—and
Also, it shares some of the risk when firms they can pay estate taxes in installments.
or trade organizations experiment in the ex- Finally, feedgrain growers receive indirect
port market. USDA helps educate firms about benefits from the tax subsidy for ethanol
the requirements and process of developing an production, which boosts the market price
overseas market. By participating in the Mar- for corn.
18. COMMERCE AND HOUSING CREDIT

Table 18–1. FEDERAL RESOURCES IN SUPPORT OF COMMERCE


AND HOUSING CREDIT
(In millions of dollars)

Estimate
1996
Function 370 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 3,721 2,362 3,308 3,770 5,242 3,221 3,230
Mandatory Outlays:
Existing law .................................... –13,793 –11,418 710 2,512 6,925 5,708 6,778
Proposed legislation ....................... ................ ................ –714 56 271 –1,683 –1,909
Credit Activity:
Direct loan disbursements ................ 1,570 8,824 4,973 1,682 1,928 2,258 2,405
Guaranteed loans ............................... 181,277 168,959 161,613 161,534 163,350 166,218 169,216
Tax Expenditures:
Existing law ........................................ 182,415 188,935 195,875 204,780 213,495 222,030 229,670
Proposed legislation ........................... ................ 69 243 228 202 174 144

The Federal Government provides financing losses when insured commercial banks, thrifts,
and encourages private support for commerce and credit unions fail.
and housing in many ways. It provides direct
loans and loan guarantees to ease access Mortgage Credit
to mortgage and commercial credit; sponsors
private enterprises that support the secondary The Government provides loans and loan
market for home mortgages; regulates private guarantees to expand access to homeowner-
credit intermediaries, especially depository in- ship, and helps low-income families afford
stitutions; and offers tax incentives. All told, suitable apartments. It helps meet the needs
the Government provides about $1.5 billion of would-be homeowners who lack the savings,
a year in support for housing credit that, income, or credit history to qualify for a
in turn, supports over $100 billion in housing conventional mortgage. It also helps provide
loans and loan guarantees. (Another $16 credit to finance the purchase, construction,
billion in subsidies for low-income housing and rehabilitation of rental housing for low-
programs is classified in the Income Security income persons. Housing credit programs run
function.) by the Departments of Housing and Urban
Development (HUD), Agriculture (USDA), and
The Federal Government also dedicates
Veterans Affairs (VA) supported over $100
about $2 billion a year to promote business
billion in loan and loan guarantee commit-
and maintain the safety and soundness of
ments in 1996, helping over 1.3 million
our financial institutions. The Small Business
households (see Table 18–2).
Administration (SBA) provides aid and counsel
to small businesses, particularly minority- HUD’s Mutual Mortgage Insurance (MMI)
and women-owned ones. The Commerce De- Fund, which the Federal Housing Administra-
partment helps expand U.S. sales and create tion (FHA) runs, helps increase access to
jobs by promoting technological development single-family mortgage credit in metropolitan
and policies that enhance U.S. industrial areas. In 1996, the MMI Fund guaranteed
competitiveness and expand exports. Govern- over $59 billion in mortgages for over 739,000
ment regulators protect depositors against households. Over two-thirds of such mortgages
163
164 THE BUDGET FOR FISCAL YEAR 1998

Table 18–2. SELECTED FEDERAL COMMERCE AND HOUSING


CREDIT PROGRAMS PORTFOLIO CHARACTERISTICS
Number of Dollar
housing volume of
Dollar units/small total out-
volume of businesses standing
loans/guar- financed by loans/guar-
antees loans/guar- antees as
written in antees of the end
1996 written in of 1996
(in millions) 1996 (in millions)

Mortgage Credit:
HUD FHA Mutual Mortgage Insurance (MMI) Fund ........ 59,221 739,603 363,994
HUD General Insurance and Special Risk Insurance (GI/
SRI) Fund ........................................................................... 12,220 301,730 91,176
USDA/RHS Section 502 single-family loans ....................... 2,700 48,000 21,054
USDA/RHS multifamily loans .............................................. 150 1,894 11,410
VA guaranteed loans ............................................................. 28,676 291,635 130,031

Subtotal, Mortgage Credit .................................................... 102,967 1,382,862 617,665


SBA guaranteed loans .............................................................. 8,205 50,520 28,329
Total Assistance ..................................................................... 111,172 1,433,382 645,994

go to first-time homebuyers. Fees and pre- The Government partially guarantees the
miums paid to the MMI Fund fully offset loans from private lenders, providing $29
program costs—the program receives no an- billion in loan guarantees in 1996. VA also
nual appropriation from Congress. provides direct loans to the buyers of acquired
properties, including $1.3 billion in loans
USDA’s Rural Housing Service (RHS) offers
in 1996.
direct and guaranteed loans and grants to
help very low- to moderate-income rural resi- The Government plays an important role
dents buy and maintain adequate, affordable in supporting the secondary mortgage market.
housing. Its 502 direct loan program provides Congress created the Government National
loans for buying, rehabilitating, or repairing Mortgage Association (Ginnie Mae) in 1968
single-family homes. Its 502 guaranteed loan to support the secondary mortgage market
program guarantees up to 90 percent of for FHA, VA, and USDA single- and multi-
a private loan for buying new or existing family mortgages. Under its Mortgage-Backed
housing. Together, the two 502 programs Securities (MBS) program, Ginnie Mae guar-
provided $2.7 billion in loans and loan guaran- antees the timely payment of principal and
tees in 1996, supporting 48,000 households. interest on securities backed by pools of
RHS’s 515 program, which generally lends FHA, VA, and USDA mortgages issued by
to private developers, finances both the con- private mortgage institutions. The program
struction and rehabilitation of rural rental raises liquidity in the secondary mortgage
housing for low- to moderate-income, elderly, market and attracts new sources of capital
and handicapped rural residents. It provided for residential loans. To date, Ginnie Mae
$150 million in direct loans in 1996, support- has originated over $1 trillion in securities,
ing over 1,800 households. of which over $480 billion remain outstanding.
Its MBS single-family program has helped
VA helps veterans and active duty personnel
over 19 million low- and moderate-income
buy and improve homes. Its Loan Guarantee
families buy homes.
Program (classified in the Veterans Benefits
and Services function) provides housing credit The Federal National Mortgage Association
assistance to veterans and service members. (Fannie Mae) and the Federal Home Loan
18. COMMERCE AND HOUSING CREDIT 165

Mortgage Corporation (Freddie Mac) are con- specific projects. In addition, USDA’s RHS
gressionally chartered, shareholder-owned cor- rental assistance grants to low-income rural
porations known as Government Sponsored households provided $541 million to support
Enterprises (or GSEs). Congress chartered 40,050 new and existing rental units in
them to provide stability in the secondary 1996.
market for residential mortgages, and promote
access to mortgage credit throughout the The Federal Government also makes grants
Nation, including under-served areas. The to help the homeless, supporting emergency
GSEs issue and guarantee mortgage-backed shelters and transitional and permanent hous-
securities (MBS), and they hold debt-financed ing. Four agencies—HUD, VA, the Department
portfolios of mortgages, MBS, and other mort- of Health and Human Services, and the
gage-related securities. By the end of 1996, Federal Emergency Management Agency—pro-
Fannie Mae and Freddie Mac had financed vide 98 percent of the Federal help targeted
$1.51 trillion in mortgages and other assets. to the homeless. For 1996, HUD provided
As of September 30, 1996, the two GSEs $823 million in homeless assistance grants,
had outstanding $1.4 trillion in mortgages representing 73 percent of the $1.13 billion
purchased or guaranteed. Because they are targeted Government-wide funding total.
classified as private, Fannie Mae and Freddie
Mac are not included in the budget.
Housing Tax Incentives
A third housing GSE, the Federal Home
Loan Bank System (FHLBS), is a member- The Government provides significant sup-
owned cooperative that provides liquidity to port for housing through tax preferences.
mortgage lenders by making collateralized The two largest tax benefits are the mortgage
loans, called advances. At the end of 1996, interest deduction for owner-occupied homes
outstanding FHLBS advances totaled $153 (which will cost the Government $285 billion
billion. in lost revenue from 1998 to 2002) and
the deductibility of State and local property
The Government also plays an important tax on owner-occupied homes (costing $95
role in ensuring that consumers get the billion over the same five years).
information they need to make informed
housing decisions. For example, HUD and Other tax provisions also encourage invest-
the Environmental Protection Agency jointly ment in housing: (1) homeowners can avoid
issued a regulation in 1996 to require owners capital gains taxes from selling their homes
of housing built before 1978 to disclose, if they use the gains to buy another one
to prospective buyers or renters, information (costing $81 billion from 1998 to 2002);
about any known lead-based paint hazards. (2) taxpayers 55 and older can avoid capital
Informed buyers and renters are best-posi- gains taxes on up to $125,000 from selling
tioned to decide how to protect their families their homes (costing $27 billion); (3) States
at an affordable cost. and localities can issue tax-exempt mortgage
revenue bonds, whose proceeds subsidize pur-
Rental Housing and Homeless Assistance
chases by first-time, low- and moderate-income
Grants
home buyers; and (4) installment sales provi-
The Federal Government also provides sup- sions let some real estate sellers defer taxes.
port for housing assistance through a number Finally, the Low-Income Housing Tax Credit
of HUD programs in the Income Security provides incentives for constructing or renovat-
function. HUD’s rental programs provided ing rental housing that helps low-income
subsidies for over 4.8 million low-income tenants for at least 15 years. The President
households in 1996—1.4 million for units proposes to expand tax benefits for home-
in conventional public housing projects; 1.8 owners, which would ensure that 99 percent
million in rental subsidies attached to pri- of all home sales are exempt from capital
vately-owned multifamily housing projects; and
gains taxes.
1.6 million in rental vouchers not tied to
166 THE BUDGET FOR FISCAL YEAR 1998

Commerce, Technology, and International Financial Regulation


Trade
The Government protects depositors against
The Commerce Department and SBA pro- losses when insured commercial banks, thrifts,
mote industrial competitiveness. and credit unions fail. Deposit insurance
also wards off widespread disruption in finan-
Commerce promotes the development of cial markets by making it less likely that
technology and advocates sound technology one institution’s failure will cause a financial
policies. Commerce’s Advanced Technology panic and a cascade of other failures. From
Program provides cost-shared, competitive 1985 to 1995, Federal deposit insurance pro-
grants for industry research and development tected depositors in over 1,400 failed banks
that are paying off in jobs created, strategic and 1,100 savings associations, with total
alliances formed, and technology developed. deposits of over $700 billion. The Resolution
Commerce’s Manufacturing Extension Partner- Trust Corporation (RTC), a temporary agency
ship (MEP) provides technological information created to handle thrift failures from 1989
and expertise to the Nation’s 381,000 smaller to 1995, protected 25 million deposit accounts
manufacturers. MEP’s clients indicate an 8- in 747 failed institutions.
to-1 return on Federal investment in firm The Federal Deposit Insurance Corporation
sales, jobs created or retained, and labor (FDIC) insures the deposits of banks and
and material savings. Commerce’s Patent and savings associations (thrifts) through two sepa-
Trademark Office (PTO) protects U.S. intellec- rate insurance funds, the Bank Insurance
tual property rights around the world through Fund (BIF) and the Savings Association Insur-
bilateral and multilateral negotiation, and ance Fund (SAIF). The National Credit Union
through its domestic patent and trademark Administration (NCUA) insures the deposits
system, now issuing over 100,000 patents of credit unions. Currently, these varied kinds
a year. Its International Trade Administration of deposits are insured for up to $100,000
(ITA) promotes exports, fights unfair foreign per account. The FDIC insures deposits at
trade barriers, and negotiates multilateral over 9,500 commercial banks and almost
and bilateral trade agreements. In 1995 alone, 2,000 savings institutions, for a total of
ITA estimates that it supported $15.5 billion $2.7 trillion in insured deposits. The NCUA
in gross exports and 248,000 jobs. insures about 11,500 credit unions, with $260
billion in insured deposits.
Commerce’s Census Bureau collects, tab-
ulates, and distributes a wide variety of Because the Government bears the risk
of losses, it regulates banks, thrifts, and
statistical information about Americans and
credit unions to ensure that they operate
the economy. A key effort is the constitu-
in a safe and sound manner. Five agencies
tionally-mandated decennial census—the basis
regulate Federally-insured depository institu-
for reapportioning seats in the U.S. House
tions: The Office of the Comptroller of the
of Representatives, redrawing State legislative Currency regulates national banks, the Office
districts, and distributing billions of dollars of Thrift Supervision regulates thrifts, the
of Federal, State, and local funds. In addition, Federal Reserve regulates State-chartered
Commerce’s Bureau of Economic Analysis pre- banks that are Fed members, the FDIC
pares and interprets U.S. economic accounts, regulates other State-chartered banks, and
including the gross domestic product, wealth the NCUA regulates credit unions.
accounts, and the U.S. balance of payments.
Other regulatory institutions include the
SBA, which Congress created in 1953 to Securities and Exchange Commission (SEC)
aid, counsel, assist, and protect small business, and the Commodity Futures Trading Commis-
expands access to capital by guaranteeing sion (CFTC). The SEC oversees U.S. capital
private loans. The loans carry longer terms markets and regulates the securities industry,
and lower rates than the small businesses protecting investors and maintaining the fair-
otherwise would have received. SBA guaran- ness and integrity of domestic securities mar-
teed over $8.2 billion in small business kets by preventing fraud and abuse and
loans in 1996. ensuring the adequate disclosure of informa-
18. COMMERCE AND HOUSING CREDIT 167

tion. The CFTC regulates U.S. futures and billion from 1998 to 2002. Capital gains
options markets, preventing fraud and abuse. also are subject to a maximum 28 percent
rate, making them attractive to taxpayers
Commerce Tax Incentives who are paying higher income tax rates.
The tax law provides incentives to encourage Other capital gains provisions benefit invest-
business investment and savings. Those who ments in small businesses. Other tax provi-
inherit capital assets, for instance, do not sions benefit small firms, including the grad-
pay taxes on gains that accrued during uated corporate income tax and up-front
the original owner’s lifetime—a benefit that deductions, or ‘‘expensing,’’ for certain invest-
will cost the Government an estimated $173 ments by small businesses.
19. TRANSPORTATION

Table 19–1. FEDERAL RESOURCES IN SUPPORT OF


TRANSPORTATION
(In millions of dollars)

Estimate
1996
Function 400 Actual 1997 1998 1999 2000 2001 2002

Spending: 1
Discretionary Budget Authority ....... 13,628 13,782 13,534 14,566 14,722 14,978 15,236
Mandatory Outlays:
Existing law .................................... 2,501 2,450 2,381 2,329 2,151 2,031 1,954
Proposed legislation ....................... ................ ................ 35 22 6 –51 –651
Credit Activity:
Direct loan disbursements ................ 47 216 591 791 863 879 879
Guaranteed loans ............................... 826 1,065 477 477 477 477 477
Tax Expenditures:
Existing law ........................................ 1,320 1,365 1,405 1,455 1,505 1,560 1,620
1 This table excludes spending subject to obligation limitations.

