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mistic. For several years, the economy has performed better and budget outcomes have been more favorable than CBO and other forecasters anticipated. But the next few years could mirror the early 1990's, a period in which the economic and budget outlook sharply deteriorated. For example, a significant worsening of the Asian crisis could slow economic growth in the United States to a greater degree than CBO now expects.

Second, CBO's baseline projections assume that the Congress and the President will comply with the provisions of the Balanced Budget Act of 1997. The caps on discretionary spending called for by the act require that appropriations in 2002 be held to a level about 10 percent below the level needed to keep pace with anticipated inflation between now and 2002. Between 1990 and 1997, total discretionary spending dropped by 12 percent in real terms, with real increases in nondefense appropriations offset by substantial cuts in defense spending. Cuts of that kind are unlikely to be repeated in the coming years. Indeed, over the next five years, it seems inevitable that pressures for additional discretionary spending will arise, making it difficult to adhere to the budget agreement.

A third reason for caution is that a problem still looms beyond the 10-year horizon because of the retirement of the baby-boom population and the continued growth expected in the costs per beneficiary of federal health programs for the elderly. Legislation to constrain Social Security and Medicare spending to sustainable levels is required to prevent spiraling deficits in the next century.

Compounding the problem for policymakers, who must rely on specific budget projections, is the volatility of federal spending and revenues. As recent experience has vividly demonstrated, projecting federal revenues and spending accurately is a difficult job, even in the current fiscal year.

Recent CBO Estimates

Last year at this time, CBO estimated that the 1997 deficit would be $124 billion. The actual deficit was only $22 billion. Although that outcome was good news for the budget, budget estimators, including those at CBO, were surprised by the turn of events.

Three major factors contributed to the lower-than-estimated deficit in 1997. First, the economy performed much better than expected, raising the level of taxable income as measured by the government's national income and product accounts. Second, a soaring stock market also expanded the tax base through increased realizations of capital gains; moreover, a growing share of income was earned by people at the top of the income ladder who are taxed at higher rates. Those two factors led to revenues that were $72 billion higher than CBO had estimated a year ago in January. Third, outlays were $30 billion less than expected, primarily as a result of lower costs for a variety of entitlement programs.

Estimating errors as large as $100 billion are unusual. But with total revenues and outlays each approaching $1.7 trillion, small percentage deviations from the amounts projected at the beginning of the year can easily swing budgetary outcomes by tens of billions of dollars. An examination of the historical track record for both CBO and the Office of Management and Budget shows that a 2 percent error for both revenues and outlays is not uncommon.

We have made every effort to learn from last year's estimating mistakes, yet it seems inevitable, given the perils of projecting, that large errors will occur from time to time. However, we are taking steps to provide an early-warning mechanism that will signal when actual receipts and outlays are deviating from our estimates for the current fiscal year. In that regard, we are making public our analysis of the Daily and Monthly Treasury Statements, which appears in our Monthly Budget Review report.

CBO ON THE WORLD WIDE WEB

In response to requests for additional access to its information, CBO is now making its documents available on the World Wide Web (at http://www.cbo.gov/). Our Web site was launched in September following a year-long development effort. (The Web site replaces a gopher server that CBO has used since 1995 to distribute electronic versions of its published studies and reports.) CBO now offers four electronic file formats at its Web site and has expanded the types of documents it can make available.

In addition to published reports and studies, CBO is making all of its general work products available on the Web, including papers and memorandums, testimonies, unfunded mandates statements, and federal bill cost estimates, as well as special analyses such as the Monthly Budget Review and reports on the current status of discretionary appropriations. In the future, we hope to increase the usefulness of the site by offering appropriate data in spreadsheet format.

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Our first priority for posting at our site is currently produced material. However, as time and resources permit, we are also including certain CBO publications issued before last September.

Work on the CBO Web site has been closely coordinated with the developers of the Legislative Information System (LIS) to ensure technical compatibility of Congressional systems and responsiveness to the needs of the Congress. The recent redesign of the cost estimates section of the site uses as its model the search interface of the LIS and Thomas Web sites. Additionally, we incorporated suggestions from the staffs of the budget committees that will allow them to design their searches to retrieve the cost estimate information they want most. Further, the site is equipped with a notification feature that alerts subscribers by E-mail when a document in their area of interest has been added to the site. At this time, more than 300 CBO documents are available on-line.

