The Health Needs of an Aging and Diverse Population

Total health care spending in the United States from all sources—public and private—continues to increase at a breathtaking pace. From 1990 through 2000, spending nearly doubled to over $1.3 trillion and by 2010 is estimated to more than double again to almost $2.9 trillion. This unrelenting growth is producing a health care sector that continues to claim an increasing share of the nation’s gross domestic product (GDP)—about 12 percent in 1990 versus an estimated 18 percent in 2010 and 20 percent by 2015. Total health care spending in the United States from all sources—public and private—continues to increase at a breathtaking pace. From 1990 through 2000, spending nearly doubled to over $1.3 trillion and by 2010 is estimated to more than double again to almost $2.9 trillion. This unrelenting growth is producing a health care sector that continues to claim an increasing share of the nation’s gross domestic product (GDP)—about 12 percent in 1990 versus an estimated 18 percent in 2010 and 20 percent by 2015. Of particular concern is the growth in Medicare expenditures, which totaled over $336 billion in 2005. Even without considering the financial effects of its new prescription drug benefit, Medicare is expected to more than double its share of the economy by 2030, competing with other spending and economic activity of value. Indeed, expenditures for hospital insurance, one component of Medicare, exceeded hospital insurance income (exclusive of interest income) in 2004. This fiscal imbalance is projected to continue. Consequently, the Hospital Insurance Trust Fund is projected to be depleted by 2018. Also of concern are issues of (1) modernizing Medicare’s management structure, payment policies and methodologies, and benefits package and (2) reducing Medicare’s administrative burden on providers. Moreover, because of its size and complexity, Medicare is inherently difficult to manage and is a target for fraud, waste, and abuse. Medicare claims administration contracting is undergoing significant changes. In the next 3 to 5 years, all of the contracts will be recompeted and much of the claims administration workload will be transferred to about half the number of current contractors—an undertaking on a scale unlike anything Medicare has experienced before. Consequently, effective oversight is critical to protecting program dollars and promoting efficient program operations. Although the introduction of competitive principles to health care helped to contain medical care cost increases for several years, costs continue to rise, as do the number of Americans without health insurance. These cost increases have important implications for federal health care programs and outlays and for the availability of employer-sponsored health insurance. Many employers reportedly have been considering or made changes to decrease the generosity of their health insurance benefits, or have shifted risk to employees in the form of health plans with significantly higher deductibles, sometimes coupled with health savings accounts. Moreover, the public is concerned about the quality of care, consumer protection mechanisms, and the availability of information to allow purchasers to make informed insurance choices. The government also must address pressing issues in its own health care delivery systems. The Department of Veterans Affairs (VA)—one of the nation’s largest health care delivery systems—spends about $30 billion a year to provide health care to approximately 4.9 million of the almost 7.7 million veterans enrolled for VA care. VA provides this care using a physical infrastructure that is, in many instances, obsolete and burdened with excess capacity for inpatient care. The Department of Defense’s (DOD) health care system will spend about $38 billion in fiscal year 2006 to provide health care to over 9 million eligible beneficiaries who receive health care provided directly by DOD or through DOD purchase of health care from civilian providers. Because of potential complementary aspects of the DOD and VA health care delivery systems, pressure is mounting to integrate aspects of the two systems to increase the efficiency and effectiveness of federal health care delivery, including improvement in the process for veterans returning from Iraq and Afghanistan who transition from DOD to VA health care. Other areas of concern are the efficiency and effectiveness of the government’s public health programs, including those administered by the National Institutes of Health, Food and Drug Administration, Centers for Disease Control and Prevention, Health Resources and Services Administration, Substance Abuse and Mental Health Services Administration, and Indian Health Service. These programs include those that support and conduct research on infectious and chronic diseases and disabilities or provide grants to states and nonprofit organizations for conducting public health activities, such as mental health and substance abuse prevention and treatment services; for reducing risk factors for potentially disabling conditions such as heart disease, stroke, and diabetes; and for operating health care safety net facilities. The Food and Drug Administration also conducts regulatory oversight of the United States’ drug and medical device industries. In recent years, threats to the public health, such as Hurricane Katrina, severe acute respiratory syndrome, and the potential for pandemic influenza, have posed significant challenges for the government. The threat of terrorists using biological weapons of mass destruction, such as anthrax and smallpox, has raised similar concerns about the nation’s ability to adequately respond to bioterrorist attacks. Awareness of these public health threats has heightened concern about disease surveillance systems (both domestic and international); the surge capacity of the health care system (including hospital beds and equipment, trained personnel, and laboratories); and coordinated communication systems among federal, state, and local emergency responders. Greater attention has been given to federal, state, and local efforts to develop coordinated plans for dealing with public health emergencies and to develop emergency response systems linking hospitals, emergency rooms, health personnel, and fire and police efforts to respond to any public health threat. Finally, the baby boom generation will undoubtedly place increasing pressure on the Medicaid program for which joint federal/state expenditures are estimated to be $326 billion for fiscal year 2005. Medicaid helps to pay for nursing home and other community-based forms of long-term care services. Yet meeting an increasing demand for such services at a time when many states are recovering from financial difficulty and the federal government is once again operating at a deficit will pose significant challenges for federal and state decision makers, with important implications for the services offered by each state. At the other end of the population spectrum are millions of uninsured children whose families have no health insurance. Medicaid and the State Children’s Health Insurance Program (SCHIP) help cover the health insurance costs of these low-income Americans. However, as state revenues continue to recover from the most recent economic downturn, Medicaid costs continue to rise, thus prompting states to find new ways to contain program spending. In considering reauthorization of SCHIP in 2007, it will be important to examine state experiences implementing SCHIP and whether the program has met the legislation’s original goal to reduce the number of uninsured children. Accounting for and overseeing these two programs represents a formidable challenge for the federal government because of the variation in state policies, procedures, and delivery systems. In particular, Medicaid’s size and complexity make it vulnerable to fraud, waste, and abuse, making effective federal oversight critical. 

