2007 Federal Budget Document

BUDGET
BUDGET OF THE UNITED STATES GOVERNMENT
Fiscal Year 2007

THE BUDGET MESSAGE OF THE PRESIDENT
America’s economy is growing at a healthy pace, and more Americans are working than ever. In the
face of a series of challenges, including most recently devastating natural disasters, Americans have
stood firm, and America’s economy has demonstrated its strength and resilience time and again.
My Administration has focused the Nation’s resources on our highest priority: protecting our
citizens and our homeland. Working with Congress, we have given our men and women on the
frontlines in the War on Terror the funding they need to defeat the enemy and detect, disrupt, and
dismantle terrorist plots and operations. We continue to help emerging democracies in Afghanistan
and Iraq stand on their own. As the Afghan and Iraqi peoples assume greater responsibility for
their own security and for defeating the terrorists, our troops will come home with the honor they
have earned.
My Administration has responded to major economic challenges by following this vital principle:
the American economy grows when people are allowed to keep more of what they earn, to save and
spend as they see fit. The results are clear.
Since May 2003, when I signed into law major tax relief, America has added more than four and
a half million new jobs. Productivity is high, disposable income is up, household wealth is at record
levels, consumer confidence has climbed, small businesses are expanding, and more Americans own
their homes than at any time in our Nation’s history.
Our economy is the envy of the industrialized world. To build and maintain our competitive
edge, my Administration has a broad agenda to promote America’s long-term economic strength.
We are opening new markets to American-made goods and services through trade agreements. We
are proposing reforms to prevent needless litigation and burdensome regulations. Through major
reforms of our public schools, we are preparing our children to compete and succeed in the global
economy. And my Budget includes an American Competitiveness Initiative that targets funding
to advance technology, better prepare American children in math and science, develop and train
a high-tech workforce, and further strengthen the environment for private-sector innovation and
entrepreneurship.
In our efforts to keep our economy strong and competitive, we will resist calls to raise taxes on
America’s workers, families, and businesses. Unless we act to make tax relief permanent, income
tax rates eventually will rise, the marriage penalty will climb, the child tax credit will be cut, savers
and investors will be hit with higher taxes, and the death tax will come back to life.
With a growing economy, tax receipts are on the rise, helping to bring down the deficit in 2005. To
stay on track to meet my goal of cutting the deficit in half by 2009, we must maintain our pro-growth
policies and insist on spending restraint.
Last year, I proposed to hold overall discretionary spending growth below the rate of inflation—and
Congress delivered on that goal. Last year, I proposed that we focus our resources on defense and
homeland security and cut elsewhere—and Congress delivered on that goal. And also last year, my
Budget proposed major cuts in or eliminations of 154 programs that were not getting results and not
fulfilling essential priorities. Thanks to the work of Congress, we delivered savings to the taxpayer
of $6.5 billion on 89 of my Administration’s recommendations.
1
2 THE BUDGET MESSAGE OF THE PRESIDENT
The 2007 Budget builds on these efforts. Again, I am proposing to hold overall discretionary
spending below the rate of inflation and to cut spending in non-security discretionary programs
below 2006 levels. My Administration has identified 141 programs that should be terminated or
significantly reduced in size. To help bring greater accountability and transparency to the budget
process, my Budget proposes reforms so that firm spending limits are put in place, and public funds
are used for the best purposes with the broadest benefits.
The 2007 Budget also continues our efforts to improve performance and make sure the taxpayers
get the most for their money. My Administration expects to be held accountable for significantly
improving the way the Government works. In every program, and in every agency, we are measuring
success not by good intentions or by dollars spent, but rather by results achieved.
In the long term, the biggest challenge to our Nation’s fiscal health comes from unsustainable
growth in entitlement spending. Entitlement programs such as Social Security and Medicare are
growing faster than our ability to pay for them, faster than the economy, faster than the rate of
inflation, and faster than the population. As more baby boomers retire and collect their benefits, our
deficits are projected to grow. There will be fewer people paying into the system, and more retirees
collecting benefits. These unfunded liabilities will put an increasing burden on our children and our
grandchildren. We do not need to cut these programs, but we do need to slow their growth. We can
solve this problem and still meet our Nation’s commitment to the elderly, disabled, and poor.
Acting on my recommendations, both houses of Congress have taken an important first step,
passing legislation that would produce $40 billion in savings from mandatory programs and
entitlement reforms—the first such savings in nearly a decade. My Budget builds on this progress
by proposing $65 billion more in savings in entitlement programs.
My Budget also includes proposals to address the longer-term challenge arising from unsustainable
growth in Medicare, while ensuring modern health care for our seniors. In addition, I will continue to
call on Congress to enact comprehensive reform of Social Security for future generations, so that we
return the system to firm financial footing, protect the benefits of today’s retirees and near-retirees,
provide the opportunity for today’s young workers to build a secure nest egg they can call their own,
and assure our children and grandchildren a retirement benefit that is as good as is available today.
As this Budget shows, we have set clear priorities that meet the most pressing needs of the
American people while addressing the long-term challenges that lie ahead. The 2007 Budget will
ensure that future generations of Americans have the opportunity to live in a Nation that is more
prosperous and more secure. With this Budget, we are protecting our highest ideals and building a
brighter future for all.
GEORGE W. BUSH
February 6, 2006
OVERVIEW OF THE PRESIDENT’S 2007 BUDGET
The President’s 2007 Budget continues his Strong Economic Growth Continues
commitment to fighting and winning the War Percent change in real GDP from year earlier
on Terror, protecting the homeland, and ad- 5
vancing the cause of freedom across the globe. 4.2
Its policies also promote a strong U.S. economy 4 3.7 -------------Projections------------
3.6
and support important domestic initiatives, 3.4 3.3 3.3
such as improving our schools and reducing 3
3.1 3.1 3.1
2.7
the cost of health care. As in past budget
proposals, the President is focusing taxpayer
2
dollars on these priorities, and enforcing 1.6
additional spending restraint elsewhere across
the Federal Government. By holding Federal 1 0.8
programs to a firm test of accountability, we

are taking the steps necessary to achieve deficit 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
reduction goals and promote our economy’s NOTE: GDP growth for 2005 is an estimate.
expansion.
The 2007 Budget continues policies that have helped fuel economic growth. In 2001 and again in
2003, the President signed major tax relief benefiting workers, families, and businesses. Thanks to
this tax relief, and the hard work of America’s entrepreneurs and workers, our economy is strong.
Over the past year, inflation-adjusted Gross Domestic Product is estimated to have grown at a strong
annual rate of 3.6 percent. Economic expansion has produced more than 4.6 million new jobs since
May 2003, reduced unemployment to 4.9 percent, and raised homeownership to all-time highs.
In addition, we have seen dramatic increases

Actual & Projected Receipts in household wealth. U.S. equity markets have
Dollars in billions
added more than three trillion dollars in value,
3,000
Actuals Projections
and the net worth of Americans has risen by 28
percent since early 2001.
These gains are especially impressive given
2,500 the challenges that this economy has faced:
a stock market collapse, recession, corporate
scandals, the terrorist attacks of September
2,000
11, 2001, the War on Terror, and most recently,
major hurricanes and a surge in energy prices.
The strong economy has had a positive impact
1,500 on the fiscal condition of the Nation. With
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
the President’s tax relief fully implemented in
2003, the economy responded strongly, and tax
revenues rebounded. In 2004, receipts grew by 5.5 percent. In 2005, receipts increased by $274
billion, at 14.5 percent, the largest increase in 24 years.
3
4 OVERVIEW OF THE PRESIDENT’S 2007 BUDGET
The increase in receipts in 2004 and 2005 played a significant role in bringing down the size of the
deficit. Since the President set a goal of cutting the deficit in half from its projected peak in 2004 of
4.5 percent of GDP, or $521 billion, the deficit has come down markedly. The final 2004 deficit was
3.6 percent of GDP, or $413 billion, and the 2005 deficit fell further, to 2.6 percent of GDP, or $318
billion.
In last year’s Mid-Session Review, the Administration forecast a higher nominal deficit for 2006, in
part reflecting the implementation on January 1, 2006 of the new Medicare prescription drug benefit.
With the unanticipated spending associated with relief and recovery efforts in response to Hurricanes
Katrina and Rita, the deficit is now expected to be larger than previously forecast. We now project
that the 2006 deficit will come in at 3.2 percent of GDP, or $423 billion.
While this increase in the deficit is unwelcome, a deficit at this level is still well within the histor-
ical range. At 3.2 percent of GDP, it would still be smaller than the deficits in 11 of the last 25 years.
More importantly, if we build on the policies of economic growth and spending restraint reflected in
this Budget, the deficit is projected to return to its downward trajectory and stay on track to meet
the President’s goal of cutting the deficit in half by 2009.
Cutting the Deficit in Half For 2007, the Budget forecasts a decline in
Percent of GDP
the deficit to 2.6 percent of GDP, or $354 billion.
5 By 2009, the deficit is projected to be cut by
February 2004
Projection more than half from its projected peak to just
4 February 2005
1.4 percent of GDP, which is well below the
Projection Projections 40-year historical average deficit.
Actuals
3 As last year’s dramatic increase in receipts
40-year Historical Average 2.3% demonstrates, the most important factor in
2
reducing the deficit is a strong economy.
To extend the economic expansion that has
1 produced gains for American workers and
businesses, and improved the Nation’s fiscal
0
condition, the 2007 Budget proposes to make
2004 2005 2006 2007 2008 2009 2010 2011 permanent the tax relief signed into law by the
President in 2001 and 2003. Unless tax relief is
made permanent, income tax rates will rise, the marriage penalty will go up, the child tax credit will
be cut in half, savers and investors will see their taxes rise, and the death tax will come back to life.
To further promote long-term economic growth, the 2007 Budget proposes policies to maintain and
build America’s competitive edge. The President will continue to press his agenda of removing trade
barriers and opening markets overseas to U.S. goods and services, reducing unnecessary litigation
and regulation, supporting reform and high standards in public schools, confronting the rising costs
of health care, and promoting and developing new energy sources. In addition, the 2007 Budget
places special focus on a new effort, called the American Competitiveness Initiative, to better pre-
pare American children in math and science, develop and train a high-tech workforce, and further
strengthen private-sector innovation and entrepreneurship. Progress in all these areas will help en-
sure that America’s economy continues to grow at the healthy pace required to generate increased
revenues to the Treasury.
A second critical component of deficit reduction is a vigorous policy of spending restraint. This
past year, the Administration and the Congress achieved significant success in restraining spend-
ing. In the 2006 Budget, the President set three major goals for the discretionary side of the budget:
first, the President proposed to hold growth in overall discretionary spending below the rate of in-
flation; second, he proposed an actual cut in the non-security portion of discretionary spending—the
THE BUDGET FOR FISCAL YEAR 2007 5
first such proposal since the Reagan Administration; and third, he proposed major reductions in or
eliminations of 154 Government programs that were not getting results or not fulfilling essential
priorities.
The Congress delivered on all three goals. It held overall growth in discretionary spending below
the rate of inflation and enacted appropriations bills that cut non-security spending. It also achieved
$6.5 billion in savings by acting on 89 of the 154 discretionary programs the Administration targeted
for termination or reduction.
The 2007 Budget builds on this success in reining in spending. Like last year, the 2007 Budget
holds overall discretionary spending growth below the rate of inflation and again proposes a cut in
non-security discretionary spending. The 2007 Budget also proposes major savings in or eliminations
of 141 Federal programs, saving nearly $15 billion.
Over the long-term, however, the greatest threat to our fiscal health comes from unsustainable
growth in entitlement programs such as Social Security and Medicare. Toward the end of the
next decade, deficits stemming largely from these programs will begin to rise indefinitely, and
no plausible amount of spending cuts in discretionary accounts or tax increases could solve the
problem. If unaddressed, these unfunded obligations will put an increasing burden on our children
and grandchildren. To solve this problem, we do not need to cut these programs, but we do need to
slow their growth.
Last year, we took an important first step on the mandatory side of the budget: the Congress
adopted a spending reduction bill that will achieve $40 billion in mandatory savings over five years.
The 2007 Budget proposes reforms that will produce an additional $65 billion in net mandatory
savings over the next five years, including reforms in Medicare that will promote competition and the
delivery of efficient, high-quality care to beneficiaries. The 2007 Budget paves the way for additional
reforms that will be needed over the longer term to bring Medicare’s finances in line with avail-
able resources. The President will also continue to promote the cause of comprehensive reform of
Social Security to place the program’s finances on sustainable footing for future generations, while
preserving benefits for those already at or near retirement.
These responsible efforts to restrain spending will help the Nation meet its near-term and
long-term fiscal challenges. Taken together with pro-growth economic policies, especially tax relief,
we are setting the stage for an even brighter economic future for all Americans.
EXPANDING ECONOMIC OPPORTUNITY
The resilience and strength of the economy Strong Economic Growth Continues
is producing ever-greater opportunity and Percent change in real GDP from year earlier
prosperity for Americans. In 2005, the economy 5
overcame major shocks, including hurricanes 4.2
that devastated the Gulf region, a jump in 4 3.7 -------------Projections------------
3.6
energy prices, inflation fears, and continued 3.4 3.3 3.3
economic weakness among many of our major 3
3.1 3.1 3.1
2.7
trading partners. Yet in the third quarter,
when those effects were most pronounced, the
2
economy grew at a 4.1 percent annual rate, 1.6
with low core inflation. Over the past year,
inflation-adjusted Gross Domestic Product 1 0.8
(GDP) is estimated to have grown at a strong

3.6 percent rate. Through the third quarter 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
of 2005 the economy had grown at a 3 percent NOTE: GDP growth for 2005 is an estimate.
annual rate or higher for 10 straight quarters.
Since the recession of 2001, total output and income have grown almost 14 percent.
We are also seeing the sustained job growth expected from a strong economy. Employment is up
by 4.6 million jobs since May of 2003. The unemployment rate, which peaked at 6.3 percent in June
of 2003, fell to 4.9 percent by the end of 2005, a level consistent with strong growth and low infla-
tion. This unemployment rate is lower than the average unemployment rates of the 1970s, 1980s,
and 1990s, and it is significantly lower than the unemployment rates of many of our major trading
partners.
Strong Job Growth Has Resumed Energy prices rose sharply over the past
Jobs in millions year, yet core inflation in 2005 remained
140 subdued at 2.2 percent, a low rate by historical
standards. Similarly, long-term interest rates
4.6 Million New Jobs remained low, with the 10-year Treasury bond
135 Since May 2003
ending the year at just under 4.4 percent,
nearly unchanged from the 4.2 percent at
which it started the year, and despite steady
130
increases in a key short-term interest rate by
the Federal Reserve.
125
The manufacturing sector, which took the
brunt of the 2001 recession, is recovering
steadily, with manufacturing industrial
120
1998 1999 2000 2001 2002 2003 2004 2005 production up 12 percent over the past
Shaded area represents recession period. two and a half years. The housing sector
continued its best sustained performance in
more than a quarter century, with housing
7
8 EXPANDING ECONOMIC OPPORTUNITY
starts hitting 2.1 million units in 2005 while the Unemployment Rate is Much Lower
home ownership rate continued near its record in the United States than in Europe
level of 69 percent set in 2004. Unemployment rate in percent, Q4/2005
10
American families have benefited directly 9
from the growth in the economy. In addition 8
to the strong job growth, they have seen real 7
after-tax income per person increase by 7 6
percent since the President took office. And as 5
of the third quarter of 2005, household wealth 4
had reached $51 trillion, up 10.9 percent over 3
the previous four quarters. 2
The strength of our economy has produced 1

rapid increases in the level of Federal receipts, 0
U.S. France Germany Spain Italy* Sweden** U.K.*
thereby helping to reduce the budget deficit. *Q2/2005, **Q1/2005
From a trough of $1.8 trillion in 2003, receipts
rose to $2.2 trillion in 2005—a 20.8-percent increase in just two years. From 2004 to 2005, receipts
grew 14.5 percent, or more than twice as fast as the economy itself. The Budget forecasts receipts to
grow another $132 billion from 2005 to 2006, an increase of 6.1 percent.
ECONOMIC GROWTH AHEAD
The Administration anticipates continued healthy economic growth, with real GDP growth at 3.6
percent in 2005, and 3.4 percent for 2006. These rates are in line with the consensus views of private-
sector forecasters. Low inflation, low interest rates, resumed strong job growth, and strong growth
in business investment support this optimistic outlook.
Inflation Remains Low and Inflation Future economic growth is predicated on

Expectations Are Subdued the continuation of pro-growth policies that
Percent Change CPI-U Q4 to Q4 have played an important role in returning
14
our economy to health from a stock market
12 Actual Data collapse, the recession of 2001, the terrorist
Administration Forecast
10 Market Forecast
attacks of September of that year, the War
on Terror, corporate scandals, surging energy
8 prices, and most recently, Hurricanes Katrina
6 and Rita. Chief among the Administration’s
pro-growth economic policies has been tax
4
relief. In response to the major challenges of the
2 Administration’s first term, individual income
0 tax rates were reduced, the child credit was
1977 1981 1985 1989 1993 1997 2001 2005 2009 doubled, the marriage penalty was reduced, the
Rates are derived from Treasury's Inflation-Indexed Securities. death tax was put on a path to full repeal, and
tax rates on dividends and capital gains were
cut. Everyone who pays income taxes received tax relief.
The tax relief has been instrumental in restoring economic growth, yet it will expire in coming
years unless the Congress acts. The reductions in the dividend and capital gains tax rates are set to
expire at the end of 2008, and the reductions in the income tax rates, the doubling of the child tax
credit, the reduction in the marriage penalty, and the repeal of the death tax all expire at the end of
2010. Allowing the tax relief to expire would result in large tax increases for millions of American
families and businesses. The President has called on the Congress to make the tax cuts permanent
to help ensure a strong economy in the future.
The President has proposed many comple- Interest Rates are Projected to Remain
mentary policies to support the economy’s at Moderate Levels
Percent
continued growth in the years ahead. He 16
has an aggressive agenda for opening foreign
14
markets to U.S. goods and services, through Yield on 10-Year Treasury Notes
bilateral and regional trade agreements and 12
through the worldwide negotiations of the 10
Doha Round. By opening markets at home
8
and abroad, U.S. businesses have greater Projected Values
access to foreign markets to sell their products 6
and services while American consumers 4
and businesses have a wider selection of 91-Day Treasury
2 Bill Rate
lower-priced goods and services from which to
choose. This Administration has successfully 0
pursued legislation approving and imple- 1977 1981 1985 1989 1993 1997 2001 2005 2009
menting free trade agreements with Jordan,
Chile, Singapore, Australia, Morocco, Bahrain, and CAFTA-DR (Costa Rica, Dominican Republic,
El Salvador, Guatemala, Honduras, and Nicaragua), and has recently completed agreements with
Oman and Peru.
In addition, the President is addressing major impediments to job creation and economic growth.
The Administration has cut the cost of new regulations by 70 percent and will continue to work to
contain these costs. The President has proposed tort reform to reduce the costs of runaway lawsuits.
He has highlighted the need to reform the Federal income tax system to make it simpler, fairer, and
more pro-growth. The Administration has proposed reforms to our private pension system to ensure
that workers will receive in retirement the pensions they were promised while working, and to pro-
tect taxpayers from being called on in the future to bail out the Federal pension insurance system.
The Administration has also taken steps to confront the challenge of rising health care costs. These
costs are a threat to family budgets because they reduce the amount of income available for other
purposes; they are a threat to the Federal budget because they drive up the cost of Medicare, Med-
icaid, and other health programs; and they are a threat to our economy’s ability to create jobs in the
future because they put upward pressure on labor costs. An important step in restraining health
care inflation was the enactment of Health Savings Accounts (HSAs) as part of the Medicare Mod-
ernization Act. An HSA allows a worker to set aside on a tax-free basis funds to pay out-of-pocket
expenses as long as the worker has purchased a high-deductible health insurance policy. The combi-
nation of HSAs and high-deductible health insurance policies gives workers greater control over how
they spend their health care dollars. This combination will also instill a stronger element of cost con-
sciousness among health care purchasers, thereby working to slow the rise in health care inflation
for all Americans. One million Americans have already set up HSAs according to estimates, with an
additional two million accounts projected to be set up in 2006.
The Budget proposes to make HSAs even more attractive. Under the Administration’s plan,
workers who purchase health insurance on the individual market would be able to purchase a
high-deductible health insurance policy and make qualified HSA contributions free of income tax
and effectively free of payroll tax through an income tax credit. Under this policy, every worker
in the country with an HSA would receive comparable tax treatment to those who today receive
traditional employer-provided health insurance.
The President is putting forward a number of other proposals to help individuals and families
obtain the health insurance coverage they need. One such proposal would make it easier for workers
with an HSA and a high-deductible insurance policy to keep their policy if they move from job to job
or State to State. The Administration is addressing the lack of transparency in price and quality
information for health care consumers: Medicare will soon be posting its provider payment rates
on the Internet, thereby facilitating market comparisons. The Administration will be working with
business and insurance leaders to encourage them to improve price and quality transparency for
more medical products and services. Combined with the Administration’s proposal for Association
Health Plans that will further expand the options available for purchasing health insurance, the Ad-
ministration’s policies will reduce the number of uninsured, make health care more affordable and
more accessible, and help contain the health care price pressures that threaten future job creation.
PRODUCTIVITY: THE KEY TO FUTURE GROWTH

Each of the policies mentioned above is Productivity Growth has Continued at a
aimed at promoting long-term economic growth Strong Pace Since the Mid-1990s
through both job growth and by raising worker Percent change Q4 to Q4
productivity. Labor productivity growth rates 6.0
have varied over long periods. From the 5.0

5.0
mid-1970s to the mid-1990s, worker productiv- Average, 1995 - 2005
ity rose at only 1.5 percent a year on average. 2.9%
4.0
3.5
In the mid-1990s, average productivity growth 3.3 3.4
3.0 2.7 2.9 2.6
accelerated to around 2.5 percent per year. 2.4
Since 2001 the rate of productivity growth 2.0
2.2
2.0
has accelerated again to 3.4 percent per year. 1.5
0.9
The Administration is seeking through its 1.0
many economic policy initiatives to build
0
on this productivity growth and ensure its 1973-95 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005*
continuation. *Q4 to Q3
Productivity is the Driving Force Behind Strong productivity growth is important to

Labor Compensation the country’s future economic strength for two
Index 1992 = 100
reasons. First, productivity growth reflects
140
Labor Productivity -- Output per Hour the net efficiency gains of all the developments
120 Real Compensation per Hour underway in the private economy. Productivity
growth, along with job growth, over time also
100 reflects the net effects of government policies
80
on the economy. In short, productivity growth
measures how well our Nation allocates
60 its resources—people, capital, and natural
resources—to their best possible uses.
40
Second, productivity growth ultimately
20 determines the rate of growth in labor com-
1947 1956 1966 1976 1986 1995 2005 pensation—wages and benefits—in America.
Source: Bureau of Labor Statistics; staff calculations. Real output and compensation
measured on equivalent price index basis. Strong job growth is important to the economic
well-being of individuals and families, as
are rising wages and benefits. Setting aside the transitory effects from business cycles, in free
and flexible labor markets workers’ total compensation tends to rise with increases in output
attributable to the more efficient use of their labor.
Federal policies should help businesses to create jobs, and they should promote growth in labor com-
pensation over time by supporting each of the four basic sources of labor productivity growth—capital
investment, technological innovation, education and training, and enhancing basic efficiency.
Capital Investment
First, the most basic source of increased productivity growth is increased capital available per
worker. A crew raking leaves will tend to be more efficient using two rakes rather than one. A busy
retailer will move more customers through its checkout line if it has three registers rather than just
two. Making more equipment available to workers allows them to be more productive. As work-
ers become more productive, business profits and labor compensation rates increase. More business
investment today means faster growth in labor productivity and labor compensation tomorrow.
Government policies have a pronounced effect on the willingness of businesses to invest in
productive capital. One sure way to discourage such investment is by adding to the uncertainties
businesses face. While uncertainty is inherent in business decisions, government policies can add to
the uncertainty with inconsistent or unwise laws and regulatory policies, poor spending discipline,
or anti-business rhetoric and legislation. By raising the uncertainty about making an investment,
government actions make the investment less likely.
In contrast, Government policies can en- Business Equipment and

courage business investment by reducing the Software Spending Has Rebounded
taxes levied on the return to that investment. Percent change, 4-quarters
The 2001 tax bill did just that by reducing 15
individual income tax rates significantly.
10
Small business owners are generally subject
to individual income tax rates, and so the 5
lower tax rates immediately reduced the
tax disincentive facing small businesses 0
considering hiring new workers or making
-5
new investments. The President and the
Congress have enacted numerous additional -10
tax cut provisions specifically aimed at raising
-15
business investment and boosting worker
2000 2001 2002 2003 2004 2005
productivity at America’s small businesses.
Shaded area is recession period.
Lower individual income tax rates and
lower dividend and capital gains tax rates have significantly improved the investment incentives of
America’s businesses. Businesses have responded, and business investment in new equipment has
been especially robust over the past two and a half years, indicating strong confidence in the future
of our economy and also signaling future labor productivity growth and therefore future growth
in labor compensation. Making these tax cuts permanent as the President has proposed would
preserve the incentives for investment and would eliminate a source of uncertainty about the future.
Technological Innovation
A second source of productivity growth is the development and application of new technologies.
Just as a leaf blower substituting for a rake can generate a significant increase in the productiv-
ity of a lawn crew, raising the quality of capital investment also contributes to worker productivity
gains. While major technological achievements are well-recognized, the incentives and extensive
infrastructure leavening this process are less well-known.
American Competitiveness Initiative : Private industry is responsible for much

Basic Science Funding of the innovation that occurs in the United
Billions of dollars
20
States, yet the Federal Government also plays
NIST Core American Competitiveness an important role. To strengthen this role, the
18 Initiative
DOE Office of Science President has proposed an American Compet-
16 NSF
itiveness Initiative (ACI) that includes making
14
the Research and Experimentation (R&E) tax
12 credit permanent, increasing Federal research
10 and development spending, and increased
8 funding for math and science education.
6
4 The R&E tax credit encourages businesses to
2
increase their level of spending on new technol-
ogy. Unfortunately, the credit has never been
0
1994 1997 2000 2003 2006 2009 2012 2015 made a permanent feature of our tax code, and
has been extended periodically on a temporary
basis. In addition, certain features of the credit
itself may limit its effectiveness. The President has called on the Congress to make the R&E tax
credit permanent, and the Administration intends to work with the Congress to modernize the credit
to make it more effective in raising the level of private research and development.
The Federal Government also makes significant investments in science and technology. The
President’s 2007 Budget requests $137 billion for Federal research and development. This level
of spending would represent an increase of 50 percent since 2001. In addition, the ACI increases
funding over the long term for strategic investments in research and development in the physical
sciences that are likely to have broad effects on innovation and science and will further promote
economic growth and competitiveness. Specifically, the ACI calls for a doubling over 10 years of
funding on basic research conducted through the National Science Foundation, the Department of
Energy’s Office of Science, and the Department of Commerce’s National Institute of Standards and
Technology.
Education and Training
Labor productivity growth also results from investments in human capital that improve the quality
of the labor force. Many factors influence the quality of the American labor force, but over the long
run education is crucial. A recent study found that about one third of the productivity growth in
America from 1950 to 1993 was due to increased education levels.
The tools necessary to compete in the global marketplace are sure to become more technically
sophisticated. As Americans find themselves increasingly competing with workers around the globe,
the competitiveness of U.S. workers and businesses will depend in large part on the ability of the
workers themselves to innovate, recognize and recommend improvements, and seek new efficiencies.
Only a well-educated workforce will be able to participate in this competitive process in a meaningful
way.
President Bush has made improving results in our education system a centerpiece of his Adminis-
tration. While Federal funding for education has increased significantly, the real measure of success
is the educational achievement of America’s children. The President’s signature No Child Left Behind
Act of 2001 launched a historic commitment to hold schools accountable for improving educational
outcomes for all children—regardless of race, income, or special needs. This commitment is starting
to pay off: test scores for minority students especially are on the rise, in particular in the early grades.
The 2007 Budget seeks to extend the gains Federal Education Investments:
in achievement in the early grades to the high Title I and Student Aid
school level through a secondary school reform Federal Student Aid in Title I Funding in
billions of dollars billions of dollars
agenda of implementing proven interventions 100 15
and supporting more rigorous courses. As part Federal Student Aid 14
of the American Competitiveness Initiative, 80 Title I Funding 13
12
the Administration proposes $380 million in
11
new funding for math and science education 60
10
programs at the Department of Education.
9
This funding will enhance our understanding 40
8
of how students learn, applying that knowledge 7
to train highly qualified teachers, promote 20 6
new math and science opportunities in schools, 5
develop effective curricular materials, and 0 4
improve student learning. 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: Department of Education.
To make a college degree more affordable, the

President has provided the largest increase in Pell grant funding in the history of the program and
has increased by one million the number of students receiving this assistance. The 2007 Budget
continues to ensure that all students have an opportunity to pursue higher education by making
more than $80 billion in student aid available to approximately 10 million post-secondary students.
This includes the new Academic Competitiveness Program included in the legislation adopted by
both houses of the Congress that will help target $3.7 billion over the next five years to low-income
students who excel in math and science.
To help Americans continue to receive the job training they need for high-growth industries, the
Administration created Community-Based Job Training Grants. Under this program, in 2005 the
Federal Government awarded $125 million in grants to local technical and community colleges that
work with employers to train workers for jobs in growing industries. The Administration is propos-
ing additional reforms to Federal job training programs to make them more effective in preparing
workers for the high-tech economy of the 21st Century.
Enhancing Efficiency
The fourth source of productivity growth results from actions that ensure the most efficient allo-
cation of resources across the economy. In a microeconomic sense, such productivity gains can be
achieved, for example, by reordering steps in the production process to maximize product quality,
use of time, or work effort. A series of small improvements, or a small improvement spread widely,
will often yield large results. Government’s direct role in producing these kinds of improvements is
limited. Yet Government policies can have an important impact on how individuals and businesses
make decisions about the use of their resources—both time and money.
For example, monetary policies can contribute to low and stable inflation so that businesses and
individuals can accurately interpret and react to the price signals they receive. Better decisions based
on more accurate information lead to higher productivity.
Conversely, Government can impede the pursuit of efficiency through its regulation of commerce.
Excessive regulations and intrusive legislation may restrict the ability of workers and businesses to
adapt to changing circumstances. In other developed countries, rigid labor laws have greatly weak-
ened the incentives for workers to find new jobs and for businesses to hire workers. By contrast,
labor markets in the United States are relatively flexible, and employers can alter their labor plans
as conditions dictate. This flexibility also means workers can adapt to changing circumstances for
their own benefit whether by changing jobs, entering new industries, acquiring new skills, or simply
moving to where demand for their labor is stronger. A recent report found that the United States
had by far the highest rate of internal mobility of any of the 17 advanced countries studied. Such
internal mobility has helped the U.S. workforce become more productive and more competitive, and
has helped increase Americans’ standard of living.
Many of the Administration’s economic policies contribute to growing worker productivity rates.
Low tax rates on both income and investment returns have helped drive a recovery in the environ-
ment for business investment, from which so much future productivity growth is derived. A policy
of free and fair trade and opening up foreign markets gives U.S. businesses an incentive to shift
resources to the production of their most exportable products. In general, any policy that allows
workers, families, and businesses to keep more of what they earn and to make decisions about the
best possible use of their resources will result in higher levels of productivity.
CONCLUSION
The President’s policies are delivering a strong, sustained economic expansion, increasing employ-
ment, raising productivity, and increasing Americans’ standard of living. Building a strong economy
is one half of the formula for a sound fiscal policy of steady deficit reduction; as we have seen, a strong
economy will generate robust growth in revenues to the Treasury. The second half of the formula is
a commitment to effective spending restraint as advanced again in this Budget. When the Federal
Government carefully focuses on its priorities, and limits the resources it takes from the private
sector, the result is both deficit reduction and a strong, more productive economy.
THE NATION’S FISCAL OUTLOOK
The President’s 2007 Budget addresses

the Nation’s fiscal challenges in both the The first pillar of sound economic policy is spending
near term and long term through policies restraint in Washington, D.C.
that promote economic growth and restrain
spending. President George W. Bush
February 8, 2005
The prospects for improvement in
the budget position in the near term
are encouraging. For 2005, the most
recently completed fiscal year, the deficit came in sharply below initial projections, largely due to
higher-than-anticipated tax receipts. Although the deficit is projected to rise in 2006 from its 2005
level, the policies in this Budget are projected to return the deficit to its downward trajectory after
2006, keeping us on track to meet the President’s goal of cutting the deficit in half by 2009.
In contrast to the trend of declining deficits in the near term, the longer-term fiscal outlook is
more troubling. Without action to reform the Nation’s large entitlement programs—particularly
Social Security and Medicare—deficits, tax rates, or both, will increase to unprecedented levels and
threaten future economic growth and standards of living.
THE NEAR-TERM OUTLOOK
Cutting the Deficit in Half The size of the deficit is best assessed in
relation to the economy as a whole, as measured
Percent of GDP
5 by Gross Domestic Product (GDP). Two years
February 2004
Projection ago, with the 2004 deficit projected to peak
4 February 2005
at 4.5 percent of GDP, or $521 billion, the
Projection Projections President set a goal of cutting the deficit in half
Actuals by 2009. Since then, the deficit has declined.
3
The 2005 deficit fell to 2.6 percent of GDP, or
40-year Historical Average 2.3%
$318 billion, sharply below initial estimates.
2 This reduction was largely due to the strength
of tax receipts, which in 2005 grew 14.5 percent,
1 or $274 billion, as a result of the economic
expansion now under way.
0 In last July’s Mid-Session Review, the Admin-
2004 2005 2006 2007 2008 2009 2010 2011
istration forecast a higher deficit in 2006 than
in 2005 partly because of the implementation of
the new Medicare prescription drug benefit, which went into effect January 1. However, the deficit
for 2006 is now projected to be even larger than that prior estimate, due in significant part to the cost
of the Federal response to Hurricanes Katrina and Rita, which came after the Mid-Session Review.
In addition to the $84 billion the Congress has already enacted in emergency appropriations and en-
hanced flood insurance authority, the Budget includes the outlay effects of additional supplemental
15
16 THE NATION’S FISCAL OUTLOOK
funding that will be needed to continue the hurricane recovery and rebuilding. The 2006 deficit es-
timate also includes the effect of $50 billion in emergency funding already enacted for operations in
Iraq and Afghanistan in 2006, as well as the expected costs of an additional request for the remaining
projected requirements through the end of the fiscal year. Also, the deficit forecast assumes that the
Congress will pass a bill providing a one-year extension of relief from the Alternative Minimum Tax.
While this projected increase in the deficit is unwelcome, the resulting deficit is still well within
historical range. At 3.2 percent of GDP, or $423 billion, the projected 2006 deficit would be smaller
as a percent of GDP than the deficits in 11 of the last 25 years.
More importantly, the deficit is expected to resume its steady decline in 2007 and each of the
following three years. In 2007, the Budget projects a decline in the deficit to 2.6 percent of GDP, or
$354 billion. This estimate assumes enactment of $50 billion in emergency funding for operations in
Iraq and Afghanistan for 2007. While additional funding beyond this level may be required before
the end of 2007, depending on conditions on the ground, the amounts are uncertain at this time.
By 2009, the deficit is projected to be cut by more than half from its originally anticipated peak of
4.5 percent of GDP in 2004, to just 1.4 percent. A deficit of this size would be well below the 40-year
historical average, and lower than those in all but 5 of the last 25 years.
An important indicator of the fiscal outlook

Declining Federal Debt
is the trend in Federal debt—essentially, the
Debt held by the public as a percent of GDP
accumulation of past deficits—in relation to 120
the economy. The ratio of publicly held debt 110
to GDP has ranged between 33 and 49 percent 100
over the last two decades. Recent deficits 90
have increased this ratio modestly since 2001, 80
with the level projected to reach 39 percent of 70
GDP at the end of 2007. This projected level 60
would be well below the current average debt 50
ratio for other major industrial nations. The 40
declining deficits projected in this Budget 30
would bring the debt ratio down after 2007, 20
falling to 37 percent of GDP in 2011. 10
0
The President has outlined a two-pronged 1940 1950 1960 1970 1980 1990 2000 2010
approach to reducing the deficit:
First, he has pursued policies to promote a strong economy, a critical ingredient in generating
increased revenues to the Treasury without imposing new taxes.
Second, he has worked with the Congress to restrain the growth of both discretionary and
mandatory spending.
While the fiscal results in any particular year may vary—as reflected in the lower-than-expected
deficit in 2005 and the projected increase in the deficit in 2006—this combination of pro-growth
policies and spending restraint is well-designed to deliver the desired reductions in the deficit with-
out damaging the overall economy.
Increasing Revenues through Economic Growth
The strength of the economy drives the level of tax receipts. Prior to the Administration’s first
term, an overvalued stock market had driven Treasury receipts to artificially high levels. Taxes
from realized capital gains, stock options, and other income helped generate peak revenues of $2.025
trillion, or 20.9 percent of GDP in 2000—a level that equaled the all-time high reached during World
War II. The subsequent bursting of the stock market bubble and the recession that followed led to a
massive drop in tax receipts. Receipts fell in 2001, again in 2002, and again in 2003, reaching $1.783
trillion in 2003, or 16.5 percent of GDP. This was the first time since 1923 that receipts declined for
three consecutive years.
The President’s program of comprehensive

Strong Economy = Strong Receipts
tax relief was well-timed to respond to the weak
Percent change in receipts
economy. Tax relief enacted in 2001 granted 20
immediate tax rebates, reduced marginal
tax rates, and lowered the marriage tax 15 Projections
-----------------
penalty. That tax relief, along with further tax
legislation in 2002 that encouraged business 10
investment, acted to jump-start the economy

5
out of the recession and counter the economic
headwinds from the September 11th terrorist 0
attacks. The 2001 tax relief did not have its full
potential effect because many of its provisions -5
were to be phased in over a number of years.
Tax relief in 2003 accelerated much of the -10
1982 1986 1990 1994 1998 2002 2006 2010
remaining tax relief from 2001 and also reduced Note: Shaded areas indicate recessions.
tax rates on dividends and capital gains. This

full implementation of the President’s tax relief gave real strength to the economic recovery that
was beginning to take hold. Real economic growth in 2004 was a strong 4.2 percent, followed by
estimated growth of 3.6 percent in 2005, with healthy growth in jobs and investment.
As a direct result of this strong economic growth, receipts to the Treasury have returned to healthy
growth in the past two years, with increases of 5.5 percent in 2004 and an extraordinary 14.5 per-
cent in 2005, more than five percentage points above the projection in last year’s Budget. Growth in
corporate receipts in 2005 was an astounding 47 percent. Total receipts reached 17.5 percent of GDP,
up from a low of 16.3 percent of GDP in 2004. The Administration projects that receipts will increase
6.1 percent in 2006 and an average of 5.9 percent annually through 2011. This cautious forecast is
far slower than the 14.5 percent growth experienced in 2005, but still faster than the projected rate
of economic growth.
The revenue and deficit estimates in this Budget fully reflect the President’s plan to extend tax
relief enacted by the Congress in the 2001 and 2003 tax acts. Preserving this favorable low-tax
environment is vital to continuing economic growth.
Spending Restraint
With receipts returning to historically healthy levels as a result of a strengthening economy,

substantial deficit reduction is achievable so long as the Federal Government restrains growth in
spending.
The Administration has focused resources on meeting the unavoidable costs arising from the
September 11th terrorist attacks, the subsequent War on Terror, and more recently the response
and rebuilding in the wake of Hurricanes Katrina and Rita. At the same time that the budget has
funded these requirements, the Congress and the President have imposed enhanced restraint on the
non-security, discretionary portion of the budget. From a peak of 15 percent in the final budget year
of the prior Administration, the Congress and this Administration have brought the growth rate in
this area of spending down each year. The Congress achieved this spending discipline by reducing
funding for programs that were not getting results or were not fulfilling essential priorities.
In last year’s Budget, the President proposed to hold the rate of growth in overall discretionary
spending below the rate of inflation. The Congress delivered on that goal. The President also pro-
posed an outright cut in spending on non-security discretionary programs—the first such proposed
cut since the Reagan Administration—and Congress delivered appropriations bills that met that goal
as well. Finally, the President proposed major reductions or outright terminations for 154 programs.
The Congress responded by terminating or reducing funding for 89 of the programs.
The President’s 2007 Budget continues this restraint, holding growth in overall discretionary
spending below the projected rate of inflation for fiscal year 2006 of 3.3 percent, and again proposing
an actual cut in non-security discretionary spending. The Budget proposes 141 major reductions
and terminations in discretionary programs, saving nearly $15 billion in 2007 alone.
Spending on discretionary programs is relatively controllable because funding decisions are

revisited each year in the annual appropriations process. Mandatory programs are more difficult to
restrain because they operate under multi-year or permanent authority, with no requirement for
annual review. While spending in mandatory programs is more difficult to control, the President has
proposed to reduce the growth in this area as well. Last year’s Budget proposed significant reforms
in mandatory programs, totaling $61 billion in net mandatory savings over a five-year period. The
Congress in its budget resolution initially committed to $35 billion in net mandatory savings over
five years. As of the time of printing, both houses of the Congress had passed a reconciliation bill
that achieved $40 billion in net mandatory savings. Assuming the Congress completes this work
upon its return, it will have not only produced the first significant net savings from entitlement
programs in eight years, but it also will have exceeded the savings called for in its own budget
resolution.
This Budget continues to propose significant reforms in mandatory programs beyond those in
the pending reconciliation bill. The Budget proposes $65 billion in net mandatory savings over the
five-year period 2007-2011, including savings from reforms in Medicare, agriculture programs, and
pension insurance programs.
If the policies of spending restraint proposed in this Budget are adopted, outlays in 2009 are
projected to fall to 19.1 percent of GDP, well below the average of the past 40 years.
THE LONG-TERM OUTLOOK
While the near-term outlook for shrinking deficits is encouraging, the long-term picture presents
a major challenge due to the expected growth in spending for major entitlement programs. In only
two years, the leading edge of the baby boom generation will become eligible for early retirement
under Social Security. In five years, these retirees will be eligible for Medicare. The budgetary effects
of these milestones will be muted at first. But if we do not take action soon to reform both Social
Security and Medicare, the coming demographic bulge will drive Federal spending to unprecedented
levels and threaten the Nation’s future prosperity.
No plausible amount of cuts to discretionary programs or tax increases can help us avert this major
fiscal challenge. As the accompanying chart shows, assuming mandatory spending continues on its
current trajectory and the tax burden is held at historical levels, by 2040 Federal spending will ac-
celerate to a level at which mandatory outlays and debt service would consume all Federal revenue.
By 2070, if we do not reform entitlement programs to slow their growth, the rate of taxation on the
overall economy would need to be more than doubled, placing a crushing burden on the economy that
is required to produce the revenues to support the Government programs in the first place.
Social Security Current Trends Are Not Sustainable

