SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOCTHE FOREST SERVICE COST REDUCTION AND FISCAL ACCOUNTABILITY ACT OF 1998
WEDNESDAY, JULY 29, 1998
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 2:00 p.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
Present: Representatives Ewing, Doolittle, Goodlatte, Pombo, Smith of Michigan, Bryant, Blunt, Thune, Stenholm, Condit, Peterson, Minge, Pomeroy, Baesler, Berry, Goode, Stabenow, Etheridge, Johnson, and Boswell.
Staff present: Paul Unger, majority staff director; David Tenny, professional staff; Dwight Fielder, Callista Bisek, Danelle Farmer, and Wanda Worsham, clerk.
The CHAIRMAN. We'll come to order, please. I have a statement. And then I'll call upon the gentleman from Texas.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. The purpose of this hearing today is to consider H.R. 4149, the Forest Service Cost Reduction and Fiscal Accountability Act of 1998. We appreciate those who have joined us to comment on this legislation and to make recommendations on how to improve it.
Over the last few months, the committee has focused its attention on how the Forest Service manages its financial resources. The central question we have explored is whether the Forest Service is using taxpayers' dollars in a way that will minimize overhead costs and improve the delivery of goods and services to the millions of Americans who live, work, and recreate in our national forests each year. Our findings, frankly, have been disappointing. Let me review a few of them.
Page 2 PREV PAGE TOP OF DOC We have learned that, despite an estimated road construction backlog of some $10 billion, the Forest Service budget request for road construction and then reconstruction actually sought nearly $5 million more for overhead than it did for road reconstruction.
According to the GAO, overhead costs charged to the five off-budget funds which were established to carry out critical on-the-ground management have increased by 80 percent over the last 5 years and now exceed 27 percent of the total expenditures from all of those funds.
Forest Service data show that overhead charged to the Timber Sale Program increased by 46 percent between the year 1992 and 1996 and now comprise over 31 percent of the total cost of the program. Such data shows that overhead costs exceed the combined annual costs of environmental analysis; appeals and litigation; road design, construction, and maintenance; brush disposal; reforestation; transportation planning; and silvicultural examinations.
The rising cost of overhead is hindering the ability of the Forest Service to carry out its core missions on the ground. Despite increases in annual appropriations in many areas over the past several years, actual on-the-ground accomplishments have declined.
The Forest Service does not presently have an adequate system in place to identify and reduce excessive overhead costs. The GAO has observed that over the last several years the Forest Service has completed a number of internal studies resulting in recommendations for reducing costs and improving agency accountability. Yet, none of these has ever been implemented in any meaningful way.
Perhaps most disappointing among those has been the effort to put into place an ''all-resources'' cost accounting system. We understand that's coming. Such a system has been ''in the works'' since 1988 but has never been completed. It is certainly long overdue.
The Forest Service has told the committee that in order for fiscal accountability to improve, the agency must first be able to produce reliable financial data. The agency has informed the committee that it currently has a plan in place to improve the accuracy of its data and better track the financial performance of the agency. The Committee has been assured that if it will leave the agency to its own devices, it will reform itself in time.
Page 3 PREV PAGE TOP OF DOC This process we are told will require an immediate increase in administrative staff. Ironically, while the committee has been told that these new hires can be made before the end of the year, the reforms they will be hired to make may take as many as 10 years to produce.
This plan appears to be little more than a waiting game. If planning can be prolonged long enough, meaningful reform can be averted and status quo maintained. It seems that that has been the agency practice for a decade. Few in Congress expect the game plan to change if the agency is left to its own devices.
Congress has grown impatient with such bureaucratic group-think. That was the message that came last week from an amendment to the Interior appropriations bill. The amendment, offered by Mr. Miller of California, prohibited the use of K-V funds for overhead. It won by a convincing margin.
The underlying message of the Miller amendment is clear. Congress is not willing to wait 10 years for the agency to fix its fiscal accountability and overhead problems. The time to fix them is now.
Surprisingly, the Chief of the Forest Service, the Secretary of Agriculture, and the White House were silent on the Miller amendment. And I don't know why. If the administration supports Mr. Dombeck's plan for making the agency more fiscally accountable, then one would assume it would oppose any effort to radically change that plan. Yet, there was no message to that effect transmitted to the Congress. Congress is left to wonder whether the administration truly supports the chief or whether it, like Congress, believes that reform is proceeding too slowly.
For the record, I opposed the Miller amendment, not because I was defending the Forest Service's track record but because I believe, I think as the Forest Service doesI'm not surethat the amendment went too far too fast. The Miller amendment is punitive and in my judgment will do more harm than good. My objective is not to punish or destroy the Forest Service but, rather, to improve it.
Page 4 PREV PAGE TOP OF DOC That's why I have introduced H.R. 4149 that we're going to hear today. This bill will address the issues of overhead and fiscal accountability in a more constructive and I believe responsible way. In my opinion, it will ultimately achieve the results intended by the Miller amendment with greater precision and with fewer unintended consequences.
The bill is designed to be consistent with the requirements of the Government Performance and Results Act. It requires the agency to identify specific objectives for reducing overhead and improving accountability. The bill does the following.
One, it requires the Forest Service to account annually for the direct and indirect costs associated with all of the programs it administers by moving immediately to a ''all resources'' financial reporting system.
Two, it requires immediate limitations on the overhead the agency may charge to off-budget funds and establishes a schedule for eliminating the use of off-budget funds for overhead totally. This will require all overhead for the administrative off-budget funds to come from annual appropriations.
Three, it requires the Forest Service to fully disclose in each year's budget request the amount of overhead needed to administer each program administered by the agency. This will require the agency to defend its overhead during the appropriations process.
Four, it requires the Forest Service in cooperation with the General Accounting Office and the USDA Office of Inspector General to develop a 5-year strategic plan to identify and reduce excessive costs, increase the use of private sector contracting, and establish incentives for line officers and other decision-makers to manage with greater efficiency and cost-effectiveness.
Five, it establishes third party audits of the implementation of the strategic plan by the GAO to assess whether it is achieving the desired results.
Sixth and finally and most importantly, the bill requires that fiscal reforms be structured and implemented so as to improve outputs of goods and services to the taxpaying public. I want to emphasize that the overriding objective of this bill is to ultimately improve on-the-ground results by taking more money out of the hands of the bureaucrats and putting it into the hands of the forest managers.
Page 5 PREV PAGE TOP OF DOC Today we will hear comments from the Forest Service, taxpayer groups, forestry professionals, and national forest constituents on the merits of the bill. And because of the change in scheduling, some of our originally scheduled witnesses will not be able to join us. However, without objection, I wish to enclose their thoughts in the record, specifically comments from the General Accounting Office and the United Brotherhood of Carpenters and Joiners of America.
The intent, again, of this bill is to help the Forest Service reduce costs, limit overhead, improve outputs of goods and services, and be more accountable to the Congress and to the taxpayer. My goal is to certainly never to punish the Forest Service but to benefit millions of Americans who live, work, and recreate in our national forests every day.
And may I emphasize that if the message isn't out to the Forest Service, it should be by the two actions that we just mentioned. The first is the Miller amendment, which took $45 million and struck all of the overhead of the K-V funds, as we know, which will be an immense problem for the Forest Service to manage the other funds that they manage; and then the $67 million Chenoweth amendment, which struck that much money from the general administration of the Forest Service and placed it into fire-fighting. That occurred, as most know, in the appropriation funding mechanism.
So, with that introduction, I'm pleased to yield to my friend from Texas, Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. Just a few brief comments.
This bill, as you've described it, seems to take a very reasonable approach to a problem which I think you're going to find a lot of support and sentiment thereto. The message should not be mistaken, what the chairman has said regarding the problems that we have had outlined in the Forest Service regarding cost. I think it fair to point out, though, that the Forest Service has a new proactive chief financial officer, who is in the process of trying to straighten this out. I know that what you have said is that he has our full cooperation in doing this.
Page 6 PREV PAGE TOP OF DOC And the message should be very loud and very clear. We've run out of time, not only in the Forest Service but in a lot of other areas of our bureaucracy, of those that continue to, for whatever reasons, refuse to bring the efficiencies of operation necessary with the amount of budget dollars that we've got to operate in this case our forest system.
So whether the legislative approach in the few days remaining is going to be adequate or not, I think the bill takes a reasonable approach. But hopefully the message of the bill, whether it's enacted into law or not, will not go unnoticed that this issue will be back. And that needs to be strongly pointed out.
The CHAIRMAN. I thank the gentleman for his thoughtful comments.
At this time I would seek unanimous consent that a copy of H.R. 4149 be included in the record at this point.
[H.R. 4149 follows:]
"The Official Committee record contains additional material here."
The CHAIRMAN. Mr. Pandolfi, please come forward, Chief Operating Officer of the U.S. Department of Agriculture, the Forest Service, accompanied by Mr. Ron Stewart, the Deputy Chief, Programs and Legislation; and Ms. Sally Thompson, Chief Financial Officer of the USDA. Welcome to all of you. Thank you for coming.
STATEMENT OF FRANCIS P. PANDOLFI, CHIEF OPERATING OFFICER, FOREST SERVICE, U.S. DEPARTMENT OF AGRICULTURE
Mr. PANDOLFI. Thank you, Mr. Chairman.
Mr. Chairman, I'm not going to read the remarks that we have submitted. I simply want to paraphrase a couple of things at the beginning and then request your permission to try to take you through a plan for a few minutes if you'd like me to.
Page 7 PREV PAGE TOP OF DOC The CHAIRMAN. Without objection, so ordered.
The CHAIRMAN. Go right ahead, please, sir.
Mr. PANDOLFI. Thank you.
Mr. Chairman and members of the committee, I appreciate the opportunity to appear before you today to discuss the proposed legislation, H.R. 4149, regarding fiscal accountability and management of indirect costs in the Forest Service. I am accompanied, as you indicated, by Mr. Ron Stewart of the Forest Service and Ms. Sally Thompson of the Department of Agriculture.
This, as you know, is the sixth hearing since March that we've gone before you to explain what we're doing to improve the financial management systems of the Forest Service. We share as a whole and you know, I hope you know, that I, in particular, share your concerns to make solution of these problems a top priority.
Let me say that as far as the bill is concerned, conceptually we agree with the bill on several points, that the Forest Service needs a strategic plan for identifying and reducing costs; secondly, that indirect costs should be properly managed; third, that financial systems need to be in place to accurately track those costs; and, fourth, that indirect costs should be monitored and kept to a minimum, not just for the trust funds but for all of the Forest Service.
The Department is continuing to analyze your bill and review the legislation. And we'll respond soon with an official position. What I would like to do is to respond to your requests when we have the hearing on June 4 and I asked you if I could present a plan or I told you that I was going to present a plan and you said that you'd like to know what that plan was. I'm prepared to present that to you today.
It was attached to the testimony. And I don't want to read it, but what I would like to do is if I couldI don't know if this is an unusual procedure or not but just ask you to look at it. And I'd like to take you through a couple of highlights. I believe you'll find it at theit's in a chart form, and it's at the end of the testimony. If you have it, I'll begin.
Page 8 PREV PAGE TOP OF DOC What I've done here is I have shown youI thought it would be wise to put into perspective what we have done, Mr. Chairman, and show you what's happened to try to improve financial accountability for the Forest Service since some of the initial significant actions were taken in 1996 up to today and then to tell you what we intend to do for the rest of the year and the early part of next year.
I noted well your comments in your opening remarks when you indicated that we had hired or we intend to hire 130 people by the end of the year but we couldn't produce reform for 10 years. I don't agree with that. I believe we can show you results, start to show you results, within 6 to 12 months. And it is only under such a condition that I would expect you and the members of this Committee to support us and give us the time that we have asked for.
I am very concerned about your comment, Congressman Stenholm, that we have run out of time, but I recognize why you make it. I can't argue with you about it, but I can tell you that what has taken 20 years to create I can't fix in 60 to 90 days. Now let me, with that, take you through the plan.
The first major action we took, as you will see on the first page, was in December 1996, when we instituted a financial health initiative.
The CHAIRMAN. Pardon me, Mr. Pandolfi. I think the gentleman from Texas was trying to help me point out that the Congress has already moved $150 million of your money around, which you object to. And he and I are trying to defend you.
Mr. PANDOLFI. I understand that, sir.
The CHAIRMAN. When he said you ran out of time, you've run out of $150 million. That's the point.
Mr. PANDOLFI. I understand.
The CHAIRMAN. Okay.
Mr. PANDOLFI. My point related to the bigger picture of what we're trying to do here over the next several years because it's going to take time to fix these things. I know what you meant, Congressman Stenholm.
Page 9 PREV PAGE TOP OF DOC Now, what happened in 1996 happened before Chief Dombeck or I arrived at the agency. Starting in 1997, we came in January. We commissioned Coopers and Lybrand, as you know. You've all seen the report. That is, by the way, an example of private sector involvement that I think you indicated in the bill might be a good idea. And so you can see that we are already doing that sort of thing.
The Chief issued a memorandum to improve accountability guidelines, and I only want to comment on one thing. When this chief came into office, he had 35 direct reports. Now, that's silly. You cannot manage any businessI don't care whether it's big or smallwith 35 direct reports. And we've taken care of things like that.
We've started these chief's overviews. It was interesting. I discovered that we had not done such overviews, even though they are described in the Forest Service handbook, in many, many, many years. And that's one of the best ways to achieve accountability. We just completed one yesterday in region 8 down in the south. The financial handbook that we issued is going to be regularly updated.
I go to the next page. In March 1998, we received the Coopers and Lybrand report with the primary recommendations that are shown to you there at the top of that page.
The only thing I want to comment on to underscore the importance of this is that, for example, two-thirds of the way down where it says ''simplify management codes'' when we came aboard here, we discovered there were over 2 million live management codes at the National Finance Center in New Orleans. There's no need to have that kind of data to run a business like this.
I was appointed in May 1998, 16 months after I arrived here. We've now got financial data that OIG in a formal report has indicated is reliable. Now, that's input data. That is not output data. We need now to take that and analyze it.
We have taken the results of the Coopers and Lybrand report and shown in this page under June 1998. We've analyzed it. We have taken their information to heart. We have created practical, down-to-earth, and simple recommendations or specifics on how to move forward.
Page 10 PREV PAGE TOP OF DOC I move to the next page, again June 1998, where we have taken our human resources recommendations and we are moving forward. This is the 130 people you referred to. And I should tell you that we reduced the Forest Service administrative people in the four areas I'm describing here, Human Resources, Fiscal, Budget, and Information Management, by 1,500 people over the last few years. And that's one of the reasons we lost control, Mr. Chairman, of what was going on because basically I don't think we stopped to think who was going to do the work once the 1,500 people were gone.
To bring this up to the present, we have started also in July 1998, you'll see, to begin to work on some revenue-generating activities. We have appointed a new budget director. And that brings us to the present, where we are now in August 1998 about to appoint a new chief financial officer. We're awaiting one final sign-off. I believe we'll have an outstanding individuals within 2 weeks.
We will have completed our real property inventory. I recall, Mr. Chairman, that you asked me how many airplanes were in the Forest Service at a hearing two times ago. And I didn't have a good answer for you. We'll have answers on the airplanes and a lot of other things from now on. We've just about got this done. And it's not just the what we have. It's what it's worth, too.
And I'm not going to read the rest of this but to tell you that from August 1998 through the end of the year onto the next page and into the first quarter, we will have accomplished a great deal toward putting in place the resources we need to correct the problem that's taken many years to create.
I know that, as you said before, you've been promised many times that things would happen. And you have been disappointed by those promises. I have only promised you one thing, Mr. Chairman, since I've testified before you, and that was to give you a plan. I'm giving you a plan today.
Page 11 PREV PAGE TOP OF DOC I believe we can show you progress in the very next few months that I would hope would make you believe that we're on the right track. I am certainly prepared to have the input of any member of this Committee or your staffs to modify this or to do whatever you think might make it a better plan.
We can talk all day about what is the correct thing to do. I can define and redefine overhead for you many, many times. But the incontrovertible fact remains that we can perform very little meaningful financial analysis until we have reliable, simple, current data in useful reports.
The ability to accomplish this has eroded over 15 to 20 years. And we can't fix it overnight in a $3 billion, 35,000-employee organization with a culture which at times rejects financial management as if it were a virus. But we can plan to get out of this environment. And I'm showing you the beginning of that now.
That concludes my remarks. And if you have any questions, I'd be happy to answer them.
[The prepared statement of Mr. Pandolfi appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much. Do your colleagues wish to comment?
Ms. THOMPSON. Mr. Chairman, I'm Sally Thompson. And I'm the new CFO at the Department of Agriculture, having come on board the first week in March.
I can tell you that I'm 100 percent in support of the activities that Francis has been working on. We've been working very closely together. I also have put a plan together.
I'm responsible for the accounting systems at the Department of Agriculture. It was necessary to put in a new accounting system to comply with all of the new requirements coming out of the CFO Act and all seven of the other acts that have come since then.
