Segment 1 Of 2     Next Hearing Segment(2)

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(Administration of Off-Budget Funds)

House of Representatives,
Committee on Agriculture,
Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m., in Room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
    Present: Representatives Ewing, Doolittle, Goodlatte, Smith of Michigan, Lucas, Bryant, Thune, Jenkins, Stenholm, Clayton, Goode, McIntyre, Stabenow, Etheridge, Johnson, and Boswell.
    Staff present: Dave Tenny, professional staff; Sharla Moffett, professional staff; Dwight Fielder, science fellow; Callista Bisek, Wanda Worsham, clerks; and Danelle Farmer, minority staff consultant.
    The CHAIRMAN. Good morning. The committee will come to order.
    The purpose of today's hearing is to examine the overhead costs charged to five off-budget funds administered by the Forest Service between 1993 and 1997.
    Earlier this year the Committee on Agriculture asked the General Accounting Office to investigate these off-budget funds to better understand how much overhead was being charged to these accounts, as well as why overhead was increasing relative to the off-budget accounts.
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    Since January 1997, the committee has been keenly interested in learning about the health and condition of America's forest resources. Last year we held six hearings in which it became apparent that a significant portion of our national forest system, 40 million acres to be exact, was at abnormally high risk to loss due to catastrophic fire.
    This committee has dedicated itself to providing the resources necessary for restoring and maintaining these vulnerable forest lands, as well as the vegetation, fisheries and wildlife resources that depend on healthy ecosystems.
    We are cognizant that forest restoration is costly and have been supportive of making the necessary investments to the land to ensure the future of our national heritage.
    There is a direct link to improving forest conditions and these five off-budget funds in that each one of them finances forest restoration activities. Every dollar spent on overhead siphons off and siphons away from accomplishing critical on-the-ground forest restoration work.
    Unfortunately, our suspicions about the overhead charge to these restoration funds were correct. The findings of the GAO investigations are alarming. They reveal that exorbitant amounts are being charged and that the overhead charged to these five funds has increased dramatically, in fact, 80 percent during the 5-year period that GAO examined.
    I would like to draw your attention to several charts which track the key findings of the GAO report.
    The first chart tracks the total expenditures for the five funds. Over the 5-year period, the total amount expended has remained relatively constant from a low in 1993 of $413.5 million to a high of $465 million in 1996. This is very significant since the monies deposited into these funds are collected as a result of timber sales which decreased by nearly half during the same period.
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    The point is that despite a dramatic decrease in the timber supply program and sale program, the money spent from these accounts has remained relatively constant.
    The second chart shows the total indirect expenditures, overhead, for the five funds. While overall expenses remained relatively constant, the overhead grew by 80 percent from $65.9 million to $118.7 million during the same 5-year period. That is over a $50 million increase per year charged to overhead.
    The fact of the matter is that when money available remains constant and costs increase, less work can be accomplished on the ground.
    Rather than funding the myriad of restoration activities needed in our forests, it appears that the Forest Service siphoned off an additional $52.8 million away from the ground to fund its bureaucracy.
    In chart 3 we see the increases corresponding to the percentage of overhead charged to the total fund expenditures, from 16 percent to more than 27 percent. Simply put, over 27 percent of all annual expenditures from these funds now pays for agency overhead.
    Finally, chart 4 reveals a shocking trend related to both the total and indirect expenditures of the Salvage Sale Trust Fund by the Washington office of the Forest Service.
    Total expenditures charged to the fund by the Washington office have increased from $581,879 in 1993 to $8.4 million in 1997. Total indirect or overhead expenditures charged to the fund have increased from more than $500,000 in 1993 to $5.4 million in 1997. In other words, total expenditures grew more than 1300 percent over the last 5 years while the total overhead charged to this fund grew by more than 800 percent.
    Because only one of these funds, the Restoration Trust Fund, expressly authorizes expenditures for overhead-type activities, it is disputable whether charging overhead to the other four accounts is even legal.
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    This, coupled with the exorbitant and increasing overhead costs being charged to the funds, calls into question whether the Forest Service is acting responsibly with regard to the taxpayer and the lands which they have been entrusted to manage.
    The Forest Service has a fiduciary and a management responsibility to the American people. These are trust funds. The Forest Service is a trustee.
    In the private sector when the trustee takes money from the trust corpus to line its own pockets, we call it self-dealing. It is a crime. The Forest Service should be held to an equally strict standard. With the evidence before us today, it is difficult to conclude that the Forest Service has been anything other than grossly negligent to the land and to the people.
    The lack of on-the-ground management, including adequate restoration activity, has left much of our forest streams, watersheds and transportation infrastructure in severe disrepair. The Forest Service, through public testimony and its budget, has made it clear that it views the health of the land as its top priority at a minimum. It is ironic that while the agency is requesting additional funding for forest restoration, it has also allowed overhead costs to skyrocket out of control.
    Compounding the irony is the fact that there is no evidence to suggest that the Forest Service has ever monitored overhead charges to its off-budget funds prior to the GAO report, nor does the agency presently have a system in place for analyzing overhead as it relates to other program costs to determine the impact of rising overhead on on-the-ground outputs.
    In view of shrinking budgets and the need to make investments in the land to ensure its long-term health and sustainability, it is unconscionable and inexcusable that the Forest Service has not addressed its ever-increasing overhead problem.
    In the recent National Journal article, Chief Dombeck stated, ''We can't put the cost of management on the back of timber.'' Well, I am disappointed that Mr. Dombeck is not here today for me to tell him that it is time for him to get his bureaucracy off the back of critical restoration programs on the ground.
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    It is further of interest and concern to me and to this committee that the appropriations process has not reviewed these off-budget funds for maybe the last 20 years. I guarantee you that the Appropriations Committee is going to begin to review these five off-budget items that we are discussing.
    Are there any further statements?
    If not, I would submit a statement on behalf of Mr. Herger. Mr. Herger was to testify this morning, but has been detained.
    [The statement of Mr. Herger follows:]
    Mr. Chairman, members of the committee, thank you for the opportunity to testify regarding the way the U.S. Forest Service uses its off-budget trust fund accounts. I am particularly concerned that the Forest Service is diverting funds from these accounts to pay for administrative overhead instead of using the trust funds for their intended purpose of funding on-the-ground projects that improve the health of our national forests.
    In a May 6, 1998 report, the U.S. General Accounting Office reviewed five trust fund accounts to determine how much of the trust funds were spent on administrative overhead. The five accounts reviewed were (1) the Brush Disposal Fund, (2) The Cooperative Work Fund, (3) the Knutson-Vandenberg Trust Fund, (4) The Reforestation Trust Fund, and (5) The Salvage Sale Fund. Each fund was created to finance programs that play an integral role in improving the health of our national forests.
    According to the GAO, the Forest Service spends close to 30 percent of these trust funds on administrative functions. In comparison, in 1993 the Forest Service spent only 16 percent of these accounts on administration, and, in its fiscal year 1999 budget request, the Forest Service earmarked just 8 percent of its General Appropriations for administrative overhead on all other programs. This creates an extremely dangerous situation for the more than 40 million acres of our national forests currently under a severe threat of destruction by catastrophic wildfire.
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    The danger of this threat is particularly strong in forests in the western United States. Unlike other forests in other parts of the country, forests in the West suffer from unusually high incidents of fire. During hot summer months these forests receive very little rainfall. Historically, Western forests were filled with stands of large trees. The forest floors were less dense and were naturally and regularly thinned by lightening and native caused fires that would clean out dense underbrush leaving the big trees to grow bigger. However, because of decades of well-meaning but aggressive fire suppression practices, these forests have grown out of hand, creating an almost overwhelming threat of catastrophic fire.
    According to U.S. Forest Service estimates, our national forests are 82 percent denser than they were in 1928. Thick undergrowth, combined with increasingly taller layers of intermediate trees has turned western forests into deadly fire time bombs. Now when a fire starts, it quickly climbs up the dense tree growth like a ladder until it tops out at the uppermost, or crown, level of the forest and races out of control as a catastrophic fire. Because of their high speed and intense heat, ''crown fires'' are nothing like the healthy fires of the past but have the capability of leaving an almost sterile environment in their wake with almost no vegetation, wildlife, or habitat left behind.
    These dangerous conditions, however, are not irreversible. The forest service can proactively improve forest health. Regrettably, however, proactive policies are not being implemented. Because of mandates from the Forest Service's Washington offices and directives from the Clinton/Gore administration, the forest service suffers from a virtual paralysis. Evidence of this paralysis can be found in the way the forest service increasingly uses its trust funds to pay for administration instead of funding on-the-ground forest health projects.
    Mr. Chairman, I would once again urge this committee to redirect the mission of the forest service on two important issues. First this agency must move away from its current extreme environmental agenda that, for years, has literally destroyed our national forests, and require the Service to implement more proactive, on-the-ground programs to restore forest health. Second, we must demand a complete revamping of forest service financial accountability. Because the Forest Service cannot, on its own, limit the administrative overhead for its trust fund accounts, I urge this committee to do it for them and ensure these trust funds fulfill the purpose of their creation and are used to improve the health of our national forests. Again, thank you for this opportunity to testify on this critically important issue.
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    The CHAIRMAN. We will call our second panel.
    I would like to invite Mr. James Meissner, who is the Associate Director of Energy, Resources, and Science Issues for the Resources, Community, and Economic Development Division of the U.S. General Accounting Office. Mr. Meissner is accompanied by Ms. Jill L. Berman. She is the Senior Evaluator for the U.S. General Accounting Office.
    Mr. Francis Pandolfi is Chief Operations Officer for the U.S. Forest Service. Mr. Pandolfi is accompanied by Mr. Ron Stewart, who is the Deputy Chief of Programs and Legislation for the U.S. Forest Service.
    Mr. Andy Stahl is the executive director of the Forest Service Employees for Environmental Ethics.
    Mr. John Hofmann is vice president of the California Forestry Association.
    And if you, gentlemen, and the lady would come forward, please. All statements by committee members will be entered into the record.
    Mr. Meissner.
    Mr. MEISSNER. Thank you, Mr. Chairman and members of the committee. First, I would like to introduce Jill Berman, who is the Senior Evaluator in charge of this particular assignment.
    We appreciate the opportunity to be here today to provide data on indirect support activities associated with five Forest Service funds. Essentially, the expenditures for these activities are ones that cannot be identified with a single project activity. Our statement today, which is drawn from our May report, summarizes what the Forest Service's records identify as indirect expenditures charged to each of these funds and what our concerns are about the reliability of this data.