Percent of GDP
Social Security was designed to be a self-fi- 40
nancing program, in which current workers pay Discretionary Spending
taxes to support benefits received by current Net Interest
retirees. In the early years of the program, 30 Mandatory
there were more than 16 workers for every Total Revenues
beneficiary, which allowed the program to
be financed with a very low payroll tax rate. 20
Currently, there are 3.3 workers for every
beneficiary, and a much higher tax rate. As
the baby boom generation retires, the ratio of 10
workers to beneficiaries will shrink further,
to an estimated 2.9 workers in 2015 and 2.2
0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2030 2040 2050 2060 2070
workers in 2030. As a result, starting in 2017,
Social Security will collect less in dedicated
taxes than it pays out in benefits, creating a
gap that grows progressively wider over time. By 2030, revenues will be sufficient to finance only
79 percent of promised benefits, falling to 68 percent by 2080.
The President has called for Social Security reform that would place the program’s finances on a
sustainable basis for future generations, while preserving full scheduled benefits for those already
in or near retirement. The benefits that can be paid out of future payroll taxes are well below the
levels in existing benefit schedules, creating uncertainty for current and future workers and virtually
guaranteeing that these workers will receive even lower rates of return on their payroll taxes than
now projected based on current benefit schedules.
Fewer Workers Will Soon Support More Retirees In order to put the program on a sustainable
Social Security Covered Workers Per Beneficiary footing without increasing tax rates and
3.5 damaging the economy, the President has
embraced the idea of indexing future benefits
Projected Date of for wealthier workers to inflation, rather than
First Cash Deficit
3.0 wage growth. Even with such indexing of
future benefits, even the wealthiest workers
would receive more benefits in real terms
2.5 than today’s seniors. At the same time, by
Projected Date of indexing benefits for those workers to inflation
Trust Fund
Exhaustion rather than wages, the Government would save
2.0 significant sums in future decades, money that
could be used to provide low-income seniors
with promised benefits, which exceed what
1.5 the system can currently afford to pay. By
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 complementing this reform with voluntary
personal retirement accounts for each worker
born after 1949, with the money coming from a portion of a worker’s payroll taxes, younger workers
would have an opportunity to earn higher yields than are possible in the current system, while
building a retirement asset they can call their own.
Adding voluntary personal retirement accounts to Social Security requires financing the transi-
tion from today’s unsustainable “pay-as-you-go” system. Although this transition financing is incor-
porated into the deficit projections in this Budget, financing personal accounts should not have the
same effect on capital markets as traditional Federal borrowing. First, such financing essentially
brings forward obligations already present in the form of promised future Social Security benefits,
and as a result, would reduce existing future obligations by a nearly equivalent amount. Second,
unlike debt issued to fund Government spending, there would be no impact on net national saving,
because every dollar of transition financing would be saved in a personal account and invested in the
capital markets. Comprehensive reform that includes both personal accounts and other measures
like progressive indexing of future benefits will reduce accumulated benefit obligations by far more
than the near-term transition financing, substantially improving the Government’s overall financial
position over the long term.
Health Care Entitlements
As the Nation’s largest health care entitlement programs, Medicare and Medicaid face similar
demographic challenges as Social Security, and those challenges are compounded by the particu-
lar economics of health care. Our Nation’s $1.9 trillion health care system provides an increasing
level of technology and supply of innovation that has allowed Americans to lead longer and healthier
lives—but at increasing cost to anyone who pays for health care. The Federal Government pays for
about a third of U.S. health care spending and as a result, health care inflation is a major Federal
fiscal issue. Medicare and Medicaid face problems not only larger in dollar terms than those faced
by Social Security, but significantly more complex. Unlike Social Security, which could be reformed
and strengthened with relatively simple adjustments to the terms by which the program operates,
the challenges of these programs require a broader range of strategies, some of which relate to the
Nation’s health care system as a whole.
The Administration has taken steps and proposed additional reforms designed to reduce health
care inflation, expand health care coverage, and improve the quality of care. Many of these
initiatives are predicated on the policy goal of returning more control and choice to health care
consumers—patients and their families. Under the Medicare Modernization Act of 2003, the
President signed into law the creation of Health Savings Accounts (HSAs), which permit individuals
to combine a high-deductible health insurance policy, offering preventive coverage and protection
against emergencies, with a tax-free account for all other health care expenses. HSAs belong to the
individual, giving that individual greater financial resources to shop for health care carefully, and
to save for future expenses.
The creation of HSAs is leading to a major shift in health care spending in America. More employers
are able to afford high-deductible health insurance combined with HSAs, so an increasing number of
workers are gaining control over their health care dollars. In addition, HSA-based insurance allows
more workers to have insurance for major medical events, which should reduce the financial burden
currently carried by various government and non-profit entities in essentially providing care for free.
The Budget proposes to expand HSAs to allow every worker to receive tax treatment comparable to
those workers who today receive employer-provided health insurance.
The President has also proposed the creation of Association Health Plans (AHPs), which will allow
employers to purchase health insurance across State boundaries and to reap the benefits of buying
insurance in bulk—bringing greater price efficiencies to the health insurance market and reducing
the impact of State-by-State regulations. By allowing small businesses to band together and nego-
tiate on behalf of their employees, AHPs would give working families greater access to affordable
health care.
Medical liability reforms would protect America’s patients, doctors, and hospitals from the stagger-
ing costs of out-of-control lawsuits and help reduce the likelihood that doctors and hospitals would
order more tests or procedures than clinically necessary, a common cause of health care inflation.
Such defensive medicine tends to be used by practitioners to help protect against liability claims,
but it has little or no medical benefit. President Bush continues to call for medical liability reforms
that would protect a patient’s right to sue and would place reasonable limits on the extent of such
lawsuits.
In his first term, the President pressed for, and signed into law, reforms to help speed the intro-
duction of generic pharmaceuticals into the market. Generic drugs provide a more cost-effective way
to deliver much-needed medicine to patients, but have often been blocked in the past by loopholes in
patent law. Since the reforms, generics are more likely to reach the marketplace without delay after
a patent has expired, helping reduce inflation in the drug market.
And finally, the President and the Congress have aggressively supported innovations in health
care information technology. Such technology has the capacity to link together doctors, patients, and
hospitals in seamless, digital environments, making it possible for a patient’s record to be trans-
ferred accurately and with all necessary privacy protections in an emergency to new doctors. The
technology has already developed to the point that many hospitals and medical systems use it as a
means to track patient records, lab tests, drug administration, and follow-up care. Federal efforts to
aid harmonization and implementation of such technologies are expected to improve efficiency and
accuracy of care, which would reduce the need for redundant medical tests, as well as the likelihood
of expensive and often fatal errors.
These reforms are expected to help moderate the effect of health care inflation on the Federal
Medicare and Medicaid programs in coming years. Even so, direct measures will continue to be
essential to bringing the cost pressures on these programs under control.
Medicare
Medicare is similar to Social Security in Social Security and Medicare Unfunded

that it is tied to the number of retirees in the Obligations Far Exceed Current Debt
general population. But because its costs are Trillions of dollars
80
also tied to health care inflation, its fiscal
70 Medicare
challenges are greater than Social Security’s
in nature, magnitude, and complexity. 60
Medicare’s dedicated revenues—consisting 50
primarily of payroll taxes and premiums
paid by beneficiaries—currently finance 62 40
percent of benefits. The remaining gap of 38 30
percent is covered by the transfer of general
revenues into Medicare Parts B and D. By 20
Social Security
2030, however, dedicated taxes and premiums 10
Publicly Held
Debt
are projected to finance less than 40 percent
of total benefits, creating a “financing gap” of 0
more than 60 percent that would need to be paid for by the general fund of the Treasury.
Filling gaps of this size with general revenues would require dangerously high tax increases, and
borrowing to finance the gaps would bring debt to unprecedented and unsustainable levels. In fact,
the accumulated size of Medicare’s financing gap is more than 14 times as large as today’s publicly
held debt. The only realistic solution is to bring the program’s costs into line with available resources.
As a starting point, any policies that control overall health care inflation will have direct benefits
for Medicare’s finances. Trends in the larger health-care market are already improving the fiscal
position of the Medicare program. Lower-than-projected growth in prescription-drug inflation has
reduced estimated net Medicare spending for the drug program by nearly $10 billion in 2006, the
first year of the program, and by $130 billion from 2006 through 2015. Beneficiary premiums for the
drug benefit are lower than expected as well—an average of $25 per month, rather than the $37 per
month initially estimated. In addition, plan participation in the Medicare drug benefit is robust, and
plans are competing to attract beneficiaries. Vigorous competition among firms has led to innovative
benefit and cost-sharing options. As a result, beneficiaries can choose among a wide variety of plans,
picking the drug-coverage option that best meets their individual needs.
The 2007 Budget includes proposals to moderate Medicare spending growth by addressing a range
of issues and challenges in Medicare and focusing on promoting high-quality and cost-efficient care
for beneficiaries. In total, the Medicare proposals in the Budget will save $36 billion over five years.
For example, the Budget proposes to continue the Administration’s support for quality initiatives
by ensuring that patients are served in the most medically appropriate and cost-efficient setting for
high-quality post-acute care.
In order to foster greater competition in the Medicare program, the Budget proposes to establish
competitive bidding for clinical laboratory services. The Administration also plans to use existing
authority to implement competitive bidding of certain physician-administered drugs and medical
supplies and equipment.
In addition, the Budget proposes to consider advances in medical technologies and the delivery of
care, as well as other management improvements, in making productivity adjustments to provider
updates. As part of a comprehensive package of reforms to make Medicare more sustainable, it is
prudent to adjust payment rates to encourage efficiency.
The Budget also focuses on longer-term challenges to Medicare’s fiscal status. The Medicare Mod-
ernization Act of 2003 (MMA) took an important first step toward improving Medicare sustainability
by requiring the Medicare trustees’ report to include a new, comprehensive fiscal analysis of the
program’s financing and issue a warning if this analysis projects that the share of Medicare expendi-
tures funded through general revenues will exceed 45 percent within the next seven years. However,
while this warning requires the President to propose legislation to restore Medicare spending to
sustainable levels, it does not mandate congressional action to do so.
The Budget proposes to strengthen the MMA provision by automatically slowing the rate of Medi-
care growth if the MMA threshold is exceeded. The lower growth would be achieved through a
four-tenths of a percent reduction to all payments to providers beginning the year the threshold
is exceeded. The reduction would grow by four-tenths of a percent every year the shortfall continues
to occur. This provision is designed to encourage the President and the Congress to reach agreement
on reforms to slow Medicare spending and bring it back into line with the threshold established by
the MMA.
Medicaid
In the deficit reduction bill pending before the Congress at the time of printing, the Congress has
addressed the Administration’s goals of reducing inappropriate spending and giving States flexi-
bility to provide health care services through Medicaid more efficiently. The bill reduces Medicaid
overpayments for prescription drugs, encourages citizens with considerable assets to plan and pay
for their long-term-care expenses rather than rely on Medicaid, and allows States to tailor health
care services and cost sharing to the needs of their populations. These reforms will help increase the
efficiency and effectiveness of the Medicaid program.
Even with these reforms, Medicaid spending growth continues to be high, with average annual
growth projected to exceed seven percent over the next decade. During the coming year, the
Administration will take further actions to improve the fiscal integrity of Medicaid. These actions
include payment reforms to shore up the integrity of the Medicaid matching rate system between the
Federal Government and States, reform of reimbursement policies for certain services that are prone
to claims abuse, and further reductions in overpayments for prescription drugs. These proposals
will strengthen the Federal-State partnership and improve Medicaid’s long-term financial stability.
BUDGET PROCESS REFORMS AND MANAGEMENT AGENDA

The current budget process makes it difficult to confront the Nation’s near-term and long-term
fiscal challenges. During the 1990s, the budget process was controlled by the now-expired Budget
Enforcement Act (BEA). The BEA imposed year-by-year limits on discretionary budget authority
and outlays and required that all other legislation not increase the deficit. Violations of these pro-
visions led to across-the-board spending reductions. The BEA helped to restrain spending until the
emergence of budget surpluses in the late 1990s eroded spending discipline.
As part of its 2007 Budget, the Administration proposes a number of reforms to control spending,
including limits on discretionary and mandatory spending, a line-item veto, and reforming programs
to deliver results. The Administration’s proposals are based in part on the spending controls in the
BEA.
Mandatory Spending Restraint
Less than half of spending each year is subject to the appropriations process and must be enacted
into law year by year. The majority of spending, in what are known as “mandatory” or “entitlement”
programs, takes place automatically under standing authority, and this form of spending is growing
far faster than the rest of the budget.
Because of the emphasis on discretionary programs in the annual budget process, those programs
tend to receive greater scrutiny than mandatory programs. Recently, the Administration and the
Congress have worked together to hold discretionary spending to fixed spending limits, but holding
mandatory spending to such limits is difficult, as most mandatory programs grow automatically by
formula according to permanent law.
Efforts to restrain mandatory spending are further complicated by an upward bias in the design and
treatment of entitlement spending programs. While changes to discretionary spending are measured
relative to the previous year’s level, changes to mandatory spending are measured from a “baseline”
that builds in automatic spending growth under current law. This difference allows critics of manda-
tory spending restraint to characterize a reduction in the scheduled rate of growth of entitlement
spending as an actual cut in the level of entitlement spending. For example, the Administration last
year proposed to slow average annual growth in Medicaid and the State Children’s Health Insurance
Program (SCHIP) from 7.4 percent to 7.2 percent over the next 10 years. The proposal would still
have allowed funding for these two programs to double from $194 billion in 2005 to $387 billion in
2015. Because the Administration’s proposed growth was less than what was built into the baseline,
it was characterized as a “cut” by some critics.
The Budget proposes to place limits on new mandatory spending. In addition to the enhanced
fiscal control mechanism for the Medicare program described earlier, the Administration would
require that any legislated increases in mandatory spending be offset by a reduction in other
mandatory spending. Legislation that violated this requirement would be subject to a three-fifths
point of order in the Senate. In the event that cumulative legislation enacted during a Congressional
session had the effect of causing a net increase in mandatory spending, the Office of Management
and Budget (OMB) would be required to reduce such spending across-the-board in non-exempt
programs to eliminate the overage.
Another goal of the Budget is to address the challenge created when minor changes to a benefit
formula are made. In some cases, these minor changes can have small costs in the short run but much
greater costs in the longer term, outside the 10-year window used for budget scoring. The Budget
proposes to establish a new measure to analyze the impact of legislation on unfunded obligations
of major entitlement programs beyond the usual 10-year scoring window. If legislation caused an
increase in these obligations, it would require a three-fifths vote of the Senate.
In addition to these legislative proposals, the Administration has augmented its own controls on
mandatory spending. On May 23, 2005, OMB established an internal review process that requires
agencies, when proposing substantial administrative actions that increase mandatory spending, to
propose at the same time offsetting administrative actions that reduce mandatory spending by a
comparable amount.
Discretionary Spending Limits
As noted earlier, the Congress has made important progress over the past 5 years in applying
budget discipline to discretionary spending. The 2007 Budget proposes to strengthen our ability to
continue this discipline through statutory limits on discretionary spending each year through 2011
that would control action throughout the budget process. Any appropriations bill that caused these
limits to be exceeded would be subject to a three-fifths vote of the Senate. If cumulative appropria-
tions action breached the spending limits, OMB would be required to make across-the-board cuts to
eliminate the excess spending.
Currently, there are inadequate incentives in budget scoring rules to fund programs to collect over-
due taxes owed to the Government, eliminate the estimated $37 billion in improper payments, and
combat other fraud and abuse in Government spending. For example, if the Budget allocates $100
million for the collection of $500 million in delinquent tax payments, the savings of $400 million
are not counted for purposes of evaluating the budgetary effects of the proposal. Thus, neither the
Congress nor the Administration has a budget scoring incentive to fund programs that actually im-
prove the overall fiscal position of the Government. The Administration proposes to properly align
incentives for these activities by allowing an increase in the discretionary caps in the amount of ad-
ditional funding needed for programs that save the Government money, such as the Social Security
Administration’s continuing disability reviews, health care fraud detection, unemployment insurance
integrity programs, and Internal Revenue Service delinquent tax collections.
Focusing Spending on Priorities
Notwithstanding the recent progress in restraining discretionary spending, there is a widespread

public perception that the number of earmarked spending items is excessive, and that too many of
them are difficult to justify on the merits. The large number of earmarks, the lack of transparency,
and the lack of a rigorous justification process make it difficult to assure taxpayers that their dollars
are being spent wisely. The Administration looks forward to working with the Congress to reform
the current approach to earmarks so that citizens can have greater confidence that their tax dollars
are funding important National priorities.
As a further tool to focus spending on priorities, the President proposes that the Congress provide
him and future Presidents with a line-item veto that is designed to withstand constitutional
challenge. From the Nation’s founding, Presidents have exercised the authority not to spend
appropriated sums. However, the Congress sought to curtail this authority in 1974 through
the Impoundment Control Act, which restricted the President’s authority to decline to spend
appropriated sums. The Line-Item Veto Act of 1996 attempted to give the President the authority
to cancel spending authority and special interest tax breaks, but the U.S. Supreme Court found that
law unconstitutional. The President’s proposal is designed to correct the constitutional flaw in the
1996 Act.
Specifically, the President’s Budget proposes a line-item veto linked to deficit reduction. This
proposal would give the President the authority to defer new spending whenever the President deter-
mines it is not an essential Government priority. All savings from the line-item veto would be used
for deficit reduction, and could not be applied to augment other spending.
The Administration would also support enhanced rescission authority as a supplement or alterna-
tive to this line-item veto. While the Impoundment Control Act contains provisions for the expedited
consideration of proposed rescissions, these procedures are flawed and have almost never been used
to enact a rescission. The Budget proposes these procedures be strengthened to ensure a vote on the
President’s proposed rescissions.
Sunset and Results Commissions
Statutory and other barriers make it difficult to reform programs to ensure agencies can maximize
results for the American people at the lowest cost to the taxpayer. On June 30, 2005, the Admin-
istration transmitted the Government Reorganization and Program Performance Improvement Act,
proposed legislation that would create bipartisan Results Commissions and a Sunset Commission
to improve agency and program performance and reduce unnecessary costs to taxpayers. Results
Commissions would consider proposals to restructure or consolidate programs or agencies in areas
where duplication and overlapping jurisdictions hinder improvements in performance. Proposals
from Results Commissions would be approved by the President and taken up in the Congress under
expedited procedures. The Sunset Commission would consider Presidential proposals to retain, re-
structure, or terminate agencies and programs according to a schedule set by the Congress. Agencies
and programs would automatically terminate according to the schedule unless reauthorized by the
Congress.
Other Reforms
The Administration also proposes to improve the budget process with a joint budget resolution,
Government shutdown prevention, and biennial budgeting. The current budget resolution does not
require the President’s signature and therefore does not have the force of law. A joint budget reso-
lution would bring the President into the process at an early stage, allowing the President and the
Congress to reach agreement on overall fiscal policy before individual tax and spending bills are con-
sidered, and could be enforced through automatic across-the-board spending cuts if its provisions
were not honored.
The Administration’s proposed provision to prevent Government shutdowns would address the
chronic practice of using “continuing resolutions” to provide temporary funding for the Government
when the Congress fails to enact appropriation bills by the October 1st start of the fiscal year. Under
the President’s proposal, if an appropriations bill has not been enacted, funding would be automati-
cally provided at the lower of the President’s Budget or the prior year’s level. Important Government
functions should not be held hostage simply because of an impasse over temporary funding bills.
Finally, biennial budgeting would free up time in the Congress now spent debating annual
appropriations bills so that lawmakers could devote more attention to oversight responsibilities to
ensure that taxpayers’ money is spent wisely and efficiently. A biennial budget process, under which
two-year appropriations bills would be enacted in each odd-numbered year, would also promote
longer-range planning and improved fiscal management in the Executive Branch.
THE PATH FORWARD
With a commitment to spending restraint and with continued focus on strengthening the economy,
we can make significant reductions in the deficit over the next several years. In the longer term,
unconstrained spending in the Nation’s large entitlement programs poses a serious threat to the
Federal budget and to the health of the economy. If we take action to restrain spending, reform
entitlements, and improve the budget process, the Nation’s longer-term fiscal outlook will improve
markedly.
MANAGING FOR RESULTS
Taxpayers in America don’t want us spending their money on something that’s not achieving results.
President George W. Bush
February 7, 2005
Through their implementation of the President’s Management Agenda, Federal agencies are adopt-
ing the management disciplines that help them focus on and deliver results. They are performing
better and working to spend taxpayers’ money better each year.
PERFORMING BETTER
Managing for results and achieving them requires three key elements:
• A clear definition of success for every program and activity;
• A clear action plan for achieving success; and
• A system of accountability that ensures that programs perform as promised.
The Administration is systematically assessing the performance of each Federal program with
these elements in mind. Since 2001, 80 percent of Federal programs have been assessed; the remain-
ing 20 percent will be assessed this year.
Many programs are demonstrating improved results.
• The Department of Veterans Affairs is reducing the time veterans wait to get medical appoint-
ments. From 2001 to 2005, the Veterans Health Administration (VHA) substantially reduced
the number of new veteran enrollees unable to schedule an appointment for medical care from
a high of 176,000 to 22,494. VHA remains a leader in customer satisfaction with an inpatient
satisfaction score of 84 (out of 100) on the American Customer Satisfaction Index, slightly higher
than the score of 79 for comparable private sector services.
• The Employee Benefits Security Administration protects private employee pension, health, and
other benefits plans against fraud and abuse. The program has successfully closed civil cases
and referred criminal cases for prosecution while simultaneously improving customer satisfac-
tion and obtaining over $1.6 billion in monetary benefits for employees. In 2005, the program
referred 45 percent of its criminal cases for prosecution and closed 76 percent of its civil cases.
This represents a 13-percent improvement for criminal cases and a 10-percent improvement in
civil cases since 2003. Over the same time period, the program’s customer satisfaction score
increased from 59 to 67 (out of 100).
• To reduce fatalities from automobile accidents, the National Highway Traffic Safety Adminis-
tration promoted greater seat belt use among high-risk groups such as younger drivers, rural
populations, pick-up truck occupants, 8-15 year-old passengers, occasional safety belt users, and
27
28 MANAGING FOR RESULTS
motor vehicle occupants in States with secondary safety belt use laws. As a result, nationwide
seat belt use increased from 73 percent in 2001 to 82 percent in 2005, an all-time high.
Agencies are also identifying the

Results at the Department of Labor steps they will take to improve each
program’s performance. All programs,
By using the disciplines of the President’s Management regardless of whether they perform
Agenda, the Department of Labor has:
poorly or well, should strive to perform
• Reduced improper unemployment insurance pay- better each year.
ments by $600 million through strong partnerships
with States; The Federal Government should
be accountable to the public for its
• Conducted public-private competitions that are esti-
mated to save nearly $19 million over the next five
performance. Along with the release of
years. the 2007 Budget, the Administration
is launching a new website, Expect-
• Kept 96 percent of its major information technology
More.gov, to provide candid information
projects on time and within budget;
on how programs are performing and
• Provided more than 17 million visitors to GovBen- what they are doing to improve. Ex-
efits.gov with access to information about Federal
pectMore.gov will include information
benefits for which they may be eligible; and
about every Federal program—what its
• Reduced their vehicle fleet by 15 percent or purpose is, how it performs, and what
691 vehicles. it is doing to perform better. Visitors
to the site will be able to compare
programs’ performance and find out
more details. By making program
performance information more accessible to the public, this site aims to explain how tax dollars are
spent and increase public demand for better performance from the Federal Government.
To improve the results the Executive Branch

achieves on behalf of the American people, the
Administration transmitted the Government
Reorganization and Program Performance
Improvement Act to the Congress in June
2005. The proposed Act authorizes the creation
of two types of commissions—Sunset and
Results—to regularly review the performance
of Government agencies and programs and
make recommendations for improvement. The
Administration will work with the Congress to
enact this important legislation that aims to
improve agency and program performance and
reduce unnecessary costs for taxpayers.
IMPROVING HUMAN CAPITAL MANAGEMENT
To improve performance each year, Federal agencies must have the right people in the right jobs at
the right time, with good managers to help them grow professionally. Federal agencies are strength-
ening their performance appraisal systems, nurturing future leaders, ensuring their employees have
the necessary skills, and reducing how long it takes them to hire new staff.
• The Social Security Administration (SSA) successfully recruited over 2,200 employees in
mission-critical positions to support the Medicare Prescription Drug Improvement and
Modernization Act. Using a full range of hiring flexibilities, in total SSA successfully recruited
over 4,600 new hires in 2005 while reducing their hiring time and steadily improving the
retention rate of new hires.
• As a result of agency workforce planning efforts, the Department of the Treasury, Office of the
Comptroller of the Currency (OCC) identified a critical need to hire entry-level bank examiners
to fill projected senior bank examiner vacancies (approximately 25 percent of their workforce)
over the next several years. Employing an aggressive and innovative strategy of using experi-
enced bank examiners as recruiters, the OCC has recruited 255 new entry-level examiners since
June 2003—of which 54 percent are women and 42 percent are minorities.
• The Federal Highway Administration (FHWA) awards $36 billion in grants annually to States
for highway and bridge projects. To increase control of project costs and to address deficiencies in
financial oversight, the FHWA deployed a variety of strategies to ensure they will have people
with the right skills in place to provide critical financial oversight. The FHWA conducted a
skills gap analysis, targeted their recruitment program for those identified skills, refined their
entry level Professional Development Program, and implemented work-life flexibilities to reduce
attrition. As a result, over 35 percent of the financial management staff has been trained in the
Financial Management Improvement Program, and the staff attrition rate was reduced from 6.5
percent in 2004 to 5.2 percent in 2005.
• The Department of Agriculture (USDA) employed targeted recruitment strategies and used
hiring flexibilities to reduce vacancy rates and shorten hiring time in its 19 mission critical
occupations. As a result of these efforts, USDA increased from 12 to 18 the number of mission
critical occupations that now have less than three percent of their positions vacant.
The Government needs additional tools to ensure that it is using its workforce to its maximum
potential. Designed in the late 1940s for a largely bureaucratic organization, the current personnel
system is no longer appropriate for today’s mostly professional workforce that performs a wide range
of roles, at different proficiency levels. The current system does not sufficiently recognize employees
for their work or hold managers accountable for how well they manage employees. The Adminis-
tration has developed draft legislation, the Working for America Act, to require that agencies better
manage, develop, and reward employees to serve the American people better. The reforms in the
legislation that have been developed with Chief Human Capital Officers and congressional staff, are
based on what the Government has learned implementing alternative pay systems over the past 25
years, and focus on what is good for Federal employees and American taxpayers. The Administra-
tion will work with the Congress to enact this important legislation to allow Federal employees to be
thought of and treated as the professional public servants they are, and to enable the Government
to make better use of its human capital resources to produce results for the American people.
USING INFORMATION TECHNOLOGY MORE EFFECTIVELY
By investing in information technology (IT) strategically, agencies are better positioned to pro-
vide increased access to Federal Government information and to deliver superior service to citizens.
Additionally, agencies continue to work together and pool resources around Government-wide lines
of business and software acquisition initiatives that improve services to citizens.
• Regulations.gov allows citizens, businesses, and other organizations interested in regulatory
development to obtain free and easy access to Federal rulemaking information. The initiative
increases public access to the rulemaking process by providing the opportunity to contribute
views via the Internet. By the end of 2005, Regulations.gov enabled more than 1.6 million people
to use the Internet to search, view, and submit comments on proposed Federal rules.
• Since February 2004, through the Expanding Electronic Tax Products for Businesses initiative,
over 20,000 electronic Internal Revenue Service 1120 and 990 forms have been submitted. Ad-
ditionally, through this initiative new business owners can apply for and immediately receive an
Employer Identification Number (EIN) online or by telephone. Before this function was avail-
able, people had to fill out and mail a paper version of the EIN form, waiting up to two weeks to
receive their EIN from the Internal Revenue Service.
• Grants.gov, a single, online portal for all Federal grant customers, makes it easier for potential
recipients not only to obtain information about Federal grants, but also to submit applications for
those grants. In 2005, 994 funding opportunities for discretionary Federal assistance, 44 percent
of all grant opportunities, were available for electronic application submission via Grants.gov.
Grants.gov currently provides Federal grant-seekers with access to over 1,000 Federal grant
programs.
• Since its inception in 2002, the E-Payroll initiative has reduced the costs for agencies to process
payroll services by consolidating 26 Federal payroll processing systems into four approved
E-Payroll providers. For example, by migrating to the Department of Defense’s Defense Finance
and Accounting Service in April 2005, the Department of Health and Human Services has
reduced its annual costs for payroll processing for its more than 65,000 employees from $259
to $90 per employee, a reduction of 65 percent.
• SmartBUY, the effort to leverage the Federal Government’s purchasing power and establish
Government-wide mandatory software acquisition vehicles, is helping the Government reduce
IT costs. An agreement for an Oracle database signed in April 2005 generated $174.5 million in
savings in the first five months.
The Federal Government spends almost $65 billion on IT each year. Federal agencies are working
to ensure this investment produces the expected results.
• Federal agencies are working to ensure that all IT systems are properly secured and data are
appropriately protected. Currently, 85 percent of Government systems have been certified as
secure, up from 77 percent last year.
• For 69 percent of IT projects, there is documentation that the benefits derived from the invest-
ments exceed the costs. While this represents an improvement from the 45 percent reported in
2002, more work is needed to ensure that IT projects demonstrate they are producing intended
results.
• Thirty-two percent of agencies have fully implemented processes to plan and monitor their IT
investments, and on average are achieving at least 90 percent of their costs, schedule, and per-
formance goals. While this may represent an improvement from the past, it falls significantly
short of acceptable performance levels. The Administration will devote particular attention over
the next year to improving the performance of Federal IT investments.
IMPROVING REAL PROPERTY MANAGEMENT
For the first time, the Federal Government has inventoried its real property and is making sure
it is put to the best use. The goal for the next few years is to liquidate $15 billion worth, or five
percent, of the properties that are no longer needed and put the money toward needed real property
investments.
• The General Services Administration (GSA) is increasing occupancy rates for buildings, improv-
ing the condition of buildings in its inventory, and disposing of unnecessary buildings. Between
2001 and 2005, occupancy rates increased in Federal owned-space from 90.6 percent to 93.2 per-
cent. GSA was able to increase the occupancy rates by enhancing systems to match available
vacant space with tenant needs and by disposing of unnecessary buildings and reducing disposal
time. In 2005, GSA disposed of 27 surplus properties, exceeding its target of 15.
• The Department of Veterans Affairs (VA) is reducing vacant space, disposing of properties, and
working to reduce facility maintenance costs. Within the last year, vacant space at VA declined
15 percent. VA also disposed of or demolished 16 non-mission critical properties. VA expects
to realize additional cost savings through campus consolidations, building enhancements, and
demolitions.
INCREASING EFFICIENCY
The Administration is particularly focused on how much is spent to achieve the desired results.
All programs are developing and using efficiency measures to deliver more for the same amount of
money.
• By replacing manual inspection sites with fully automated weather and water supply data col-
lection, the Department of Agriculture’s Natural Resources Conservation Service reduced the
unit cost of producing water supply forecasts in the western United States from $1,011 to $890
per forecast in 2005. This savings allowed the agency to increase the number of forecasts from
11,281 to 15,356 and to provide more timely and accurate information on potential spring and
summer stream flows from melting snow packs.
• The Small Business Administration increased the number of loans guaranteed under its small
business guaranteed loan program by 95 percent while at the same time reducing the costs of
guaranteeing a loan from $3,545 in 2002 to $559 in 2005. It accomplished this by streamlining
the delivery system, introducing an Internet loan origination solution, and reducing the pro-
gram’s credit subsidy cost to zero.
• By using technology such as the “e-designate” pilot—a paperless, electronic offender transition
process that allows the courts, U.S. Parole Commission, U.S. Marshals, Bureau of Prisons, and
Immigration and Customs Enforcement to move paperwork electronically between offices and
agencies—the Department of Justice’s Office of the Federal Detention Trustee has reduced the
amount of time offenders in Arizona spend in detention awaiting trial, sentencing, or assignment
to a Federal prison from 147 to 118 days. This results in savings of $28 million annually.
Agencies are also reducing costs through strategic sourcing, the collaborative and structured
process of critically analyzing an agency’s spending to leverage buying power within and among
agencies.
• The Department of Homeland Security determined that it could achieve significant savings in
its acquisition of express mail and package delivery service and entered into a departmental
contract that will reduce costs for these services by 37 percent.
• Consolidation of contracts for cell phone service has saved the Internal Revenue Service nearly
20 percent (close to $1 million) in just the first year of its restructured contract.
ELIMINATING IMPROPER PAYMENTS
Agencies are improving the accuracy of Federal payments by ensuring that dollars are properly
accounted for and are going to the right person in the right amount.
• The Government-wide improper payments total dropped approximately $7.5 billion from last
year’s total of $45.1 billion. The 17-percent reduction was largely the result of advances in the
Medicare program. This program reduced improper payment dollars from $21.7 billion to $12.1
billion by strengthening documentation requirements to support payment claims. Payments
that were previously considered improper due to lack of proper justification now have appropri-
ate documentation and are known to be accurately paid.
• By promoting best practices and simplifying the program, the Department of Agriculture has
reduced improper Food Stamp payments by $1.4 billion over four years since 2000, and reported
a 5.88 percent improper payment rate in June 2005, the lowest in the program’s history.
• In 2005, improper unemployment insurance payments were reduced by approximately $600
million. Implementation by the States of the National Directory of New Hires cross-match pro-
gram over the next two years will allow them to ensure that people who have returned to work
no longer collect unemployment benefits, providing an additional tool to reduce improper pay-
ments.
• By expanding and strengthening its income verification program, the Department of Housing
and Urban Development reduced gross improper rental assistance payments by over 60 percent
since 2000—from $3.2 billion improper payments in 2000 to $1.3 billion in 2004.
• After conducting internal reviews of agency-wide commercial payments, the Department of
Defense recovered $414.9 million in incorrect payments from a possible recovery total of $469.5
million, a nearly 90-percent success rate.
USING COMPETITION TO REDUCE COSTS
Agencies are determining the most effective and efficient way to perform commercial tasks and
developing tools to track implementation and ensure results are realized. Competitive sourcing (i.e.,
public-private competition) motivates Federal employees to propose more efficient ways of perform-
ing their commercial-oriented activities, while making it possible for contractors to offer new ways of
performing these functions—all of which promotes taxpayer savings and better government manage-
ment. Savings continue to increase as more competitions are completed and cost control is brought
to a larger number of Government tasks, including technology support, financial services, human
resources, and logistics.
Competitions completed in 2003, 2004, and 2005 will save taxpayers more than $5.2 billion. These
savings, most of which is expected over the next three to five years, are being generated through
operational consolidations, better use of technology, and other re-engineering efforts.
• The Federal Aviation Administration (FAA) is dramatically improving the delivery of flight
services—such as in-flight weather briefings, flight planning and emergency assistance—to
general aviation pilots, and saving taxpayers $2.2 billion. These improvements are the result
of a public-private competition completed in 2004 that allowed FAA to select a contractor who
will replace antiquated systems and labor intensive processes with state-of-the art technology,
modern facilities, and high-quality customer service.
• The National Aeronautics and Space Administration (NASA) used public-private competition
to consolidate human resources, procurement, financial management, and information technol-
ogy activities performed at 10 NASA centers to one shared services center. The elimination of
redundant systems and processes will improve efficiency and reduce agency costs by more than
$40 million over 10 years.
Most competitions have been won by Federal employees and have not required large scale reduc-
tions in the Federal workforce. For those who are affected by the competition process, agencies have
made concerted efforts to reassign employees to priority programs within the agency, employ them
with another Federal agency, or have them shifted to the payroll of the winning contractor.
The Administration continues to work with the Congress to remove legislative restrictions on com-
petitive sourcing, such as those that require agencies to choose the cheapest providers. While cost
will always be a key consideration in every decision, agencies must be able to look at innovative so-
lutions and enhanced services that can provide better value to the taxpayer. Elimination of these
legislative constraints will allow taxpayers to get the best results possible from competitive sourcing.
STRENGTHENING FINANCIAL MANAGEMENT
To ensure managers have the current and accurate financial information they need to make timely
and well-informed decisions, we are managing our finances with more discipline, to a degree that
was considered unattainable several years ago.
• 2005 was the first year that all 24 major agencies subject to the Chief Financial Officer (CFO)
Act submitted their Performance and Accountability Reports by November 15th, only 45 days
after the end of the year. This is a significant improvement from the five months it took agencies
to submit these same reports in 2001.
• Nineteen of the 24 CFO Act agencies received unqualified audit opinions for 2005, an increase
of two from 2001.
• Improvements in Federal financial management practices have increased the reliability of data,
as shown in the decrease in auditor-reported material weaknesses, from 57 in 2001 to 48 in 2005.
The Federal Government, as one of the world’s largest lenders, will work to improve how it man-
ages its credit programs. At the end of last year, the Government had $247 billion in direct loans out-
standing, and over $1.5 trillion in loan guarantees; administrative costs for the five largest agencies’
programs total over $1 billion per year. Through the new Improved Credit Management initiative,
agencies will strengthen the way they award and service loans, manage their portfolios, and collect
their debt. This initiative will be supported by the Federal Credit Council, consisting of representa-
tives from the participating agencies and the Office of Management and Budget. The Council will
work to find ways to lend, or guarantee private loans, at the lowest risk and cost to the taxpayer,
while still achieving program goals. Anticipated results of this initiative are savings on the nearly
$70 billion delinquent debt portfolio, improved efficiency, and lower cost of doing business.
MANAGEMENT SCORECARDS
With the help of the President’s Management Agenda, agencies have become more disciplined and
results-oriented about the way they manage their programs, people, costs, and investments. For
each management area, agencies identify clear goals and timeframes. They develop plans, identify
responsible individuals, and apply resources to achieve these goals. An agency earns green status
when it has successfully achieved all the desired disciplines in the initiative.
All agencies have shown steady improvement in achieving the overall goals of the President’s Man-
agement Agenda. While 85 percent of the status scores were red on the first scorecard, today more
than 75 percent of status scores are green or yellow.
Explanation of Status Scores

Green—Agency meets all the Standards for Success.
Yellow—Agency has achieved intermediate levels of performance in all the criteria.
Red—Agency has any one of a number of serious flaws.
Explanation of Progress Scores