Page 12 PREV PAGE TOP OF DOC Again, part of the problem was with the system when it came up last October 1997 is that in our attempt to support the Forest Service and getting in good, reliable data, we brought two of their regions up and one of their research centers on a system that wasn't completed and had not been fully tested. At the same time, we brought it up, trying to accommodate all of those 2 million management codes, and at one time had over 650 million transactions in a system that wasn't built to handle that nor should it have been handling that volume.
With the plan that the Forest Service has in place, we will get back to reasonable and rational management of that data. And the input, of course, as you know, output is only as good as the input that goes in.
In addition to that, we also tried to accommodate all of those reports that the Forest Service had over 120 of those. That does not make for good management in the reports. So we are now down to the reasonable and rational number of reports that we can give to the Forest Service so that they can manage that.
In addition to that, I have gone out with the help of OMB and brought in the best project management team for this particular system that exists here in the Federal Government. They have a track record of having brought this same system up in another Federal agency within a 15-month period of time. So they come on board, which they started the first part of July, with experience.
At the same time, I have a firm in doing a skills assessment of the technology skills of the staff that was involved in implementing this system. We also have another firm that's doing an independent validation and verification of the process and the architecture, structure of this system to make sure that it complies with all of the standards and regulations that are out there. And it is a most effective and efficient way to manage the accounting data at the Department of Agriculture.
So I think that our plan very closely dovetails with the things that the Forest Service is doing internally and that we will be able to support them to give them accurate, reliable, and timely data. We have also been working with them in terms of coming up with the right valuation so that we can produce an audible financial statement.
Page 13 PREV PAGE TOP OF DOC With that, I would also like to answer any questions that you might have.
The CHAIRMAN. Thank you.
Mr. STEWART. Thank you, Mr. Chairman, Mr. Stenholm, members of the committee.
As I indicated to you the last time we met, in June, that I come from this as a perspective of a forester and not a financial manager and one of those who probably stands guilty as accused; that is, of not paying enough attention to the financial management situation. The agency I think historically has spent more of its energy on the natural resource side out on the financial resource side.
I am here to say, though, that I've had an epiphany, if you will, and it hasn't just been a result over the last year. It's been probably the last 5 years to understand how valuable financial management is.
I've also come to the conclusionand this in some way reinforces some of the items in your bill but also the points that Mr. Pandolfi was making; that is, I think three things that are clear to me. The first is we won't get very far unless we can develop a mutually understood and agreed-upon definition of indirect or overhead costs so that we're all talking on the same page and we can have a consistent use of that throughout the organization.
I believe there's a fair amount of effort going on now between the Forest Service, the GAO, the Office of Inspector General, and the Chief Financial Officer's Office to come up with that definition. And I have been in some considerable discussions with Mr. Meissner from GAO. And I believe he's going to be coming forward, I would assume, with a report finally to Congress on what their recommendations are. And I anxiously await that.
The second thing we need past the definition is accurate, timely financial data. Just having definitions and inaccurate information and the ability to analyze that information doesn't buy you much. I believe that the foundation financial information system, which now seems to be on track, and some of the problems we are creating in it in terms of something called retroactive redistribution I think are being solved. And that ought to help us move forward fairly quickly.
Page 14 PREV PAGE TOP OF DOC You mentioned all resources reporting. It's a reporting, not an accounting, system. That is moving forward, but it has to hook to good, sound financial data. So those two have to come along together before they'll be very useful.
Mr. Pandolfi mentioned the financial health initiative, which is sort of the overall umbrella for it. There are a lot of pieces to that, including getting not only accurate data but also updating all of our inventory and our property records.
The third thing we need, then, is once we have those in place, the sound analysis of indirect costs and a firm plan that systematically reduces those costs whenever they're in the control of the Forest Service. I know that you all are aware as we look at costs in our own homes or wherever we may be that some costs are within our control and we ought to be doing all that we can to control those. And some are beyond our control. Those we end up having to try to either limit or live with.
Certainly we have not done all we can do or could do in the latter part in terms of trying to control those costs, but until we have good data and an accurate definition so that we can do cost center analysis and find out just what our costs are and what is increasing and what is in our control, it's going to be difficult to do that.
So I think we need those three things before we can move forward; that is, a clear definition we can agree on, consistently applied; accurate, timely financial data; and, finally, sound analysis of that and a plan that takes every effort to reduce the cost and makes our program delivery more efficient.
The CHAIRMAN. Thank you.
Ms. Thompson, do you support this legislation?
Ms. THOMPSON. I have not had a chance to analyze it thoroughly enough. I would say, Mr. Chairman, that the Government-wide right now is struggling with the clear definitions, in the cost accounting area, which includes obviously the ones most difficult to define. And that's in the overhead area.
Page 15 PREV PAGE TOP OF DOC What truly consummates overhead? Every project has to have certainly program management in it. It has to have administrative management in it. And it has to have financial management, just to name several of those.
The CHAIRMAN. Ms. Thompson, this gives you 3 years to handle that. It's a phase-in program.
Ms. THOMPSON. Right. And I hear that. I think that we need to clearly define those things in order to be able to give you an accurate accounting of what is a consensus of overhead.
The CHAIRMAN. Did you oppose the Miller amendment?
Ms. THOMPSON. Yes.
The CHAIRMAN. You opposed the Chenoweth amendment?
Ms. THOMPSON. Sir, I'm not that familiar with
The CHAIRMAN. Sixty-seven million dollars taken out of your general administration and put into fire-fighting. That's what it did.
Ms. THOMPSON. Right. And I certainly would say to you, as Mr. Pandolfi did in his testimony, that as I see it, not having been there but, as I see it, part of the Forest Service issues was cutting so deeply into the people that were in charge of financial management. And, therefore, things got out of control.
The CHAIRMAN. Well, I agree. That's why I posed it. But then you can't support this bill, which is very moderate, obviously. It's an attempt to phase in and reduce overhead costs to the Forest Service. But you can't support that either.
Ms. THOMPSON. I didn't say, sir, that I didn't support it. I am like you. Conceptually it sounds like it's a reasonable time frame and gives the Forest Service and not only the Department of Agriculture but the whole Government wide because the issue that you're dealing with here in overhead and defining those is a Government-wide issue.
Page 16 PREV PAGE TOP OF DOC And I've been in any number of meetings with all of the chief financial officers from all over the 24 major agencies. And we're trying to come to consensus of how to define these, but we have not arrived at that.
The CHAIRMAN. No. I understand. I understand. Exactly the issue that you've identified is the problem we have, you see. So the definition debate may go on forever.
Let me ask you, Mr. Pandolfi: What about this bill that absolutely flies in your face that you can't support?
Mr. PANDOLFI. What do you mean it flies in my face? I'm sorry. I didn't understand you. Would you repeat the question?
The CHAIRMAN. Yes. What is it about this bill that you so dislike you can't support it?
Mr. PANDOLFI. Well, the administration has not taken a position on the bill yet.
The CHAIRMAN. When do you plan to take a position?
Mr. PANDOLFI. I don't know.
The CHAIRMAN. I see.
Mr. PANDOLFI. But I would like to comment on a couple of your provisions if you'd like.
The CHAIRMAN. Well, we'd like to have your comment before we pass it out of committee. We'd like to have your indulgence. We'd like to have your active interest. And if we can make it better, we'd like to listen to you.
Mr. PANDOLFI. All right. I have a recommendation.
The CHAIRMAN. Good.
Mr. PANDOLFI. First of all, on the subject of the overhead on the four trust funds that you've indicated should go to zero, two comments about that. Number one, it's not reasonable to think that it doesn't take any money to administer the trust funds. And I doubt that that's what you had in mind. It does take administrative costs to some degree. I think perhaps there's more hereand you questioned me about that last timethan there should be. I can't get at what the correct number is, but, number one, it will cost something to administer these trust funds.
Page 17 PREV PAGE TOP OF DOC The CHAIRMAN. You just have to take them to the appropriation process. That's all.
Mr. PANDOLFI. And I think if we do that, we're much better off because
The CHAIRMAN. I agree.
Mr. PANDOLFI. But that should be an incremental appropriation. Otherwise you take it from other things that we use our money for.
The CHAIRMAN. That will depend upon your request for funding next year.
Mr. PANDOLFI. Okay. Well, I wanted to point
The CHAIRMAN. It's under your control, not ours.
Mr. PANDOLFI. All right. Well, in any case, that is one major concern I had, that there should be no one thinking here that it doesn't cost any money to administer.
The CHAIRMAN. Oh, of course not. That isn't the purpose. You know that.
Mr. STENHOLM. I'm curious as to your opinions as to what are some of the institutional biases that caused you to make the statement that you need more time now. And certainly I appreciate that. That's where you are making a good faith effort.
But what are some of the institutional biases of the Forestry Department that has created the problem, which you acknowledge is there but we have been unable, your predecessor, previous management has been unable, or unwillingnow, I don't want to put words in your mouth, but what are some of the institutional biases that you face that makes it difficult to do what you're now trying to do?
Page 18 PREV PAGE TOP OF DOC Mr. PANDOLFI. I think I have to ask Mr. Stewart to help me with that because I was
Mr. STENHOLM. I would like for all three of you to answer.
Mr. PANDOLFI. Fine. I'll start. I wasn't here. So I can only speculate. But you see how people think and what they say and so on and so forth. And I think that, frankly, many, many, many years ago, a decision was made to remove direct financial management from the Forest Service and to put itI mean, this was done probably 20 years before Ms. Thompson and I were here and probably at the very beginning of Mr. Stewart's tenure with the agency.
And I think when that decision was made and when the Department of Agriculture decided to take that away, I think people lost interest in financial management or that was the beginning of the period when people began to lose interest in it, Mr. Stenholm. I think that people say, ''Well, if you take it away from me, I guess you didn't trust me'' or whatever. I have no idea what the circumstances were at the time as to why that decision was made, but it disincentivized people to care about financial management. That's certainly one thing that I think historically goes right back to the beginning.
And then subsequent to that, I think it's very interesting. To me when I go into the field and I meet with people, which I do constantly, I find very dedicated people. But those people are dedicated to the land. And it's very, very difficult to take people who studied forestry or biology or archaeology and so on and so forth and explain to them the value of financial management if it's not been institutionalized in the agency. And it has not been.
I mean, there are a couple of things that occur to me that I think are relevant here and why it makes it so difficult to make change at this point because we've got to change that kind of thinking.
I think the way you change behavior is to try to give people incentives. And the incentive here is that if they'll pay attention to this and try to achieve better financial management, we can put a lot more money on the ground, which is what all of you and we want. And I'm trying to get that message across.
Page 19 PREV PAGE TOP OF DOC Ron or Sally?
Ms. THOMPSON. I guess I would certainly agree with those comments. Being a CPA by background, having spent 2530 years in financial management, I find that most people are interested in the program that they have to deliver.
When you've got a person fighting a forest fire, it's really hard for them to think about how they're going to charge their time. When you've got a forest ranger walking down a road in a forest, that time can be charged any number of different ways. And perhaps they do not see the overall big picture on how critical it is to make very accurate decisions on how to allocate that time.
And I think what has happened over the years as I look at all of those 2 million management codes, the decision becomes kind of overwhelming. And it's easy to stick that item or that cost in a few management codes and to use them over and over again. And that's what I was trying to refer to, Mr. Chairman, in the allocation of overhead, too.
There's a big education process that needs to take place out there in the field as to what the new financial management standards are plus the new focus on financial management. As I said, the major focus, whether it's in the Forest Service, whether it's in our food and nutrition services, whether it's in any inspection services, is that delivery of the services and not necessarily on how those costs are allocated. And that's what we need, some time to be able to educate these people. We need to get the right systems in place. But after we get them educated, they will be able to allocate them correctly.
Mr. STENHOLM. Mr. Stewart, any comment from you of the institutional biases?
Mr. STEWART. I think it's been covered fairly well, but let me just emphasize a couple of points. One is the people who are making the basic financial decisions were not trained in financial management, people like me, for instance.
Page 20 PREV PAGE TOP OF DOC And our concern has always been how many acres were going to be planted, how many acres harvested, how many recreational visits were going to be provided for, what condition the campgrounds were in. And we always dealt sort of at the macroeconomic level, if you will, the total number, without ever asking the detailed questions about what was behind those numbers.
And, in fact, I would say it was a combination between our own ignorance and perhapsand by not asking those questions, then not developing the skills in our financial people to provide that kind of information and at the same time probably not having the right skills in the financial arena that could take and analyze that kind of information.
So, for instance, other than the fact that we would be told that costs were going up, it was going to cost more the next year, and there were always reasonable explanations, such as increased rent costs or increased telephone costs or whatever they might be, I don't know that ever in my career we delved into what were those cost centers and asked those kinds of questions.
So I think it's a combination of skill levels and the kind of training of the people who are making those kinds of decisions. And the focus had always been on the resource management side.
Mr. STENHOLM. Is there any change as yet in recognizing, as you've just stated, that if you're going to plant more trees or you're going to do a better care of our parks, there's a budget and that perhaps there are ways at which you could spend your money in a little different way? That has to be now a part of the new institutional biases, I would hope.
Mr. STEWART. Mr. Stenholm, it's really interesting. Our agency is famous for having hard-pan layers and having directives coming down from Washington take many years to get to the field. I was at a field hearing a couple of weeks ago in Wenatchee, WAit happened to be on financial management. I went into the forest supervisor's office there, and I said: Do you have a financial management desk guide, as Mr. Pandolfi mentioned?
Page 21 PREV PAGE TOP OF DOC He said: ''Yes. Just a minute. I'll go get it for you.'' And he came walking back in with it. And he was familiar with it. I thought: This is a cultural change. This is a forester, a forest supervisor, who knew not only what the manual was, but where it was and what was in it.
And that happenedI don't know when you issued that, the desk guide, but not all that long ago. And it's already in use. That's a change.
Mr. PANDOLFI. Could I add one quick point, Mr. Chairman?
The CHAIRMAN. Please.
Mr. PANDOLFI. I don't want any of you to think that the institutional biases are serious. I don't believe that the task we have ahead of us is impossible, by no means. I believe we can do it, and I want to go on record as saying that.
And I think that we are seeing people now recognize the importance of financial management. The chief has underscored this at every single meeting of employees where I have been with him. He has said he believes, more than any other factor, it could bring the agency down if can't get it under control.
So I just want to say that, despite all the problems and whatnotand I have not gone through that plan in any detail. I think it would be boring to do it right now. But I'll tell you it goes to the heart of one thing that is critically important here. And that is to simplify, simplify, simplify. And we'll have done a lot of that by December 31.
The CHAIRMAN. Mr. Bryant.
Mr. BRYANT. Thank you, Mr. Chairman.
I want to welcome you again to this committee and ask Mr. Pandolfi how many financial managers did the Forest Service lose as a result of recent Government downsizing? And if you don't know, could you provide us with those numbers, both for the Washington office and by region, for this Committee?
Page 22 PREV PAGE TOP OF DOC Mr. PANDOLFI. Yes. I don't have that number here unless anyone behind me does and can pass it forward. I can tell you we downsized over the last several years to the tune of 1,500 people in four areas, Fiscal, Budget, Information Management, and Human Resources, 1,500 people. We can certainly find for you the number of thedo you want just fiscal or fiscal and budget?
Mr. BRYANT. Both.
Mr. PANDOLFI. Both. OK. We'd be happy to give you that number, and we can do it by region.
Mr. BRYANT. And, along the same line, would you also provide this committee with the number of forester and engineer positions that were lost over the same period of time?
Mr. PANDOLFI. Yes, sir. And I think that, just to clarify, we'll look at the last 5 years because I think that's the period of time of most of the downsizing activity.
Mr. BRYANT. Let me get back on the original subject of H.R. 4149. As I understand the testimony of the panel, you all agree that strict performance time lines should be established to bring about these reforms. As such, would you agree that the performance time lines established in this proposed H.R. 4149 would work? Why would you or why would you not?
Mr. PANDOLFI. Let me go to page 8 of the bill, where it talks about the implementation schedule for all resources reporting system. You have indicated there that you want that reporting system to begin no later than the first day of the second full fiscal year following the date of enactment of the act.
If the act were to be enacted prior to October 1, we could not meet the schedule. If it were enacted on October 2 or later, we can meet the schedule.
Mr. BRYANT. So I think you indicated maybe in the past that it would take 10 years to fix the financial problems. Would you agree that's too long?
Page 23 PREV PAGE TOP OF DOC Mr. PANDOLFI. Of course, it's too long, Congressman Bryant. You must see progress, and we must see progress well before that. This ten-year period of time has been mentioned several times in a number of hearings. And I think I know its genesis and I understand it. The genesis is that we have said on a number of occasions that when Jack Welch went to General Electric, he accomplished miracles, but it took him a decade to accomplish the miracles.
Also, the Inspector General has said that it would take 10 years to get where were belong. At the end of 10 years, we ought to be rocket scientists in financial management. We can show you progress a lot before that, but we can't do it overnight.
Mr. BRYANT. Thank you.
Do you agree that the off-budget funds should not be used as more or less slush funds and, rather, that these funds can be utilized to the maximum extent feasible for on-the-ground management?
Mr. PANDOLFI. Well, I'd ask Mr. Stewart to comment on that, but with the definition I have of slush, I sure wouldn't want to see them used as slush funds.