America’s transportation network moves and a more efficient system would help
people through a combination of public and the economy.
private systems, financed by Federal, State,
The Federal Government has helped develop
and local governments and the private sector.
large parts of the system, with much of
Maintaining and improving these systems
the help financed by user fees and transpor-
requires infrastructure investment, safe oper-
tation taxes. Total Federal investment in
ations, and new technology.
transportation represents about half of total
Though the Federal Government plays a public investment—that is, $27 billion of
major role in each of these areas, it does the $54 billion of Federal, State, and local
not act alone in any of them. With just spending on transportation infrastructure in
a few exceptions, Federal transportation pro- 1993.
grams are designed to promote transportation Highways and Bridges: About 950,000
access for all citizens, ensure the safe design miles of roads and all bridges are eligible for
and movement of privately-owned and oper- Federal support, including the Interstate high-
ated vehicles, help a struggling segment of way system, urban freeways, urban and rural
the transportation industry, or advance trans- principal and minor arterials, defense high-
portation research. In total, Federal transpor- ways, and Federal lands roads. In 1998, the
tation spending comes to about $39 billion Federal Government plans to spend $19.8 bil-
a year. lion to maintain and expand these roads, with
the Federal funds financed by motor fuels
Infrastructure Investment taxes, mainly the gasoline tax. The Federal
gas tax is 18.4 cents a gallon, of which 12
America has four million miles of roads,
cents finances formula grants to States for
580,000 bridges, 123,000 miles of railway,
highway-related repair and improvement.
5,500 public-use airports, 6,000 transit sys-
tems, and 25,000 miles of commercially-navi- State and local governments provide 56
gable waterways. This extensive, multi-modal percent of total highway and bridge infrastruc-
network is essential to the Nation’s commerce, ture spending, most of which they generate
169
170 THE BUDGET FOR FISCAL YEAR 1998

through their own fuel and vehicle taxes. the electrification of the rail line, while the
The average State gasoline tax was 19.3 private sector helps to finance the high-speed
cents per gallon in 1995. State and local trainsets that will begin operating in late
governments also are accelerating their infra- 1999, introducing three-hour service between
structure projects by using debt financing, New York City and Boston.
such as bonds and revolving loan funds.
Airports: The Airport Improvement Pro-
Under the new State Infrastructure Banks
gram (AIP) provides grants to States, local-
program, the Federal Government is providing
ities, and airport authorities to maintain and
funds to States to help underwrite debt
enhance airport safety, preserve airport infra-
issuance for highway and transit projects.
In addition, the new Transportation Infra- structure, and expand capacity and efficiency
structure Credit Program promises to provide throughout the system. The AIP typically
similar financing innovations for nationally funds a fourth to a third of all capital develop-
significant projects. ment at public use airports, while airport reve-
nues (e.g., concession revenues, landing fees,
The Interstate highway system is virtually passenger facility charges) finance the rest.
complete, with 45,481 of the 45,500-mile
system open to the public. Its completion Other Transportation: With regard to
marks the end of America’s largest-ever public commercial shipping infrastructure, Federal
works project, begun during the Eisenhower loan guarantees facilitate the construction of
Administration as a ‘‘grand plan’’ to meet new vessels and the renovation of existing ves-
the transportation needs of a rapidly growing sels. Port development is left largely to State
Nation. and local authorities, which have invested over
$14 billion in infrastructure improvements
Transit: As with highways, the Federal over the past 50 years. Of America’s 541 pri-
Government plays a partnership role with vate freight railroads, the largest 11 moved
State and local governments on mass transit. over one trillion ton-miles of freight in 1994—
Two cents a gallon of the Federal gas tax goes about a third of the total ton-miles shipped.
to fund transit grants to municipalities and Freight railroads finance their own infrastruc-
States. Federal capital grants comprise about ture, spending over $7 billion a year to up-
half of the total spent each year to maintain grade and maintain track and structures.
and expand the Nation’s 6,000 bus, rail, trol-
ley, van, and ferry systems. Together, States Safe Operations
and localities invest over $3 billion a year on
The Federal Government works with State
transit infrastructure and equipment, includ-
and local governments and private groups
ing funds to ‘‘match’’ Federal grants.
to mitigate the safety risks inherent in the
In 1998, the Federal Government plans transportation system. It regulates motor vehi-
to spend $4 billion on transit capital. The cle design and operation, inspects commercial
Federal role is especially important to finance vehicles, educates the public about safe behav-
capital-intensive urban rail systems and low- ior, directs air and waterway traffic, and
volume rural bus and van networks. About rescues boaters in danger.
80 million Americans depend on public trans-
A broad range of Federal activities are
portation due to age, disability, or income.
designed to cut the number of deaths and
Furthermore, transit use by commuters eases
injuries from highway crashes, which number
roadway congestion and reduces polluting
about 41,000 and five million a year, respec-
emissions.
tively. Due to Federal, State, local, and
Passenger Rail: The Federal Government private efforts, safety belt usage reached
will invest about $424 million in 1998 to sup- an all-time high of 68 percent in December
port the passenger rail system’s infrastructure 1995. Federal programs reach out to State
and equipment needs. The extension of the and local partners, including health care
Northeast Corridor high-speed rail to Boston professionals, to identify the causes of crashes
highlights the partnership between the Fed- in each community and develop new strategies
eral Government and private sector to improve to reduce deaths, injuries, and the resulting
passenger rail. The Federal Government funds medical costs. These programs will be increas-
19. TRANSPORTATION 171

ingly important as the number of young Research and Technology


drivers grows. In addition to coordinating
The Federal Government has long led efforts
national traffic safety campaigns, the National
Highway Traffic Safety Administration to advance transportation technology. Federal
(NHTSA) regulates the design of automobiles transportation research has focused on build-
and light trucks, investigates reported safety ing stronger roads and bridges, designing
defects, and distributes traffic safety grants safer cars, and reducing human error in
to States. The budget proposes $333 million operating vehicles of all types. Today, the
for NHTSA, a 10-percent increase over 1997. increasing congestion of roadways and airways
is colliding with Federal budget constraints
The Federal Government’s most visible safe- and with environmental and land-use con-
ty function is operating the air traffic control cerns. Consequently, transportation planners
and air navigational systems. The Federal believe that better management of the existing
Aviation Administration (FAA) handles about infrastructure is a cost-effective alternative
two flights a second, moving 1.5 million to building more highways and airports. In
passengers to where they want to go each 1998, the Federal Government will spend
day. The FAA also uses its regulatory and over $1 billion on transportation research
certification power to ensure that every aspect and technology.
of aviation is safe—from aircraft design and
maintenance to the flight crew. In 1996, The Federal Highway Administration’s Intel-
the FAA performed over 300,000 inspections ligent Transportation Systems (ITS) program
to ensure compliance with safety regulations. is developing and deploying technologies that
To meet safety needs in 1998, the Administra- will help States and localities improve traffic
tion plans to spend $7.2 billion on FAA flow and safety on their streets and highways.
operations and capital, five percent more These technologies include intelligent cruise
than in 1997. control, passive tolling and inspection, and
automated highways. The private sector, which
The Federal Government also plays an works closely with the ITS program, will
operational role on major waterways. The initially deploy many of the technologies
Coast Guard places and maintains waterborne developed with ITS funding.
aids-to-navigation, operates radio navigation
and distress systems, guides vessels through The FAA’s research, engineering, and devel-
busy ports, and regulates vessel design and opment programs help improve safety, secu-
operation. The Coast Guard helps ensure rity, capacity, and efficiency in the National
safety on minor waterways and inland lakes Airspace System. For instance, the advanced
by providing boating safety grants to States, traffic management system and the early
and by supporting a 35,000-member voluntary introduction of satellite navigation capabilities
auxiliary that performs complimentary boat will improve the aviation industry’s competi-
safety inspections and educates boaters about tiveness and the FAA’s efficiency. In general,
safety. In 1998, the Coast Guard will invest FAA research focuses on the causes of human
$3.1 billion in its operating and capital error; aircraft safety and fire protection meth-
programs, which are mainly dedicated to ods; aviation weather research; quieter engines
safety. and reduced aircraft emissions; and security
and explosives detection systems.
The National Motor Carriers Program, for
which the budget proposes $100 million in The National Aeronautics and Space Admin-
1998, provides grants to States to enforce istration’s Aeronautical Research and Tech-
Federal and compatible State standards for nology program funds partnerships with indus-
commercial motor vehicle safety inspections, try that may revolutionize the next generation
traffic enforcement, and compliance reviews. of airplanes, making them faster, more effi-
Uniform standards help coordinate law en- cient, and more compatible with the environ-
forcement activities, and simplify the safety ment. These activities include programs to
requirements of interstate trucking. Federal advance the capabilities of sub-sonic aircraft,
grants are designed to help States boost to help develop large, high-speed civilian
safety. airplanes, and to enhance the performance
172 THE BUDGET FOR FISCAL YEAR 1998

of aeronautics-related computing and commu- the costs of oil shipments to the United
nications facilities. States will fall by hundreds of millions of
dollars due to ‘‘lightering zone’’ regulations
Regulation of Transportation that permit older, single-hull vessels in the
Federal rules greatly influence transpor- Gulf of Mexico to off-load oil. The Federal
tation. Over the past two decades, deregulation Government is also making its regulations
of the domestic railroad, airline, and interstate parallel with those of other countries. An
trucking industries has contributed to the agreement on aviation safety rules—now
Nation’s economic growth. More recently, de- under negotiation with the European Commu-
regulation has continued. In 1993, for example, nity—promises to save airlines at least $100
the Federal Government deregulated intra- million, and possibly $1 billion, over 10
state trucking, saving shippers and consumers years.
an estimated $3 billion to $8 billion a year.
The Federal Government also issues regula- Tax Expenditures
tions to spur safer, cleaner transportation.
Employer-provided parking and transit
The regulations improve safety—of cars,
passes are, for the most part, not subject
trucks, trains, and airplanes—leading to sub-
to income taxes, costing the Government
stantial reductions in transportation-related
an estimated $6.9 billion from 1998–2002;
deaths and injuries. In addition, they help
the estimate does not include the value
reduce the number of oil spills and provide
of employer-owned parking. To finance infra-
a faster response when spills occur.
structure, State and local governments issue
The Government has taken other regulatory tax-exempt bonds whose costs to the Federal
steps to meet transportation-related environ- Government, in lost revenues, are reflected
mental and safety goals in a cost-effective in the General Government and Community
manner. For example, between now and 2015, and Regional Development functions.
20. COMMUNITY AND REGIONAL
DEVELOPMENT

Table 20–1. FEDERAL RESOURCES IN SUPPORT OF COMMUNITY


AND REGIONAL DEVELOPMENT
(In millions of dollars)

Estimate
1996
Function 450 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 11,645 9,313 10,920 8,333 7,681 7,751 7,870
Mandatory Outlays:
Existing law .................................... 317 343 –112 63 126 255 63
Proposed legislation ....................... ................ 157 5 20 ................ –15 –13
Credit Activity:
Direct loan disbursements ................ 1,963 2,313 2,460 1,908 2,118 2,210 2,143
Guaranteed loans ............................... 839 1,454 1,941 2,055 2,090 2,159 2,022
Tax Expenditures:
Existing law ........................................ 2,650 2,700 2,740 2,720 2,700 2,640 2,425
Proposed legislation ........................... ................ 40 450 551 565 544 489