Green—Implementation is proceeding according to plans agreed upon with agencies.
Yellow—Slippage in implementation schedule, quality of deliverables, or other issues requiring adjustment
by agency in order to achieve initiative on a timely basis.
Red—Initiative is in serious jeopardy. It is unlikely to realize objectives absent significant management
intervention.
The most recent scorecard as of December 31, 2005, follows. Quarterly scorecards are also available
at www.results.gov. A discussion of each agency’s implementation of the President’s Management
Agenda is included in the relevant agency chapter of this volume.
Executive Branch Management Scorecard

Current Status as of Progress in Implementing President’s
December 31, 2005 Management Agenda
Com- Budget/ Com- Budget/

Human Financial Human Financial
petitive E-Gov Perf. petitive E-Gov Perf.
Capital Perf. Capital Perf.
Sourcing Integration Sourcing Integration
Agriculture
Commerce
Defense
Education
Energy
EPA
HHS
DHS
HUD
Interior
Justice
Labor
State
DOT
Treasury
VA
AID
Corps
GSA
NASA
NSF
OMB
OPM
SBA
Smithsonian
SSA
Arrows indicate change in status since evaluation on September 30, 2005.
Double arrows indicate that the status rating was either upgraded from red to green
or downgraded from green to red.
Program Initiative Scorecard
Initiative Status Progress
Faith-Based and Community Initiative:
Agriculture......................................................................
Commerce .....................................................................
Education .......................................................................
HHS..................................................................................
HUD .................................................................................
Justice .............................................................................
Labor................................................................................
VA .....................................................................................
AID....................................................................................
SBA ..................................................................................
Real Property Asset Management:
Agriculture......................................................................
Defense ..........................................................................
Energy .............................................................................
HHS..................................................................................
DHS..................................................................................
Interior .............................................................................
Justice .............................................................................
Labor................................................................................
State.................................................................................
DOT ..................................................................................
VA .....................................................................................
AID....................................................................................
Corps ...............................................................................
GSA..................................................................................
NASA ...............................................................................
Program Initiative Scorecard—Continued
Eliminating Improper Payments:
Agriculture......................................................................
Defense ..........................................................................
Education .......................................................................
HHS..................................................................................
HUD .................................................................................
DHS..................................................................................
Labor................................................................................
DOT ..................................................................................
Treasury ..........................................................................
VA .....................................................................................
EPA ...................................................................................
NSF ..................................................................................
OPM .................................................................................
SBA ..................................................................................
SSA ..................................................................................
Privatization of Military Housing .................................
R&D Investment Criteria ...............................................
Housing and Urban Development Management

and Performance .........................................................
Broadening Health Insurance Coverage through

State Initiatives .............................................................
A “Right-Sized” Overseas Presence.........................
Coordination of VA and DOD Programs and

Systems ..........................................................................
DEPARTMENT OF AGRICULTURE
Since 2001, the Administration:

• Supported policies that helped increase net cash income of farmers by 42 percent,
production of ethanol by 100 percent, and production of biodiesel by 600 percent;
• Reduced hazardous fuels on 8.1 million acres of forest, and doubled the yearly
acreage under the President’s Healthy Forests Initiative;
• Enrolled over one million acres into the Wetlands Reserve Program to restore and
protect these ecologically valuable lands;
• Provided sufficient funding for WIC to serve all eligible women, infants, and children
seeking services;
• Reopened borders for beef exports banned after discovery of Bovine Spongiform
Encephalopathy; and
• Opened new markets for American farmers, including Central America, Chile,
Australia, and elsewhere.
The President’s Budget:

• Requests $322 million for protecting America’s agriculture and food supply by
improving the Department’s ability to detect, respond to, and recover from incidents
of diseases, pests, or poisonous agents;
• Includes $57 million to continue activities related to avian influenza preparations and
prevention, including surveillance of wild and domesticated birds;
• Provides full funding for the Northwest Forest Plan allowing for 800 million board feet
of lumber to be harvested from Forest Service land;
• Provides funding to enroll 250,000 acres in the Wetlands Reserve Program to meet
the President’s commitment to create, improve, and protect at least three million
wetland acres by 2009;
• Continues Forest Service reforms that will result in a savings of more than $115 million
over three years;
• Targets Conservation Reserve Program funding to activities that will have the highest
chance of improving conservation; and
• Proposes to exclude all retirement savings when determining if a household is eligible
for food stamps to make it easier for low-income people to save for retirement and get
food stamps if they need them.
39
40 DEPARTMENT OF AGRICULTURE
FOCUSING ON THE NATION’S PRIORITIES
Growing America’s Farm Economy through Trade
Farm Income, Calendar Year The Administration remains committed

to growing America’s farm economy through
Dollars in billions (gross) Net farm income, dollars in billions
35 100
trade. The United States is one of the world’s
Payments--Other Net Farm Income largest agricultural exporters. The value of
30 Payments--Conservation agricultural exports equals nearly one-fourth of
80
25
Payments--Function of prices farm cash receipts (about twice the level of the
Payments--Fixed overall U.S. economy) and one out of three acres
60
20 is planted for export.
15 Our trade negotiators continue to work
40
10
to open foreign markets to U.S. agricultural
20 exports. The United States presented a
5 comprehensive proposal to advance the World
0 0
Trade Organization (WTO) agriculture nego-
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 tiations and unleash the full potential of the
Source: USDA.
Doha Development Agenda. The proposal is
contingent on bold reforms from other countries
participating in the WTO negotiations. Reforming global agricultural trade will create new jobs
and promote economic development that will lift millions out of poverty. The Administration
has actively pursued trade negotiations with the goal of opening new markets for U.S. products,
eliminating unfair competition from export subsidies, and creating a level playing field for farmers
by eliminating trade-distorting agricultural subsidies.
The Administration has completed free trade agreements (FTAs) with 14 countries, including the
recently agreed to Peru Trade Promotion Agreement. Under that agreement, more than two-thirds
of current U.S. farm exports to Peru will become duty-free immediately, with most remaining duties
phased out over 15 years and all eliminated within 18 years, significantly benefiting U.S. exporters.
U.S. exporters are also going to benefit from the Central America-Dominican Republic FTA (CAFTA-
DR). U.S. industry estimates that CAFTA-DR could boost U.S. agricultural exports by $1.5 billion
when fully implemented.
Japan Opens Markets to U.S. Beef

Japan has reopened its market to U.S. beef products after two years of extensive work by the United States
to prove that U.S. beef is safe.
In December 2003, many countries closed their markets to U.S. beef after the discovery of a cow that tested
positive for Bovine Spongiform Encephalopathy. Prior to this discovery, U.S. exports of beef to Japan were
worth $1.4 billion and the United States exported beef products to 119 countries.
After many meetings, site visits, reports, and other consultations with Japan’s food safety officials, the United
States is now able to export beef from cattle 20 months of age and younger to Japan. This brings the number
of countries that have established beef trade with the United States to 68. The Department of Agriculture
will continue to engage Japan to expand eligible beef exports consistent with international standards.
U.S. farm income grew at unprecedented levels from calendar years 2003 to 2005. In calendar year
2005, net cash farm income is forecast to be $83.2 billion, the second highest on record.
Government payments in 2005 are also forecast to be the highest on record since the 2002 farm bill
was signed into law. Large crop supplies have reduced market prices, increasing commodity support
payments under those programs where benefits are provided on a per unit basis.
Protecting America
Food and Agriculture Defense Initiative. The Budget continues the efforts to safeguard America’s
food supply and agriculture started by Homeland Security Presidential Directive 9, Defense of U.S.
Agriculture and Food. Using systems and expertise already in place to protect the agriculture and
food supply, the U.S. Department of Agriculture (USDA) and the Department of Health and Human
Services have continued preparedness efforts to increase the Government’s ability to detect, respond
to, and recover from incidents of disease, pest, or poisonous agents naturally occurring in, uninten-
tionally introduced to, or intentionally delivered by an act of terrorism to the agriculture and food
systems.
The Budget requests $322 million for USDA

programs to protect America’s food supply and
agriculture, an increase of $69 million over
2006. Excluding funding for the state of the
art animal research and diagnostic facility at
Ames, Iowa, which was fully funded in 2006,
the increase is $127 million, or 65 percent.
Funding is provided for Food Defense to im-
prove the capability of laboratories to provide
detection or screening tests of potentially
contaminated products and to provide needed
surge capacity in testing when incidents occur;
to improve data exchange between laborato-
ries and with Federal surveillance personnel
responsible for analyzing trends and detecting potential outbreaks; and to increase research in
areas of rapid detection, threat agent characteristics, antibiotic resistance, and preharvest pathogen
control. Funding initiated in 2003 to support understanding of vulnerabilities in the agriculture and
food system has resulted in completion of vulnerability assessments determining likely products,
likely contamination agents, and possible routes. These assessments will continue to be reviewed
and applied to an increasing number of food systems that might be targeted for attack.
Funding for Agriculture Defense is provided for research on emerging and exotic diseases, such
as chronic wasting disease, Bovine Spongiform Encephalopathy, foot-and-mouth disease, and Asian
soybean rust, as well as the National Plant Disease Recovery System. Increases will fund cooperative
agreements with States to improve State-level monitoring, surveillance for wildlife, the national an-
imal health laboratory network, and emergency coordination to respond to the threat of agricultural
diseases, and to enhance the National Veterinary Vaccine stockpile.
FOCUSING ON THE NATION’S PRIORITIES—Continued
Avian Influenza. The Administration’s goals

for the pandemic influenza initiative are to
gain early warning of a possible pandemic, to
respond effectively to stop, slow, or limit the
arrival of a pandemic to the United States, and
to protect American lives if a pandemic reaches
our shores. To further this Government-wide
preparedness and response, additional funding
was provided in December 2005. The Budget
request for the Department provides $57
million for activities such as the domestic
surveillance of wild birds and waterfowl; work
with State management teams to conduct
poultry surveillance; cooperative agreements
with States across the country to conduct surveillance and diagnostics for live bird markets,
smuggling intervention and trade compliance; and stockpile of vaccines for poultry.
Providing for Sustainable Forests in the Northwest
Adopted in 1994, the Northwest Forest Plan is an integrated, comprehensive design for ecosystem
management, intergovernmental and public collaboration, and rural community economic assistance
involving nearly 25 million acres of Federal forests in western Oregon, Washington, and northern
California. The Budget provides an increase of $41 million (117 percent) for the Forest Service timber
sales component of the Plan. Since 2001, the volume of timber offered by the Forest Service in the
Pacific Northwest has increased from 136 million board feet to 415 million board feet in 2005, and
the Budget allows USDA to offer the Plan’s goal of 800 million board feet of timber the Forest Service
in 2007. The goal is a sustainable level that provides enough timber to build 64,000 three-bedroom
houses, but remains well below the 10 billion board feet of timber harvested in 1990. The Budget
also reflects greater use of streamlined forest planning and authorities included in the President’s
Healthy Forests Initiative, while providing funding to monitor and protect the long-term health of
forests, wildlife, and waterways in the Pacific Northwest.
The Budget underscores the President’s commitment to States and counties impacted by the ongo-
ing loss of receipts associated with lower timber harvests on Federal lands in the Pacific Northwest
and elsewhere by including funding for a five year extension of an amended Secure Rural Schools and
Community Self Determination Act. Payments under the amended Act will be targeted to the most
affected areas, adjusted downward over time, and eventually phased out. The Budget would provide
these payments in a fiscally responsible manner by offsetting costs through the sale of land parcels
that meet criteria identified in existing national forest plans as suitable for conveyance because they
are isolated or inefficient to manage. The sale and resulting development of these excess lands could
increase the State and county tax base. Additionally, the sale would free up resources that could be
more effectively targeted to higher-priority lands.
Cooperative Conservation
Wetlands provide critical environmental,

economic, and ecosystem health benefits to the
Nation, such as reducing flood risk, improving
water quality, and supplying habitat to
hundreds of species. Recognizing the need for
more effective use and coordination of Federal
wetland management activities, the President
announced in April 2004 a new national policy
to achieve an overall increase of U.S. wetlands
by restoring, protecting, and enhancing three
million wetland acres over five years. USDA
programs have helped restore 893,863 acres
of wetlands since 2001. In order to enhance
USDA’s support for the President’s goal,
the 2007 Budget provides funding for the
Wetlands Reserve Program (WRP) to enroll 250,000 acres, a 100,000-acre increase above 2006. The
Budget’s increased support for WRP will allow USDA to restore a larger number of acres across a
broad range of ecosystems, such as floodplain forests, prairie potholes, and coastal marshes. USDA
targets WRP funding to States most in need of restoration help by prioritizing dollars for areas with
the highest amount of impaired wetlands and streams.
Invasive species are a multi-agency priority. When invasive species are introduced to a new area
through natural events such as hurricanes or through commerce and travel, they may disrupt es-
tablished agricultural and ecological systems. Their effects may range from minimal to severe and
can be impossible to manage in a cost effective manner. Government, at all levels, and the private
sector have spent significant valuable resources to address their impact. Given limited resources
available to the Federal Government and resulting trade-offs, funding for specific projects that ad-
dress invasive species should be allocated on a priority basis that considers cooperative approaches
to eradication and control programs. The Budget includes $10 million for a pilot program to be used
by the Department to award grants on a competitive basis to private groups to develop cooperative,
innovative, and cost effective methods for responding to invasive species.
Nutrition Assistance Programs
The Budget promotes the President’s Ownership Society initiative by enabling low-income people
to save for retirement even when they have an immediate need for food stamps. Currently, some
retirement savings such as Individual Retirement Accounts can disqualify a needy household from
receiving food stamps. Under this proposal, the Food Stamp Program would exclude all retirement
savings in determining whether a household is eligible for food stamps.
The Special Supplemental Nutrition Program for Women, Infants and Children, more commonly
known as WIC, serves the nutritional needs of low-income pregnant and postpartum women, infants,
and children up to their fifth birthday. The Budget provides $5.2 billion for WIC services, full funding
for all those estimated to be eligible and seeking services.
USDA’s Hurricane Response Efforts
USDA responded and provided assistance to people affected by the hurricanes that impacted the
Gulf Coast in 2005. USDA deployed over 6,000 personnel to provide meals, housing, debris and
animal carcass removal, logistical and technical support, and animal rescue. Over 10,000 displaced
residents were provided housing in USDA financed rural housing units. More than 23 million pounds
of commodities and baby food were provided to the affected areas. Support to farmers is being pro-
vided through crop and livestock disaster payments; watershed and farm clean-up; and the deferment
of farm loan payments for one year.
In addition, these hurricanes destroyed or damaged many Federal facilities causing the temporary
relocation of personnel. The National Finance Center (NFC), which provides financial and accounting
support and payroll processing for 130 Government agencies, was temporarily relocated to Pennsyl-
vania and Texas. Despite the displacement, the NFC was able to process in a single pay period more
than 565,000 payroll checks and disburse more than $2.7 billion.
Encouraging Development in Rural Areas
The Budget proposes $14 billion in loans, loan guarantees, and grants to improve the economic op-
portunity and the quality of life for rural Americans. This includes funding for housing, businesses,
community facilities, water and wastewater treatment, and the provision of electricity, telecommu-
nications, distance learning, telemedicine, and broadband.
Revitalization of USDA’s portfolio of multifamily housing projects, including a voucher program
to assist tenants displaced from these housing units, is a key initiative. In September 2004, the
Supreme Court of the United States ruled that owners of USDA financed multifamily housing
projects have a right to prepay pre-1989 loans. An estimated 1,648 properties with 45,933 units,
or about 10 percent of the portfolio, could be affected. Once the loans are paid, owners will be able
to charge market rents for these housing projects. As a result, low- or very low-income tenants
who could previously afford paying for USDA financed housing could be displaced. The Budget
provides funding for a voucher program for these displaced tenants. In addition, the Administration
continues to work toward the enactment of legislation to authorize debt restructuring and other
incentives for project sponsors to repair and rehabilitate their projects. The $74 million provided for
these purposes will ensure that USDA continues to support the provision of decent, safe, affordable
housing to many who need it. The Budget also reflects the Administration’s preference for loan
guarantees and vouchers, which can promote private ownership and individual control in providing
low-income, tenant-based housing in rural America. The multifamily housing guarantees are
doubled to $198 million, while no funding has been provided for new construction in the direct loan
program.
USDA Rural Development Program Fuels Biodiesel Plant in Minnesota

SoyMor, a farmers’ cooperative in southern Minnesota and northern Iowa, is constructing a biodiesel plant
with assistance from Freeborn-Mower and USDA. A USDA program that provides loans and grants that are
used to support cooperatives, like Freeborn-Mower, to underwrite worthwhile community development and
job creation projects is supporting the construction of the new biodiesel facility. The facility is on track to
open in June and will produce 30 million gallons of biodiesel annually. Not only does the construction of the
plant create new jobs, it also increases the price farmers receive for their soybean crop.
RESTRAINING SPENDING AND MANAGING FOR RESULTS
Agricultural Commodities Funding
The President’s Budget proposes agriculture

program savings. Farmers have experienced
strong increases in income over the past three
years. Net cash farm income for calendar
year 2005 is forecast at $83.2 billion, close to
the prior year’s record level of $85.5 billion.
Exports have been equally strong. U.S.
agricultural exports are forecast to reach a
record $64.5 billion in 2006, exceeding the
previous record of $62.4 billion, achieved in
both 2004 and 2005. U.S. agricultural exports
have shown solid growth for six years, in-
creasing every year since 1999. Nevertheless,
commodity subsidies are expected to continue
to be significant; near record highs in calendar
2005 and the highest since passage of the 2002 farm bill. The Administration proposes making the
following legislative changes to reduce agricultural spending:
• Reduce all crop payments to farmers by five percent. Payments to farmers from all commodity
programs (marketing loans, direct and counter-cyclical payments, and the Milk Income Loss
Compensation program) would be calculated, and payments would be reduced, by five percent.
(Savings = $4.9 billion over 10 years.)
• Initiate a sugar marketing assessment to be paid by sugar processors on all processed sugar. An
assessment of 1.2 percent of the raw sugar loan rate would be paid by processors for sugar from
both cane and beets. (Savings = $364 million over 10 years.)
• Require USDA to achieve effective dairy price supports at the least possible costs to the taxpayer.
Change the law to require dairy product prices set by USDA to minimize costs, and allow pur-
chases only when reported prices are below the support rate. This would change milk product
price ratios to reduce Government purchases and save on storage costs. (Savings = $618 million
over 10 years.)
• Reduce the payment limit cap for individuals to $250,000 for all commodity payments, including
all types of marketing loan gains while removing the three-entity-rule and making marketing
loans recourse above the payment limit. (Savings = $1.2 billion over 10 years.)
• Initiate a dairy assessment to be paid by dairy producers. An assessment of three cents per
hundredweight of milk produced would be paid by all dairy producers on all of their production.
(Savings = $578 million over 10 years.)
• Reduce crop insurance premium subsidies for farmers and lower the amount paid to reimburse
insurance companies for administrative costs. Require all producers receiving direct crop pay-
ments to purchase crop insurance. This is expected to eliminate the need for ad hoc disaster
assistance. (Savings = $1.26 billion over 10 years.)
RESTRAINING SPENDING AND MANAGING FOR RESULTS—Continued
Streamlining Forest Service Overhead Expenditures
The Forest Service has reduced costs and improved agency performance by restructuring its infor-
mation technology, human resources, and budget and finance organizations as part of the President’s
Management Agenda. These efforts have led to the successful consolidation of upwards of 1,400 jobs
that will save the taxpayers $115 million over three years. Continuing this effort, the Budget pro-
motes further administrative services and organizational efficiency reforms for the Forest Service
that will limit Forest Service indirect costs to 10 percent of its total obligations, or $461 million, a
savings of $63 million from 2006 amounts. In addition, USDA will complete organizational reviews
of Forest Service headquarters, regional offices, State and Private Forestry, and Research and Devel-
opment that will lead to additional savings in 2008 and beyond.
The Forest Service has more than 17,000 vehicles, or more than one vehicle for every two employ-
ees. The Budget improves the Forest Service’s vehicle allocation methodology to minimize the costs
of its vehicle fleet while ensuring an appropriate number of vehicles are available to meet mission
needs. This effort reduces operating costs by making vehicle purchasing, ownership, and operations
more efficient. Together with improved accountability, this effort saves $10 million annually. Both
of these efforts will allow the Forest Service to optimize the availability of funds to national forest
managers.
Emphasizing Results to Improve Forest Health
President Bush has taken a series of actions to expedite high-priority projects to restore the health
of our Nation’s forests and wooded rangelands. Through these efforts and actions to implement the
Healthy Forests Restoration Act, more than 15 million acres have been treated to reduce the threat
of catastrophic wildfires to communities and the environment. The 2007 Budget continues to devote
substantial resources to this effort by providing $292 million for hazardous fuels reduction projects,
a fourfold increase since 2000. The Budget also maintains an emphasis on results by shifting the
focus away from simply measuring acres treated to looking at overall improvements in forest and
rangeland health. New performance measures developed through the Program Assessment Rating
Tool (PART) process will help ensure that projects are adequately targeted to meet the program’s
goals. Continuing a recent trend, the Budget assumes expanded use of stewardship contracting and
other resource management tools will allow the Department of the Interior and USDA to achieve
more comprehensive and effective results in our forests and rangelands.
Consolidating Resource Conservation and Development Funding
The Resource Conservation and Development (RC&D) Program provides assistance to local non-
profit RC&D councils to develop and implement RC&D area strategic plans that address their locally
identified natural resource and economic development concerns. The program’s long-term goal is to
improve the capability of local communities to plan and deliver improvement projects.
A PART review conducted for the 2006 Budget found, however, that the RC&D Program was du-
plicative of other USDA and Federal resource conservation and rural development efforts. Also, at
the national level the program did not identify programmatic priorities and allocate dollars according
to these priorities. Finally, the program does not measure its contributions to communities.
In order to focus limited conservation funding on other priority natural resource concerns, the
Budget proposes to consolidate Federal support for the RC&D Program. Under this new approach,
all 375 of the currently authorized RC&D areas will receive administrative and technical assistance
but at a reduced level. Importantly, USDA will review the performance of all RC&D councils and tar-
get funding to high-performing RC&D areas that are contributing towards achieving national-level
conservation and economic development goals. Other RC&D areas that have demonstrated less of a
need for Federal support will not receive their historical administrative support. In general, RC&D
coordinators will be responsible for multiple RC&D areas.
Targeting the Conservation Payments to Priority Needs
The Conservation Reserve Program (CRP),

USDA’s largest resource conservation pro-
gram, pays farmers to not grow crops on
environmentally sensitive cropland. Farmers
voluntarily enter into 10- to 15-year CRP
contracts to take their cropland out of
production and, in turn, plant long-term
resource-conserving vegetative cover (such
as grasses and trees). These covers improve
the quality of water and air, control soil
erosion, and enhance wildlife habitat. In
return for taking their land out of production,
CRP provides participants with rental and
incentive payments, as well as cost-share and
technical assistance. In total, the farm bill
currently authorizes CRP to enroll up to 39.2 million acres of cropland.
A recent PART assessment found CRP to be a moderately effective program. In particular, CRP
collects a variety of program performance data that it uses to rank and award contract offers.
In order to improve CRP’s cost effectiveness, the Budget includes a number of initiatives to enhance
USDA’s ability to deliver the program and target its resources at priority conservation needs. The
Budget provides a $1 million increase for the Farm Service Agency to use improved market-based
cropland rental rate data. These market data will allow the Farm Service Agency to set more accu-
rate and competitive CRP rental rates.
Focusing International Food Assistance to the Highest Priorities
The United States currently provides over half of all global food aid donations. Since 2000, an
increasing share of U.S. food aid is directed to emergency situations—where food aid is critical to
prevent famine and save lives. In three out of the past five years, commodities have been released
from the Bill Emerson Humanitarian Trust, which ensures that the United States can help meet
unanticipated emergency food needs in a timely manner. While emergency food aid needs are grow-
ing globally, the demand for other types of food aid, such as low-interest credit to purchase U.S.
commodities, has significantly declined. USDA provides 30-year food aid concessional credits under
Title I of the Public Law 480 program. The accumulated debt owed to the United States from P.L. 480
financing made over the past three decades is currently over $8 billion. Fewer and fewer countries
request P.L. 480 credit financing and only two countries are expected to do so in 2006. The Budget
proposes to discontinue funding for food aid concessional credit under Title I and increases funding
for emergency food aid under Title II of P.L. 480. Under this proposal, a larger proportion of U.S. food
aid will be targeted to meet emergency needs and reduce the “food distribution gap” in the world’s
most food insecure countries.
The Budget supports the Administration’s continuing efforts to make U.S. food aid more efficient
and effective by increasing the use of cash assistance for emergencies where its use is critical to sav-
ing lives. For more information see the Department of State and International Assistance Programs
Chapter.
Improving the Effectiveness of Providing Support to Farmers
The Department’s Farm Service Agency (FSA) administers farm programs and services through
one of the Federal Government’s largest and most decentralized field office structures. This arrange-
ment, which remains largely unchanged today, dates back to the 1930s when communication and
transportation systems were limited by geographic boundaries. FSA currently has 2,351 county
offices across the country, of which nearly 500 are within 20 miles of the next nearest office. Over
1,000 of these offices are staffed by three or fewer employees.
This outdated office structure is inefficient and must be streamlined to realign benefits and ser-
vices with a rural America that has changed dramatically since the early part of the 20th Century.
Today, the number of farmers has declined sharply and computers, modern telecommunications and
transportation systems have increased farmers’ access to information and assistance without ever
visiting a USDA field office.
To streamline operations, FSA must consolidate offices and invest in information technology tools
to improve business operations and service delivery to farmers. Before investment in modern infor-
mation technology is made, the agency will work with stakeholders to close and consolidate offices,
where appropriate, and ensure that future investments are made prudently and in a manner that
ensures taxpayers’ dollars are spent wisely. The Budget fully funds the agency’s staffing needs while
targeting these resources to the agency’s more efficient offices, and includes funding to modernize
FSA’s outdated computer systems.
Using Competition to Improve the Quality of Research
USDA provides over $2 billion a year for research and related programs. Overall, USDA research
programs are effective. However, the programs do not adequately target research to priority areas
due to statutory requirements of formula grants and the earmarking of funds. Over $1 billion of this
funding supports approximately 1,200 individual projects conducted by USDA scientists at over 100
Federal facilities. A roughly equal amount is provided in the form of grants for research, education
and extension programs, largely to State land grant universities and State agricultural extension
agencies. The Administration believes very strongly that taxpayer funding should go to the highest
priority programs that meet national needs. For that reason, the Budget includes increases of $107
million for research by USDA scientists in priority areas such as food safety, emerging and exotic
diseases, bioenergy, plant and animal genomics and genetics, and human nutrition. At the same
time, lower priority projects, including unrequested earmarks, have been eliminated.
The Budget also proposes to improve the effectiveness of Federal research funding by improving
the quality of research. In general, the recipients of Federal grants are chosen three ways: through
a competitive, peer reviewed process; through fixed formulas; or through earmarks directed to a
specific site for a specific purpose. The Administration strongly favors the use of competitive awards
as the most effective way of assuring quality. In order to promote this objective, the Budget:
• Increases funding for the competitive National Research Initiative, the main source of funding
for competitive research, by $67 million (an increase of 37 percent), up from $181 million to $248
million.
• Proposes to expand and continuously re-compete the Hatch multi-State awards. With this
alternative approach, 55 percent of Hatch formula funds will be redirected to nationally,
competitively awarded multi-State projects by 2011 (up from 25 percent in 2006). Additionally,
60 percent of McIntire-Stennis formula funds will be redirected to nationally, competitively
awarded multi-State grants. Increasing the allocation of funds for competitively awarded
grants will enable the Government to seek out the best quality work and improve the overall
quality of research, thus strengthening the research institutions.
Commodity Supplemental Food Program
The 2007 Budget eliminates funding for the Commodity Supplemental Food Program (CSFP)
which, in the limited areas where it is available, overlaps with two of the Nation’s largest Federal
nutrition assistance programs—Food Stamps and WIC. This elimination is consistent with the
low PART rating for CSFP. The Budget provides funding to serve all eligible women, infants, and
children who seek services from the WIC program, which is a more effective alternative to CSFP.
The Budget also funds temporary transitional benefits and outreach to help elderly households
transition from CSFP to the Food Stamps program.
Update on the President’s Management Agenda
The table below provides an update on USDA’s implementation of the President’s Management
Agenda as of December 31, 2005.
Budget and
Competitive Financial
Human Capital E-Government Performance
Sourcing Performance
Integration
Status
Progress
Over the past year, USDA has strengthened its human capital management. Over 60 percent of USDA’s
workforce now has performance appraisal plans that assess employees’ contributions to the Department’s
achievement of its mission. The time it takes to hire new staff averages 33 days, as compared to 45 days in
2004. In addition, USDA has closed staffing shortfalls in 19 mission critical occupations, and has enhanced its
management development training to focus on anticipated future leadership needs.
In 2005, USDA conducted two standard competitions for a five-year savings of $8.1 million. The competitions
were in the Research mission area and covered the Facilities, Operations and Maintenance (189 positions), and
Research, Farming and Support (81 positions) functions.
USDA continues to advance on their Financial Performance Initiative, making progress towards improving their
status. USDA has made considerable progress documenting security vulnerabilities for the E-Government
initiative; however, the agency must give greater attention to addressing identified problems in a timely manner.
USDA reports that 420 of 462 systems are certified; however, only 314 have tested contingency plans and
410 have tested security controls. NFC took over Transportation Security Agency and Coast Guard payroll
processing, eliminating redundant Government operations. USDA continues to use the PART process to improve
performance and efficiency throughout the Department.
Faith-Based and Community Initiative
Eliminating Improper Payments
Real Property Asset Management
USDA continues to expand its partnerships with faith-based and community organizations (FBCOs). In the last
year, USDA fully implemented many outreach and technical assistance best practices, including increasing
web-based resources and enhancing opportunities for FBCOs to compete for Federal funds at the State and
local level. USDA is also assessing the effectiveness of five pilot projects aimed at increasing the capacity of
FBCOs and testing new ways that FBCOs could partner with USDA to help even more people in need.
USDA has determined that 11 programs are at risk for improper payments. The Food Stamp Program reported
that the program’s error rate has reached an all time low of 5.88 percent.
The President’s Budget introduces a new initiative to improve the management of the Federal Government’s
credit portfolio. USDA is included in this initiative as one of the largest credit agencies, with a portfolio of $105
billion in outstanding direct loans and loan guarantees of which 1.8 percent is delinquent, as of the end of 2005.
During 2006, USDA will develop goals and milestones for improving efficiency and effectiveness in the areas
of loan origination, servicing and lender monitoring, and liquidation and debt collection. This initiative will be
included in the scorecard beginning in the second quarter of 2006.
Department of Agriculture
(In millions of dollars)
2005 Estimate
Actual 2006 2007
Spending
Discretionary Budget Authority:
Commodities and International........................................................................ 2,879 2,997 3,062
Rural Development .............................................................................................. 2,326 2,499 2,178
Forest Service ........................................................................................................ 4,289 4,202 4,096
Conservation .......................................................................................................... 983 986 788
Food and Nutrition Service ............................................................................... 5,578 5,516 5,477
Research ................................................................................................................. 2,665 2,653 2,271
Marketing and Regulatory Programs ............................................................ 1,921 1,765 1,949
Central Administration ........................................................................................ 554 547 610
Subtotal, excluding items below ...................................................................... 21,195 21,165 20,431
Additional Wildland Fire Suppression ........................................................... 394 — —
Receipts ................................................................................................................... 51 79 35
Mandatory savings proposals .......................................................................... — — 679
Total, Discretionary budget authority ................................................................. 21,538 21,086 19,717
Memorandum: Budget authority from enacted supplementals ............... 922 821 —
Total, Discretionary outlays ................................................................................... 21,854 22,743 21,515
Mandatory Outlays:
Food and Nutrition Service ............................................................................... 44,507 48,104 48,228
Commodity Credit Corporation ........................................................................ 18,568 20,898 18,670
Crop Insurance ...................................................................................................... 2,883 3,220 3,597
Natural Resources Conservation Service ................................................... 1,240 1,602 1,784
Agriculture Marketing Service .......................................................................... 994 1,598 1,059
Forest Service ........................................................................................................ 689 868 806
Rural Development including liquidating accounts ................................... 3,642 1,575 2,213
Receipts, reestimates and all other programs ........................................... 1,806 1,743 660
Total, Mandatory outlays ........................................................................................ 63,433 72,972 71,271
Total, Outlays .............................................................................................................. 85,287 95,715 92,786
Credit activity
Direct Loan Disbursements:
Farm Loans ............................................................................................................. 920 1,058 984
Rural Utilities Service .......................................................................................... 4,956 6,503 5,164
Rural Housing ........................................................................................................ 1,427 1,473 1,464
Rural Business and Community Development .......................................... 370 588 550
P.L. 480 ..................................................................................................................... 56 238 11
All other programs ................................................................................................ 71 132 403
Total, Direct loan disbursements ......................................................................... 20,419 21,111 19,037
Department of Agriculture—Continued
2005 Estimate
Actual 2006 2007
Guaranteed Loan Commitments:
Farm Loans ............................................................................................................. 2,191 2,448 2,125
Rural Utilities Service .......................................................................................... 2 99 3
Rural Housing ........................................................................................................ 3,142 4,161 4,031
Rural Business and Community Development .......................................... 796 1,092 1,288
Total, Guaranteed loan commitments ................................................................ 8,434 10,907 10,614
DEPARTMENT OF COMMERCE

• Promoted a free-trade agenda, under which free trade agreements have been
signed or completed with 14 countries, and U.S. exports have grown by $200
billion—benefiting businesses of all sizes and American consumers;
• Improved the quality and timeliness of key information about the economy; and
• Improved weather forecasts by expanding observations and investing in forecast
model improvements. For example, the average lead time for tornado warnings has
improved by 30 percent since 2001.

• As part of the President’s 10-year American Competitiveness Initiative, advances
technological innovation by supporting standards development and research in areas
including nanotechnology, hydrogen fuels, and quantum computing;
• Increases and better targets economic development assistance through the Economic
Development Administration as part of the Strengthening America’s Communities
Initiative;
• Further expands trade opportunities; and
• Improves weather and climate forecasting to benefit public safety and economic
growth.
53
54 DEPARTMENT OF COMMERCE
Improve U.S. Competitiveness through Technological Innovation, International

Trade, and Economic Development
The President’s 2007 Budget includes increases for Department of Commerce programs that foster
U.S. leadership in science and technology. The Budget also sustains key programs at the Depart-
ment that advance economic growth—international trade opportunities for businesses, fundamental
information about the economy and population used by businesses and all levels of government, and
economic development for our communities.
Increasing Physical Science Investment

As part of the President’s 10-year American Competitiveness Initiative that significantly increases Federal
funding for physical science research, NIST will target $535 million in 2007 for key investments that promote
U.S. innovation and global competitiveness. These investments will improve our ability to cost-effectively
manufacture products at a nano scale; expand NIST’s neutron facility to better characterize materials in
high growth research fields; address technological barriers to hydrogen storage, distribution, and fuel cell
fabrication; and improve our understanding of quantum information science that has the potential to dramat-
ically improve computer processing speeds and enable more secure communications.
The National Institute of Standards and Technol-

ogy (NIST) promotes U.S. innovation and competitive-
ness by advancing measurement science, standards,
and technology in ways that enhance economic growth
and improves our quality of life. Three NIST scientists
have received Nobel prizes in the last decade for fun-
damental breakthroughs in physical science research.
The Patent and Trademark Office (PTO) furthers
intellectual property through the issuance of patents
and registration of trademarks. This protection
encourages technological advancement by providing
incentives to invent, invest in, and disclose new
technology worldwide, as well as assisting businesses
in protecting their investments, promoting quality
goods and services, and safeguarding consumers
against confusion and deception in the marketplace.
The President’s Budget provides PTO full access to its As part of the American Competitiveness Initiative, NIST will
fees and supports a 10-percent funding increase for conduct fundamental research to enable the use of hydrogen
as a fuel. This image indicates how hydrogen atoms attach
the patent and trademark programs, to continue to to a special form of titanium oxide that shows promise as a
improve the processing times and quality of patents material for hydrogen storage.
and trademarks.
Curbing Intellectual Property Piracy

Intellectual property (IP) theft poses a serious threat to U.S. businesses. The President’s Budget sustains
support for initiatives to curb IP crime and strengthen enforcement as part of the Strategy Targeting Orga-
nized Piracy (STOP!). PTO and ITA are working with other agencies to reduce global trafficking in counter-
feit and pirated products, including working to prevent such products from entering our borders, and helping
American businesses secure and enforce their rights in the global marketplace. PTO has launched a na-
tionwide program to help small businesses better identify and address their IP protection needs. Through
its Global Intellectual Property Academy, PTO also provides technical assistance to our trading partners
in developing and maintaining IP systems and enforcement. ITA created an Office of Intellectual Property
Rights (IPR) Enforcement, which aggressively enforces trade agreements with specific attention to IPR.
Improving international trade opportunities is important for U.S. economic growth and competi-
tiveness. The International Trade Administration (ITA) helps open and expand foreign markets for
U.S. goods and services. The Budget provides funding to facilitate fair competition in international
trade, and to increase the number of U.S. firms that are exporting for the first time or are entering
new markets. ITA is working closely with the United States Trade Representative and other agen-
cies to ensure that our trading partners honor their World Trade Organization commitments and
U.S. companies benefit from opportunities for greater market access. ITA also works to develop free
trade agreements with other nations, to eliminate barriers to U.S. products and greatly improve U.S.
competitiveness. The 2007 Budget also supports Department of Commerce participation in the Asia-
Pacific Partnership, to promote the use of cleaner energy technologies in this rapidly growing region.
Expanding Trade Opportunities
Antenna Technologies Corporation, Inc.