Mr. STEWART. I certainly agree with your second premise, and that is that whatever we do ought to maximize that amount of money that actually gets to planting trees or whatever the purpose of the fund is.
I will say I do differ on the first part, and that is that there are necessary charges. In other words, the people that are doing those jobs are occupying space. They're using telephones. They're using computers and so forth. And, therefore, our position has always been that they ought to pay and those funds ought to pay for those necessary costs of doing business. Whether you call those direct or indirect is a matter of definition.
Mr. BRYANT. Do you agree that these indirectI'll say indirectcosts associated with managing off-budget funds should be paid out of the annual appropriations? And why or why not would you agree with that?
Page 24 PREV PAGE TOP OF DOC Mr. STEWART. I think that's for Congress to determine. They have to be paid somewhere. I think I made that statement at our June 4 hearing. If you agree that you have to pay those, you're going to pay for them someplace.
And right now our position has been for quite a number of years that the benefitting function pays those costs. In this case, the benefitting function is a trust fund, and it would pay for those costs. But they've got to be paid for somewhere.
Mr. BRYANT. Do you find opportunities in this bill, H.R. 4149, that you can work with us in achieving these goals, the goals within the bill?
Mr. PANDOLFI. Yes, yes, I believe so. I believe that many, many, many of the provisions in this bill are exactly what we are trying to do right now. And, you know, as certain of the members know, I'm not experienced in the area of legislation and what the difference between the legislation and doing it ourselves and all of that is.
But the fact of the matter is you've got sections here and I've marked ''OK. OK. OK. OK.'' There are many, many sections here that are just fine to what we should be doing. It's smart, intelligent business management.
Mr. BRYANT. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Pombo.
Mr. POMBO. Thank you, Mr. Chairman. I just had a couple of questions.
Are you familiar with the amendment that we had last week to the Interior appropriations bill by my colleague from California, Mr. Miller, which prohibited the use of K-V funds for overhead?
Mr. STEWART. Yes. I am aware of it, not in great detail but, yes, I am aware of it.
Mr. POMBO. Did you support that amendment, that way of doing things?
Page 25 PREV PAGE TOP OF DOC Mr. STEWART. We did not take a position on it. We have not yet taken a position on it, I should say. The Department has not yet taken a position on it.
Mr. POMBO. You have not yet taken a position? The amendment was voted on last week. When would you intend on taking a position?
Mr. STEWART. What we had, we had submitted an effect statement, but the administration did not include a position with that.
Mr. POMBO. May I ask why?
Mr. STEWART. I am not sure why. I do know that we're continuing to analyze effects because if you look at the Miller amendment in conjunction with the effects of the amendment that was passed by Representative Chenoweth, there is a compounding influence there. And we're trying to figure out just exactly how that plays out in terms of effects. We're still in the process of doing that.
Mr. POMBO. I find it somewhat difficult to understand why you would not have issued a statement in opposition, listening to your testimony here today, your concerns that you have here today, why you would not take a position.
Mr. PANDOLFI. I, too, find it difficult to understand.
Mr. POMBO. Well, we'll leave that. Do you think that the overhead provisions in H.R. 4149 are more reasonable than the Miller amendment? Would they be more workable in your opinion?
Mr. PANDOLFI. Mr. Pombo, I don't think I understand the Miller amendment well enough to be very exacting about that, but I think what happened, as I understand it, the overhead goes away an awful lot faster in his amendment than it does in yours. And it's only in K-V, as opposed to all four funds.
So, as Mr. Stewart has said, we've got to find money to pay the bills, to administer those funds.
Page 26 PREV PAGE TOP OF DOC The CHAIRMAN. I might point out it eliminates the overhead.
Mr. POMBO. It ends it now; right?
Mr. PANDOLFI. Yes.
The CHAIRMAN. Totally.
Mr. PANDOLFI. I know that.
Mr. POMBO. So you would not have overhead out of the K-V fund?
Mr. PANDOLFI. Well, that's what his amendment says, and that's what your bill does after I think a 2-year period. It says that there would be no overhead charges.
The CHAIRMAN. No, no. Please let meexcuse me.
Mr. POMBO. That's not my understanding of the amendment.
The CHAIRMAN. Would the gentleman yield?
Mr. POMBO. Yes.
The CHAIRMAN. The point of the bill is simply that we, like you, want the Forest Service to be more transparent. So we're suggesting that the overhead from the five funds be granted through the appropriation process.
We're not asking you to end overhead. We understand you need overhead, but you don't need 27 percent. If you do, we've got a big problem if you're going to defend that. What we're asking here in the bill is to move you to a more transparent accounting system, which I think that's what you're trying to do, Mr. Pandolfi.
Mr. PANDOLFI. Yes.
The CHAIRMAN. I yield back to the gentleman.
Mr. POMBO. Go ahead and answer.
Mr. PANDOLFI. I think perhaps I misunderstood, but I didn't think there was any mention of going to appropriations here in this bill. But, as we discussed it this afternoon, that obviously makes a lot more sense.
Page 27 PREV PAGE TOP OF DOC Mr. POMBO. It is my understanding from what the chairman said earlier that the overhead would be done through the appropriations process, instead of a so-called off-budget process. It's my understanding of the way the Miller amendment would work is as part of the next fiscal year, there would not be an overhead fund.
Mr. PANDOLFI. Well, that doesn't make sense.
Mr. POMBO. No, it doesn't. And being one of the members that was fighting against that amendment along with most of the members of this Committee, I find it odd that in a situation like that, the administration would not issue a formal opposition to that. I don't know how you would run that particular fund, how you would operate without overhead money.
Mr. PANDOLFI. Well, Mr. Pombo, in my introductory remarks, I indicated I've been with the Forest Service for 18 months, and it took 15 months for me to become official in the position of chief operating officer. And maybe it's the same folks who tried to make me official who are trying to do the analysis on the bill. I don't know. I don't know the answers to your questions.
Mr. POMBO. Well, what they ought to do is they ought to give it to the people who oppose all of my legislation because they are right there. And as soon as I introduce it, they're on time. They're there.
In fact, I can draft an amendment on the floor. And before it hits the desk, there's an official position from the administration opposed to it. So I know they can work quickly if they want to. And I just find it off that in an instance like this on what I believe is a major policy change, a major fiscal change for the Forest Service that has done ad hoc on the floor during the appropriations process, that we get absolutely no help out of the Department or out of the administration. And I am concerned about that. But obviously you are as well.
But thank you, Mr. Chairman. I yield back.
Page 28 PREV PAGE TOP OF DOC The CHAIRMAN. Maybe, Mr. Pandolfi, you need to change folks. We'd like to help you.
Mr. PANDOLFI. I do like a lot of the folks I work with. I want you to know that. I mean, we've got a lot of really good people here.
The CHAIRMAN. Oh, I'm sure there are.
Mr. PANDOLFI. You know that, too. Present company included, right, especially.
The CHAIRMAN. Mr. Smith.
Mr. SMITH of Michigan. Well, just a follow-up. How are you going to accommodate overhead costs with the implementation of the Miller amendment?
Mr. STEWART. That's one of the things we're trying to analyze if it goes through. It's not clear that we can or that we can necessarily manage the fund.
One of the other things it does not account forand I believe, Mr. Chairman, your bill, too, doesn't deal with the GA issue. It's always been our interpretation that appropriation law only allows us to use the GA line item for appropriated funds. And it specifically lists in there what funds are available. So you wouldn't even be able to make up for some of the shortfall by using GA to deal with the lack of being
Mr. SMITH of Michigan. That's why I just can't understand either, like Mr. Pombo, why you wouldn't say, ''Well, wait a minute. We've got to figure this out.''
Mr. Pandolfi, who is ultimately responsible for improving the Forest Service data: the Forest Service or USDA?
Mr. PANDOLFI. Well, I think it's very much a joint procedure. I'd ask Ms. Thompson to comment as well, but I think that we are very much in partnership on that.
Mr. SMITH of Michigan. Ms. Thompson, go ahead.
Page 29 PREV PAGE TOP OF DOC Ms. THOMPSON. Right.
Mr. SMITH of Michigan.What's your assessment?
Ms. THOMPSON. If you think of the data, it has several different parts before it comes out in a report; first of all, the individuals who create the data, whether that's a forester walking down a road and then coming back and somebody allocates it. So you've got data going into a system that then gets fed into an integrated system that we're working on the Department
Mr. SMITH of Michigan. The Department is working on?
Ms. THOMPSON. Yes, right. But we have to get the data from the Forest Service people, both the people that created the expenditure, if you would, and their financial management people that helped put it into the system.
Mr. SMITH of Michigan. And so I guess the bottom line is: When can we, when can Congress, expect a fix to the problem?
Ms. THOMPSON. With the new processes and the new team I brought on board, we have a plan that will be not only finalized but certainly in a great deal more detail over the next few months. They just came on board the middle of July. But our plan and what they're working towards is to get the rest of the Forest Service up on this new system October 1, 1999.
Mr. SMITH of Michigan. When was your last meeting with the IG? Am I correct in my understanding the Inspector General is not comfortable with your progress so far?
Ms. THOMPSON. We meet with the IGs, would you believe, daily. He's right around the corner from me. And I am meeting with somebody on his staff almost every day from trying to put together financial statements, putting a plan together for the fiscal year 1998 to close out the year and where the Forest Service will be, where the rest of the Department will be.
Page 30 PREV PAGE TOP OF DOC I think that they're getting more comfortable, certainly with all of the pieces that we've put in place in the last 4 or 5 months that Francis and I have been working in the Forest Service, been working together very, very closely.
It's a very complex system, as you might imagine, for the whole Department as we're looking at it as a whole. We've got to make sure that it's going to incorporate all of the standards, new standards, that keep coming out almost every few months. But we're comfortable that we got again a plan that is starting to materialize that both Francis and I and the rest of the Department, including the IG, can depend upon materializing and producing reliable, accurate, and timely reporting.
Mr. SMITH of Michigan. You had a comment, Mr. Pandolfi?
Mr. PANDOLFI. Yes. You're correct that the IG has expressed concern. In testimony that he gave, I believe, in California or Wenatchee on July 9 of this year, his concluding comment was ''The foundation has been laid to correct these massive problems. Much work remains, however, but all components are in place or are being brought into place that can result in strong financial management for the Forest Service.'' That was his comment. And I think that the concern that we all have is that we are operating in areas that people haven't been in before.
We're trying to create a system that works in many other Government agencies, trying to apply it to the Forest Service. And there are new and different things that happen here. So I guess that's probably the form of concern that you relate to or refer to. But, yes, he did make that statement.
Mr. SMITH of Michigan. But somehow in your final comments, if Congress doesn't legislate a time line for reporting, what is going to be the catalyst in terms of improving the reporting system on all resources?
Mr. PANDOLFI. We want this thing to work. I don't know what otherI mean, you know, there are new people here. There are a number of new people working with very dedicated people who have been here before. And we want this thing to work, Mr. Smith.
Page 31 PREV PAGE TOP OF DOC I mean, I came from the private sector. I spent 30 years in the private sector. I didn't come here to fail in this thing, and I didn't come here to spend 10 years doing it either. And I suspect the same is true for Ms. Thompson.
Ms. THOMPSON. Right. I would say that
Mr. PANDOLFI. I don't have anything else to say to you.
Ms. THOMPSON. We are sending a report to OMB and to the Vice President that will go up there tomorrow that's going through its final sign-off that, again, outlines overall Department-wide how we will get to an unqualified financial opinion on our financial statements. And it has in it a fiscal year 2000.
Mr. PANDOLFI. May I add that this is not just hope, that by Labor Day or sometime in the month of September, we will have eliminated a process, a financial accounting process, called retroactive redistribution, which I won't go into detail on but was referred to by Coopers and Lybrand in their report as ''cooking the books.'' We will have replaced that. It's been in use for 15 years. And we're replacing it in a 60-day period.
We're reducing the number of management codes dramatically, Mr. Smith. We are reducing our number of work activity codes. I know I'm using a lot of jargon, but it's the only way I can possibly tell you that we are making solid progress right now.
And the Office of Inspector General has said to us, in addition to what I just read to you, that they feel that the quality of our input data now is far, far superior to what it ever has been before.
So I think what I'm saying is, hey, look, we're making these accomplishments. And I'm telling you that you've got some dedicated senior managers here who want very much to see this thing work. And in the past, I think the goals and objectives were different.
Mr. SMITH of Michigan. Well, your comments sound good.
Page 32 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
The CHAIRMAN. Before I recognize Mr. Johnson, Mr. Stewart, will you provide the committee with the capability statement on the Miller amendment? Do you have it?
Mr. STEWART. I don't have it with me, but we could do that, the effects statement.
The CHAIRMAN. The effects statement. This is not it. I want the one with the transfer of funds. We have it somewhere. Find it for me, will you? We have an impact statement, I believe, from the Forest Service on the Miller amendment. And I wanted to question you about that. But we'll find it, and then I'll do that.
Mr. JOHNSON. Thank you, Mr. Chairman. I'm sorry. I apologize for being late.
I really don't have a lot of questions. I am trying to get more input on this, and I have submitted some information about the proposed bill and legislation to folks. And I think we do have some differences in some of the Eastern forests and Western forests. In our little forest in Wisconsin, we haven't had some of the problems and some of the management problems.
I do want toand I'm sorry I missed some of the testimony today, but I do want to commend Mr. Pandolfi for the work that he's done in the short time moving in the right direction I think that this legislation is aimed at.
My one concern is that we don't overburden and try to micromanage when we're trying to move ahead, but I think the feedback initially I've been getting is that there have been about 5 years of some lack of direction and, all of a sudden, to get up to speed and take new direction in a few months. And I find a promise of even some new direction and seeing some new changes by Labor Day very encouraging. So I'm pleased with that.
Page 33 PREV PAGE TOP OF DOC I look forward to working with you, getting the feedback. But so far I'm getting some positive feedback. What you're doing here in Washington is being heard out in the field. And they at least know there is direction being taken in the area of accountability. And that's good.
With that, I guess I really don't have any questions. Back to you, Mr. Chairman.
The CHAIRMAN. I thank the gentleman. I wanted to pick up on the point, Ms. Thompson, that you mentioned regarding incentives. I think we understand the problem of the data issue, but it's all too obvious to me and I think to others that we have an excuse item here.
It's either going to be the Forest Service that identifies the proper data or the USDA, and we can't be hopping between the two to blame each other for data that is not current. Nor is it reliable.
So please tell me how you plan to manage the question of reliable data, Mr. Pandolfi, because you're ultimately the one responsible here.
Mr. PANDOLFI. Well, I think the only way I can answer your question is to say that data input has been considerably improved. I cannot tell you today that it's 100 percent, but, boy, believe me, it's a lot better than it was even 6 months ago. We're almost where we need to be there. And, again, as I've said several times this afternoon, the IG has confirmed that fact. So that's data input.
Now, in the overall scheme of things, data goes into the black box. And then management reports come out. Now, one of the things that has happened, we control in the field that data coming into the box.
We are working together with Ms. Thompson and the team at the Department of Agriculture to try to get the box to work. Once the box works, then out the other end come the reports. We've designed those reports. As a result of the Coopers and Lybrand task force and the subsequent employee group that worked on this, we have designed what we call a starter kit of simple, easy-to-use management reports that will help our people in the field to make better decisions, which is what this thing is all about.
Page 34 PREV PAGE TOP OF DOC Now, what we need to do is we need to get the box to work.
The CHAIRMAN. Are you in charge?
Mr. PANDOLFI. No, I am not. I am a part of
The CHAIRMAN. Who is in charge? Are you in charge, Ms. Thompson?
Ms. THOMPSON. The CFO Act holds me accountable and responsible for financial management.
The CHAIRMAN. Well, I'm just trying to find out who is running the program.
Ms. THOMPSON. Right.
The CHAIRMAN. If Mr. Pandolfi isn't running it, how in the world can it happen? Who is managing the system? Who is seeking all of the reliable data? Who is in charge? Underneath God and prayer, who is?
Ms. THOMPSON. Probably the Secretary is, Mr. Chairman. He is held accountable for the Department of Agriculture. He is held accountable for the consolidated financial statements and the opinion thereon.
The CHAIRMAN. All right.
Ms. THOMPSON. And when you say ''Is it the Forest Service?''; well, certainly the Forest Service is part of the Department of Agriculture. And if we can't get, for instance, an unqualified opinion on their financial statements, we cannot get an unqualified opinion on the consolidated financial systems and reports of the Department of Agriculture. If we can't get an unqualified opinion on the Department of Agriculture, we cannot get an unqualified opinion on the Government-wide financial system.
The CHAIRMAN. I understand the difficulty. And it's obvious I think to anybody that it's so categorized it's very difficult to cross lines.
Page 35 PREV PAGE TOP OF DOC Let me ask you, Mr. Pandolfi: Are you moving towards a ''all resources,'' financial reporting system?
Mr. PANDOLFI. Yes, Mr. Chairman. And I personally and I think the Forest Service all think it's a terrific system. It's what we use in the private sector. It will get us a lot of good decisions out of Forest Service managers.
The CHAIRMAN. That's in this bill, as you know.
Mr. PANDOLFI. Yes, it is, sir. It's a good idea.