The response to the Web site has been quite positive, both from technicians, such as those developing the LIS, and from visitors, who find it easy to use. In terms of demand, we have received nearly 100,000 requests for information since September. Many of those requests come from civilian or military employees of the federal government, although most visitors to the site are from the private sector and educational institutions. We have also had numerous requests for information from users in countries around the world, including Japan, Canada, France, Germany, the United Kingdom, Sweden, Australia, the Netherlands, Belgium, and Italy.

FISCAL YEAR 1999 REQUEST

As I indicated previously, Mr. Chairman, CBO's fiscal year 1999 request is for $25,938,000, an increase of 4.6 percent, or $1.1 million, over our fiscal year 1998 appropriation. That request funds our staff ceiling of 232 full-time-equivalent positions. We are not asking for any additional positions. Specifically, our request includes the following:

-$1,404,000 in pay and benefit increases, the major components of which are (a) $606,000 for the annualization of fiscal year 1998 pay raises; (b) $471,000 for a projected 3.1 percent employment cost index adjustment in January 1999; and (c) $267,000 for merit increases (the increases are budgeted at 3.4 percent of base salaries, with 27 percent of the increases assumed to be offset by turnover savings, resulting in net costs of 2.4 percent of CBO's total pay base); -$62,000 in various price increases ranging from printing to ADP time-sharing; and

-a reduction of $305,000 (13 percent) in spending for equipment, primarily ADP hardware and software, which would return such spending to its historical level after an increase of 14 percent in fiscal year 1998. The increase in 1998 resulted from the two ADP projects that triggered the reprogramming request recently approved by the Committee. The projects involve replacing the collection management system in the CBO library and completing the upgrade to our network wiring that was started by House Information Resources (HIR).

Personnel costs account for 85 percent of the total CBO budget. Nearly 96 percent of the $1,466,000 in cost increases facing CBO in fiscal year 1999 are increases associated with pay and benefits. CBO has reduced other parts of its budget to absorb more than 20 percent of the increases, primarily by cutting spending for ADP equipment by one-third. At 8.1 percent of CBO's budget, ADP spending is at a historical low. Moreover, administrative expenses-6.5 percent of the total budget-are below their historical average.

Areas of Concern Surrounding CBO's Budget Request

Although CBO should be able to maintain its current workload with the funds requested here, the agency, as I noted earlier, confronts several uncertainties in fiscal year 1999. Principal among our concerns is our ability to offer the salaries and benefits needed to remain competitive in today's tight labor market.

The current job market compels CBO and other employers to worry about both the recruitment of new workers and the retention of current employees. CBO's staff includes economists and other quantitatively skilled professionals, all of whom are in particularly high demand. Newly minted economists now command surprisingly high salaries. Recruitment has become a time-consuming and frequently frustrating process as more and more often we lose qualified people to employers who can sometimes pay as much as 50 percent more in compensation.

Paralleling our recruitment activities is our need to retain current employees. CBO's reputation for high-quality analysis and budget work has made our experienced analysts the focus of other employers' recruiting efforts. As an example, in the past few months CBO has lost three of its managers to more senior and higherpaying positions. We are not suggesting that because of our turnover rates we de

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mais sacred, and CBO, along with other users, will have 2 har her gemens CS uses the HIR mainframe for a variety of analyt* Work dis de septatums related to our budget database are particularly critiou de provating amoy support to the House and Senate Budget and Appropriations Committees. We use such pobcations to track and analyze Presidential spending

ass and subsequent Congressional action. The HIR mainframe is the reposiavy a de Descuen's annual budget, CBO's baseline budget projections, numerous da sen used the House and Senate Budget Committees in developing annual booger "esciutions, and data sets that track appropriation and other spending bills song with 1800sed CBO estimates of outlays.

and is manframe computer have provided excellent service, with the following attributes being of particular importance:

Computer response time, for both interactive and batch turnaround, is very

The computer is extremely reliable; it almost never goes down.

-HIS and CSO are in the same building, making it much easier to retrieve large reports quickly for delivery to the budget and appropriations committees as well as other Congressional clients.

HIS has been helpful in expediting printing and in extending service hours durg periods of heightened Congressional activity.

HR technical support staff are excellent and very responsive.

With the scheduled retirement of the HIR mainframe, CBO's challenge is to duplicate, as closely as possible with a new vendor, the service it currently receives from HIS We believe we can accomplish that by moving our budget analysis applications to the same provider of mainframe services that the HIR Legislative Information Management System (LIMS) intends to use, and we are currently discussing the feasibility of that option with the House. In general, CBO believes that a mainframe computer provider serving both the House and CBO will be better able to ensure that we can continue to meet the special needs of the Congress. However, if for some reason CBO's computer applications cannot follow the remaining HIR mainframe work, we will seek the assistance of the HIR systems programming and communication staff to move our operations to another vendor.