(ATCi), is a small satellite communications
technology company in Arizona that manu-
factures a multi-beam antenna, which allows
customers to receive signals from up to 35
satellites simultaneously. ATCi technologies
are used in broadcasting industry and other
commercial and Government applications.
ATCi wanted to expand its international
business, and turned to ITA’s U.S. Export As-
sistance Center in Phoenix for help in crafting
international market entry strategies. ATCi
participated in export assistance programs
offered by ITA—including teleconferencing,
the Gold Key Matching Service, international
seminars, and catalog shows—that helped
Satellite antennas manufactured by Antenna Technologies Corporation, facilitate meetings with international dele-
Inc. of Arizona. gates, agents and distributors, and led to
partnerships that boosted exports from less than 5 percent to more than 33 percent of ACTi’s sales. With
this assistance, ATCi products are now being exported to Europe, Asia, Africa, and South America.
Protecting American security, while advancing economic growth and trade, is the goal of the Bureau
of Industry and Security (BIS). BIS controls the export of sensitive commodities and technologies to
prevent the proliferation of weapons of mass destruction and halt the spread of weapons to terror-
ists and countries of concern. The Budget funds export control and enforcement activities for these
purposes.
Accurate and timely information about U.S. economic and demographic conditions is necessary
for business and government decisions. Information compiled by the Bureau of Economic Analysis
(BEA) and the Census Bureau is closely watched by business leaders, policymakers, and the Amer-
ican public. BEA calculates the Gross Domestic Product and related essential economic measures.
The 2007 Budget includes funding for BEA to continue to produce timely and accurate economic data.
The Census Bureau conducts economic and demographic surveys and censuses. The Budget provides
increases for the Census Bureau to continue its reengineering efforts for the 2010 Census. This in-
cludes planning and testing to contain costs and to improve the efficiency of data collection activities.
The Budget also provides the necessary resources for the 2007 Economic Census, which will allow
the Bureau to produce comprehensive statistics on the U.S. economy.
To make economic development efforts more effective, consolidate duplicative programs, and im-
prove efficiency, the Budget proposes the Strengthening America’s Communities Initiative. As part
of this broad reform effort, the Economic Development Administration (EDA) will shift its focus to
promoting regional economic development solutions in distressed communities that further innova-
tion and global competitiveness. The Initiative is discussed in more detail later in this chapter.
Advance the Ability to Observe, Protect and Manage the Earth’s Resources
The 2007 Budget supports key programs in the National Oceanic and Atmospheric Administration
(NOAA) that observe and predict changes in the earth’s environment and manage our ocean and
coastal resources.
NOAA provides high quality, timely weather forecast information to protect lives and property.
During the 2005 hurricane season, the busiest on record, NOAA provided important forecasting
information about the path and intensity of hurricanes. The President’s Budget provides increases
for weather forecasting activities to ensure continuing improvements in this important area.
The Budget also provides planned increases of over $110 million for continued development and
acquisition of weather satellites.
In response to the devastating tsunami that hit Southeast Asia in December 2004, NOAA devel-
oped an improved Tsunami Warning and Mitigation System to strengthen tsunami detection and
warning for at-risk U.S. communities. NOAA is also working with other Federal agencies to provide
technical assistance to improve tsunami warning capability for other nations and ensure interoper-
ability between the United States’ system and other tsunami warning systems. The 2007 Budget
supports increases for deployment of additional advanced technology deep-ocean buoy stations and
tsunami inundation mapping, modeling, and forecast efforts.
The Budget enhances activities within the climate program that are aligned with the strategic pro-
grams of the President’s Climate Change Research Initiative. These include expanded monitoring of
carbon sources and sinks and more integrated information about water supply for improved drought
management and planning. The Budget also supports continued implementation of the global ocean
observing system to improve climate monitoring and forecasts.
Hurricane Prediction and Response
Many of NOAA’s capabilities were directly

involved in the recent unprecedented series
of storms in the Gulf of Mexico. NOAA
provided high quality hurricane forecasts
and warnings to local emergency managers.
Long-term research efforts, expanded
observations, modeling improvements, and
computational resources have led to NOAA’s
current weather predictive capabilities. The
Administration requested and received
supplemental funding in 2006 to further
enhance the quality of hurricane forecasts.
NOAA also assesses damage from storms
Satellite image of Hurricane Katrina prior to landfall. and evaluates waterways to assist dredging
operations, allowing ports and waterways
affected by storms to re-open faster. Furthermore, NOAA assesses the impact of storms on area fisheries,
supports hazardous materials containment and abatement efforts, and provides data necessary for
post–storm recovery operations.
New investments and program improvements within NOAA are also aimed at strengthening our
knowledge and management of ocean resources in support of the President’s U.S. Ocean Action Plan.
For example, proposed reforms to the Coastal Zone Management Program will provide additional
grant funding on a competitive basis that supports State, regional, and national priorities. The
Budget also provides funds to improve management of the Nation’s fisheries. Market-based
approaches—such as Dedicated Access Privilege systems (DAPs) that provide exclusive privileges
to harvest a quantity of fish—move fisheries management away from cumbersome and inefficient
regulatory practices and have been shown to lead to lengthened fishing seasons, improved product
quality, and safer fishing conditions. The Administration has set a goal of doubling the number of
DAPs in use by the year 2010.
The Budget also proposes increases for fisheries research and management programs in the Gulf of
Mexico. The fishing industry and the natural resources it depends on were significantly damaged by
Hurricanes Katrina and Rita. The proposed increases will help provide a solid base to start restoring
and rebuilding these assets and promote sustainable fisheries in the region.
Cooperative Conservation: Open Rivers Initiative
The Henniker dam in New Hampshire before removal. The Henniker dam during removal.
To help repair vital riverine ecosystems, benefit communities, and enhance populations of key species, the
Budget supports an Open Rivers Initiative to remove small, obsolete dams like the one shown here in New
Hampshire. This initiative would provide $6 million for a competitive grant program in NOAA focused on
community-driven small dam and river barrier removals in coastal States. These efforts are expected to
provide an economic boost for communities, enhance public safety, and improve populations of key species
such as striped bass and salmon. The Budget also provides $5 million for the U.S. Fish and Wildlife Service
and $10 million for the Natural Resources Conservation Service to complement these goals.
Economic Development Reform
The 2007 Budget seeks to reform and improve the Federal Government’s economic development
activities by consolidating duplicative programs and targeting funding to those communities most
in need. To carry out these principles, the 2007 Budget proposes to implement the Strengthening
America’s Communities Initiative (SACI) in the Departments of Commerce and Housing and
Urban Development (HUD). The initiative includes consolidation of several economic development
programs, which will allow communities to avoid having to navigate a confusing maze of Federal
programs to receive funding, and gives EDA a new focus on awarding grants to those projects that
have the potential for regional impacts. EDA will also have the ability to focus additional resources
on distressed communities, while also carrying out assistance to communities affected by the recent
Base Realignment and Closure Commission decisions. As discussed in the HUD chapter, SACI also
includes proposed reforms to the Community Development Block Grant program. The Department
of the Treasury will continue to operate the New Markets Tax Credit program, and will work with
Commerce and HUD to develop and apply a common set of performance measures and goals for all
Federal community and economic development programs.
Spending Discipline
The commitment to spending discipline requires shifting resources away from low-performing and
lower priority programs. The 2007 Budget proposes to terminate the Advanced Technology Program
(ATP), a program that provided grants to businesses to help develop new technologies for commercial
use. Given the growth of venture capital and other financing sources for high-tech projects, there is
little evidence of the need for this Federal program. This proposal is also consistent with recent
congressional action on ATP—providing $136 million in 2005 with no funding for new grants, and
$79 million in 2006, to cover existing grants and enable close-out. The Budget also reduces funding
for the Manufacturing Extension Partnership (MEP) program by $59 million from the enacted level
because the program has evolved to a stage where less Federal support is required, and MEP offers
services that are also provided by private entities.
The Administration supports competitively awarded, merit-based funding of science programs.
The 2007 Budget does not provide funding for continuation of over $120 million in unrequested,
unrelated construction project earmarks in NIST and over $400 million in unrequested funding in
NOAA that were appropriated in 2006.
The 2007 Budget proposes to terminate the Public Telecommunications Facilities, Planning and
Construction program, as this program is duplicative of other programs that provide grants for
telecommunications infrastructure.
The Emergency Steel Loan Guarantee Act of 1999 provided funding for Federal guarantees of up
to 95 percent on loans by private lenders to financially troubled steel firms. As there has been little
demand for the program, the 2007 Budget proposes rescinding $49 million from this program. This
is consistent with the termination of the Emergency Oil and Gas Guaranteed Loan Program in 2002.
The table below provides an update on the Department of Commerce’s implementation of the Pres-
ident’s Management Agenda as of December 31, 2005.
Budget and
Integration
Status
Progress
The Commerce Department is working to implement a new multi-tiered personnel appraisal system that makes
meaningful distinctions in employee performance and is linked to achieving Commerce’s mission and goals. In
addition, the Department has implemented leadership development and certificate programs for employees at
all levels, which will improve leadership and technical competencies to ensure a high performing organization.
The Department has continued to improve its main financial system, the Commerce Business System, and
has developed an implementation plan to respond to the new financial requirements. In E-Government,
Commerce continues to work to create a seamless environment to assist exporters to research current and
potential markets, gather trade leads, and secure the majority of their Federal resource needs online through
www.export.gov. Commerce also continues its efforts to improve Department-wide information technology
security by improving the quality of its certification and accreditation packages for national and mission critical
systems. Over the past three years, over half of Commerce’s programs have received Effective or Moderately
Effective ratings in Program Assessment Rating Tool evaluations and Commerce has been working to improve
performance and efficiency.
A Faith-based and Community Initiative center was created in the Department in 2005. Commerce’s major
activities in support of the initiative include beginning a pilot program to promote philanthropic activities in
corporate America.
Department of Commerce
2005 Estimate
Actual 2006 2007
Spending
Departmental Management:
Salaries and Expenses .................................................................................. 48 47 57
Emergency Guaranteed Loan Program accounts................................ — — 49
Headquarters Renovation ............................................................................. — — 18
National Intellectual Property Law Enforcement Coordinating
Council ............................................................................................................. 2 — 1
Office of the Inspector General ................................................................... 22 22 23
Subtotal, Departmental Management ........................................................... 72 69 50
Economic Development Administration ........................................................ 286 280 327
Bureau of the Census ......................................................................................... 745 801 878
Economics and Statistics Administration ..................................................... 79 79 80
International Trade Administration .................................................................. 403 398 409
Bureau of Industry and Security ..................................................................... 67 75 79
Minority Business Development Agency...................................................... 30 30 30
National Oceanic and Atmospheric Administration (NOAA):
Operations, Research and Facilities ......................................................... 2,850 2,784 2,668
Procurement, Acquisition and Construction ........................................... 1,037 1,069 1,024
Other accounts .................................................................................................. 19 3 11
Subtotal, NOAA ..................................................................................................... 3,906 3,850 3,681
Patent and Trademark Office (PTO):
Program Level ................................................................................................... 1,508 1,683 1,843
Offsetting Collections ...................................................................................... 1,508 1,683 1,843
Subtotal, PTO......................................................................................................... — — —
Technology Administration ................................................................................ 7 6 1
National Institute of Standards and Technology (NIST):
Scientific and Technical Research and Services.................................. 382 397 472
Industrial Technology Services ................................................................... 244 176 46
Construction of Research Facilities ........................................................... 73 174 68
Subtotal, NIST ....................................................................................................... 699 747 586
National Telecommunications and Information Administration ............ 39 40 18
Mandatory Outlays:
Digital Television Fund activities ..................................................................... — — 45
All other .................................................................................................................... 43 68 141
Total, Mandatory outlays ........................................................................................ 43 68 186
Total, Outlays .............................................................................................................. 6,175 6,470 6,612

Department of Commerce—Continued
2005 Estimate
Actual 2006 2007
Credit activity
Fisheries Finance Direct Loan Financing account ................................... 132 71 109
Total, Direct loan disbursements ......................................................................... 132 71 109
DEPARTMENT OF DEFENSE

• Liberated nearly 50 million people in Iraq and Afghanistan;
• Trained over 215,000 Iraqi and over 82,000 Afghan security forces, in partnership with
Coalition forces;
• Raised servicemembers’ pay by about 25 percent and enhanced special pays and
bonuses to improve recruiting and retention;
• Increased the Basic Allowance for Housing, to cover the average actual cost of hous-
ing for servicemembers and their families who live off base;
• Improved the quality of housing for military personnel and their families by continuing
programs that have privatized 111,289 homes;
• Increased the monthly education benefit by 40 percent for Reservists and members
of the National Guard continuously mobilized between 90 days and one year;
• Launched transformational initiatives such as the Navy’s Fleet Readiness Plan that
improved military readiness;
• Deployed the first-ever land- and sea-based systems to defend against long-range
ballistic missiles; and
• Began a major reorganization of the Army ground forces, known as Modularity, to
increase the number of combat brigades and improve their mobility, flexibility, and
capability to operate autonomously.
• Provides $439.3 billion for the Department of Defense’s base budget—a 7-percent
increase over 2006 and a 48-percent increase over 2001—to maintain a high level of
military readiness, develop and procure new weapon systems to ensure U.S. battle-
field superiority, and support our servicemembers and their families;
• Requests $50 billion in 2007 bridge funding to support the military’s Global War on
Terror efforts in Afghanistan and Iraq into 2007;
• Expands the Predator Unmanned Aerial Vehicle force from 12 to 21 orbits, each sup-
porting 3-4 aircraft, to increase sustained 24-hour surveillance capabilities;
• Increases substantially the size and capabilities of the Special Operations Command;
• Adds $173.3 million to continue developing and refining a New Triad of smaller nuclear
forces, enhanced missile defenses, and improved command and control; and
• Provides an additional 2.2-percent increase in basic pay.
63
64 DEPARTMENT OF DEFENSE
Waging the Global War on Terror
This is an enemy without conscience—and they cannot be appeased. If we were not fighting and destroying
this enemy in Iraq, they would not be idle. They would be plotting and killing Americans across the world
and within our own borders. By fighting these terrorists in Iraq, Americans in uniform are defeating a direct
threat to the American people. Against this adversary, there is only one effective response: We will never
back down. We will never give in. And we will never accept anything less than complete victory.
United States Naval Academy, Annapolis, Maryland
November 30, 2005
The President’s 2007 Budget continues to focus resources on the Administration’s top defense
priority: winning the Global War on Terror. While this effort requires a comprehensive, coordinated
use of all instruments of national power, our Nation’s military is tasked with the frontline job of
taking the fight to the enemy in Iraq, Afghanistan, and elsewhere. We are working with coalition
partners to isolate terrorists and solidify the gains of emerging democracies to help protect them
against the likelihood that terrorists will operate from within their borders.
In Iraq, the central front in the war,

American troop levels have remained largely
constant the past two years as insurgents and
other terrorists from within the country and
terrorists from outside of the country continue
their efforts to use terror and intimidation to
destabilize and destroy. As the President laid
out in the National Strategy for Victory in
Iraq, American forces will continue offensive
operations to root out and defeat the terrorists
and Saddamists. Working with coalition
partners and Iraqi security forces, U.S. soldiers
and Marines continue to clear areas of enemy
control, hold areas freed from the enemy, and
build Iraqi security forces and the capacity of A soldier watches for insurgents as fellow soldiers and Marines comb
the Iraqi government to deliver basic services a nearby area for insurgents and weapons caches close to the Syrian
border with Iraq.
and nurture the fledgling civil society. To date,
this approach has succeeded in places such as Najaf and Mosul. Once hotbeds of resistance, these
cities are now moving away from their disastrous pasts towards a more promising future.
In Afghanistan, the war against al Qaeda, the remnants of the Taliban, and related terrorist ele-
ments continues as well. Although enemy activity has increased over the past year, U.S. armed forces
continue to hunt down those who seek a return to the past when Afghanistan was a failed state that
oppressed its citizens while providing a safe haven for terrorists. In the future, NATO forces will take
an increasingly more demanding role in providing security, and Afghan security forces will grow and
mature.
Early this year, the Administration plans to make a 2006 emergency supplemental appropriations
request for the Global War on Terror. This request will address the balance of the military’s needs
above the $50 billion enacted in the 2006 Defense Appropriations Act. In addition, the 2007 Budget
requests $50 billion as an emergency allowance or bridge fund to carry the military’s war efforts
through part of 2007. Later in 2007, when the year’s total funding needs are better known, the
Administration will request the remaining funds for the year in an emergency supplemental appro-
priation. This approach ensures that the Budget accounts for known war costs in a fiscally respon-
sible way without permanently adding these temporary costs to the base defense budget, and allows
the Administration and the Congress to adjust funding to meet evolving conditions on the ground.
In addition to funding for U.S. military opera-

tions, the Administration will seek supplemen-
tal funding to train and equip Iraqi and Afghan
Security Forces so they can take on greater re-
sponsibility of the mission to secure their own
countries. As these forces improve, U.S. forces
can begin to draw down. As of December 2005,
there are over 135 Iraqi army and police battal-
ions and about 40 Afghan army battalions di-
rectly involved in the war and efforts to secure
the future of their respective nations.
In addition, the President’s 2007 Budget
and 2006 supplemental appropriations
requests propose to continue the authority
for the Commander’s Emergency Response
Program. This fund provides commanders in A soldier from the 411th Military Police Company shows an Iraqi
policeman the correct shooting stance during training at the weapons
Iraq and Afghanistan necessary resources to range of the Rusafa Police Station in Baghdad.
quickly address short-term humanitarian or
reconstruction needs in their area of operations.
Transforming for the 21st Century
The wars in Afghanistan and Iraq underline how different the challenges in the 21st Century are
from those we so successfully met in the 20th Century. The ability of the U.S. military to evolve
rapidly in the way it fights and to adjust its future planning to account for changes in the global
environment will be essential to its success in future wars. Fortunately, today the U.S. military pos-
sesses an overwhelming superiority in conventional warfare. This superiority, and the security from
conventional attack that it provides, presents an opportunity to transform the way the Department
of Defense (DOD) organizes and equips its forces, even while fighting the Global War on Terror.
Military transformation means making fundamental change in the technology, organization, or
doctrine of the armed services that renders obsolete current technology and methods of warfare.
Although transformation is often thought of as being driven by technology, other factors can be as or
even more important to its success. Much more than new weapons systems or platforms, transfor-
mation includes changes in attitudes, values, and beliefs. Three such major transformational efforts
supported by the Administration illustrate this point.
Global Posture Initiative. In August 2004, the President announced the most comprehensive
restructuring of U.S. military forces overseas since the end of the Korean War and began working
with new partners around the world to increase our global military effectiveness. The initiative
shifts our military posture from Cold War bases to new areas of strategic importance. This new
basing strategy will provide the United States with rapid access to areas where we are likely to be
engaged, but where a large permanent presence is not needed. In total, the number of U.S. overseas
bases will be reduced from 850 to 550. The majority of the initiatives will be implemented over the
next six years, during which time 60,000 to 70,000 military personnel and 100,000 family members
and other civilians will return to the United States. The Budget provides approximately $1.4 billion
for this effort in 2007, which is estimated to cost $5 billion through 2011.
Army Modularity. This organizational transformation effort is designed to increase the effective-
ness of the Army by making its combat and support formations more flexible and self-sustaining. The
new modular units will include their own artillery, engineers, military police and other support func-
tions. As a result, they will be more easily deployable than existing units and more effective against
a wide variety of adversaries. Moreover, the active and Reserve units will be similarly organized and
readily interchangeable, thereby providing greater flexibility to commanders. In addition, nine new
active combat brigades will be formed, bringing the total to 42, thereby reducing the frequency of
deployments for each brigade and providing greater stability for the soldiers and their families. The
Budget provides a total of $6.6 billion for Army modularity in 2007, and an additional $34.0 billion
between 2008 and 2011.
Special Operations Command. The Special Operations Command (SOCOM) has undergone fun-
damental change over the last several years to build a potent force to fight global terrorism. The
2007 Budget continues the enhancements to SOCOM’s capability to plan and command global op-
erations against international terrorist networks while maintaining its capability to provide small,
specialized units to respond to a wide range of threats. The Budget also shifts over 2,000 Marines
into SOCOM, further increasing its effectiveness and global reach. Finally, the 2007 Budget begins
a substantial new investment in SOCOM personnel, adding thousands of new Rangers, SEALs, Civil
Affairs, and other individuals to ensure that the United States is able to apply a specially skilled,
flexible force whenever and wherever it is needed.
Providing Better Tools to Support the Warfighters
The President is committed to providing our military with the best possible equipment to defend
our country. To ensure that our military men and women have the tools they need to win the Global
War on Terror, the 2007 Budget funds a number of efforts to support and protect the warfighter in a
changing battlefield.
Major new equipment purchases are critical to the brigade combat teams developed as part of the
Army’s Modularity initiative. Each new brigade combat team requires additional equipment includ-
ing armored humvees, soldier protective armor, trucks, advanced night vision and communications
equipment, light arms, and artillery. These types of equipment have proven vital to combat effec-
tiveness, helping to save the lives of the newly-configured brigade combat teams already deployed
to Iraq and Afghanistan. The 2007 Budget provides $5.9 billion for purchasing modularity-related
equipment to continue this effort so critical to our troops’ progress in defeating the terrorists and
insurgents in Iraq and consolidating democratic gains in Afghanistan.
The 2007 President’s Budget supports the continued development and procurement of unmanned
aerial vehicles (UAVs) and unmanned ground vehicles (UGVs), which are increasingly important to
operations in both Iraq and Afghanistan. The role of UAVs in these conflicts has continued to expand
and now encompasses a broad range of missions in addition to reconnaissance. Today, these diverse
systems also perform strike, force protection, and signals collection missions, in many cases enabling
U.S. forces to pursue terrorists without putting

our troops in harm’s way. The 2007 Budget
includes $342 million to start the expansion of
the Predator UAV force from 12 to 21 sustained
orbits of coverage, greatly enhancing the
surveillance support provided to our combat
forces around the world. The development
of UGV technologies has provided ground
forces with new tools to combat Improvised
Explosive Devices (IEDs). For example, many
convoys and patrols are now accompanied by
remote control robotic vehicles that can probe
suspicious roadside objects and detonate IEDs
before they can harm U.S. troops. The 2007
Budget includes $1.9 billion for the continued
development and procurement of UAVs and Soldiers from the 101st Airborne Division prepare to launch the Raven
unmanned aerial vehicle at Forward Operating Base McHenry, Iraq. The
UGVs. Raven is being used to hunt for roadside bombs.
One of DOD’s prime initiatives is to deliver
new tools and technologies to the warfighter more rapidly through the use of “spiral acquisition,” in
which mature capabilities are fielded even as development continues on other supporting systems.
Spiral acquisition shortens the time that it takes to get warfighting capabilities to troops, and reduces
technical risk. For example, the Army’s Future Combat System (FCS), funded with $3.7 billion in
2007, is a system comprised of 18 sub-systems originally designed to be fielded simultaneously. Given
the formidable acquisition risk of attempting to develop, test, build, and field 18 systems at the same
time, the Army restructured FCS development and procurement into an acquisition approach that
delivers sub-systems in four stages, beginning in 2008. This strategy allows the Army to deploy
those elements of FCS that are ready, while providing enough time to test and develop the more
technologically challenging components for introduction in later spirals.
The Administration is proposing to build
seven new warships in 2007, including new
classes of combatants that will provide in-
creased capability for the fleet, particularly to
combat threats in littoral (near-shore) waters.
The Littoral Combat Ship (LCS), currently
in construction, is a fast, small, and low-cost
ship optimized for warfighting in this type
of environment, and will counter asymmetric
threats such as small boats, submarines,
and mines. The 2007 Budget provides $957
million for the acquisition of two ships and
associated weapons systems. The DD(X)
next generation destroyer is a multi-mission A computer-generated depiction of a Littoral Combat Ship design. The
surface combatant that will provide volume first ship will be delivered in December 2006.
fire support and precision strike up to 83 nautical miles inland. The 2007 Budget provides $2.6
billion to begin construction of two ships. The DD(X), in conjunction with the LCS and future CG(X)
cruiser, will create a complementary, balanced force to address a spectrum of threats in an uncertain
future.
DOD continues to develop and refine a New Triad of nuclear offensive forces, missile defenses, and
a responsive infrastructure supporting these capabilities. The 2007 Budget includes an additional
$173.3 million to improve nuclear command and control and upgrade existing systems. Land and
sea-based missile defensive systems first deployed in 2004 are being further developed to improve
their capabilities, while DOD continues to explore new and more cost-effective missile defense tech-
nologies.
DOD continues to invest in advanced research and development to provide the best equipment
possible for our forces. The Department is investing in new materials for body armor, lightweight
personal communication devices, and non-lethal weapons to provide effective combat power while
minimizing non-combatant casualties. DOD is continually improving its sensors to make detecting
intended targets easier, and is developing faster and more reliable modeling and simulation systems
to make combat training more realistic. In addition, DOD is developing vaccines to protect against
biological weapons attacks, improving advanced countermeasures to protect against deadly chemical
weapons, and enhancing its world-wide surveillance systems to monitor outbreaks of avian influenza.
The 2007 Budget supports these and other research initiatives to provide the tools that U.S. forces
need to better combat the threats of the 21st Century.
Caring for Our Troops
Providing Access to Quality Health Care. The Administration is committed to ensuring that service-
members and their families have access to high quality medical care throughout the world. To support
these efforts, the Budget provides $21 billion in the Defense Health Program in 2007. Organizational
improvements in field medicine, such as advanced field surgical and medical care teams on the front
lines, have enhanced battlefield health care. Readily available air evacuation capabilities with high-
DOD provides high quality medical assis-

tance in humanitarian and homeland security
missions. When a tsunami flooded many
Southeast Asian countries, DOD was one of
the first agencies to provide assistance with
medical teams and supplies. After Pakistan
was rocked by a major earthquake, DOD
sent numerous plane loads of medicine
and supplies to the victims. A fully-staffed
Mobile Army Surgical Hospital was set up
to help save the lives of hundreds of people
injured. DOD medical units also responded
to support victims of Hurricanes Katrina
and Wilma. DOD’s deployment of medical
resources in support of civil authorities after The Military Sealift Command Hospital ship USNS Comfort (T-AH 20)
the hurricanes has exceeded any other prepares to pull into port in New Orleans, Louisiana.
domestic disaster relief mission in the history
of the United States. As part of the hurricane response, DOD provided significant medical assistance,
including over 10,000 medical evacuations by ground and air, medical treatment of more than 5,000
patients, as well as support for disease prevention and control. To support hurricane victims, DOD made
available more than 3,000 beds in field hospitals, installations, and aboard U.S. Navy ships, including
the USNS Comfort, a 1,000 bed hospital ship. DOD also provided 13 mortuary teams to support local
authorities in the systematic search, recovery, and disposition of the deceased. To assist in disease
prevention, DOD aircraft flew 17 mosquito abatement missions covering more than one million acres.
tech mobile equipment provide life-saving medical care within minutes after injury. These capabil-
ities, coupled with body armor improvements, have greatly improved survival rates. In addition,
hand-held devices receive and send vital information on patients to their electronic medical records
that are accessible worldwide. Never before have the Army, Navy, and Air Force worked so seam-
lessly to provide high quality care to servicemembers. The teams that move and treat the injured are
a combination of active duty, Reserve, and multi-branch medical personnel. They have trained to-
gether, worked together, and integrated their equipment to ensure world-class quality and response.
Servicemembers returning from combat areas, including the uninjured, receive thorough medical
evaluations and mental health screenings to make sure all their needs are met. Recognizing that
post-traumatic shock has a delayed effect on many, DOD has developed a tool to monitor both the
general health and the mental health of servicemembers at periodic intervals after their combat tours
are completed.
TRICARE is the military’s healthcare program. Over recent years, continual administrative im-
provements, including access to providers and information, have made the system easier to use. In
addition to TRICARE administrative enhancements, comprehensive TRICARE benefits and low costs
make it an attractive option for beneficiaries. The average out-of-pocket costs for an under age 65
military retiree and family is about $1,000 per year with TRICARE Prime (managed care) and about
$1,500 with TRICARE Standard (fee-for-service) coverage. A similar Federal employee family pays
on average $3,100 per year under the most popular Federal Employee Health Benefits managed care
plan and $4,650 per year under the most popular fee-for-service plan.
DOD continues to monitor rising healthcare costs and is working to ensure its health care programs
are managed efficiently. However, other steps must be taken to reduce DOD’s health care expenses,
which increasingly compete for resources needed to properly train and equip combat troops.
Since TRICARE offers an equal or superior benefit at significantly lower out-of-pocket cost than
other plans, military retirees with second careers are increasingly dropping their employer health
coverage and returning to TRICARE, often encouraged by incentives offered by current employers.
In order to ensure that TRICARE competes with, but does not replace, the health benefits offered
by these employers, the Budget includes proposals that would better align TRICARE premiums and
copayments for retirees under 65 years of age with general health insurance plans.
Providing Adequate Housing. Servicemembers and their families deserve high quality housing
whether they live on- or off-base. For the second year in a row, the 2007 Budget provides service-
members who live in private sector housing an allowance that covers total average housing costs.
The President’s Budget funds efforts to
ensure adequate military housing within the
United States by the end of 2007, maintaining
the schedule for achieving a key Presidential
goal. A proven method to eliminate inade-
quate housing and to improve the quality of
housing over the long term, is to privatize
Government-owned family housing—letting
military families benefit from private sector
real estate expertise and resources. To date,
DOD has privatized 111,289 houses and
intends to privatize 32,377 in 2007. The
private housing industry provides high quality
homes and housing management for the troops
while allowing the Department to focus on its
New privatized homes for Marines in Quantico, Virginia.
warfighting mission.
Strengthening Intelligence Capabilities
Intelligence plays a critical role in ensuring U.S. national security. Policy makers, military
commanders, and law enforcement personnel need timely, accurate information regarding the
capabilities and intentions of foreign powers, terrorists, and other international actors. For the past
several years, the Administration has invested significant resources to increase our intelligence
capabilities across a wide variety of disciplines. The 2007 President’s Budget sustains and builds on
these investments. Some of these capabilities include collecting signal, electronic, and imagery data,
but the Intelligence Community has focused especially on developing human sources and improving
its analytic capabilities.
In addition, the Intelligence Community has made great progress in implementing the Intelligence
Reform and Terrorism Prevention Act of 2004 and the recommendations of the Silberman-Robb Com-
mission on U.S. Intelligence Capabilities. The Director of National Intelligence (DNI) has recruited
most of his leadership team, developed the National Intelligence Strategy of the United States, and
helped launch important initiatives consistent with that Strategy. The DNI has also established the
National Counterproliferation Center and expanded the National Counterterrorism Center. Over
the next year, the DNI will continue to serve as the principal advisor to the President on intelligence
matters and to promote the integration and effectiveness of the Intelligence Community. The law
establishing the DNI position preserves the existing chain of command; leaves all our intelligence
agencies, organizations, and offices in their current departments; and ensures that our military com-
manders will continue to have quick access to the intelligence they need to achieve victory on the
battlefield.
Fighting the Global War on Terror is the Administration’s top defense priority, and it requires sub-
stantial resources, both through the regular appropriations process and emergency supplemental ap-
propriations. In implementing the Administration’s commitment to provide DOD with the resources
necessary to fulfill its mission, the Department has taken steps to target resources, spend wisely,
restrain funding in selected areas of operation, and improve programs and processes.
Focusing on the Needs of the Military
DOD has targeted several areas where it hopes to improve the ability of the military to successfully
accomplish its missions and maximize the funding available. They include:
Evaluating Infrastructure Needs. To ensure that DOD’s domestic bases were structured appropri-
ately to support operational capabilities, the Administration launched a Base Realignment and Clo-
sure review in 2005. An independent commission reviewed DOD’s infrastructure and recommended
to the President that 25 installations be closed and 24 major installations be realigned in an effort
to eliminate unneeded facilities. This excess infrastructure, often a remnant of the Cold War, is no
longer necessary to defend our Nation and drains billions of dollars from resources that could be
better spent to confront today’s threats to national security. The restructuring also supports DOD’s
Global Posture Initiative, which will transfer thousands of U.S. forces to domestic bases after serving
overseas. These actions, which the President and the Congress approved, are projected to save $36.5
billion over 20 years and, ultimately, result in $4.4 billion in annual recurring savings.
Transferring Positions to Civilian Personnel.

DOD has converted over 20,000 military posi-
tions to civilian positions since 2004 to relieve
strain on the military force and to free up troops
to meet high-priority military missions. DOD
plans to convert more than 10,000 additional
military positions by the end of 2007. This
program is a key part of DOD’s efforts to ensure
all military personnel are performing “military
essential” activities.
Developing the National Security Personnel
System. In November 2003, landmark legisla-
tion was enacted to grant authority to DOD to A civilian employee, who works to upgrade the Humvee A2s, prepares
establish a new civilian personnel management a piece of armor that will be used to further protect Marine vehicles
against insurgent attacks.
system, the National Security Personnel
System (NSPS). Since that time, in partnership
with the Office of Personnel Management, DOD has worked with its employees, human capital
experts, union representatives, and others to develop a personnel system that will provide DOD
with the flexibility to hire, assign, pay, evaluate, advance, and discipline DOD civilian employees
based on its unique national security mission requirements. The system will protect employees’
rights by preserving the use of merit system principles, accommodation of veterans’ preference, and
respect for bargaining. The first phases of NSPS are scheduled to begin in 2006 with over 11,000
employees. During 2007, the Department will evaluate the success of the implementation, and
begin its second major phase of NSPS, including the application of performance-based pay to other
special pay systems, such as its blue-collar workforce. Once fully implemented, NSPS will cover
over 600,000 civilian DOD employees.
Assessing Manpower Levels. DOD also plans to reduce manpower in many different skills and
functions as it transforms itself to address future threats. In 2007, the Army will begin to realign
the mix of planned forces, affecting one active and six National Guard brigades. The Air Force will
reduce 2007 active duty end strength by about 23,000 from the 2006 authorized level. This reduction
is part of the Air Force’s Transformation Flight Plan, which will reduce future end strengths. The
Navy will continue to acquire new ships with more automation that lessen the need for manpower
and continue to reduce the number of sailors in its crews.
Enhancing Supply Chain Management. DOD is moving aggressively to apply industry best prac-
tices to transform its logistics system. By the end of 2007, radio frequency identification technology
will be operative throughout DOD’s supply chain. As a result, DOD will vastly increase its ability
to track the movement of supplies from the manufacturer to the foxhole to ensure that warfighters
are provided what they need, when they need it, at the lowest cost to the taxpayer. In addition, DOD
is affixing to each major asset a permanent Unique Item Identifier that will last for the life of the
asset. Initial implementation at DOD depots will be completed in 2007, enabling DOD to track and
manage assets at reduced cost by providing a link from the physical identifier on the asset to its
unique history (e.g., acquisition cost, maintenance, etc.).
Liquidating Unneeded Assets. The Budget includes a request to authorize an increase in the sale
of industrial metals that were accumulated during the Cold War, but are no longer needed. The
world-wide increase in commodity prices should help to generate about $345 million in receipts to
the Treasury over 10 years from these sales. Similarly, the Budget proposes to deposit to the Treasury
certain other receipts from the sales of real assets and from insurance proceeds, which up to now were
used solely for defense spending.
Assessing if Programs Demonstrate Results
DOD and OMB use the Program Assessment Rating Tool (PART) to assess the Department’s pro-
grams. The findings of these assessments are then used to inform decisions about how to improve
program performance.
Marine Corps Expeditionary Warfare.
Expeditionary warfare is the temporary
projection and application of Marine Corps
power into a foreign setting. Marines establish
a forward base, either on land or at sea, from
which military power can be brought to bear
in a hostile foreign operating environment.
The PART review of expeditionary warfare
found the Marine Corps is achieving success
with its acquisition programs and other
operations, and is meeting its annual goals
for specific procurement programs. The PART
analysis also found that the Marine Corps’
U.S. Marines assigned to the Expeditionary Strike Group One, 13th amphibious lift requirement should be more
Marine Expeditionary Unit, disembark a Landing Craft Utility from the
amphibious assault ship USS Tarawa. closely coordinated with the requirements of
other Services. It is under review as part of the
2005 Quadrennial Defense Review. The PART process helped the Marine Corps and DOD focus on
addressing this critical issue and on developing long-term performance measures for expeditionary
warfare.
Missile Defense Programs. One of DOD’s most ambitious transformation programs is a new ballis-
tic missile defense system developed by the Missile Defense Agency (MDA). This system consists of
multiple, integrated sensors, interceptors, and battle management that will field defenses protecting
our homeland, friends, and allies from both short- and long-range ballistic missile attacks.
MDA’s major development, testing, and fielding effort is in support of the President’s goal to deploy
a defense against a limited number of long-range ballistic missiles. This effort includes the intercep-
tor missiles deployed in Alaska and California, sea-based interceptors on cruisers, various missile
tracking radars, and their associated communications. Currently MDA is increasing the numbers
of operationally available interceptors in Alaska; however, testing and validation of the system has
been slow. The PART process focused attention on the critical need for robust testing of these newly
deployed systems. Goals were developed for increased ground and flight tests, quality control, and
mission assurance to provide greater confidence in our missile defense programs.
Training and Education. DOD’s military

and civilian training and education programs
are essential to ensuring the readiness of
U.S. military forces and the DOD civilian
workforce. Through these programs, DOD
improves the professional development of its
military and civilian workforce. The PART
evaluation determined that DOD’s training
and education programs that are directly
linked to providing a ready force have clear
missions, are well-designed, and are guided
by useful sets of performance measures to
guarantee their success. To continue the
success of these training and education
programs, DOD set various long-term and Naval Diving and Salvage Training Center instructor stands ready to offer
assistance to a diver student during a problem solving exercise at the
short-term goals to demonstrate and improve pool. The school, located in Panama City, Florida, is the center for Navy
the effectiveness of its programs and to ensure diver training.
that training programs and resources are
sufficient to produce ready military forces and an effective civilian workforce.
However, the PART evaluation found a need for development of performance measures to
demonstrate results for other training and education programs that are not directly linked to
readiness. These programs provide off-duty education benefits to DOD military members and
civilian employees.
Analyzing Cost-Effectiveness of Resources
DOD continually reexamines its programs to ensure the most cost-effective use of resources. The
Department has changed some of its spending priorities in the 2007 Budget and will continue to
refine these in the 2005 Quadrennial Defense Review. DOD will reduce major systems over the next
few years based on their cost-effectiveness and/or potential to counter future threats. Examples of
these reductions include:
• Restructuring the Air Force KC-X tanker replacement program, saving $896 million through
2011;
• Restructuring the Joint Tactical Radio System, saving $233 million in 2007;
• Replacing the existing Joint Unmanned Combat Air System with a new unmanned aircraft
program, for a savings of $158 million in 2007;
• Canceling the Joint Strike Fighter alternate engine program;
• Canceling the T-AOE(X) fast tanker ship, saving $4.4 billion through 2011;
• Slowing the development of complex, higher-risk space programs, saving over $2 billion through
2011;
• Terminating the existing Aerial Common Sensor contract and restructuring the program to
prepare for a follow-on effort, for a savings of $314 million in 2007; and
• Reducing spending on lower-priority operation and maintenance programs, for a total savings
of over $3 billion in 2007.
Focusing on Priorities. The Department consistently reevaluates the need for specific programs.
However, congressional earmarks and prohibitions on efforts to streamline administrative activities
compromise DOD’s ability to target its resources effectively on warfighter needs. For example, in ad-
dition to general policy requirements contained in the annual National Defense Authorization Act,
the Congress appropriates funding for research, development, and procurement earmarks that sup-
port unnecessary programs, require specific manufacturing operations, direct funding to research or
development efforts with little military value, or place inefficient restrictions on the procurement
of certain items. This includes about $2.2 billion for hundreds of individually directed research
projects—about 17 percent of the $13.3 billion appropriated in 2006 by the Congress for Science and
Technology programs. In total, there were approximately $5.8 billion in 2006 enacted earmarks that
effect DOD programs including Science and Technology, procurement, operations and maintenance,
personnel, military construction, and family housing. These earmarks circumvent the invaluable
process of assessing the military and scientific or technological value of proposed projects. A reduc-
tion in future earmarking would allow the Department to focus better its resources on programs of
highest importance to the warfighter.
Assessing and Improving Processes
DOD Acquisition Restructuring. Cost growth, schedule delays, and performance shortfalls have be-
come too common in many of DOD’s acquisition programs. In addition to a review of the acquisition
system as part of the Quadrennial Defense Review, DOD established the Defense Acquisition Perfor-
mance Assessment Project, an independent panel that examined all aspects of acquisition, including
its current structure, requirements process, legal foundations, design methodology, and oversight.
The panel submitted its recommendations to DOD in December 2005, and they are currently under
review.
Business Transformation. In an effort to improve management and efficiency, DOD is establishing

the Defense Business Transformation Agency to consolidate and transform the management of core
business activities such as financial, property, and support services. In 2007, this new agency will
develop enterprise-wide business processes and use better information technology to increase the
visibility over DOD assets, eliminate organizational barriers to efficiency, and enable more effective
defense business systems operations. Aligning business processes with those of the private sector
will permit DOD to focus more resources on serving our military.
E-Government Programs. DOD’s Defense Finance and Accounting System (DFAS) has imple-
mented significant improvements to payroll activities as part of the President’s Management
Agenda E-Government efforts. To begin, DFAS migrated over 81,000 Federal agency personnel
from agency-centric payroll operations to a consolidated system. This enabled agencies to focus
resources on their core mission activities, while providing assurances that employees are paid
accurately, timely and at a reduced cost. In addition, DFAS administers the myPay payroll project.
This web-based system delivers personal pay information, processes pay-related transactions in a
timely, safe and secure manner, and allows access to electronic tax statements and other financial
information online. In 2003 and 2005 respectively, employees of the Departments of Energy and
Health and Human Services joined the nearly three million users of the myPay system, which
includes all military personnel, retirees and annuitants, and DOD civilian personnel. Employees
of the Environmental Protection Agency and the Department of Veterans Affairs are scheduled to
gain access to this service before the end of 2007.
The table below provides an update on DOD’s implementation of the President’s Management
Budget and
Integration
Status
Progress
Arrow indicates change in status rating since the prior evaluation as of September 30, 2005.
DOD continues to make progress on most of its management initiatives. DOD has continued efforts to improve
the training of managers, and is preparing to implement the new National Security Personnel System. While
DOD has effectively used public-private competition to achieve many billions of dollars in cost savings over the
years, the pace of new announcements slowed significantly during the past year. DOD’s leadership is working to
re-energize competitive announcements in this results-oriented initiative to facilitate the restructuring of Defense
support operations and refocus resources on core defense activities. DOD has developed and is implementing a
Financial Improvement and Audit Readiness plan to address its financial management weaknesses. In addition,
DOD established its E-Gov Implementation Plan and demonstrated continued effectiveness in information
technology (IT) security. Currently, DOD’s major IT investment programs have strong business cases and
the large majority are meeting their specified performance targets. As part of the Budget and Performance
Integration initiative, DOD uses performance information as a key factor in making resource decisions.
Privatization of Military Housing

In support of the Real Property initiative, the Department has replaced subjective assessments of facility
condition with objective measurements, thereby allowing facility managers to make better-informed decisions
about maintenance requirements. DOD is on schedule to eliminate inadequate domestic housing units by
the end of 2007. Although DOD has made steady progress in privatizing and improving housing, it will face
new challenges as it adapts to basing changes resulting from the Global Posture Initiative, Army Modularity,
and the Base Realignment and Closure recommendations. After conducting internal reviews of agency-wide
commercial payments, DOD recouped $414.9 million in incorrect payments from a possible recovery total
of $469.5 million, nearly a 90 percent success rate.
DEPARTMENT OF DEFENSE
2005 Estimate
Actual 2006 2007
Spending
Military Personnel ........................................................................................................... 102,294 106,805 110,850
Retiree Health Fund Contribution (Technical adjustment) .......................... — — 72
Operation and Maintenance ....................................................................................... 138,181 142,599 152,286
Defense Health Enrollment Fees and Deductible (Legislative
proposal) ................................................................................................................... — — 249
Procurement ..................................................................................................................... 79,093 76,242 84,197
Research, Development, Test and Evaluation ..................................................... 68,186 70,961 73,156
Military Construction ...................................................................................................... 5,985 8,018 12,613
Family Housing ................................................................................................................ 4,078 3,979 4,085
Revolving and Management Funds ......................................................................... 2,256 2,221 2,436
Trust Funds ....................................................................................................................... 8 — —
Subtotal.......................................................................................................................... 400,081 410,825 439,302
Budget authority from enacted supplementals ....................................................... 78,830 55,781 —
Estimated future emergency funding for the Global War on Terror ................. — 70,000 50,000
Total, Discretionary budget authority ........................................................................... 478,911 536,606 489,302
Total, Discretionary outlays ............................................................................................. 473,697 510,361 503,055
Mandatory Outlays:
Existing law .................................................................................................................. 737 1,718 1,809
National Defense Stockpile Sales (Legislative proposal) ............................ — — 1
Total, Mandatory outlays .................................................................................................. 737 1,718 1,808
Total, Outlays ........................................................................................................................ 474,434 512,079 504,863
DEPARTMENT OF EDUCATION

• Reformed K–12 education through the No Child Left Behind Act, which is raising aca-
demic standards, improving accountability, and expanding parental choice. No Child
Left Behind funding has increased 34 percent since 2001;
• Made significant improvements to the Individuals with Disabilities Education Act to
align special education with No Child Left Behind accountability systems to provide
the framework for educating students with disabilities to the highest standards;
• Provided Pell Grants to more than five million needy students each year, and reformed
the Federal student aid programs to make them more cost efficient and targeted
additional aid to the neediest students; and
• Assessed 74 programs using the Program Assessment Rating Tool and used the
results to guide budget decisions and programmatic reforms.