Lifelong Learning to Enhance U.S. Competitiveness

Ensuring that people of all ages have the opportunity to continue to learn throughout their lifetimes has long been regarded as critical to the continued vitality of this democratic society and to its long-term ability to compete in a global marketplace. To this end, the federal government invests more than $89 billion per year in programs that foster the development, education, and skill attainment of children and adults of all ages. These programs include those targeted to the very young, such as child care and early childhood education; those serving primary and secondary school children; and higher education and employment assistance programs that serve working-age adults. The federal government’s involvement in programs and policies that promote lifelong learning is becoming increasingly important in light of recent trends in workforce demographics and changes in the global economy. For example, immigrants, both legal and illegal, are having a profound effect on U.S. schools, businesses, and social service programs. Our nation’s ability to provide this population of children and adults with the English language and academic skills they need to live as U.S. citizens above the poverty line will contribute greatly to our nation’s economic success. Moreover, as the demographics of the workforce change and globalization increases, it will become even more important for Americans to have the flexibility and skills to adapt to the changing economic environment. As a result, it will be critical that the Congress and the federal government have reliable information on how efficiently and effectively federal funds are being used to provide or augment educational and lifelong learning opportunities, particularly among those most in need of help; how well federal programs are achieving their objectives and meeting the needs of the 21st century workforce; and how the management and oversight of these programs can be improved. The federal government has long had a central role not only in funding child care, education, and employment services, but also in shaping national education policy and ensuring that those most in need of help have access to educational and employment opportunities. Federal investment in child care has been growing, in part to support low-income mothers who have entered the workforce after welfare reform. In fiscal year 2005, the federal government invested over $13 billion in early childhood education and care programs for young children. In addition, Americans have placed a high priority on educating their school-age children and preparing them to become self-sufficient adults and productive workers. The federal investment in elementary and secondary education has increased from over $20 billion in fiscal year 2000 to about $37 billion in fiscal year 2005. Beyond providing for basic educational needs, a competitive national economy depends, in part, on effectively preparing workers to compete in the labor force. In fiscal year 2005, the Department of Education invested over $33 billion in vocational education, adult education, and student financial aid. Over the past half century, American demographics and the economy have undergone significant changes, increasing the demand for early childhood education and care as well as a more highly educated and skilled workforce. As labor force participation has increased among women, including mothers of young children, the availability of early childhood education and care has become increasingly important. At the same time, the aging of the American population will put additional demands on the productivity of the working-age population, increasing the demand for a more educated workforce. Researchers warn that unlike in the past when economic growth was fueled in part by increases in the size and skill of America’s workforce, over the next two decades the potential for shortages of skilled workers could present mounting challenges for productivity and economic growth. Since 1940, the share of the nonfarm labor force composed of managers and professionals has increased by more than 50 percent while the share made up of manual production employees, laborers, and craftspeople has fallen by nearly half. A focus on developing and maintaining a flexible, highly skilled workforce will be critical to ensuring our nation’s economic competitiveness. To meet these challenges, discussions of upcoming legislation affecting key education and employment programs emphasize the increased importance of targeting federal resources strategically to achieve desired outcomes and managing these programs efficiently and effectively. For example, as the Congress considers reauthorizing the Head Start program, discussions have centered on provisions to increase coordination between Head Start and other early childhood programs and to increase teacher qualifications, among others. The No Child Left Behind Act of 2001, which is due to be reauthorized in 2007, has focused national attention on increasing accountability for states and school districts to improve achievement for all students while continuing the traditional focus of federal elementary and secondary school programs that provide opportunities for children from disadvantaged families. Helping states to meet these requirements requires a larger role for the Department of Education in providing leadership and oversight. The Higher Education Act, the Adult Education and Family Literacy Act, and the Carl D. Perkins Vocational and Technical Education Act are all due to be reauthorized in the near future. The Congress will be debating several key issues, including the role of federal grant and loan programs in increasing access to higher education, institutional accountability for educational costs and quality, how best to provide for a skilled workforce, and the Department of Education’s management of the federal investment in postsecondary education. Finally, the Congress has also begun work in reauthorizing the Workforce Investment Act of 1998. Some of the issues likely to be addressed include indicators of program performance and funding flexibility. As these examples illustrate, the Congress and the federal government continue to be challenged as they refine the country’s education and employment programs to meet the needs of the 21st century economy.

Benefits and Protections for Workers, Families, and Children

The shift to a more global economy, technological advances, changing workforce demographics, and the growing federal deficit are challenging customary federal approaches to providing benefits to the needy—low-income workers, the indigent, at-risk children, and people with disabilities—and protecting workers and their families. While globalization will likely fuel economic growth, it is also likely to create a more fluid job market where workers move from job to job throughout their working lives. Some of this movement will be voluntary; but some workers and their families may find the transition more challenging and will require income support, nutrition assistance, and other social services at some point in their lives. In order to reach these beneficiaries and improve services, federal assistance programs must adapt to these market changes, and they must do so within very tight budget constraints. While enrollment and costs for the largest federal disability programs are growing and are poised to grow even more rapidly in the future, we have found that many of these programs are poorly positioned to provide meaningful and timely support for people with disabilities. Many of the same forces creating challenges for these programs will create new challenges for worker protection programs as well. Federal efforts to protect workers must account for changes in the nature of work: membership in organized labor has declined, traditional work arrangements are giving way to alternatives such as temporary employment and teleworking, and lifelong service with a single employer is becoming much less common. Finally, identity theft has emerged as a growing concern for many. The Social Security number has long been used primarily as a means to record workers’ contributions and benefits. Now, the Social Security number is a universal identifier used by public agencies at all levels of government and the private sector. Efforts to address the terrorism threat have underscored both the weaknesses and strengths of current efforts to protect individuals’ identities. As the labor market tightens over the next two decades, tapping into new sources of workers will be important. The nation will need to look outside the traditional workforce to find ways to bring people who have long remained on the sidelines into the job market. Specifically, a modern labor force should include at-risk populations, people with disabilities, and people with weak attachments to the labor force. Federal policies for providing income supports for the low-income population have increasingly focused on promoting work in exchange for government assistance. For example, the federal government invested about $260 billion in fiscal year 2003 to help those who have been laid off from their jobs and assist them in becoming reemployed, assist and rehabilitate workers with injuries or disabilities, and encourage people on welfare to work. As the nation reconsiders key aspects of its immigration policies, it will be important to balance future workforce needs against other national and homeland security needs and adequate protections for the current workforce.  Also, work alone cannot meet some social needs. Federal programs to feed people and educate them on the benefits of a nutritious diet have long focused on helping low-income individuals, families, and children avoid hunger and make healthy food choices. New nutrition concerns are being raised as the nation seeks to protect itself against the health hazards brought on by obesity. In schools across the country, concerns have been raised about the nutritional content of the meals served and the ready availability of nonnutritious foods. Likewise, a key federal nutrition program is updating its recommended foods to respond to the changing nutritional needs of its participants. There are also a number of federal programs targeted to at-risk children to help ensure that they get a healthy start. Each year, an estimated 900,000 children are the victims of abuse and neglect by their parents, relatives, or other caregivers. Tragically, approximately 1,300 children die each year from abuse and neglect. The federal government supports states’ efforts to care for these children and invests almost $8 billion annually to provide care for children who need placement outside their homes, services to help keep families together or to reunite them, and training and research activities to improve child welfare services nationwide. Many of the nation’s benefits programs are vulnerable to fraud, waste, and abuse. The Department of Labor estimates a 10.6 percent error rate, including $3.4 billion in overpayments, in unemployment insurance benefits paid in 2004. Likewise, the Department of Agriculture reports that there were about $1.4 billion in payment errors in the Food Stamp Program in 2004. While the federal government and the states are taking steps to reduce these errors, more needs to be done. The mounting federal deficit will make it difficult to maintain funding for these benefit programs, and program officials will have to ensure that benefits are paid correctly and reach those with the greatest need. The federal government also plays a vital role in assisting people with disabilities by providing employment-related services, medical care, and income support. Public concern and congressional action have produced a broad array of federal programs designed to help people with disabilities, but many of these programs have not evolved in line with economic, medical, technological, and social changes. These changes have increased the opportunities for individuals with disabilities to live with greater independence and more fully participate in the workforce; however, the rate of return to work for individuals with disabilities receiving cash and medical benefits is very low. Furthermore, program enrollment and costs for the largest federal disability programs have been growing and are poised to grow even more rapidly in the future, further contributing to the federal government’s large and growing long-term structural deficit. Federal employment and worker protection programs must deal with new challenges as technology, changes in the organization of work, and increasing global interdependence are redefining the labor market for workers and employers. These changes raise concerns about the adequacy of efforts to ensure that workers have safe, healthy, and productive workplaces. Regulations and activities designed to ensure workplace safety and health must be revised to accurately reflect the technological changes of the recent past. The Congress and the administration face challenges as they redefine the role of public policies to help employers and workers enhance productivity and increase earnings while also protecting workers’ rights. Identity theft is a growing concern for many Americans. Efforts to address the terrorism threat have underscored both the weaknesses and strengths of current efforts to protect individuals’ identities. In particular, the Social Security number, once an internal marker for the agency to record contributions and pay benefits, is now virtually a universal identifier, used by public agencies at all levels of government and private business entities of all sizes and from many different economic sectors. The Social Security number’s wide use, besides raising many serious privacy issues, has also put citizens throughout the nation at risk of identity theft, fraud, and other types of illegal activity. How to use the Social Security number in a way that ensures effective agency operations, prevents its illegal use, and protects the privacy of U.S. citizens is a formidable challenge facing the Social Security Administration.