We do not yet have a firm estimate of how much it will cost to evaluate our options for moving CBO's systems or to prepare for the transition; both types of costs are likely to occur in fiscal year 1999. Our request includes $100,000 for those purposes, although that could prove to be a conservative estimate.

Finally, some Members of Congress have voiced the intent to expand the scope of the information that CBO provides under the Unfunded Mandates Reform Act of 1995 regarding the costs of private-sector mandates. We do not anticipate at this time that those increased duties will necessarily require additional resources or a further diversion of resources from our regular budget work. We would continue to do our best to provide the Congress with good mandates cost data, although in certain cases, some information may be slow in coming or less specific than might be desired.

Costs Associated with CBO's Web Site

Designing, developing, implementing, and maintaining a World Wide Web site requires a commitment of significant resources. CBO devotes two full-time employees to the operation, maintenance, and further development of the site, with other employees around the agency also contributing their time. In addition to those direct costs, CBO may soon face some indirect costs associated with the Web site.

It is unclear, for instance, how the increased availability of CBO documents in an electronic format will affect demand for paper copies of our products. It could cut demand, in the same way that more widespread availability of fax machines reduced the need for couriers. Or it could stimulate demand: by raising the visibility of the many different types of products available from CBO which the Web site is likely to do the demand for paper copies of those products could rise. That last effect has been the experience of the National Academy of Sciences. As we assess the impact of the Web site on demand for paper documents, we will continue to manage our printing and mailing costs very closely. Last year, we culled our mailing list signifi

cantly, which should reduce both printing and mailing costs on a per-publication basis this year. Also, during this start-up period for the Web site, we can respond to any increase in demand for paper copies of our published reports and studies by asking the Government Printing Office to make more of them available for sale in its bookstores.

Operating a public Web site has made us more aware of the opportunities that Internet technologies afford for sharing information among different kinds of computers and systems. That capability can be particularly useful in an organization such as ours, in which the basic currency is information but the means used to produce it comprise a wide variety of computers and applications. Another attractive feature of the İnternet technologies is the ability to standardize and share administrative information and functions electronically. We plan to begin assessing the value of a CBO Intranet this year.

Year 2000 Update

CBO, like other computer users, must make sure that its systems can accurately recognize and accommodate dates beyond 1999-the so-called Year 2000 problem. To that end, we have established a committee composed of representatives from all of CBO's divisions. Given the nature of CBO's work and its reliance on other agencies for its administrative support in such areas as personnel, payroll, and contracting, CBO's Year 2000 problem is small relative to that of other agencies. Nevertheless, 11 of our 39 computer systems are critical to our budgetary and analytical mission, and we are working to make the changeover as smooth and as trouble-free as possible. To date, four of the 11 mission-critical systems have been reprogrammed, six are awaiting assessment, and one is being repaired.

The Budget Analysis Data System, which runs on the HIR computer, is the largest of the four systems that have been reprogrammed. However, that work is still to be tested because the operating system of the HIR computer is not yet Year 2000 compliant. Once the HIR computer has been reprogrammed, we will begin testing to ensure that our systems are ready for operation under the new requirements. In the unlikely event that the systems fail those tests, we have contingency plans ready to prevent any interruption in the services we provide to the Congress.

In addition to the activities just noted, CBO has taken other steps to prepare for the coming transition. Beginning in fiscal year 1998, all of our purchase orders and contracts relating to hardware, software, and data have called for Year 2000 compliance. Our computer personnel have also tested all of our microcomputers to ensure their readiness, and those that were found not to be compliant have been repaired. We will also test any new computers that we receive and return any that fail such testing to the manufacturer. During fiscal year 1998, we plan to establish a Year 2000 testing facility for network-related hardware and software. Finally, CBO subscribes to the Gartner Group's Year 2000 service and will use that consulting resource during the Year 2000 transition period.

CBO's Response to the Committee's Directive on Financial Management

The Committee included language in last year's report encouraging all legislative branch entities to adopt the goals and objectives of the Legislative Branch Financial Managers Council, which was formed to promote effective financial management practices across the legislative branch. CBÓ has participated in the Council's activities since its inception, and we have recently adopted its statement of vision and goals. Accordingly, our budget_request includes funds for preparing and issuing audited financial statements for fiscal year 1999.