Federal support for community and regional structure, businesses, and homes. States and
development helps build the Nation’s economy, localities also use these Federal funds to
and helps economically distressed urban and leverage private resources for their community
rural communities earn a larger share of revitalization strategies.
America’s prosperity. The Federal Government
spends over $12 billion a year, and offers Department of Housing and Urban
about $2.7 billion in tax incentives, to help Development (HUD)
States and localities create jobs and economic HUD provides communities with flexible
opportunity, and build infrastructure to sup- funds to promote commercial and industrial
port commercial and industrial development. development; enhance infrastructure; clean
up abandoned industrial sites, or ‘‘brown-
The needs of States and localities are
fields’’; and develop strategies for providing
varied and hard to measure. Still, Federal
affordable housing close to jobs. HUD esti-
programs in this area have proved successful
mates that projects for which it provided
in creating stable and healthy communities
economic assistance from 1993 to 1996 created
that offer greater economic opportunity. The
or saved 1.4 million jobs.
Government helps communities with basic
infrastructure needs pay for constructing Community Development Block Grant
roads, improving water and sewage systems, (CDBG): The CDBG program, for which the
and constructing affordable housing. For those budget proposes $4.6 billion, gives States and
affected by layoffs and rising job insecurity, localities flexible funds for activities that meet
Federal programs promote jobs skills through one of three national objectives: (1) benefit low-
employment training and education, and pro- and moderate-income persons, (2) help prevent
mote access to jobs by helping businesses or eliminate slums or blight, or (3) meet other
and rehabilitating commercial properties. Com- urgent community needs that pose immediate
munities that are hard hit by natural disasters threats to public health. Every Federal dollar
receive Federal assistance to rebuild infra- spent for CDBG leverages an estimated $2.31
173
174 THE BUDGET FOR FISCAL YEAR 1998

in private and other investment. Communities lowest-income communities receive signifi-


spend CDBG funds to improve housing, public cantly subsidized interest rates. These pro-
works, public services, and economic develop- grams are designed to help rural communities
ment, and to acquire or clear land. with fewer than 10,000 residents. Since 1993,
over 4,500 communities have received financial
Seventy percent of CDBG funds go to
assistance to build or upgrade drinking water
over 900 designated central cities and urban
or wastewater systems, and the rural business
counties, the remaining 30 percent to States
and industry loan guarantee program has
to award to smaller localities. CDBG’s Section
created or saved over 110,00 rural jobs.
108 Loan Guarantee Program gives Federal
guarantees to private investors who buy debt Department of the Treasury
obligations issued by local governments, thus
giving communities efficient financing for Treasury’s Community Development Finan-
housing rehabilitation, economic development, cial Institutions (CDFI) Fund, for which the
and large-scale physical development projects. budget proposes $125 million, provides grants,
Indian CDBG programs provide services for loans, equity investments, and technical assist-
Native Americans, primarily focusing on public ance to qualified CDFIs—including community
development banks, low-income credit unions,
infrastructure, community facilities, and eco-
microenterprise funds, and many multi-bank
nomic development. In 1996, 84 Tribes re-
community development corporations. The as-
ceived a total of $49 million in CDBG grants
sistance, which must be matched by com-
through competition.
parable non-Federal money, is designed to
HOME: The budget proposes $1.3 billion in promote economic revitalization and commu-
flexible HOME grants to States and commu- nity development. Federal funds may be used
nities to address their most severe housing for small business, low-income housing, com-
needs. This program (classified in the Income munity facilities, the provision of basic finan-
Security function) generates an estimated cial services, and other community develop-
$1.80 in private and other investment for ment activities. In 1996, the CDFI Fund
every Federal dollar spent. Eligible activities approved $37 million for 32 CDFIs, serving
include new construction, rehabilitation, acqui- 46 states and the District of Columbia. The
sition of standard housing, assistance to home fund also awarded $13 million to 38 traditional
buyers, and tenant-based rental assistance. banks and thrifts for increasing their activities
From the program’s inception in 1992 to June in economically distressed communities and
1996, recipients have committed or used investing in CDFIs.
HOME funds to build or rehabilitate 201,000
housing units and to help 26,500 families pay Department of the Interior
their rent. The Interior Department’s Bureau of Indian
Affairs (BIA), for which the budget proposes
Department of Agriculture $1.7 billion in 1998, helps Tribes, Native
American organizations, and individuals de-
The Agriculture Department (USDA) gives
velop resources to improve their economies
financial assistance to rural communities and
through financial assistance programs, various
businesses to provide safe drinking water
loans and grants, assistance in getting financ-
and adequate wastewater treatment facilities;
ing from other sources, and technical assist-
boost employment; and further diversify the
ance in using agricultural and rangeland
rural economy. The budget proposes $2.5
resources. BIA’s guaranteed business loans
billion in such assistance. Grants, loans,
in 1996 generated about $40 million in total
and loan guarantees go for constructing rural
financing, creating or sustaining over 1,700
community facilities, such as health clinics
jobs.
and day care centers; constructing water
and wastewater systems; and creating or Each year, BIA helps Tribes manage 16
expanding rural businesses. USDA offers loan million acres of forest land and conduct
assistance for building community facilities timber sales of $250 million that sustain
and water and wastewater facilities at interest over 10,000 forest and timber-related jobs,
rates tied to the community’s income—the and helps Tribes manage mineral resources
20. COMMUNITY AND REGIONAL DEVELOPMENT 175

and generate mineral income. BIA funds technical assistance to communities and firms
housing improvement and maintains over to find solutions to problems that stifle
4,500 single family housing units for BIA economic growth. In addition, EDA’s economic
teachers and other reservation-based staff. adjustment assistance grants help commu-
Finally, BIA (with the Transportation Depart- nities solve severe adjustment problems, such
ment) maintains and improves over 40,000 as those resulting from natural disasters
miles of public and BIA roads and 745 and industry relocations or major downsizings.
bridges, and addresses deficiencies at over To date, EDA has approved 479 disaster
100 high-hazard dams on reservations. recovery grants, totaling $403 million, to
The Tennessee Valley Authority (TVA) help impacted communities recover from natu-
ral disasters that include hurricanes, flooding,
The TVA adds to the prosperity of seven earthquakes, and tropical storms.
States by: (1) providing reliable supplies of
electricity at rates that are among the Nation’s
Disaster Relief
lowest, (2) paying over $250 million a year
to State and local governments in lieu of The Federal Government provides financial
taxes, and (3) operating economic and regional help to cover a large share of the Nation’s
development programs that provide flood pro- losses from natural hazards. Over the past
tection, recreational facilities, navigation, and several years, spending from the two major
various other services. The budget proposes Federal disaster assistance programs—the
$106 million for these purposes, but TVA Federal Emergency Management Agency’s
will develop a plan to eliminate Federal (FEMA) Disaster Relief Fund and the Small
funding for these programs for 1999 and Business Administration’s (SBA) Disaster
beyond. In 1997 and 1998, TVA will work Loan program—has risen significantly, and
with Congress, State and local governments,
private casualty insurers experienced their
and other interested parties and undertake
five most costly natural disasters. Why? Be-
a major effort to find alternate ways to
cause the natural hurricane cycle seems to
fund, organize, and manage these programs.
be entering a phase in which more hurricanes
The proposal reflects TVA’s efforts over several
strike our shores; demographic and economic
years to decrease its reliance on Federal
growth has been great in hurricane- and
funds to finance its activities.
earthquake-prone areas; and global climate
The Economic Development changes or cyclical weather trends seem to
Administration (EDA) be increasing the number and severity of
events.
The EDA creates jobs and stimulates com-
mercial and industrial growth in economically The Federal Government shares the costs
distressed areas—rural and urban areas with with States for infrastructure rebuilding;
high unemployment, a large share of poor makes disaster loans to individuals and busi-
people, or sudden and severe distress. EDA’s nesses; and provides grants for emergency
public works grants help build or expand needs and housing assistance, unemployment
public facilities to stimulate and foster indus- assistance, and crisis counseling. In addition,
trial and commercial growth. Typical projects the National Flood Insurance Program enables
include industrial parks, business incubators, property owners to purchase flood insurance
access roads, water and sewer lines, and that’s unavailable in the commercial market.
port and terminal developments. From 1992 To mitigate losses and in exchange for flood
to 1996, EDA awarded 821 public works insurance, communities must adopt and en-
grants, totaling $810 million, to help economi- force floodplain management measures to pro-
cally distressed communities build these types tect lives and new construction from future
of infrastructure projects. flooding. FEMA also encourages and supports
EDA’s capacity building grants help commu- mitigation measures before disasters strike
nities pay for expertise to plan, implement, by providing hazard mitigation grants, and
and coordinate comprehensive economic devel- sponsoring training, preparedness, and other
opment projects. The grants also provide planning events.
176 THE BUDGET FOR FISCAL YEAR 1998

Tax Expenditures for qualifying mutual and cooperative tele-


phone and electric companies (costing $325
The Federal Government provides several
tax incentives to encourage community and million over the five years); and, (4) tax
regional development activities: (1) A 10 per- incentives for qualifying businesses in eco-
cent investment tax credit for rehabilitating nomically distressed areas that qualify as
buildings that were built before 1936 for Empowerment Zones—including an employer
non-residential purposes (costing $340 million wage credit, higher up-front deductions for
from 1998 to 2002); (2) tax-exempt bonds investments in equipment, tax-exempt financ-
for airports, docks, and wharves, as well ing, and accelerated depreciation (costing $3.2
as high-speed rail facilities which need not billion over the five years). In addition,
be government-owned (costing $9.3 billion the law provides tax credits for contributions
over the same five years); (3) tax-exemptions to certain community development banks.
21. EDUCATION, TRAINING, EMPLOYMENT,
AND SOCIAL SERVICES

Table 21–1. FEDERAL RESOURCES IN SUPPORT OF EDUCATION,


TRAINING, EMPLOYMENT, AND SOCIAL SERVICES
(In millions of dollars)

Estimate
1996
Function 500 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 36,147 42,387 46,425 47,420 48,455 49,459 50,335
Mandatory Outlays:
Existing law .................................... 13,881 10,487 10,785 10,475 10,625 10,796 11,299
Proposed legislation ....................... ................ –340 2,791 4,589 4,986 4,524 1,938
Credit Activity:
Direct loan disbursements ................ 9,120 11,984 14,536 17,636 20,162 21,736 23,076
Guaranteed loans ............................... 19,816 20,958 21,256 20,548 20,540 21,538 22,872
Tax Expenditures:
Existing law ........................................ 25,200 27,020 27,865 29,165 30,480 31,880 33,340
Proposed legislation ........................... ................ 166 4,919 7,201 8,862 9,038 9,506

The Federal Government helps States and views—of the more than $500 billion a year
localities educate young people, helps the that the Nation spends on elementary, second-
low- skilled and jobless train for and find ary, and postsecondary education, 91 percent
jobs, helps youth and adults of all ages comes from State, local, and private sources.
overcome financial barriers to postsecondary The Federal Government contributes just nine
education and training, helps employers and percent.
employees maintain safe and stable work-
places, and helps provide social services for But, though a small share of the overall
the needy. The Government spends about investment, Federal spending targets impor-
$60 billion a year on grants to States and tant national needs, such as equal opportunity
localities; on grants, loans, and scholarships and high academic standards. For postsecond-
to individuals; on direct Federal program ary education, three-fourths of all student
administration; and on subsidies leveraging financial aid comes in federally-backed student
over $30 billion in loans to individuals. loans, Pell Grants, and other Federal help—
It also allocates nearly $33 billion a year and Federal aid helps half of all students
in tax incentives for individuals. pay for college. To expand access to college,
the Administration is proposing a new HOPE
Education scholarship tax credit and a tax deduction,
to make two years of postsecondary education
Education has long been a national priority, universally available and to open the doors
and for good reason. Education has served to lifelong learning.
as the steppingstone for Americans who want-
ed better lives for themselves and their At elementary and secondary schools, most
families. At the same time, Americans view disadvantaged students get extra help to
education as mainly the province of State succeed through the Federal Title I program,
and local governments, and of families and launched as part of the War on Poverty
individuals. Education spending reflects these and providing supplementary services, such
177
178 THE BUDGET FOR FISCAL YEAR 1998

as special tutoring in math, to low-income since 1980. One reason seems to be rising
children. The return on this Federal invest- tuition, caused mainly by cuts in State sup-
ment has been dramatic. Citing Title I, port; 76 percent of all students attend State
as well as Head Start and child nutrition public higher education institutions. Low-
programs, a 1994 RAND study found that income families are particularly sensitive to
‘‘the most plausible’’ way to explain big tuition increases, and minority families have
education gains of low-income and minority been reluctant to take out loans, which
children in the past 30 years is ‘‘some have been the fastest-growing component of
combination of increased public investment Federal aid. The availability of income-contin-
in education and social programs and changed gent loan repayments since 1993, and other
social policies aimed at equalizing educational flexible repayment options, are designed to
opportunities.’’ Minority students have made help address the appropriate fears of low-
substantial gains in science, math, and reading income families about assuming loans. In
since the 1970s, narrowing the gap between addition, the proposed 21 percent increase
minority and Caucasian student achievement. in the maximum Pell grant scholarship be-
tween 1996 and 1998 is designed to help
But progress has slowed in recent years,
these families.
prompting the Federal Government to redirect
its strategies. The Goals 2000 program is The economic returns to a college education
designed to elevate academic expectations are large. In 1993, full-time male workers
for all students, by encouraging every State over 25 years old with at least a bachelor’s
to set challenging standards in core subject degree earned 89 percent more than com-
areas. Recent changes to the Elementary parable workers with only a high school
and Secondary Education Act give schools degree. But not only do the college graduates
more flexibility in return for greater account- themselves benefit. The higher socioeconomic
ability, creating an environment in which status of parents also leads to greater edu-
the schools use resources more efficiently. cational achievement by their children.
Similarly, Federal support for ‘‘charter schools’’
enables parents, teachers, and communities Skill Training
to create new, innovative public schools, which The elementary, secondary, and postsecond-
the States free from most rules and regula- ary avenues cited above lay the groundwork
tions and, at the same time, hold accountable for Americans to get the skills they need
for raising student achievement. Federal to acquire good jobs in an increasingly com-
progress in helping students with disabilities petitive global economy. Most workers also
also has proved significant. High school grad- acquire additional skills on the job or through
uation rates have risen significantly, and the billions of dollars that employers spend
57 percent of youth with disabilities are to improve worker skills and productivity.
competitively employed within five years of These efforts help the vast majority of work-
graduating from high school. ing-age Americans.
But in the last 30 years, perhaps the Nevertheless, others need additional kinds
Federal Government’s most important role of assistance. Consequently, the Federal Gov-
in education has been to help Americans ernment spends nearly $7 billion a year
afford to attend college. Federal grants, loans, through Labor Department programs to help
and work study, which went to 7.2 million dislocated workers train for, and find, new
students in 1996, particularly help low- and jobs, and to help economically-disadvantaged
middle-income families. From 1964 to 1993, Americans learn skills with which they can
college enrollment nearly tripled, the share move into the labor force. This aid includes
of high school graduates that attended college a labor exchange—the State Employment
rose by a third, and college enrollment rates Service—for anyone who wants to learn about
for minority high school graduates rose by job openings.
nearly two-thirds.
The Federal Government helps dislocated
While enrollment rates rose for all groups, workers move from one job to the next.
gaps by race and family income have widened Nearly 70 percent of participants in the
21. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 179