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    Our more detailed analysis on the trends and fluctuations and indirect expenditures over the past 5 years will be delivered to you in July when we have completed our analysis of each of the Forest Service regional offices and at the Washington office.
    Our summary today covers expenditure data for five funds which provide more than $400 million annually to support widely diversified work within the Forest Service, including brush disposal, the Brush Disposal Fund; the road and trail reconstruction and maintenance, the Cooperative Work-Other Fund; reforestation, the Reforestation Trust Fund; and the Cooperative Work-Knutson-Vandenberg Fund, commonly referred to as the K-V Fund; and the preparation and administration of salvage timber sales, the Salvage Sale Fund. These are explained in appendix I of our testimony.
    The Forest Service records show that indirect expenditures for the five funds appear to have increased significantly between 1993 and 1997, while total expenditures for these funds increased by a very minor amount. As a result, indirect expenditures as a percentage of total expenditures increased from 16 percent to 27 percent between 1993 and 1997. However, the relationship between indirect expenditures and total expenditures varied greatly from fund to fund and from region to region.
    The data used in this testimony rely totally on Forest Service documents, and that reliance raises some very serious concerns for us. While we are still in the process of analyzing the data, we have identified several limitations in the data that may affect the extent to which overall conclusions can be drawn.
    For example, although the Forest Service provides general guidance on what should be considered indirect expenditures, regions have flexibility in how to apply that guidance and therefore may differ in what they decide to include.
    Moreover, in 1994 the Forest Service added a category of indirect activities, so 1993 data may not be comparable to that of later years. We expect that our ongoing work will provide some insight about whether or not the changes in expenditures reflect programmatic changes or they are simply the result of unreliable financial systems.
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    Each of the five funds we reviewed has a specific account that is used for indirect expenditures. This account, called ''indirect support activities,'' is defined in the Forest Service Handbook as being for ''those costs that cannot be readily identified specifically to a single project activity in a feasible manner.''
    For example, forest supervisors involved with overall forest management would charge their time to the indirect support activities, whereas staff preparing for a timber sale would charge that individual project. The Forest Service's guidance calls for including the following three categories: line management, which is a specific set of line managers; program support, which are those kinds of activities which support the activities in the Forest Service; and common services, which is for nonpersonnel costs associated with providing space in a working environment for employees. Those are the three categories of expenditures that we have included in our analysis.
    I will skip the next couple of pages because the Chairman has discussed those and we have posters that did it.
    I would like you to refer to page 6 which is a summary of expenditures for all of the funds. This particular table identifies each of the funds and the expenditures and the indirect expenditures and the percentage for each of the 5 years that we analyzed.
    The only consistency that you will find on this particular chart is that indirect expenditures increased for all five funds. Total expenditures both went up and went down—went down substantially, also went up substantially. Even the percentages for four of the funds increased; but for one of the funds, the Cooperative Work-Other Fund, it went the other direction, a lot of inconsistency in the data.
    Figure 2 on the next page of the testimony simply gives that same information in a different format.
    Page 8, indirect expenditures were not consistent among the Forest Service regions for any of the five funds. And the chart that I have included in the front here is the same chart that you have on this particular page. For example, for the Salvage Sale Fund for 1997, while several regions had indirect expenditure rates close to the nationwide average of 27.8 percent, region 2, Rocky Mountain, and region 10, Alaska, had much lower rates. And region 3, Southwestern and region 8, Southern, had much higher rates.
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    To show you a little bit of the difference between those particular numbers, the low number on that chart is an indirect rate for the Salvage Sale Fund of 7 percent, region 2 is 16 percent. The two large numbers are 34 percent; the others are obviously in between.
    Interesting enough, of the four that I cite, the two low numbers and the two large numbers are for programs that are approximately the same size.
    Figure 4 also demonstrates that we not only found wide diversity between the regions, but within the region itself we found wide diversity in funds. We have picked out region 4 and have demonstrated for all five of the funds the widely diverse indirect rates that they had.
    While we are still in the process of analyzing the data, at this point in our analysis we have identified several limitations that may affect the extent to which overall conclusions may be drawn.
    Although the Forest Service's Washington headquarters provides general guidance on what should be considered indirect expenditures, regions have flexibility in deciding how that guidance might be applied. This table right in front of you demonstrates that.
    Regions differ in what they have decided to include as indirect expenditures. Such region-to-region differences affect both the aggregated data and the comparability of data from location to location. Year-to-year comparisons may also be affected somewhat because the Forest Service said it changed the coding requirements for indirect expenditures between 1993 and 1994 and added a new category called ''common services.'' As a result, 1993 data may not be comparable with that of later years. We expect that our ongoing work will provide some insight as to the comparability of 1993 data with that of later years.
    According to Forest Service officials, some of the increases that you see in the data in indirect expenditures probably resulted from changes made to correct prior inaccuracies, inconsistencies, or inequities that occurred when charging indirect expenditures to these funds.
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    As we have reported previously, and that is cited in the testimony, we continue to have concerns about the reliability of the Forest Service financial information in general.
    Mr. Chairman, that concludes the opening remarks. Jill and myself would be happy to respond to any questions that you or members of the committee might have, either now or later.
    [The prepared statement of Mr. Meissner appears at the conclusion of the hearing.]
    The CHAIRMAN. I thank you very much, Mr. Meissner.
    Mr. Francis Pandolfi, who is the Chief Operations Officer of the U.S. Forest Service, and Mr. Ron Stewart is here with him. Mr. Pandolfi, we welcome you.
    I notice that Chief Dombeck, it has been reported, is in Mexico regarding a fire, but I suspect that the heat here would encourage him to go to Mexico. That is only my personal opinion.
    Mr. Pandolfi, we would like to hear from you.
    Mr. PANDOLFI. I don't think that it is any pleasure to go to a country where you can't breathe the air, you can't drink the water, and you can't speak the language. I think he would rather be here with you this morning.
    Thank you for having us here this morning.
    Mr. Stewart is going to read our prepared remarks.
    Mr. STEWART. Good morning, Mr. Chairman and members of the committee. I am pleased to be here this morning, and Mike does send his regrets. I think that is a correct statement, he was not looking forward to going on that trip to Mexico.
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    The testimony that he submitted for the record covers the aspects of overhead that you mentioned in your May 20 letter, and he describes the action that he has taken and is taking to get more accurate financial information and to control costs.
    I thought it would be most useful this morning if I could take a few minutes to discuss from my perspective, and that is the perspective of not an accountant, but a professional forester with 34 years' experience, including 29 years at different levels of the Forest Service. And I believe, between Francis and me, who has the financial background, we are best able to answer your questions later.
    I would like to make three key points if I could. First of all, that administrative support or indirect costs or overhead are essential costs of getting the work done on the ground.
    The second point is, if we agree that such costs are part of doing business, then the questions really become how much and who pays.
    Finally, clearly we need to better account for and manage our overhead costs.
    If I can expand on each one of those: The first point was, administrative support costs are essential for getting work done on the ground. My personal experience, which involves working at most levels of the agency, has taught me three lessons. The first is that no matter at what level I served, I always thought the level above me was a useless bureaucracy and took money away from getting my job done.
    As I moved about the organization and worked at the various levels, I discovered that each level served a useful function that either directly or indirectly had helped me get my job done even though I didn't see that at the time.
    Finally, line officers and staff officers at all levels of the organization keep those above them honest by applying subtle and not-so-subtle pressure to minimize the costs taken off above them.
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    We track three kinds of administrative support. The first is called line management and that includes the costs and activities related to line officers, their oversight and management functions, and the associated costs for supporting them such as salary, other personnel, vehicle, space and so forth.
    Program support: Those are costs associated with the coordination, management and execution of business management functions such as budgeting, personnel management, contracting, property management and purchasing.
    And finally, we track something called common services. These are the nonpersonnel costs associated with providing space and a safe working environment for employees, such as rent, utilities, postage, phones, computers and office supplies.
    The present organizational structure of the agency was established at the very beginning of the Forest Service and has generally proved useful. Each level coordinates and manages the activities, creates and processes information, resolves conflicts, provides oversight and consolidated support activities for the levels below it.
    My second point was, if we agree that these functions, that is, of oversight, program support and common services are legitimate costs of getting the job done regardless of the level of the organization, then the question becomes how much and who pays.
    The how much is a significant question. Having worked at the various levels of the agency, and again from the perspective that I always thought those above me provided no useful value, my experience suggests that we go through an agonizing effort in order to establish how much is needed at each level. It is not an arbitrary and capricious decision. It is often conducted involving line officers and the next level down.
    Ultimately, I think we all realize those who have gone up in the organization that whatever we take comes not off the top but off the bottom. This is reinforced by the fact that each of us usually remembers—in my case, it was 4 years ago when I was regional forester in California—what it felt like to be one step down in the food chain. We have taken a number of steps to try to reduce and control costs and are prepared to discuss those in questioning.
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    The second part of this was who pays. It is true that we do not have a consistent, mutually exclusive definition of the so-called indirect or overhead costs, and the terms are often used by different people inside and outside the agency imprecisely, incorrectly or interchangeably. This is true partly because we budget by resources or programs, not by object classes, and what is included in overhead is sometimes in the eyes of the beholder, as I said, depending on what level of the organization you are in.
    We generally use the term ''indirect costs'' to include general administration, or GA, program support and common services, as I defined previously.
    But the bottom line is this: No matter what you call it or how you pay for it, if it is needed to get the job done or it is necessary for oversight and management of the programs, it has to be paid for somehow by someone.
    We pay for this general oversight out of two sources of funds. The first source of funding for all administrative costs is direct project to the extent that a cost relationship can be identified. This is called the benefiting function principle.
    The second way we pay is with general administration, which is a budget line item defined in our appropriations act, and it is used when the benefiting function cannot be clearly identified. This budget line item includes the costs of line management, such as the chief, regional foresters and station directors.
    Our policy is stated in our explanatory notes, which we submit to Congress, and says, only after practicable and justifiable means for identifying a benefiting function have been exhausted, will these costs be charged to GA, and we provide general guidance to the field about what are appropriate charges.
    Finally, I would like to say we clearly need to account for and better manage our overhead costs. We would all agree it is desirable to maximize the dollars on the ground and minimize overhead or indirect costs of doing business. I believe we are taking significant actions to improve our ability to manage these costs. And as I said earlier, we are prepared to discuss those in the question time.
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    That concludes my testimony. We are pleased to answer any of your questions. Thank you very much for this opportunity to appear before you this morning.