Financial Security for an Aging Population

Providing retirement income security in the United States has traditionally been a shared responsibility of government, employers, and individual workers. However, the burgeoning federal deficit—especially in federal retirement programs such as Social Security and Medicare—and declining coverage of employer-provided pension plans suggest a shift in responsibility to individual workers for ensuring an adequate and secure retirement. These trends are the outgrowth of broader developments associated with population aging, global competition, and labor market trends and are unlikely to abate in the near future. With the baby boom generation poised to move into retirement beginning in 2008, the Congress will need more information on the economic, financial, and social implications of these trends to ensure that the government, employers, and workers share retirement risk in an equitable and efficient manner. Such information will also aid workers in making informed retirement planning decisions, including the decisions regarding when and how to retire and invest their savings. Since 1960, life expectancy at age 65 has increased by over 3 years. By 2050, persons aged 65 and over will account for over 20 percent of the total U.S. population, up from about 13 percent in 2000. Consequently, people are expected to spend more time in retirement. These trends are adversely affecting the sustainability of pay-as-you-go-financed federal retirement programs. Although the Social Security trust funds are not expected to be depleted until 2040, the strains on government finances will begin as early 2017 when the program starts to pay out more than it takes in each year. Given current benefit and revenue streams, the federal retirement programs are unsustainable over the long run, and the federal government is going to have to make some hard choices in reforming them. To the extent that such reforms reduce benefits to workers, this will affect the level of financial resources they can draw upon during retirement. Employer-provided pensions have been and remain an important contributor to American retirement security, with private pension benefits accounting for about 10 percent of the total income received by persons 65 years of age and older. Yet, like the federal retirement programs, the national employer-provided pension system is also facing serious financial challenges. The past two decades have seen a dramatic decline in the number of defined benefit pension plans and the percentage of the private labor force covered by these plans. Historically, defined benefit plans have been an important and stable source of retirement income, typically providing monthly payments throughout the retirement life of the participant. The decline means that workers approaching retirement will have to make up the difference in income from another source, most likely from personal saving or extending work life. Meanwhile, the role of defined contribution plans in the private pension system has increased dramatically, but this trend has not necessarily led to increases in coverage. The number of defined contribution plans rose from 341,000 in 1980 to 653,000 in 2003, covering 64.1 million workers and retirees. As of 2006, 54 percent of all workers in private industry were offered a defined contribution plan. However, participation in such plans is typically voluntary, and many covered employees choose not to participate. In 2006, only 43 percent of all workers in private industry chose to participate in such a plan—an 80 percent participation rate among those offered a defined contribution plan. Despite the outlook for federal retirement programs and employer-sponsored pension plans, individuals have so far not filled in the gap with personal saving. Only 44 percent of families headed by someone aged 55 to 64 owned an Individual Retirement Account, and among these families, median Individual Retirement Account balances were $60,000. From 2000 to 2005, meanwhile, personal saving as a percentage of disposable income averaged just 1.3 percent—one-sixth the postwar average. In 2006, the saving rate was -1.0 percent, the lowest level in almost 50 years. Helping to depress the saving rate has been the widespread "leakage" of retirement assets to support nonretirement consumption. Through 2003, for example, 21.6 percent of recipients of lump sum pension distributions reported diverting some part of their pension to support consumption.  In response to these challenges, many workers may need to stay in the labor market past today’s typical retirement age, which is at about age 62 for both men and women. Greater labor force participation by older workers would benefit the economy by filling anticipated skill gaps and by allowing workers to accumulate more assets and delay the drawdown of assets for retirement. This trend may already be under way. In 2003, almost 33 percent of men aged 65 to 69 participated in the labor force, up from 26 percent in 1990; similarly, the participation rate for women in the same age group rose from 17 percent to almost 23 percent during this period. However, while many employers indicate a willingness to recruit or retain older workers, most employers are not currently engaged in these practices. To date, most employers have not made the types of changes—such as establishing alternative work and schedule arrangements or allowing phased retirement—that would accommodate the needs and preferences of older workers.

Ensuring a Responsive, Fair, and Effective System of Justice

The terrorist attacks of September 11, 2001, redefined the mission of the Department of Justice, making the prevention of terrorism and the promotion of national security its primary mission. In accordance with this shift in focus, the Department of Justice restructured its internal organizations. In particular, it undertook a substantial restructuring of the Federal Bureau of Investigation, redefining the agency’s mission and priorities in light of the increased focus on antiterrorism. Moreover, the USA Patriot Act, passed in October 2001, significantly expanded federal law enforcement and investigative authority and, with billions of dollars in additional funding, greatly increased the federal counterterrorism role. Although the Department of Homeland Security (DHS) is expected to coordinate the executive branch’s efforts to detect, prepare for, prevent, respond to, and recover from terrorist attacks within the United States, many of these functions are the primary roles of law enforcement at the federal, state, and local levels. This heightens the importance of effective coordination and cooperation and the Department of Justice’s responsibilities and leadership in preventing terrorism and promoting homeland security.  In addition to its primary mission, the Department of Justice continues to enforce federal laws; deter, investigate, and prosecute federal crimes, including gun, drug, and civil rights violations; incarcerate offenders; partner with federal, state, and local governments and organizations to prevent crime, including crimes against children; and provide leadership and assistance in meeting the needs of crime victims. In particular, the Congress and the public look to the federal government for leadership on how to control domestic and transnational crime, including terrorism, while protecting civil liberties. Increases in funding also require that the federal government efficiently use and effectively manage the resources available for the administration of justice and the judiciary.

The Promotion of Viable Communities

The economic and social well-being of communities is vital to the nation’s overall growth and prosperity. Yet the viability of many of America’s communities is threatened by a variety of economic and social problems, including high levels of long-term unemployment, inadequate retail activity, and a deteriorating housing stock. For decades, federal, state, and local governments and the private and nonprofit sectors have sought ways to revitalize distressed communities. The federal government alone operates well over 100 programs that offer to communities various grants, loans, loan guarantees, and special tax incentives that are designed to assist distressed areas. For example, the Community Development Block Grant program provides assistance for a variety of infrastructure and capacity-building needs and the Empowerment Zone program is intended to encourage investment in targeted areas. Despite these efforts, no simple answer has been found to the question of how best to revitalize America’s distressed communities, in part because of the difficulty of measuring the factors that actually cause communities to improve. Also, the issue of how best to deliver aid is complicated by the need to strike a balance between the goals of the federal government and those of state and local governments and nonprofit organizations, which administer a large share of federal dollars for community and economic development. Small businesses, which employ more than half the nation’s workforce, are crucial to economic growth in many communities. The Small Business Administration (SBA)—the nation’s single largest financial backer of small businesses—guarantees over $61 billion of business loans and provides management and technical assistance to about 1 million small business owners annually. SBA also has oversight responsibility for federal contracting goals for small and minority-owned businesses. Because SBA has undertaken numerous initiatives to address management issues that affect the agency’s performance, the Congress needs up-to-date assessments of its performance. To promote homeownership, a key element of a vibrant community, the federal government assists home financing in several ways. VA and the Department of Housing and Urban Development’s (HUD) Federal Housing Administration provide mortgage guarantees and insurance, while HUD’s Government National Mortgage Association (Ginnie Mae) guarantees securities backed by these mortgages. Three government-sponsored enterprises (GSE)—the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp (Freddie Mac), and the Federal Home Loan Banks—support the mortgage market and are also responsible for promoting homeownership among underserved households. In recent years, the effectiveness of the regulatory structure for the GSEs has been questioned. The federal government also promotes homeownership through tax incentives and requirements placed on mortgage market participants. It must balance the benefits of increasing home ownership, especially among the underserved, against the financial risk taken on directly (through mortgage guarantees) or indirectly (through GSEs). The federal government—principally HUD and the Department of Agriculture’s Rural Housing Service—spends some $30 billion annually on numerous programs to help rental households with lower incomes reside in safe, decent, and affordable housing. HUD has made substantial progress addressing long-standing management weaknesses that placed its rental housing assistance programs at risk of waste and abuse. However, in recent years, legislative and administrative actions have changed HUD’s biggest programs—Section 8 and public housing—in ways that may call for different oversight approaches. Further, both HUD and the Department of Agriculture’s Rural Housing Service, which oversees rural housing programs, face challenges in ensuring that federally assisted properties are maintained in a physically and financially sound manner, are administered in a way that best serves the needs of low-income households, and remain available to lower-income tenants to the extent practicable.