Job Training Partnership Act’s (JTPA) Dis- important social goals that the Government
located Worker program have jobs when they could never achieve through Federal financing
leave, with average earnings of 92 percent alone.
of their previous wages. In addition, JTPA’s
Title II help disadvantaged adults, including
National Service
welfare recipients, to get jobs. Over half
of the welfare recipients who received help The Corporation for National and Commu-
under Title II started jobs, with wages that nity Service, which the Government estab-
averaged nearly $7 an hour. lished in 1993 at the President’s urging,
encourages Americans of all ages to engage
Other programs help youth move from
high school to more schooling or work by in community-based service. The budget pro-
helping States and localities build School- poses about $800 million to support these
to-Work systems, support vocational training programs in 1998.
in secondary and postsecondary institutions, AmeriCorps, the Corporation’s signature ini-
and provide a ‘‘second chance’’ to low-income tiative, each year enables thousands of young
youth who have not fared well in school Americans of all backgrounds to serve their
or the labor market. States began to imple- local communities full- or part-time. In return,
ment School-to-Work systems in 1994. they receive a minimum living allowance
For youth who need it, the Job Corps and an education award to help pay for
provides intensive skill training, academic post-secondary education. About 70,000 indi-
and social education, and support services viduals have participated in AmeriCorps in
in a structured, residential setting. Other its first three years, with another 35,000
programs provide summer work experience expected to serve under the budget proposals.
or more job training. About a third of new participants in 1998
would participate in America Reads—an effort
Workplace Safety and Law Enforcement through which volunteers will help children
read by themselves, and well, by the third
The Federal Government spends about $500
grade.
million a year to promote safe and healthy
workplaces for 100 million workers in six Along with AmeriCorps, the Corporation
million workplaces, mainly through the Labor supports the National Senior Volunteer Corps
Department’s Occupational Safety and Health through which older Americans volunteer their
Administration (OSHA) and Mine Safety and time and energy to help their communities,
Health Administration. Regulations that help children with disabilities, and the infirm
business create and maintain safe and healthy elderly. Nearly 600,000 older Americans would
workplaces have significantly reduced illness, participate in 1998.
injury, and death from exposure to hazardous
substances and dangerous equipment. The
regulations clearly produce results that far Public Broadcasting
exceed what Federal funds could achieve. The budget proposes $325 million for the
OSHA also helps employers institute effective Corporation for Public Broadcasting (CPB)
safety and health programs, while maintaining to help the 352 public television stations
its strong enforcement capability. and the 692 radio stations provide quality
The Government also regulates compliance educational programming through such ave-
with various laws that grant workers other nues as National Public Radio and the Public
protections—a minimum wage for virtually Broadcasting Service. Stations use CPB funds
all workers, prevailing wages for workers to produce original children’s and educational
on government contracts, overtime pay, restric- programs, and to acquire historical and cul-
tions on child labor, and time off for family tural programs. CPB also helps finance several
illness or childbirth. In these cases, as with system-wide activities, including national sat-
worker health and safety, the Federal Govern- ellite interconnection services and payments
ment works with the private sector to achieve of music royalty fees.
180 THE BUDGET FOR FISCAL YEAR 1998

Social Services The tax code already provides other avenues


for saving, and paying, for education and
Along with helping youth and adults gain
training. State and local governments can
basic and higher education and advanced issue tax-exempt debt to finance student
workplace skills, the Federal Government loans or the construction of facilities used
provides about $xx billion a year in grants by non-profit educational institutions. Interest
to States and local public and private institu- from certain U.S. Savings Bonds also is
tions to help defray the cost of social services. tax-free if the bonds are used solely to
Those who receive these services include finance educational costs. Also under the
low-income individuals, the elderly, people tax code, many employers can, and do, provide
with disabilities, children, and youth. employee benefits that are not counted as
income.
Tax Incentives The law offers employers a Work Oppor-
The Federal Government helps individuals, tunity Tax Credit, enabling them to claim
families, and employers (on behalf of their a tax credit for a portion of wages they
employees) plan for and buy education and pay to certain hard-to-employ individuals who
training through numerous tax preferences, work for the employer for a minimum period.
totaling $32.8 billion in 1998. The budget The budget proposes: (1) to enhance the
credit with regard to long-term welfare recipi-
proposes new HOPE scholarship tax credits
ents, and (2) to extend the existing credit
of up to $1,500 a year for two years of
to able-bodied childless adults aged 18 to
postsecondary education, and again proposes
50 who, under the Administration’s Food
tax deductions of up to $10,000 for tuition
Stamp proposal, would face a more rigorous
and fees for college, graduate school, or
work requirement in order to continue receiv-
job training. ing Food Stamps.
22. HEALTH

Table 22–1. FEDERAL RESOURCES IN SUPPORT OF HEALTH


(In millions of dollars)

Estimate
1996
Function 550 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 23,303 25,045 25,070 25,123 25,139 25,154 25,170
Mandatory Outlays:
Existing law .................................... 96,806 103,541 109,601 116,321 124,764 134,621 145,107
Proposed legislation ....................... ................ 39 3,940 3,669 2,059 –175 –4,998
Credit Activity:
Direct loan disbursements ................ 25 20 ................ ................ ................ ................ ................
Guaranteed loans ............................... 210 274 105 6 ................ ................ ................
Tax Expenditures:
Existing law ........................................ 72,745 79,245 85,095 91,185 97,255 103,675 110,445
Proposed legislation ........................... ................ 8 19 12 3 3 1

The Federal Government helps meet Ameri- Together, all of these Federal activities have
ca’s health care needs by directly providing helped to extend life expectancy, cut the
health care services, by promoting disease infant mortality rate to historic lows, level
prevention and consumer and occupational the death rate among those with HIV/AIDS,
safety, by conducting and supporting research, and make other progress.
and by training and helping to train the
Nation’s health care work force. All together,
Health Care Services
the Federal Government will spend about
$138 billion in 1998, and allocate $85 billion Of the estimated $138 billion in Federal
in tax incentives. health care outlays in 1998 1, 89 percent
finances or supports direct heath care services
President Johnson and Congress created
to individuals.
Medicaid in 1965 to provide health insurance
for the low-income elderly and the poor. Medicaid: This Federal-State health care
Since then, the Nation’s leaders have ex- program served about 37 million low-income
panded the program from time to time to Americans in 1996—with the Federal Govern-
meet emerging needs. In 1986, for instance, ment spending $92 billion (57 percent of the
they answered public concerns about high total), while States spent $70 billion (43 per-
infant mortality rates and the decline in cent). States that participate in Medicaid must
private insurance coverage by expanding Med- cover several categories of eligible people, in-
icaid coverage for prenatal and child health cluding certain low-income elderly, people with
services. disabilities, low-income women and children,
and several mandated services, including hos-
In addition, the Federal Government helps
to expand health care coverage to those pital care, nursing home care, and physician
with which it has a special obligation (includ- services. States also may cover optional popu-
ing veterans, uniformed military personnel, lations and services. Under current law, Fed-
and American Indians and Alaska Natives), eral experts expect total Medicaid spending to
and conducts and sponsors vital biomedical 1 Excluding Medicare and the military and veterans medical pro-

research that would not otherwise take place. grams.

181
182 THE BUDGET FOR FISCAL YEAR 1998

grow an average of 7.2 percent a year from State and local governments to prevent syphi-
1997 to 2002. lis and eliminate smallpox and other commu-
nicable diseases. More recently, CDC has fo-
Medicaid covers a fourth of the Nation’s
cused its efforts on preventing a host of dis-
children and is the largest single purchaser
eases, including breast cancer, prostate cancer,
of maternity care as well as of nursing
home services and other long-term care serv- lead poisoning among children, and HIV/AIDS.
ices; the program covers almost two-thirds National Institutes of Health (NIH): NIH
of nursing home residents. The elderly and is among the world’s foremost biomedical re-
disabled made up only 30 percent of Medicaid search centers and the Federal focal point for
beneficiaries in 1995, but accounted for 61 biomedical research in the United States. NIH
percent of spending on benefits. Adults and research is designed to gain knowledge to help
children made up 70 percent of recipients, prevent, detect, diagnose, and treat disease
but accounted for only 25 percent of spending and disability. NIH conducts research in its
on benefits. Medicaid serves at least half own laboratories and clinical facilities; sup-
of all adults living with AIDS (and up ports research by non-Federal scientists in uni-
to 90 percent of children with AIDS), and versities, medical schools, hospitals, and re-
is the largest single payor of direct medical search institutions across the Nation and
services to adults living with AIDS. around the world; helps train research inves-
States increasingly rely on managed care tigators; and fosters communication of bio-
arrangements to provide health care through medical information.
Medicaid, with enrollment in such arrange- At any one time, NIH supports 35,000
ments rising from 7.8 million in 1994 to grants to universities, medical schools, and
11.6 million (about a third of all recipients) other research and research training institu-
in 1995. tions. It also conducts over 2,000 projects
Other Health Care Services: The Depart- in its own laboratories and clinical facilities.
ment of Health and Human Services (HHS) NIH research has helped to achieve many
supplements Medicare (discussed in Chapter of the Nation’s most important public health
23) and Medicaid with a number of ‘‘gap-fill- advances, such as reducing mortality from
ing’’ grant activities to support health services heart disease, the Nation’s number one killer,
for low-income or specific populations, includ- by four percent from 1971 to 1991; reducing
ing Consolidated Health Center grants; Ryan death rates from stroke by 59 percent over
White AIDS treatment grants; the Maternal the same period; and increasing the five-
and Child Health block grant; Family Plan- year survival rate for people with cancer
ning; and the Substance Abuse block grant. to 52 percent. Recent NIH-sponsored research
In addition, the Indian Health Service (IHS) has generated significant advances in treat-
provides direct care to 1.4 million American ments for individuals infected with HIV,
Indians and Alaskan Natives as part of the medications for Alzheimer’s disease, and revo-
Federal Government’s trust obligations. The lutionary innovations in molecular genetics
IHS system, located primarily on or near res- and genomics research.
ervations, includes 49 hospitals, 190 health
Food and Drug Administration: The Food
centers, and almost 300 other clinics.
and Drug Administration (FDA) spends about
Prevention Services: Prevention can go a $1 billion a year to promote public health by
long way to improve American’s health. Meas- helping to ensure—through pre-market review
ures to protect public health can be as basic and post-market surveillance—that foods are
as providing good sanitation and as sophisti- safe, wholesome, and sanitary; human and vet-
cated as preventing bacteria from developing erinary drugs, biological products, and medical
resistance to antibiotics. State and local health devices are safe and effective; and cosmetics
departments traditionally lead such efforts, and electronic products that emit radiation are
but the Federal Government—through HHS’ safe. FDA also helps the public gain access
Centers for Disease Control and Prevention— to important new life-saving drugs, biological
also provides financial and technical support. products, and medical devices. It leads Federal
For a half-century, CDC has worked with efforts to ensure the timely review of products
22. HEALTH 183