    [The prepared statement of Mr. Dombeck appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you very much.
    Mr. Andy Stahl is executive director, Forest Service Employees for Environmental Ethics. Mr. Stahl is a well-known activist and well-known on the Hill as well
    Mr. STAHL. And I am also an Oregonian, and I am particularly proud to appear before this committee. In my real life, I am a farmer as well, and I am afraid that you have held this hearing during haying season and my wife is none too happy with me being here because we have 20 acres of hay to get in and that may have to happen this week in my absence.
    Being in front of the Agriculture Committee which, for historical reasons, has oversight over the Forest Service, I find particularly appropriate and I thank you. My organization consists of Forest Service employees and citizens concerned about the management of the national forests, and one of the themes that we hear constantly from our Forest Service employee members is the concern about the high overhead rates charged against the five trust funds. And in particular against the K-V, the Knutson-Vandenberg Trust Fund. In response to these concerns we did an evaluation of half a dozen national forests throughout the country, somewhat randomly selected, and I would like to discuss very quickly the results, the Stanislaus in California.
    We looked at all timber sales sold between 1994 and 1996 from which K-V deposits were collected, and there were 26 such sales. The K-V plans, that is, the plans that identified the on-the-ground work that needed to be done after logging, this includes reforesting, treating the residual brush and restoring the fish, wildlife or recreation resources within the sale area, those direct project costs from those 26 sales totaled $10 million.
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    We found, though, that of the money collected, only $6 million was actually spent on doing those functions, and $3.2 million was diverted into overhead. That left about a third of the work that went unfunded or required appropriated funds from Congress from some other account in order to carry it out.
    We went and looked at the law to find out whether or not the 1930 K-V Act authorized these kinds of expenditures, and we concluded that it does not.
    There is a very basic fundamental tenet of Federal law. If Congress doesn't authorize an agency to do something, then the agency can't do it. And where Congress has taken the trouble to specifically itemize the purposes for which funds are to be spent, then you can't spend those funds on other things.
    In the K-V Act Congress did specifically itemize the proper activities for these funds to be expended upon, and none of the overhead functions that the Forest Service witnesses have discussed are listed in the K-V Act of 1930. The same is true with the Brush Disposal Act; the same is true with the Cooperative Road Maintenance Act. However, when Congress does want these trust funds spent on overhead, it knows how to say so.
    One of the five trust funds specifically allows for overhead expenses to be charged against that trust fund. So you know how to discriminate between funds that are so important that they have to go to on-the-ground purposes and funds that you will allow the Forest Service to cover overhead expenses with.
    Now, I think you have an important decision ahead of you. You can choose to loosen the existing legal restrictions which have been ignored by the Forest Service. You can choose to loosen them by statutory language either through an appropriations bill or authorizing legislation. I encourage you not to do so. Let the existing laws work as they were intended to do.
    Let us, the people, enforce those laws. Don't grant the Forest Service post hoc permission for the illegal behavior it has engaged in for the last 40 years. That is sending the wrong message to the agency.
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    Now, there is another problem with the way that the Forest Service administers the K-V Act. The K-V Act requires that the deposits for sale area rehabilitation and improvement be collected over and above the price of the timber. Congress wanted to make sure that the Treasury wasn't shorted timber dollars due to it.
    The Salvage Sale Fund, on the other hand, requires that the dollars come right out of the timber sale price so they are very different means of collecting the money. However, since 1957 the Forest Service has treated the K-V Act just like the Salvage Sale Fund. They take K-V deposits right out of the timber sale receipts, and that is shorting the Treasury and also means on many timber sales the only money returned to the Treasury is 50 cents per thousand board-feet. Everything else is eaten up in overhead and on-the-ground improvements.
    I will be happy to answer any questions that you have. Thank you very much.
    [The statement of Mr. Stahl appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you, Mr. Stahl.
    Mr. John Hofmann is vice president of the California Forestry Association. Welcome.
    Mr. HOFMANN. Thank you, Mr. Chairman and members of the committee. I am pleased to be here, and we are very concerned over the issues before you today.
    As we have noted, the TSPIRS report for the last several years, Congress traditionally appropriates a little less than $200 million to the Forest Service for timber management activities, but yet the TSPIRS report reports that roughly three times that amount is charged to the timber sale program or charged against the timber sale program.
    Most of the—or I could say that the administrative charges to the Forest Service alone for timber sale management exceeds the total amount appropriated for the timber management program. We think that it is very appropriate that you take a hard look at these accounting services that the Forest Service has.
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    I also did some charts and I am sorry that you can't see them. I didn't get here in time to blow them up.
    The point is, what these charts display is that the indirect expenditures, the expenditures for overhead continued pretty constant from the year 1993 to 1997, but the direct expenditures, the on-the-ground expenditures, dropped significantly; and that is true whether you are looking at dollars per thousand or the total dollar amount. And what that tells me is that if the Forest Service could have held their overhead charges to the 1993 level, roughly 25 percent more forest treatments could have occurred, or that money could have been returned to the U.S. Treasury, whichever was appropriate.
    I think it is also strange, Mr. Chairman, that these increases in overhead come in the years that the timber sale program shifted from largely a cleanup and maintenance program in that the timber sale program, which was traditionally about 10 percent noncommercial, has increased in California to 53 percent noncommercial. In other words, the timber sale program itself is cleaning up the slash and residual and improving the stand, removing some of the small diameter trees that are not commercial, and yet we continue to collect money to do the same treatment after the timber sale is already completed.
    Now, this shift in management objectives for the timber sale program has had a significant effect upon the timber sale program. First, the timber sale program has borne the expenses of removing the noncommercial wood in conjunction with the removal of the commercial wood.
    Second, it has borne the expense of funding secondary cleanup programs that are largely administrative funding programs. And these changes are significant and may even jeopardize the timber sale program.
    Let me give you a couple of examples that show the excessiveness of these costs and the real concerns. Some of these off-line deposits exceed the logging costs associated with the timber sales.
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    For example, on the fifth timber sale in the Sierra National Forest, the slash deposit was $110 per thousand board-feet. K-V collections were $209 a thousand, both of which are greater than normal logging costs.
    Consider the Clem Jr. Salvage Sale on the Eldorado was $61 per thousand for slash deposits and $296 for K-V collections; total off-line collections, $357 per thousand before we ever bought a stick of timber.
    Or consider the West Sheer Multi-Product Timber Sale on the Stanislaus in which one-third of the timber sale volume to be removed is biomass. It is the slash work, the tops and limbs and small trees that are noncommercial, that are automatically removed in those timber sales, but yet it still requires $31 per thousand for slash deposits. We find it very difficult for any program to be cost effective with these kinds of deposits.
    The timber sale program in Lassen National Forest is primarily a noncommercial sale program. In 1996 only 27 percent of its program was merchantable timber, but yet the Lassen National Forest is one of the largest collectors of slashed treatment deposits, K-V and Salvage Sale Funds in California according to Forest Service records. A sale from the first quarter of the year of 1996, the Coyote Resale is one example. The sale volume is 79 percent biomass and still requires $16 per thousand slash deposits and $124 per thousand K-V collections. Significant funding is extrapolated from the timber sale program not to fund forestry, but to fund the Forest Service bureaucracies.
    There is one additional concern that is of equal magnitude. The Sierra Nevada Ecosystem project stated, and this is a quote, ''if not accompanied by adequate reduction of fuels, logging, including salvage of dead and dying trees, increases fire hazard by increasing surface dead fuels and changing the local microclimate. However, logging can serve as a tool to reduce fire hazard when slash is adequately treated and treatments are maintained.''
    Many critics and administrators of the Forest Service understand the risk of the timber sale program when failure to adequately treat and maintain the accumulated slash occurs.
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    Mr. Chairman, we are very concerned that the funds collected are used to treat the work that is determined necessary by the Forest Service. We urge this Congress to limit the overhead spending on these off-budget items to reasonable levels.
    Thank you, Mr. Chairman.
    [The statement of Mr. Hofmann appears at the conclusion of the hearing.]
    The CHAIRMAN. Thank you very much, Mr. Hofmann.
    Mr. Pandolfi, was the Forest Service aware of the GAO report information prior to the report surfacing?
    Mr. PANDOLFI. I believe Mr. Meissner said that he obtained the information from the Forest Service. I suspect that the Forest Service was aware of the information that they gave it, although I don't suspect that we were aware of the analysis that he did.
    The CHAIRMAN. Mr. Meissner, somewhere along the line somebody was surprised, I think, by your report; is that fair?
    Mr. MEISSNER. We obtained all of the information that we used directly from the Forest Service. When we presented the data at an exit conference to the Forest Service, they expressed surprise from—surprise to substantial surprise at the direction of the data. In fact, one of the people in the meeting said to us that he assumed that the data was going the other direction.
    It appears that while the data was in the hands of the Forest Service, that nobody had put it together to accumulate trend information over a period of time. Or if they had, we were never able to identify the person or persons who may have done that.
    The CHAIRMAN. So far as you know, Mr. Meissner, has the Congress reviewed these off-budget funds, to your knowledge or memory?
    Mr. MEISSNER. I don't believe so. If they have, again that is not something that we have seen. I think you review appropriations a lot. I think the off-budget items, whether they are permanent trust funds or permanent appropriations have been reviewed little.
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    The CHAIRMAN. Mr. Pandolfi, your agency is now running about 27 percent overhead. You have been in the private sector. Is that high?
    Mr. PANDOLFI. First of all, I am not sure what data was used to determine the 27 percent, but let's assume, whatever it was, we will accept the 27 percent.
    Is that high in the private sector? It depends on how overhead is defined and what it is used for. It may be very high; it also may be low.
    The CHAIRMAN. Well, you are the gentleman responsible for reforming the Forest Service accountability. What do you think it is?
    Mr. PANDOLFI. I am not sure, because I think one of the sad parts of having a hearing like this this morning, although I fully appreciate why you are doing it, we are having to deal with data that I think is suspect in many ways.
    I have been in this job now for approximately 4 weeks, as you know, and I think there is a great deal that we can do to collect and analyze data much better than we do now. But I don't believe the data that we are looking at here today allows any of us to reach the conclusion that the overhead that we have is either too high, too low or appropriate.
    The CHAIRMAN. Well, there is something that we can resolve here today, which is rather obvious to everybody; and that is, the Forest Service is rather fat at the top and rather lean on the ground. And that is evidenced by everybody's testimony here, that while the timber sales have dropped by 50 percent in this country, overhead has increased despite how you call it, or the direct expenditures have gone down while the indirect have gone up. Despite whose numbers you use, that doesn't track as far as policy is concerned.