• Proposes a new competitive grant program, America’s Opportunity Scholarships for
Kids, to expand the educational opportunities available to students in chronically low-
performing schools;
• Supports a comprehensive approach aligned with the key principles of the No Child
Left Behind Act to increase the achievement of high school students;
• Proposes, as part of the President’s American Competitiveness Initiative, a series of
K–12 math and science initiatives designed to strengthen the capacity of our schools
to improve math and science learning; and
• Supports, as part of a new multi-agency effort, a National Security Language Initiative
designed to strengthen the national capacity in critical languages.
77
78 DEPARTMENT OF EDUCATION
Signs of Progress: Leaving No Child Behind
The 2007 Budget continues the President’s support for the major components of the No Child Left
Behind Act (NCLB). While education remains principally the responsibility of the States, the Federal
Government will continue its aggressive leadership in the education of America’s children.
Four years ago, President Bush signed NCLB into law to ensure that every child, regardless of race,
income, or special need, has the opportunity to receive a high quality education. To reach this goal,
NCLB refocused Federal education programs on the principles of stronger accountability for results,
more choices for parents and students, greater flexibility for States and school districts, and the use
of proven instructional methods. In return for Federal funding, we are asking for results. States are
responding and the results are promising. Test scores in reading and math are at an all-time high
for African-American and Hispanic students. As a Nation, we have made more progress in the last
five years than in the previous 30 combined, but we still have a long way to go.
The President is committed to reaching the goal of making sure every child is proficient in read-
ing and math by 2014. Each State now has an accountability system in place to track its progress
toward reaching this goal. These accountability systems help indicate which schools are succeeding
and which need extra help. A priority of the 2007 Budget is assisting those schools most in need of
improvement.
Closing the Achievement Gap in Our Cities

While large urban school districts face some of the toughest challenges in meeting NCLB goals, some are
making great strides in closing the achievement gap between disadvantaged students and their more advan-
taged peers. According to the 2005 Urban National Assessment of Education Progress, a set of tests that
provides a common measure of student achievement in 11 of our largest cities, disadvantaged students in
New York and Boston not only made significant gains relative to past years, but also scored much higher than
national averages. In Boston, 65 percent of African-American children and 70 percent of Hispanic children
scored at or above the basic level in fourth grade math, compared to national averages of 55 percent and
64 percent respectively. In New York, 49 percent of African-American and 51 percent of Hispanic students
scored at or above the basic reading achievement level, outperforming their peers in large central cities who
scored 38 percent and 40 percent, respectively.
Title I Grants to Local Educational Agencies. Title I provides funds to schools in low-income com-
munities and is essential to NCLB’s accountability, school improvement, and parental choice reforms.
The Budget requests $12.9 billion for Title I, a $200 million increase over the 2006 level, and a 47-per-
cent increase since 2001. The entire 2007 increase will be devoted to schools in need of improvement,
specifically schools that have not met their NCLB student achievement goals for at least two years.
This will ensure that States and school districts are able to receive the assistance needed to improve
low-performing schools.
Teachers. Well-trained, highly qualified teachers are critical to student learning. Recognizing both
the importance and the challenges of finding these teachers, especially in subjects such as math and
science, the Budget provides $99 million for the Teacher Incentive Fund, the same as 2006, and $25
million for the creation of an Adjunct Teacher Corps. The Teacher Incentive Fund provides support for
school districts that are working to link teacher compensation more closely to student performance.
The Adjunct Teacher Corps will provide opportunities for professionals with extensive knowledge in
core academic subjects to teach middle and high school courses, particularly in math and science.
The Budget also provides $2.9 billion for the Improving Teacher Quality State Grants program to
support teacher training and recruitment. Funding for the this program assists States in meeting
NCLB teacher quality requirements and ensuring every class is taught by a qualified teacher.
School Choice. While the Administration expects most schools in need of improvement to turn
around and meet the goals of NCLB, some schools will not be able to do so quickly. Students attending
these chronically low-performing schools need to have other educational opportunities available to
them.
The 2007 Budget includes an innovative approach to assist students in chronically low-performing
schools. The Administration proposes a new $100 million competitive grant program, America’s Op-
portunity Scholarships for Kids, that will enable States, school districts, or non-profit organizations
to offer low-income students in these schools expanded educational opportunities. These students
will be eligible for funding that may be used to cover some of the cost of attending the private school
of their choice or receiving intensive supplemental services.
The 2007 Budget also continues to sup-

port school choice reforms through existing
programs, including $215 million for Charter
Schools Grants, $37 million for Credit En-
hancement for Charter School Facilities, and
$15 million in the District of Columbia’s budget
for scholarships to help low-income students
in Washington, D.C., attend higher-performing
schools.
American Competitiveness Initiative
The jobs of the 21st Century will require crit- The Department worked closely with States and schools affected
ical thinking skills, problem-solving abilities, by Hurricane Katrina to provide financial relief for restarting school
and computer literacy. To remain competitive operations and educating displaced students. Here, First Lady Laura
Bush and Secretary Margaret Spellings visit Greenbrook Elementary
in the global economy, every student that School in Southaven, Mississippi, shortly after Hurricane Katrina.
graduates from high school in the United
States, whether they plan to go on to college or immediately into the workforce, will need the strong
analytical skills that only a rigorous math and science curriculum can provide. International testing
continues to demonstrate that American students are lagging behind their foreign peers in math
and science. To address these issues, the President is proposing the American Competitiveness
Initiative, which focuses on improving the Nation’s long-term economic competitiveness. As part
of this initiative, the Budget proposes a series of new and expanded K–12 programs designed
to strengthen the capacity of our schools to improve math and science learning by investing in
research, teacher training, and teacher recruitment.
A major component of this initiative’s math education efforts is the creation of a National Math
Panel, which would research and develop key principles in math instruction. The Panel’s work would
complement two new proposals: a $125 million Math Now for Elementary School Students program
to support the sharing and research of promising practices to help K–7 teachers prepare students
for more rigorous courses in middle and high school, and a $125 million Math Now for Secondary
School Students program designed to identify middle school students who are not proficient in math
and provide targeted services to boost their achievement. As mentioned previously, the Budget also
includes $25 million for the creation of an Adjunct Teacher Corps to provide opportunities for profes-
sionals with extensive knowledge in science and mathematics, as well as other core academic subject
areas, to teach middle and high school courses. The Budget provides a $90 million increase from $32
million to $122 million for the Advanced Placement program, which offers training and incentives for
teachers to become qualified to teach rigorous core subject courses, as well as support and incentives
for low-income students to take and pass these courses.
At the college level, the new Academic
Competitiveness Grants program, included in
the Deficit Reduction Act will help target $3.7
billion over the next five years to low-income
students who excel in math and science. The
program provides grant aid to high achieving
eligible undergraduate students in their first
two years of college. It also provides grants
to students in their third and fourth year of
college who are majoring in critical areas like
science, math, technology, engineering, and
foreign languages vital to national security.
Grant recipients must be enrolled full-time
A high school class working on math problems at T.C. Williams High
at a four-year degree-granting institution of School in Alexandria, Virginia.
higher education, be eligible for a Federal Pell
Grant, and be a citizen of the United States.
Improving Performance for Special Education Students
On December 3, 2004, the President signed into law the Individuals with Disabilities Education
Improvement Act of 2004. This Act made several changes to the Individuals with Disabilities Educa-
tion Act (IDEA). These changes to IDEA will help redefine how States and schools identify children
with disabilities, set assessment standards, and strengthen the contents of student’s individualized
education programs. The new IDEA also adopts NCLB’s highly qualified teacher standards for those
teaching core subjects, while providing some flexibility for States, school districts, and new teachers
of multiple subjects. Over the past year, the Department has undertaken an elaborate and thorough
process to clarify the law’s provisions and review thousands of public comments before it finalizes
the implementing regulations.
The newly reauthorized IDEA refocuses special education programs on student outcomes and will
require States to establish performance plans and implement programs to meet their performance
goals. These improvements will advance the progress that we are already seeing in several key areas.
The 2005 National Assessment of Educational Progress, the Nation’s Report Card, and the Depart-
ment’s Office of Special Education Programs have reported the following progress:
• The percentage of fourth-grade students with disabilities scoring at or above Basic in reading has
increased from 22 percent in 2000 to 33 percent in 2005, and the percentage of eighth-grade stu-
dents scoring at or above Basic in mathematics increased from 20 percent in 2000 to 31 percent
in 2005.
• The percentage of students with disabilities who graduate from high school with a regular high
school diploma increased from 46 percent in 2000 to 54 percent in 2004, while the percentage of
students who drop out of school decreased from 42 percent in 2000 to 31 percent in 2004.
In addition, in response to the Program Assessment Rating Tool (PART) finding that the IDEA pro-
gram should more effectively track special education students’ transition after school, the Depart-
ment recently adopted another performance indicator for the program. The Department will now
begin to track the percentage of children with disabilities who are employed or enrolled in a postsec-
ondary school within two years of leaving high school. The emphasis on measuring the performance
of students after high school will help the Department of Education and the States maintain their
focus on the outcomes of special education students as they transition into postsecondary education
and the workforce.
From 2001 to 2006, funding for IDEA Grants to States increased by 68 percent, from $6.3 billion
to $10.6 billion. The 2007 Budget provides an additional $100 million for States to maintain this
positive trajectory and provide a high quality education to the nearly seven million IDEA students.
Bringing NCLB to High Schools
NCLB also provides an important framework for improving high schools and transforming them
into places that prepare our students for college or the workforce. The vast majority of NCLB reforms
affect K–8 education and only five percent of Title I funds go to high schools. There is a growing need
for expanding NCLB principles to high schools and for improving secondary education, as nearly
one-third of incoming ninth-graders do not make it to Graduation Day within four years and less than
one-third of high school graduates are prepared for college. In addition, international assessments
show that our high school students score well behind those of many other nations in key subjects
like mathematics. In response, the 2007 request includes a $1.7 billion comprehensive proposal to
improve the quality of secondary education and ensure that every student not only graduates from
high school, but is prepared to enter college or the workforce with the skills to succeed.
High School Reform. The proposal creates a new, flexible $1.5 billion grant program to help States
implement tests in language arts and math in high schools and to support a wide range of effective
interventions. In exchange for a commitment to improve academic achievement and graduation rates
for secondary school students, States will receive the flexibility to implement intervention strategies
most effective in serving the needs of their at-risk high school students.
Striving Readers. This Presidential initiative, first funded in 2005, extends the Administration’s
elementary school reading initiatives into high schools. The Budget provides $100 million, an in-
crease of $70 million over the 2006 level, to develop and implement research-based interventions
that will improve the reading skills of secondary school students who read below grade level.
Statewide Data Systems. The Budget more than doubles this program with a request of $55 million
to help States design and implement data systems to monitor performance of high schools. Statewide
Data Systems, coupled with the Department’s efforts to improve its use of data to improve results
(see Using Data to Achieve Results later in this chapter), will enhance the States’ capacity to manage,
analyze, and use data to improve student achievement and to provide policymakers and parents the
timely information they need to keep improvements on track.
National Security Language Initiative
The National Security Language Initiative (NSLI) is a multi-agency effort designed to strengthen
the national capacity in critical languages. The post September 11th world has placed significant
attention and demands on our foreign language capacity, yet there remains a persistent national
foreign language deficit. Just one percent of all undergraduate and doctoral degrees are awarded to
students specializing in foreign languages. Less than one percent of U.S. high school students com-
bined study certain languages critical to our national security, such as Arabic, Farsi, Urdu, Korean,
Japanese, Russian, or Chinese.
In addition to complementary efforts at the Departments of Defense and State, NSLI includes $35
million in new funding for initiatives at the Department of Education to address these critical lan-
guage deficiencies. As part of this initiative, the Budget provides $24 million for a new proposal,
Advancing America through Foreign Language Partnerships, which would create pilot programs be-
tween universities and school districts for language learning from early childhood through high school
and into college. The Budget also includes $5 million for the Language Teacher Corps, a new pro-
gram that would allow individuals with language skills interested in teaching to receive training and
certification to teach in the classroom. In addition, the Budget supports a $2 million increase for the
existing Foreign Language Assistance program to support innovative model programs providing for
the establishment, improvement, or expansion of critical foreign language study for elementary and
secondary school students.
Improving Access and Accountability in Higher Education
Higher education is increasingly important to American economic competitiveness. Student aid

ensures that all students have an opportunity to pursue higher education. Each year, the Federal
Government makes more than $80 billion in student aid available to approximately 10 million post-
secondary students. This includes more than five million needy students who receive Pell Grants
each year, approximately one million more than when President Bush took office. Last year, the
President proposed a comprehensive set of reforms to the student aid programs that increased ben-
efits to students while making the student aid programs more cost effective. The Congress agreed
with the President’s principles, and they were reflected in the Deficit Reduction Act, passed by the
Congress.
In the coming year, the Administration will develop a comprehensive national strategy for post-
secondary education that addresses the Nation’s economic and workforce needs. Last September,
Secretary Spellings announced the creation of a new Commission on the Future of Higher Educa-
tion. This Commission will engage students and families, policymakers, business leaders, and the
academic community in a national conversation on the future of higher education. Through public
hearings around the United States, this Commission will attempt to answer questions such as: What
skills will students need to succeed in the 21st Century? And, how can we make sure opportunities
for quality higher education and the best jobs are open to all students? In August, the Commission
will report its findings and recommendations, which will serve as a blueprint for a 21st Century
higher education system.
Federal dollars must be spent wisely or not at all. The focus must be on results. Funding for
programs that do not perform well, or are duplicative of other Federal or State spending, must be
redirected toward programs that either have been proven to work or hold promise of achieving the
Administration’s goals most effectively. While the Budget provides targeted funding increases to
efforts that help achieve academic excellence and increase educational opportunities for all students,
it also terminates or reduces funding for poor-performing or low-priority programs.
Program Terminations and Reductions. The Department of Education’s 2006 appropriation termi-
nated funding for five programs totaling $26 million and included significant reductions to ineffective
and low-priority programs, including a $87 million reduction to Safe and Drug Free Schools and a
$125 million reduction to Even Start. The 2007 Budget builds on this success by proposing to termi-
nate an additional 42 programs, including many that the PART has shown to be ineffective or unable
to demonstrate results. These terminations will save $3.5 billion, most of which will be redirected
toward priority programs such as Title I, High School Reform, School Choice, the Teacher Incentive
Fund, and programs that make up the Administration’s Competitiveness Initiative.
Reforming Student Loans. As part of the ongoing efforts to restrain increases in spending, the
Administration has worked to reform Federal student loan programs. Over 14 million student and
parent loans will be originated in 2007, adding more than $60 billion to the almost $400 billion in
outstanding loans. While successful in helping students fund their education, the PART analysis
found that the student loan programs were not cost effective or market-sensitive. In recent years,
loan servicing has been significantly concentrated in a few large companies, allowing economies of
scale not previously possible. Additionally, these companies have aggressively participated in the
loan securitization markets, increasing their financial returns without a corresponding reduction in
Federal subsidies.
Last year, the Administration worked to improve the way the loan programs perform by elimi-
nating unnecessary subsidies, expanding risk-sharing to reduce costs, and improving the financial
stability of the guaranty agency system. In response, the Congress passed the Deficit Reduction Act,
which will reduce excess subsidies in the Federal Family Education Loan (FFEL) program and help
make both the Direct Loan and FFEL programs more efficient. Specifically, the Act included the
following reforms:
• Reducing the percentage of Federal loans guaranteed against default from 98 percent to
97 percent, in recognition of the strong repayment record associated with student loans today;
• Eliminating an unnecessary and costly loan subsidy provision that allowed some loan holders
to have increased financial returns on loans funded through tax-exempt securities; and
• Requiring that all guaranty agencies collect the statutory one-percent insurance premium paid
by either the borrower or the lender on all loans guaranteed or disbursed after July 1, 2006.
These and other reforms will reduce taxpayer costs, while increasing benefits to students and mak-
ing it easier for them to afford college.
Assessing Programs. The Department of Education continues its focus on improving program per-
formance and efficiency. Over the last four years, the Department has used the PART to assess 74
programs, including 18 new and five revised PART assessments in 2005. The Department’s 2007
budget decisions reflect, among other factors, how programs perform in these evaluations. In the
past year, the Department has refocused its efforts on developing and implementing measures to
ensure that Education programs are managed efficiently.
Using Data to Achieve Results. Policy decisions about the education of our children should not be
made based on guesswork and anecdote. NCLB provides the performance data to make informed
decisions. Over the past year, the Department has focused on improving its PART ratings for several
programs, developing efficiency measures, and accelerating its progress to collect and analyze State
accountability data as required by NCLB. The Department has also developed a database and
reporting system, EDFacts, that allows States to report their student achievement, demographic,
and financial information in one central repository. In exchange, the Department will eliminate,
in part or in full, dozens of State reporting requirements. This system will both reduce burden on
States and deliver timely, useful data to policymakers and parents at the national, State, and local
levels.
Investments in Information Technology. Continued investment in information technology is helping
to make Federal student aid more effective. Recent streamlining and enhancements to the systems
that support student loan borrowers have improved customer service and performance. In addition,
new upgrades to the way student loans are originated and disbursed, through the Advance Project,
will also result in significant improvements in operations.
IRS Verification. The Administration continues to work to reduce fraud and error in the student aid
programs. For example, the Administration is working closely with the Congress to enact legislation
that would allow the Department to match data with the Internal Revenue Service and dramatically
reduce fraud and error in the Pell Grant program. Once fully implemented, this common sense reform
could save more than $300 million annually.
The table below provides an update on the Department of Education’s implementation of the Pres-
ident’s Management Agenda as of December 31, 2005.
Budget and
Integration
Status
Progress
The Department of Education continued to make improvements in its management over the past year. Since the
PART process identified the lack of appropriate performance measures as a major problem, Education has
taken steps to develop program measures and goals. In 2005, OMB reevaluated five programs that were rated
Results Not Demonstrated and upgraded their ratings. For example, the Improving Teacher Quality State Grants
program was upgraded to Moderately Effective. The program has improved its data management, collecting and
reporting data on the percentages of core academic classes taught by highly qualified teachers in elementary,
high poverty, and secondary schools, consistent with the requirements of NCLB to improve the quality of
teachers. Also, the Department is implementing important E-Government initiatives aimed at improving access
and performance of critical education grant and loan programs. For example, the Department is posting an
increasing number of grant opportunities at www.Grants.gov and loan opportunities at www.GovLoans.gov. The
Department also has a long-term plan for improving commercial operations through the use of public-private
competition. Competitions conducted in 2005 will save the Department approximately $7 million. In addition,
financial management practices continue to improve, and the Department is using key, risk-based data in
day-to-day operations, such as identifying and closely monitoring high-risk grantees to ensure the proper
expenditure of taxpayer funds.

The Department’s efforts to improve management have achieved some important goals in the past year. Federal
Student Aid (FSA) reached green status in the Elimination of Fraud and Error In Student Aid Programs and
Deficiencies in Financial Management initiative of the PMA. It was removed from the Government Accountability
Office’s High Risk list for the first time in 15 years. To achieve this important goal, FSA held itself accountable for
accomplishing management improvements, and was able to demonstrate it had addressed all the deficiencies
of concern. Furthermore, as a major lender through the Federal student loan programs, the Department
of Education is participating in a new PMA initiative to evaluate management of Federal credit programs.
Assessments will be made of the Department’s strengths and weaknesses in managing the student loan
portfolio. The Department of Education is committed to building on its management successes to date in order
to continue to improve management of this almost $400 billion portfolio. This initiative will be included in the
scorecard beginning in the second quarter of 2006.
Education has completed the initial phases of ensuring that community and faith-based organizations can
compete fairly for relevant grants. Education has eliminated regulatory barriers, done extensive outreach,
provided technical assistance to organizations, and has evaluated the impact of community and faith-based
organizations in Education programs.
Education is assessing its programs’ risk of improper payments, developing an estimate to measure the amount
of improper payments and initiating different processes and internal control improvements to enhance the
accuracy and integrity of payments. For example, one source of error in the Pell Grant program stems from
self-reported tax information by applicants. The Department is expanding the online edit checks for Federal
financial aid forms to help catch potential errors as they are entered and alerting the applicant to re-check
the data.
Department of Education
2005 Estimate
Actual 2006 2007
Spending
Elementary and Secondary Education:
Title I Grants to LEAs 1 ................................................................................. 12,740 12,713 12,913
School Improvement Grants (non-add) .................................................. — — 200
Reading First and Early Reading First 2 ................................................. 1,146 1,132 1,132
State Assessments .......................................................................................... 412 408 408
Teacher Incentive Fund.................................................................................. — 99 99
Teacher Quality State Grants ...................................................................... 2,917 2,887 2,887
Charter Schools programs............................................................................ 254 251 251
America’s Opportunity Scholarships for Kids ........................................ — — 100
Impact Aid ........................................................................................................... 1,244 1,228 1,228
Safe and Drug Free Schools Programs ................................................... 672 569 216
21st Century Community Learning Centers ........................................... 991 981 981
English Language Acquisition ..................................................................... 676 669 669
IDEA Part B State Grants 3 ......................................................................... 10,590 10,583 10,683
High School Programs:
High School Reform ........................................................................................ — — 1,475
Striving Readers ............................................................................................... 25 30 100
Vocational Education 4 .................................................................................. 1,206 1,192 —
TRIO Upward Bound ...................................................................................... 310 311 —
TRIO Talent Search ......................................................................................... 145 145 —
GEAR UP ............................................................................................................ 306 303 —
American Competitiveness Initiative:
Math Now for Elementary Schools Students ......................................... — — 125
Math Now for Secondary School Students ............................................. — — 125
Advanced Placement ...................................................................................... 30 32 122
National Mathematics Panel ........................................................................ — — 10
Evaluation of Mathematics and Science Education Programs ........ — — 5
Adjunct Teacher Corps................................................................................... — — 25
Adult Education ..................................................................................................... 579 573 573
Higher Education:
Pell Grants 5 ...................................................................................................... 12,365 17,345 12,739
Perkins Loans Institutional Recall .............................................................. — — 664
Perkins Loans Cancellations........................................................................ 66 65 —
National Security Language Initiative activities ..................................... — — 35
Historically Black Colleges and Graduate Institutions ........................ 297 296 296
Hispanic Serving Institutions........................................................................ 95 95 95
Research and Statistics 6 ................................................................................. 523 517 554
All other .................................................................................................................... 9,590 4,128 7,229
Total, Discretionary budget authority 7 ............................................................. 57,179 56,541 54,411
Department of Education—Continued
2005 Estimate
Actual 2006 2007
Memorandum: Budget Authority from enacted supplementals ............... — 1,600 —

Mandatory Outlays:
Federal Direct Student Loans .......................................................................... 2,280 4,791 63
Federal Family Education Loans..................................................................... 11,565 18,245 5,340
Academic Competitiveness Grants ................................................................ — 190 789
All other .................................................................................................................... 2,102 1,918 1,462
Total, Outlays .............................................................................................................. 72,945 83,984 64,484
Credit activity
Federal Direct Student Loans (FDSL)........................................................... 12,359 13,649 14,705
FDSL Consolidations .......................................................................................... 15,136 13,740 7,908
Total, Direct loan disbursements ......................................................................... 27,495 27,389 22,613
Family Federal Education Loans (FFEL) ..................................................... 28,443 45,616 49,186
FFEL Consolidation ............................................................................................. 53,134 45,311 25,128
1
Program level. Budget authority is $195 million less than program level in 2006.
2
Program level. Budget authority is $195 million more than program level in 2006.
3
Program level. Budget authority is $11 million less than program level in 2006 and $791 million less than program level in 2007.
4
Program level. Budget authority is $791 million more than program level in 2007.
5
Reflects new budget authority and not funding for shortfalls or surpluses. The Pell maximum award remains $4,050 in all three years.
6
Includes special education research and studies funding in 2005.
7
Program level. Budget authority is $11 million less than program level in 2006. The Deficit Reduction Act moved Section 458 Federal Student
Aid funds for administrative expenses from the mandatory to the discretionary side of the budget in 2007. For comparability purposes, this
change is reflected in the 2005 and 2006 columns as well.
HEALTH AND HUMAN SERVICES

• Passed and initiated implementation of comprehensive Medicare reform legislation,
adding prescription drug coverage and modernizing the Medicare program;
• Enrolled nearly 24 million Medicare beneficiaries in the Medicare prescription drug
benefit as of the middle of January 2006;
• Improved preparedness for a bioterror attack, providing over $7 billion to States,
localities, and hospitals;
• Fulfilled the President’s pledge to double funding for medical research through the
National Institutes of Health;
• Created or expanded nearly 900 Health Center sites, providing health care services
to an additional 4.3 million people;
• Approved 11 Health Insurance Flexibility and Accountability demonstrations, which at
full implementation, could result in approximately 825,000 individuals receiving health
coverage through Medicaid and the State Children’s Health Insurance Program; and
• Launched a national strategy to improve pandemic influenza preparedness.

• Proposes a new financing measure to strengthen Medicare’s sustainability;
• Provides nearly $160 million to support advanced development of biodefense
countermeasures to be considered for procurement under Project BioShield;
• Provides access to health care through more than 300 new and expanded Health
Center sites, including 80 new sites in counties that have a high prevalence of poverty;
• Builds on the President’s health insurance reform proposals to promote Health
Savings Accounts and to expand coverage to more Americans with limited incomes;
• Provides $250 million for new healthy marriages and strengthening fatherhood
initiatives to improve the well-being of children;
• Provides $204 million for abstinence-only education programs;
• Provides $188 million to States, Faith-Based, and Community Organizations for a new
initiative to combat the spread of HIV/AIDS, particularly within minority communities;
and
• Continues the President’s November 1, 2005, commitment to obtain $7.1 billion from
the Congress to improve pandemic influenza preparedness.
105
106 HEALTH AND HUMAN SERVICES
By preparing now, we can give our citizens some peace of mind knowing that our Nation is ready to act at the
first sign of danger, and that we have the plans in place to prevent and, if necessary, withstand an influenza
pandemic.

November 1, 2005
Protecting the Nation from an Influenza Pandemic
One of the most serious threats to public health in our time is a global influenza pandemic.
Pandemics happen when a new influenza virus emerges that is efficiently transmitted between
humans. Influenza pandemics in 1918, 1957, and 1968 killed approximately 40 million, 2 million,
and 1 million persons worldwide, respectively. A new strain of influenza virus has emerged in Asia,
one for which humans have no natural immunity. Should this new strain of influenza virus become
easily transmissible from human to human, millions around the world could become infected,
sparking a serious public health emergency.
The President has called attention to the seriousness of this issue and has developed a National
Strategy for Pandemic Influenza to guide preparedness and response to a pandemic. On November
1, 2005, the President submitted a $7.1 billion emergency supplemental request to the Congress to
improve the Nation’s readiness. The request makes possible the fulfillment of the President’s strat-
egy by investing in international health surveillance and containment efforts; medical stockpiles;
the domestic capacity to produce emergency supplies of pandemic vaccine and antiviral medications;
and preparedness at all levels of government. On December 30, 2005, the President signed the De-
partment of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf
of Mexico, and Pandemic Influenza Act, 2006. The Act includes $3.8 billion for pandemic influenza
preparedness, the first installment of the President’s request to launch these critical activities. The
Budget includes a $2.3 billion allowance for the 2007 portion of the request to fulfill the next phase
of the President’s strategy.
The President’s Budget builds on the $7.1 billion commitment by requesting an additional $474
million across the Government to further improve readiness. The Budget requests $352 million in
2007 for continued implementation of the pandemic influenza preparedness plan at the Department
of Health and Human Services (HHS). Of this total, $188 million will allow the Centers for Disease
Control and Prevention (CDC) to improve public health surveillance both domestically and abroad,
establish more quarantine stations, develop diagnostic tests to identify potential pandemic influenza
strains rapidly, and work with foreign governments to help prevent the spread of a pandemic. The
National Institutes of Health (NIH) will receive $35 million to conduct clinical trials of pandemic in-
fluenza vaccine, and the Food and Drug Administration (FDA) will receive $50 million to improve the
Agency’s ability to review new pandemic influenza vaccines and drugs rapidly while assuring their
safety and effectiveness, and to maintain a library of virus strains to facilitate the rapid manufac-
ture of vaccines as the virus evolves. The Budget also includes $79 million in the HHS Office of the
Secretary for international activities, development and deployment of rapid tests for detection, and
risk communication.
All of these activities at HHS, in conjunction with pandemic influenza activities at the U.S. Depart-
ment of Agriculture (USDA), Department of State, and U.S. Agency for International Development,
will greatly enhance the Nation’s ability to prepare for and respond to an influenza pandemic.
Health Centers: More Sites Expand Access to Quality Care
Locally run Health Centers deliver high-qual-

ity, affordable primary and preventive health
care to nearly 14 million patients at 3,700 sites
across the United States annually. Health
Centers focus on providing care to low-income
individuals and those without health insurance.
Patients are charged for services based on their
ability to pay. An assessment of the program
found that it is effective in reducing hospi-
This new Health Center site in Charles City, Virginia, opened in 2004. talization rates and treating the uninsured.
According to Rod Manifold, Executive Director of Central Virginia
Health Services, “The President’s Expansion Initiative has been
Approximately 86 percent of Health Centers’
vital to opening health centers, like Charles City Regional Health patients are at or below 200 percent of the
Services, in many of our highest-need communities.” Federal poverty line. Since the President began
his commitment to expand services through Health Centers, 777 Health Center sites have been
established or expanded, and 3.7 million more people per year are being served. An estimated 120
new and expanded sites will be created in 2006.
The 2007 Budget continues this record of progress and will complete the President’s commitment
to create 1,200 new or expanded Health Center sites. More than 1.2 million additional individuals
will receive health care in 2007 through more than 300 new or expanded sites in rural areas and
underserved urban neighborhoods. Included in the President’s commitment is the goal to create a
Health Center in every poor county in America that lacks a Health Center and can support one. Of
the new sites created in 2007, 80 will be in high-poverty counties that lack a Health Center. Faith-
based and community programs will also be encouraged to compete for these grants.
Biodefense: Protecting Against Terrorism
Biodefense Research, Development,

The threat of bioterrorism has brought new challenges to and Procurement. The Budget con-
our government, to our first responders and to our medical tinues to invest heavily in research
personnel. We are grateful for their service. Not long ago, and development that will lead to new
few of these men and women could have imagined duties countermeasures against the most
like monitoring the air for anthrax, or delivering antibiotics dangerous threat agents. NIH supports
on a massive scale. Yet, this is the world as we find it; this basic research, which leads to break-
Nation refuses to let our guard down. throughs in scientific knowledge, and
President George W. Bush advanced development that converts
July 21, 2004 knowledge into products that can be
manufactured in large quantities.
Within the 2007 Budget’s $28.4 billion
for NIH, the Administration will
continue to fund biodefense research and development activities at nearly $1.9 billion. This includes
nearly $50 million for chemical countermeasure development and $47 million for radiological and
nuclear countermeasure development. The Budget includes nearly $160 million for advanced
development of medical countermeasures against threats of bioterrorism. Large investments in
basic research for biodefense countermeasures through NIH have helped create promising products
to protect Americans against the threat of a terrorist attack. These investments will accelerate
development of those products to help Project BioShield acquire them more quickly for the Strategic
National Stockpile.
Strategic National Stockpile. The Strategic National Stockpile contains drugs, vaccines, and other
medical supplies and equipment that can be delivered anywhere in the country within 12 hours
of a request for assistance. The Stockpile currently contains: enough smallpox vaccine for every
American; treatments for anthrax; countermeasures for injuries following a chemical, radiological,
or nuclear incident; and treatments for conventional explosive attacks. The 2007 Budget includes ad-
ditional funding to improve the Nation’s ability to respond to biological and chemical weapons attacks
with life-saving treatments and supplies. The Budget also proposes increased funding for the storage
and maintenance of next-generation countermeasures, including new products purchased through
Project BioShield. The Budget continues to support State and local ability to respond quickly with
the distribution of countermeasures, especially in high-threat areas.
Medical Surge Capacity. In the event of a large-scale attack in one or more cities, existing medical
capacity could be quickly overwhelmed. The President designated HHS as the lead for coordinating
Federal support of State and local medical and public health response to mass-casualty events. The
Budget includes $50 million to purchase and store deployable medical care units, including medical
supplies and equipment that the Federal Government can deliver to an affected area. This initiative
also includes $20 million to enhance the Medical Reserve Corps and provide prior training and veri-
fication of credentials to ensure the availability of health care providers during such an emergency.
Over $7 billion has been provided to bolster State, local, and hospital preparedness since 2001. The
Budget continues support for these investments by proposing an additional $1.3 billion. Included in
the total for hospital preparedness is $25 million for a targeted, competitive demonstration program
to establish a state-of-the-art emergency care capability in one or more metropolitan areas. Equally
important is ensuring the ability to know what preparedness improvements have been made across
the Nation, and where vulnerabilities remain, so these continued investments can be targeted to
where they are needed most. HHS is engaged with State and local partners to establish performance
indicators and standards and reassess the distribution of funds, to ensure that these investments
are directed to most efficiently improve State, local, and hospital preparedness. HHS is also working
with the Department of Homeland Security and other Federal departments and agencies in a coor-
dinated effort to develop a national preparedness goal and related metrics that will help assess the
Nation’s readiness and determine preparedness assistance needs. These steps will help maximize
the effect of each dollar toward reducing our actual vulnerabilities to potential attacks.
Defending the Nation’s Food Supply. The 2007 Budget continues the President’s commitment to
improving the safety of the food and agriculture supply. In 2007, FDA will continue to work with
USDA to improve protection of the Nation’s food supply from intentional or natural contamination.
The Budget requests a $20 million increase for FDA to develop testing methods to identify the pres-
ence of contamination quickly and accurately, and to improve its ability to respond once an incident
has occurred. The Food Emergency Response Network will continue to expand to allow for more rapid
analysis of food samples to respond to a terrorist attack and to more quickly identify outbreaks in the
food supply. Each of these activities will be coordinated with USDA, which will invest an additional
$322 million in 2007, to protect the food and agriculture supply from terrorist attacks.
Promoting Health Information Technology
The Administration continues to place a high priority on making electronic health records avail-
able to most Americans, a goal set by the President in 2004. Widespread use of electronic health
records will help ensure Americans receive high quality medical care by providing doctors access to
patients’ medical history at the time of care. The Administration supports the adoption of health in-
formation technology (IT) as a normal cost of doing business to ensure patients receive high-quality
care. To encourage doctors and patients to adopt electronic health records, the Administration’s goal
is to promote conditions for a thriving free market. Identifying national standards will help focus
development efforts, increase demand for the technology, and ultimately create affordable technol-
ogy. The creation of the American Health Information Community in the Fall of 2005 is one step
toward this goal. The Community will help ensure that there are certified technology products and
nationwide interoperability standards, which should help purchasers of health IT have confidence in
the investments they make.
The 2007 Budget includes $169 million to accelerate progress for this effort, including $116 million
for the Office of the National Coordinator for Health Information Technology; $50 million for the
Agency for Healthcare Research and Quality; and $3 million for the Office of the Assistant Secretary
for Planning and Evaluation. Continuing and new activities include efforts to:
• Promote nationwide interoperability of health IT systems through an industry-wide process to
harmonize standard development, maintenance, and refinements;
• Define the key elements of basic electronic health records for use in clinical settings, develop
working prototypes for the use of electronic health data in such priority areas as coordinated
chronic disease management and improved ambulatory care, and capture laboratory test data
in a standardized way;
• Pursue breakthroughs in health systems architecture, such as rapidly collecting and dissemi-
nating public health surveillance data electronically, and encouraging the use of personal health
records for patients to keep their own computer-readable medical history;
• Work closely with the Centers for Medicare and Medicaid Services (CMS) to advance the use of
electronic prescriptions nationally; and
• Continue to address key privacy and security issues to encourage the exchange of health infor-
mation nationwide.
Expanding Affordable Health Care
The 2007 Budget includes a comprehensive, consumer-focused plan to address the problems of ris-
ing health care costs and the uninsured. The President’s plan to help reduce the rising cost of health
care while improving quality and safety includes an emphasis on price transparency and disclosure
of quality information. The plan also contains a package of proposals to promote: the use of health
savings accounts (HSAs); grants to States to encourage innovations in providing coverage to chroni-
cally ill individuals; association health plans; medical liability reform; and a national marketplace for
health insurance. This package of reforms will provide new and affordable health coverage options
for all Americans—targeted to those who need it most: low-income children and families; the chron-
ically ill; employees of small businesses; and the self-employed.
Price and Quality Transparency. The President seeks the commitment of medical providers, in-
surance companies, and business leaders to help consumers obtain better information on health care
prices and quality. The Administration will leverage Federal resources and work with the private
sector to develop meaningful measures for health care quality and to emphasize the importance of
all-inclusive price information.
Encouraging Health Savings Accounts. HSAs are a major tool to promote the Administration’s
long-term vision of a more consumer-driven health care system—a system in which benefits are af-
fordable and portable, quality and patient satisfaction are high, and medical inflation is low. HSAs
combine a high-deductible health plan with a tax-advantaged personal savings account reserved for
medical purchases. This innovative approach gives the consumer greater ownership and control over
his or her health care, and for many consumers can be a more economical choice than traditional
insurance.
Created as part of the Medicare Modernization Act (MMA) in December 2003, HSAs have already
attracted an estimated one million enrollees. The Administration seeks to build on this promising be-
ginning with a robust package of policies designed to make HSAs even more affordable and portable.
For a full description of this package, see the Federal Receipts chapter in the Analytical Perspectives
volume. The highlights include:
• Making high-deductible health plans more affordable by creating tax parity between employer-
sponsored insurance and insurance purchased in the non-group market. The Budget proposes
to allow all individuals who purchase a high-deductible health plan in conjunction with an HSA
to deduct the amount of the health plan’s premium from their income and payroll taxes. Addi-
tionally, income tax deductible contributions to an individual’s HSA would also be exempt from
payroll taxes, which are paid by almost all workers.
• Increasing the maximum amount individuals can contribute to their HSA. Under current law,
individuals’ contributions are limited to the lesser of the amount of the deductible or $2,700 for
self-only coverage ($5,450 for family coverage) for 2006. Under this proposal, a person could
contribute—without paying income or payroll taxes on the contribution—up to the plan’s out-
of-pocket maximum, which is higher than the deductible.
• Establishing a refundable tax credit that would be available to those purchasing an
HSA-compatible high-deductible health plan.
• Enhancing portability of insurance by giving individuals the option of taking their health in-
surance with them. The Budget proposes to allow employers to offer and employees to select
portable HSA-compatible health plans. These policies would not be subject to State mandates
or regulations and would build on the 2006 proposal to create a national marketplace for health
insurance.
Focusing on the Chronically Ill. Chronically ill individuals often struggle to secure health insurance
coverage. The 2007 Budget proposes to create a competitive grant program whereby States compete
to receive funds to implement innovative policies to promote insurance among the chronically ill. For
this effort, $500 million would be available annually.
Reforming the Health Insurance Marketplace. In addition to the new initiatives to promote
affordable and effective health care, the 2007 Budget reproposes three initiatives to reform health
insurance markets across the country:
• Establishing association health plans that would allow small employers, civic groups, and com-
munity organizations to band together and use their purchasing power to negotiate lower-priced
coverage for their employees, members, and their families.
• Creating a competitive marketplace across State lines that maintains strong consumer protec-
tions.
• Reforming medical liability law, which will increase access to quality and affordable health
care for all Americans, while reducing frivolous and time-consuming legal proceedings against
doctors and health care providers.
Fighting Global AIDS
The President has made fighting the global spread of HIV/AIDS a top priority of his Administration.
The President’s Emergency Plan for AIDS Relief is a five-year, $15 billion commitment to support
and strengthen the AIDS-fighting strategies of many nations. At the time of the Plan’s inception
in 2003, only 50,000 people in sub-Saharan Africa were receiving antiretroviral treatment. Today,
after two years of Emergency Plan implementation, more than 395,000 sub-Saharan Africans are
receiving the drugs that allow them to survive this disease. The 2007 Budget includes $4 billion for
the President’s Emergency Plan for AIDS Relief, an increase of more than $740 million over 2006, to
further strengthen international efforts to combat this epidemic through support for comprehensive
prevention strategies and lifesaving treatments. The President’s Global AIDS Coordinator relies on
HHS to help implement this expansion and meet the President’s goals.
Controlling the Spread of HIV/AIDS through Testing and Treatment
One of the primary challenges in fighting the HIV/AIDS epidemic in the United States is stopping
the spread of the disease through the identification and treatment of individuals who are infected
with the HIV virus but do not know it. To address this problem, the Administration is proposing $188
million for an initiative that will focus Federal resources on HIV-testing, medical care, and outreach,
with the goal of ending the growth in the number of new AIDS cases and reducing the future burden
of the disease.
Testing, treatment, and outreach efforts will focus on at-risk populations, including low-income
and minority communities that are increasingly hardest hit with growing rates of new infections.
Routine testing and awareness campaigns will also be directed at incarcerated populations and drug
treatment facilities. The initiative will also provide additional funding to finance medications and
treatment for those currently in need, as well as individuals newly diagnosed with HIV/AIDS due to
increased testing efforts.
Improving and Modernizing Medicare
Implementing the Medicare Prescription Drug