The CHAIRMAN. The bill, Mr. Pandolfi, establishes a schedule for eliminating the use of off-budget funds for overhead, unlike your analysis. What is wrong with that idea that no longer should the off-budget funds, which there are five categories, have identifiableand that's why the slush fund idea is used because it's kind of intermingled. It's very difficult for you or anybody else to identify. That's why it's hard to identify what is overhead, because we've never been able to get a hold of it.
Mr. PANDOLFI. Right.
The CHAIRMAN. Why not move the off-budget overhead to a sustainable program requested by the Forest Service and go before the appropriations process? What's wrong with that?
Mr. PANDOLFI. The only thing, what I think is wrong with that, Mr. Chairman, that was one of the points that I said I think is a weakness in the bill is that this is very much the same as in the private sector where we try to match costs with the revenues that they produce.
In this case, we should be matching costs with the benefits of the program that you are describing. I just think it's bad management to disassociate a set of costs from a program to which they belong and make it seem that another program has a higher rate of overhead because I don't think we can manage well that way.
Page 36 PREV PAGE TOP OF DOC The CHAIRMAN. Can you sit there and support and defend 27 percent overhead?
Mr. PANDOLFI. No, no, I can't
The CHAIRMAN. Of course, you can't.
Mr. PANDOLFI. Of course not. I had said that to you last time, Mr. Chairman.
The CHAIRMAN. Well, what can you defend? Ten?
Mr. PANDOLFI. No.
The CHAIRMAN. Five?
Mr. PANDOLFI. Well, I answered that, too. And I would have to give you the same answer.
The CHAIRMAN. And my point simply to you is that: Why don't you go to the appropriations process, where all you have to do is argue with them and defend your position? And that takes us all off the hook, you, we, the public.
Mr. PANDOLFI. Right.
The CHAIRMAN. So that a group of people who are in the process of appropriating money understand these systems.
Mr. PANDOLFI. Right.
The CHAIRMAN. And you would have a fair hearing. What's wrong with that?
Mr. PANDOLFI. No. There's nothing wrong with that, Mr. Chairman.
The CHAIRMAN. Okay.
Mr. PANDOLFI. I must qualify that, though, to say to you that in order to do that, I need to have better information than I have because
Page 37 PREV PAGE TOP OF DOC The CHAIRMAN. Oh, you will have. This is not this year.
Mr. PANDOLFI. No. I know that.
The CHAIRMAN. This is next year. And we'll change it October 2nd. That's already done. I marked it down. Done. And, look, we're asking for a 5-year strategic plan. Is that wrong?
Mr. PANDOLFI. No, sir.
The CHAIRMAN. Okay.
Mr. PANDOLFI. It's good.
The CHAIRMAN. Okay. Now, I understand
Mr. PANDOLFI. In fact, we canyes. It's good.
The CHAIRMAN. I understand how sensitive the Forest Service is to third party audits. You say: Well, we don't like that. You're working with the IG. We've said here that the GAO ought to merely assess if you're achieving the results that you have stated. What's wrong with that? Nothing?
Mr. PANDOLFI. Nothing.
The CHAIRMAN. I see. Well, it's pretty hard for me to find anything wrong with this bill. I'm looking. Mr. Goodlatte may. Mr. Blunt was here. Then I'll ask for Mr. Goodlatte.
Mr. BLUNT. I have no questions.
The CHAIRMAN. Mr. Goodlatte.
Mr. GOODLATTE. Mr. Chairman, I will pass for the moment as well.
The CHAIRMAN. Mr. Goode.
Mr. GOODE. And I will apologize for not being in here for the full length of your testimony. You may have stated this: Do you support or do you not support the chairman's bill, H.R. 4149?
Page 38 PREV PAGE TOP OF DOC Mr. PANDOLFI. We have not yet taken a position on that.
Mr. GOODE. I heard what Mr. Pombo said about the Miller amendment. And you haven't taken a position on that?
Mr. PANDOLFI. No, sir, we haven't.
Mr. GOODE. Are you just going to wait until everything happens and make up your mind?
No more questions.
The CHAIRMAN. Well, the point the gentleman from Virginia makes is accurate. I have before me now, Mr. Stewart, the piece of paper sent out from the Forest Service about the impact of the Miller amendment. Just listen to this. I mean, again, I want to review it for you. It means that you have to reduce program accomplishment in these areas: forest land vegetation management, reforestation, $20 million, $20 1/2 million, over 45,000 acres; by the way, 75 percent of the total you had planned for the whole year; timber sand improvement, $10.7 million, 42,000 acres, 58 percent of the total that you had planned all year long; wildlife habitat management, $4.9 million, 30,000 acres; inland fisheries habitat management, 1.2 million; anadrivous fish, 1.6 million; threatened endangered species, .4; watershed improvement, 2.8. And we can't get you folks to oppose it, and we're standing there naked, alone, the last friends you have leftand maybe there are not many of thosetrying to defend the Forest Service. And you're moving funds like this destroying on-the-ground programs. Now, that is hard for me to believe that you could do that.
Now, would you say, Mr. Stewart, that you oppose the Miller amendment?
Mr. STEWART. Are you asking me personally or are you asking me
The CHAIRMAN. No. I'm asking your agency through you.
Mr. STEWART. Well, you can't
Page 39 PREV PAGE TOP OF DOC The CHAIRMAN. Are you going to say that you have not stated a position?
Mr. STEWART. Mr. Chairman, you know that it's the administration's position, which they have not taken. And I don't know what their position will be. We're still in discussion with them.
The CHAIRMAN. Well, I know.
Mr. STEWART. You ask me personally, and I don't like the impacts.
The CHAIRMAN. Goodness gracious. Such a system. Isn't it awful? It really is awful, pathetic.
How about you, Ms. Thompson? Do you oppose the Miller amendment?
Ms. THOMPSON. Very much so conceptually, but I can't speak for the administration. They have not taken a position on it.
The CHAIRMAN. Mr. Pandolfi, we're going to mark-up this bill next week. Do you think you could have your thoughts up here by that point, that time?
Mr. PANDOLFI. It's our intent to do that.
The CHAIRMAN. It will take you about 20 minutes to read it. Well, we look forward to hearing from you by next week. Thank you all for testifying.
Mr. PANDOLFI. Thank you.
Ms. THOMPSON. Thank you.
The CHAIRMAN. The next panel willI understand Mr. Dave Schmidt, the chairman of the Linn County, OR Board of Commissioners, Albany, OR, has to leave. So we're going to ask Mr. Schmidt to come up with the gentlemen, Mr. Schatz, Mr. Schlecht, and Mr. Hodge, please.
Mr. Schmidt, welcome. Since I understand you have to leave early, we're going to ask you for your testimony.
Page 40 PREV PAGE TOP OF DOC Welcome.
STATEMENT OF DAVE SCHMIDT, CHAIRMAN, LINN COUNTY, OREGON BOARD OF COMMISSIONERS
Mr. SCHMIDT. Mr. Chairman, thanks for this special dispensation in terms of time.
And, members of the committee, my name is Dave Schmidt. And I'm here today representing the National Association of Counties, which we'll call NACo. I'm a county commissioner in Linn County, OR, as you have mentioned. I have served as NACo's Public Lands Steering Committee Chair and the president of its Western Interstate Region. I am a professional forester by training and own several tree farms. So I am familiar with forest management, practices, costs, and techniques.
I will summarize my remarks and request that the full text of my statement be included in the hearing record.
The CHAIRMAN. Without objection, so ordered.
Mr. SCHMIDT. Thank you.
We appreciate the opportunity to testify on H.R. 4149, the Forest Service Cost Reduction and Accountability Act of 1998.
Many people over the years have asked rhetorically: Why are counties interested in timber management activities? There are very few county governments that manage forest resources. While this is true, counties do have a critical stake in the outcomes of quality management of our national forests because quality of life and the economies of hundreds of counties across the country are dependent on the goods and services that flow from our national forests. Jobs, families, businesses, schools, infrastructure, and community stability all are dependent on good stewardship.
At the outset, want to make absolutely clear that we are not here to be Forest Service bashers. NACo and its member counties have forged a much improved relationship over the past few years. But, like all relationships, we must have the capacity and the will to find improved ways of accomplishing the mission of the Forest Service. We believe the Forest Service must be accountable to itself and the general public.
Page 41 PREV PAGE TOP OF DOC NACo and its policy committees have stressed the need to substantially increase our forest health activities to assure the long-term sustainability of our forest resource. The off-budget funds addressed by H.R. 4149 are used in connection with the very activities we believe are critical.
Even though Forest Service administrative costs have ballooned as a result of judicially imposed legal and planning costs, each dollar used for general administrative overhead is one that cannot be used for on-the-ground activities for good science-based resource management. The Comptroller General has documented the extent of overhead increases in recent years, and we believe the proportion of overhead expenses has risen to levels that hinder the delivery of goods and services from and in our national forests.
We understand and support some of the activities normally charged to overhead, such as community involvement efforts, but we must keep these costs to a minimum. It is for this Committee and Congress, working with the Forest Service, to decide the appropriate level for overhead in these off-budget accounts, but we believe they should be reduced substantially.
Speaking directly to the provisions of H.R. 4149, Mr. Chairman, we believe the establishment of an accounting system that conforms to Generally Accepted Accounting Principles is essential to understand the true costs associated with the management of these programs. County officials must meet these requirements each and every day.
The all resources reporting system, required by H.R. 4149, could provide the Forest Service a much clearer picture of the allocation of its costs but could also give counties and other affected stakeholders a better understanding of what financial resources go into sustainable forest practices and forest health-related management activities and, as a secondary effect, could help quell misunderstanding and some of the stridency of the debate over below-cost timber sales.
Forest Service Chief Mike Dombeck has spoken of the need to move to a science-based management regime for our national forests, managing them for resource values, rather than for timber production. The Forest Service must know its costs before embarking on an aggressive fundamental change in philosophy because otherwise financial resources will be consumed by unrelated business activities and general overhead that will undermine their well-intentioned efforts.
Page 42 PREV PAGE TOP OF DOC When setting limitations on costs charged to off-budget funds, noted in section 5, we would recommend that Congress work with the Forest Service in establishing time frames that would not hinder the appropriate management and utilization of resources. This problem needs to be resolved but not at the expense of the needs of the national forests.
Section 7 contemplates the development of a cost reduction strategic plan within 180 days of enactment of H.R. 4149. Our concern about such a plan is that it should not include strategies that reduce on-the-ground activities, particularly as they relate to forest health measures that are already suffering from far too little attention and far too few resources. These strategies must not undermine the reasonable and sustainable utilization of resources from our national forests.
Section 7 also has substantial reporting requirements. Any such reporting should include easily understandable summaries for all affected stakeholders and general public to access and comment upon. The Federal Register is not the place to provide such information.
Mr. Chairman, the National Association of Counties believes that you are on the right track with this legislation. We understand the need to allocate overhead expenditures under generally accepted cost accounting procedures. However, these costs must not be allowed to grow further and should be rolled back to defensible levels while protecting the health and future of our sustainable forest resource.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Schmidt appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Commissioner. And you're excused at any time that you feel necessary to go. I appreciate you coming and thank you for your testimony.
Mr. SCHMIDT. All right. It's always good to be here.
The CHAIRMAN.Mr. Schatz is president of the Citizens Against Government Waste in Washington.
Page 43 PREV PAGE TOP OF DOC Welcome, Mr. Schatz.
STATEMENT OF THOMAS A. SCHATZ, PRESIDENT, CITIZENS AGAINST GOVERNMENT WASTE
Mr. SCHATZ. Thank you very much, Mr. Chairman. And I want to congratulate you for having six hearings and hopefully more on the oversight of the Forest Service. Obviously that has been very important in making the point that you have been trying to make, which is that this is a critical matter.
I see no cameras here. This is not always an exciting issue. But what you are doing and what has been contemplated by the Chief Financial Officers Act, the Government Performance and Results Act, and the amendments that were recently approved to that really make a big difference in how taxpayers will be able to find out what's going on with their money.
I think it's also important to communicate it the way that you have, which is that better financial management is meant to help these agencies. You didn't talk about eliminating programs. You didn't talk about wiping out whole departments.
There are various functions of the Federal Government that are extremely important and useful. And the best way to get them done effectively is to bring in financial management experts and to get people to pay attention to how the money is being managed. It happens in the private sector. It happens on occasion in the Federal Government. But anyone can really understand and get these principles down and appreciate what needs to be done.
So we certainly agree with what you're trying to do in this legislation. We think it is very consistent with the Government Performance and Results Act. Many of the problems came to light because of your oversight and also because of all of these various pieces of legislation, GAO reports, watchdog groups, and certainly the interest of many of the people here on Capitol Hill.
I would point out, by the way, that I think the earliest time it was attempted to find out how many planes were owned by the Forest Service, Ed Madigan was Secretary of Agriculture, and that was 1989. And we still don't have an answer.
Page 44 PREV PAGE TOP OF DOC The CHAIRMAN. If the gentleman would yield, that's exactly correct. A dear friend, Ed Madigan, deceased, Secretary of Agriculture. And during his time, he was trying to find out how many airplanes they owned, and he couldn't do it. You're absolutely correct.
Mr. SCHATZ. I want to thank John Frydenlund, who was working there at the time, who was well-aware of that as well.
Providing reliable data is a very important part of what you have put into H.R. 4149. The all resources information and financial system will be very helpful. Simply requiring an agency to account annually for its costs seems to be very fundamental.
Imposing limitations on overhead is also extremely important. I think moving this over to the appropriations process is a wise idea. When you look at the information that was in the General Accounting Office's written statement about how much overhead has been put in, there's a wide variance. In fact, in 1993, the Forest Service managed out of the reforestation trust fund with a 0.82 percent overhead. Now it's 21.4 percent.
Clearly it can be done. If you look at, for example, the Social Security Trust Fund, it's managed with very little overhead. It's possible. And if the bill gets passed, it's not just a matter of what it says. It's a matter of continual oversight. And we hope that your successor is as interested in this as you have seemed to be because it is an extremely important effort.
As to outside taxpayer groups, we appreciate being invited today with other groups that we work with very closely. We will continue to monitor this and report on it. But, however many reports are filed, audits are conducted and if they are put on a shelf and ignored, then the work does not get done.
There was some discussion of incentives to achieve the goals. I think Mr. Pandolfi's approach of informing people that those activities will receive less money unless these management systems are fixed is a good approach.
Page 45 PREV PAGE TOP OF DOC There's also the question of accountability. You asked a very appropriate question: Who was in charge? And the answer, unfortunately, as is typical with a lot of agencies, is: I don't know. Maybe it's him. Maybe it's her. Maybe it's someone at the top. That has to be made very clear, and someone has to be held accountable once you determine who is accountable.
Congressman Neumann has legislation on which I testified before Congressman Horn's subcommittee that would actually get rid of people if they don't produce audited financial statements by the middle of next year.
Someone protested that's not enough time. Well, the Chief Financial Officers Act has been in effect since 1990. If you're in the private sector, you don't even get that long. I think there's a needed incentive on the other side so that people understand that not only are their funds on the line, but their jobs are on the line.
Someone then brought up the fact that: Well, we have to make our computers compliant with the year 2000. So I said: Well, then if those people can't make the computers compliant, get rid of them.
This is an everyday fact of life. And under our Civil Service system, that's hard to do. But it is something to contemplate as an oversight committee in talking with your other colleagues in terms of changing how things work, because ultimately that does have an impact on how people think and work.
I appreciate again the opportunity to testify. I ask that my statement be placed in the record. I had one minor error, which your staff pointed out to me, which I would appreciate changing before it becomes part of the permanent record.
And, again, thank you for inviting us.
[The prepared statement of Mr. Schatz appears at the conclusion of the hearing.]
The CHAIRMAN. And thank you, Mr. Schatz. And, without objection, your statement will be made a part of the record.
Page 46 PREV PAGE TOP OF DOC Mr. Eric Schlecht is the director of congressional relations of the National Taxpayers Union.
STATEMENT OF ERIC V. SCHLECHT, DIRECTOR, CONGRESSIONAL RELATIONS, NATIONAL TAXPAYERS UNION
Mr. SCHLECHT. Thank you, sir. Let me begin by thanking you, Mr. Chairman and members of the committee, for inviting me to testify today. It is indeed an honor to appear before you as part of such a distinguished panel.
As said, my name is Eric Schlecht. And I am director of congressional relations for the National Taxpayers Union, a Nationwide grassroots lobbying organization of taxpayers with 300,000 members.
I come before you today to voice our support for H.R. 4149, the Forest Service Reduction and Fiscal Accountability Act of 1998. With taxes at an all-time high and the era of big Government clearly not over, NTU applauds this as a first step in reining in the wasteful spending and egregious mismanagement that currently exists within the Forest Service.
For several years, the American taxpayer has watched as the U.S. economy has continued to expand, due in large part to their continued hard work. Yet, instead of being rewarded with significant tax relief, they have been ignored while millions of their tax dollars are squandered on wasteful Government agencies, like the Forest Service.
As you know, the Forest Service is mired in a serious fiscal crisis. Mismanagement and lack of accountability are the norm. And the possibilities of waste, fraud, and abuse within the agency's contracting activities are all dangerously high.