Responsible Stewardship of Natural Resources and the Environment

The nation’s natural resources and the systems associated with their use are under widespread and increasing stress, generating intense debate and posing daunting challenges to policymakers at all levels of government. In large part, this is the consequence of the country’s growing population and economy and attendant increased demands on a finite resource base. Accommodating these demands runs headlong into long-standing legislation aimed at protecting the country’s resources in a healthy state for the good of current and future generations. Likewise, how policymakers resolve this balance has global consequences because the United States is the world’s single largest consumer of energy and other resources and is seen as out of step with international efforts to limit resource use and associated pollution. At the same time, the nation needs to protect its natural resources from terrorist threats. In fact, nearly half of the critical infrastructure sectors listed in the President’s National Strategy for Homeland Security cover natural resource areas. These areas are food, meat and poultry, energy, water, chemical industry and hazardous materials, and agriculture. For decades the nation has benefited from plentiful and relatively low-priced domestic and global energy supplies. The long-standing availability of these supplies, however, has made businesses and consumers dependent on large amounts of low-priced energy as a means to maintain our nation’s global competitiveness and way of life. Unfortunately, in recent years, the nation has witnessed a tightening of energy supplies in the face of rising demand—resulting in a more precarious supply and demand balance. This tightening, or stress on energy markets, has contributed to steep price increases for oil, natural gas, and electricity, with prices more than tripling over just a few years, in some cases. If these price increases persist, they may cause economic dislocations for U.S. industry and financial peril for workers and consumers. In addition, the United States has increasingly relied on some imported energy supplies, such as oil, that come from parts of the world that are both hostile toward the United States and politically unstable at times. Recent global trends, such as huge increases in oil demand by China and India, are complicating the nation’s energy picture by further pushing up energy prices. Exacerbating these already difficult market developments and trends is the renewed and widespread debate as to whether the world is nearing a peak in oil production after which global supplies would begin to decline. Finally, despite several years of concerted efforts to combat terrorism, key aspects of the United States’ far-flung energy infrastructure—including hundreds of thousands of miles of transmission lines, pipelines, and rail lines connecting to thousands of major energy facilities—remain vulnerable. It is in this context that federal leaders will face difficult choices on how the nation can meet its energy needs in the near term, and daunting strategic decisions about how the federal government can best aid in a thoughtful transition to the energy systems that will meet the country’s needs in the 21st century. More than ever, the country’s lands and waters are under increasing stress. This is evidenced by rapidly dwindling open spaces, declining biodiversity, depleted aquifers, and collapsing fisheries—the unintended consequences of economic growth and the need to sustain the lifestyle of a growing population. Reconciling and balancing the demands of often competing objectives—economic growth for today versus natural resource protection for the future—is a major challenge facing the American public and its elected leaders. The heated debate on possible future oil development in the Arctic National Wildlife Refuge in Alaska presents this issue in microcosm. In this case, the issue pertains to the use of federal lands, which constitute about 30 percent of the country’s total land surface, but similar controversies exist over privately held lands affected by federal law and regulations. The use of the nation’s waters presents equally sobering challenges, as pollutants and overfishing rapidly threaten coral reefs and deplete offshore fisheries, while competition over rights to freshwater supplies grows among various interests, such as agriculture, communities, utilities, wildlife, and recreational users. Even under normal conditions, water managers in 36 states expect water shortages to occur within the next 10 years. If such shortages actually occur, they could have severe economic, environmental, and social impacts. The increasing globalization of natural resource issues also affects environmental protection matters, as seen in the federal government’s discussions with other governments about climate change issues. Such discussions add a new layer of complexity to the already difficult question of how to sustain economic growth when the engines of that growth—factories, cars and trucks, fertilizers, and electricity-generating plants—often adversely affect air and water quality and can change climates in potentially catastrophic ways. Another factor in attaining federal air and water quality goals is that land use practices, often resulting in "urban sprawl," are controlled mainly by local governments and private owners. Moreover, the federal government relies upon state and local governments for inspection and enforcement actions. Because of the pervasiveness and mounting evidence of the effects of climate change and the potential consequences of human-induced climate change and response options, we are increasing the emphasis on climate change over the next few years. This increase in emphasis was overwhelmingly encouraged by the Comptroller General’s Advisory Board. More than ever, decision makers in public and private sector organizations need reliable and readily understood information to make informed judgments and decisions. Over the past 15 years, the United States has invested heavily in scientific research, monitoring, data management, and assessment for climate change analyses to build a foundation of knowledge for decision making. Also, significant challenges remain in cleaning up the country’s hazardous and radioactive waste sites. Today, an estimated 60 million Americans live within 4 miles of a hazardous site, and radioactive waste from weapons production still needs to be cleaned up at Department of Energy sites in 13 states. These sites’ continued existence poses not only potential health and safety problems, but also fiscal and economic problems. Delayed cleanup results in higher price tags for eventual cleanup and stunted economic development in the affected communities. Potential terrorist attacks underline the need for steps to ensure the security of hazardous and radioactive materials during storage, transportation, and disposal. Finally, the Congress continues to debate the direction of U.S. farm policy in areas such as subsidies and world trade, land conservation, and energy production efforts. Food safety and security lie at the forefront of concerns about the country’s agricultural resources, an urgent matter given the potential for, and the consequences of, agricultural bioterrorism. Besides this troubling matter, a whole range of other food safety issues, while less ominous, nevertheless pose serious questions. These include questions about the adequacy of the government’s devolution of food inspection authority and its efforts to implement a "farm-to-table" food safety approach. At the same time, a number of countries have raised concerns about the safety of U.S. genetically modified crops and foods—a matter of growing importance given the significant role that food exports play in the U.S. economy.

A Safe, Secure, and Effective National Physical Infrastructure

The nation’s economic vitality and the quality of life of its citizens depend significantly on the soundness, security, and availability of its physical infrastructure. Transportation and telecommunications systems, for instance, provide the superstructure for the nation’s economic engine, facilitating the movement of people, goods, and information. The nation faces major challenges in improving both efficiency and safety in the movement of people and goods. The nation relies heavily on its postal system for efficient mail delivery service. And thousands of federal facilities house and support staff and the other assets needed to provide services to the American people. In both the short and long term, the nation faces important infrastructure challenges as federal, state, and local governments confront new demands brought on by changes in national security, demographics, technology, and lifestyles. The challenges are complex, cutting across many interrelated issues, and require coordinated intergovernmental responses. For example, the nation’s commercial passenger airlines, which were experiencing financial difficulties even before the September 11 terrorist attacks, have experienced unprecedented financial losses stemming from reduced air travel, raising debate over the appropriate federal response. Also, long-term trends indicate that increasing numbers of motorists are encountering increasingly congested highways, while bottlenecks have escalated for freight transportation at intermodal connection points. Suburban growth has raised demands for new roads, water and sewer systems, and access to telecommunications. At the same time, existing communities are demanding that the environment and their citizens’ quality of life not be harmed by this growth. The cost of maintaining and modernizing its infrastructure is only one concern of a U.S. Postal Service that faces growing financial, operational, and human capital challenges. In addition, the deregulated transportation and telecommunications industries require continuous oversight to help ensure that firms compete on a level playing field and that consumers receive the intended benefits of deregulation. The responses of the federal government and other levels of government to these infrastructure challenges will have important consequences for the nation’s future because of their effects on the quality of life and their significant costs. With the return to large federal deficits, decision makers will be faced with difficult choices on how to allocate funding among infrastructure needs and other demands in an increasingly tight budget environment. Given limited resources, decision makers must choose investments that promise to be most cost-effective and targeted to address national infrastructure needs. These choices must be supported by credible data on needs and costs, performance information and measures highlighting outcomes from existing programs, and a budget process prompting a more explicit focus on investment spending across agencies.  It is therefore essential for government at all levels to have the information needed to make well-informed decisions about how to allocate funds among competing priorities, evaluate the challenges to determine which solutions are most cost-effective, and implement these solutions as efficiently and effectively as possible.