Benefit. The MMA established the most important
new Medicare benefit in the program’s 40-year
history: new voluntary prescription drug coverage,
which began on January 1, 2006. Seniors and
people with disabilities who enroll in the benefit
are now expected to pay an average monthly
premium of around $25 in 2006, far lower than
previous projections of around $37. In every State,
beneficiaries have a choice of at least one plan
with monthly premiums below $21, and in many
parts of the country beneficiaries can enroll in
a drug plan for as little as $1.87 per month. In
addition, competition is enabling beneficiaries The Medicare bus travels across the United States to educate
to select plans that they prefer to the standard Medicare beneficiaries about the new prescription drug benefit.
Government-defined drug benefit.
In every region, prescription drug plans are available with zero deductibles or deductibles lower
than Medicare’s standard annual deductible, and plans are available that allow beneficiaries to fill in
the “coverage gap” in the standard benefit. Through telephone and online support, and thousands of
community events and activities around the country, CMS and its partners are helping beneficiaries
learn about what the new drug benefit means for them. Open enrollment ends in May 2006.
The Medicare prescription drug benefit is off to a good start. As of the middle of January 2006,
nearly 24 million Medicare beneficiaries are participating in this important new benefit. This 24 mil-
lion figure includes more than six million Medicare-Medicaid dual eligible beneficiaries, almost seven
million in employer-sponsored coverage of some kind, and about 3.6 million beneficiaries who have
signed up for stand-alone prescription drug coverage. In addition, three million Medicare-eligible
Federal retirees will continue to receive the drug coverage they already enjoy. Some implementation
issues will arise in any undertaking of this magnitude; resolving issues as they arise is a high prior-
ity.
Low-income beneficiaries are receiving additional assistance in paying for their drugs under the
new Medicare prescription drug benefit, making the drug coverage more affordable and accessible to
those most in need. The additional assistance allows these beneficiaries to pay reduced premiums
and deductibles for their drug coverage.
Advancing Medicare Advantage. The MMA created the Medicare Advantage (MA) program to offer
greater choices and higher quality care to beneficiaries through competition among private health
plans. Overall, private health plans offer more generous benefits and lower cost-sharing for bene-
ficiaries than Medicare fee-for-service. Beneficiaries in MA now save an average of about $100 per
month in out-of-pocket costs compared to traditional Medicare, and beneficiaries in fair or poor health
save significantly more. The MMA successfully reversed a downward trend in private Medicare plan
enrollment, and approximately 13 percent of beneficiaries are currently enrolled in MA plans.
In 2006, most Medicare beneficiaries will be

able to choose from a variety of options to find a
MA plan that meets their needs and preferences
for how to get their care. CMS expects to
contract with a full range of private health
plans that will include health maintenance
organizations, preferred provider organizations
(PPOs), fee for service plans, and “special needs”
plans designed to provide specialized care and
support for beneficiaries with frailty or serious
chronic diseases. Approximately 98 percent of
Medicare beneficiaries will have access to some
President Bush discusses improvements to Medicare with
kind of local private MA plan. Of the 3,066
beneficiaries on August 29, 2005, at the Pueblo El Mirage RV Resort counties in the United States, 3,004 will have a
and Country Club in El Mirage, Arizona. participating local plan. For the first time, PPO
plans will be widely available in Medicare, with more than 80 percent of beneficiaries having access
to regional PPO plans.
Encouraging Beneficiary Choice. HSAs enable individuals to take greater control of their health
care choices. More than one million Americans have opted for an HSA since the President signed
them into law in December 2003. However, Medicare still does not offer any HSA options. The Ad-
ministration is developing new Medicare HSA choices for beneficiaries, including allowing people to
“age in” to Medicare with their existing HSAs.
Enhancing Medicaid and the State Children’s Health Insurance Program (SCHIP)
Medicaid is an open-ended means-tested entitlement program financed jointly by the Federal Gov-
ernment and States. The Federal Government pays on average 57 percent of Medicaid expenses.
Medicaid provides health coverage and services to nearly 53 million low-income children, pregnant
women, elderly persons, and disabled individuals during the year. In 2007, Federal Medicaid outlays
are estimated to be $199 billion.
SCHIP was established in 1997 to make available approximately

$40 billion over 10 years for States to provide health care coverage
to low-income, uninsured children who did not qualify for Med-
icaid. SCHIP gives States reasonable flexibility in effective pro-
gram design while protecting beneficiaries through Federal stan-
dards. Since the beginning of the Administration, total enrollment
in SCHIP has grown by an estimated 1.5 million children, to a to-
tal of approximately 6.1 million in 2004. Current law rules for
distributing SCHIP funds can lead to shortfalls for some States.
The 2007 Budget will seek authority to target SCHIP funds more
efficiently to States with the most need.
The Deficit Reduction Act (DRA) takes important steps toward
achieving savings in Medicaid while promoting effective Medicaid
policy. The Administration commends the Congress’ successes, as
this legislation accomplishes many of the Administration’s 2006
Budget priorities. These accomplishments include provisions that
reform Medicaid long-term care eligibility and help individuals
prepare for possible long-term care needs, as well as provisions
Receiving prompt care.
that build on the President’s New Freedom Initiative, promoting
home- and community-based care options for people with disabilities.
Medicaid/SCHIP Modernization. In past years, States have expressed concerns regarding the
complex array of Medicaid laws, regulations, and administrative guidance as overly burdensome.
Medicaid rules prohibit States from providing care comparable to the private sector. States widely
believe that the Medicaid program structure has out-of-date requirements, which create higher costs
and prevent States from helping additional uninsured individuals get the coverage they need.
The DRA responds to State requests for additional flexibility by providing States with new options.
For non-disabled, non-elderly persons who are eligible for Medicaid, the DRA allows States to follow
the lead established by SCHIP and provide more flexible benefit packages that are more comparable
to those in the private sector. The DRA also establishes an option for States to raise the Federal
limits on allowable beneficiary cost sharing in Medicaid to offer more State flexibility and to keep
pace with inflation. As in SCHIP, which is already used by many States to cover similar populations,
States would be given the flexibility to apply cost sharing by income level, beneficiary category, or
service type in the form of premiums and/or co-payments, totaling no more than five percent of total
family income.
The changes included in the DRA represent meaningful Medicaid reform. The Administration will
take further steps to support States to use these reforms effectively to improve access to needed care
by developing new waiver initiatives. The Administration has achieved considerable success with
the Health Insurance Flexibility and Accountability (HIFA) demonstration initiative, included in the
President’s Management Agenda, which emphasizes coordination of currently available Medicaid
and SCHIP funding with private insurance. Through the HIFA initiative, States can provide health
care to more beneficiaries with the same amount of funding by changing delivery systems and using
mainstream coverage, including coordination with employer plans. At full implementation, approxi-
mately 825,000 individuals may receive coverage through 11 approved HIFA waivers.
Building on the HIFA initiative and the approaches adopted by innovative States such as Florida,
the Administration will develop a new waiver initiative that emphasizes market-driven approaches
to health care. In conjunction with the DRA, this approach allows States to emphasize expanding
needed coverage to uninsured individuals and to promote greater continuity of coverage. This new
model will stress consumer-driven approaches to health care with access to affordable coverage while
giving States more tools to offer better health coverage to some current beneficiaries, as well as to
individuals who are currently uninsured. By broadening choices and encouraging competition in the
private market, Medicaid can continue to modernize through State-level reforms. The result will
be more seamless access to coverage for low-income families and children in Medicaid, as well as to
other uninsured persons with limited incomes.
Florida Demonstration Tests Innovative Medicaid Reform

On October 19, 2005, the Administration approved Florida’s waiver request to reform its Medicaid program.
Florida’s innovative approach—the first of its kind—will empower participants to choose a plan that best
meets their needs while creating a marketplace in which plans compete.
The reform strategy includes flexibility for provider networks to create benefit packages that meet the unique
needs of patients, payments to plans based on the health status of their enrollees, and mechanisms that
allow participants to select the best plan for their individual needs. Florida’s reform program also provides the
opportunity for participants to opt out of their Medicaid benefit and use their State-paid premium to purchase
employer-sponsored insurance. Further, participants will be able to earn enhanced benefits by engaging in
healthy lifestyles that will allow them to purchase health care goods and services not provided by their plan.
Governor Jeb Bush said of the State’s effort, “Medicaid is a vital safety net for Florida’s most vulnerable, and
it’s time we transformed the program to reflect the needs of patients, rather than the dictates of government.”
Medicaid Commission and Modernization. This past year, the HHS Secretary established a Med-
icaid Commission to provide options for modernizing Medicaid in ways that would offer high-quality
health care to beneficiaries. In particular, the Commission is charged with developing long-term
recommendations that emphasize Medicaid’s financial sustainability.
The Administration looks forward to the Medicaid Commission’s recommendations as laying the
groundwork for additional future reforms. The Administration is committed to pursuing Medicaid
reforms that will build on the improvements included in the DRA. More progress can be made, such
as in the area of integrated care for individuals dually eligible for Medicaid and Medicare.
Service Enhancements. The DRA enhances services for former welfare recipients by extending
Transitional Medical Assistance (TMA) through December 31, 2006. This program provides cover-
age for former welfare recipients entering the workforce, and the Administration proposes extending
the program through September 30, 2007. Similarly, the 2007 Budget proposes Cover the Kids, a
national outreach campaign. This initiative will provide $100 million in grants annually to enroll
additional Medicaid- and SCHIP-eligible children by combining the resources of the Federal Govern-
ment, States, schools, and community organizations.
Health Insurance Portability and Accountability Act (HIPAA). Since enacted in 1996, HIPAA has
had the goal of increasing the continuity and accessibility of health insurance. To ensure that Med-
icaid and SCHIP beneficiaries receive the benefits of HIPAA coverage, the Administration proposes
two legislative changes: 1) make eligibility for a Medicaid/SCHIP Employer-Sponsored Insurance
(ESI) Program a qualifying event, allowing families to enroll in ESI immediately through special en-
rollment rather than waiting for an open enrollment period; and 2) require SCHIP programs to issue
certificates of creditable coverage promoting portable health coverage by verifying the period of time
an individual was covered by a specific health insurance policy.
Enhancing the Faith-Based and Community Initiative
Compassion Capital Fund. The 2007 Budget

provides $100 million to enhance the efforts
of faith-based and community organizations
serving low-income individuals and families.
Specifically, grassroots organizations will
receive training and technical assistance, as
well as targeted capacity building to better
meet the needs of the poor by improving their
delivery of social services. Also, the Budget
supports the First Lady’s Helping America’s
Youth Initiative by funding the capacity-build-
ing activities of organizations with a focus on
preventing violence and helping youths at risk
of gang influence. The First Lady talks with students during a visit to the Church of the
Epiphany in Washington, D.C., as part of her Helping America’s Youth
Abstinence-Only Education. The 2007 Bud- Initiative.
get proposes $204 million for abstinence-only
education programs. This includes $137 million for the community-based abstinence education pro-
gram, of which up to $10 million will fund the national abstinence education campaign. It also in-
cludes $50 million in mandatory funding for the State-based abstinence grants program, $13 million
for the Adolescent Family Life Program, and $4.5 million for evaluations of abstinence programs.
The Budget supports increasing funding for abstinence-only education programs to $270 million by
2009, and to continue providing $4.5 million for abstinence program evaluations each year.
Access to Recovery. Access to Recovery Increased Need for Methamphetamine Treatment

represents an innovative approach to facili-
140
tating recovery from addiction by providing
Number of treatment admissions
individuals with vouchers for substance abuse 120 (in thousands) for persons aged 12 and over for
methamphetamine/amphetamine abuse.
treatment. These vouchers enable addicted
and recovering individuals to personally 100
choose from a range of effective treatment and 80
recovery support options, including faith-based
and community providers. The 2007 Budget 60
includes $98 million for grants to 20 States to
40
provide access to effective treatments. Within
this amount, $25 million will be targeted to help 20
individuals recover from methamphetamine
abuse. Methamphetamine addiction is a 0
1992 1995 1998 2001 2003
growing problem in the United States that Source: Substance Abuse and Mental Health Administration Treatment Episode Data Set.
inflicts serious harm on individuals, families,
and communities.
As part of the President’s efforts to expand choice and individual empowerment in Federal
assistance programs, the Administration will offer incentives to encourage States to provide a
wider array of innovative treatment options to those in need of recovery by voluntarily using their
Substance Abuse Block Grant funds for drug treatment vouchers. Building on the successful model
of the Access to Recovery program, distribution of block grant funds through a voucher system will
promote innovative drug and alcohol treatment and recovery programs, provide a wider array of
treatment provider options, and introduce into the system greater accountability and flexibility.
The Administration will also look for new opportunities to expand choice in other drug treatment
activities.
Mentoring Children of Prisoners. The 2007 Budget continues to fund the President’s initiative to
mentor the children of prisoners. The Budget provides $40 million to fund effective grantees.
Supporting Low-Income Families
Temporary Assistance for Needy Families (TANF). The DRA extends the successful TANF
program through September 2010 to provide assistance to families with children. Since the
reformed welfare program was created in 1996, the number of welfare recipients has continued
to decrease, and employment and earnings among the target population have increased. This is
reflected in the Program Assessment Rating Tool (PART) evaluation, where the program received
a rating of Moderately Effective, because it was able to demonstrate the program’s impact with
performance measures and independent evaluations. Reauthorization maintains the funding level,
strengthens work requirements to maximize self-sufficiency, and supports healthy marriage and
family formation.
Supporting Healthy Marriages and Responsible Fatherhood. The Budget provides $250 million for
healthy marriage initiatives, of which $100 million is for competitive matching grants to States for
marriage promotion. It also includes $150 million for healthy marriage and responsible fatherhood
from welfare reauthorization. Of this, up to $50 million supports the new strengthening fatherhood
initiative for the 25 million children living in homes without fathers, and up to $2 million is for the
new child welfare demonstration grants for Tribes. The remaining funds support demonstrations, re-
search, and technical assistance to promote family formation and healthy marriage. These programs
are funded by redirecting a portion of the savings from the elimination of the High Performance bonus
and the Reduction of the Out-of-Wedlock Birth Bonus.
Child Support Enforcement. The Child Support Enforcement program is designed to help low-
income and vulnerable families with children become self-sufficient by obtaining support from the
children’s non-custodial parents. Welfare reauthorization includes several of the Administration’s
proposals to more effectively collect and distribute child support to families. The Budget reproposes
additional provisions to further improve the program’s enforcement tools.
Enhancing Research. The Administration will explore how existing program administrative data,
such as the Federal Parent Locator Service, could be used to enhance the Government’s ability to
do more comprehensive research on the interactive effects of participation in Child Support; TANF;
Medicaid; and SCHIP, and the relationship of program participation to employment and wages. Un-
derstanding how employment patterns affect family well-being and Federal program participation
will help the Administration monitor progress toward the goal of family self-sufficiency.
Strengthening Programs for Children
Early Childhood (Good Start, Grow Smart). Because it is important for children to enter school
ready to learn, the Administration has worked to improve early childhood programs through the
Good Start, Grow Smart initiative. The goals of this initiative are:
• Strengthening Head Start;
• Working with States to improve early childhood learning; and
• Providing parents, teachers, and caregivers with information on early learning.
To further these goals, the Budget supports reauthorization of Head Start and provides $6.8 billion,
enough to serve more than 900,000 children.
Child Welfare Program Option. The 2007 Budget seeks legislation to introduce an option for all
States so they can choose an alternative system for foster care. Flexible financing will allow States to
design programs with a stronger emphasis on child-abuse prevention, family support, and increased
flexibility in providing services.
Prioritizing Resources
In 2006, the Congress terminated or reduced spending in a number of HHS programs that were
either duplicative, inefficient, or not producing results. This produced over $1 billion in savings.
The 2007 Budget builds upon this success by identifying additional low-performing or lower priority
programs that should be terminated or reduced. As the Administration strives to improve efficiency
and effectiveness, the Budget redirects resources to other public health and social service activities
that have greater accountability to improve the public health and welfare. Highlights are discussed
below.
Proposed Terminations and Reductions

(savings in millions)
2006 2007
Program Program
Enacted 1 Proposed 2
Terminations
Health Facilities Construction Community Services Block Grant ..................... 630
Congressional Earmarks ................................. 483 Preventive Health Block Grant ........................... 99
Healthy Community Access Program ............. 83 Urban Indian Health Program ............................ 33
Youth Media Campaign ........................................ 59 Community Economic Development ................ 27
Early Learning Opportunities Fund .................. 36 Emergency Medical Services for Children .... 20
National Youth Sports ........................................... 18 Universal Newborn Screening ........................... 10
Real Choice Systems Change Grants ............ 15 Traumatic Brain Injury ........................................... 9
State Planning Grant Program .......................... 11 Rural Community Facilities .................................. 7
Community Food and Nutrition .......................... 7 Job Opportunities for Low-Income
Direct Service Worker Delivery Grants ........... 3 Individuals ............................................................. 6
Trauma-Emergency Medical Services ............ 3
Reductions
Health Professions ................................................. 155 Social Services Block Grant ............................... 500
CDC Congressional Project Earmarks ........... 60 Children’s Hospital’s Graduate Medical
Programs of Regional and National Education Payments ......................................... 198
Significance .......................................................... 40 Health Professions ................................................. 136
Preventive Health Block Grant ........................... 20 Rural Health .............................................................. 133
Programs of Regional and National
Significance .......................................................... 71
CDC Administrative Expenses ........................... 30
Poison Control Centers ......................................... 10
1
Difference from 2005.
2
Difference from 2006.
Community Services Block Grant. The Community Services Block Grant (CSBG) provides funds
through States to Community Action Agencies to fund social services to reduce poverty and increase
self-sufficiency. The Budget eliminates CSBG because it lacks national performance measures and
does not award grants on a competitive basis. In addition, key CSBG services targeting employment,
housing, nutrition, and health care are also provided by other Federal programs. This is supported
by findings from the PART evaluation, in which the program received a rating of Results Not Demon-
strated.
Social Services Block Grant. The Budget reduces 2007 Social Services Block Grant (SSBG) funding
by $500 million. The 2005 PART identified several weaknesses of the block grant. While SSBG
provides State flexibility, as the Congress intended, it fails to ensure that funds are directed towards
activities that achieve results. Because SSBG is a funding stream, rather than a program, there are
no assessments of its effectiveness. In addition, the purposes of SSBG overlap substantially with
other categorical and flexible Federal social service programs.
Preventive Health Block Grant. The 2007 Budget proposes the elimination of the Preventive Health
Block Grant at CDC. The Budget proposes to increase the flexibility of CDC’s existing State categor-
ical grants by allowing a portion of these funds to support primary prevention and health services.
This added flexibility maintains the accountability of CDC State categorical grants while limiting
redundancy, and gives States the tools they need to address public health concerns.
Health Professions. The Budget reduces unnecessary subsidies for health professions training. The
programs were created 40 years ago in response to an anticipated national shortage of physicians that
does not exist today. An assessment of the program found it was ineffective. No comprehensive eval-
uations link Health Professions grants to changes in supply, distribution, or minority representation
of physicians and other health professionals. The Budget improves access to health care by focusing
investments where there is a greater need, such as Health Centers and the supply of nurses.
Rationalizing Medicare Financing
Strengthening Medicare’s Long-Term

Medicare Growing as Share of GDP
Financial Security. Medicare, which repre-
14%
Part A sents about two and a half percent of the
12% economy today, is projected to grow to about
Part B
12 percent of the economy by 2070. The
10% Part D Medicare Trustees estimate that the Medicare
8% Total
program will require $29.9 trillion over 75
years from the Federal budget above and
6% beyond dedicated revenues from the public.
This rapid growth in expenditures would
4%
place a substantial burden on future budgets
2% and the economy. Reducing program growth
while continuing to promote high-quality care
0 is critical to minimizing Medicare’s burden
2004 2015 2026 2037 2048 2059 2070 2079
on the economy and ensuring the program’s
Source: 2005 Medicare Trustees Report.
sustainability and effectiveness for future
generations.
The Administration has pursued a steady course toward Medicare reform and modernization. The
MMA brought Medicare into the 21st Century by adding a new drug benefit, bringing Medicare’s
benefits up to date with a much greater focus on preventive care. The MMA also took a first step
toward improving Medicare’s sustainability by requiring the Medicare Trustees’ Report to include a
new, comprehensive fiscal analysis of the program’s financing, and issue a warning if this analysis
projects Medicare’s dedicated revenues to fall below adequate levels.
The President’s Budget proposes to build on these steps toward a modern, sustainable Medicare
program by requiring further action should the share of Medicare spending funded by dedicated
revenues fall below adequate levels. If the Congress failed to act on recommendations to reach more
sustainable financing levels, a modest slowdown in the rate of growth would be implemented through
a four-tenths of one percent reduction to all payments, similar to a reduction in the market basket
update. The reduction would grow by four-tenths of one percent every year that shortfalls continue to
occur. If the Congress preferred to enact more specific sustainability reforms in lieu of these modest
payment trends, expedited procedures would facilitate consideration.
The Deficit Reduction Act and the MMA are important steps in the process of improving Medicare’s
sustainability. The Budget includes a number of proposals that build upon this foundation to take
important further steps to enhance the long-term sustainability of the Medicare program. The 2007
Budget recognizes that accomplishing the goal of financial solvency for the Medicare program will
require a series of incremental reforms that can be achieved most smoothly and effectively if they
are implemented over many years.
Modernizing Medicare Financing. The MMA began to rationalize and strengthen financing of the
Medicare program by limiting the growth in subsidies for higher-income beneficiaries who are most
able to contribute to the costs of their coverage. This modernization gave these beneficiaries increased
ownership of and greater responsibility for their health care needs, while preserving Medicare’s ca-
pacity to provide more support for beneficiaries with more limited means. In order to strengthen the
program’s long-term fiscal sustainability, the Budget proposes to broaden the application of reduced
subsidies for higher-income beneficiaries.
Fostering Productivity. Individuals enrolled in Medicare today benefit from innovations that en-
able them to have improved quality of life as they age. Many of these changes in the delivery of care
and advances in technology, as well as other management improvements, also enhance the health
care system by improving productivity. The Budget proposes to consider these advances in mak-
ing productivity adjustments to provider updates that allow Medicare to deliver high-quality care
and encourage efficiency. Prospective payments reward those providers who reduce their costs and
streamline their operations. Similarly, a productivity adjustment to inflation updates encourages
those facilities to improve efficiency.
Improving the Ryan White CARE Act’s Effectiveness through Reform
Much has changed in the epidemiology and medical management of HIV/AIDS since the Ryan
White CARE Act was enacted in 1990. Fifteen years ago, those diagnosed with the disease had little
hope of survival; patients today are living longer and healthier lives. The epidemiology of the disease
has also changed as minorities now make up the majority of new infections and, according to CDC,
many of these individuals have insufficient access to health care and the antiretroviral medications
they need.
The President has called for reauthorization of the Ryan White CARE Act to make the Act more
responsive to the HIV/AIDS epidemic of today, especially for African-American and other minority
communities who disproportionately suffer from the disease. The President’s principles to guide
reauthorization include:
• Focusing Federal resources on life-extending care, including the provision of life-saving anti-
retroviral medications;
• Ensuring greater flexibility in distribution of Federal resources and targeting funding to those
areas, such as minority communities, that are experiencing the greatest need; and
• Ensuring that recipients of funds can show that progress is being made and that the program
is achieving results.
Enhancing the National Institutes of Health
NIH will invest $28.4 billion to support, conduct,

and foster biomedical research in 2007, embarking
on several new initiatives to contribute more effec-
tively to the Nation’s strong biomedical research
foundation and to prepare for the future.
Accelerating Discovery. Initiated in 2003, the
NIH Roadmap for Medical Research speeds
research discoveries from the bench to the bedside
by directing resources to high-priority, emerging
areas to encourage innovation and scientific
breakthroughs. The Roadmap charts new
pathways to discovery, designs interdisciplinary
scientific research teams, and re-engineers the
clinical research enterprise. The Budget also DNA Double Helix, the genetic basis of all life.
supports a new Genes, Environment, and Health
Initiative with $68 million to accelerate discovery of the major genetic factors for diseases that have
a substantial public health impact. Additionally, the initiative will accelerate the development of
technology, which will help make clear the connection between genes and the environment on human
health. The request includes nearly $160 million to support activities related to the advanced
development of biodefense countermeasures and $35 million for pandemic influenza clinical trials
and studies.
Enhancing Management and Oversight. NIH will continue the establishment and staffing of the
Office of Portfolio Analysis and Strategic Initiatives (OPASI). In 2007, OPASI will serve as the center
of NIH portfolio management and coordination activities. OPASI will fill the crucial role of contin-
ually evaluating the benefits and impacts of NIH research investments, stimulating investments
in research involving multiple Institutes and Centers, and reviewing the vast portfolio of research
activities across NIH.
Developing Decision Support Tools. Also in 2007, NIH will continue the development of a knowledge
management system to assist with the oversight of its portfolio. This knowledge management system
will allow NIH to improve the reliability and consistency of reporting on NIH research investments,
increase transparency, and speed the process of collecting and querying grant data.
Targeting Children’s Hospital Payments
The Budget reforms Federal financing for Children’s Hospitals Graduate Medical Education pay-
ments. Federal funds currently go to free-standing children’s hospitals without regard to which hos-
pitals most need the Federal assistance. The reformed payments will focus on those hospitals with
the greatest financial need that treat the largest number of uninsured patients and train the greatest
number of physicians.
Reforming the Community Mental Health Services Block Grant
The President’s New Freedom Commission on Mental Health found that mental health services in
the United States are fragmented and in disarray. The Commission put forth an agenda to transform
mental health care. The Budget helps carry out that agenda by reforming the Community Mental
Health Services Block Grant. The block grant allocates resources to every State for planning and ser-
vices and currently offers little evidence of impact on mental health care. Under the reform proposal,
States will use these funds to transform their mental health care systems and will track and report
on the results of these investments.
Improving the Health Status of American Indians and Alaska Natives
Mortality Rates for American Indians and For over 50 years, the Indian Health Service
Alaska Natives have Declined (IHS) has delivered health services to Amer-
35 ican Indians and Alaska Natives. Through
direct primary care, referrals for specialty
30 1972-1974 1999-2001
care, and public health services, IHS has
25
substantially improved the health status of
this population. Since 1972, the average death
20 rate from all causes for American Indians and
Alaska Natives has declined by 26 percent
15
overall, and as the accompanying chart shows,
10 the reduction is even greater in many disease
areas. Along with these gains come new
5
challenges. For example, a diabetes epidemic
0 among American Indians and Alaska Natives
Cervical Gastrointestinal Infant Maternal
Cancer Disease Tuberculosis Mortality Mortality threatens to slow or even reverse some of this
progress. During this same period, the death
rate from diabetes has increased by 64 percent. American Indians and Alaska Natives are now
three times more likely to be diagnosed with diabetes than other Americans.
In response to this threat, IHS has been increasing activities related to the prevention and man-
agement of diabetes and set several performance goals to measure progress. IHS has increased the
percentage of American Indians and Alaska Natives with diabetes that have their blood sugar and
blood pressure under control, and has improved screening rates for other complications associated
with diabetes. Diabetics who control blood sugar and blood pressure and obtain recommended screen-
ings experience fewer debilitating and costly complications from the disease. IHS is continuing to
improve surveillance and data collection in order to direct and manage resources to most effectively
address the growing problem of diabetes and further improve the health of American Indians and
Alaska Natives.
Reducing Drug Use
Drug use by the Nation’s youth puts their

Youth Drug Use is Decreasing
health and future at risk and strains families,
schools, and communities. Between 2002 and 12
2004, drug use by the Nation’s youth (between
Percent of youth aged
the ages of 12 and 17) fell by about 200,000, a 12-17 who used an illicit
drug in the past month
drop of nine percent in the number of teenagers
using illicit drugs. The rate of drug use among
this age group fell from 11.6 percent in 2002 11
to 10.6 percent in 2004. The Administration is
building on this progress to discourage a new
generation of youth from taking these risks.
Valid and reliable data are central to assessing
the impact of drug control programs. The
10
2007 Budget strengthens data collection efforts 2002 2003 2004
critical to support drug policy and further Source: National Survey on Drug Use and Health.
reduce drug use.
Modernizing FDA User Fees Strategies
Since the authorization of the Prescription Drug User Fee Act in 1992, the collection of fees has
been critical in leading to performance improvement in drug review. The Act has allowed FDA to
shorten the length of new drug reviews while maintaining the safety of newly improved drugs and
devices. Fees for reviews have been so successful in improving FDA performance that they have
also been implemented for medical devices and animal drugs in recent years. These fees also help
ensure that industries that benefit from rigorous FDA oversight share with the U.S. taxpayer the
responsibility for supporting this oversight.
The Budget proposes to expand the current drug, animal drug, and medical devices export certifi-
cation fee to include food and animal feed. These certificates enhance the global competitiveness of
American food and feed producers by ensuring that the products meet certain requirements of law.
The President’s Budget eliminates the current preferential treatment of the food and feed industry.
The 2007 Budget also proposes new fees for re-inspections. FDA is statutorily required to inspect
manufacturing establishments on a regular basis. To further encourage industry improvement, fees
would be assessed for repeat inspections that are needed as a result of violations identified on the
first inspection.
Improving Quality of Care for Medicare Beneficiaries
Encouraging Provider Quality. The Admin-

istration has undertaken initiatives to improve
care, reduce errors, and improve efficiency for
Medicare beneficiaries by holding providers
accountable for quality and supporting care
improvements that enhance quality while
improving efficiency. The Medicare website
now displays quality data that allow consumers
to make informed choices by comparing the
performances of hospitals, skilled nursing
facilities, home health agencies, and dialysis
facilities. Recently, Medicare has expanded
these efforts to include a voluntary reporting
Consumers can evaluate hospital efforts to prevent surgical infections
system for physicians to provide information by viewing quality measures at CMS’ Hospital Compare website.
on the quality of beneficiary care, as well as
systems for widespread reporting on hospital patient satisfaction and surgical results.
The Administration supports greater availability of reliable and consistent quality information
through incentives for quality reporting that do not increase Medicare costs. CMS is also working
with providers to identify and test budget-neutral incentives that will stimulate Medicare providers
to improve performance on quality and efficiency measures.
The Administration supports provider payment reforms that would encourage quality and effi-
ciency, and discourage increased complications and costs. Building on provisions in the DRA, CMS
will work collaboratively with private and public organizations to implement reforms that support
higher-quality care and improved efficiency. Many of the opportunities to improve quality and effi-
ciency involve post-acute care. Medicare often pays very different amounts for post-acute care for
beneficiaries with similar needs, and often pays more when preventable complications leading to
readmissions and other health problems occur in the post-acute system. The Budget proposes to
build on the Administration’s quality initiatives by ensuring that patients are served in the most
medically appropriate and efficient setting for high-quality post-acute care.
An important component of these reforms is consideration of better ways to encourage more ef-
ficient and high quality physician services. The Administration supports reforms in physician pay-
ment that do not increase costs for taxpayers or for Medicare and its beneficiaries, such as differential
updates initially for physicians that report on quality measures and later for physicians that achieve
efficient and high-quality care.
Promoting Competition. The MMA included provisions to incorporate market competition into
purchasing medical items needed to treat beneficiaries. Competition is an important approach to
improving care for beneficiaries by enhancing quality and lowering costs. The Administration will
implement a competitive bidding program in July 2006 to enable physicians to obtain certain drugs
used in their offices at lower prices. The Administration will expand the use of additional competi-
tive bidding programs in 2007, for example, into the purchase of medical supplies and equipment. In
particular, the Budget proposes to integrate competitive bidding into payment of clinical laboratory
services.
Advancing Medicare Contracting Reform
The 1965 Medicare Act mandated that Medicare use private insurance companies to process claims.
Since that time, Medicare has paid the contractors based on cost with little discretion of payment for
performance or efficiency. This administrative structure is not keeping pace with the evolving health
care delivery system. The MMA requires that CMS transition to competitive contracts by 2011. The
Administration is accelerating implementation with completion targeted in 2009. It removes the re-
strictions that have prevented full and open competition for the fee-for-service workload. As a result,
Medicare will consolidate from the current arrangement of about 40 contractors for processing Parts
A and B fee-for-service claims to 15 single or multi-State regions. The agency will award one con-
tract for each region that covers claims processing services and recompete these contracts every five
years. CMS will tie payments to accuracy and efficiency of contractors’ claims processing services. In
addition, the Administration will work to improve efficiency and quality, and better target resources
in the Quality Improvement Organization program.
Continuing Medicare Program Integrity
Medicare program integrity efforts have yielded savings from the recovery of erroneous overpay-
ments and the collection of criminal fines and penalties. The 2007 Budget continues this effort with
$1.1 billion from the Health Care Fraud and Abuse Control account to fight improper Medicare pay-
ments. The Budget requests $118 million for efforts to protect the new Medicare prescription drug
benefit and the MA program against fraud, waste, and error, as well as reduce errors in Medicaid.
These funds are part of a Government-wide proposal to fund program integrity activities through a
discretionary cap adjustment. In addition, the Budget proposes to encourage Medicare providers to
collect payments from beneficiaries who do not meet their obligations to contribute to the cost of their
medical care.
Strengthening Federal Health Benefit Payments
Private health insurance payers supplement coverage for some beneficiaries enrolled in Federal
health benefit programs. In certain cases, due to lack of accurate and complete information about
such private coverage, the Federal Government mistakenly pays too much or too little for a benefi-
ciary’s care. To help ensure appropriate payments and assist in recouping mistaken payments, the
Budget proposes to establish a data clearinghouse that would work to determine whether a private
insurance company or the Government should pay for a beneficiary’s health benefits. Federal health
programs benefiting from this clearinghouse would include Medicare, the Department of Veterans
Affairs, the Department of Defense’s Tricare program, and the Federal Employees Health Benefits
Program, among others.
Reforming Medicaid Financing and Services
Medicaid is an open-ended Federal-State partnership with a shared financing structure. In certain

circumstances, opportunities exist for States to draw down Federal matching funds inappropriately,
which threaten this joint relationship and the financial stability of the Medicaid program. The 2007
Budget proposes reforms that enhance past efforts to create service efficiencies and to assure the
fiscal integrity of Medicaid and SCHIP.
Reforming Payments to Government Providers. The Administration proposes to improve further
the integrity of the Medicaid matching rate system by proposing steps to curb financing arrange-
ments used by a number of States to avoid the legally determined State matching fund requirements.
Through various mechanisms, Federal funds are returned from providers back to the State and “recy-
cled” to draw additional Federal dollars. The Budget proposes to build on CMS’ efforts to identify and
recover diverted payments that are not used for their intended purposes. The Budget also proposes
to limit Federal reimbursement for Government providers to no more than cost. This proposal would
curb excessive payments and still preserve a State’s ability to pay reasonable rates to Government
providers.
Reforming Provider Taxes. Under certain conditions, States may use the proceeds of taxes collected
from a certain class of health providers to help finance the State’s share of Medicaid expenses. Under
current rules, the tax cannot exceed six percent of revenues and must be applied uniformly across
all health care providers in the same class (e.g., all hospitals). Although current law requires States
to tax all providers within a class—regardless of how many Medicaid patients they serve—statute
allows States to tax only Medicaid managed care organizations. The DRA amends the statute to
require States to tax all managed care organizations uniformly.
In addition to the reform included in the DRA that treats managed care organizations the same as
other classes of health care providers with respect to provider tax requirements, HHS will publish a
regulation that phases down the allowable tax rate from six percent to three percent. HHS will also
take necessary administrative steps to clarify and codify existing policies used to determine whether
provider taxes comply with statute including revising existing regulations.
Third Party Liability. By statute, Medicaid is the payer of last resort and should only be billed
after all other liable parties have reimbursed their share of the claim. Statute and regulation require
States to ensure that Medicaid recipients avail themselves of all other resources—legally responsible
third parties—to pay for their medical needs before using Medicaid. The 2007 Budget includes a
package of proposals designed to enhance existing third party liability policy.
Additionally, through waivers of the so-called cost avoidance methodology, HHS allows States to
“pay and chase,” that is, to pay a claim when it is received initially and then to seek reimbursement
from liable parties. The Administration plans, through administrative action, to require States to up-
hold the cost avoidance standard for pharmacy claims, thereby eliminating the pay and chase option.
Service Reforms. The service reform included in the DRA tightens the definition of targeted case
management services allowable for reimbursement under Medicaid. The 2007 Budget includes a
legislative proposal to align the administrative matching rate for targeted case management services
to 50 percent, consistent with Federal reimbursement for case management across Federal programs.
In addition, the Budget proposes a package of initiatives designed to address service areas sus-
ceptible to abuse and to target Medicaid dollars more efficiently. To ensure proper use of Federal
funds, the Administration plans to clarify through regulation the statutory Disproportionate Share
Hospital program provisions and allowable services that can be claimed as rehabilitation services.
In addition, the Budget plans to prohibit Federal Medicaid reimbursement for school-based admin-
istration or transportation costs established under the Individuals with Disabilities Education Act
(IDEA); these are costs not traditionally paid for through Medicaid. This plan would maintain the
original intent of IDEA while insuring appropriate use of Federal funds.
Cost Allocation. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996
capped Federal funding for administrative costs under TANF and eliminated the open-ended match-
ing structure for administrative costs in Aid to Families with Dependent Children (AFDC). Under
the AFDC structure, States generally allocated most of the common eligibility determination costs
for AFDC, Medicaid, and Food Stamps to AFDC/TANF. As a result, administrative costs associated
with Medicaid were inappropriately included in the TANF block grant. This proposal would reduce
Medicaid administrative funding to reflect costs covered by the TANF block grant.
Medicaid and SCHIP Financial Management. Health Care Fraud and Abuse account entities will
develop a comprehensive plan for Medicaid and SCHIP program integrity. HHS will continue activi-
ties in 2007 to measure improper payments in Medicaid and SCHIP and begin reporting error rates
for certain components of Medicaid and SCHIP in the 2007 Performance and Accountability Report.
Medicaid Prescription Drugs. The DRA

makes several changes to the way prescription
drugs are paid for in Medicaid. First, it amends
the Federal upper payment limit to apply to
more drugs. Second, the DRA maximizes rebate
collections for authorized generics and drugs
administered in a physician’s office. Third,
it extends 340B drug discounts to certain
children’s hospitals. The 2007 Budget proposes
several other changes to prescription drug
coverage and payment that would:
• Restructure Pharmacy Reimbursement.
The HHS Inspector General has doc- The Budget proposes to reduce overpayments for prescription drugs.
umented substantial overpayment for
pharmacy services in recent years. The 2007 Budget proposes building on the Federal upper
payment limit calculation changes in the DRA to further reduce these overpayments.
• Amend the Medicaid Drug Rebate Formula to Remove Best Price in a Budget Neutral Manner.
The Budget reproposes a Medicaid drug rebate change from the 2006 Budget. Drug manufac-
turers pay rebates to States to have their drugs covered by Medicaid. Part of the rebate formula
is the lowest private market price, referred to as best price. Best price effectively acts as a price
floor, interfering with the competitive marketplace and preventing manufacturers from negoti-
ating better discounts with large purchasers. Replacing the current rebate with a budget neutral
flat rebate will allow private purchasers to negotiate lower drug prices, while creating neither
savings nor costs for the Federal Government.
• Allow States to Use Managed Formularies. The 2007 Budget proposes allowing States to use
managed formularies, which are a common cost control tool for private insurers. With managed
formularies, States will have greater control over drug coverage and greater leverage to negoti-
ate discounts with drug manufacturers.
The table that follows provides an update on HHS’ implementation of the President’s Management
Budget and
Integration
Status
Progress
In support of the Human Capital initiative, HHS developed a Department-wide performance appraisal system
that mirrors its SES system, thus linking all employees to program goals and objectives. Initial roll-out of this
system commences in the beginning of calendar year 2006. HHS estimates net savings of $400 million over
the next several years for its competitive sourcing competitions that were conducted in 2003, 2004, and 2005.
HHS issued its annual Performance and Accountability Report on the November 15, 2005 due date, and for the
seventh year in a row, HHS’ auditors issued an unqualified or clean audit opinion. In E-Gov, HHS leads the
development of Federal health data standards, which will pave the way for consensus national standards to
support implementation of electronic health records by hospitals and doctors nationwide.
Broadening Health Insurance Coverage through State Initiatives
HHS collects accurate and timely data on the Faith-Based and Community Initiative grantees. In addition, HHS
is working to implement outcome based evaluations of its main programs—Compassion Capital Fund, Access
to Recovery, and Mentoring Children of Prisoners.
HHS has successfully developed a real property asset management plan; compiled an inventory of owned,
leased, and otherwise managed properties; and established performance measures that are consistent with the
Federal Real Property Council’s guidance.
HHS’ annual Performance and Accountability Report includes an annual estimated error rate for Medicare that
accounts for nearly 50 percent of improper payments that have been reported Government-wide. Due to
improvements in the stewardship of Medicare funds, the error rate dropped from 10.1 percent in 2004 to 5.2
percent in 2005, a reduction of $9.6 billion. HHS also reduced improper payments in Head Start from 3.9 percent
in 2004 to 1.6 percent in 2005, a reduction of $145 million, and Foster Care from 10.3 percent in 2004 to 8.6
percent in 2005, a reduction of $31 million. HHS is also working to expand the number of programs reporting
estimated improper payments and improve the accuracy of estimates.
HIFA demonstrations, at full implementation, could result in approximately 825,000 individuals receiving
health coverage through Medicaid and SCHIP. CMS continues to approve HIFA demonstrations and use its
administrative flexibility, in conjunction with States, to increase the number of people who have health insurance.
Department of Health and Human Services