I doubt, however, that a majority of Americans realize how bad things are at the Forest Service. Generally speaking, the GAO has determined that the Forest Service had significant reporting errors in its financial statements. And the records that support those statements could not demonstrate that its policies and procedures adequately safeguarded assets from unauthorized acquisition, use, or disposition and lacked financial systems that could accurately track revenues and costs.
Page 47 PREV PAGE TOP OF DOC More specifically, the GAO has discovered that an estimated $45 million due to the Forest Service from other Federal agencies for reimbursable services provided was double-counted on the Forest Service's financial records.
Additionally, $7.8 billion in property, plant, and equipment reported by the Forest Service was erroneous because records for these assets were not consistently prepared, regularly updated, or supported by adequate documentation. Therefore, Congress had no reliable method to assure that the Forest Service requests for additional funds, supposedly needed to construct new roads and buildings and acquire new equipment, were actually warranted.
Additionally, two of the six Forest Service offices that the GAO visited did not have acquisition plans for fiscal year 1996, as required by Federal regulations.
And the Forest Service has made little or no headway in adopting three federally mandated practices that incorporate performance factors into the contracting processes.
Finally, as you have noted, Mr. Chairman, overhead costs in the Forest Service's so-called five funds increased significantly between 1993 and 1997. In fact, the GAO has found that due to these increases in overhead costs, indirect expenditures as a percentage of total expenditures, has increased from 16 percent to 27 percent during that time period.
Any objective review of the facts can only lead to the conclusion that the Forest Service is in desperate need of reform. H.R. 4149 begins that reform by requiring all resources financial reporting, limiting overhead costs, requiring further GAO audits of the Forest Service, and requiring a 5-year strategic plan to identify and reduce overhead and unnecessary costs.
The National Taxpayers Union believes, Mr. Chairman, that H.R. 4149 is just a beginning, however. Far greater steps will need to be taken if true fiscal responsibility is to be achieved at the Forest Service.
For instance, we would have preferred more stringent enforcement mechanisms included in the legislation. For example, Congress could require the Forest Service's annual appropriations be reduced by the amount GAO determines to have been wasted or unaccounted for in the previous fiscal year.
Page 48 PREV PAGE TOP OF DOC Additionally, we believe a 2-year time limit for self-reform is more appropriate than the current 5 years. Few, if any, corporate CEOs would be given 5 years to stop such waste and abuse in their corporations. Why should taxpayers' money be treated any less valuably?
In conclusion, Mr. Chairman, it is our hope that this merely marks the beginning of a comprehensive review of the Forest Service. For instance, many believe that mission creep and years of big Government mentality have expanded its jurisdiction into areas that are unwarranted.
The Organic Administration Act of 1897 clearly gives the Forest Service a narrowly defined and limited mandate. In the act, Congress clearly limits the Service's duties to those of ''securing favorable conditions of water flows and to furnish a continuous supply of timber for the use and necessities of citizens of the United States.'' A thorough review of all Forest Service should be undertaken to determine what functions of the Service could be more efficiently delivered at the State and local levels or by the private sector.
We would also suggest a serious review of the many levels of bureaucracy continued within the Forest Service. In addition to the Forest Service's national office located here in Washington, DC, it also has nine regional offices and 155 national forests, each with their own ranger districts. Isn't it time that we ask ourselves if it is really necessary to have all of these levels of bureaucracy, Mr. Chairman?
So while I am pleased to appear here before you today, it is our hope that we can return to this distinguished committee in the near future to discuss deeper reforms of the Forest Service.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Schlecht appears at the conclusion of the hearing.]
Page 49 PREV PAGE TOP OF DOC The CHAIRMAN. I thank the gentleman. Mr. Scott Hodge is with us, who is the senior fellow for tax and budget policy for the Citizens for a Sound Economy.
STATEMENT OF SCOTT A. HODGE, SENIOR FELLOW FOR TAX AND BUDGET POLICY, CITIZENS FOR A SOUND ECONOMY FOUNDATION
Mr. HODGE. Thank you, Mr. Chairman and members of the committee.
I would like to express my agreement with the sentiments of my colleagues here and our appreciation for the committee taking this issue so seriously.
For far too long, the Forest Service has been really getting a pass in being held accountable for its financial mismanagement. And I truly hope that this legislation is the stick that the Forest Service needs to be held fiscally accountable and ultimately to put its financial house in order.
Unfortunately, I'm not as optimistic as some of my colleagues and others. I think based on the agency's long history of financial mismanagement and based on the testimony that we heard from the Forest Service today, I suspect that you and your colleagues in the future will have to revisit this issue and consider even tougher measures.
I agree with the sentiments expressed by the Senate Interior Appropriations Subcommittee when they said the agency has repeatedly operated with indifference to the intent of Congress regarding accountability and program delivery.
The General Accounting Office has said much the same thing, that inefficiency, waste, and waste within the agency's decision-making process have cost taxpayers hundreds of millions of dollars. And underlying this condition is an organizational culture of indifference, once again, toward the accountability of expenditures and a failure to hold the agency accountable for making timely, orderly, and cost-effective decisions.
Page 50 PREV PAGE TOP OF DOC My colleague, Mr. Schlecht, has outlined a number of the indiscretions and transgressions that the General Accounting Office has found. Of course, this is the fifth year in a row that the Inspector General has been unable to deliver a favorable report on the Forest Service books.
As we know, the last audit couldn't find 7 or 8 billion dollars worth of property, plant, and equipment in sound order. And it's because of these problems that we're going to have to continue to put the burden on Forest Service to comply with simple and basic accounting standards and practices that, as Tom mentioned, were put into place in the 1990 Chief Financial Officers Act and, once again, in the 1993 GPRA Act.
I have a few suggestions that I'd like to offer up as we go ahead and consider this legislation that perhaps might strengthen it. First, link sanctions to the agency's failure to meet its performance standards. I wholeheartedly agree with the intent of this bill, but I think sanctions must be linked to the performance.
Earlier this year, some lawmakers have suggested bringing in or creating an independent control board if the agency fails to live up to these standards. This might be an option to link to your legislation. If they fail to meet their timetables, they will have a dead certain date in which they know if they don't meet it, someone else would be brought in to take over for their mismanagement.
Next I think you ought to seriously consider holding hearings, looking at alternative ways of delivering these services and managing the Forest Service, whether it's a control board, merging the Forest Service into another cabinet agency. The first studies done merging BLM and Forest Service were done I think in 1901 and have been bantered about ever since. This ought to be considered as well.
Third, perhaps transferring Forest Service management down to the States. GAO And others have found that the States do a far more efficient and effective job of doing this. Unless the committee actually takes some of these things seriously, I don't think the agency itself based on their track record will take it seriously either.
Page 51 PREV PAGE TOP OF DOC I would agree that off-budget items should be put back on budget. You know, it's the old saying, ''Out of sight, out of mind.'' And too much gimmickry can take place.
I think, really, ultimately the most important thing is to hold someone accountable, as Mr. Schatz has mentioned. It's cliche, but if a private company were run like this, how many years in prison would the directors get? And I think taxpayers, like shareholders of a private company, have a right to expect certain performance standards be held by the chief financial officer of that agency.
And the question we have to ask, has anybody been fired for 8 years of this kind of mismanagement? I don't know the answer to that, but I suspect that it's not happened.
And so I think we should consider perhaps shortening the deadlines, rather than lengthening them, within the bill. The CFO Act and the Results Act have given the agency plenty of time, and they still have not complied. I would hate to give it an extension, if you will, through another three or 5-year window in which to get their act together.
And, lastly, I would like to address the issue of privatization. I really think privatization is one of the key areas, key aspects of getting at the root cause of cost of Government performance. Privatization helps us identify the full cost of Government's services. But, unfortunately, this agency based on a track record is going to need some help in privatization. Perhaps we need to privatize the privatization service or, if you will, within the agency, bringing in an outside accounting firm to help in that effort.
But the bottom line is that the Forest Service really is in financial ruin. If the agency were a private corporation, it would be in chapter 11. Its officers would be off to some probably minimum security prison and facing severe sanctions. And I hope that this legislation was the beginning of holding this agency accountable for our tax dollars.
I'd like my full statement entered in the record, if you could and I look forward to answering any questions.
Page 52 PREV PAGE TOP OF DOC [The prepared statement of Mr. Hodge appears at the conclusion of the hearing.]
The CHAIRMAN. Without objection. Thank you and thank all of you gentlemen.
I suppose you might believe and anticipate that when the Forest Service was harvesting 12 billion board feet of timber and now has gone to 3 billion, with the same people, that overhead would increase rapidly against total costs, wouldn't you? I mean, that's kind of an accepted thing.
And when the Forest Service could always identify before appropriators that they were making $300 to $400 million, excluding the payments to the counties, there wasn't very much attention paid. Now every sale practically in America is below cost because the overhead remains so high. But we can identify every sale.
And there are those who never want to cut another tree, the Sierra Club, who are dancing in the streets because this is right down their alley. They say: Well, why have a Forest Service if we have to subsidize it?
So it's an interesting revolving thing we have here, and I thank you all for your very interesting and good suggestions.
Please, Mr. Pombo.
Mr. POMBO. Thank you, Mr. Chairman.
Mr. Hodge, you talked about privatization within the Forest Service. And from reading your testimony, from your oral testimony, I take from that you're talking about privatizing services within the Forest Service, functions that the Forest Service provides for people. What about the privatization of the lands, taking non-environmentally sensitive lands and selling those to the public?
Mr. HODGE. Well, I think that it should be thought of very seriously. I think when the U.S. Government owns one-third of the Nation's land mass, we ought to consider perhaps that some of that is nonessential.
Page 53 PREV PAGE TOP OF DOC And we have to remember that many of these Government land management agencies are an accident of history in which we had the land grants and the homestead acts in the 1800's, in which we basically were attempting to privatize Western lands. And when we failed to get rid of all the lands, we had to create agencies to manage them.
And obviously not all of these lands are sensitive. Not all of them are historic. And not all of them are the pristine ones that we want to keep as our crown jewels. And so it makes perfect sense to privatize them or perhaps if that is too politically sensitive, to give them back to the States. After all, really, it's their land.
Mr. POMBO. I'd like to have the other panelists comment on that as well as well as the idea of turning them over to the States. We have had legislation introduced in all three of the last three Congresses that would have either privatized a lot of these lands or turned them over to the States as a way of saving taxpayer money. I'd like to have the other panelists' comments on that as well.
Mr. SCHATZ. Mr. Pombo, we've probably written a letter in support of that at one time or another. It is something that we have discussed and considered. In fact, it was a recommendation as far back as the Grace Commission, which preceded Citizens Against Government Waste, to privatize grazing lands, for example. So there is in our organization a history of moving in that direction. It is one of these very difficult issues, but it does make some sense.
I recall a brief discussion with Chairman Hansen, actually, a few years ago, where it was at least on the table. So I know that that idea has been around. That's something that we would be happy to work with you on. It does save Federal tax dollars.
It's like a lot of other areas in the Federal Government, where they can be better managed locally, whether you're talking about education or you're talking about military commissaries. There's a lot of things that can be privatized.
Page 54 PREV PAGE TOP OF DOC But I think in terms of land management, the States will have a very strong interest in maintaining the lands themselves. And even if you had some bidding on it, where you allowed the environmental groups or others to get involved, you would find that we would preserve a lot of what needs to be preserved and get rid of a lot of things that we don't necessarily need.
Mr. SCHLECHT. I would just briefly concur with both my fellow panelists. I think it makes sense to at the least, at the very least, consider and in my opinion move towards either transferring a good part of these lands to the States and perhaps to privatize.
There are several examples of where the State and local governments are much more efficient than the Federal Government. And the same holds true with private lands. There are examples where owners of private lands that log or run large areas of land and do it with quite fewer people than the Forest Service does and still makes a healthy profit. So I think it makes complete sense to, at the very least, consider sending to the State and local level or to privatize.
Mr. HODGE. If I could add, Mr. Pombo, I think what we would need to precipitate that, however, is a thorough accounting and really a review of the Government's land holdings. And I think that there has been a great deal of effort by some in the private sector to do that, but I don't think the data is fully there on what the Government actually owns and where it owns it.
And until we can do that sort of a survey and have a real handle on it, we're going to be met, these kinds of efforts are going to be met, with a tremendous amount of resistance because it's all going to be talked about. Oh, you're trying to sell the Grand Canyon. And, of course, that's not the case.
But if you look at what the Park Service owns just within Washington, DC and other urban areas that really doesn't make any sense, I know the Forest Service has similar kind of land holdings that are truly unessential, but until we get that kind of an inventory, I don't think that it's going to be easy to move in that direction. That's the sad case.
Page 55 PREV PAGE TOP OF DOC Mr. POMBO. You're 100 percent accurate in what you're saying. There is no accurate inventory that exists. I have requested and received two GAO studies over the past 3 or 4 years on Federal land ownership and land ownership patterns. And we have had an increasing amount of Federal ownership.
It would be surprising I think to most people in the era of $300 billion a year deficits that we were increasing the amount of Federal land that we had substantially every year at the same time that our land management agencies were saying that they didn't have enough money to manage the lands that were in the current Federal inventory, which I believe is true. And we've had hearings on that in the past about them not having enough money to manage the lands that are in the current Federal inventory.
But, at the same time, every single year that I have been here for the past 5 1/2 years, we have had requests from the administration to add additional Federal land. And it's a never-ending scenario in that respect.
I have a final question I'd like to ask of the panel, Mr. Chairman: As Government watchdog groups, taxpayer watchdog groups, how do you accurately assess the efficiency of the Forest Service with the information that gets provided to you? How can you accurately say this program is inefficient or this program works well? After having seen the audit, after having heard the testimony, how can you accurately come out and say that these programs work well or they don't work well?
Mr. SCHATZ. Are you talking about a specific program or just the overall financial management?
Mr. POMBO. Well, taxpayer organizations have been very critical of specific programs within the Forest Service in the past as well as the Forest Service in general. And I'm just wondering that having heardand I know you heard the testimony of the Forest Service and the Department earlier. There is no accurate accounting of where the money is being spent. So how can you come out and say that this particular program is efficient or it's not knowing that the information they're giving you is inaccurate?
Page 56 PREV PAGE TOP OF DOC Mr. SCHATZ. Well, I think if you look at the numbers, you just look at the overhead numbers, they can't be managing them efficiently. And certainly a number of these trust funds have been around for more than 80 years, in fact, since the 1913 one, 1913, 1916, 1930. These are very old funds. They should know. It's almost an obvious answer. They should know what they're doing by now. You don't have to look that far when you're looking at 2530 percent overhead and something that's been around for that long to know they're not managing it correctly.
In other areas, we rely on audits by the General Accounting Office or reports from the Inspector General. The Committee itself in terms of their own oversight works closely with the members themselves. And they provide information.
But you're right in the sense that you do need that basic information. That's why for our organization and I know everyone else here, the CFOs Act and the Results Act are so critical to evaluating that information. And I think, honestly, in a bigger picture, that's been one of the difficulties in communicating to the public about which programs are working and which aren't and why this basic information is so important because when you get the Results Act and they say ''We're going to do X'' and they don't do it, then you can go out and say, ''Look, the agency itself said they were going to do this. We said it was OK. They're not doing it.''
And I think over the next several years, there will be more and more opportunities to know exactly what's going on within those programs as they come on line, as their books get audited, and as we get more reliable information.
And it begs the questionand this is not to turn it around a lot how does Congress know what it's doing? It does make it very difficult. And it leads to the mind-set that you just described about the agencies, where they come in and say, ''Well, we can't manage the lands that we have now with the people we have. So just give us more land and more people.''
In the private sector, you wouldn't hear that. Well, the people who said that actually wouldn't be around very long. Somebody might ask for it, but they wouldn't be there. And it's a whole culture that needs to be changed, whether it's at the IRS, as we tried to do, as you all did recently, or the Forest Service or anywhere else.
Page 57 PREV PAGE TOP OF DOC Mr. POMBO. The final point I'd like to make is that a statistic that came out that I had never seen before at a hearing the chairman had a couple of months ago dealt with the forest road system. And one of the things thatthe forest road system has always attributed to the timber program. And everybody is always critical of the timber program, the below-cost timber sales and the like.
And the statistic that came out from Chief Dombeck in his testimony was that there are 1.7 million vehicles per day that are driven on forest roads for recreational purposes and 15,000 vehicles per day for timber-related activity. And, yet, the cost of that forest road system is attributed to the timber program. And I think that as we get more accurate accounting for how the money is spent, the true cost of some of these programs I think will come out. And a lot of people I believe will be surprised when they see the true costs when they are attributed to where they should be.
Mr. HODGE. I think, Mr. Pombo, that this is why the agency itself keeps bringing up the issue of defining overhead because I think what would happen is that in many cases, they would find that overhead comprises most of the cost of the program and that the marginal service that they're delivering is perhaps not worth that cost.
And so you're going to find this hair splitting on their behalf or on their part throughout this process. Oh, well, we can't figure out what overhead. That's nonsense. Of course they can figure out what overhead.