    Does it track to you?
    Mr. PANDOLFI. If I were in the private sector and sales were going down and overhead was going up, I would be very upset.
    The CHAIRMAN. Thank you.
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    Mr. Pandolfi, according to the GAO report, the Washington office spends about $15 million out of the five funds for overhead. Is that correct?
    Mr. PANDOLFI. I don't know, sir.
    The CHAIRMAN. I see. How much does it cost to run the Washington office?
    Mr. PANDOLFI. What would you like me to include in analyzing your answer, sir, because it may be that we have data that is helpful and it may be that we have to get data to answer your question.
    The CHAIRMAN. Despite what it costs, or how much it costs, my number is about $60 million. Could you explain to the committee what the role of the Washington office has to do with reforestation, brush disposal, habitat improvement and other on-the-ground activities?
    Mr. PANDOLFI. Yes. I want to start by—and I will ask Dr. Stewart to amplify this in a moment.
    I have to answer your question at the start in a general way. I believe you are equating, which is perfectly acceptable, the Washington office expenditures to overhead. If that is the definition, that is fine.
    Overhead are the costs incurred by an organization to control, manage and measure its business. To the extent that we need to apply control, management or measurement to the activities you are describing, that would be a role that the Washington office has.
    And I want to add one thing to that to say to you that there are situations—and I have observed them in my prior career—where increased overhead may well be a desirable condition because if you do not manage, control or monitor your business adequately because you do not have adequate people to do that, then you have made an error. And I think the Forest Service has made a very significant error in the years, recent years, to have cut its overhead as much as it did and to have lost control of its business the way that it did.
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    The CHAIRMAN. Mr. Pandolfi, if indeed the purpose is to control, manage and measure, then all the testimony here flies in the face of that statement because none of those things have occurred.
    Mr. PANDOLFI. Mr. Smith, I have spoken to you in the past about the fact that the Forest Service has over the last several years collected data to do analysis, and that data has been severely flawed. That has been shown to be the case by the Office of Inspector General. We have just recently received reports from the Office of the Inspector General where they have indicated that the quality of input data, from which we will develop information to manage our business, is now substantially better but that is only in the last few months. That is why I said earlier that trying to draw conclusions from flawed data is dangerous business.
    I recognize, on the other hand, in general, that what you are saying is very appropriate; and what I said a few minutes ago I would say again, if sales go down, overhead goes up, I would be concerned. But what I am trying to do is work with the staff to create better information from data that is just now adequate to use in drawing conclusions.
    The CHAIRMAN. Well, I assume that you are as concerned as I am about the general application of what has occurred in the management of this resource in the past 5 to 7 years which results in a deficit from overall harvest of timber. Where timber harvest always paid for the program, now we are in a deficit position to the joy of many in this country who believe that we should never harvest another tree. If we don't harvest a tree, why should we have the Forest Service, by the way, but certainly in a reduced capacity?
    So here we have an agency that is operating on an increased overhead for the body of the agency while the revenues have been slashed—at least Forest Service harvests have been slashed in half—and everything is a deficit sale. If you have a deficit sale on every forest, maybe it is because the overhead costs are too high. Is that possible?
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    Mr. PANDOLFI. Yes, it is possible. However, there are other values that the forests produce beyond timber, and it could be that some are to manage those other values as well. I think if we had data, we could make decisions much more effectively than we can here now.
    The CHAIRMAN. Our premise is, despite what you might think about negative questions, the purpose here is an attempt to assist the Forest Service in protecting a resource, and part of that is very expensive on-the-ground treatment, as you have heard from all experts, including the Forest Service environmental organization, that, I assume, believes, as we all do now, that if you cut overhead, you can put more on the ground. We are only treating a million acres a year out of 40 million acres in jeopardy. Maybe we ought to be moving more money in the budget to on-the-ground treatment. If we can't get more money from the sale of timber, maybe we can move the overhead down so that we can leave our land in better shape than we are today. That is what this is all about. So it might sound to you like this is negative, and it may be critical of what you are doing.
    The gentleman from Texas, Mr. Stenholm.
    Mr. STENHOLM. Thank you, Mr. Chairman.
    You and I have been working on this question in USDA since 1992, and it has been very frustrating for me and other departments of the USDA that I know a heck of a lot more about than the Forest Service, so I will speak generally today in my questioning as well as my statement.
    But it is very frustrating when I hear, Mr. Pandolfi, that it is only in the last 2 or 3 months that the data, collected by the Forest Service as required by the Inspector General and others, has only now begun to be of a quality judged to be good information. I just wonder, who in the Forest Service has been doing what for the last 6 years.
    You know, you don't have to answer this question because I sensed in some of your answers there is a little frustration, and you have only been on the job for a little while. But why should it take a question like this from a Member of the Congress to suggest that perhaps the bureaucracy has been more interested in preserving their own jobs rather than meeting the new and expanding needs of the forest industry?
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    Why has it taken until the last 2 or 3 months to get this kind of information? By your own testimony, you say in Mr. Dombeck's prepared remarks that ''The Forest Service has reduced our work force by 15 percent, including a disproportionate reduction in the Washington office.''
    Again, I have information that says that total expenditures charged to the Salvage Sale Trust Fund between 1993 and 1997 has gone from $581,000 to $8.4 million, a $7.8 million increase in the operation of the Washington office.
    Now, I pose this question because I hope, in response to the chairman and to what I believe is going to be for the first time a real in-depth look by the Agriculture Appropriations Subcommittee at these numbers that are coming out, that somebody is prepared to answer that question, because that suggests to somebody from west Texas that doesn't have many trees, that admittedly is very ignorant as to the operation of the Forest Service, but knowing a little bit about some of the rest of USDA and some of the frustrations that I am having with the same bureaucracy being unable to come to grips with actually doing what we say we are going to do; and that is, to provide better service to the American people whom we serve.
    Based on the numbers that I am seeing, you in the Forest Service have worse problems than anybody else, and I am frustrated with the inability of the so-called bureaucracy, particularly Washington bureaucracy, to come to grips with doing what you say you are doing.
    Let me end at that, because I think the key to this is going to come in appropriations and justifications, and I am going to be very interested in working with the Chairman not only in your department, but all across USDA to make sure that we do what the Secretary is saying. And I believe him to be sincere in saying what he wants to do, and that is to improve the efficiency of delivery of service, but we have a little problem somewhere; and I wish you luck.
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    Mr. PANDOLFI. Thank you.
    The CHAIRMAN. I thank the gentleman from Texas. We are going to guarantee him that it will be more than luck. We are going to continue this.
    Mr. Doolittle from California.
    Mr. DOOLITTLE. Thank you, Mr. Chairman. A couple of years ago in the Resources Committee I remember Jack Ward Thomas came before the committee, and he was asked, had there ever been a year when the expenses of the timber program exceeded the income, and the answer he gave was no. Apparently the Forest Service and the Clinton administration have worked real hard to reverse that, because I believe last year was such a year. Is that correct, Mr. Pandolfi?
    Mr. PANDOLFI. The data in the report that you have seen indicates that, yes.
    Mr. DOOLITTLE. And obviously a big factor in this would be what we are talking about here with this dramatic increase in the overhead charges, despite the fact that the overall timber harvest has decreased by 50 percent, and then going into what Mr. Hofmann pointed out, when we go from the timber sale program having a limit of 10 percent of nonmerchantable timber to where now in region 5 it is 53 percent. That, as well, would have a dramatic impact on the balance sheet in the timber sale program, would it not?
    Mr. PANDOLFI. If costs are being allocated correctly, it would.
    Mr. DOOLITTLE. We have also heard in testimony in this committee and others how our national forests are in the worst condition today of the entire 20th century, and Mr. Smith mentioned, and I think it is a Forest Service figure, that there are 40 million acres deemed to be in critical need of treatment. Is that the figure that you are using, 40 million?
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    Mr. PANDOLFI. Is that our figure?
    Mr. STEWART. Yes.
    Mr. PANDOLFI. Yes, that is our figure.
    Mr. DOOLITTLE. Representing a lot of forested areas, this is of grave concern to me to see this situation continue.
    I also recall hearing that we are growing now annually on our forested lands between four to five times as much product as we are harvesting in any given year. I will continue to ask until I see some change, this whole thing is going to spin radically out of control if we grow four or five times the material each year, new year, as we harvest each year. It sounds like sort of a geometric progression.
    Let me ask you this, and I know this is not why you came to testify today, but I would be curious in hearing the answer. What projections do you have? That 40 million figure is not a static figure, I assume, and I would have to believe that over time the number of acres in critical need of treatment will begin to significantly increase, will it not, as a result of this reality of growing four or five times as much forest material as we harvest each year. So do you have some projection that indicates how that 40 million acres is going to grow over time?
    Mr. PANDOLFI. I would ask Mr. Stewart to respond, please.
    Mr. STEWART. Mr. Doolittle, the 40 million acres are those acres that are in pine-type around the Nation that historically had short rotation fire intervals.
    Something in the neighborhood of probably less than 20 years fires would go through. For a large part, we have kept fires out of them. Therefore, the presumption is that they have a buildup of understory and, therefore, ladder fuels and are at risk. That 40 million acres will probably stay fairly constant, based on that definition, in terms of the numbers of acres at risk.
    We have made a fairly concerted effort to try to define the extent and nature of the forest health situation in the United States, not only in national forest lands because it is not just confined to national forest; it is private and State lands also.
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    We hope sometime this fall to be able to come up and present to you a forest health mapping effort which will take a look, nationally, at where the problems are and what the nature of those problems is, because there are other areas that are at risk from insects and diseases such as gypsy moths and so forth.
    So what we would like to do is look at—not just look at the 40 million acres, but set priorities in terms of treatment. We have had pieces of that picture but not the whole picture, and we are gaining that whole picture now, and our intent is to come up sometime this fall, we would hope, with the results of that effort and sit down and show you just what this problem looks like and, together, try to come up with some solutions.
    Mr. DOOLITTLE. Let me throw this out, Mr. Stewart, and maybe other members of the panel want to comment.
    How do we deal with the fact that we are getting tremendous overcrowding of our forests with growing four or five times as much material as we are harvesting each year? That sounds like a catastrophic problem. Why should we not be concerned about this?
    Mr. STEWART. I think we all are concerned. I think the nature of that problem is fairly well understood. Congress has increased last year and again this year, we have put in for efforts to do fuel management, which includes the very kinds of things that you are talking about.