and ensure that regulations enhance public veterans who might not otherwise receive
health, not serve as an unnecessary regulatory care. It also is a leading health care provider
burden. In addition, the FDA supports re- for veterans with substance abuse problems,
search, consumer education, and the develop- mental illness, HIV/AIDS, and spinal cord
ment of both voluntary and regulatory meas- injuries because private insurance usually
ures to ensure the safety and efficacy of drugs, does not fully cover these illnesses.
medical devices, and foods.
VA’s core mission is to meet the health
Food Safety and Inspection Service care needs of veterans who have compensable
(FSIS): FSIS inspects the Nation’s meat, poul- service-connected injuries or very low incomes.
try, and egg products, ensuring that they are The law makes these ‘‘core’’ veterans the
safe, wholesome, and not adulterated. With an- highest priority for available Federal dollars
nual funding of almost $600 million, agency for health care. But, VA may provide care
staff inspect all domestic livestock and poultry to lower-priority veterans if resources allow
in slaughter plants, and conduct at least daily and if the needs of higher-priority veterans
inspections of meat, poultry, and egg product have been met.
processing plants. In 1996, FSIS issued a
major regulation that will begin to shift re- In recent years, VA has reorganized its
sponsibility for ensuring meat and poultry field facilities from 173 largely independent
safety from FSIS to the industry. The regula- medical centers into 22 Veterans Integrated
tion should allow FSIS to better target its in- Service Networks charged with giving veterans
spection resources to the higher-risk elements the full continuum of care. VA also has
of the meat and poultry production, slaughter, won legislation easing restrictions on its ability
and marketing processes. to contract for care and share resources
with Defense Department hospitals, state fa-
Federal Employees Health Benefits Pro-
cilities, and local health care providers.
gram (FEHBP): Established in 1960, the
FEHBP is America’s largest employer-spon- Health Research: VA’s research program,
sored multiple-choice health program, provid- for which the budget proposes $234 million in
ing $17 billion in comprehensive hospital and 1998, conducts basic, clinical, epidemiological,
major medical benefits a year to about 9.6 mil- and behavioral studies across the entire spec-
lion Federal workers, annuitants, and their de- trum of scientific disciplines. The program
pendents. About 86 percent of all eligible Fed- seeks to improve the medical care and health
eral employees participate in the FEHBP, and of veterans, and enhance the Nation’s knowl-
they select from nearly 400 health insurance edge of disease and disability.
carriers that offer a broad choice of delivery
systems. The FEHBP offers full coverage upon Health Care Education and Training:
enrollment—without medical examinations or The Veterans Health Administration is the
restrictions based on age, current health, or Nation’s largest trainer of health care profes-
pre-existing condition. sionals. About 108,000 students a year get
some or all of their training in VA facilities
Veterans’ Health Care through affiliations with over 1,000 edu-
cational institutions. The program provides
With a proposed 1998 health budget of training to medical, dental, nursing, and asso-
$17.5 billion (including receipts), the Depart- ciated health professions students to support
ment of Veterans Affairs (VA) provides health VA and national work force needs.
care services to 2.9 million veterans through
its national system of 22 integrated health
networks, consisting of 173 hospitals, 491 Defense Department Health Care
outpatient clinics, 135 nursing homes, and The Defense Department (DOD) has two
40 domiciliaries 2. VA is an important part basic, related medical missions: (a) provide,
of the Nation’s social safety net because and be ready to provide, medical services
almost half of its patients are low-income and support to the armed forces during
2 Domiciliaries serve homeless veterans and veterans who re- military operations, and (b) provide peacetime
quire short-term rehabilitation. medical services to members of the armed
184 THE BUDGET FOR FISCAL YEAR 1998

forces, their dependents, and other bene- health care market. Medicare and Medicaid’s
ficiaries entitled to DOD health care. coverage, reimbursement, quality of care, and
information policies frequently become the
The Defense Health Program (DHP) utilizes
over 100,000 military members and 43,000 accepted standards for the private sector
civilians in 115 hospitals and 471 clinics over time. In addition, the Federal Govern-
world-wide to provide medical and dental ment monitors Medicare and Medicaid’s regu-
services. DOD beneficiaries also receive medi- lation of quality of care and reporting and
cal care from private health professionals record-keeping requirements for health facili-
under the Civilian Health and Medical Pro- ties in order to evaluate possible additional
gram of the Uniformed Services (CHAMPUS) costs on privately-insured individuals, private
medical insurance program, and its managed health care providers, and State and local
care component, TRICARE. governments.

About 8.2 million people across the world


are eligible for benefits from DOD’s health Tax Incentives
system. DHP’s annual direct costs, including Federal tax laws help finance health insur-
operations and procurement, are about $10.2 ance. First, employer contributions for work-
billion; personnel costs add another $5.2 bil- ers’ health insurance premiums are excluded
lion. from workers’ taxable income. Second, self-
DOD’s medical research and development employed people may deduct a certain percent
(R&D) program funds activities ranging from (30 percent in 1996, rising to 80 percent
basic and applied research through develop- in 2006 and beyond) of what they pay
ment on health issues unique to deployed for health insurance for themselves, their
military forces. The program works to develop spouses, and their dependents. Third, individ-
vaccines against diseases endemic to countries uals who itemize may deduct certain expenses
outside of the U.S.; field-deployable blood for health care—such as insurance premiums
products, blood substitutes, and resuscitation that employers do not pay; expenses to diag-
fluids; technologies for assessing and treating nosis, treat, or prevent disease; and expenses
massive hemorrhage and severe trauma; and for certain long-term care services and insur-
methods to prevent injury during military ance policies—to the extent that these ex-
operations. The budget also proposes $25 penses exceed 7.5 percent of the individuals’
million in 1998 for HIV R&D. adjusted gross income. Total health-related
tax incentives (including other minor provi-
Regulatory and Administrative Issues
sions) will reach an estimated $85 billion
The sheer size and market share of Medicare in 1998, and $487.7 billion from 1998 to
and Medicaid significantly affects the private 2002.
23. MEDICARE

Table 23–1. FEDERAL RESOURCES IN SUPPORT OF MEDICARE


(In millions of dollars)

Estimate
1996
Function 570 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 2,939 2,598 2,755 2,751 2,728 2,727 2,728
Mandatory Outlays:
Existing law .................................... 171,272 191,556 208,641 228,211 248,760 271,089 295,065
Proposed legislation ....................... ................ ................ –4,310 –11,390 –22,150 –27,820 –34,550

Created by the Social Security Amendments Part A


of 1965 (and expanded in 1972), Medicare
Part A covers almost all Americans age
is a Nation-wide health insurance program
65 or older, and most persons who are
for the elderly and certain people with disabil- disabled for 24 months or more and who
ities. The program, which will spend an are entitled to Social Security or Railroad
estimated $211 billion in 1998 on benefits Retirement benefits. People with end-stage
and administrative costs, consists of two renal disease (ESRD) also are eligible for
complementary but distinct parts, each tied Part A coverage. About 99 percent of Ameri-
to a trust fund: (1) Hospital Insurance (Part cans aged 65 or older are enrolled in Part
A) and (2) Supplementary Medical Insurance A, along with an estimated 93 percent of
(Part B). ESRD patients. Part A reimburses providers
Over 30 years ago, Medicare was designed for the inpatient hospital, skilled nursing
facility, home health, and hospice services
to address a serious, national problem in
provided to beneficiaries. Part A’s Hospital
health care—the elderly often could not afford
Insurance (HI) Trust Fund receives most
to buy health insurance, which was more
of its income from the HI payroll tax—
expensive for them than for other Americans
2.9 percent of payroll, split evenly between
because they had higher health care costs.
employers and employees.
Through Medicare, the Federal Government
created one insurance pool for all of the
Part B
elderly while subsidizing some of the costs,
thus making insurance much more affordable Part B coverage is optional, and it is
for almost all elderly Americans. available to almost all resident citizens 65
years of age or older and to people with
Medicare has very successfully expanded disabilities who are entitled to Part A. About
access to quality care for the elderly. Its 96 percent of those enrolled in Part A
trust funds, however, face financing challenges have chosen to enroll in Part B. Enrollees
as the Nation approaches the 21st Century. pay monthly premiums that cover about 25
Along with legislative proposals discussed percent of Part B costs, while general taxpayer
elsewhere in the budget, the Health Care dollars subsidize the remaining costs. For
Financing Administration (HCFA) is working most beneficiaries, the Government simply
to improve Medicare through its regulatory deducts the Part B premium from their
authority and demonstration programs. monthly Social Security checks.

185
186 THE BUDGET FOR FISCAL YEAR 1998

Part B pays for medically necessary physi- As of December 1, 1996, over 4.7 million
cian services; outpatient hospital services; beneficiaries have enrolled in 336 Medicare
diagnostic clinical laboratory tests; certain managed care plans. In 1995, enrollment
durable medical equipment (e.g., wheelchairs) in the capitated managed care plans called
and medical supplies (e.g., oxygen); and phys- ‘‘risk contracts’’ grew by 36 percent, and
ical and occupational therapy, speech pathol- by an annualized rate of 30 percent in
ogy services, and outpatient mental health the first six months of 1996. Managed care
services. Part B also covers kidney dialysis plans can potentially provide coordinated care
and transplants for ESRD patients. that is focused on prevention and wellness.
Fee-for-Service vs. Managed Care In addition, Medicare is working to protect
the integrity of its payment systems. Building
Beneficiaries can choose the coverage they
on the success of Operation Restore Trust,
prefer.
a five-State demonstration aimed at cutting
Under the ‘‘traditional,’’ fee-for-service op- fraud and abuse in home health agencies
tion, beneficiaries can go to virtually any and nursing homes, Medicare is increasing
provider in the country. Medicare pays provid- its efforts to root out fraud and abuse.
ers primarily based on either an established Recent legislation provided more Federal funds
fee schedule or reasonable costs. About 90 and authority to prevent inappropriate pay-
percent of Medicare beneficiaries now opt ments to fraudulent providers, and to seek
for fee-for-service coverage. out and prosecute providers who continue
Alternatively, beneficiaries can enroll in to defraud Medicare and other health care
a Medicare managed care plan, and the programs.
10 percent who do are concentrated in a
few geographic areas. Generally, enrollees Spending and Enrollment
receive care from a network of providers,
although Medicare managed care plans are With no changes in law, net Medicare
starting to offer a point-of-service benefit, outlays will rise by an estimated 54 percent
allowing beneficiaries to receive certain serv- from 1997 to 2002—from $191.6 billion to
ices from non-network providers. Most man- $295.1 billion. 2 Net Medicare outlays will
aged care plans receive a monthly, per enrollee grow by an average of nine percent a year
‘‘capitated’’ payment that covers the cost over this period. Part A outlays are larger
of Part A and B services. than Part B outlays, and grow more slowly.
Nevertheless, Part A outlays will grow by
Successes an estimated 46 percent over the period—
from $135.1 billion to $197.7 billion—or an
Medicare dramatically increased access to
average of 7.9 percent a year. Part B outlays
health care for the elderly—from slightly
will grow by an estimated 72 percent—
over half when the program began in 1966
from $55.9 billion to $96.4 billion—or an
to almost 100 percent today.
average of 11.5 percent a year.
Ninety-six percent of Medicare beneficiaries
reported no trouble obtaining care in 1994. 1 Medicare has consumed a growing share
Further, less than one percent of beneficiaries of the budget, and it will continue to under
reported trouble getting care because a physi- current law. In 1980, Federal spending on
cian would not accept Medicare patients. Medicare benefits was $31 billion, comprising
Medicare beneficiaries have access to the 5.2 percent of all Federal outlays. In 1995,
most up-to-date medical technology and proce- Federal spending on Medicare benefits was
dures. $156.6 billion, or just over 10 percent of
all Federal outlays. By 2002, assuming no
Medicare also gives beneficiaries a choice changes in current law, Federal spending
of managed care plans. Today, managed care on Medicare benefits will total an estimated
is a major, and growing, part of Medicare.
2 These figures cover Federal spending on Medicare benefits, but
1 Physician Payment Review Commission, 1996 Annual Report to do not include spending financed by beneficiaries’ premium pay-
Congress. ments or administrative costs.
23. MEDICARE 187

$295.1 billion, or almost 16 percent of all Federal revenues, 25 percent from beneficiary
Federal outlays. premiums. Unlike HI, the SMI Trust Fund is
really a trust fund in name only—the law lets
Medicare enrollment will grow slowly until
2010, then take off as the baby boom genera- the SMI Trust Fund tap directly into general
tion begins to reach age 65. From 1995 revenues to ensure its annual solvency. None-
to 2010, enrollment will grow at an estimated theless, the trustees of the SMI Trust Fund
average annual rate of 1.4 percent, from noted in 1996 ‘‘that program costs have been
37.6 million enrollees in 1995 to 46.4 million growing faster than the GDP and that this
in 2010. But after 2010, average annual trend is expected to continue under present
growth will almost double, with enrollment law.’’
reaching an estimated 78 million in 2030—
one in five Americans. Demonstrations

The Two Trust Funds HCFA also conducts demonstration pro-


grams to determine the efficacy of new service
HI Trust Fund: As discussed above, the HI
delivery or payment approaches. For instance,
Trust Fund is financed by a 2.9 percent payroll
it is launching a Choices demonstration project
tax, split evenly between employers and em-
ployees. In 1995, HI expenditures began to ex- to allow provider-sponsored organizations in
ceed the annual income to the Trust Fund and, certain areas to enroll Medicare beneficiaries.
as a result, Medicare is drawing down the The plans will offer new benefit structures
Trust Fund’s accounts to partially finance Part to beneficiaries. Another demonstration
A spending. The Government’s career actuar- project, Centers of Excellence, has experi-
ies predict that the HI Trust Fund would be- mented with bundled payments for hospital
come insolvent in 2001 in current law, but the and physician costs, for selected procedures
President’s proposals to strengthen the Trust performed at certain high-quality facilities.
Fund would push back the date into 2007. (For
a detailed discussion of the proposals, see Regulations
Chapter 1.)
Through its regulatory authority, HCFA
Beyond the impending insolvency, Medicare continually improves Medicare. In the last
also faces a longer-term financing challenge. year, HCFA issued regulations to address
The baby boomers’ retirement, starting in concerns about the payment incentives that
2010, will cause Medicare spending to grow managed care plans offer to physicians that,
significantly. From 2010 to 2030, enrollment in turn, may encourage physicians to deny
is expected to double while the workforce services. Specifically, it barred health plans
shrinks. As a result, only 2.2 workers will that contract with Medicare from limiting
be available to support each beneficiary in physicians’ ability to discuss all appropriate
2030—compared to the current four workers treatment options with Medicare enrollees.
per beneficiary. The President proposes to In addition, the Administration is focusing
work with Congress on a bipartisan basis
more on patient health outcomes and giving
to develop a long-term solution to this financ-
information to consumers that should boost
ing challenge.
competition among health plans, generating
SMI Trust Fund: The SMI Trust Fund re- higher-quality care and a more cost-effective
ceives 75 percent of its income from general Medicare program.
24. INCOME SECURITY