2005 Estimate
Actual 2006 2007
Spending
Food and Drug Administration .......................................................................... 1,427 1,475 1,545
Program level (non-add) ................................................................................ 1,801 1,856 1,947
Health Resources and Services Administration 1 .................................... 7,288 6,555 6,220
Indian Health Service ........................................................................................... 2,985 3,045 3,170
Centers for Disease Control and Prevention 1 ........................................... 6,152 5,976 5,809
National Institutes of Health 1 ........................................................................... 28,393 28,410 28,428
Substance Abuse and Mental Health Services Administration ............ 3,268 3,205 3,134
Agency for Healthcare Research and Quality ............................................. — — —
Program level (non-add) ................................................................................ 319 319 319
Centers for Medicare and Medicaid Services 2 ......................................... 2,666 3,080 3,115
MedPAC and GDM/OCR Trust Funds ............................................................ 19 19 19
Discretionary HCFAC ........................................................................................... — — 118
Administration for Children and Families ...................................................... 13,545 13,704 12,287
Administration on Aging ...................................................................................... 1,393 1,363 1,335
Office of the Secretary ......................................................................................... 404 380 396
Health Information Technology ......................................................................... — 42 88
Office of Medicare Appeals ................................................................................ 58 59 74
Public Health and Social Services Emergency Fund 1 ........................... 142 53 160
Program Support Center: Medicare eligible retiree accrual .................. — 34 36
Office of the Inspector General ........................................................................ 40 39 44
Subtotal, Discretionary budget authority ........................................................... 67,780 67,439 65,978
Estimated future emergency funding for pandemic influenza

preparedness ...................................................................................................... — — 2,300
Total, Discretionary budget authority .................................................................. 67,780 67,439 68,278
Memorandum: Budget authority from enacted supplementals ................. 408 3,410 —
Total, Discretionary outlays .................................................................................... 66,536 67,977 70,635

Department of Health and Human Services—Continued

2005 Estimate
Actual 2006 2007
Mandatory Outlays:
Medicare:
Existing law ......................................................................................................... 294,334 337,922 389,502
Legislative proposal ......................................................................................... — — 2,453
Medicaid/SCHIP:
Existing law ......................................................................................................... 186,849 198,109 204,689
Legislative proposal ......................................................................................... — — 546
All other programs:
Existing law ......................................................................................................... 32,232 35,651 34,642
Total, Mandatory outlays ......................................................................................... 513,415 571,682 627,315
Total, Outlays ............................................................................................................... 579,951 639,659 697,950

1
For comparability, the 2005 Actual reflects Bioterrorism funds in the individual operating divisions, instead of the Public Health and Social
Services Emergency Fund.
2
Amounts appropriated to the Social Security Administration (SSA) from the Hospital Insurance and Supplementary Medical Insurance accounts
are included in the corresponding table in the SSA chapter.
DEPARTMENT OF HOMELAND SECURITY

• Has more than tripled spending devoted to non-defense homeland security;
• Created the Department of Homeland Security by merging 22 separate agencies and
programs into a cohesive department;
• Restructured the agencies that handle immigration and border security issues.
Customs and Border Protection protects the border with Port of Entry inspectors
and Border Patrol agents along the border. Immigration and Customs Enforcement
enforces immigration laws and detains those aliens that are in the country illegally.
U.S. Citizenship and Immigration Services administers benefits and services to all
immigrant and non-immigrant visitors of the United States;
• Established the Transportation Security Administration to improve aviation security
and other modes of transportation security nationwide. TSA hired a screener
workforce and deployed sufficient technology to electronically screen 100 percent
of passenger and checked baggage;
• Created a Domestic Nuclear Detection Office to detect, identify, and track down the
origins of nuclear and radiological materials; and
• Provided nearly $18 billion through the Department for State, local, and tribal
governments to enhance their preparedness for a range of hazards, including $13.8
billion for terrorism and other catastrophic events.

• Increases spending on non-defense homeland security activities by 8 percent
Government-wide compared to 2006;
• The 2007 programmatic Budget request for the Department is $35.6 billion, an
increase of $2.3 billion (7 percent) over 2006;
• Provides $10.5 billion for Customs and Border Protection and Immigration and
Customs Enforcement to improve border security and immigration enforcement,
adding 1,500 Border Patrol agents (an increase of 12 percent over 2006) and more
than 6,000 detention beds (an increase of 32 percent over 2006), and lays the
foundation for immigration reform; and
• Increases funding for Urban Area Security Grants for those metropolitan regions
most at risk due to their concentrations of citizens and key assets and continues
the Targeted Infrastructure Protection grants for securing transportation assets and
other critical infrastructure.
131
132 DEPARTMENT OF HOMELAND SECURITY
Government-Wide Non-Defense Homeland security requires a coordinated

Homeland Security Spending ($41.6 Billion) national commitment with cooperation among
all levels of government, the private sector,
and individual citizens to be successful. The
Department of Federal Government continues funding this
Homeland Security high priority in 2007, providing $3.2 billion
$27.8 billion
(67%) in non-defense homeland security spending
over 2006, a more than eight-percent increase.
This funding supports the homeland security
activities of 32 Government agencies in areas
Other Agencies such as improving nuclear detection and
$13.8 billion defense; safeguarding critical infrastructure;
(33%)
establishing interoperability standards for first
responders; and improving terrorism informa-
tion sharing among all levels of government.
Strengthening homeland security by more
effectively leveraging the vast expertise and resources within the Federal Government requires
continued cooperation and coordination among agencies. The establishment of the Department
of Homeland Security (DHS) has resulted in the centralization of a significant portion of the
Government’s homeland security resources. In 2007, homeland security programmatic spending
within DHS will increase by $2.3 billion, or 9 percent.
The President’s 2007 Budget is targeted to strengthening the DHS overall mission of safeguarding
the Nation and its citizenry. The Budget will enhance both the security of the Nation’s borders and
improve the enforcement of our immigration laws. The Budget improves targeting of the Federal
Emergency Management Agency’s (FEMA’s) Federal preparedness and planning funding, and up-
grades its response activities funded through the Disaster Relief Fund. The President’s 2007 Budget
also supports significant management improvements, including implementing DHS’ Second Stage
Review, a systematic evaluation and restructuring of the Department’s operations and programs.
Border Security and Immigration Reform
Securing Our Borders. The Administration is dedicated to comprehensive immigration reform by

providing our Nation with increased border security, while maintaining our Nation’s tradition of wel-
coming those immigrants who enter legally. For immigration reform to succeed, it must be based on
three pillars: strengthening security at the borders; building a robust interior enforcement program
to remove those here illegally; and implementing a Temporary Worker Program (TWP) to provide a
legal channel for employers to hire foreign workers. The Administration’s plan is to catch all migrants
attempting to enter the country illegally, decrease crime rates along the border, allow employers to
hire legal foreign workers when no American is willing to take the job, and restore public confidence
in the Federal Government’s ability to enforce immigration laws.
Since 2001, the Administration and the Congress have increased funding for border security by 93
percent and immigration enforcement by 90 percent. The Administration continues to deploy new
technology—from unmanned aircraft to ground sensors to infrared cameras—and has eliminated the
barriers that have prevented the completion of a 14-mile border fence running along the San Diego,
California, border.
The 2007 Budget provides more than $3 billion dollars for the Border Patrol (an increase of 29
percent over 2006) including funding for 1,500 new agents. It includes $100 million dollars for new
technology, including portable imaging machines, cameras, sensors, and automated targeting sys-
tems that focus on high-risk travelers and goods. The Budget will help invest in and build smarter
and more secure borders.
To help send more illegal immigrants back

to their home countries, the Budget provides
$2.1 billion to support detention and removal
efforts. Currently, all non-criminal Mexican
illegal aliens apprehended are returned to Mexico
immediately. Expedited removal applies to illegal
non-Mexican aliens who are apprehended near our
southwestern border—or who are stopped shortly
after entering the United States without valid
documents. These aliens will be detained and then
removed to their home countries as quickly as
possible. However, when no bed space is available,
these non-Mexican aliens are released and ordered
to appear in court at a future date. This practice
is known as “catch and release.”
Secretary Chertoff’s goal is to end the practice of
“catch and release” and detain and remove these
aliens as quickly as possible from the country. To
meet this commitment, the Budget provides fund-
ing to add more than 6,000 new detention beds to Border Patrol BORSTAR team members work together with pilots
hold illegal immigrants while they await removal. from an air unit to evacuate a patient to safety.
This will bring the total number of beds available

to approximately 27,500. DHS will also improve the processing and deportation of aliens to cut the
detention time for aliens approximately in half—from 30 days to 15 days.
To improve coordination and provide

assistance to State and local law enforcement
officials, the Budget includes $4 million for ad-
ditional personnel for DHS’ Law Enforcement
Support Center that checks and validates
immigration status inquiries for State/local
law enforcement. In addition, the Budget
will expand a successful Federal/State part-
nership—the 287(g) program, which provides
State/local law enforcement officials with
guidance and training in immigration law. The
program helps State/local law enforcement
agencies identify aliens who are in prison or
applying for driver’s licenses with fraudulent
documents. It also assists in State investiga-
Immigration and Customs Enforcement agents make an arrest at a port tions and aids in the detention and removal of
of entry. those here illegally. Funding is also included
to increase the number of fugitive operation
teams that identify, locate, and apprehend
immigration fugitives ($60 million), and to hire new compliance enforcement agents ($10 million) to
ensure that visitors who enter our country legally also leave the country when their visas expire.
Temporary Worker Program. As America improves and expands efforts to secure the borders, we
must also recognize that enforcement cannot work unless it is part of a comprehensive immigration
reform program. The U.S. economy has legitimate needs for foreign workers and the best way to
fill that demand is with a Temporary Worker Program (TWP). The Budget includes $247 million to
support implementation of the President’s proposal for TWP.
Worksite enforcement will be a critical part of any TWP initiative. To deal with employers who
violate our immigration laws, the 2007 Budget includes $42 million for additional agents to increase
worksite enforcement. As we crack down on employers who flout our laws, and remove those workers
who are here illegally, we must also give honest employers the tools they need to verify the legal
status of their employees and identify fake documents. By reducing pressure on our borders and
offering a legal path for those looking to do an honest day’s work, we will be able to concentrate on
those who violate our laws and pose the greatest risk to our security. To make it easier for employers
to verify the employment eligibility of workers, the Budget provides $111 million to improve and
expand the existing employment eligibility verification system known as the Basic Pilot Program.
Immigration Processing. The Budget provides an additional $112 million to automate U.S. Citizen-
ship and Immigration Services (USCIS) operations. As the Federal agency responsible for reviewing
and granting immigration-related benefits, including temporary employment authorization, USCIS
plays an important role in the implementation of a TWP. In 2006, USCIS will begin to automate the
processing of immigration applications and will make it easier and faster for legal immigrants to file
applications and receive benefits.
The close of 2006 will mark the end of the President’s five-year goal and $560 million initiative to
achieve a six-month processing standard for immigration applications. At the end of 2005, the back-
log had fallen by over 2.5 million cases (from a high of 3.8 million in January 2004). Automation of
operations will maintain and improve upon this standard and prevent new backlogs from developing.
Screening at the Borders. US-VISIT is

central to the Federal Government’s screening
of international visitors. US-VISIT expedites
the clearance of legal and safe travelers, while
focusing on blocking those intending to do us
harm. US-VISIT currently collects two digital
fingerprints and a digital photograph. The
ability to screen visitors against criminal and
terrorist information, as well as confirming
the identity of travelers has improved border
security. However, in the future, to improve
accuracy in the identification of those entering
the country, first-time visitors will be enrolled
American soldiers take the oath of citizenship at a military naturalization
ceremony.
in the program by submitting 10 fingerprints.
DHS, in conjunction with the Departments of
State and Justice, will implement this multi-year screening project and the 2007 Budget includes:
a $60 million increase for DHS for 10 print deployment and for interoperability with the FBI’s
fingerprint system, the Integrated Automated Fingerprint Identification System (IAFIS); a $71
million increase for the FBI to upgrade IAFIS; and a $10 million increase for the Department of
State to begin implementing these new security measures.
Training Federal Law Enforcement Professionals. The Federal Law Enforcement Training Center
continues to provide high-quality basic and advanced training to the men and women of its over 80
partner organizations across the Federal Government. The 2007 Budget includes $3 million for a
new hands-on counterterrorism training facility that will simulate a number of real world venues
that law enforcement officers and agents will likely encounter during their careers.
The Federal Law Enforcement Training Accreditation (FLETA) process will continue to certify law
enforcement training programs and academies. In September 2005, FLETA accredited its first two
programs, in the Departments of State and Energy, and expects to accredit several more in the near
future.
Responding to Natural Disasters
Hurricane Katrina will go down as one of the

worst natural disasters in our Nation’s history.
Katrina devastated an area of about 90,000
square miles—roughly the size of Great Britain.
Katrina forced the evacuation of more than 1.5
million people, damaged or destroyed nearly
200,000 homes, and resulted in the loss of over
1,200 lives. Many Federal agencies were involved
in the response and recovery efforts, which are
continuing to this day.
The shortcomings in preparation and response
to Hurricane Katrina at all levels of govern-
ment reinforce the importance of ensuring that
planning, coordination, communication, and New Orleans, Louisiana, on September 27, 2005, after Hurricane
Katrina caused flooding.
response efforts perform with seamless efficiency
in the face of any type of disaster. Hurricane
Katrina has shown that the current model for disaster response and recovery is not adequate for
catastrophic events. In a catastrophic event, hundreds of thousands of people are evacuated away
from the disaster site for an extended period of time, requiring mass medical care, longer-term mass
housing at geographically dispersed locations, significant physical infrastructure reconstruction
and environmental cleanup, and significant long-term support for education and human services
for evacuees. The current disaster recovery model assumes that people can return to the disaster
site shortly after the disaster and begin to rebuild. In order to improve disaster response functions
across the Federal Government, the President has directed that the Homeland Security Advisor
report to him on lessons learned and related recommendations based on an examination of the
Federal response to Hurricane Katrina. Senior officials across the Government are actively engaged
in improving plans for numerous facets of disaster response, including expediting the delivery of
social services and improving the coordination of search and rescue functions.
To date, more than $80 billion in assistance has been made available for response and recovery ef-
forts for Hurricane Katrina. In order to increase oversight of Katrina-related spending and to reduce
waste, fraud, and abuse, the DHS Inspector General received $15 million in supplemental funds, and
an additional $11 million is proposed in the Budget to continue these audit, investigation, and over-
sight activities. DHS also established a Katrina Internal Controls and Procurement Oversight Board
Hurricanes Katrina and Rita—the Federal Response

As of January 1, 2006:
FEMA has distributed over $5.7 billion in Federal aid to more than 1.4 million households to help pay for
housing assistance, food, clothing, home repair and other essentials.
Department of Defense (DOD) personnel evacuated more than 80,000 Gulf Coast residents and rescued
another 15,000, while the Coast Guard rescued more than 33,000 people in its response to Katrina. Over
72,000 military personnel (22,000 active-duty troops and more than 50,000 National Guardsmen) have pro-
vided critical security, logistical, and other support.
DOD personnel also delivered critical emergency supplies, including more than 30 million individually pack-
aged military rations, and more than 24.2 million liters of water and 67 million pounds of ice to the Gulf Coast.
The Transportation Security Administration and the Department of Transportation organized Operation Air
Care, the largest domestic civilian airlift ever in our Nation’s history. More than 22,000 stranded evacuees
were lifted to safety from the New Orleans Airport.
Since Hurricane Katrina, nearly 60 million cubic yards of debris have been removed and disposed of in
Alabama, Mississippi, and Louisiana.
FEMA’s National Flood Insurance program paid over $12 billion in claims from Hurricanes Katrina, Rita, and
Wilma, with an estimated $10 billion in additional claims to be paid over the next few months.
The Corps of Engineers is performing a detailed assessment of about 350 miles of hurricane levees and
is developing a comprehensive, prioritized plan to repair and restore the levees and pumping stations that
support New Orleans, Louisiana, and surrounding areas.
The Department of Housing and Urban Development (HUD) is providing housing subsidies for households
that were in HUD assisted housing and for those who were homeless prior to the disaster in the affected
area. Approximately 60,000 households in total are eligible. In addition to the $79 million transferred to HUD
from FEMA for this vulnerable population, the Administration has secured $390 million to continue housing
subsidies for these families in the near-term.
The Small Business Administration (SBA) has provided more than 30,000 loans, totaling over $2 billion.
SBA is providing homeowners with loans of up to $200,000 to repair or replace their primary residence for
losses not fully covered by insurance. Businesses can apply for an SBA disaster loan of up to $1.5 million
to cover damages to the property, machinery, and inventory.
In addition to these response activities, the long-term recovery efforts are ramping up and will require years
of effort and on-going support.
in September 2005. This oversight will allow immediate actions to quantify and recover improper
payments and to implement corrective actions in an effort to safeguard the taxpayer’s interests.
In the wake of the 2005 hurricanes, FEMA is working with State and local governments to mitigate
future flood damages. If people want to rebuild houses in flood-prone areas, FEMA works with the
local community to rebuild smarter, higher, and stronger houses through FEMA’s flood mitigation
programs. A recent study conducted by the National Institute of Building Sciences concluded that, on
average, one dollar spent by FEMA on hazard mitigation results in four dollars in future benefits to
the Nation. The Budget proposes $150 million for Pre-Disaster Mitigation grants. This is an increase
of $100 million over the enacted level in order to reduce possible damage from future disasters before
they occur. In addition, the Administration is working with the Congress to reform the national flood
insurance program to further mitigate the impact of flood damages and losses.
The Budget also includes $3.1 billion for FEMA activities, an increase of $363 million over the
2006 level. Further, $1.94 billion is requested for the Disaster Relief Fund to cover disaster response
and recovery costs. This is an increase of $189 million over last year’s level and is based on aver-
age disaster response costs for small- and medium-scale disasters over the last five years. The Budget
also requests nearly $70 million in additional funding for FEMA’s primary operational accounts to
improve operational and oversight capacities and to enhance alert and early warning systems.
Protecting the Nation
Ensuring Seamless Overseas and Domestic Nuclear Detection. The new Domestic Nuclear Detec-
tion Office (DNDO) was created last year within DHS to coordinate the Nation’s nuclear detection
efforts. The 2007 Budget includes $536 million for DNDO, a 70-percent increase from the 2006 level.
Together with the Departments of State, Energy, Defense, and Justice, DNDO will develop and de-
ploy a comprehensive system to detect and report any attempt to import, assemble, or transport a
nuclear device and fissile or radiological materials within the United States.
In 2007, DNDO will conduct $100 million in

transformational research and development aimed
at enhancing our ability to detect, identify, and
track down the origins of nuclear and radiological
materials. This research looks beyond current
capabilities and seeks to find novel scientific tools
and methodologies that may prove useful in our
broad efforts to focus the Nation’s resources toward
countering the threat of nuclear and radiological
devices. The DNDO budget also includes $178
million for the deployment of both fixed and mobile
radiation portal monitors at strategic points of
Customs and Border Protection works with the Domestic Nuclear entry throughout the country. Together with
Detection Office to deploy the latest nuclear detection technology.
our overseas non-proliferation efforts led by the
Department of State, and our overseas detection capabilities managed by the Department of Energy,
these programs seek to create a seamless approach toward preventing terrorists anywhere in the
world from acquiring, transporting, or introducing these materials into the United States.
Ensuring Maritime Safety and Security. The Budget includes $7.1 billion for the Coast Guard, a
six-percent increase over the comparable 2006 level and an 87-percent increase since 2001. Within
this request, almost $935 million will be used for the Coast Guard’s Deepwater program, a multi-year
recapitalization project for the Coast Guard’s aircraft and largest sea-going ships. This program is
an investment in future Coast Guard capabilities and will ensure that the service is able to effec-
tively execute its critical missions, like Port and Waterways Security and Migrant Interdiction. The
Deepwater program will also generate significant new air- and sea-based capabilities that support
long-range surveillance and detection, furthering the Coast Guard’s ability to develop Maritime Do-
main Awareness, a major goal outlined in the President’s National Strategy for Maritime Security.
The Budget also provides funding to ensure that the Coast Guard’s multiple non-security missions
are maintained and strengthened. As the Nation’s lead in maritime search and rescue, the Coast
Guard saved thousands of victims of Hurricane Katrina and rescued thousands more mariners in
distress throughout the country. The Coast Guard also enforces the Nation’s fisheries laws, main-
tains the Nation’s extensive system of channel markers and buoys, and keeps northern shipping
lanes free of ice during the winter months.
Securing the National Capital Region’s Air

Defenses. The Budget for the Coast Guard also
includes $61 million for the establishment
of a permanent National Capital Region Air
Defense program. Previously, this activity was
carried out by temporarily-assigned helicopter
units from Customs and Border Protection
(CBP). Upon transfer of the function to the
Coast Guard, the service will establish a new
helicopter wing at Coast Guard Air Station
Atlantic City, and units will be deployed to
Washington, D.C., to enforce the National
Capital Region no-fly zone, helping protect the
A Coast Guard search and rescue crew from a St. Louis, Missouri, based capital from an air attack.
Disaster Area Response Team drags their skiff to a launching point on
Protecting America Against Cyber Attack.
South Carrollton Avenue in New Orleans, Louisiana, to look for people in
distress.
Cyber security is a key element of homeland
security. The consequences of a cyber attack could cascade across multiple infrastructures and
imperil public safety. The National Cyber Security Division (NCSD), now a part of the Preparedness
Directorate, carries out the Department’s cyber security responsibilities. It was established in 2003,
in response to the President’s National Strategy to Secure Cyberspace, as the national focal point
for cyber security. Recognizing today’s interconnected environment, NCSD works collaboratively
with public, private, and international entities to secure cyberspace and America’s cyber assets. The
Budget includes $93 million for the NCSD’s program and activities.
A core component of NCSD is the U.S. Computer Emergency Response Team (US-CERT). US-CERT
operates a round-the-clock cyber watch, warning, and incident response center. The center coordi-
nates responses to cyber incidents, monitors the network activity of Federal agencies, and provides
a web portal for secure communications with private and public sector stakeholders. US-CERT also
operates a public website (www.us-cert.gov) and the National Cyber Alert System, which provides
timely information to the public. In addition to its watch and warning function, US-CERT conducts
malicious code analysis, improves the security of software, and conducts cyber threat and vulnera-
bility analysis.
Other NCSD programs include the: Control Systems Security Program; National Cyber Exercise
Program; Software Assurance Program; and National Cyber Security Outreach and Awareness Pro-
gram. Today, many critical infrastructures such as pipelines, water and pumping stations, and phar-
maceutical production are run by control systems. These systems make our critical infrastructure
assets more automated, more productive, more efficient, and more innovative, but they also may
expose many of those physical assets to cyber-related threats and vulnerabilities. NCSD works to
address these weaknesses and enhance control systems security. To evaluate readiness and response
programs like the National Response Plan, NCSD conducts national cyber exercises, such as Cyber
Storm involving public and private sector entities. These exercises test our capabilities and improve
our ability to respond to an incident.
Protecting our Nation’s Leaders. The U.S.

Secret Service performs two critical Homeland
Security missions: protection of the Nation’s
leaders and investigation of financial and
electronic crimes. The Domestic Protectees
program, which was found to be highly effective
in the most recent Program Assessment Rating
Tool (PART) assessment, is responsible for the
protection of the President and Vice President
of the United States and their families, former
Presidents and their spouses, and other desig-
nated individuals. The investigation program
focuses on ensuring the integrity of the Nation’s
financial and electronic infrastructure. The
Budget includes a total of $1.3 billion for the
Secret Service to provide continued support
The President with Secret Service protection at a public speaking
for its protection and investigation programs, engagement.
$65 million higher than the 2006 enacted level,
and includes $18 million to begin protection
preparations for the next presidential campaign.
Focusing Resources On Risks
Public safety personnel at the State, local, and tribal level are vital partners in improving the
Nation’s homeland security. Over the last four years, DHS has provided over $14 billion in grants
and training to enhance the Nation’s homeland security preparedness. While these programs have
previously encountered challenges in allocating resources effectively among both States and major
population centers, recent improvements in infrastructure and intelligence data have strengthened
analysis of these risks and threats. Combined with action by the Congress, 2006 marks the first year
in which over half of State Homeland Security Grant funding was based on risk and threat. DHS has
provided stronger guidance on the specific responder capabilities needed to prepare for terrorism and
other catastrophic hazards. States and eligible urban areas must justify how their homeland secu-
rity funds will improve their most critical capability gaps. Release of the final National Preparedness
goal, identifying eight national priorities, and 37 target capabilities, will provide a new framework
for guiding these State and local investments. As required by Homeland Security Presidential Di-
rective 8, other Federal preparedness assistance, such as support to domestic preparedness centers
and grants provided through Federal agencies, will be increasingly targeted based on risk and need.
The President’s 2007 Budget will continue this progress through multi-tiered investments. The
request level of $838 million for Urban Area Security Grants will increase grant funding for those
metropolitan regions most at risk due to their concentrations of citizens and key assets. The request
for $600 million in Targeted Infrastructure Protection grants integrates disparate programs for
securing transportation assets and other critical infrastructure. The Administration will work
closely with the Congress to gain support for this request, which was not funded in 2006. A total
of $838 million is requested for State-based grants, including $633 million for State Homeland
Security Grants, $170 million for Emergency Management Performance Grants, and $35 million
for Citizen Corps. The proposed reduction of $305 million in State grants will allow funding to be
reprioritized towards other DHS programs. As identified in the PART process, it has been difficult
to measure the impact and results of the $6 billion awarded for these programs over 2002–2005.
The effectiveness of these grants will be further strengthened by continued DHS efforts to identify
and assess the risks to critical infrastructure, and develop appropriate protective measures. The
Office of Infrastructure Protection conducts site visits and works with infrastructure owners as well
as the local law enforcement officials that protect critical infrastructure to reduce vulnerabilities to
a terrorist attack. As 85 percent of all critical infrastructure is privately owned, funding for outreach
efforts are also included to build strategic partnerships with State, local, and private entities. The
2007 Budget also provides $10 million for a new chemical security office. The new office will work
with industry to enhance security at chemical plants by developing best practices and standards for
owners and operators to use.
Aviation Security
The Transportation Security Administration (TSA) has made significant improvements in aviation
security since September 11, 2001, by implementing a layered, risk-based security approach. These
advances include hardened cockpit doors; a greatly expanded Federal Air Marshals program; arm-
ing some pilots through the Federal Flight Deck Officers program; offering voluntary self defense
training to crew members; and screening 100 percent of passenger and checked baggage. TSA will
continue these efforts in 2007 by requesting $4.7 billion for aviation security, including $3.7 billion for
aviation screening operations, which ensures sufficient resources for Transportation Security Officer
staffing at our Nation’s airports. Combined with the funds provided in 2006, TSA will apply over
$100 million to enhance air cargo security over two years. TSA will commit over $690 million to the
purchase, installation, and maintenance of baggage screening devices, including in-line systems that
will increase baggage throughput up to 250 percent. The Budget also provides more than $80 million
for emerging technology at passenger checkpoints. This technology, as seen in the picture depicted
below, will enhance the detection of prohibited items, especially firearms and explosives, through the
use of additional sensors such as whole body imaging, automated explosive sampling, and cast and
prosthesis scanners.
The 2007 Budget proposes to replace the

two-tiered aviation passenger security fee
schedule with a single flat security fee of $5.00
for a one-way trip. The single fee corresponds
better with actual security screening, which
normally occurs only once in a one-way trip
regardless of the number of trip segments.
The new fee is expected to increase collections
by an additional $1.3 billion, for a total of $3.3
billion. The revenue generated by aviation
security fees will cover about 70 percent of
core aviation security costs. Aligning costs
to fees will improve the overall management
of aviation screening by encouraging system
managers to improve system efficiency.
Passengers at Miami International Airport are screened by emerging
Requiring users to pay for aviation screening technology at the security checkpoint. Passengers stand in the trace
and security is what was intended by the portal for a few seconds while several puffs of air are released. The
machine then analyzes the air for traces of explosives and alerts
Congress and will free up other homeland screeners if explosives are detected.
resources to be spent on needs that are more
dispersed across the general population.
Improving DHS Management
To evaluate lessons learned since its creation in 2003 and to improve its performance, DHS
conducted its Second Stage Review in 2005. The review was a systematic evaluation of the
entire Department’s operations and programs. From across the Department and elsewhere in the
Federal Government, DHS gathered subject matter experts to examine whether the Department’s
organization was suited to tackle the challenges of prevention, protection, and all-hazards response
and recovery. In addition, DHS actively sought input from hundreds of public and private partners
at the Federal, State, local, tribal, and international levels. The review was conducted under the
premise that DHS must prioritize threats based on risk, must perform its work quickly, and must
be an effective steward of public resources.
The Second Stage Review resulted in a Department-wide restructuring, particularly in DHS’

preparedness, policy, and intelligence offices. New offices were created to improve intelligence and
screening activities and others were eliminated to streamline the Department. These changes also
created a more effective Department by restructuring the organization according to the offices’
responsibilities. As a result, coordination and information sharing between DHS entities, one of
the original reasons for the Department’s creation, have been enhanced. Moreover, the efficiencies
gained from the restructuring will help the Department address the constantly changing threats
and risks to the Nation.
In the event of a national emergency, it is crucial that first responders, State and local govern-
ments, and the Federal Government are able to communicate with each other. The 2007 Budget rec-
ognizes the importance of this goal. The Administration created SAFECOM in 2001 as a Government-
wide initiative to improve interoperability, and over the last three years Federal agencies—mainly
DHS—have provided over $2 billion in grants for interoperability. However, a lack of shared technical
standards and coordinated operational plans has hampered the creation of regional communication
systems that are interoperable, either in an emergency or on a daily basis. In 2007, DHS will set
basic interoperability standards so that Federal grant dollars can be better used to ensure that our
Nation’s first responders can communicate in an emergency. Every region participating in the 2006
and 2007 Urban Area Security Initiative will be required to develop and implement a plan for emer-
gency incident-level interoperability. For 2007, States will be required to develop an interoperable
communications strategy as a condition for receiving DHS homeland security grants.
The 2007 Budget also provides $48.5 million for additional procurement personnel. These
resources will improve the management of high-risk contracts and other major homeland security
contracts. In addition, the Budget provides $12.6 million for additional personnel to improve the
Department’s financial internal controls process, including its financial reporting and financial
management.
The PART was developed to assess and improve program performance so that the Federal
Government can achieve better results. A PART review helps identify a program’s strengths and
weaknesses to inform funding and management decisions aimed at making the program more
effective. The PART, therefore, looks at all factors that affect and reflect program performance,
including program purpose and design; performance measurement, evaluations, and strategic
planning; program management; and program results.
Forty-seven DHS programs have been assessed through the PART process, and a majority of these
programs have demonstrated results by meeting or exceeding performance goals. DHS regularly
reports on hundreds of performance measures, including all of the measures used in the PART
assessments. The latest Performance and Accountability Report showed that DHS programs met 73
percent of their performance targets in 2005. Following are a few examples of programs that were
examined under the PART process during 2005.
The PART assessment of Immigration and Customs Enforcement’s (ICE) Automation Moderniza-
tion program (ATLAS) yielded a rating of Results Not Demonstrated, due to a combination of new
measures, lack of performance data, and an inability to adequately plan and obligate its resources.
The 2007 Budget reduced ATLAS’ funding until the program sets program milestones, gathers per-
formance data, and uses existing resources to accomplish short-term goals.
The assessment of CBP’s Border Security Inspections and Trade Facilitation secured an effective
rating. The program consists of a layered system of people and technology to target, screen, and
interdict international cargo and travelers that pose a potential risk to the Nation’s security while
facilitating the flow of legitimate trade and travel.
The USCIS Immigration Services program is responsible for reviewing applications and granting
immigrant, non-immigrant, and citizenship benefits to eligible individuals while ensuring the in-
tegrity of the immigration system. This program, first assessed with the PART in 2002 as adequate,
was reassessed in 2005 and rated Moderately Effective. The improvement was partly due to USCIS
progress in meeting the President’s goal to decrease the backlog of immigration applications. At the
end of 2005, the backlog had fallen by over 2.5 million cases (from a high of 3.8 million in January
2004) and had achieved a six-month or better cycle time in 9 of 16 applications.
Additionally, to combat immigration fraud and ensure the right benefit is provided to the right
person, this program established a Fraud Detection and National Security office and developed a
joint anti-fraud strategy in partnership with other Federal agencies. This assessment also revealed
that more work is warranted to improve the efficiency of USCIS business operations. The Budget
provides additional resources for USCIS to more effectively leverage technology in support of the
collection and processing of immigration applications.
The table below provides an update on DHS’ implementation of the President’s Management
Budget and
Integration
Status
Progress
For the Human Capital initiative, DHS has been consistently making progress toward creating a state-of-the-art
human capital system that serves the third largest Federal department. In 2006, DHS will continue to implement
the phased transition to a new performance-based workforce management system for several thousand more
employees. For Competitive Sourcing, DHS has finalized its plans for 2006 public-private competitions and has
also developed a long term plan. As part of the Financial Performance initiative, DHS has made progress in
partially resolving some of its audit material weaknesses but still needs to draft a Department-wide remediation
plan for resolving those weaknesses. In E-Government, DHS continues to struggle to meet its electronic
government and information technology (IT) goals. While the Department made progress on monitoring the
cost, schedule, and performance of priority IT investments, it will need to continue this progress and its
attention to IT security to improve the management and integrity of its IT resources. DHS continues to lead two
Presidential E-Gov initiatives. Disaster Management, www.disasterhelp.gov, provides Federal, State, and local
emergency managers better online access to disaster management-related information, planning, and response
tools. SAFECOM, www.safecomprogram.gov, reduces costs to local, tribal, State and Federal public safety
agencies through coordinated planning and guidance. For the Budget and Performance Integration initiative,
DHS’ 2005 Performance and Accountability Report included additional performance measures, and showed
that 73 percent of performance targets were met or estimated to be met.

In support of the Real Property Asset Management initiative, DHS has made progress in gathering accurate and
current inventory data and in transitioning border station control from the General Service Administration to CBP.
For the Eliminating Improper Payments initiative, DHS completed the statistical sampling for all its programs that
are risk-susceptible for improper payment and the results show a very low incidence of improper payments. DHS
has begun recovery audit work at two of its largest contracting areas, ICE and CBP, and will expand the efforts to
the Coast Guard in 2006. DHS is ensuring strict internal monitoring controls for Hurricane Katrina expenditures.
Department of Homeland Security

2005 Estimate
Actual 2006 2007
Spending
Gross Discretionary Budget Authority:
Departmental Management and Operations ............................................... 541 791 958
Office of the Inspector General ........................................................................ 82 82 96
Citizenship and Immigration Services ............................................................ 158 114 182
United States Secret Service ............................................................................ 1,175 1,200 1,265
Customs and Border Protection ....................................................................... 5,325 5,898 6,580
Immigration and Customs Enforcement ........................................................ 2,987 3,630 4,444
Transportation Security Administration .......................................................... 5,719 5,870 6,223
Coast Guard ............................................................................................................ 6,324 6,812 7,117
Preparedness.......................................................................................................... 3,984 4,032 3,420
Federal Emergency Management Agency ................................................... 3,084 2,731 3,093
Science and Technology ..................................................................................... 1,110 1,467 1,002
Domestic Nuclear Detection Office (non-add) ...................................... — 315 —
Domestic Nuclear Detection Office ................................................................. — — 536
Information Analysis and Infrastructure Protection ................................... 887 — —
United States Visitor and Immigrant Status Indicator Technology....... 340 337 399
Federal Law Enforcement Training Center ................................................... 222 279 244
All Other .................................................................................................................... 10 4 4
Total, Gross .................................................................................................................. 31,948 33,247 35,563
Less Fee-Funded Activities................................................................................ 2,519 2,621 4,631
Total, Discretionary budget authority (net) ........................................................ 29,429 30,626 30,932
Memorandum: Budget authority from enacted supplementals ................ 67,145 23,078 —
Total, Discretionary outlays .................................................................................... 38,358 43,846 42,765
Mandatory Outlays:
Flood Insurance Fund:
Existing law ......................................................................................................... 1,314 17,566 165
Legislative proposal ......................................................................................... — 5,040 560
Citizenship and Immigration Services:
Existing law ......................................................................................................... 1,479 1,749 1,777
All other:
Existing law ......................................................................................................... 2,793 3,592 1,708
Total, Mandatory outlays ......................................................................................... 944 22,907 788
Total, Outlays ............................................................................................................... 39,302 66,753 43,553
Credit activity
Disaster Assistance .............................................................................................. — 692 355
Total, Direct loan disbursements .......................................................................... — 692 355
DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT

• Set a goal in June 2002 to achieve 5.5 million new minority homeowners by 2010 and
is on pace to meet this target. Since the President announced this goal, nearly 2.5
million minority families have become new homeowners;
• Established a goal in July 2002 to end chronic homelessness, encouraging collabora-
tions at the Federal, State and local levels. More than 50,000 new units of permanent
supportive housing have been created for those who have been living on the streets
or in shelters;
• Helped over five million households each year pay the rent and move toward self-
sufficiency; and
• Reduced erroneous housing subsidy payments by more than half, reduced financial
risks, and increased program effectiveness through improved management at the
Department of Housing and Urban Development.