Every corporation in America can define in a matter of a heartbeat what their overhead costs are. It's critical to whether they are profitable or not. And if this agency cannot define in a heartbeat what its overhead costs are, that's a serious problem.
Mr. POMBO. Thank you.
The CHAIRMAN. Mr. Blunt.
Mr. BLUNT. Thank you, Mr. Chairman.
Page 58 PREV PAGE TOP OF DOC With the last panel in the last couple of questions, the chairman seemed to not meet with much success in getting the panel to determine who was ultimately responsible for running the Forest Service. I think if you had, Mr. Chairman, an FAA question inside Transportation, it would be clear and obvious to everybody that the head of the FAA was the person who had to accept that responsibility. And it was the Secretary's responsibility to replace that person if that person wasn't acting, but there was an individual who had responsibility there.
I just would like for the panel maybe to comment on how they think that that culture has developed in the Forest Service where no one really wants to take responsibility and what your advice would be as the best way for us to restore a sense of responsibility to the Forest Service.
Mr. HODGE. Well, I would say that, I mean, there's an old saying that the fish rots from the head. And, to that extent, obviously there is someone who is a director, not only of the USDA but of the Forest Service. And ultimately that person is accountable.
Also, as both of the previous panelists were aware, the CFO Act puts some pretty strict accountability on them for maintaining adequate books and so forth. And then we start going down the line into other management.
But ultimately it's the political. I would start with the political appointees, hold them accountable, and if they're not accountable, then go into the GS15s and so forth, and start until somebody finally squeals. But there has beenI mean, it was amazing to watch this previous panel pointing in all directions.
Mr. SCHLECHT. In their defense, I don't think I would want to be responsible for what's ongoing in the Forest Service either. So it's kind of understandable that they're pointing fingers.
Clearly something has to be done and someone has to be held responsible. And whether it would be, as Mr. Schatz mentioned, Mr. Newman's bill that will put a date certain for certain actions to be taken and if that doesn't happen, then that person is relieved, clearly something has to be done.
Page 59 PREV PAGE TOP OF DOC I was just reminded while listening to them of a scene in the movie Patton where General Patton comes down to a river that's trying to be forged by an armor unit and fires the company commander there with the battalion commander, the colonel. And he turns to the major and says, ''Major, you're in charge. And if you don't get this unit across the river in 15 minutes, I'm going to fire you, too, and find somebody else who can do it.''
It seems to me that maybe some of that bravado and action and leadership is needed in the Forest Service because clearly someone needs to be responsible. This isn't Monopoly money that they're throwing around. This is taxpayers' dollars. And they deserve to have it used efficiently.
Mr. BLUNT. Mr. Schatz.
Mr. SCHATZ. I concur as well. And under the CFOs Act, the reason that you've had all of these other bills since then and the reason you had to amend the Results Act to provide some teeth, the reason you're sitting here today doing this bill, which provides a few teeth but not all of the teeth I think that are needed is that there is not a sense of accountability throughout the Federal Government, whether it's the Forest Service or anywhere else.
There is that basic question. Who has gotten fired for not fixing the computers? Who has gotten fired for not producing the financial statements? And it's not a terribly positive incentive, but it is something that would give people the idea that there is something that they need to do in order to maintain their jobs.
Obviously positive incentives are better. If you get here, you will get X, Y, or Z, but if you don't, there's something on the other end. You know, you don't see a lot of merit-based pay raises, for example, throughout the Federal Government. That's getting a little better.
People have, I think, gotten accustomed to doing their job and not worrying about the consequences. On the other hand, sometimes they're afraid to do their job because they don't know where the accountability is.
Page 60 PREV PAGE TOP OF DOC It's almost easier to know where you stand than to kind of point fingers. It makes people a lot more productive if they know where they're going and what the consequences are, what the rewards are of doing what they're supposed to do.
Mr. BLUNT. Thank you.
Mr. Chairman, I just would say to you that I appreciate the effort you're making to try to create accountability here. When I started in public service as a county official, one of my colleagues at the courthouse had replaced someone who embezzled money from the office they held.
And it was an office that handled lots of money. And, for whatever reason, the auditors could never determine exactly how much money these accounts were supposed to have in them to start with.
And so this person for a number of years labored under the responsibility of being responsible for these accounts without knowing how much money was there. He somehow managed to do a remarkably good job of doing that, but there was always that question as to just what kind of job he was doing because nobody knew the basis with which he started or the accountability that he ultimately was supposed to have.
And it seems to me to a great extent that not knowing how much land you have, not being able to tell Mr. Pombo or others that, not knowing how many airplanes you have, always arguing that every audit simply doesn't understand the dynamics of your unique system and the way it has to be audited is a great formula for no one to ever really be held truly accountable because no one knows what they're truly to be accountable for.
And I think your efforts to try to establish that basis are an important part of the ultimate management solution here. And I'm just pleased that you're continuing to be vigilant in this.
The CHAIRMAN. Well, I thank the gentleman for a good example of what I think is occurring. I agree with him. I just commiserate with Mr. Pandolfi. I think about a private sector accountant, a civilian, of all things, moving into an agency that has not been accountable to anything for 60 years. And does anybody believe that Mr. Pandolfi is going to get the proper information? A fair question and another reason for this bill.
Page 61 PREV PAGE TOP OF DOC Gentlemen, thank you very much for your great testimony.
The CHAIRMAN. We have one panel left, please: Mr. Jim Crouch and Mr. Larry Hill. Mr. Crouch is the chairman of the Federal Timber Purchasers Committee, Russellville, AR. I've been watching you, Mr. Crouch. You either have been enjoying this or you're incredibly entertained. I'm not sure which.
Mr. CROUCH. I guess I'd have to say, Mr. Chairman, that you're doing a remarkable job. And for me as an old Forest Service forest supervisor, it's a very sad day, to be honest with you.
The CHAIRMAN. Yes.
STATEMENT OF JIM CROUCH, JIM CROUCH AND ASSOCIATES, ON BEHALF OF THE FEDERAL TIMBER PURCHASERS COMMITTEE
Mr. CROUCH. I would like to say to you and members of this Committee that it is a pleasure to be here and maybe help in some small way. I am chairman of the Federal Timber Purchasers Committee, the FTPC, as most of us call it.
Our members purchase Federal timber from the U.S. Forest Service and from the Bureau of Land Management. We are very concerned with the issues involving the agency funding and operations.
For years, we have supported the Forest Service budget requests for its Timber Sale Program, only to see the program slip to about 3 billion board feet in recent years. In addition to the declining amount of Federal timber, the type and quality of timber have dropped significantly. The percentage of green timber has decreased and non-sawed timber products now make up 50 percent of the timber sales.
Timber sale costs, on the other hand, have steadily increased due to the excessive overhead costs. The net result is a growing, below-cost Timber Sale Program, whose costs frequently exceed the timber sale receipts.
Page 62 PREV PAGE TOP OF DOC My testimony today will focus on the Forest Service accounting system and excessive agency overhead charges. The Forest Service does need an all resource reporting system. For years, the Forest Service has used the TSPIRS system to provide information regarding the agency's Timber Sale Program.
The agency, however, has failed to develop similar reporting systems for its other programs. This inconsistency has played directly into the hands of the opponents of the Timber Sale Program, who use TSPIRS data and I would say most of the time out of context, to support their claims that the Timber Sale Program loses money.
The American people are bombarded with negative information about timber sale costs but see virtually no information regarding the high cost of the other agency programs.
We feel that section 4 of H.R. 4149, requiring the Forest Service to develop an all resources reporting system, is a must. The requirement for full implementation within 1 year of passage should minimize agency procrastination. We also think that the 13 program areas to be included are probably adequate.
Lastly, requiring the costs of forest stewardship and their personal use components of the Timber Sale Program to be included in forest land vegetation management and fisheries habitat management programs should provide a much more accurate report of what the real costs are for commercial timber sale management is.
I would like to talk a minute about controlling overhead cost. We are frustrated over the amount of agency overhead costs being charged to the off-budget funds. As you note, they now exceed 27 percent of the annual expenditures from these funds. These overhead costs mean less money for on-the-ground projects at a time when the agency has a huge backlog of work.
In an attempt to maintain these accounts, the agency has steadily increased the percentage of the sale value allocated to K-V fund disposal, et cetera. This decreases directly the returns to the Federal treasury.
Page 63 PREV PAGE TOP OF DOC We're also pleased to see that section 5 limits costs charged to the off-budget funds. The cap of 20 percent within 90 days followed by 10 percent within a year and complete elimination at the end of the second year we believe is a reasonable approach.
We are also equally frustrated by the excessive overhead costs to the appropriated timber sale funds, which is now 31 percent. Our FTPC members' overhead costs are typically in the 15 to 17 percent range. This is about half of what the Forest Service has. To stay in business, we've got to keep our overhead costs down, but we basically see no incentive for the Forest Service doing the same.
We support section 6, which requires the agency to fully disclose the amount of overhead included in each budget item in their annual budget requests. We also support section 7, which requires a 5-year strategic plan for identifying and reducing overhead and unnecessary costs.
In closing, Mr. Chairman, I want to thank you for your leadership in this important area. And at the appropriate time, I'll be glad to answer any questions. Thank you.
[The prepared statement of Mr. Crouch appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentleman.
Mr. Larry Hill is director of forest policy, Society of American Foresters.
Welcome, Mr. Hill.
STATEMENT OF LAWRENCE HILL, DIRECTOR OF FOREST POLICY, SOCIETY OF AMERICAN FORESTERS
Mr. HILL. Thank you, Mr. Chairman, Committee. We're pleased to be here and comment on the Forest Service Cost Reduction and Fiscal Accountability Act. We appreciate very much the committee's support of professional forestry and, in particular, some of SAF's priorities.
Page 64 PREV PAGE TOP OF DOC With your permission, Mr. Chairman, I would like to summarize our official testimony that would surely go into the record.
The CHAIRMAN. Without objection, so ordered. Thank you.
Mr. HILL. Well, straight off, let me say that, no matter what kind of a mechanism Congress uses to pay for land management, SAF joins the Forest Service and the committee and presumably the American people in wanting Forest Service programs delivered on the ground as efficiently and effectively as possible, be they recreation, forest products, fish and wildlife habitat, or other uses.
Report after report suggests that the Forest Service has serious fiscal accountability problems. It's obvious to SAF that the bill before us, H.R. 4149, attempts to assist the Forest Service to overcome those problems.
The committee and the Forest Service Chief are already working toward this end. And SAF strongly supports these efforts to improve fiscal accountability and responsibility in the Forest Service.
Fiscal and accounting processes and procedures are not in SAF's area of expertise. So we're not in a very good position to recommend where and how much overhead can be charged to off-budget accounts. However, we do believe that accounting for overhead expense is critical so that people have a better understanding of what it truly costs to run a Forest Service program.
Since Congress provides authority and appropriations for the Forest Service, Congress should decide how to administer Forest Service off-budget accounts. However, if Congress believes no overhead should be charged to K-V reforestation work, for example, then the President's annual budget should include a request for funds sufficient to administer that program.
There are costs associated with administering off-budget accounts and appropriated funds that will get the work done on the ground. Not to recognize and pay those costs means that critical work might not get done.
Page 65 PREV PAGE TOP OF DOC Prohibiting the Forest Service to use K-V funds for overhead is a drastic action taken in the fiscal year 1999 Interior and related agencies' appropriation bill because operating expenses are reduced while providing no commensurate increase in general administration appropriations. Hopefully the final appropriations bill will correct this situation.
SAF believes that H.R. 4149 gives the Forest Service time to adjust to reduced ability to use off-budget accounts as a source of funds to administer those accounts. We understand that the Forest Service has already begun to develop an all resources reporting program. The bill establishes such a system, which seems fair, although potentially costly.
The American people are entitled to know what their investments are buying. The system may at times show significant losses for certain programs annually, not recognizing that they will return additional benefits in later years. Hopefully the Forest Service will find a way to account for investments that will pay off well into the future.
We suggest that the committee review section 4(2)(c), ''Cost Allocations,'' take another look at it. Because the Forest Land Management, Vegetation Management Program, the Wildlife and Fisheries Habitat Management Program, the Forest Stewardship Program, and personal use sales have different objectives, they might be accounted for separately.
Briefly, Mr. Chairman, that's our contribution. I'd like to stand ready to respond to any questions.
[The prepared statement of Mr. Hill appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you both. Mr. Hill, the Society of American Foresters represents a broad section of both retired and active foresters, as I understand it, across the Nation. So your support or opposition is most important to the passage of this bill. So I wanted to ask you directly. And I heard your suggestion on 4(2)(c). Generally do you support this legislation?
Page 66 PREV PAGE TOP OF DOC Mr. HILL. Speaking for the society or for myself?
The CHAIRMAN. Well, either you choose or both.
Mr. HILL. Yes.
The CHAIRMAN. If it's yes, both.
Mr. HILL. Well, I think it's yes. We certainly are satisfied with the approach. It's time to do something. We've been on record as saying that the accounting processes need to be fixed. And this seems to be a very appropriate way of doing it.
The CHAIRMAN. I thank you for that.
I've heard the discussion from accountants about how we've got to reeducate line officers to be more fiscally accountable. Somehow that seemed to me to be backwards. Is it the line officers' responsibility for 27 percent overhead for the K-V fund? Let me ask either one of you.
Mr. HILL. We're both old-line forest supervisors. So we have to think a minute on this one.
The CHAIRMAN. All right.
Mr. CROUCH. Mr. Chairman, I don't think that there's any question in my mind that the line officers are responsible for the Forest Service. Certainly when I was a line officer, there was no question in my mind that I was responsible for whatever unit costs, including overhead costs, my unit produced. And I think that's the way it should be.
I think, quite frankly, that as I travel the country and talk to many Forest Service people, you still in many, many ways find this feeling at the ranger district level and quite frequently at the forest level.
But I would have to tell you that I don't think it's because they're doing such a bad job in most cases. I think there's a sucking sound in many parts of this country for projects that they wouldn't support themselves that gobbles up this money. And I think that's where most of it is going.
Page 67 PREV PAGE TOP OF DOC The CHAIRMAN. The sucking sound is not in Texas but all across the country.
Mr. CROUCH. Well, I'm thinking in many other places, other than Texas and Arkansas.
The CHAIRMAN. I see.
Mr. CROUCH. Yes, sir.
The CHAIRMAN. And I have always defended that point of view that line officers ought to have the responsibility of carrying out the policy on the ground. And that's how you're trained. That's what you've done all your lifetime. It seems to me, when we've gotten away from that decision-making line item officer program that we're in trouble, not only with the budget but in carrying out the policy of the Forest Service in my opinion.
Then the question remains: If the line officer offers a budget for a forest in Arkansas, does that always mean that that is the budget that always survives when it gets through the authorities here and then before the Congress or is it changed?
Mr. HILL. Well, I think the supervising official or the one that makes the budget request needs to answer some pretty pointed questions. Can the job be done more efficiently at lower cost by some other considerations? If the answer isn't satisfactory, then you go back and start over again.
The CHAIRMAN. I guess my question was: Have any of your budgets ever been changed after they left your office?
Mr. HILL. Absolutely.
Mr. CROUCH. Certainly, certainly.
The CHAIRMAN. That's the point.
Mr. CROUCH. Certainly.
The CHAIRMAN. And, therefore, you have no control, Mr. Hill, after it leaves your office.
Page 68 PREV PAGE TOP OF DOC Mr. HILL. I have argumentative control, but I may not always win.
The CHAIRMAN. All right.
Mr. HILL. It's a good point.
The CHAIRMAN. Mr. Pombo.
Mr. POMBO. Thank you, Mr. Chairman.
Mr. Hill, in your experience at the local level, have you seen a large increase in overhead costs? Are they spending a lot more money running the program at the local level than they were 10 years ago?
Mr. HILL. I haven't been in a line officer position now for almostsince 1975, as a matter of fact, when I came to the Washington office. I've been with the Society of American Foresters now almost 9 years. So I haven't managed a field program. I can't very well answer the question.
Mr. POMBO. In looking at the program from the outside, does it appear that they have a lot more people running around doing management orit's hard for me to understand exactly where this money is going because in my forests out in California, it doesn't appear to be spent there. So we are hearing complaints at the local level that they have a lack of people that are managing the forests and qualified to do things out there.
I'm a little bit confused. I see these numbers on increase in overhead over the past years, and it doesn't seem to be that the money is being spent out there. Do you have any clue where it is being spent?
Mr. HILL. No, sir, I sure don't. I'd have to defer to some of the testimony that was given previously about the reasons for that: fewer people, less revenues coming in, and the proportions changing.
Mr. POMBO. Mr. Crouch, do you have any comment on that?
Page 69 PREV PAGE TOP OF DOC Mr. CROUCH. Yes, Mr. Pombo. I follow that reasonably close on three forests, in particular, on the Mark Twain in Missouri and the two forests in Arkansas, and in a general way in many of them across the country as part of the Federal timber purchasers.
What we have seen in recent years is as the various laws have become more and more complex, primarily the environmental laws, you have seen a buildup of various types of ologists from the district ranger level up. So it is certainly true that the unit costs at the district level are the costs that the supervisor's office has increased considerably.