    I will also say, though, because you are talking about understory trees, they are often of the lower value species and smaller diameters. You run then into the issue, while they will provide volume and fiber that can be used, they will probably not produce an economic return.
    Mr. DOOLITTLE. If we ran the timber program like it ought to be run and returned to historical levels of harvest, we could deal with those other problems because we would have revenues generated to pay for it, wouldn't we?
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    Mr. STEWART. That is hard to say.
    Mr. DOOLITTLE. Hasn't this problem gotten a lot worse? Since 1993 it is a 50 percent reduction, but since 1990, I think it is a two-thirds or four-fifths reduction.
    Mr. STEWART. It is true that in recent history that timber sale program was in the neighborhood of about 11 billion board-feet; it is about 3.5 to 4 billion today.
    Mr. DOOLITTLE. And yet I don't hear the Clinton administration proposing an increase in cuts. All we hear are new restrictions set forth for how we can further isolate the national forests.
    Am I missing some feature of the program that is out there that I am not focusing on?
    Mr. STEWART. As I indicated, our current focus is trying to deal with fuels management. We are doing salvage and regular stand management. So there has been a combination of efforts in all of that.
    Mr. DOOLITTLE. I know that my time is up. Mr. Smith alluded to it. Even if you go with the 40 million acres, which I think is the tip of the iceberg, but even that you are doing only 1 million acres a year, so it would take 40 years to curb just that problem, let alone the enormous problems that we are going to have because of the huge amount of material increasing each year, the last 3 years it has been a 15 times increase over what we have been harvesting, hasn't it?
    Mr. STEWART. In terms of the million acres, we are trying to ramp that up. The President's budget calls for a half million acre increase. We have actually exceeded the assigned targets over the last year. We are trying to ramp those up under a tight budget situation; as you are dealing with, and we are also, we are trying to find ways where those trade-offs come from in order to increase emphasis on those programs. Congress has been very good in terms of recognizing a problem and putting in increased support for it.
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    Mr. DOOLITTLE. This is a program that used to generate net revenue to the Treasury, and now we are in a deficit and you want more money to produce less. I mean, to me, the solution ought to be clear. We ought to be cutting more trees and improving the health of our forests, returning more revenue to the Treasury, putting people to work, making forest products available. Instead it seems like there is a determination to put more and more of the burden upon the taxpayer while the forests continue to deteriorate.
    I make that observation and I thank you, Mr. Chairman, for the chance to ask these questions.
    The CHAIRMAN. Thank you. We will have time for another round I am sure.
    Before I recognize Mr. Boswell, Mr. Hofmann, you are familiar with the California forestry programs I am sure. What percentage of the California forests, State forests, are in jeopardy of catastrophic fire?
    Mr. HOFMANN. I would say that the worst—the forests that stand in closest jeopardy to fire are those closest to the national forests. We have pictures that show the private forest lands, because of active forest management, the dead fuels and the stands are thinned regularly, are green and healthy looking and you can see the property line from the national forest lands.
    Another good example is, compared to the national forest land, the Tahoe Basin has a program that is not a timber sale program. There is no timber management program on the Tahoe Basin, but surrounding it are national forest lands which do have timber programs.
    And yet as the Vice President, the President of the United States and their Cabinet folks came in last year, they noticed as they went from the Tahoe to the Tahoe Basin and said, My gosh, what has happened here? This place really looks bad.
    And so it is noticeable wherever timber management does not occur. On private lands that are actively managed, we have a very low risk of wildfire.
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    The CHAIRMAN. Thank you. I will get to Mr. Stahl later on that issue as well.
    Mr. Boswell.
    Mr. BOSWELL. Thank you, Mr. Chairman, I don't have any questions. I'll just make this comment.
    I am kind of like Mr. Stenholm, and probably more so because of newness here. I don't have a great background in forestry, but I have heard quite a few criticisms, and it sounds to me like some are valid, but what's the plan? Is there a plan?
    Maybe we can get to the point here: What do you intend to do?
    Mr. PANDOLFI. Absolutely there is a plan and there is a plan in place now, and I believe that this committee can play a very important role in helping us to implement that plan.
    I don't know, Mr. Chairman, the extent to which you want me to go into detail now. I won't go into any significant detail now other than to say that we have hired help from the outside. We have brought in an accounting firm which has been very helpful to us. We have already taken a number of recommendations that they have given us in the last 30 days. We have a plan to go forward from here.
    I believe that one way this committee could help us is, if we sat down and reviewed what that plan is—again I can give you details of it now if you would like, but I don't think that it is necessarily appropriate. We then have to tell you that we can produce results in a certain period of time, and you have to monitor us against those results; that we can produce data that has value, that has far more value than the data that the GAO has used to give you its projections this morning. If we can do that, I would hope that you would stick with us.
    But it is not a short period. What has taken 20 years to create will not be fixed overnight, but we can show you progress over the course of the next year.
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    We have set in motion things to do, to have people trained to do the analysis required here, so we can determine if overhead allocations are proper or not, to determine the statistical data that you need so we can address questions such as Congressman Doolittle raised to determine whether allocations made to the timber program are correct or whether they should be put on the backs of other programs that the Forest Service has in addition to timber. We seem to be talking primarily about timber this morning.
    Mr. BOSWELL. I don't want the specifics. Just give us some broad terms in three phases of what you intend to do.
    Mr. PANDOLFI. We are bringing in people, who we will have by Labor Day, people experienced in four key areas to enhance the work done by some very good people in the Forest Service today. They are in budget, the fiscal area, information management and human resources. We will have the people we need in place by Labor Day. We will have eliminated the backlogs in human resources in hiring and in searching for new people by then.
    We have gotten the approval of the United States Department of Agriculture to hire seven senior SES executives immediately. They have been withholding that permission from us for a long time because they too felt overhead was too high. But we have made the case that we need to buy some peace in this agency if we are going to try to fix the problems that you are talking about today. And when we are constantly hammered on the timber problem and we don't even have a Director of Timber, because the position has been on hold, that is a problem.
    I can't do my job and answer the questions that Congressman Doolittle has asked if we don't have those people in place by Labor Day.
    By the end of the year we will have begun to show you that we can collect and analyze data in a very small and perhaps superficial way, but we will show you that we can make progress. We have 35,000 people, 75 million data transactions every month, 800 entry points; and we deal with the National Finance Center in New Orleans, LA, which is our general ledger, and I don't think we should be there necessarily because they are not a general ledger organization.
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    So we have a lot of problems to solve, but we can begin to show you progress this year, and what we need is to have you agree with us that what we are doing is correct or help us make it correct in the financial area and then stick with us.
    Mr. BOSWELL. Thank you. It sounds like you might have a plan.
    Mr. PANDOLFI. We do have a plan, sir.
    Mr. BOSWELL. Thank you, Mr. Chairman.
    The CHAIRMAN. If you think this is hammering, Mr. Pandolfi, I don't think that you understand what hammering is. This committee historically has been supportive of the Forest Service. We can't stomach it much longer.
    By the way, Mr. Meissner and Ms. Berman, this is an official request I will follow in writing that I want you to continue to monitor the Forest Service activities and to hold them to these dates which have been identified; and we would like another report from your agency, and I will follow again by official letter, as to how they measure up to what they promised.
    I merely refer again to Mr. Stenholm's point that since 1992 we have been trying to get numbers out of agriculture on revamping and improving administration, and we seem to be continually frustrated. So if hammering is oversight, Mr. Pandolfi, you will be hammered.
    Mr. PANDOLFI. May I respond to you, Mr. Chairman?
    The CHAIRMAN. Yes.
    Mr. PANDOLFI. I have been in your seat for 30 years in another part of—in the private sector, and I appreciate—Mr. Chairman, I know that you are a gentleman. I have been told that by the people in the Forest Service. I do feel very frustrated with this. I have hammered people in the past for not knowing information that you asked us today, that we should know.
    Now, my only point is, I ask for your support and I ask for your support to look at a plan with us. What I have said this morning in response to Mr. Boswell is very superficial. We will be able to lay it out in more detail for you, and GAO can monitor it for you.
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    I am not upset by your questions. My tone of voice may occasionally express upset, but I am frustrated by not having answers to questions that we should have and I would not have permitted my managers not to have in the past. I understand where you are going, and I think I can help you.
    The CHAIRMAN. That shows responsibility on your part, and we are as frustrated as you, so we will work together to reduce our frustration.
    Mr. Smith.
    Mr. SMITH of Michigan. Thank you, Mr. Chairman.
    A little over 3 years ago there was similar frustration on the part of this committee and the Appropriations Committee in regard to the old Soil Conservation Service which was transposed into the Natural Resource Conservation Service.
    Funding—because of the concern for the top-heaviness in Washington—funding was substantially reduced for the administrative expenditures in Washington, and what resulted within USDA was the creation and expansion of regional offices. And so we did move some of that top-heaviness, if you will, out of Washington into regional offices; and the information that I receive back now is that it is another level of bureaucracy.
    Mr. Meissner, in regard to your analysis of the expanded administrative efforts, the expanded problems in the administrative area within Washington versus the regional offices of the Forest Service, what did you find? Where is the expansion taking place?
    Mr. MEISSNER. If you look at the data, and again I must agree with Mr. Pandolfi in a couple of respects, we also agree that the data is flawed. But at the same time we agree that the data is flawed, the data itself is really rich in providing information about what is happening in the Forest Service, even though flawed.
    Our data shows that for all of the funds, indirect expenditures increased throughout the country. Your question specifically with regard to what is happening in Washington, DC, the fund there that increased substantially was the Salvage Sale Fund in terms of expenditures, and I think the chairman repeated that information earlier, $8.5 million versus a half a million dollars 5 years ago. Indirect costs that are over $5 million today versus half a million dollars 5 years ago. So there has been an expansion within the Salvage Sale Fund in Washington, DC, during that 5-year period of time.
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    Mr. SMITH of Michigan. So the relationship of the regional offices to the expansion of those indirect expenditures, whoever wants to react to it?
    Mr. STEWART. The Salvage Sale Fund is a specific case in that historically the law enforcement part of that, the enforcement for timber theft part of it, was a local cost. When the law enforcement organization was stovepiped, if you will, with the separate line budget item in Washington, its support for all of its activities show up as Washington office budget even though the people, for the most part, are out in the field doing the work.
    In the case of the Timber Salvage Fund, it was all centralized and paid for out of the Washington office. Therefore, there was a huge increase. The money was being spent before; it was just accounted for in a different place. It was now centralized and managed out of the Washington office; and it was part of the stovepiping of the law enforcement organization, which was in response to one of the reviews on the independence of law enforcement throughout the Federal Government.