CONCLUSION

Mr. Chairman, CBO is keenly aware of the Congress's intention to balance the budget and downsize the federal government, including the legislative branch. In response, CBO's recent budget requests have been quite modest, with requested increases usually being less than the projected rate of inflation. Our present proposal represents our best estimate of the amount necessary to maintain our budget at the current-services level. It is a prudent budget in which we absorb over 20 percent of our mandatory pay and benefit increases through reductions elsewhere. We believe, however, that our requested increase of 4.6 percent is necessary if we are to continue to serve the Congress in the manner it has come to expect.

ADDITIONAL COMMITTEE QUESTIONS

Question. In testimony you mentioned that CBO has experienced some problems in retaining and hiring qualified economists due to the tight labor market and

CBO's inability to remain competitive with salaries and benefits. However, there is no request for funds or legislative language to alleviate that problem. Is this a problem Congress needs to consider and if so, what are some of the possible options? Answer. We believe that our having the authority to provide lump-sum bonuses for recruitment and retention would make CBO more competitive with other federal employers. But the House does not appear to agree.

In terms of pay and benefit privileges, according to our enabling legislation, CBO employees are treated as if they work for the House of Representatives. The House does not provide moving expenses for new employees, nor does it give lump-sum bonuses to its workers. We have requested lump-sum bonus authority in the past, but the House has not been disposed to make that change or to make an exception for CBO.

Salary compression is another problem. The annual salaries for CBO's Director and Deputy Director are tied to Executive Levels III and IV, respectively. As a result, our division directors are now paid more than the Deputy Director. The recent 2.3 percent pay raise awarded to Executive Schedule staff provided a small cushion, but federal salaries for senior managers and executives lag well behind private-sector pay for comparable positions.

Starting salaries for economists, especially in the fields of health and macro-economic analysis, are a further problem. The salaries offered to new Ph.D. economists in 1998, especially by consulting firms, are much higher than the salaries paid to comparably trained CBO staff with two or three years of experience. For example, Charles River Associates and the National Economic Research Association offer starting salaries of over $90,000. Starting salaries at the Federal Reserve Board are in the $70,000 to $72,000 range. The top salary offered by the executive branch (GS-12, step 10) is $61,190. We are offering salaries in the $60,000 to $65,000

range.

As our statement notes, the current job market compels CBO to worry about the recruitment of new workers as well as the retention of current employees. We would rather not propose a quick fix that might result in unintended, longer-term consequences. Pay inequities such as those described above can exacerbate turnover

rates.

Question. How much do you estimate to be the cost of preparing and issuing audited financial statements for fiscal year 1999? Is this amount included in your budget request?

Answer. We have included $30,000 for the audit of our fiscal year 1999 financial statements. That preliminary estimate is as low as it is because we assume that the audit will be done by the same accounting firm that audits the financial statements of the Library of Congress and that its testing of the financial management system we share with the Library will reduce the final cost.

Question. The House has decided to eliminate its mainframe computer by the year 2000. CBO relies on the House mainframe computer for its data processing systems and has included $100,000 in its budget proposal to evaluate options and prepare for the transition. Has a decision been made as to when the HIR systems will be replaced and whether CBO will continue to run these critical applications on the replacement system? If this decision has not been made, why not?

Answer. The House has given us a response that makes the answer to your question subject to interpretation. At this time, we are uncertain about exactly what Chief Administrative Officer (CAO) Jay Eagen means by the following:

CBO'S use of the HIR mainframe computer for budget analysis.-HIR can provide technical assistance to CBO in following a systems development life cycle policy and procedures to ensure the most effective solution for your needs. HIR can also work with your staff to identify vendors who can assist in the relocation of your system and then provide technical information concerning your existing system to your vendor.

That same response (word for word) was given in answer to our request to use the House Information Resources (HIR) mainframe computer for statistical analysis. The CAO may be saying that HIR will help CBO move its applications to the same location used by the Legislative Information Management System (LIMS). Our objective is to follow the LIMS, but currently we have no commitment for support from the CAO. If that commitment is not obtained, we may have to move our applications to a location different from where LIMS will ultimately reside. Question. When do you expect to have a plan in place?

Answer. At this point we are dependent on HIR, which is apparently waiting for the House Inspector General to issue the report of a study performed by Price Waterhouse on the future of the HIR mainframe computer. Before devising a plan, we would need to clarify the CAO's response; then, assuming that we are permitted to follow LIMS, we would need to review the Inspector General's report. However,

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