Protect and Secure the Homeland from Threats and Disasters

The nature of the threats to national and international security and the means of attack have changed significantly in the post-Cold War era. Threats stem from differences in national or state ideologies and geopolitical, economic, and strategic considerations and now, increasingly, from religious conflicts and the aims of nonstate-sponsored groups. Adversaries are more likely to strike vulnerable civilian or military targets at home and overseas in nontraditional ways to avoid direct confrontation with U.S. military forces or their allies on the battlefield. The nation must assess and defend against a wide range of means and methods of attack, ranging from unconventional means to conventional weapons to weapons of mass destruction. International access, global interdependencies, interconnected and less diverse systems, and rapid technological change make such threats more viable and decrease the effectiveness of physical borders in ensuring security. These threats put at risk the nation’s values, economic interests, way of life, and the personal security of its citizens. National strategies have proposed homeland security and combating terrorism initiatives to address these threats, but the effectiveness of these efforts remains unclear. Decision-making approaches based on risk analysis and the coordination and alignment of federal efforts and funding with state, local, and private sector investments are still works in progress. At the federal level, the effectiveness of major structural changes to provide leadership is critical. Passage of the Homeland Security Act of 2002 moved several major federal law enforcement agencies around—the Immigration and Naturalization Service, the U.S. Customs Service, the Coast Guard, the Transportation Security Administration, and other agencies all moved to the newly created DHS. While the movement of these agencies into their new units presents management challenges, it also raises concerns about the impact the transfers will have on agencies’ ability to perform their missions. These concerns, as well as the sheer size of the undertaking, the fact that DHS’s proposed components already faced a wide array of existing challenges, and the prospect of serious consequences for the nation should DHS fail to address its management challenges and program risks adequately, led us to add implementing and transforming the new department to the list of high-risk areas in 2003. The primary mission of DHS is to prevent, reduce vulnerability to, and aid in recovery from domestic terrorist attacks. Homeland security requires effectively transforming DHS into a well-managed organization and effective efforts of other federal agencies, such as the Federal Bureau of Investigation and the intelligence community. DHS’s efforts to effectively secure all modes of transportation; land, air, and sea ports of entry; and our nation’s borders and enforce immigration laws within U.S. borders are of critical importance in adequately protecting and securing our homeland. In addition, Hurricane Katrina graphically demonstrated the shortcomings of the nation’s ability to respond to a catastrophic disaster whether from natural or human means. Preventing, preparing for, and responding to emerging security threats, as well as natural disasters, entail successful national information sharing and coordination, involving defense and domestic federal agencies and programs; state, local, and tribal governments and organizations; the private sector; and domestic and international communities.

Ensure Military Capabilities and Readiness

Today, DOD is engaged in a "long war," a term recently coined to recognize the belief that the nation’s ongoing war on terrorism is one that will likely continue for an extended and indeterminable number of years. This war is being fought at the same time that DOD is attempting to adapt and transform legacy warfighting capabilities from the Cold War era to meet 21st century needs—needs that now extend to a more diverse range of threats than previously recognized. Events of recent years have also highlighted the growing importance of homeland security and multiple coordinated roles that DOD must play in addition to the key roles played by other federal, state, and local agencies in securing the homeland. Likewise, both the 2001 terrorist attacks and the 2005 hurricane disasters have provided important insights into areas needing increased attention to strengthen U.S. abilities to respond domestically to catastrophic events either of man-made or natural origin, especially the support that may be required from DOD. Although DOD has received significant increases in budget authority, including numerous supplemental appropriations, since 2001 questions exist about the extent to which these increases can be sustained in the coming years as the nation faces growing fiscal challenges and budget deficits, even as DOD faces challenges in addressing its own competing priorities under existing budget authorities. The recently completed 2006 Quadrennial Defense Review Report provides an important frame of reference for considering these competing priorities in responding to today’s threat environment, but many details or actions are left for further study, development, or implementation. In contrast to the downward trend in defense spending during the last decade, this first decade of the new century has seen a significant upward trend in authorized defense spending. After dropping below $300 billion in years past, total defense budget authority increased in the years since 2001 to around $400 billion in recent years, excluding substantial war-related appropriations totaling about $451 billion since 2001. However, we and others have noted that some portion of these funds has also been used to support other needs, such as transformation efforts. Absent steps to reshape, reduce, and reorient defense priorities, reducing or eliminating supplemental appropriations could place additional pressures on regular defense appropriations to meet defense needs. The 2006 Quadrennial Defense Review Report articulated a vision for change and highlighted numerous areas for change and transformation. The report defined two fundamental imperatives for DOD: (1) continuing to reorient DOD’s capabilities and forces to be more agile in this time of war, to prepare for wider asymmetric challenges, and to hedge against uncertainty over the next 20 years and (2) implementing enterprisewide changes to ensure that organizational structures, processes, and procedures effectively support its strategic direction. The quadrennial review effort reportedly has identified more than 120 action items for implementation, and DOD has named a senior-level working group to guide their implementation as well as oversee a number of follow-on studies in such areas as departmental institutional reform and governance, building partnership capacity, and intelligence. Nevertheless, some defense analysts have expressed concern that the quadrennial review did not go far enough in identifying reductions in conventional capabilities or providing a greater level of detail and specificity to the framework for reshaping defense and realigning funding priorities. As noted in our report on 21st century challenges, as DOD seeks to meet the demands of the new security environment, it continues to bear the costs of the past by implicitly maintaining or continuing to pursue many programs and practices from the Cold War era. In this context, the magnitude of funding and potential for current investments and operations to turn into long-term financial commitments are prompting real questions about the affordability and sustainability of the rate of growth in defense spending. As DOD continues its emphasis on transformation, it faces numerous competing issues or challenges. Notwithstanding these challenges, DOD is continually faced with the overall challenge of maintaining a ready force to meet today’s operational requirements through the requisite provision of manning, equipping, and training of its forces even as it transforms for tomorrow.