But I will tell you this, that when you look at the numbers, the numbers show that most of the increase has occurred at the regional office levels. And that's where the real bloat has taken place.
So what you're seeing in California is, in fact, true. There are additional people on those districts. There are additional overhead costs. But it's a small part of this total raging change in overhead.
Mr. POMBO. Mr. Crouch, you have in your written testimonyand I believe you stated this in your oral testimonythat in terms of the reporting, the reporting inconsistency has played directly into the hands ofthe timber sale opponents use TSPIRS data typically out of context to support claims the Timber Sale Program loses money. Can you expand on that for me?
Mr. CROUCH. Sure. Until recent years, TSPIRS didn't even go so far as to break the timber sale costs and benefits down into the three components that they use now, namely commercial timber sales, land stewardship, and personal use. When you got over to your other programs, whether it be recreational, wildlife, soil, water, or whatever, there was no type of a system that says, ''We took in this much. We spent this much. Here are the benefits.''
So when you rolled all of those components together and made it very, very visible, there are places in this country where for a number of years you have been able to show that there was more money spent for those three components of the Timber Sale Program than you took in.
Page 70 PREV PAGE TOP OF DOC And so the environmental community, the left side of the environmental community, took that and used it very advantageously at the same time that many of us in the know know that the low-cost programs that we had were programs like wilderness and recreation and wildlife and so forth. And that never came to light. So there was no reporting system that popped those numbers out that made it easy for people to make comparisons between programs.
Mr. POMBO. Are you saying that the cost of some of these other programs was attributed to the Timber Sale Program?
Mr. CROUCH. No, sir. But what I'm saying is that if you spent $3 or $4 million dollars on a forest to do a recreation program and took in $100,000, in my mind, that's substantially below cost. And there's really no system that made those numbers jump out for the public to see.
But the TSPIRS did, in fact, make the timber sale numbers jump out. And the groups that wanted to exploit that were able to take those figures and say, ''Here's what the agency says'' and spend that.
Mr. POMBO. Do you believe that it would be possible to ever charge enough money for timber to pay for the cost of Government?
Mr. CROUCH. I'm not sure I understand what you mean by ''the cost of Government.'' Certainly the programs
Mr. POMBO. The particular programs of the Forest Service. One of the things that I have had people, foresters, tell me in the past is that, no matter how high the cost of the timber is, no matter how much money they pay, that the Forest Service can always spend more. So that they will always be in a below-cost situation because they'll never be able to pay whatever the Forest Service can spend and what is attributed to the timber program.
Mr. CROUCH. My experience would say that I would take exception with that under these terms. If you're talking about the money that you would take in from the commercial sale of timber compared to the cost for the commercial component, I would say on most forests, that would be a positive.
Page 71 PREV PAGE TOP OF DOC But if you move over into the other areas, like recreationI had Blanchard Caverns, for example, which is probably one of the most likely units to return a positive cost to recreation anywhere in the system. And we could never make it do that.
So when you get away from the Timber Sale Program, unless you drastically change the way you go about handling these other programs, recreation, hunting, fishing, and so forth, they will not return a positive return.
But the timber program on many, many forests certainly should. In fact, it does if you look at the timber component on the Ozark, the Wichita, and the Mark Twain in 1997.
Mr. POMBO. You're still cutting trees down there.
Mr. CROUCH. Absolutely, absolutely. Ten percent of all the green in the Nation on those three forests in recent years.
Mr. POMBO. Unfortunately, out in my area, we're not cutting a lot of trees anymore.
Mr. CROUCH. I understand.
Mr. POMBO. Thank you.
The CHAIRMAN. I, as well, thank you gentlemen, appreciate your time and your patience. And this hearing is adjourned.
Mr. HILL. Thank you very much.
[Whereupon, at 4:35 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Thomas A. Schatz
Good morning Mr. Chairman and members of the committee. My name is Thomas A. Schatz, and I am president of Citizens Against Government Waste. CAGW does not receive and has never sought Federal or state tax dollars. On behalf of our 600,000 members, I am pleased to testify today on H.R. 4149, the Forest Service Cost Reduction and Fiscal Accountability Act of 1998.
Page 72 PREV PAGE TOP OF DOC Mr. Chairman, your legislation goes a long way toward reducing costs in the U.S. Forest Service and making the agency more accountable to Congress and the taxpayer. However, it is important to provide the context from which your legislation stems.
Although long suspected, many of the management problems associated with the Forest Service came to public light because of the Government Performance and Results Act (Results Act). While the Results Act is not a name that generates immediate excitement, it was designed to, if properly administered and enforced by Congress, deliver the most significant level of accountability of the use of our tax dollars in American history. It required Federal agencies and departments to develop five-year plans which lay out real, measurable goals that serve the public interestnot plans which perpetuate bureaucracies.
After compilation of this information, Congress then had the tools by which to audit departments and agencies in the Federal Government, including the Department of Agriculture. Agencies without real missions, which lack focus, and are redundant were then exposed, questioning the public benefits they supposedly provide.
While this information was useful, there were several unanticipated shortfalls in the Results Act. Specifically, enforcement mechanisms, which required failing agencies to redo plans and mission statements, were weak. To that end, our lobbying arm, the Council for Citizens Against Government Waste (CCAGW), supported H.R. 2883, The Government Performance and Results Act Technical Amendments, which among other things requires that agencies' strategic plans provide adequate explanation for duplication of operations and services within and across agencies. It further requires that they pinpoint primary management problems and develop solutions, and ensure data resource reliability within each agency.
In that same vein, H.R. 4149 would compel the Forest Service to correct its problems. In examining performance plans and reviews, it was possible to determine numerous facts about U.S. Forest Service. The U.S. Forest Service manages approximately 192 million acres of land, nearly nine percent of the nation's total surface area. Laws providing for the management of these lands are designed to meet the diverse needs and address the broad concerns of the American people. Through what is called the multiple-use principle, the Forest Service attempts to balance the often competing needs, concerns, and desires of recreational users, ranchers, and the timber industry, as well as the concerns of the environmentalist.
Page 73 PREV PAGE TOP OF DOC In order to effectively carry out its mission, the Forest Service follows a decision-making process that includes long-term strategic planning and regional plans, as well as management plans for each park. One would think that this type of planning would dove-tail nicely with the Results Act. However, that has not been the case. In an April 1997 report, entitled Forest Service Decision Making: A Framework for Improving Performance, the General Accounting Office outlined several problems and impediments to efficient management of the agency charged with the stewardship of 30 percent of the land owned by the Federal Government. Part of the problem is that the Forest Service is operating from two different strategic plans: the one required by the Results Act, and another required by another statute.
One roadblock to improving performance is that the agency has changing mission priorities. Traditionally, and as recently as 10 years ago, the main priority of the department was consumption (producing timber). Currently, the emphasis is on conservation (sustaining wildlife) and recreational uses, creating yet another mission conflict.
It is hard for an agency to hold a manager accountable for his/her performance if the agency is sending conflicting and competing messages. In 1991, in response to congressional concerns about the Forest Service's inability to meet expectations, a Forest Service task force was formed. Two years later, the findings were released, not as recommendations to be immediately implemented, but rather as objectives for the agency to accomplish over the next decade.
There are a litany of other problems associated with the Forest Service. It has not paid adequate attention to reducing the time of, and improving, its decision making process. It has repeatedly failed to monitor the effects of past management decisions. The General Accounting Office has pointed out that environmental and socioeconomic data compiled and maintained by the Forest Service is not comparable to previously collected data and is not shared with the appropriate managers. Further, the Forest Service fails to seek input from the public during the early stages of the decision-making process.
Page 74 PREV PAGE TOP OF DOC Every year, the Forest Service asks Congress for larger appropriations to accomplish fewer objectives. Recent audits described improvements needed in the timber program. Congress provided the Forest Service with the authority to obtain fair market value for goods and recover its costs; the agency has failed to do so.
H.R. 4149 will require the Forest Service to adopt a financial reporting system requiring the agency to account annually for the costs associated with all of the programs that the agency administers; impose limitations on the overhead that the U.S. Forest Service is allowed to charge to off-budget funds; require disclosure of overhead in each year's budget request; require the agency to develop a five-year strategic plan to identify and reduce overhead and unnecessary costs; and require periodic GAO audits of the implementation of the strategic plan.
Before I end this morning's testimony, I would like to address several specific provisions in the Forest Service Cost Reduction and Fiscal Accountability Act. First, the proposed All Resources Reporting System in section 4 of the legislation is a long overdue idea. The lack of compatibility in accounting systems has long prohibited auditors and even senior planners in the Forest Service and the Department of Agriculture from getting a handle on the overhead costs and indirect expenditures of the Forest Service. I concur with your findings that this has hindered the ability of the Forest Service to satisfactorily perform its primary function managing the Nation's forests. A single accounting system will provide the information needed by both Congress and taxpayers to determine how effectively the Forest Service is carrying out its mission.
Perhaps the largest indicator of the management problems in the Forest Service revolves around its handling of various trust funds. The proposed elimination of indirect expenditures and limitation of costs charged to trust funds is appropriate. Of the six funds administered by the Forest Service, four have been in existence for more than 65 years. There is no excuse for overhead expenditures to be increasing in these funds. Eliminating the overhead, as required by section 5 of H.R. 4149, is a reasonable goal. A trust fund is not a particularly difficult thing to manage, yet the Forest Service has apparently not gotten the hang of it in close to a century of effort.
Page 75 PREV PAGE TOP OF DOC Mr. Chairman, your legislation will begin the process of addressing the major management and accounting problems associated with the Forest Service. A word of caution is in order, however. Without the vigilance of outside taxpayer groups like ourselves and the dedicated oversight that you have provided, nothing will actually change. It is my hope that whoever succeeds you as chairman of this committee will pursue the absence of fiscal accountability with the same vigor. It does not matter how many reports are filed or audits are conducted ( if they are put on a shelf, ignored, and not acted upon, then the entire effort is a waste of time.
Mr. Chairman, thank you again for the opportunity to present CAGW's position on this legislation. I would be happy to answer any questions.
Statement of Eric V. Schlecht
Let me begin by thanking you, Mr. Chairman and members of the committee for inviting me to testify today. It is indeed an honor to appear before you as part of such a distinguished pannel.
My name is Eric Schlecht. I am director of congressional relations for the National Taxpayers Union, a nationwide grassroots lobbying organization of taxpayers with 300,000 members.
I come before you today to voice our support for H.R. 4149, the Forest Service Reduction and Fiscal Accountability Act of 1998. With taxes at an all time high and the era of big government clearly not over, NTU applauds this first step in reining in the wasteful spending and egregious mismanagement that currently exists within the Forest Service.
For several years, the American taxpayer has watched as the U.S. economy has continued to expanddue in large part to their continued hard work. Yet, instead of being rewarded with significant tax relief, they have been ignored while millions of their tax dollars are squandered by wasteful government agencies like the Forest Service.
Page 76 PREV PAGE TOP OF DOC As you know, the Forest Service is mired in a serious fiscal crisis. Mismanagement and lack of accountability are the norm and the possibilities of waste, fraud, and abuse within the agency's contracting activities are all dangerously high. United States General Accounting Office, Forest Service: Weak Contracting Practices Increase Vulnerability to Fraud, Waste, and Abuse, Report to the Chairman, Committee on Agriculture, House of Representatives, GAO/RCED-98-88, p.3.
I doubt, however, that the majority of Americans realize how bad things are at the Forest Service. Generally speaking, the General Accounting Office (GAO) has determined that the Forest Service: had significant reporting errors in its financial statements and the records that support those statements; could not demonstrate that its policies and procedures adequately safeguarded assets from unauthorized acquisition, use, or disposition; and, lacked financial systems that could accurately track revenues and costs. United States General Accounting Office, Forest Service: Financial Management Issues, Testimony Before the Subcommittee on Government Management, Information and Technology, Committee on Government Reform and Oversight, House of Representatives, GAO/T-AIMD-98-231, pp.1-2.
More specifically, the GAO has discovered:
An estimated $45 million due to the Forest Service from other Federal agencies for reimbursable services provided was double counted on the Forest Service's financial records. Ibid. p.2.
$7.8 billion in property, plant, and equipment reported by the Forest Service was erroneous because records for these assets were not consistently prepared, regularly updated, or supported by adequate documentation. Therefore, Congress had no reliable method to assure that Forest Service requests for additional fundssupposedly needed to construct new roads and buildings and acquire new equipmentwere warranted. Ibid. p.3.
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Two of the six Forest Service offices that GAO visited did not have acquisition plans for fiscal year 1996 as required by Federal regulations. United States General Accounting Office, Forest Service: Weak Contracting Practices Increase Vulnerability to Fraud, Waste, and Abuse, Report to the Chairman, Committee on Agriculture, House of Representatives, GAO/RCED-98-98, p.6.
The Forest Service has made little or no headway in adopting three federally mandated practices that incorporate performance factors into the contracting process. Ibid. p.7.
Finally, as you have noted Mr. Chairman, overhead costs in the Forest Service's so-called five funds increased significantly between 1993 and 1997. In fact, the GAO has found that, due to this increase in overhead costs, indirect expenditures as a percentage of total expenditures increased from 16 percent to 27 percent during that time period. United States General Accounting Office, Forest Service: Indirect Expenditures Charged to Five Funds, Testimony Before the Committee on Agriculture, House of Representatives, GAO/T-RCED-98-214, p.1.
Any objective review of the facts can only lead to the conclusion that the Forest Service is in desperate need of reform. H.R. 4149 begins that reform by requiring all resources financial reporting, limiting overhead costs, requiring further GAO audits of the Forest Service, and requiring a five-year strategic plan to identify and reduce overhead and unnecessary costs.
The National Taxpayers Union believes, Mr. Chairman, that H.R. 4149 is just a beginning. Far greater steps will need to be taken if true fiscal responsibility is to be achieved at the Forest Service.
Page 78 PREV PAGE TOP OF DOC For instance, we would have preferred more stringent enforcement mechanisms included in the legislation. For example, Congress could require that the Forest Service's annual appropriations be reduced by the amount GAO determines to have been wasted or unaccounted for in the previous fiscal year.
Additionally, we believe a two-year time limit for self-reform is more appropriate than the current five years. Few, if any, corporate CEOs would be given five years to stop such waste and abuse in their corporationswhy should taxpayer's money be treated any less valuably?
In conclusion, Mr. Chairman, it is our hope that this merely marks the beginning of a comprehensive review of the Forest Service. For instance, many believe that mission creep and years of big government mentality have expanded its jurisdiction into areas that are unwarranted. The Organic Administration Act of 1897 clearly gives the Forest Service a narrowly defined and limited mandate. In the act, Congress clearly limits the Service's duties to those of . . . securing favorable conditions of water flows, and to furnish a continuous supply of timber for the use and necessities of citizens of the United States . . . A thorough review of all Forest Service activities should be undertaken to determine what functions of the Service could be more efficiently delivered at the state and local level or by the private sector.
We would also suggest a serious review of the many levels of bureaucracy contained within the Forest Service. In addition to the Forest Service's national office located here in Washington D.C., it also has nine regional offices, and 155 national forests each with their own ranger districts. Isn't it time to ask ourselves if it is really necessary to have all of these levels of bureaucracy?
So, while I am pleased to appear before you today, it is our hope that we can return to this distinguished Committee in the near future to discuss deeper reforms of the Forest Service.
Page 79 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Statement of Scott A. Hodge
Mr. Chairman, and distinguished members of the committee, my name is Scott A. Hodge, I am a senior fellow for tax & budget policy at Citizens for a Sound Economy. CSE is a 501 (c)(4) organization based in Washington, DC. CSE accepts no government funding.
Thank you for inviting me to testify today about H.R. 4149, The Forest Service Cost Reduction and Fiscal Accountability Act of 1998. I would like to commend the Chairman and the Committee for recognizing the serious accountability problems at the Forest Service and attempting to address these issues through this legislation. For too long, the Forest Service has failed to respond to the repeated warnings by the Congress, the General Accounting Office and USDA's own Inspector General. I hope that this legislation is the stick that the Forest Service needs to get its financial house in order.
Unfortunately, I am not optimistic. Based upon the agency's long history of financial accountability problems, I suspect that Congress will inevitably have to consider tougher measures in the future. I agree with the sentiments expressed recently by Members of the Senate's Interior Appropriations Subcommittee, that the ''agency has repeatedly operated with indifference to the intent of Congress regarding accountability and program delivery.''
The General Accounting Office echoed this theme last year when it noted that ''every year, the Forest Service asks the Congress for more funds to accomplish fewer objectives during the yearly budget and appropriations process.'' The reason, says GAO:
''[I]nefficiency and waste within the agency's decision-making process have cost taxpayers hundreds of millions of dollarsUnderlying this condition are (1) an organizational culture of indifference toward accountability for expenditures and results, and (2) the failure to hold the agency accountable for making timely, orderly, and cost-effective decisions.'' U.S. General Accounting Office, Federal Management Issues: Appendix II *Serious Management Problems Facing Major Agencies, (GAO/OCG-98-1R), p. 6.