    Mr. SMITH of Michigan. A question: Some old classmates plus some relatives that have spent their lives and careers in the Forest Service have indicated to me that the field personnel and the morale and esprit de corps that used to be so strong is weakening in the field and a lot of discord with field personnel—I don't know if we have ever looked at that or—is that as real a problem as they feel that it is in terms of the lack of esprit de corps, the lack of the old drive and effort to make a success in the field operations? They are concerned, and I just wondered if anybody has a reaction to that.
    Mr. STEWART. I guess as a person getting close to 30 years in the agency, I have seen a change, I think; and it reflects—when I started with the agency in the 1960's, we were probably one of the most respected agencies in government. And in fact in the 1980's it was Tom Peters who wrote in one of his Excellence books that probably the Federal agency that best showed excellence was the Forest Service; but we had strong public support and probably a greater consensus in what the mission was.
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    Today I think there have been changes in public values. There are changes in values within the agency, and that has created some tension. There has always been tension between levels of the agency. As I indicated in my testimony, at whatever level of the organization I served in, I always thought the ones above me were useless, and I was the only one doing anything worthwhile.
    If I could respond for a second to what you were saying about the oversight that was exercised on Soil Conservation Service, we had similar oversight and direction in the budget several years but ours went to the regional level, too—not just the Washington office, but the regional offices. And as a response to that, we consolidated a lot of services; and some of those services get consolidated up instead of down. And they provide field support, like law enforcement, for instance, they now show up at a higher level of the organization in terms of support cost.
    A number of things at the regional and national level have been consolidated, so rather than having something done at every level, they are done at one level higher and the costs show up there.
    So I think part of the question—I work for Francis directly and he frustrates me, too, because he asks those questions that I can't answer. And I think part of this is being able to get good analysis so we can see where those costs are and analyze those cost centers and find out where the opportunities really are to streamline and provide better service, perhaps at less cost. We are not in a position to be able to do that today.
    I would like to say that I don't think anybody whom I know of who is making decisions at the regional or Washington office level is making those arbitrarily or capriciously in terms of what they take in terms of their services.
    When I was a regional forester, I had 24 supervisors that reported to me, and they were hammering me on the costs of operating my organization; and my response was that I opened the books to them, and I had five—they selected five forest supervisors, and they spent 3 days reviewing every cent we spent. They reported back to the other four supervisors and their response was, get off his back. We can justify everything that they are spending. The only thing we have recommended is some of the programs which benefit the region should be implemented at a lower rate. They zeroed out nothing.
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    And we offered that a second year. They came back with a different group. They sat down and went through the books.
    The third year they didn't come back, and I think that was because we had some credibility with them. I think open books is the best way to do that.
    Mr. SMITH of Michigan. I would just like to conclude, I hope this committee and GAO eventually will look at the NRCS regional office versus the forestry regional office and what sometimes appears to be a lack of cooperation and sometimes a duplication of effort in terms of those two regional efforts sometimes with similar goals.
    Thank you.
    The CHAIRMAN. Mr. Stewart, you mentioned that one of the reasons for increased overhead was the policing of the Salvage Trust Fund. I remind you again, that increase from 1993 from $591,000 to almost $8.5 million, how many policemen were hired by the Washington office out of the $8 million?
    Mr. STEWART. All of our law enforcement officers are Washington office employees, if you will, even though they don't work here. Because of the stovepiping of the law enforcement organization, they are now counted as Washington office employees. That is the issue.
    I am not sure what the change in cost has been, but—and now it is a separate budget line item in terms of most of their day-to-day operations. But when you can identify a benefiting function, for instance, in the timber theft arena, they do charge against those funds.
    The CHAIRMAN. And policing recreation is the same budget item?
    Mr. STEWART. It is paid for out of recreation appropriated fees—not fees, but appropriations.
    The CHAIRMAN. So the forests do not have a budget item coming up from the respective regions for policing?
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    Mr. STEWART. For law enforcement, they do not.
    In fact, they never did have, because it was not a separate budget line item and it was taken off of the programs. Now there is a budget line item.
    The CHAIRMAN. What is the budget line item now?
    Mr. STEWART. Are you asking what it is called or how much?
    The CHAIRMAN. How much?
    Mr. PANDOLFI. About $66 million, Mr. Chairman.
    The CHAIRMAN. For all law enforcement?
    Mr. PANDOLFI. Yes. That is approximately 600 or just slightly over 600 law enforcement officers plus investigators and managers.
    The CHAIRMAN. Mr. Johnson.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Mr. Pandolfi, you mentioned being on the job for just 4 weeks now and coming here and facing some of the problems, and you mentioned overall some of the problems that you found accounting-wise in these 4 weeks, and you do have plans for change.
    I wonder if you might outline some of the—some of it in maybe a little more specific—some of the problems, the hurdles that you are facing that relate to the accounting practices that you are hoping to change.
    Mr. PANDOLFI. Sir, I think that one of the major problems that we face in the Forest Service with regard to better accounting, which will lead to better management information upon which we can make good decisions, has to do with the fact that the culture of the agency has not respected business management to the degree it has respected natural resource management.
    Now, I want to be clear to say that there are people next to me and behind me today who are very good people, who are doing a superb job and have fought against odds which have been much higher than they should have been required to fight against, to get recognition for the importance of business management. I was not here and I can only speculate, and I will not do so in front of the committee as to why that might be the case. But the fact is, Mr. Johnson, one of the biggest problems is going to convince the employees of the value of having better information.
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    Mr. JOHNSON. What about the practice of itemizing the Knutson-Vandenberg funds? Do you anticipate accounting changes in how these fund dollars are itemized compared to what had been done before 1957?
    Mr. PANDOLFI. I don't have an anticipation of anything other than once we have good information and an agreed-upon allocation strategy, which you agree upon together with us, that you will have data that at least we will agree upon. We may not agree that the numbers are what you want or what we want, but at least we agree that they are the numbers.
    Mr. STEWART. If I may add, something Francis has been hammering us on is, right now any time anybody has asked for something, we have tried to track it in our system. We have made our financial system so complex regarding the number of transactions and everything, people enter the data and they are having to make snap judgments, because we have such finite things, whether to put it here or over there, so you can't even trust the information.
    And I think the thing that he has hammered into us, simplify, get accurate information, and then do something with it. Do something with it is something that, when he asks questions about analyzing our financial situation—I indicated I was a dirt forester—I have no idea what he is talking about. He is teaching us how to do that, so we can answer some of these questions.
    A key thing I want to say about the GAO report and the comparability of the cost information from 1993 to 1994 and beyond, we do care about overhead; and we did look at overhead in about 1992 or 1993, and we found we were being inconsistent in the way that we dealt with overhead, the way we had been taking those things which we now called ''common services,'' space and rent and those kinds of things, and charging them as a direct cost. The rest of the organization, we had been counting those as an indirect, and so we moved them from the direct category to the indirect.
    Rent and utilities and those kinds of things are fairly big expense, and so there was a large jump going from—in 1994 and 1995, as we implemented that and as you look at the percentage increase, it went on average from about 15, I think, up to almost 20 overnight, within a year or two.
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    From that point on, it has been about a 2 or 3 percent increase for the funds on the average, on the total. And so that accounted for at least part of it, but that was because we were trying to get a more accurate indication of what the real overhead indirect costs were.
    And then there are other factors that play into that, too, in terms of accuracy of the data and so forth.
    Mr. JOHNSON. In fact, I believe in Wisconsin, in Milwaukee you are moving to a whole new office because of cost problems, because of office costs, I don't know if you have any details about that that you care to share with us.
    Mr. STEWART. There have been discussions about consolidating offices between region 9, which is in Milwaukee; the North Central Station, which is St. Paul; and the Forest Products Lab, which is in Wisconsin.
    Not to push back on the committee too hard, we stand accountable for a lot of things, but I will say when we have attempted to reduce overhead costs by consolidated units, oftentimes it has been difficult to do because they are in somebody's district.
    To be honest, I was involved in some research consolidations that took 5 years of effort to bring out before we saw the cost savings in order to do that. That is a practical consideration.
    In the meantime, when you are in a community, we still have the responsibility to try to provide local service and to reduce the costs of operating that unit.
    Mr. JOHNSON. Very much like base closings?
    Mr. STEWART. Very much like that.
    Mr. JOHNSON. I know that my time is about up. Do Mr. Meissner or Mr. Stahl have any reactions to what they have heard today regarding your critical reports?
    You have heard about some proposed changes and finance practices. Do you have any response at all?
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    Mr. MEISSNER. Mr. Johnson, I would like to comment on one of the things that Mr. Stewart said because we also looked at the data to see if there was a big disconnect between 1993 and 1994, and the Forest Service provided us information that demonstrated it did. And when you look at the raw data, you can see something happened during that year.
    The problem is—and Mr. Stewart said it, but I am not sure that he knew what the answer was going to be—there was also an inconsistency there. When we looked at the data between those 2 years, to our surprise, another inconsistency between the Forest Service data surfaced even before common services existed. These funds were charging rent expense to these funds even before there was a common services account.
    So the big jump isn't as real as it really is. If you look at the raw data in the $581,000 expenditure for Washington, you will discover in that indirect amount there are rental amounts in there.
    My point is that the statement that Mr. Stewart has said is 100 percent correct. There was a major change in 1994. The problem is that major change isn't as significant as the Forest Service thinks it is because the raw data demonstrates another contradiction within the system that existed at that point in time. I am not sure that they are aware of that, but rent is one of those places that was credited to indirect expense even before the account existed.
    Mr. STAHL. Mr. Pandolfi has emphasized better quality data. I am skeptical that better data will cure fundamentally illegal behavior. The best data in the world isn't going to change the policy that takes overhead money out of the K-V fund, and it is that policy that is at odds with the act. And simply knowing whether the overhead rake-off is $100 million or $101 million isn't going to change the Forest Service policy.
    The policy is wrong, and it is subverting the basic intent of the K-V Act to reforest the land.
    Mr. JOHNSON. I thank the gentleman.
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    The CHAIRMAN. Have you completed, Mr. Johnson?
    Mr. JOHNSON. Yes, sir, Mr. Chairman.
    The CHAIRMAN. Mr. Goodlatte.
    Mr. GOODLATTE. Thank you, Mr. Chairman. I would like to follow up.
    Mr. Pandolfi, what is your statutory basis for charging overhead to these funds?