Advance and Protect U.S. International Interests

Although U.S. leaders agree on the ultimate goal of promoting global peace, prosperity, and stability, and spent over $35.6 billion on international affairs in fiscal year 2005 (see fig. 11), intense debate is occurring over how to achieve that goal. Conflict interventions to make or keep the peace, stabilize failed states, and end terrorist regimes have dominated recent U.S. foreign policy actions. These interventions are sometimes controversial, both domestically and internationally. They also are often costly. For example, from fiscal years 2003 through 2006, the U.S. government appropriated about $310 billion to support U.S. stabilization and reconstruction efforts in Iraq, including over $34 billion for reconstruction assistance alone. The United States also spent more than $1.6 billion in Afghanistan from 2002 to 2004. Moreover, the administration has requested about an additional $51 billion to support U.S. stabilization and reconstruction operations in Iraq and Afghanistan in fiscal year 2007. Such interventions are likely to continue to play a prominent role in stabilizing regions used as staging areas for efforts to undermine or threaten U.S. interests. U.S. foreign aid to developing countries is critical for advancing U.S. economic and security interests. For example, the United States supports countries trying to adopt democratic and free market structures through developmental and humanitarian programs as well as rule-of-law assistance and measures to improve local governance capacity. These countries and regions in transition have combined populations in excess of 2 billion, and they face complex development problems. In addition, the Millennium Challenge Corporation’s mission is to reduce poverty by supporting sustainable, transformative economic growth in developing countries that create and maintain sound policy environments. Ensuring the effectiveness and efficiency of these programs is important because the extent to which countries can successfully make the transition to and maintain democratic governments and market economies will significantly affect U.S. security and economic objectives and, ultimately, the U.S. budget. Protecting U.S. strategic interests in the face of new tests has presented challenges for alliances established decades ago and raised questions about how the United States should respond to shifting needs and priorities. Traditional alliances continue to evolve. For example, membership in the North Atlantic Treaty Organisation is expanding to the east and south, and its missions are broadening to include responding to security threats and crises outside of its members’ territories. The United States continues to provide bilateral security assistance and pursue programs that counter transnational threats, like drug trafficking, human trafficking, money laundering, and infectious diseases, in order to foster international security. U.S. participation in multilateral organizations, such as the United Nations, is sometimes debated when questions arise about these organizations’ effectiveness and their ability to advance U.S. interests. Multilateral organizations facilitate international cooperation in many areas, including promoting economic and social development; responding to security and humanitarian challenges; and addressing transnational threats, such as a potential avian flu pandemic. The United States, as a member of these organizations, has advocated improved accountability and management.  Conducting foreign affairs is becoming more complicated as the lines between domestic and international issues blur and change how America does business. About 35 federal agencies have around 19,000 U.S. staff assigned to overseas embassies, and most federal policies have international aspects. The Department of State plays a key role in coordinating U.S. policy and programs for regions, countries, or multilateral organizations. To carry out its responsibilities, the Department of State operates more than 260 embassies and consulates in over 185 countries. The size and composition of the department’s overseas infrastructure and human capital are being questioned, particularly in light of security concerns. Moreover, attacks on the United States prompted a rethinking of U.S. public diplomacy and public affairs activities and ways to better understand, inform, and influence foreign publics and policymakers. The threat of terrorist attacks on U.S. facilities and personnel overseas has shifted the focus of many U.S. agencies’ international activities and programs. For example, the practices for granting entry into the United States and the need to block the entry of terrorists and criminals while at the same time facilitating entry for legitimate travel key to the nation’s prosperity have changed. Similarly, the terrorist attacks against the United States and interventions in Afghanistan and Iraq have given rise to new U.S.-led coalitions to pursue military, political, and economic efforts to erode terrorists’ networks and their sources of support. Finally, the continuing proliferation of weapons of mass destruction has received heightened attention because of concerns that terrorists or a rogue regime could threaten the United States with nuclear, chemical, or biological attack.

Respond to the Impact of Global Market Forces on U.S. Economic and Security Interests

The increasing interdependence of the world’s economies has a significant impact on the national security and the economic well-being of the American people. U.S. exports have grown much faster than the economy as a whole. However, U.S. imports have grown faster, leading to a widening trade deficit … Moreover, the United States has been the principal architect of an open world trading system and, as the world’s largest exporter and importer of goods and services, has benefited immensely from global trade. But segments of U.S. and world populations have not shared equally in these benefits and may not do so in the future. Moreover, global market forces have resulted in large trade imbalances and made the United States more vulnerable to overseas economic crises. Trends such as rapid growth in China and India have increased international competition for scarce natural resources, such as energy. In addition, it has become more difficult for the United States to maintain control over critical technologies and the supplier base on which U.S. economic and military security depends. Also, the United States has faced terrorist threats emanating from some of the least integrated countries in the world as well as health threats from some of the most integrated regions of the world. For policymakers, several aspects of these trends require particular attention. Trade agreements are increasing in number and importance to the U.S. economy. More than 300 international trade agreements affect hundreds of billions of dollars in trade and millions of U.S. jobs. The mutual dependence of international markets and the U.S. economy has increased even further with China’s 2001 admission to the World Trade Organization and the emergence of developing countries such as India, shifting traditional patterns of trade, production, and investment. In addition, the United States is currently involved in major multilateral negotiations in the World Trade Organization, as well as numerous free trade agreements with other partners. Over 10 U.S. agencies have programs to promote U.S. exports. These programs include providing financial assistance through loans, loan guarantees, and grants as well as providing U.S. businesses with information on the export process. The globalization of the supplier base is driving changes in the way the United States obtains technologies and capabilities to protect its national security interests. As companies increasingly engage in a wide variety of business arrangements across national borders, and DOD increasingly relies on them, the department is seeking new ways to benefit from the competitive sources and innovative technologies that a diverse supplier base may provide. For example, the department is partnering with foreign countries to develop major weapon systems, such as the Joint Strike Fighter aircraft program. Although globalization has the potential to speed innovation and reduce costs, it also carries potential threats to the technological superiority of the U.S. military and may require new approaches to protect national security interests. Global financial health and the maintenance of the world financial system are critical to long-term U.S. objectives and cornerstones of U.S. foreign policy. International financial institutions have created mechanisms to anticipate, prevent, and resolve financial crises, but it remains to be seen if these mechanisms will be adequate to safeguard the stability of the international financial system. International financial institutions, such as the International Monetary Fund and the World Bank, are at the center of efforts to address financial crises. The United States is the major contributor to the International Monetary Fund and relies heavily on it and the World Bank to promote world economic health. The operations and transparency of these institutions have come under increased scrutiny. Overseeing financial institutions and markets in the 21st century is a growing challenge. Trillions of dollars flow through the nation’s financial institutions and markets, including the investments and retirement savings of working households. The globalization of financial firms and markets coupled with continuing advances in technology have created opportunities to improve the speed and efficiency of market operations. But these advances also provide new opportunities for illegal market activities and may broaden the scope of financial crises or cause them to spread more rapidly. Creating new products and the increasing importance of new market participants continue to pose challenges to existing regulatory frameworks and oversight programs. Innovations such as the increasing use of Internet-based financial activities also present new regulatory challenges. While these innovations can benefit U.S. markets and investors, they also expose individuals to increased risks and potential fraud.

Reexamine the Federal Government’s Role in Achieving Evolving National Objectives

Within the context of the major trends and long-term fiscal imbalance, evaluating the role of the government and the programs it delivers is vital to determining how to best position the federal government for the 21st century. With the government facing an array of complex challenges and opportunities, a strategic long-term view is critical in considering how best to design programs to manage effectively across boundaries and meet the nation’s needs and priorities today and in the future. Policymakers will need forward-looking information to set the stage for early warnings about emerging threats and make informed choices about effective government responses. As the pace of change accelerates in every aspect of American life, policymakers and the public need more and better information to assess where the nation is and where it is going. In this regard, developing key national indicators for the United States can help policymakers assess the overall position and progress of the nation in key areas, frame strategic issues, and support informed public debate and decisions within and between levels of government and the United States as a whole. Addressing the nation’s strategic challenges increasingly depends on the joint efforts of all levels of government and the interactions and interdependencies between the various actors, policy tools, and management functions. In most federal mission areas—from low-income housing to food safety to higher education assistance—national goals are achieved through the use of various policy tools, such as direct spending, grants, loans and loan guarantees, insurance, tax expenditures, and regulations. Any assessment of federal missions and strategies must look at the tools that the federal government uses and the participation of other organizations in achieving national objectives. Although policy tools have proliferated in recent decades, knowledge of how to design and manage the federal policy tool set has not kept pace. Policymakers need a better understanding of how individual policy tools operate, how to measure their performance and effectiveness, which actors participate in implementing various tools, and what features are necessary to ensure accountability and oversight. The effectiveness of federal programs increasingly depends on state and local management and resources as well as constructive interactions between federal, state, and local actors, including private and nonprofit entities. The intergovernmental system is being tested by a complex array of specific short- and long-term challenges. Federal, state, and local governments are facing daunting problems in managing programs involving numerous actors inside and outside of government that are both nonroutine and routine in nature. For example, jurisdictions face challenges in working with other levels of government, nonprofits, and the private sector in areas ranging from preparing for, responding to, and recovering from catastrophes, such as a potential influenza pandemic, to effectively managing key areas of national life, such as providing quality education and health care. Moreover, the unique advantages of a federal system—the flexibility and capacity to respond to local needs—are challenged by long-term trends, such as advances in technology and communications that span state and national boundaries.