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Taxpayers should share this Committee's outrage at the cavalier manner in which the Forest Service treats their money. Here are just a few examples of the financial irregularities uncovered recently by the government's own watchdogs:
USDA's Inspector General has once again issued an unfavorable report on the Forest Service's FY 1997 financial statements. This marks the fifth year in a row that the IG has issued failing marks for the agency's books.
The IG's audit of the Forest Service's FY 1995 financial statements ''disclosed that the $7.8 billion in property, plant, and equipment reported by the Forest Service was erroneous because records for these assets were not consistently prepared, regularly updated, or supported by adequate documentation''.Without systems in place to accurately track these assets, the Congress had no assurance that Forest Service requests for additional funds to construct new roads and buildings and acquire new equipment were warranted. U.S. General Accounting Office, Forest Service: Financial Management Issues, (GAO/T-AIMD-98-230), July 7, 1998, p. 3.
Last month, the GAO determined that the measures outlined in USDA's performance plan, as required by the Results Act, were ''generally not useful'' in assessing year-to-year progress in correcting USDA's financial problems. GAO specifically identified the financial problems within the Forest Service as requiring ''special attention'' by USDA management. GAO, Observations on USDA*s Annual Performance Plan, (GAO/RCED-98-21R), June 11, 1998.
In May of this year, GAO reported that ''the Forest Service is highly vulnerable to fraud, waste, and abuse because it does not have an effective system of internal control for its contracting activities'' GAO, Forest Service: Weak Contracting Practices Increase Vulnerability to Fraud, Waste, and Abuse,* (GAO/RCED-98-88), May 6, 1998.
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This committee '' as well as the Congress as a wholemust continue to push the Forest Service into compliance with basic accounting practices and performance standards. The lack of this very basic information hamstrings Congress ability to make sound budgeting and management decisions.
As the committee moves forward with this legislation, I would suggest that you also consider some additional measures for reform:
Link sanctions to the agency's failure to meet its performance standards: Although H.R. 4149 is a well-intentioned effort to make Forest Service's management accountable, the bill contains no sanctions if the agency or its managers fail to comply. Earlier this year, some lawmakers suggested that the only way to bring real accountability to the Forest Service is to replace its managers with an independent control board. The committee should consider attaching such a contingency to the bill if the agency fails to meet the deadlines you've imposed on them.
Begin discussions of alternative organizational arrangements for the Forest Service: The agency's track record shows that it will not take this legislation seriously unless its future is threatened. The Committee would do well to begin considering a wide variety of organizational arrangements. These could include: 1) turning the agency's financial management over to an outside control board; 2) merging Forest Service into another government agency; or, 3) transferring forest land management responsibilities to state agencies, who are often cited as having better management.
Put off-budget accounts back on-budget: Off-budget accounts lend themselves to problems and allow the agency to avoid the stricter discipline of on-budget accounts that must compete for limited resources.
Hold someone accountable: It is certainly cliche, but if a private company was run with the same lack of financial accountability as the Forest Service, how many years in prison would the President of the company get? Taxpayers should expect that directors of government agencies be held to the same standards of accountability that shareholders expect of the directors of a publicly-traded corporation. Taxpayers have a right to know if anyone has been held accountable for the fact that auditors have given the Forest Service's books failing grades for five consecutive years now.
Page 82 PREV PAGE TOP OF DOC Reconsider the timeline outlined in the bill: The Chief Financial Officers Act of 1990 and the Government Performance and Results Act of 1993 established strict timetables for government agencies to make themselves more accountable and to link their budgets to their performance plans. For all intents and purposes the Forest Service is not complying with either act. I fear that the five-year timetables outlined in H.R. 4149 would effectively give the agency a five-year extension in making themselves fiscally accountable.
Require the agency to privatize more of their functions: Privatization measures such as contracting out and asset sales are very effective ways of getting at the true cost of a government service. The Forest Service is a classic example of how government agencies either don't know how much it costs to deliver services or how they effectively hide the true cost of a service in phony accounting tricks. However, given the agency's record of poor contracting practices, it will need outside assistance in establishing a credible privatization operation.
By every financial measure imaginable, the Forest Service is in ruin. If the agency were a private corporation rather than a taxpayer supported enterprise its directors would have been fired long ago and the courts would place it in Chapter 11 receivership. The agency and those who manage it must be held accountable. I hope that H.R. 4149 is the beginning of a process of doing just that.
Statement of Jim Crouch
Mr. Chairman, and members of the Committee:
My name is Jim Crouch. I am chairman of the Federal Timber Purchasers Committee (FTPC), whose members represent timber companies throughout the Nation who purchase Federal timber sales from the U.S. Forest Service and the Bureau of Land Management for their mills. The FTPC is very concerned with issues involving the agencies' funding and operations.
For years, we have supported the Forest Service budget requests for its timber sale program, only to see the annual volume of timber offered drop from 11 billion board feet in 1989 to less than 4 billion today. In addition to the declining amount of Federal timber offered, the type and quality of timber offered has changed significantly. The percentage of green timber offered, as compared to salvage, has decreased significantly and nonsawtimber products now make up 50 percent or more of the product mix on many sales. Timber sale costs, on the other hand, have steadily increased due to excessive overhead costs. The net result is a burgeoning below-cost timber sale program where the costs of preparing and administering timber sales frequently exceed the timber sales receipts from the sales.
Page 83 PREV PAGE TOP OF DOC My testimony today will focus on the Forest Service accounting system and excessive agency overhead charges.
THE FOREST SERVICE NEEDS AN ALL-RESOURCES REPORTING SYSTEM
For years the Forest Service has used the Timber Sale Program Information Reporting System (TSPIRS) to provide financial, economic, and other information regarding the agency's timber sale program. TSPIRS mostly follows the generally accepted accounting principles used by the private sector. The TSPIRS information is categorized by program component, that is timber commodity, forest stewardship, and personal use. The agency, however, has failed to develop similar reporting systems for its other programs. This reporting inconsistency has played directly into the hands of timber sale opponents, who use TSPIRS data (typically out of context) to support claims the timber sale program loses money. Consequently, the American people are bombarded with negative information about timber sale costs, but see virtually no information regarding the high costs of the other agency programs.
We feel that section 4 of H.R. 4149 , which requires the Forest Service to develop an all resources reporting system, is a positive step that will correct the current agency accounting and reporting problems. The requirement for the system to be fully implemented within one year of passage of the act should minimize agency procrastination and encourage action. We also think that the 13 program areas to be included in the all resources reporting system is adequate. Lastly, requiring the costs of the forest stewardship and personal use components of the timber sale program to be included in forest land vegetation management and fisheries habitat management programs should provide a much more accurate report of what the real costs are for commercial timber management.
CONTROLLING OVERHEAD COSTS
We are frustrated over the amount of agency overhead costs being charged to the off-budget funds. As you have noted in section 2 of H.R. 4149, they now exceed 27 percent of the total annual expenditures from the funds. These overhead costs means less money available for on-the-ground projects at a time when the agency has a huge backlog of acres needing treatment. In an attempt to maintain and replenish these accounts, the agency has steadily increased the percentage of the sale value allocated to KV, brush disposal, etc. This directly reduces the returns to the Federal treasury.
Page 84 PREV PAGE TOP OF DOC We are pleased to see that section 5 of H.R. 4149 places limitations on costs charged to the off-budget funds. The cap of 20 percent within 90 days is a good initial step, followed by the 10 percent cap after one year, and complete elimination at the end of the second year. This establishes a reasonable transition schedule for the agency, rather than forcing them to eliminate all overhead charges immediately.
We are also very frustrated by the excessive overhead costs to the appropriated timber sale funds, now at 31 percent of total expenditures, because it exacerbates the shortage of money available for active on-the-ground forest management. Our FTPC members' overhead costs are typically around 1517 percent of total expenditures, or one-half those of the Forest Service. To stay in business, we have to minimize our overhead costs, but there is no incentive for the agency to bring or keep their costs down.
We support section 6 of H.R. 4149 and its requirement for the agency to fully disclose in their annual budget request the amount of overhead implied in each budget line item. We also support section 7 and its requirement for the agency to develop a 5-year strategic plan for identifying and reducing overhead and unnecessary costs.
In closing, I wish to thank the Chairman for his leadership in developing this positive legislation to limit Forest Service overhead costs and require the agency to be more accountable. I'll be glad to answer your questions at this time.
Statement of Lawrence Hill
Mr. Chairman, my name is Larry Hill. I am the director of forest policy for the Society of American Foresters (SAF). The more-than18,000 members of the Society constitute the scientific and educational association representing the profession of forestry in the United States. SAF's primary objective is to advance the science, technology, education, and practice of professional forestry for the benefit of society. We are ethically bound to advocate and practice land management consistent with ecologically sound principles. I am especially pleased to submit comments on H.R. 4149, the Forest Service Cost Reduction and Fiscal Accountability Act. I wish to thank the Committee for its continued support of professional forestry and its continued support of SAF's priorities.
Page 85 PREV PAGE TOP OF DOC H.R. 4149 appears to assist the Forest Service on a path toward better fiscal accountability. Whether it be the General Accounting Office, the USDA Inspector General's office, or Coopers and Lybrand, report after report suggests that the Forest Service has dramatic problems in this area, and this Committee and the Chief of the Forest Service are diligently working to address these issues. The SAF strongly supports these efforts to improve fiscal responsibility at the Forest Service.
With that said, please note that the SAF cannot recommend where and how much overhead can be charged to off-budget accounts. We do believe accounting for overhead is critical so that the American people can get a better understanding of what it costs to run the Forest Service and where their tax dollars are being spent.
Overhead is critical in delivering the goods and services the American people expect from their national forests. Without the administrative and other general actions the agency performs on a daily basis we would not have the world-class recreational opportunities, fish and wildlife habitat, forest products, and scenic beauty that our national forests provide. That does not mean that the agency should spend those overhead dollars irresponsibly, as recent reports have alleged.
We believe that since Congress provides authority and appropriations for the Forest Service, the Congress should decide how to administer the off-budget accounts administered by the Forest Service. If Congress believes 100 percent of the money from the KV-Fund should go to reforestation efforts with no funds spent on overhead, then the President should request sufficient funds to administer the off-budget account in his annual budget request. We trust that Congress recognizes that there are overhead charges associated with administering the off-budget accounts and appropriates funds in a manner that will get the work done on the ground. If the appropriations to administer these funds are not sufficient, the work they are intended to accomplish will go undone. No matter what mechanisms Congress uses to pay for land management, the SAF joins the Forest Service in wanting to deliver all these programs on the ground as efficiently and effectively as possible, be they recreation, forest products, healthy watersheds, fish and wildlife habitat, or other uses of the national forests.
Page 86 PREV PAGE TOP OF DOC Mr. Chairman, I am particularly concerned with recent action on the House floor in regard to Forest Service overhead costs. As you are aware, Representative Miller successfully offered an amendment to the FY 1999 Interior Appropriations bill that would prevent the Forest Service from spending any money from the off-budget accounts on overhead expenses. This was an unwise amendment, which SAF believes should not be included in the final version of the bill. We believe this because the Agency received no warning that the way they administer these funds was to change, and could not request sufficient direct appropriations to administer its off-budget accounts. This action was too drastic. Representative Miller's amendment will significantly hinder the agency's ability to administer the fund because operating expenses were reduced with no increase in general administration appropriations. Representative Regula's original proposal of capping overhead costs at 25 percent seemed to be a reasonable interim proposal, as is H.R. 4179, which would give the agency time to adjust to reduced ability to use the off-budget accounts as a source of operating expenses to administer those accounts.
I would now like to spend some time discussing the All Resources Reporting section of the bill. The All Resource Reporting program seems to be beneficial, and it is a program we understand the Forest Service has already begun to develop. The American people should know what their investments are buying. The bill establishes a system that seems fair, although potentially costly. As it stands right now, the provisions for this section of the bill may show significant losses for certain programs annually, not recognizing the fact that they will return additional benefits in subsequent years. Any system implemented by the Forest Service should recognize the long-term nature of forest management and find a way to account for investments that will pay off well into the future. We also believe that section 4 (c)(2) (Cost Allocations) should be changed so that the costs of the forest land vegetation management program, the wildlife fisheries habitat management program, the forest stewardship program, and personal use sales are all accounted for separately. These programs have different objectives, and should be accounted for separately.
Page 87 PREV PAGE TOP OF DOC Thank you for the opportunity to testify. I would be happy to answer any questions you may have at this time.
Statement of Bob Powers
On behalf of the 500,000 men and women of our union, I thank the Chairman and members of the Committee for inviting me here today. Our union appreciates this opportunity to share our thoughts on the state of the U.S. Forest Service and The Forest Service Cost Reduction and Fiscal Accountability Act of 1998.
In recent years, it has become increasingly clear that the Forest Service is costing taxpayers hundreds of millions of dollars in inefficiency and waste. According to internal government audits, Forest Service inefficiencies cost over $100 million a year at the project level alone. Overhead charges for reforestation and other site restoration activities associated with timber sales have increased by some 80 percent over the past five years. In 1995, the General Accounting Office (GAO) reported that the Agency lacks a credible, comprehensive and consistent system to collect and report data that would provide the ability to identify where and how resources are expended and whether objectives are being efficiently met. The Agriculture Department's own Inspector General said the annual report prepared by the Forest Service was insufficient because the Inspector could not verify that the data contained in the report was accurate. To date, the Agency has failed to produce an acceptable financial statement.
These issues directly and forcefully impact our members. The waste and inefficiency at the Forest Service forces management and overhead costs higher while program output falls. First, our members are concerned about the effects of these increased costs on the Federal timber sale program. Critics of the sale program are pointing to the fact that operating costs now exceed revenues returned from sales as a reason to terminate the timber program. But the facts show that the answer lies in improving the way the Agency manages costs and administers the timber programnot in terminating an essential program that employs tens of thousands of men and women nationwide and provides the economic backbone for hundreds of rural communities.
Page 88 PREV PAGE TOP OF DOC Under the current system, roughly 31 percent of the total costs of the timber sale program goes to overhead. In 1996, the USFS spent over $200 million on overhead costs, compared to $5 million for litigation and $54 million for environmental documentation. Meanwhile, while Federal timber sale levels have fallen by 70 percent since the late 1980'sthrowing more than 20,000 men and women out of workoperating costs for preparing sales have not been reduced in kind. Costs to prepare and offer timber sales have actually tripled since 1988. Environmental documentation and analysis alone currently account for roughly 70 percent of the cost of preparing a timber sale and consume 30 percent of the agency's field resources. Administrative and environmental impact analyses traditionally have accounted for only 30 percent of the total cost of the sale. The increase is due in large part to the dramatic rise in the number of appeals and lawsuits filed to challenge sales.
While many appeals are filed to express legitimate concerns, we find that an alarmingly high number of appeals are frivolous efforts; attacking legitimate, environmentally sensitive sales. These assaults force the Agency to shift resources away from developing and implementing output-oriented programs.
Second, our members are concerned about the effects of management inefficiencies on the health of national forests. Foresters report that millions of acres of national forest lands are suffering from a forest health emergency. These lands are filled with dead, dying and diseased trees that threaten to infect healthy trees and increase the risk and severity of catastrophic wildfires. Recently, Forest Service Chief Mike Dombeck testified that some 40 million acres of national forest land stand at a high risk of wildfire yet the Agency is only able to treat less than one million acres per year. The Agency also reports a $10 billion backlog in reconstruction and maintenance costs for the national forest road system. Poorly maintained roads prevent access for combating and controlling wildfires and for conducting necessary forest health and watershed maintenance activities.
Page 89 PREV PAGE TOP OF DOC Finally, our members are concerned about the effects of Forest Service mismanagement and fiscal inefficiencies on critical programs to assist timber workers displaced by declining harvest levels on Federal forests. Last December, the Western Council of Industrial Workersan affiliate of our union representing our members in the industrial sectorreviewed President Clinton's Pacific Northwest Economic Adjustment Initiative. This Initiative was designed to provide support and retraining for workers displaced by the President's Pacific Northwest Forest Plan, commonly known as Option Nine. We found that the percentage of funds that have gone to cover Forest Service overhead costs and employee salaries is increasing rapidly, reaching 15 percent of total costs. That is an unacceptably high level.
We believe The Forest Service Cost Reduction and Fiscal Accountability Act of 1998 goes a long way toward addressing many of these concerns. Importantly, the legislation provides for improvements in the allocation and use of appropriated funds rather than calling for across the board cuts in specific programs. We particularly support language in the bill requiring the Forest Service to disclose the amount of overhead implicit in each line item. We are hopeful this will force the Agency to reduce unnecessary costs.
We must ensure, however, that efforts to reduce unnecessary overhead do not disable the Agency from the effective administration and implementation of necessary programs. We also encourage the committee to ensure that the Agency is meeting the goals of its forest plans to maximize return on investment.
Improved accounting for all Forest Service programs and improved tracking of the Agency's objectives and outputs are essential to assure that the Agency adequately and properly serves taxpayers. Our union offers our assistance to work with the Congress as The Forest Service Cost Reduction and Fiscal Accountability Act of 1998 moves forward so that we can reach these goals.
Page 90 PREV PAGE TOP OF DOC "The Official Committee record contains additional material here."