    Mr. PANDOLFI. There may be someone here who does know the answer to that question.
    Mr. GOODLATTE. Mr. Stewart.
    Mr. STEWART. This is on the trust funds, and I am buying time as people behind me put their heads together, but I think the key point is that this is a matter under litigation right now.
    There are three issues, and one is whether we have the authority. The second is, if we have the authority, the amount. And the third issue, as Mr. Stahl pointed out, deals with the timing of collections. Those are all matters of litigation, and therefore I am not able to comment on them.
    Mr. GOODLATTE. Mr. Pandolfi has asked this committee to cooperate with you and to support your efforts, but we are not the judicial branch of government, we are the legislative branch of government, and we have a responsibility to those who sent us to do this work to see that the laws, as written in this country, are upheld. And if you expect the cooperation of this committee and this Congress, you should be forthcoming about the basis for your charging overhead to accounts that should be on the ground, in use, in the forest to help promote proper management of our forests and not to support a giant bureaucracy in Washington, DC.
    Do either of you care to respond to that?
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    What is the basis for your asking for cooperation if you won't tell us the basis for your actions?
    Mr. PANDOLFI. Look, Congressman, if the attorneys tell us that we are not supposed to comment on something while a case is being litigated, then I think we are going to follow their advice.
    If there is some way to get you the information that you want, I am sure that we will be happy to do that.
    Mr. STEWART. I have been advised by counsel that if you submit those questions in writing, that we can respond to you on those.
    Mr. GOODLATTE. We will do that.
    Mr. Stahl——
    The CHAIRMAN. Pardon me just a moment.
    Submitting questions in writing does not mean at all that the gentleman from Virginia should treat them as private information, so I think we ought to make the point here now that submission of questions in writing is as public as testimony may be; and I would yield to the gentleman from Virginia.
    Mr. GOODLATTE. It would hope that we would get public answers. Whether there is litigation pending or not, I think the public is entitled to know what statutory basis the agency is acting upon to take public funds, use them for a public purpose that may be inappropriate; and whether there is litigation pending or not, I don't think that is an adequate answer to the question.
    So, yes, we will submit them in writing and we will hope to get a response because we think that you ought to be publicly accountable for the decisions that have been made. And I understand, Mr. Pandolfi, these are not necessarily your decisions. But you have taken on a public trust, and I think the public is entitled to know.
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    Mr. STAHL. To clarify, we are the plaintiff in the lawsuits—there are actually three of them addressed to three national forests that Mr. Pandolfi and Mr. Stewart referred to.
    I would be happy to make available to the committee, upon receipt, the Government's response to our motion for summary judgment, and that response should be arriving at my office maybe even today. It is due immediately, and there you will see the Government's best foot forward on why it thinks it can skim off overhead money from these trust funds.
    Mr. GOODLATTE. We would definitely welcome the benefit of having that information as well.
    The laws establishing these funds all provide that deposits to the funds beyond those required to meet the specific purposes of the fund should be returned to the Treasury.
    Mr. Pandolfi, does the Forest Service follow that procedure?
    Mr. PANDOLFI. Yes, we do.
    Mr. STAHL. Actually not in regard to the Salvage Sale Fund. It is the case with the K-V Fund that some monies have been returned to Treasury, but our information from the Forest Service is that is not the sale with the Salvage Sale Fund which has the same statutory language.
    Mr. GOODLATTE. Mr. Pandolfi, would you care to respond to that?
    Mr. PANDOLFI. I think we need to follow up with you later. I don't think that we have that information here.
    Mr. GOODLATTE. We would like to have the benefit of that information.
    [The information follows:]
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    The statutory language for the Salvage Sale Fund, 16 U.S.C. sec 472(h) differs from the language contained in the Knutson-Vandenberg (K-V) Act, 16 U.S.C. sec 576b. The K-V Act mandates ''(t)hat any portion of any deposit found to be in excess of the cost of doing said work transferred to miscellaneous receipts.'' By contrast, the Salvage Sale Fund stipulates ''(t)hat sums found to be in excess of the cost of accomplishing the purposes for which deposited on any national forest shall be transferred to miscellaneous receipts in the Treasury of the United States.'' We view the inclusion of the language on ''any national forest'' in the Salvage Sale Fund language as a significant and a conscious inclusion by Congress contemplating the transfer of funds among national forest. This view is further supported by Congressional Research Service's description of the Salvage Sale Fund in their report entitled ''Forest Service Budget: Trust Funds and Special Accounts'' dated January 27, 1989. In this report, CRS lists no restrictions on where Salvage Sale deposits may be used in contrast to the K-V fund which CRS characterizes as being restricted to forests where activities resulting in deposits occurred. Congress has explicitly authorized the off-forest transfer of Salvage Sale Fund deposits in appropriations bills for fiscal years 1990 through 1994. These uses of the Salvage Sale Fund are discussed in the General Accounting Office report entitled ''Salvage Sale Fund's Deposits and Outlays'' (GAO/RECD-96-240R). Accordingly, while selected national forests have identified excess deposits, these excess funds have been transferred pursuant to statutory authority and as expressly authorized by the Congress.
    Mr. GOODLATTE. When the Forest Service collects money for its off-budget funds, does it identify up front how much it is collecting for overhead?
    Mr. PANDOLFI. I am told we do.
    Mr. GOODLATTE. Does the agency policy prohibit spending more on overhead than it has collected?
    Mr. PANDOLFI. Yes, it does.
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    Mr. GOODLATTE. Are there any instances where the agency has spent more on overhead than it has collected?
    Mr. PANDOLFI. Not that we are aware of.
    Mr. GOODLATTE. Mr. Meissner, have you found any circumstances with regard to that that would contradict that?
    Mr. MEISSNER. We have not checked back to the plans and compared the plans with the actual. What we have today is what the Forest Service has reported as expenditures. We did not check those totals back to the original plan, so we don't know the answer to the question.
    Mr. GOODLATTE. Mr. Stahl?
    Mr. STAHL. We don't know either.
    Mr. GOODLATTE. Is that a point of contention within the litigation that you referred to?
    Mr. STAHL. No, it is not.
    Mr. GOODLATTE. What safeguards are in place to ensure that the agency does not spend more on overhead than it collects?
    Mr. PANDOLFI. We do an annual review, sir, an annual audit at the forest level.
    Mr. GOODLATTE. Does anybody else care to comment on that?
    Mr. Chairman, those are the questions that I have. I know my time has expired. Thank you, gentlemen, for your cooperation.
    The CHAIRMAN. Are there any further questions of any members of the committee?
    Mr. DOOLITTLE. If I may?
    The CHAIRMAN. Go ahead.
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    Mr. DOOLITTLE. Mr. Pandolfi, it is not about a statement that you made, but in the chief's testimony, which was submitted in writing today, basically it indicates that he strongly opposes capping overhead costs. I just want to confirm that I have a correct understanding of that.
    Mr. PANDOLFI. What is your understanding, that he says that he doesn't want to cap overhead, or do you have something more——
    Mr. DOOLITTLE. Just based on what he says here, which surprises me.
    Mr. PANDOLFI. The reason that the comment was made relates to some remarks that I made earlier where I indicated that we do not at this point know whether our overhead is too high, appropriate or too low to accomplish the goals of managing, measuring and controlling.
    And so the reason that the chief said that, Mr. Doolittle, is that we are very hopeful that you will let us get to the point where we can discriminate what overhead is on an acceptable, mutually defined basis before you cut us off. That is the reason for the comment in his testimony.
    Mr. DOOLITTLE. Well, I anticipate we will have that opportunity before the year is out perhaps to get back together and go over that.
    It seems like the amounts are extraordinarily high and even if the law does allow some modest portion of the trust funds for overhead, it seems like what we are hearing has happened here grossly exceeds that.
    Thank you.
    The CHAIRMAN. Any further questions of the committee?
    If not, I want to thank you all very much. It has been most informative for us.
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    Mr. GOODLATTE. Would it be appropriate, Mr. Chairman, to ask how quickly we might receive a response to the questions that will be submitted?
    The CHAIRMAN. The questions in writing, I think the gentleman from Virginia asks if we submit questions in writing to you, when can we anticipate an answer?
    Mr. STEWART. For issues other than the ones under litigation where we have to go clear through Justice, since we don't control them, ordinarily 2 to 3 weeks. It probably will take a little longer with the questions involving Justice, depending on how many questions there are.
    The CHAIRMAN. Do you want to put any other constraints on the answer?
    Mr. STEWART. I was a scientist. I always put caveats on my conclusions.
    The CHAIRMAN. All right, thank you very much for your testimony. This hearing is adjourned.
    [Whereupon, at 11:45 a.m., the committee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
Statement of Mike Dombeck
    I appreciate the opportunity to appear before you today regarding the general administration budget and overhead costs in the Forest Service. I share your concern about financial accountability and want to work with you to find timely, appropriate and effective solutions.
    As I have mentioned in a previous hearing, I have focused the Forest Service on three broad goals. (1) Restore and maintain the health of the land. (2) Ensure accountability for land management, financial resources, business systems, and civil rights. (3) Promote collaborative stewardship, partnerships and decisions based on the best science.
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    I believe that there is mutual agreement that these are worthy goals. However, I realize that philosophical differences exist about how to best achieve these goals. As we apply different perspectives to achieve these three goals, I believe it is important to maintain an open dialogue and good relationships.
    The focus of this hearing is to examine a key aspect of one of my goals: financial accountability as it relates to overhead and general administration expenditures. I view this hearing as a good opportunity to share with you the steps that this agency has taken to address financial accountability and to explain how some of our financial systems work. We share the common view of maximizing the public benefits of each dollar that this agency spends for land management, research, private land assistance, and any other Forest Service activity.
    I will discuss two basic issues today in my testimony:
    (1) Maximizing high quality natural resource management in the field within available funds by improving accountability. (2) Managing and accounting for overhead costs and general administration.
    Maximizing public benefits in the field through financial accountability
    The Forest Service has implemented many changes that will help you and I track the public benefits and the taxpayers' dollars more efficiently. All of the changes are intended to correct long standing concerns about financial management. We need to fix our problems in order to maximize public benefits on the land. Let me describe eight of our solutions to you now.
    (1) We are implementing a major restructuring of the business operations of the Forest Service. We have a Chief Operating Officer who will have responsibility for the financial and operational health of the agency, and an Associate Chief for Natural Resources who will have responsibility for the health of the land. We will also have a Chief Financial Officer to focus on all financial affairs of the agency. I will provide the Committee with more information about the specifics of this structure for the record.