Support the Transformation to Results-Oriented, High-Performing Government

The overarching trends and long-term fiscal challenges facing the nation drive the need to change how the government does business in the 21st century. To become high-performing organizations, agencies must transform their cultures to respond to the transition that is taking place in the federal government’s role. By building fundamental management capacity, the federal government can improve its performance and deliver economical, efficient, and effective programs and services that the American people need in a cost-effective and fiscally sustainable manner. Focusing on accountable, results-oriented management can help the federal government better position itself to meet the new challenges and opportunities of this century. As part of its transformation efforts, the federal government needs to create a culture that moves from outputs to results, stovepipes to matrixes, hierarchical to more horizontal structures, an inward to an external focus, micromanagement to employee empowerment, reactive behavior to proactive approaches, avoiding new technologies to embracing and leveraging them, hoarding knowledge to sharing knowledge, avoiding risk to managing risk, and protecting "turf" to forming partnerships. People are an organization’s most important asset, and strategic human capital management should be the centerpiece of any effort to transform the cultures of government agencies. A focus on results, not just of the organization but of its contribution to national goals, is essential. In establishing a results-oriented culture that can reach its full potential, the organization and its leaders need to carefully select the best solution for the organization in terms of structure, systems, and processes. Information is an important asset that needs to be managed appropriately and effectively. Vital to successful transformation will be building the management capacity of federal agencies to support new ways of doing business—including human capital, financial, IT, and acquisition management. Though progress is being made on many fronts, much remains to be done. Today’s federal human capital strategies are not suited to meet current and emerging 21st century challenges or to drive needed transformation across the federal government. The federal government must have the capacity to plan more strategically, react more expeditiously, and focus on achieving results. Critical to the success of this transformation are the people who carry out the government’s business. Traditionally, this work was performed largely by permanent, career civil servants. Increasingly, however, nonpermanent federal employees, as well as contractors and other third parties, are playing a bigger role in carrying out agencies’ missions. We designated strategic human capital management as a governmentwide high-risk area, and it is one of the President’s governmentwide management reform initiatives. The area remains high risk because the federal personnel system is clearly broken in critical respects—designed for a time and workforce of an earlier era and not able to meet the needs and challenges of a rapidly changing and knowledge-based environment. While more progress in addressing human capital challenges has been made in the last few years than in the previous 25, improvements are needed in such areas as succession planning, knowledge transfer, pay and reward systems, recruitment and retention programs, and managing the multisector and blended workforce. As new agency-specific authorities and flexibilities are provided, it will be vital to have the institutional infrastructure in place to use them effectively. Critical institutional infrastructure includes agencies’ human capital planning capabilities; the ability of their management teams to use flexibilities effectively; and the presence of modern, effective, and credible performance management systems with appropriate safeguards. Agencies are confronted with long-standing and substantial challenges to becoming more results oriented. Since the 1990s, the Congress sought to instill a greater focus on results and accountability by enacting a statutory framework with the Government Performance and Results Act of 1993 as its centerpiece. Our work has shown significant growth in the number and types of results-oriented performance measures called for in the act. Managers’ perceptions of being held accountable for results also have grown. On the other hand, progress in building organizational cultures to create and sustain a focus on results has been uneven. To help agencies effectively manage their resources and link resource decisions to results, agencies and the Congress need credible, rigorous evaluations to assess whether current programs and policies remain relevant, appropriate, and effective. It will also be important for the Congress to take full advantage of the benefits arising from the reform agenda under way in the executive branch; to do so, the government must find ways to foster accountability in ways the Congress considers appropriate for meeting its role, responsibilities, and interests. Successfully transforming how the government does business depends on building high-performing organizations that network with key partners, both across and outside the government. Improved performance has been a primary goal of several recent restructurings, such as forming DHS, reorganizing the Federal Bureau of Investigation, and creating the National Intelligence Directorate. DOD is in the process of transforming its business operations, and the U.S. Postal Service faces the challenge of transforming its business model for the 21st century. However, government experience in reorganization has yielded mixed results. Future success will depend on identifying and implementing best practices of high-performing organizations operating in a complex, networked environment. Critical organization elements—structure, systems, and practices—must support achieving high performance. Leadership must set the direction, pace, and tone for the transformation and should provide sustained and focused attention over the long term. Establishing a chief operating officer position or chief management officer position with term appointments at selected agencies could help to (1) elevate attention on management issues and transformational change, (2) integrate various key management and transformation efforts, and (3) institutionalize accountability for addressing these issues and leading this change.Information is a vital resource that needs to be properly managed. The growth in electronic information as well as new security threats facing the nation highlight challenges to effectively collecting and disseminating information that agencies need to take into account in developing new programs. While it is important to enhance the government’s use of new technologies to improve collecting and disseminating government information, it is also important that this information—especially that collected for statistical purposes—meets the current needs of federal programs, policymakers, and the public. In areas in which the U.S. economic and social structure is undergoing major change, statistical agencies need to respond to these changes with relevant data on a timely basis. Timely, accurate, and useful financial information is essential for making operating decisions day to day; supporting results-oriented management approaches; and managing the government’s operations more efficiently, effectively, and economically. Yet the federal government’s financial management has suffered from neglect, and financial systems have serious shortcomings. IT is a key element of management reform efforts that can dramatically reshape government to improve performance and reduce costs. However, numerous poorly managed IT systems have produced multimillion-dollar cost overruns, schedule slippages, and poor results. Further, poor information security remains a high-risk area across the federal government with potentially devastating consequences. Electronic government offers many opportunities to better serve the public and reduce costs, but the federal government has not reached its full potential in this area. Effective acquisition management plays a key role in creating and sustaining high-performing organizations. Despite reforms to transform the federal acquisition process, the government still does not have a world-class purchasing system. All too often, many of the products and services the government buys cost more than expected, are delivered late, or fail to perform as anticipated. Encouragement of strategic contracting approaches that seek greater efficiencies as well as improvements in management and accountability are needed to produce better outcomes. Agencies are considering other approaches for achieving greater efficiency and effectiveness in their operations, including appropriate use of contracts with the private sector. After a yearlong study, the Commercial Activities Panel developed a set of principles to be used in addressing sourcing decisions and recommended that the public and private sectors compete for the opportunity to perform commercial functions. Competitions can be based on the established framework of the Federal Acquisition Regulation. Changes published by the Office of Management and Budget in its Circular No. A-76, Performance of Commercial Activities, are generally consistent with the panel’s recommendations. However, this competitive sourcing initiative is a major change in the way government agencies operate, and successfully implementing the circular’s provisions will require that adequate support be available to federal agencies and employees. We will follow developments in this area closely.

Support Congressional Oversight of Key Management Challenges and Program Risks to Improving Federal Operations and Ensuring Accountability

Strong, visionary, and persistent leadership will be needed to address today’s challenges and prepare the nation for the future. Congressional leadership will continue to play a vital role in achieving a broad transformation of the government. Congressional oversight is needed to ensure that agencies continue to build their fundamental management capabilities, resolve high-risk areas, and address major management challenges to effectively address the nation’s most pressing priorities and to take advantage of emerging opportunities. Our 2007 high-risk list identified 27 high-risk areas … Continued persistence in addressing these high-risk areas will ultimately yield significant benefits. Although effectively addressing some of these issues will require time, finding lasting solutions could potentially save billions of dollars, improve service to the American public, strengthen public trust in the national government, and ensure the ability of government to deliver on its promises. In fiscal year 2006, we documented financial benefits totaling $22 billion that resulted from actions taken in response to our recommendations and reports to address high-risk issues. However, more remains to be done to ensure that the government has the capacity to deliver on its promises and meet current and emerging needs.  The federal government has a stewardship obligation to safeguard the use of taxpayer funds; prevent fraud, waste, and abuse; and ensure financial accountability. While there has been important progress, agencies are still working toward the goals established in financial management reform legislation, such as the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. Widespread financial management system weaknesses, poor record keeping and documentation, weak internal controls, and a lack of information have prevented the government from having the information needed to effectively and efficiently manage operations or accurately report a large portion of its assets, liabilities, and costs. Continued oversight is needed to ensure that agencies take steps to continuously improve internal controls and underlying financial and management information systems to ensure that executive branch managers and congressional decision makers have reliable, timely, and useful information to ensure accountability; measure, control, and manage costs; manage for results; and make timely and fully informed decisions about allocating limited resources. As part of the drive to improve performance, agencies are increasingly being called on to demonstrate that their programs are conducting research that is relevant, of high quality, and producing results. As part of the President’s Management Agenda, for example, the Office of Management and Budget is focusing on developing objective criteria that agencies can use to select, fund, and manage their research and development programs. According to the fiscal year 2004 budget, 12 of the top 13 agencies conducting research and development are using the Office of Management and Budget’s Program Assessment Rating Tool, which contains criteria for research and development investments. Science and technology investments are critically important in improving the quality of life and the performance of the economy in areas that include health care, defense, energy, and the environment. However, the increased development and use of new technologies present challenges to the Congress in evaluating their potential and assessing the effects on security, safety, privacy, and equity. For example, despite many successes in space exploration, the loss of life, unsuccessful missions, and unforeseen cost overruns have recently increased the level of concern over the benefits of space exploration, particularly with regard to manned activities. Congressional oversight is critical in ensuring that the substantial federal investment in science and technology is allocated effectively and that intellectual property rights are protected here and abroad.