Table 24–1. FEDERAL RESOURCES IN SUPPORT OF INCOME


SECURITY
(In millions of dollars)

Estimate
1996
Function 600 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 27,752 26,015 32,592 36,113 38,892 40,402 41,811
Mandatory Outlays:
Existing law .................................... 187,994 197,391 203,649 212,394 222,232 225,644 235,394
Proposed legislation ....................... ................ 586 2,282 2,246 2,258 1,869 2,569
Credit Activity:
Direct loan disbursements ................ 93 95 73 8 ................ ................ ................
Guaranteed loans ............................... 5 5 17 34 40 40 37
Tax Expenditures:
Existing law ........................................ 83,027 84,768 86,279 87,922 89,509 91,266 93,019
Proposed legislation ........................... ................ 718 11,343 7,283 9,305 11,544 12,043

The Federal Government provides about for Needy Families (TANF), and various kinds
$220 billion a year in cash or in-kind benefits of low-income housing assistance (discussed
to individuals through ‘‘income security’’ pro- in other chapters)—and the Earned Income
grams, including about $120 billion for pro- Tax Credit (EITC). These programs, along
grams that are part of the ‘‘social safety with unemployment compensation (which is
net.’’ Since the 1930s, these ‘‘safety net’’ not means-tested), form the backbone of cash
programs, plus Social Security, Medicare, and and in-kind ‘‘safety net’’ assistance in the
Medicaid, have grown enough in size and Income Security function.
coverage so that even in the worst economic
times, most Americans can count on some Food Stamps: Food Stamps helps most low-
form of minimum support to prevent complete income people get a more nutritious diet. The
destitution. The combined effects of these program reaches more people than any other
programs represent one of the most significant means-tested income security program—in an
changes in national social policy in this average month in 1996, 25.5 million people,
century, improving the lives of millions of or 10.6 million households, received benefits
lower-income families. and that year, the program provided total ben-
efits of $23 billion. Food Stamps is the only
The remaining $100 billion for income secu-
Nation-wide, low-income assistance program
rity supports general retirement and disability
available to essentially all financially-needy
insurance programs (excluding Social Secu-
rity), Federal employee retirement and disabil- households that does not impose non-financial
ity programs, and housing assistance. criteria, such as whether households include
children or elderly persons. (The new welfare
law limits the number of months that child-
Major Programs
less, able-bodied individuals can receive bene-
The largest means-tested income security fits while unemployed.) The average monthly,
programs are Food Stamps, Supplemental per-person Food Stamp benefit was about $73
Security Income (SSI), Temporary Assistance in 1996.

189
190 THE BUDGET FOR FISCAL YEAR 1998

Supplemental Security Income: SSI pro- available for up to 26 weeks of unemployment.


vides benefits to the needy aged, blind, and In 1996, about 8.5 million persons claimed un-
disabled adults and children. In 1996, 6.5 mil- employment benefits that totaled $23 billion.
lion individuals received $24 billion in benefits.
By design, benefits are available to experi-
Eligibility rules and payment standards are
enced workers who lose their jobs through
uniform across the Nation. Average monthly
no fault of their own. Thus, unemployment
benefit payments range from $256 for aged
compensation does not cover all of the unem-
adults to $448 for blind and disabled children.
ployed in any given month. In 1996, on
Most States supplement the SSI benefit.
average, the ‘‘insured unemployed’’ represented
Temporary Assistance for Needy Fami- about 35 percent of the estimated total number
lies: In last year’s welfare reform law, the of unemployed. Those who are not covered
President and Congress enacted TANF as the include new labor force entrants, re-entrants
successor to the 60–year-old Aid to Families with no recent job experience, and those
with Dependent Children (AFDC) program. who quit their jobs voluntarily and, thus,
TANF, on which the Federal Government will are not eligible for benefits.
spend about $16 billion in 1998, is designed Other important income security programs
to meet the President’s goal of dramatically include the Special Supplemental Nutrition
changing the focus of welfare—from a system Program for Women, Infants, and Children
focused on benefits to one that moves recipi- (known as WIC); school lunch, school break-
ents from welfare to work. TANF grants give fast, and other child nutrition programs;
States broad flexibility to determine eligibility child care assistance; refugee assistance; and
for assistance and the kind of cash, in-kind, low-income home energy assistance.
and work-related assistance they provide.
Effects of Income Security Programs
Earned Income Tax Credit: The EITC, a
refundable tax credit for low-income working Last year’s welfare reform debate focused
families, has two broad goals: (1) to encourage on means-tested income security programs.
families to move from welfare to work by mak- The resulting law not only replaced the
ing work pay; and (2) to reward work so par- program at the heart of the debate, AFDC,
ents who work full-time do not have to raise but also made big cuts and changes in
their children in poverty. In 1996, the EITC other programs, including Food Stamps and
provided $24.3 billion of credits, including SSI. But the basic question remains—what
spending on tax refunds and lower tax receipts effect do these safety net programs have
for non-refunded portions of the credit. For on poverty, and to what extent do they
every dollar that low-income workers earn— target assistance to the poor? Chapter 25,
up to certain limits—they receive between Social Security, explores the impact of Social
seven and 40 cents as a tax credit. In 1996, Security alone on the income and poverty
the EITC provided an average credit of nearly of the elderly. This chapter looks at the
$1,400 to over 20 million workers and their cumulative impact across the major programs.
families. A two-parent family of four with one
For purposes below, ‘‘means-tested benefits’’
full-time worker who works at minimum wage
include AFDC, SSI, certain veterans pensions,
levels and receives Food Stamps would rise
Food Stamps, child nutrition meals subsidies,
above the poverty level in 1998 because of the
rental assistance, and State-funded general
EITC.
assistance. Medicare and Medicaid greatly
Unemployment Compensation: Unemploy- help eligible families who need medical serv-
ment compensation provides benefits, which ices during the year, but experts do not
are taxable, to individuals who are temporarily agree about how much additional income
out of work and whose employer has pre- Medicare or Medicaid coverage represents
viously paid payroll taxes to the program. The to those covered. Consequently, we did not
State payroll taxes finance the basic benefits include these benefits in the analysis that
out of a dedicated trust fund. States set benefit follows. ‘‘Social insurance programs’’ include
levels and eligibility criteria, which are not Social Security, railroad retirement, veterans
means-tested. Regular benefits are typically compensation, unemployment compensation,
24. INCOME SECURITY 191

Pell grants, and workers’ compensation. The A helps cut the poverty gap, the ‘‘efficiency’’
definition of income for this discussion (cash of Category A would be 50 percent.
and in-kind benefits), and the notion of
Before counting government benefits, the
pre- and post-Government transfers, do not
poverty gap was $194.5 billion in 1995.
match the Census Bureau’s definitions for
Benefits from government programs cut it
developing official poverty statistics. Census by $135 billion, or 69 percent. Of the $135
counts income from cash alone, including billion cut, social insurance programs ac-
Government transfers. counted for $90 billion, means-tested benefits
Effectiveness in Reducing Poverty: Based for $43 billion, and Federal tax provisions
on special tabulations from the March 1996 for $2 billion.
Current Population Survey, 57.6 million people All told, according to Census Bureau data,
were poor in 1995 before accounting for the social insurance benefits totaled $338 billion
effect of Government programs. Of the 57.6 in 1995. Thus, 26 percent of their funding
million, 27 percent were elderly (age 65 and (the $90 billion, above) helped cut the poverty
above), 30 percent were children below age 18, gap. Means-tested benefits totaled $78 billion,
and 43 percent were non-elderly adults (age according to Census data. Thus, 56 percent
18–64). Census data show that after account- of their funding (the $43 billion, above)
ing for the effects of Government programs: helped cut the poverty gap. 1
• The number of people in poverty fell to The evidence is clear—whether measured
30.3 million, a drop of 47 percent. by their impact on poverty gaps, or on
• The programs lifted 82 percent of the el- moving families out of poverty, income security
derly poor out of poverty. programs largely succeed. Social insurance
programs play the largest role in cutting
• The programs lifted about a third of poor poverty, but means-tested programs—targeted
children and poor non-elderly adults out more narrowly on the poor—are more efficient.
of poverty.
Employee Retirement Benefits
• Social insurance programs accounted for
two-thirds of individuals who were re- Federal Employee Retirement Benefits:
moved from poverty, including 93 percent The Civil Service Retirement and Disability
of the elderly, 55 percent of the non-elder- Program covers 1.9 million Federal employees
ly adults, and 25 percent of the children. and 750,000 United States Postal Service em-
ployees, and provides retirement benefits to
• Means-tested benefits were responsible for
1.7 million retirees and 600,000 survivors. The
28 percent of the individuals who were re-
Civil Service Retirement System (CSRS) covers
moved from poverty, including close to 60
employees hired before 1984. The Federal Em-
percent of poor children and over 40 per-
ployees Retirement System (FERS) covers em-
cent of non-elderly adults.
ployees hired since January 1, 1984. Along
• Federal tax policies, including the EITC, with the FERS defined benefit, FERS employ-
accounted for five percent of those re- ees also participate in Social Security and the
moved from poverty, including close to 20 Thrift Savings Plan—a defined contribution
percent of the children. plan to which the Government makes contribu-
tions on their behalf. The average Federal re-
• The number of people removed from pov-
tiree receives an annual benefit of about
erty in 1995 reached an all-time high.
$20,000. (Military retirement programs are
Efficiency in Reducing Poverty: The pov- discussed in Chapter 26, Veterans Benefits
erty gap is the amount by which the incomes and Services.)
of all poor people fall below the poverty line. The budget proposes several changes to
‘‘Efficiency’’ in reducing poverty is defined as CSRS and FERS. First, it would delay the
the percentage of Government benefits of a cost-of-living adjustment (COLA) for three
particular type (e.g., social insurance pro- months each year for 1998–2002. Second,
grams) that help cut the poverty gap. So, for
example, if $1 out of every $2 in Category 1 Budget data may differ from Census data.
192 THE BUDGET FOR FISCAL YEAR 1998

it would increase employee contributions by ises, protecting the benefits of 1.2 million peo-
0.25 percent of base pay on January 1, ple in 1996 alone. To encourage retirement
1999, another 0.15 percent in 2000, and savings, the President signed legislation in
a final 0.10 percent in 2001, with the higher 1996 that establishes a new, simplified pension
rates remaining in effect through December plan for small businesses.
31, 2002. Third, it would increase agency
contributions on behalf of CSRS employees Tax Treatment of Retirement Savings:
by 1.51 percent of base pay beginning on The Federal Government encourages retire-
October 1, 1997, and continuing through ment savings by providing income tax benefits.
September 30, 2002. Generally, earnings devoted to workplace pen-
sion plans and to many individual retirement
Private Pensions: The Pension and Welfare accounts (IRAs) are exempt from taxes when
Benefits Administration (PWBA) establishes
earned and ordinarily are taxed only in retire-
and enforces safeguards to protect the roughly
ment, when lower tax rates usually prevail.
$3 trillion in pension assets. The Pension Ben-
Moreover, taxpayers can defer taxes on the in-
efit Guaranty Corporation (PBGC) protects the
terest and other gains that add value of these
pension benefits of nearly 42 million workers
retirement accounts, including all forms of
and retirees who earn traditional (i.e., ‘‘defined
benefit’’) pensions. Through its early warning IRAs. These tax incentives amount to $69 bil-
program, PBGC also works with solvent com- lion a year—one of the three largest sets of
panies to more fully fund their pension prom- preferences in the income-tax system.
25. SOCIAL SECURITY

Table 25–1. FEDERAL RESOURCES IN SUPPORT OF SOCIAL


SECURITY
(In millions of dollars)

Estimate
1996
Function 650 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 3,140 3,457 3,303 3,256 3,246 3,246 3,251
Mandatory Outlays:
Existing law .................................... 347,051 364,232 380,935 398,622 417,735 437,963 459,686
Proposed legislation ....................... ................ ................ ................ –5 1 7 13
Tax Expenditures:
Existing law ........................................ 22,890 24,170 25,285 26,465 27,765 28,875 29,935

The Old-Age, Survivors, and Disability In- What Social Security Does
surance (OASDI) program, popularly known
Social Security helps alleviate poverty, pro-
as Social Security, will spend about $380
vide income security, and maintain the life-
billion in 1998 to provide a comprehensive
styles of beneficiaries.
package of protection against the loss of
earnings due to retirement, disability, or Alleviating Poverty: Before the 1960s,
death. when an economist at the Social Security Ad-
ministration developed a measure to assess
OASDI provides monthly benefits as a poverty, experts believed that a large share
matter of earned right to retired and disabled of the elderly were poor, although it was not
workers who gain insured status, and to clear exactly how many. In 1970, an estimated
their eligible spouses, children, and survivors 25 percent of the elderly were living in pov-
(see Chart 25–1). The Social Security Act erty. Now, only about 11 percent of them do. 1
of 1935 provided retirement benefits, and
the 1939 amendments provided benefits for Social Security is largely responsible for
survivors and dependents. These benefits now the progress (see Chart 25–2). In 1995,
comprise the Old Age and Survivors Insurance 17 percent of elderly, unmarried beneficiaries
Program (OASI). Congress provided disability had family incomes below the poverty line.
benefits by enacting the Disability Insurance Without Social Security retirement benefits,
(DI) program in 1956, and benefits for the 60 percent of them would have fallen into
dependents of disabled workers by enacting poverty. For elderly couples, Social Security
the 1958 amendments. had a similar effect. In 1995, three percent
of the elderly who were married had incomes
Social Security was founded on two impor- below the poverty line. Without Social Security
tant principles, social adequacy and individual retirement benefits, 42 percent of them would
equity. Social adequacy means that benefits have.
will provide a certain standard of living
1 These estimates as well as those that follow are based on a defi-
for all contributors. Individual equity means nition of poverty that uses pre-tax cash income—the Census Bu-
that contributors receive benefits directly re- reau’s definition of income for official income and poverty statistics.
lated to the amount of their contributions. In the Income Security function discussion of how cash and non-
cash means-tested benefits affect poverty, a more comprehensive
These principles still guide Social Security definition of income is used. The estimated impacts on poverty are
today. not directly comparable across chapters.