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    (2) As part of the administration's Reinvention Initiative, the Forest Service has reduced our workforce by 15 percent (including a disproportionate reduction in the Washington office), consolidated administrative offices at the supervisor and the district ranger level, developed public-private partnerships to deliver agency services for less money, and established customer service standards. One specific example is reducing overhead costs by moving our public information office from downtown Seattle to the Recreational Equipment Incorporated Building. The Vice President recognized this public-private partnership with a Golden Hammer Award.
    (3) I have announced a clear Natural Resource Agenda for the 21st Century that will be implemented with land-based performance measures. Employees will be held accountable for the actual accomplishments and measurable results in the field. Combined with other financial reforms, we will have a better understanding of how much it costs to achieve certain results.
    (4) This agency is working in partnership with the authorizing committees and appropriations committees to implement the Government Performance and Results Act (GPRA). We have provided you with our fiscal year 1999 Annual Performance Plan. It is our expectation that this Committee will conduct oversight specifically on our performance, relative to the objectives we set in the GPRA document.
    (5) We are developing an integrated ledger system that enables policy makers and supervisors to quickly find and understand the costs associated with specific activities. The integrated ledger system will ultimately reduce the amount of time Forest Service employees spend inputting and interpreting data, and increase the amount of time they spend making and implementing sound resource decisions.
    (6) We have issued a desk guide for financial management to inform Forest Service employees throughout the entire field structure about better ways to record and organize information. We intend to update this desk guide as our new systems develop. The primary benefit today is national consistency so that you and I will have a better data base from which to make decisions.
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    (7) We intend to recruit a limited number of highly qualified management personnel who will complement the excellent resource management skills of the agency with expertise in modern financial management practices and structures. We need to replenish the shortage of skilled financial managers in the agency caused by the downsizing effort. We do not intend to maintain a larger workforce, and thus higher overhead, in the long-term.
    (8) We have set in place a business team that will review our budget and accounting activities to recommend how we can simplify and improve our business systems. This group of employees from across the agency will focus on simplicity, timely and accurate financial information, accountability between expenditures and benefits, and public service. One of the team's objectives is to develop a consistent definition of overhead.
    These changes represent some of the ideas and recommendations in the Coopers and Lybrand report which I commissioned last year, and respond to some of the concerns raised by the General Accounting Office. We are open to other ideas too, and hope the Committee will feel free to suggest to me changes that will improve efficiency and public service.
    Managing Overhead Costs
    I understand the committee is concerned that overhead costs are absorbing a disproportionately high amount of funding which consequently detracts from management in the field. In times of declining budgets, I can understand the incentive of capping overhead costs. However, I strongly oppose this proposal. Let me explain how overhead is defined and how it is allocated.
    Standard accounting practices and definitions of overhead provide latitude to allow organizations to account for their specific needs. Unfortunately, the Forest Service does not have nationally consistent standards or measurements for overhead costs. In general terms, overhead can be defined as the costs incurred by an organization to control, manage, and measure its business that are not directly related to specific production or accomplishments. For a Forest Service office, overhead could include rent, utilities, staff time associated with financial accountability, and capital investments that benefit many functions such as computer software. We realize the importance of a nationally consistent definition, and as I mentioned earlier, we are in the process of establishing consistency.
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    By contrast, General Administration has a more specific definition and GA is provided by Congress in a specific budget line item. The Forest Service definition of GA and GA expenditures are explained each year in the budget justification which the agency provides to Congress. I would refer you to pages 162–167 of the fiscal year 1999 Explanatory Notes which I will submit for the record.
    GA can be considered a subset of overhead. It pays for line officer salaries, support costs for line officers, budgeting, financial management, personnel, procurement and other activities that broadly support all resource functions. Costs that can be attributed to a specific program are charged to that program, not GA, and this is what we typically call overhead.
    Let me explain in practical terms how GA and overhead are applied to the agency. Congress provides most of our budget in functional line items with specific expectations—such as forestland management, rangeland management, recreation use, land ownership management. Associated with these line items are specific accomplishment expectations and in some cases specific program direction.
    The Forest Service implements these line items through its highly decentralized organization. To implement these programs and to satisfy Congress we have a clear need for program direction, support services, reporting mechanisms, and general administration at each level—in the Washington office, the regional offices, and the supervisors' offices. We have no other choice than to charge these services against the functional accounts that benefit. The Forest Service has been criticized for having the Washington office and the regional office consume a disproportionately high percentage of the program funds. I believe that when you look at specific programs, you will find that the overhead costs actually provide essential services to you and me in managing the agency.
    At the Washington office level there are dozens of vital functions provided that have no direct impact on the ground. A few examples include interagency coordination for program delivery, carrying out the regulatory process, annual budget allocations, preparing for hearings on specific program areas, meeting and corresponding with public stakeholders about program development or program accomplishments, fulfilling responsibilities to other agencies and organizations such as GAO, and program oversight and reporting, to name a few.
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    The regional office level serves many of the same functions. In addition, they help the individual management units by serving as clearing house for information between units, coordinate policy between units with similar issues, and provide specialized services and expertise that individual units cannot afford on an annual basis. While I have provided some general descriptions, it is sometimes more illustrative to discuss this in terms of a specific cost, program or issue such as fire suppression. I am happy to discuss some specific examples or the general services, but either way, I hope you will agree that the offices provide a vital function to you and I in managing the agency.
    Lastly, since the Committee specifically asked me to address trust funds, let me describe the ongoing litigation and our position. The lawsuit is focused on three issues: 1) our legal authority to assess the Knutson-Vandenberg Fund (KV) for indirect costs, 2) the amount of the assessment rates, and 3) the method of collecting K-V deposits from a timber sale. Because of the litigation, I will limit my comments to general policy guidance in this area.
    Implementation of the trust funds in the field—such as tree planting, brush disposal, road maintenance, etc—require the exact same kinds of program development, implementation, oversight and reporting as other programs. Line officers, computer programs, office space, and other resources are all essential to proper agency program implementation in the field. Our policy is to assess the trust funds and permanent funds applying the same principles that we use for discretionary programs.
    In summary, I have described what overhead and general administration is, how we intend to provide better oversight of these costs in our day-to-day work, and most importantly, how we intend to reduce and manage overhead by implementing streamlined and simplified accounting systems.
    We will not eliminate overhead, but we firmly intend to be accountable to the last penny so that the administration and Congress can decide together how the Forest Service can maximize public benefits in the field within our budgets. That concludes my prepared remarks. I am happy to answer questions from the committee at this time.
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Testimony of John Hofmann
    Mr. Chairman, I am John Hofmann, vice president of government affairs for the California Forestry Association. The California Forestry Association (CFA) is a trade association, representing industrial forest landowners and producers of forest products. Our members produce nearly 70 percent of the forest products produced in California. Products include wood biomass used in energy production and a wide range of building materials, shipped all over the world. Our members depend upon trees grown from a combination of Federal, private industrial and private non-industrial forest lands. CFA is dedicated to the assurance of an adequate and sustainable supply of forest products at an affordable cost while enhancing forest health and safety. We appreciate the opportunity to testify before your Committee.
    The California Forestry Association is concerned with the rising costs reported by the Forest Service to conduct the timber sales program. In 1996, Congress appropriated $189 million for Timber Sales Management, 15 percent of the National Forest System funding. According to TSPIRS, the Forest Service charged $633 million against the timber sales program, 50 percent of the Nation Forest System funding. General Administration charges alone exceeded the total appropriated funds for Timber Sales Management.
    The General Accounting Office reported alarming trends on several off-budget trust funds. The direct, on the ground expenditures declined dramatically for both Brush Disposal and K-V funds during the last five years, but the expenses for overhead increased while the overhead costs for the Salvage Sale Trust fund more than doubled during that period. Had the administration controlled the overhead costs at the 1993 level, 25 percent more forest treatments would have been accomplished in 1997.
    Strangely, this increase in administrative expenses for trust funds that are actually clean-up and maintenance accounts come in the years when the timber sale program shifted to a clean-up and maintenance program by increasing the proportion of non-commercial wood products removed. As the President's forest plans indicate, traditionally, just 10 percent of the timber sale program was non-commercial products. By 1996, 53 percent of the wood removed through the timber sale program in California was non-commercial.
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The shift in management objectives and the added administrative expenses have had a significant affect upon the timber sale program. First, it has borne the expense of removing non-commercial wood in conjunction with removal of commercial wood. Second, it has borne the expanding expense of funding secondary clean-up programs that are largely administrative funding programs. These changes have a significant affect upon the continued viability of the timber sales program.
    Off-line deposits on some timber sales exceed logging costs. For example, slash deposits for the Fifth Timber Sale on the Sierra National Forest are $110 per thousand board feet (MBF) and K-V collections are $209 per MBF, each of which are greater than normal logging costs. Consider the Clem Jr. Salvage Sale on the Eldorado National Forest with $61 per MBF slash deposits and $296 per MBF for K-V collections for a total off-line collections of $357 per MBF. Or consider the West Sheer Multi-Product Timber Sale on the Stanislaus National Forest in which one-third of the timber sale volume to be removed is non-commercial biomass. It requires $31 per MBF slash treatment deposits. Deposit requirements such as these make it difficult for any program to be cost effective.
    The Timber Sale Program for the Lassen National Forest is primarily a non-commercial sale program. In 1996, only 27 percent of its program was merchantable sawtimber. But the Lassen National Forest is one of the largest collectors of Slash Treatment Deposits, K-V, and Salvage Sale Funds in California according to Forest Service records. A sale from the first quarter of fiscal year 1996, the Coyote Resale is one example. The sale volume is 79 percent biomass and still requires $16 per MBF slash deposits and $124 per MBF K-V collection. Significant funding is extrapolated from the timber sale program not to fund forestry, but to fund Forest Service bureaucracies.
    There is another concern of equal magnitude. The Sierra Nevada Ecosystem Project (SNEP) stated ''[i]f not accompanied by adequate reduction of fuels, logging (including salvage of dead and dying trees) increases fire hazard by increasing surface dead fuels and changing the local microclimate...However, logging can serve as a tool to help reduce fire hazard when slash is adequately treated and treatments are maintained.'' Many critics and Administrators of the Forest Service understand the risk to the timber sale program from failure to adequately treat and maintain accumulated slash.
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    The expenditure of funds on bureaucracies when collected for slash treatments and forest stand improvements risk the future use of timber sales for forest management purposes. We urge this Congress to limit overhead spending from off-budget accounts to reasonable levels.
    "The Official Committee record contains additional material here."

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