Analyze the Government’s Fiscal Position and Strengthen Approaches for Addressing the Current and Projected Fiscal Gap

The federal budget is the principal annual vehicle through which the Congress and the President balance competing views about allocating federal resources, accountability for those resources, and allocating responsibility between the public and private sectors and among levels of government. The nation continues to run large budget deficits, and the squeeze on the federal budget from the impending retirement of the baby boom generation is becoming more apparent in the 10-year budget window. Our long-term budget model has consistently suggested that without changes to the major retirement and health care programs, the nation will ultimately have to choose between escalating federal deficits and debt, significant tax increases, and dramatic budget cuts in other areas. Under the Congressional Budget Office’s current 10-year budget and economic outlook, economic growth is projected to be about half a percentage point lower on average after 2008 because labor force growth will slow as the baby boom generation begins to retire. At the same time, the already rapid growth in entitlement spending for Social Security, Medicare, and Medicaid is projected to accelerate. As such, it will be increasingly difficult to address today’s urgent needs without unduly exacerbating the nation’s long-term fiscal challenges. While Social Security and Medicare dominate the long-term outlook, they are not the only federal programs or activities that bind the future. Indeed, the federal government undertakes a wide range of programs, responsibilities, and activities that obligate it to future spending or create expectations for spending. Making government fit the challenges of the future will require not only dealing with the drivers—entitlements for the elderly—but also looking at the range of other federal activities. However, the budget controls instituted to achieve balance in the past have expired, and no agreement has been reached on the appropriate structure or process for focusing on the fiscal challenges that now move to center stage. Part of the solution to the long-term fiscal challenges will have to come on the revenue side of the federal budget. This will involve reexamining not only the amount of revenue needed to finance federal expenditures but also how that revenue is raised. The amount of revenue raised to finance federal spending has remained fairly stable over the last several decades when measured as a share of GDP. Revenue would have to increase if growth in federal spending is not controlled. Tax policy, which determines the design of our nation’s tax system and thus how a given amount of revenue is raised, has profound effects on the economy as a whole and on the decisions that individuals and businesses make about working, saving, and investing. The federal tax system includes numerous tax provisions intended to influence taxpayers’ behavior throughout the economy, but little is known about the effects of many of these provisions. Given the size and complexity of the federal tax code, the Congress remains interested in tax reform, particularly its simplification. Among the many causes of complexity is the growing number of exemptions and exclusions from taxation, deductions, credits, deferral of tax liability, and preferential tax rates. The federal tax system includes numerous tax provisions intended to influence taxpayers’ behavior throughout the economy, but little is known about the effects of many of these provisions. Given the size and complexity of the federal tax code, the Congress remains interested in tax reform, particularly its simplification. Among the many causes of complexity is the growing number of exemptions and exclusions from taxation, deductions, credits, deferral of tax liability, and preferential tax rates. The number of tax expenditures reported by the Department of the Treasury has more than doubled since 1974, and the sum of revenue loss estimates for tax expenditures was nearly $847 billion in 2006.

Improve Client and Customer Satisfaction and Stakeholder Relationships

We interact and work with a diverse set of external clients and internal customers. Our principal client is the Congress, but our work is also important to other stakeholders, including federal and nonfederal agencies and organizations and international institutions. Our internal customers are our staff who deliver quality service to our clients. Therefore, being a model agency depends on both determining and meeting the requirements of our external clients and our internal customers.  For congressional clients, we will continue to update our understanding of their needs and expectations and investigate ways to communicate our results to them more timely and effectively. We will also take proactive measures to enhance communication with key committees to ensure a fuller understanding of emerging issues, will seek client feedback on our work, and will act on the feedback provided. To improve our capability to identify client needs, we will identify and implement technologies, methods, and strategies to increase response rates to the client feedback survey. Internally, we will work to improve the amount, quality, and timeliness of data in the Congressional Contact System to ensure a shared understanding and improved communications with our clients.For internal customers, we will refine the customer satisfaction survey to include key administrative services and identify strategies to increase the survey response rate. We will act on customer feedback to improve delivery of internal products and services, and develop a mechanism to provide information to staff on improvements made in response to their feedback. For external stakeholders, we plan to strengthen relationships through leadership in and sponsorship of forums, symposia, and meetings with a wide range of government accountability and professional organizations. We will also devote our efforts toward fostering initiatives in the federal, national, and international accountability, audit, and evaluation communities to build capacity and implement strategic plans that promote professional standards and knowledge sharing. We will also seek to improve our institutional capacity building through training and seminars for our national audit office counterparts around the world and our International Fellows Program. We intend to work proactively with our teams to enhance communication and coordination with our stakeholders. Finally, we will continue to identify and support opportunities to leverage our resources and minimize risk by partnering with other accountability organizations, especially those that we consider our accountability partners—members of good-government organizations and working groups that are composed of our counterparts in local, state, federal, and international organizations.

Lead Strategically to Achieve Enhanced Results 

We will continue to strengthen and further integrate our strategic planning and our performance, financial, and IT management to maximize results, manage risks, enhance responsiveness, and ensure exemplary practices and systems. To accomplish this objective, we will build on our established base of strategic planning, sound financial management, performance management, IT best practices, and leadership initiatives.

Leverage Our Institutional Knowledge and Experience

We are a knowledge-based professional services organization. As a large number of our more senior employees reach eligibility for retirement, we need to implement strategies we have identified to retain this knowledge and expertise and increase organizational knowledge sharing. In addition, to further facilitate organizational knowledge sharing, we need to increase the volume of organizational information available, enhance our communications strategies to increase accessibility of the information, and employ improved electronic and Web-based technologies in support of this objective. We also will build on our past and current participation in programs, events, and efforts focused on enhancing knowledge sharing with other national and international accountability and professional organizations.

Enhance Our Business and Management Processes

As the federal government’s accountability organization, we undertake engagements to evaluate the economy, efficiency, and effectiveness of a wide range of federal policies and programs to assist the Congress and benefit the American taxpayer. By continuously assessing and enhancing the processes and services that support our engagements, we can maximize our value to the Congress and the public.

Become a Professional Services Employer of Choice 

To be a model organization, we must become an employer of choice—one that attracts, retains, motivates, and rewards excellent employees and is considered one of the best places to work. We will continue to build upon our efforts to create and maintain a work environment that is fair, unbiased, and inclusive and that offers the opportunity for all employees to realize their full potential. We are committed to providing our employees with the tools, technologies, and systems that promote collaboration and productivity. We will also undertake new security strategies to meet the challenges posed by terrorism and pandemics and provide a safe and secure workplace for our employees. We will seek to enhance employee views about GAO by assessing employee satisfaction with selected work life programs and improving the development programs and experiences of new staff.