193
194 THE BUDGET FOR FISCAL YEAR 1998

Chart 25-1. COMPOSITION OF SOCIAL SECURITY RECIPIENTS

DISABLED
WORKERS SURVIVORS OF
10% DECEASED WORKERS
SPOUSES AND
17%
CHILDREN
12%

RETIRED WORKERS
61%

Income Security: Social Security was origi- their families who lose earned income when
nally designed to provide a continuing income the family provider becomes disabled. Before
base for eligible workers so they could main- DI, workers often had no protection against
tain a reasonable income when they retired. income loss due to disability. To be sure,
In 1935, personal savings, family support, and employees disabled on the job may have
Federal welfare programs were the main benefited from State workmen’s compensation
sources of income for those 65 and older who laws. But in 1956, only about five percent
did not work. Today, two-thirds of those over of all permanent and total disability cases
65 get the major portion of their income from were work-related. Congress enacted DI to
Social Security (see Chart 25–3). The average protect the resources, self-reliance, dignity,
retiree receives a Social Security benefit equal and self-respect of disabled workers, according
to 43.1 percent of pre-retirement income. In to congressional committee reports. DI protec-
1996, Social Security paid about $300 billion tion can be extremely valuable, especially
in retirement, survivor, and family benefits to for young families that have not been able
about 38 million beneficiaries. to sufficiently protect themselves against the
risk of the worker’s disability.
Along with retirement benefits, Social Secu-
rity also provides income security for survivors Maintaining Lifestyles: Before Social Secu-
and dependents. In 1996, Social Security rity, about half of those over 65 depended on
paid about $69 billion in benefits to over others, primarily relatives and friends, for all
of their income. The same was often true for
seven million survivors and deceased workers.
people with disabilities. Now, with Social Secu-
The Disability Insurance (DI) program also rity, the vast majority of those over age 65
provides income security for workers and and those with disabilities can live relatively
25. SOCIAL SECURITY 195

Chart 25-2. BENEFICIARY POPULATION WITH FAMILY INCOME


ABOVE AND BELOW THE POVERTY LINE
PERCENT

AGED INDIVIDUALS AGED COUPLES


100
WITH
80 SOCIAL
WITH
SECURITY
SOCIAL
60
SECURITY WITHOUT
40 SOCIAL
WITHOUT SECURITY
20 SOCIAL
SECURITY
0

-20

-40

-60

-80

CALENDAR YEAR 1994

independent lives. Moreover, their families no ancy of about 67 years, and females of
longer carry the sole responsibility of providing about 73. The longer people live, the longer
their financial support. they will collect Social Security. The more
time that people spend retired, the more
Growth in Retirement Benefits people there are to support at any one
The retirement part of Social Security is time and the fewer there are working and
facing financial stress, due to changing demo- contributing to provide that support.
graphics and the program’s financing. The
Growth in Disability Benefits
retirement program is largely a ‘‘pay as
you go’’ program—current retirement benefits DI has grown rapidly. The program provided
are financed by current payroll contributions. about $43 billion to about six million disabled
Such financing has worked well in the past, beneficiaries and their families in 1996, com-
when five workers were paying for every pared to $57 million for 150,000 disabled
retiree. But, when the baby boom generation workers in 1957. Growth has been especially
retires, eventually only two workers will rapid in the last 10 years, with the number
be paying for every retiree. of beneficiaries rising by 75 percent and
benefits rising by 125 percent.
Adding to the financial stress, baby boomers
are having fewer babies and living longer. Why? Because growing numbers of baby
In 1957, women had an average of 3.7 boomers are reaching the age at which they
babies, compared to 2.03 today. Males born are increasingly prone to disabilities; more
in 1935 had an average life expectancy of women are insured; and laws, regulations,
60 years, and females of 63 years. By contrast, and court decisions have expanded eligibility
baby boom males have an average life expect- for benefits. In addition, the annual share
196 THE BUDGET FOR FISCAL YEAR 1998

Chart 25-3. PORTION OF BENEFICIARIES THAT RELY


HEAVILY ON SOCIAL SECURITY
(Calendar year 1994)

16% 14%

34% 36%

100% OF INCOME 50%-89% OF INCOME

90%-99% OF INCOME LESS THAN 50% OF INCOME

of beneficiaries leaving the rolls has fallen Government no longer pays to these individ-
steadily, raising questions about whether those uals after they leave the rolls.
remaining on the rolls are all, in fact,
eligible for benefits. To maintain DI’s integrity, A Long-range Problem, but No Crisis
the Administration proposes to maintain sup-
port for continuing disability reviews (CDRs)— The OASDI trust funds are not in balance
a periodic review of individual cases that over the next 75 years—the period over
ensures that only those eligible continue which the Social Security Trustees measure
to receive benefits. Social Security’s well-being. The President
wants to work with Congress on a bipartisan
The budget proposes a pilot program to basis to develop a long-term solution to
encourage DI beneficiaries (and recipients the financing challenge, but it does not
of Supplemental Security Income, or SSI) constitute an imminent crisis.
to re-enter the workforce. Currently, the
Social Security Administration refers DI or In their 1996 report, the Trustees estimated
that the combined OASDI trust funds would
SSI beneficiaries to State Vocational Rehabili-
have a cash imbalance in 2012 and be
tation agencies. Under the Administration’s
insolvent in 2029. The OASI Trust Fund
proposal, beneficiaries could choose their own
would have a cash imbalance in 2014 and
public or private vocational rehabilitation pro-
be insolvent in 2031. The DI Trust Fund
vider—and the provider could keep a share
would face a cash imbalance in 2003 and
of the DI and SSI benefits that the Federal be insolvent in 2015.
25. SOCIAL SECURITY 197

Tax Expenditures exceeds certain income thresholds. These ex-


clusions reduce Social Security beneficiary
Social Security recipients pay taxes on
taxes by $25 billion in 1998 and $138 billion
their Social Security benefits when their
combined income (including Social Security) from 1998 to 2002.
26. VETERANS BENEFITS AND SERVICES

Table 26–1. FEDERAL RESOURCES IN SUPPORT OF VETERANS


BENEFITS AND SERVICES
(In millions of dollars)

Estimate
1996
Function 700 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority 1 ..... 18,359 18,910 18,750 18,719 18,715 18,702 18,706
Mandatory Outlays:
Existing law .................................... 18,820 20,579 21,735 22,850 24,443 21,463 23,151
Proposed legislation ....................... ................ ................ 593 294 690 1,057 1,547
Credit Activity:
Direct loan disbursements ................ 1,442 1,933 2,189 2,249 2,273 2,287 2,269
Guaranteed loans ............................... 28,676 30,230 28,948 25,458 25,032 24,566 24,059
Tax Expenditures:
Existing law ........................................ 2,775 2,940 3,105 3,285 3,480 3,680 3,895
1 Proposed legislation will supplement the budget authority with receipts (estimated at $0.5 billion in 1998).

The Federal Government provides a broad ans, VA employs about 20 percent of the
range of benefits and services, to veterans non-Defense workforce of the Federal Govern-
(and their survivors) who served in conflicts ment—almost 250,000 people. About 220,000
as long ago as the Spanish-American War of these employees deliver medical services
and as recent as the Persian Gulf War. to veterans (as described in Chapter 22,
In providing these benefits and services, the Health).
Government recognizes the sacrifices that
wartime and peacetime veterans made during The veteran population is declining, with
their service in the military. The $40 billion much of the decline among draft-era veterans,
a year in veterans benefits and services, meaning that a rising share of veterans
and $4.7 billion in tax benefits, compensate is coming from the All-Volunteer Force (see
for service-related disabilities, provide medical Chart 26–1). Thus, the types of needed bene-
care to low-income and disabled veterans, fits and services likely will change. Further,
and help returning veterans prepare for re- as the veteran population shrinks and tech-
entry into civilian life through education nology improves, access to, and the quality
and training. In addition, veterans benefits of, service should continue to improve.
provide financial assistance to needy veterans
of wartime service and their survivors. The Veterans Benefits Administration (VBA)
processes veterans claims for benefits in 58
About six percent of veterans are military regional offices across the country. Several
retirees. This group of veterans can receive factors, including the introduction of judicial
both military retirement from the Defense review to the claims adjudication process
Department (DOD) and veterans benefits from in 1988 and DOD downsizing from 1992
the Department of Veterans Affairs (VA). to 1994, significantly increased the claims
Active duty military personnel are eligible
and appeals workload. Workload peaked in
for veterans housing benefits, and they can
1993 and 1994, with 500,000 backlogged
make contributions to the Montgomery GI
claims and 214 days needed to process a
Bill program for education benefits that are
claim.
paid later. To deliver these services to veter-
199
200 THE BUDGET FOR FISCAL YEAR 1998

Chart 26-1. ESTIMATED VETERAN POPULATION

VETERANS IN MILLIONS

28

27.2
26 26.4

25.1
24
23.5
22
21.8

20
20

18

0
16
1990 1994 1998 2002 2006 2010

But, as the veteran population declines, Spending for this purpose will total an esti-
the number of new claims and appeals will mated $19.8 billion in 1998, including the
decline with it. At the end of 1996, the funds that Congress approves each year to
backlog shrunk to 346,000 claims, and the subsidize life insurance for certain veterans
number of days needed to process a new who are too disabled to get affordable coverage
claim averaged 150. To further the progress from private insurance.
to date, VBA is developing a comprehensive
Service-Connected Compensation: Veter-
strategic plan that will reengineer the way
ans with disabilities resulting from, or coinci-
it processes claims, including the post-decision
dent with, military service receive monthly
review process, and integrate information tech-
compensation payments scaled to the degree
nology into program administration.
of disability. The payment does not depend on
The following discussion describes the major the veteran’s income or age, or on whether
components of benefits and services (other the disability is the result of combat or a natu-
than health care) to which veterans are ral-life affliction. The amount depends on the
entitled. average fall in earnings capacity that the Gov-
ernment presumes for individuals with the
Income Security
same degree of disability. Survivors of veterans
Along with Federal income security pro- who die from service-connected injuries receive
grams for the general population, such as payments in the form of dependency and in-
Social Security and unemployment insurance, demnity compensation. Benefits are indexed
several VA programs help certain veterans annually by the same cost-of-living adjustment
and their survivors maintain their income (COLA) as Social Security, which is 2.7 percent
when the veteran is disabled or deceased. for 1998.
26. VETERANS BENEFITS AND SERVICES 201

The number of veterans and survivors Veterans Eeducation, Training, and


of deceased veterans receiving compensation Rehabilitation
benefits will total an estimated 2.6 million
Several Federal programs support job train-
in 1998, remaining at that level through
ing and finance education for veterans and
2002. While the overall veteran population
others. The Labor Department runs several
will decline, the compensation caseload is
programs exclusively for veterans. In addition,
expected to remain relatively constant due
several VA programs provide education, train-
to changes in eligibility and enhanced outreach
ing, and rehabilitation benefits to veterans
efforts. At the same time, mainly due to
and military personnel who meet specific
anticipated COLAs, spending for compensation
criteria. The programs include the Montgom-
benefits will rise from an estimated $16.8
ery GI bill (the largest of them), the post-
billion in 1998 to $18.8 billion in 2002.
Vietnam-era education program, the Voca-
Non-Service-Connected Pensions: The tional Rehabilitation program, and the Work-
Government provides pensions to lower-in- Study program. Spending for all VA programs
come, wartime-service veterans, or veterans in this area will total an estimated $1.4
who have become permanently and totally dis- billion in 1998.
abled after their military service. Survivors of
The Montgomery GI Bill (MGIB): The
wartime-service veterans may qualify for pen-
Government created MGIB as a test program,
sion benefits based on financial need. Veterans
with more generous benefits than the post-
pensions, which also increase annually with
Vietnam-era education program, to help veter-
COLAs, will cost an estimated $3.2 billion in
ans move to civilian life as well as to help
1998. The number of pension recipients will
the armed forces with their recruitment. The
continue to fall from an estimated 714,000 in
President and Congress made the program
1998 to 650,000 in 2002, as the population
permanent in 1987. Service members electing
of wartime veterans drops.
to enter the program have their pay reduced
Burial and Other Benefits: Families of by $100 a month during their first year of
deceased veterans who received pension or military service. The VA administers the pro-
compensation benefits and who are buried in gram and pays the costs of basic benefits once
private cemeteries may receive burial benefits the service-member leaves the military. Basic
to help defray funeral costs. For veterans bur- benefits now total about $15,000 (about 12
ied in VA’s National Cemeteries, the Govern- times the original reduction in the service
ment reimburses additional amounts to the members’ pay).
National Cemetery System for headstones,
markers, and graveliners. Over 90,000 veter- MGIB beneficiaries receive a monthly check
ans’ survivors received a burial allowance in based on whether they are enrolled in school
1996. Spending for these benefits will total an on a full- or part-time basis. They are
estimated $119 million in 1988. entitled to 36 months worth of payment,
but they must certify monthly that they
Insurance Programs: Because most pri- are in school. DOD may provide additional
vate insurance excludes coverage of war-time benefits to help recruit certain specialties
service, the VA administers life insurance and critical skills. Nearly 350,000 veterans
programs. Veterans pay the total cost for this and service members will use these benefits
insurance through premiums, calculated by as- in 1998. The MGIB also provides education
suming that the veteran will see no combat. benefits to reservists while they are in service.
If insurance claims in any year exceed expecta- DOD pays these benefits, and the VA admin-
tions due to combat, DOD pays the extra cost isters the program. In 1998, over 80,000
of coverage. These programs will continue to reservists are expected to use this program.
provide over $480 billion of coverage to nearly Over 90 percent of MGIB beneficiaries use
5.5 million veterans and active duty personnel their benefits to attend a college or university.
in 1998.
202 THE BUDGET FOR FISCAL YEAR 1998

Veterans Housing in retirement benefits in 1988. Normal retire-


ment eligibility occurs after 20 years of
Along with the mortgage assistance avail-
able to veterans through the Federal Housing service. The initial annuity base for most
Administration (FHA) insurance program, VA- current retirees is 2.5 percent of final pay
guaranteed and direct loan programs will for each year of service—50 percent at 20
help an estimated 280,000 veterans get mort- years—up to a maximum 75 percent of final
gages in 1998. Guaranteed commitments for pay at 30 years. For those entering between
mortgage loans in 1998 are expected to September 1980 and July 1986, the Govern-
reach almost $29 million. The $192 million ment will use the average of the highest
in estimated spending in 1998 reflects the three years of basic pay to calculate the
estimated Federal subsidies that are implicit annuity base, instead of final basic pay.
in the veterans’ home loans issued during Benefits for both groups are fully indexed
the year. Slightly over 40 percent of veterans to the Consumer Price Index (CPI).
who have owned homes have used the VA
loan guaranty program. In 1996, 56 percent Members entering military service after
of all guaranteed loans went to first-time August 1, 1986 face a cut in their initial
home buyers. retirement benefit if they retire before age
62 with less than 30 years of service. The
National Cemetery System initial formula for their annuity remains
The VA provides burial in its National at 2.5 percent per year of service, but this
Cemetery System for eligible veterans, active multiplier is cut by one percent for each
duty military personnel, and their depend- year of service below 30. The cut ends
ents—with the VA managing over 100 national when the member reaches age 62. Also,
cemeteries across the country. Spending for benefits for these retirees rise at the rate
VA cemetery operations, excluding reimburse- of the CPI minus one percent, with a one-
ments from other accounts, will total an time catch-up at age 62 to restore the
estimated $84 million in 1998. Over 70,000 full purchasing power of the annuity. After
veterans and their family members were age 62, the benefit is again adjusted by
buried in National Cemeteries in 1996. CPI minus one percent. In addition, to help
shrink the size of the military forces, the
Related Programs Government has provided temporary authority
Many veterans get help from other Federal for certain military members to retire with
income security, health, housing credit, edu- as little as 15 years of service.
cation, training, employment, and social serv-
ice programs that are available to the general Tax Incentives
population. A number of these programs
have components specifically designed to assist Along with direct Federal funding, certain
veterans. Some veterans also receive pref- tax benefits help veterans. The law keeps
erence for Federal jobs. In addition, starting all cash benefits that the VA administers
in 1998, the children of Vietnam veterans (disability compensation, pension, and GI bill
will receive compensation if they are afflicted benefits) free from tax. Together, these three
with spina bifida, which the Government exclusions will cost about $3 billion in 1998.
will presume was caused by a veteran parent’s The Federal Government also helps veterans
exposure to herbicides. obtain housing through veterans bonds that
State and local governments issue, the interest
Military Retirement
on which is not subject to Federal tax.
About 1.6 million military retirees and In 1998, this provision will cost the Govern-
survivors will receive an estimated $28 billion ment an estimated $35 million.
27. ADMINISTRATION OF JUSTICE

Table 27–1. FEDERAL RESOURCES IN SUPPORT OF


ADMINISTRATION OF JUSTICE
(In millions of dollars)

Estimate
1996
Function 750 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 20,684 22,819 24,415 25,186 24,382 24,806 25,518
Mandatory Outlays:
Existing law .................................... –36 767 566 539 400 404 400

Federal, State, and local governments share enforcement activities; (2) litigation and judi-
the responsibility for fighting crime. Most cial activities; (3) correctional activities; and
of the effort occurs at the State and local (4) financial assistance to State and local
level. The Federal Government primarily ad- entities. Most of these funds go to the
dresses criminal acts that require a national Departments of Justice and the Treasury,
response, and supports State and local law and to the Judiciary (see Chart 27–2).
enforcement and criminal justice activities.
Law Enforcement: The budget proposes
Federal, State, and local resources devoted $24.9 billion in 1998 to enforce a wide range
to the administration of justice—including of laws, reflecting the unique Federal role in
law enforcement, litigation, judicial, and cor- law enforcement. Some responsibilities—such
rectional—have grown from $68.3 billion in as customs enforcement—date from the begin-
1988 to an estimated $139.4 billion in 1997— ning of the country. The Justice Department’s
by 104 percent or, as Chart 27–1 illustrates, Federal Bureau of Investigation (FBI), Drug
by 53 percent in constant 1988 dollars. During Enforcement Administration (DEA), and Immi-
this same period, the Federal law enforcement gration and Naturalization Service (INS) en-
component, including transfer payments to force diverse Federal laws dealing with terror-
State and local law enforcement activities, ism, white collar crime, border control, drug
grew by 151 percent, from $9.5 billion in smuggling, and many other criminal acts. The
1988 to $23.9 billion in 1997. Despite this Treasury Department enforces laws related to
growth, Federal resources account for only smuggling drugs and contraband across our
about 17 percent of total governmental spend- borders, and to regulating trade, telecommuni-
ing for administration of justice. cations, financial institutions, and the alcohol,
Nevertheless, Federal resources devoted to tobacco, and firearms industries. Treasury also
law enforcement and crime prevention are trains Federal law enforcement agency person-
consuming a larger slice of total Federal nel and protects the President, the Vice Presi-
discretionary spending. In 1988, administra- dent, and foreign dignitaries. These Federal
tion of justice expenditures were about two agencies, and the ones discussed below, also
percent of Federal discretionary spending. work with State and local law enforcement
In 1997, they will consume nearly five percent. agencies, often through joint task forces to ad-
dress drug, gang, and other violent crime prob-
Federal Activities lems, as well as civil rights laws.
Federal funding for the Administration of The Federal responsibility to enforce civil
Justice function includes: (1) Federal law rights laws in the areas of employment
203
204 THE BUDGET FOR FISCAL YEAR 1998

CHART 27-1. ADMINISTRATION OF JUSTICE EXPENDITURES


(In constant 1988 dollars)
DOLLARS IN BILLIONS

110

100

90

80

70

60 LOCAL

50

40

30
STATE
20

10
FEDERAL
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

and housing arises from Title VII and Title them—and the budget proposes $6.7 billion for
VIII of the Civil Rights Act of 1964, as this purpose. This task falls to the 93 United
amended, and is further augmented by more States Attorneys and the 4,450 Assistant Unit-
recent civil rights legislation, including the ed States Attorneys. Along with prosecuting
Age Discrimination in Employment Act and cases referred by Federal law enforcement
the Americans with Disabilities Act. The agencies, the U.S. Attorneys work with State
Department of Housing and Urban Develop- and local police and prosecutors in their efforts
ment’s (HUD) Office of Fair Housing and to bring to justice those who have violated
Equal Opportunity enforces laws that prohibit Federal laws—whether international drug traf-
discrimination on the basis of race, color, fickers, organized crime ringleaders, or per-
sex, religion, disability, familial status, or petrators of white collar fraud.
national origin in the sale or rental, provision
In addition, the Justice Department contains
of brokerage services, or financing of housing.
several legal divisions specializing in specific
The Equal Employment Opportunity Commis-
areas of criminal and civil law. These divi-
sion enforces laws that prohibit employment
sions—including the Civil, Criminal, Civil
discrimination on the basis of race, color,
Rights, Environment and Natural Resources,
sex, religion, disability, age, and national
Tax, and Antitrust Divisions—work with the
origin.
U.S. Attorneys to ensure that violators of
Litigation and Judicial Activities: Of a myriad assortment of Federal laws are
course, after such law enforcement agencies as brought to justice. Individuals and corpora-
the FBI, DEA, and Treasury’s Bureau of Alco- tions who would knowingly and illegally pol-
hol, Tobacco and Firearms have investigated lute a local river, evade Federal income
and apprehended perpetrators of Federal taxes, or conspire to fix consumer prices
crimes, the United States must prosecute are all targets of Federal prosecutors. The
27. ADMINISTRATION OF JUSTICE 205

Chart 27-2. FEDERAL JUSTICE EXPENDITURES

DOLLARS IN BILLIONS

25

20
CRIMINAL JUSTICE ASSISTANCE

15
CORRECTIONS

10
LITIGATIVE/JUDICIAL

5
LAW ENFORCEMENT

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Federal Government, through the Legal Serv- lation—slightly less than a tenth of the State
ices Corporation, also promotes equal access inmate population—will continue to grow due
to the Nation’s legal system by funding to the abolition of parole, minimum mandatory
local organizations that provide legal assist- sentences, and sentencing guidelines. State in-
ance to the poor in civil cases. mate populations will grow, in part, due to
stringent sentencing requirements tied to Fed-
As for the Federal Judiciary, its rapid eral prison grant funds. In the Federal system,
growth is a result of increased Federal law about 61 percent of the inmates serving time
enforcement efforts over the recent past. have been convicted on drug-related charges.
Accounting for 14 percent of total law enforce-
ment spending, the Judiciary comprises the Criminal Justice Assistance: The 1994
Supreme Court and 196 courts of appeals, Crime Act fueled the rapid post-1994 growth
bankruptcy courts, and district courts, and in Federal criminal justice assistance to State
is overseen by 2,102 Federal and Supreme and local governments, which has increased
Court judges. from $800 million in 1994 to a proposed $4.4
billion in 1998. The Act authorized such pro-
Corrections Activities: The budget pro- grams as the Community Oriented Policing
poses $3.2 billion for corrections activities. Due Services (COPS) program, prison grants, and
to higher spending on law enforcement and the State Criminal Alien Assistance Program.
other factors, the number of criminals incar- Most funding authorized under the Act sup-
cerated also has risen. The U.S. inmate popu- ports grants to States and localities—designed
lation has doubled since 1988, with the total to help States and local criminal justice sys-
number of sentenced inmates exceeding a mil- tems perform their roles as the primary agents
lion during 1996. The Federal inmate popu- of law enforcement.
206 THE BUDGET FOR FISCAL YEAR 1998

The Results—and Long-term Trends The decrease in crime, when compared with
increases in anti-crime spending during the
The Justice Department’s national crime
same period, appears to suggest a general
statistics show that criminal offenses reported
by law enforcement agencies fell by three relationship. Many factors unrelated to Fed-
percent from 1995 to 1996—marking the eral spending, however, also probably played
fifth straight year the crime rate has dropped. an important role in the drop in crime.
28. GENERAL GOVERNMENT

Table 28–1. FEDERAL RESOURCES IN SUPPORT OF GENERAL


GOVERNMENT
(In millions of dollars)

Estimate
1996
Function 800 Actual 1997 1998 1999 2000 2001 2002

Spending:
Discretionary Budget Authority ....... 11,539 11,807 12,809 12,514 12,052 11,796 11,828
Mandatory Outlays:
Existing law .................................... 129 934 787 761 942 726 731
Proposed legislation ....................... ................ ................ –15 57 162 281 419
Credit Activity:
Direct loan disbursements ................ 379 461 ................ ................ ................ ................ ................
Tax Expenditures:
Existing law ........................................ 46,745 48,130 49,500 50,770 52,130 53,560 55,140
Proposed legislation ........................... ................ ................ 11 37 46 53 57

The General Government function encom- criminals who launder money and threaten
passes the central management activities of our borders; and helping agencies to strength-
the executive and legislative branches. Its en their financial systems. In 1996, Treasury
major activities include Federal finances, tax collected $1.4 trillion in revenues and issued
collection, personnel management, and general nearly 850 million payments (99 percent
administrative and property management. on time and 50 percent electronically). Treas-
ury plans to further improve its performance
Four central management agencies, for
by issuing Government-wide Audited Financial
which the budget proposes a combined $12.2
Statements and modernizing the Nation’s tax
billion for 1998, establish policies and provide
administration systems.
administrative and other services—the Treas-
ury Department ($11.8 billion); the General The Internal Revenue Service (IRS), a part
Services Administration (GSA, $226 million);