• Continues and strengthens the commitment to end chronic homelessness by increas-
ing Homeless Assistance Grants and continuing the Samaritan Initiative;
• Reforms the Community Development Block Grant and other Federal economic
and community development programs to make these programs more targeted
and effective;
• Increases minority homeownership through the American Dream Downpayment
Initiative, the HOME block grant program, homeownership counseling, and proposals
to strengthen and reform the Federal Housing Administration mortgage insurance
program; and
• Increases funds and proposes reforms for the Housing Voucher program, which helps
approximately two million low-income families pay the rent or afford a mortgage.
145
146 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Millions of New Minority Homeowners
The Nation is on pace to meet the President’s goal to create 5.5 million new minority homeowners
by 2010. The Department of Housing and Urban Development (HUD) programs, such as Housing
Counseling, HOME, and the American Dream Downpayment Initiative, help make the dream of
homeownership a reality for many Americans. Low interest rates have helped boost the number of
first-time homebuyers across the spectrum, but these Federal programs and initiatives ensure that
first-time homebuyers are financially prepared to own a home and pay a mortgage; are protected
from predatory lenders; and are aware of the responsibilities that homeownership entails.
Housing Counseling: Educating Homebuyers
The 2007 Budget proposes $45 million for Housing Counseling to prepare families for homeown-
ership, help them avoid predatory lending practices, and help current homeowners avoid default.
In 2007, HUD, in partnership with faith-based and community organizations, will assist approx-
imately 600,000 families to become homeowners or avoid foreclosure. In response to its Program
Assessment Rating Tool (PART) assessment, the Housing Counseling program has begun a pilot to
collect client-level data from grantees. By using client management systems, program counselors
can more efficiently manage their workload, as well as evaluate a client’s unique financial situation
and assess potential housing options. These online systems also will enable the Housing Counseling
program to determine its grantees’ effectiveness in helping more Americans achieve and keep the
dream of homeownership.
American Dream Downpayment Initiative
For many, saving enough cash for the down payment and closing costs is the greatest obstacle to
homeownership. To help overcome this obstacle, the President proposed new HUD funding to help
low-income families purchase their first homes. On December 16, 2003, President Bush signed the
American Dream Downpayment Act that authorized grants to help lower-income families make down
payments on their first homes. Since then, HUD has distributed $211 million in down payment funds
to over 400 State and local governments. These funds have already helped nearly 10,000 families
purchase their first homes at an average per household of $7,600 in assistance; nearly 50 percent
of those families are minorities. The 2007 Budget provides $100 million for the American Dream
Downpayment Initiative.
Homeownership Vouchers
The Homeownership Voucher program, while only five years old, has provided a path for over 5,000
low-income Americans who previously lived in public housing or received a rental voucher to become
homeowners. Strong collaboration among public housing agencies, local nonprofits, and lenders, as
well as pre- and post-homeownership counseling for families has proven essential to making the
program work.
A PART analysis of the program noted that it has consistently over-achieved its annual goals.
This year, the program is expected to provide homeownership opportunities for an additional 1,000
families.
Neighborhood Reinvestment Corporation
The Budget proposes $120 million in funding for the Neighborhood Reinvestment Corporation.
The Corporation, a public nonprofit organization chartered by the Congress in 1978, works through
its NeighborWorks local partners across the country to expand homeownership, financial fitness,
and affordable housing opportunities. In 2007, the Corporation will provide direct assistance to over
180,000 families—over one-half of whom are minorities—through affordable mortgage and rehabili-
tation lending, comprehensive homebuyer education, and counseling services.
Every Minute Counts in Averting Foreclosures
Foreclosures are tragedies for individuals

and families, and they also have harsh
consequences for entire neighborhoods and
community economies. Just one or two
boarded-up houses can send a residential
block into a downward spiral, discouraging
owners from maintaining and improving their
homes, contributing to crime, and eventually
driving down property values.
Many industry experts predict the rate of fore-
closures will rise nationwide over the coming
years. An increasing number of homebuyers
are purchasing loan products that have short-
term benefits but make it more difficult to make
monthly payments and keep the home over the A family receives counseling at a NeighborWorks HomeOwnership
long term. Center.
The Neighborhood Reinvestment Corporation provides foreclosure prevention workshops and individual
counseling to homebuyers who are thinking of buying a home. The key is giving buyers education and coun-
seling both before and after a home is purchased. Informed consumers can demand better service at lower
cost and promote a more transparent, accountable lending and real estate industry. An innovative campaign
in Chicago prevented 650 foreclosures in the past 18 months.
The Corporation is running a nationwide public service campaign encouraging homeowners to contact
1–888–995–HOPE to receive foreclosure prevention counseling. According to CEO Ken Wade, “research
shows that early contact—within the first 15 days of missing a payment—is critical in saving homeowners
and their communities from the devastation of foreclosure. A toll-free hotline will make it easier for
consumers in trouble to pick up the phone.”
HOME: Creating Affordable Housing
The HOME Investment Partnerships program is the largest Federal block grant program to States
and localities with the goal of creating affordable housing for low-income families. Often in partner-
ship with local nonprofit groups, States and local governments fund a wide range of activities that
build, buy, and/or rehabilitate affordable housing for rent or homeownership, or provide direct rental
assistance to low-income people. The program provides communities the flexibility to strategize and
implement plans that are tailored to their unique local priorities and needs. One HOME dollar
leverages three non-Federal dollars. In 2005, the program completed over 80,000 units of affordable
housing. The Administration proposes $1.9 billion for the HOME program in 2007, a nine-percent
increase over 2006.
Fair Housing Training Academy: Learning to Tackle Discriminatory Housing Practices
In 2005, HUD completed its four-part Housing

Discrimination Study, which found that while
housing discrimination has declined in the
past 10 years, many minorities and persons
with disabilities still receive discriminatory
treatment in housing sales, rentals, and
lending practices.
The HUD study, How Much Do We Know?
(2002), showed that 62 percent of those
surveyed were not aware that it was illegal to
discriminate against families with children.
Education and outreach are vital to elimi-
nating housing discrimination. In October
Secretary Jackson at HUD’s National Fair Housing Training Academy 2005, HUD’s Office of Fair Housing and
opening in October 2005. Equal Opportunity opened the National
Fair Housing Training Academy (NFHTA)
in Washington, D.C. NFHTA is the first and only governmental institution in the United States that trains
advocates, lawyers, investigators, and others in the prevention and elimination of housing discrimination.
In 2006, 480 civil rights professionals are projected to receive certification.
Fair Housing
Fair housing activities support the Administration’s goal to increase minority homeownership by
addressing illegal discrimination. For 2007, the Budget proposes $45 million to support Fair Housing
and Equal Opportunity activities to help ensure that Americans have equal access to the housing of
their choice.
Transforming the Federal Housing Administration
The Federal Housing Administration (FHA) is currently undergoing a rapid transformation to

enable it to expand homeownership opportunities for low- and moderate-income families.
Traditionally, FHA has assisted homebuyers underserved by the conventional mortgage market
to obtain mortgage credit at a reasonable cost. Since the 1930s, FHA has been a primary mortgage
source for first-time and minority buyers. However, in the last three years, FHA loan volume has
fallen precipitously. This is good news, in part. Lower interest rates have made unassisted mortgages
affordable for more families, and the private sector has increased its use of automated underwriting,
allowing it to offer loans on favorable terms to more homebuyers. This is a positive development,
when the private sector is offering favorable terms to borrowers who previously would have turned
to FHA. However, a small portion of borrowers may still be ill-served by incurring higher costs or
unfair terms as compared to a comparable FHA loan product.
Premiums for FHA mortgage insurance Monthly FHA Volume

currently do not vary according to a borrower’s Millions of dollars
credit risk or the expected cost from defaults, 135
causing better borrowers to subsidize weaker 125
borrowers. This has driven safer borrowers to 115
seek alternatives offered in the conventional 105
market and pay higher prices than they would 95
have if offered FHA risk-based pricing. The 85
Budget proposes tiered risk-based pricing
75
to address this issue, which will decrease
65
homebuyers’ costs, and thereby increase access
55
to homeownership. This type of pricing will
45
enable borrowers to know why they are paying
certain costs and how to lower them. 35
Oct-02 May-03 Dec-03 Jul-04 Feb-05 Sep-05
Historically, high proportions of minority and Source: FHA.
low-income households were unable to obtain Over the past three years, FHA’s volume has fallen by about 70 percent
as a result of the growth in the sub-prime market. The inability of FHA
reasonably priced credit in the conventional to keep pace with advances in mortgage products and increases in
home purchase mortgage market. FHA has housing prices has resulted in further volume drops.
been an important mortgage program for these
households and those with weak and non-traditional credit histories because it offered low down
payment mortgages. Moreover, its underwriting standards allowed more flexibility to lend to
households with lower incomes and weak and non-traditional credit histories.
To remove two large barriers to homeownership—lack of savings for a down payment and
impaired credit—the Administration proposes two new FHA mortgage products. The Zero Down
Payment mortgage will allow first-time buyers with a strong credit record to finance 100 percent of
the home purchase price and closing costs. For borrowers with limited or weak credit histories, a
second program, Payment Incentives, will initially charge a higher insurance premium and reduce
premiums after a period of on-time payments. In conjunction with risk-based pricing, these products
will expand homeownership opportunity on an actuarially sound basis.
While FHA has already taken steps, within its current authority, to streamline its paperwork
requirements and remove impediments to its use by lenders and buyers, the proposed reforms
will enable FHA to better meet its objective of serving first-time and low-income home buyers by
managing its risks more effectively.
Making Progress in Ending Chronic Homelessness
The 2007 Budget continues the Administration’s commitment to end chronic homelessness. The
approximately 150,000 chronically homeless persons identified as the target of this effort include
many who have an addiction and/or suffer from a disabling physical or mental condition. As a result,
they are homeless for extended periods of time or experience multiple episodes of homelessness.
Research indicates that although these individuals comprise roughly 10 percent of the homeless
population, they consume more than one-half of all emergency homeless services because their needs
are not comprehensively addressed. Thus, they remain in the homeless system or on the street.
Through efforts of the U.S. Interagency Council on Homelessness, the Administration’s initiative
to end chronic homelessness has gained traction in communities large and small across the country.
Fifty-three States and territories have established interagency councils on homelessness, and over
Rebuilding Lives: A Collaborative Effort to End Chronic Homelessness

Columbus, Ohio, is accomplishing what was thought to be “mission impossible” only a few years ago. They
are successfully helping chronically homeless people—those with mental illness, substance abuse, or other
disabling conditions—to move from the streets and emergency shelters to stable housing with supportive
services through a program called Rebuilding Lives.
In line with the President’s goal, Columbus

and surrounding Franklin County imple-
mented a plan to end chronic homelessness
in their community. Through a mix of Federal,
State, local, and private resources, they have
exceeded their goal to create more than
800 new supportive housing units: 605 units
have already been created; and 245 more
units will be ready for occupancy next year.
Services are funded through a variety of
HUD, HHS, and local mental health program
sources. For many residents, this is their
first opportunity to enroll in Social Security
and Medicaid and to address long-term,
unresolved health problems. Rebuilding Lives program participants enjoy their new home at East Fifth
Avenue apartments, which opened in 2004 and is home to 38 formerly
Rebuilding Lives has an outcome-based chronically homeless women.
design, enabling the program and its partners
to track evidence of their success. Over the last year, 665 single adults, most of whom have been on the
streets or in shelters for years, were served through the Rebuilding Lives supportive housing initiative; 86
percent remained stably housed over this period thanks to the collaborative efforts of the community.
The ongoing cost for services, operations, and rent subsidies in the Rebuilding Lives program is $8.1 million
in 2006. One half of the program budget is leveraged from local private and public sources. The average
annual cost is $11,541 per unit.
While the investment is significant, the savings over alternative options for this population are still greater.
According to a study done by the Lewin Group in 2004, supportive housing in Columbus costs $30.48 a day,
compared with $70 a day for jail, $59.43 for prison, $451 for psychiatric care, and $1,590 for treatment at a
hospital.
200 cities and counties have established 10-year plans to end chronic homelessness. Federal Inter-
agency efforts to end chronic homelessness continue with the Departments of Health and Human
Services, Veterans Affairs, and Labor participating actively. Progress is being made, as evidenced by
reports from communities such as Columbus, Ohio (see above).
The Budget proposes a $184 million increase for HUD’s Homeless Assistance Grants, which re-
ceived an Effective rating in this year’s PART assessment due to a good program design and strong
performance measures. The 2007 increase will help create and run approximately 12,000 new units
of supportive housing across the country for the chronically homeless. These units will be in addi-
tion to the 50,000 units that have been created through the Samaritan Initiative and efforts of State,
local, private, and other Federal programs. Up to $200 million will be available for the Samaritan
Initiative within the Homeless Assistance Grants annual competition. In 2006, HUD set a long-term
goal to create an additional 40,000 new units between now and the end of 2009.
Last year, the Administration proposed to consolidate funding for several smaller economic and
community development programs with that of other, larger programs to eliminate duplication and
improve performance. The Congress responded by reducing funding in HUD for Rural Housing
and Economic Development, Brownfields grants, and Section 108 loan guarantees, and by termi-
nating funds for Empowerment Zones grants. The 2007 Budget again proposes no funding for these
programs, but would consolidate the HUD programs with the Community Development Block Grant
(CDBG) under new authority, as discussed later.
The Budget reduces funding for public housing capital grants. In conjunction with this reduction,
HUD is undertaking a series of administrative reforms intended to encourage communities to focus
their resources on properties that can be expected to provide housing benefits justifying future im-
provement and operation, and to replace other properties with more cost-effective housing vouchers.
In addition, the Budget proposes again to terminate the HOPE VI public housing program. That
program has surpassed its goal of funding the demolition of 100,000 non-viable public housing units
and replacing them with new, less dense public and privately owned mix-income housing. However,
the program has been excessively costly when compared to other programs proposed for funding that
produce new affordable housing.
Housing Vouchers: Expanding Local Flexibility and Imposing Fiscal Discipline
Housing Choice Vouchers, HUD’s largest program at $16 billion, provides approximately two mil-
lion low-income families with subsidies to help them afford a decent, safe, and sanitary place to live.
Families contribute 30 percent of their income toward their rent; the Government pays the rest.
The Administration and the Congress have been concerned that voucher costs were increasing at a
rate more than double the average increase in the private rental market. Over the past two years, the
Congress has enacted reforms along the lines of the Administration’s proposal to switch the Voucher
program back to a “dollar-based” approach from a “unit-based” approach, and the rate of cost increase
has slowed as a result. Public Housing Authorities (PHAs) now receive a set dollar amount, but the
Congress has not given PHAs the freedom to adjust their use of dollars to best meet the unique and
changing needs of their community, including the ability to set their own subsidy levels based on
local market conditions rather than having people in Washington trying to predict and set these for
every market in the Nation.
The Administration’s proposed State and Local Housing Flexibility Act of 2005, would simplify
program rules and give PHAs the flexibility to serve more people and administer the program to
better address local needs within the fiscal discipline imposed by dollar-based funding.
Strengthening America’s Communities Initiative
As part of a broader reform to strengthen America’s poorest communities and neighborhoods, the
Budget proposes to reform the CDBG program. This reform, and parallel reforms in other Federal
economic and community development programs, grew out of a cross-cutting performance review of
these programs a year ago and was further informed by the report of the Strengthening America’s
Communities Advisory Committee in July 2005. With formula reform, more of CDBG’s base funding
would be directed to communities that cannot meet their own needs; bonus funds would be awarded
to those who demonstrate the greatest progress in expanding ownership and opportunity for their
residents. Other Federal programs that support local development will operate with CDBG within
Transforming a Neighborhood: Carver Park in Yuma, Arizona

Efforts to aid distressed neighborhoods do not always result in measurable and sustained economic gains
for residents. The problems inhibiting private investment and employment are often deep and widespread.
Solutions require a partnership of governments, residents, community organizations, and private investors.
Moreover, solutions must be comprehensive, given the multiple problems that beset such communities.
The City of Yuma, Arizona began the process of revitalizing the historic but long-blighted Carver Park Neigh-
borhood in mid-1998. The neighborhood is a 22-block area that is 73 percent Hispanic. In 1998, unemploy-
ment was high and nearly one-half of its residents lived in poverty. Much of the housing was substandard,
and deteriorating property values contributed to the outflow of residents and discouraged new families from
moving in and purchasing homes. However, the neighborhood had some existing assets on which to build,
including a neighborhood park and several faith-based organizations.
The City designated Carver Park a Neighborhood Revitalization Strategy Area under the CDBG program
in 2000. From a total HUD investment of $4.1 million, approximately $27.5 million of Federal, State, and
private investment has been leveraged. Seven years later, Carver Park is a changed neighborhood.
Many problems of long concern to residents have been addressed and the community is being transformed.
Housing stock, neighborhood appearance, and safety have been improved. Private investment has built
over 40 homes and 116 new rental housing units; 58 units have been rehabilitated; and two substandard
owner-occupied single-family homes reconstructed. Unsafe buildings have been demolished and new neigh-
borhood facilities have been built. Housing code enforcement and rental inspection programs have been
more stringently applied. Several neighborhood clean-ups were organized and the community received a
national award for their efforts. As a result of these investments, property values are now increasing, and
the Carver Park Neighborhood is on track toward stabilization and an improved economy. Considerable
emphasis has also been placed upon reducing crime, such as implementing a community policing program
and investing in street lights through funding as a designated and official Weed and Seed neighborhood site
by the Department of Justice.
New supportive youth, family, and elderly services have been brought into the neighborhood. Summer jobs
and job training are being provided to youth from the neighborhood. Contributing to the transformation has
been the remarkable improvement on test scores at Carver Elementary School. In 1999, only about 30
percent of the students met or exceeded the State standards on overall standardized tests, but by 2004, 64
percent of the students met or exceeded State standards.
Once a blighted community, Carver Park is changing into a neighborhood that is sustainable and diverse.
This neighborhood has a range of new opportunities for residents to work, own, and enjoy the lasting benefits
of a concentrated investment of public dollars. Producing this kind of lasting change is the goal of community
development.
a new broader framework of clear goals, cross-cutting community progress indicators, and common
standards for the award of bonus and competitive funding. HUD programs that duplicate the pur-
poses of CDBG—Brownfields Redevelopment grants, Rural Housing and Economic Development,
and Section 108 Loan Guarantees—will be consolidated with CDBG as part of this reform. HUD’s
Youthbuild program is proposed for transfer to the Department of Labor, where it can be adminis-
tered more effectively.
Improper Payments Cut in Half
In October 2005, local PHAs began verifying the incomes of assisted tenants electronically instead
of via paper letters to employers. The crosscheck with HHS’ National Directory of New Hires data-
base will permit more timely and accurate verification of incomes for both eligibility determination
and calculating the proper rental subsidy payment. Electronic verification provides more privacy to
assisted tenants because the prior requirement to send a paper verification letter to the tenant’s
employer is no longer necessary. The Congress authorized electronic verification in statute, but
only with the proper release forms signed by affected tenants and with strict privacy safeguards.
HUD, through a variety of efforts, has reduced its improper payments in the low-income assistance
programs by more than one-half; from $3.2 billion in 2000 to $1.3 billion in 2004. With the new
electronic verification and other monitoring programs, HUD is confident of further reductions in the
future. HUD’s Inspector General recognized the success of these efforts in its 2005 financial audit.
The Government Accountability Office also has lauded HUD’s progress.
FHA Multi-Family Loan Guarantee
FHA’s multi-family mortgage guarantee program was assessed this year by the PART as not
demonstrating results. The assessment suggests that the program needs to better identify its
contribution to expanding the supply of affordable housing and providing public benefits. To
address cases where subsidies are provided for construction of projects that are not targeted to
low- and moderate-income persons, and therefore not achieving the program’s public purpose, the
Administration will implement a higher guarantee premium to offset taxpayer costs for loans to
those projects.
The table below provides an update on HUD’s implementation of the President’s Management
Budget and
Integration
Status
Progress
HUD has made incremental progress in closing general technical skill gaps in its workforce by hiring new
employees within the 45-day Government standard for hiring and having staff complete over 700 online training
courses. HUD successfully linked up with the Department of the Treasury’s information technology system for
managing human capital. This system automates personnel operations that were formerly paper, and provides
faster service and enhanced capabilities. Treasury reported significant productively gains when it adopted this
system. In 2005, HUD completed four competitive sourcing reviews in administrative areas. These competitions
are expected to save HUD $4 million over the next five years. HUD made significant strides in financial
management this year, including earning an unqualified audit opinion on its 2005 financial statements. The
financial auditors also determined that HUD has achieved significant progress in strengthening internal controls.
The auditor downgraded two long-standing material weaknesses—one that dates from as far back as 1990—to
less serious reportable conditions. Security of information systems showed a marked improvement. All systems
have been certified and accredited and the HUD Inspector General opined favorably on these efforts. Two new
information systems were implemented successfully, within budget, and with tangible results in terms of improved
operational capabilities. HUD also completed the agency migration to a Human Resources Line of Business
Service Provider and is in the process of decommissioning 12 separate systems within the Department. HUD is
taking action to improve its programs based on results of PART assessments of 25 major programs covering
over 80 percent of its budget, and is beginning to measure and increase the efficiency in its programs.
Housing and Urban Development Management and Performance
HUD surpassed its initial goals for improvements in the physical condition of HUD assisted housing—both public
housing and privately owned project-based housing. In addition, FHA began tracking its efforts to combat fraud
and compliance problems, relative to the number of loans identified as at-risk. In an effort to reduce meaningless
compliance burdens, HUD worked with States, local governments, and other grantees to propose changes to
the consolidated plan process and documents that are required for formula grants, such as CDBG and HOME.
In addition, an improved automated approach was introduced to the community planning and reporting process.
HUD is continuing its successful efforts to eliminate unnecessary barriers and increase participation by
faith-based and community organizations. Due to a variety of efforts, these organizations are participating more
to make a unique impact in the lives of society’s most vulnerable citizens. From 2002 to 2004, the number of
grants to faith-based organizations increased by 28 percent, from 650 to 835.
HUD reduced, by 50 percent since 2000, its gross annual improper rental assistance payments attributed to
program administrator error and tenant misreporting of income. Improper payments in 2003 were reduced to
$1.6 billion from the 2000 level of $3.2 billion. In 2004, improper payments were further reduced to $1.3 billion, a
61-percent reduction from 2000. In October 2005, HUD provided local PHAs with an electronic tool to verify
tenants’ income with HHS’ National Directory of New Hires. This will improve the accuracy of eligibility for the
rental assistance program, and the proper calculation of the tenant’s rent and the Federal subsidy. It will provide
more privacy to tenants by permitting PHAs to eliminate the paper letters to employers that were previously
required to verify the tenant’s income. The Congress authorized this verification with strict privacy safeguards
and proper notifications to tenants.
The President’s 2007 Budget introduces a new initiative to improve the management of the Federal
Government’s credit portfolios. HUD is included in this initiative because FHA has a portfolio of $421 billion in
outstanding direct loans and loan guarantees and $7.51 billion in defaulted loans. This initiative will be included
in the scorecard beginning in the second quarter of 2006.
Department of Housing and Urban Development

2005 Estimate
Actual 2006 2007
Spending
Community Development Fund ....................................................................... 4,702 4,178 3,032
HOME Investment Partnerships Program ................................................... 1,900 1,757 1,917
American Dream Downpayment Initiative (non-add) ......................... 50 25 100
Homeless Assistance Grants ........................................................................... 1,241 1,327 1,536
Housing Opportunities for Persons with AIDS ........................................... 282 286 300
Tenant-based Rental Assistance .................................................................... 14,766 15,418 15,920
Project-based Rental Assistance .................................................................... 5,298 5,037 5,676
Housing Certificate Fund ................................................................................... 1,557 2,050 2,000
Public Housing ....................................................................................................... 5,018 6,003 5,742
Native American Housing Block Grant ......................................................... 622 624 626
Revitalization of Severely Distressed Public Housing (HOPE VI) ...... 143 99 99
Housing for the Elderly ....................................................................................... 741 735 545
Housing for Persons with Disabilities ............................................................ 238 237 119
Federal Housing Administration ...................................................................... 1,322 410 330
Lead Hazard Reduction ..................................................................................... 167 150 115
All other HUD programs ..................................................................................... 35 877 547
Memorandum: Budget authority from enacted supplementals ............... 229 11,890 —
Total, Mandatory outlays ........................................................................................ 508 2,060 359
Total, Outlays .............................................................................................................. 42,518 46,807 44,668
Credit activity
FHA............................................................................................................................ 21 99 99

FHA............................................................................................................................ 78,205 63,117 94,790
DEPARTMENT OF THE INTERIOR
Since 2001, the Administration has:

• Funded nearly 6,000 national park facility improvements, and maintained high visitor
satisfaction rates, according to annual surveys;
• Helped meet the Nation’s energy needs by more than doubling annual energy permit
processing on Federal lands;
• Advanced cooperative conservation through Private Stewardship Grants and
Landowner Incentive Programs that will have funded over 1,000 projects with over
1,500 partners; and
• Reduced hazardous fuels on 5.9 million acres of Department of the Interior managed
lands through the Healthy Forests Initiative.

• Supports the Nation’s energy needs through funding increases for onshore permitting;
leasing programs for oil shale and renewable energy development; and inspection,
enforcement, and monitoring of oil and gas operations;
• Helps communities achieve self-sustained management of historical and cultural
properties by promoting heritage tourism through Preserve America grants;
• Sustains operational funding to continue high satisfaction ratings from visitors to
national parks, refuges, forests, and public lands;
• Advances conservation of wetlands, uplands, and coasts; and protects wildlife
through cooperative conservation programs;
• Terminates funds for lower priorities or programs duplicative of other Federal efforts,
such as grants for recreation on non-Federal lands and supplemental financial support
to State public schools for culturally-related and supplementary academic needs; and
• Helps fulfill the Federal Government’s trust responsibilities by slowing the growth of
fractional interests in individual Indian lands through consolidation.
157
158 DEPARTMENT OF THE INTERIOR
Energy Activities
Oil and Gas Development Area in ANWR Reducing the Nation’s dependence on foreign
Millions of acres energy sources is a top Administration priority.
20 The United States imports more than half of
Entire Arctic National
Wildlife Refuge (ANWR) its daily oil consumption of 20 million barrels,
Dedicated Wilderness and in the future will also import more natural
15 1002 Area gas. The lands and waters administered by
Development Area the Department of the Interior (DOI) provide
one-third of the Nation’s domestically produced
10 oil and gas. The 2007 Budget proposes a $42
million package of strategic investments to
enhance the availability of affordable oil, gas,
5 and other energy resources, while maintaining
strong environmental protections.
0 Administrative improvements in the Bureau

Source: Department of the Interior.
of Land Management’s (BLM’s) processing of ap-
For presentation purposes, the Development Area is shown oversized
so that it is visible on the chart.
plications to drill, together with selected fund-
ing increases, have allowed for the production of
3.1 trillion cubic feet of natural gas from onshore
Federal lands in 2004, a nearly 50-percent increase over 2002. In 2007, BLM expects that applica-
tions for permits to drill will reach a record level of more than 11,000. A funding increase of $9
million will allow BLM to meet the current workload, maintain rigorous inspection of wells under
development and in production, and enforce against permit violations.
The most promising area for new onshore discoveries of oil in the United States is the North Slope
of Alaska. The Administration supports authorizing limited exploration and development on the
coastal plain of the Arctic National Wildlife Refuge (ANWR), using the strictest environmental stan-
dards. DOI estimates that this area holds between 5.7 billion and 16 billion barrels of recoverable
reserves, or, at peak production, up to one million barrels per day of new domestic oil supply. The
2007 Budget will support necessary environmental reviews to begin ANWR leasing and fund con-
tinued leasing of the National Petroleum Reserve-Alaska. Additional funds will also clean up old
contaminated well sites in Alaska.
Facilitating development in frontier areas and production of unconventional and renewable energy
resources is a sensible component of a comprehensive energy strategy. To provide for continued
development of the oil and gas potential of the deepwater areas of the Outer Continental Shelf, the
2007 Budget includes $2 million for environmental studies of areas under consideration for leasing
in the next five-year offshore leasing plan. The Budget also provides funding to establish a compre-
hensive program to manage offshore wind and other renewable energy projects and to prepare for
future leasing of unconventional resources such as oil shale and natural gas hydrates.
Preserve America
The President’s Preserve America initiative

assists local communities in designing heritage
tourism programs that support sustainable uses for
historic assets and create economic opportunities
for communities. Nowhere is this needed more
right now than along the Gulf Coast where hun-
dreds of historic structures have been damaged.
These heritage assets are magnets for visitors from
around the world, driving a tourism industry that
is critical for the economic recovery of New Orleans
and other coastal areas.
Under the Preserve America umbrella, the 2007
Budget includes three grant programs to address
Jonesborough, Tennessee, a designated Preserve America
Community.
different challenges in promoting heritage tourism.
Preserve America grants help States and communi-
ties preserve their historic resources by incorporating them into the local economies; Save America’s
Treasures grants help restore historic sites and collections; and National Heritage Area grants pro-
vide seed money for congressionally designated, but locally managed, heritage areas. These comple-
mentary programs will leverage a Federal investment of $32 million that allows local communities to
determine which strategies best suit their heritage needs and helps them coordinate cultural resource
preservation.
Hurricanes Katrina and Rita
DOI rose to the challenges brought on by

the devastating effects of Hurricanes Kat-
rina and Rita. The hurricanes severely af-
fected oil and gas production in the Gulf of
Mexico, which provides more than 25 per-
cent of the oil and 20 percent of the natural
gas produced domestically. At Rita’s peak,
companies shut down all oil production and
80 percent of natural gas production in the
Gulf.
Minerals Management Service employees
The loss of wetlands due to Hurricane Katrina is documented with before and
immediately began to work with companies after Landsat satellite images from USGS. Green areas that indicate healthy
to bring facilities back on line after the wetlands in the June image are largely stripped of vegetation and submerged
in the September image.
storms. Since then, great progress has been
made: as of the beginning of January 2006,
only 27 percent of daily oil production and 19 percent of daily gas production remained “shut-in.”
In addition to these efforts, DOI deployed more than 2,000 employees from all DOI bureaus to
the Gulf region to secure DOI facilities and help Federal, State, and local agencies assist storm
victims by distributing food and water and working with recovery efforts. Using satellite and
aerial photography, U.S. Geological Survey (USGS) employees provided rescue teams with maps to
pinpoint the locations of 911 calls from more than 16,000 stranded residents.
Cooperative Conservation
Working collaboratively with partners to enhance, enjoy, and protect our natural resources and
wildlife has led to creative, innovative, and successful results. This approach is embodied in the
President’s August 2004 Executive Order on Facilitating Cooperative Conservation. An August 2005
White House Conference on Cooperative Conservation in St. Louis, Missouri, brought together over
1,300 citizens and decision makers to identify opportunities for building conservation partnerships
and institutionalizing cooperative conservation. These conservation efforts enhance on-the-ground
environmental results by leveraging resources, promoting innovation, and inspiring citizen steward-
ship. Continuing the spirit of the Executive Order and the Conference, the 2007 Budget includes
$323 million for cooperative conservation programs at DOI.
Among the cooperative conservation programs at DOI are the Landowner Incentive, Private
Stewardship, and State and Tribal Wildlife grant programs in the Fish and Wildlife Service (FWS).
Through these programs, DOI employees work with States, Tribes, communities, and landowners
to conserve sensitive habitats. Through North American Wetlands Conservation grants, DOI
helps fulfill the goals of the President’s wetlands initiative. These grants leverage resources from
organizations and individuals to conserve wetlands and associated upland habitats needed by
waterfowl and other migratory birds.
National Fish Habitat Initiative
Exemplifying cooperative conservation is the National Fish Habitat Initiative (NFHI). NFHI is a
nationwide strategy that harnesses the energies, expertise, and existing partnerships of State and
Federal agencies and conservation organizations to improve aquatic habitat health and promote the
recovery and restoration of fisheries. The 2007 Budget includes $3 million to implement the initia-
tive by developing new partnerships modeled after the Migratory Bird Joint Ventures, and finalize an
action plan with national goals and performance standards similar to the successful North American
Waterfowl Management Plan. In addition to NFHI, the Budget is helping aquatic species restoration
in many ways, including doubling the funding to remove man-made barriers that block fish move-
ment.
Water 2025
Through Water 2025, the Bureau of Reclamation seeks to use its existing resources to prevent
crises and conflict over water in the West. The 2007 Budget requests $15 million to continue the
Water 2025 initiative. These funds will help achieve the program’s newly established long-term
goals, which focus resources on Hot Spot areas likely to experience water conflicts in the next 20
years (see the Water 2025 Hot Spot Map, www.doi.gov/water2025/supply). These goals include
diversifying water supplies, such as through improving technology and infrastructure and supporting
water markets; increasing water supply certainty and flexibility; and providing added environmental
benefits to watersheds in Hot Spot areas.
Klamath Basin, Oregon and California
Working with other Federal, State, tribal,

and local organizations, DOI is helping restore
the Klamath Basin ecosystem and establish
a sustainable balance for water use in the
area. In 2007, DOI will improve the reliability
of water supplies and water quality, improve
habitat, and restore fish populations. DOI
will: 1) continue work to remove the Chiloquin
Dam in Oregon, which will open hundreds
of miles of spawning habitat for endangered
fish; 2) acquire key wetlands adjacent to
Upper Klamath Lake to expand water storage,
provide new juvenile sucker rearing habitat,
and reestablish natural processes that filter
and cleanse water supplies—all of which
Removing the aging and dilapidated Chiloquin Dam will open up many
will improve the success rate of young fish miles of spawning habitat to endangered fish. Installing pumps will allow
maturing into breeding adults; and 3) match irrigators to continue to get the water once provided by the dam.
public-private habitat restoration efforts in the
Lower Basin through the FWS Partners for
Fish and Wildlife program.
Indian Land Consolidation Program
Effect of Land Consolidation Individual Indians own about three million

on an 80 Acre Allotment interests in over 10 million acres that divide
Number of owners
6,000
into smaller portions with each generation.
Projected Actual Approximately 85 percent of these interests
Owners Owners
5,000 represent ownership of five percent or less of
an allotted tract. The difficulty of managing
4,000
millions of small interests in highly fractionated
3,000 tracts of land lies at the root of the complexity
and cost of managing the Indian trust. Over
2,000 the past several years, DOI has purchased
1,000
and consolidated over 184,000 individual
interests. The accompanying chart illustrates
0 the program’s positive impact on reducing
1854 1904 1940 1980 2000 2005 2015
the rate of fractionation, projected prior to
History of Allotment
Source: Department of the Interior. the passage of the American Indian Probate
Reform Act of 2004, of an actual 80-acre tract
of land. The 2007 Budget includes $59 million to build on this success. The Administration will
consult with the Tribes this spring and propose legislation that would provide needed technical
corrections and administrative improvements for implementing trust reform, which will continue
to improve services to Indian trust beneficiaries.
Abandoned Mine Land (AML) Restoration
In 1977, the Congress passed the Surface Mining Control and Reclamation Act and authorized the
collection of fees generated from coal production to pay for reclamation activities. The authorization
expires on June 30, 2006, although more than $3 billion in health and safety work remains undone,
potentially affecting more than 3.5 million Americans who live less than one mile from abandoned
coal mines.
A 2004 Program Assessment Rating Tool (PART) assessment found that the Office of Surface
Mining effectively manages the program and coordinates well with coal-mining States. However,
the assessment found that the program’s design hinders the timely cleanup of abandoned coal mine
lands. The formula under the 1977 law distributes funds to States and Tribes even if they have
already reclaimed all of their high priority sites, while States with significant health, safety, and
water quality problems lack funds for timely reclamation of these sites.
The Administration proposes to extend the coal fee at the current rate through the end of 2007,
and to work with the Congress to find a fiscally responsible and fair way to modify the program
that would: 1) effectively address serious health and safety problems; 2) pay the certified States and
Tribes their share of AML fund balances over 10 years; and 3) continue the fee to fund the remaining
work.
State Recreation Grants
The 2007 Budget reiterates a proposal to terminate funding for Land and Water Conservation
Fund (LWCF) State recreation grants, which the Congress partially accepted last year. Paying for
improvements to State and local parks is a decision better left to State and local taxpayers than to
Federal taxpayers. As a PART review found, this program has not been able to measure performance
or demonstrate results.
Improving Management of the Nation’s Landscapes and Water
The 2007 Budget proposes three steps to improve availability of environmental information. First,
USGS will improve the timeliness of the National Land Cover Dataset (NLCD) by transitioning the
program to update the dataset every five years. NLCD provides nationally consistent information to
improve decisions that affect the health of the Nation’s land. Second, the 2007 Budget requests an
increase of $16 million for USGS to continue development of the ground systems needed to receive
and manage data from the next generation of Landsat satellites. Landsat data populate NLCD and
provide 30 year of baseline information to measure changes in land cover around the globe. Land-
sat and NLCD are managed under the USGS Geography program that received an effective PART
rating. Third, the Budget will increase funding for the National Streamflow Information Program to
provide about 80 additional streamgages in 2007. Streamgages are the primary sources of informa-
tion needed to manage water quality and quantity.
Recovering Costs for Energy Permitting
To ensure the Government receives fair compensation for the use of the Nation’s land and miner-
als, the Budget proposes to repeal certain provisions in the recently-enacted Energy Policy Act. A
last-minute addition to the bill prohibited the Administration from implementing new fees for oil
and gas permit processing on Federal lands and provided a mandatory stream of funding for permit
processing from funds that previously went to the U.S. Treasury.
The Budget proposal supports the Administration’s efforts to charge for Government services
where the direct beneficiary can be identified. This will shift these costs from taxpayers and allow
DOI to better process permit applications as demand increases. The proposed fees are expected
to generate approximately $20 million per year beginning in 2008, thereby reducing the cost to
taxpayers for operating this program.
Visitor Enjoyment of National Parks
Each year, people make nearly 300 million visits to America’s national parks. Whether a family
odyssey out West or a side trip to a local historic site, these visits contribute to our understanding of
who we are. As John Muir noted a century ago, parks are “fountains of life.” That remains just as
true today.
Surveys show that visitors are consistently National Park Service Funding
satisfied with their experiences at our national and Visitor Satisfaction
parks. Visitor satisfaction is at record levels, Visitor satisfaction Funding in millions
in fact. Every year since 1998, about 95 100% 1,800
percent of park visitors have rated the overall Visitor Satisfaction

quality of services as good or very good (see 80%
accompanying chart). The 2007 Budget for the 1,600
National Park Service (NPS) improves upon 60%
its ability to maintain visitor services and meet Operations Funding
growing visitor requirements, while enhancing 40%
1,400
administrative capability.
20%
To meet the challenges, NPS is constantly
looking for ways to improve management. 0 1,200
One initiative evaluates the “core operations” 1999 2001 2003 2005 2007
at individual parks to ensure that park Source: Department of the Interior.
resources focus on functions that are essential

to achieving park mission goals. For natural resources, NPS is using its Natural Resource Challenge
to identify and track the “vital signs” of the health of a park ecosystem. For park facilities, NPS
continues to systematically assess the condition of buildings and other assets; by the end of 2006,
NPS will have completed comprehensive condition assessments on all of its regular assets.
The 2007 Budget emphasizes cyclic and preventive maintenance to keep facilities in acceptable con-
dition. Increasing cyclic project dollars will enable parks to maintain assets on a predictive schedule,
rather than allowing them to fall into disrepair. Construction funding will decline in 2007, returning
to sustainable levels after the completion in 2006 of a five-year funding initiative to address the main-
tenance backlog. NPS will improve or keep facility conditions at current levels by using the Facility
Condition Index and other measures to prioritize and target funding, thereby ensuring a high level
of visitor service and park performance.
Reforming Federal Land Sales
The Federal Land Transaction Facilitation Act (FLTFA) was enacted by the Congress in 2000 to
better rationalize BLM’s land ownership patterns and encourage the sale of lands that do little to
contribute to the Agency’s mission. FLTFA allows BLM to retain the proceeds from the sale of certain
public lands to cover the administrative costs of those sales and to acquire other high-value parcels
within specially-designated areas, such as national parks, refuges, and monuments. The 2007 Bud-
get proposes to amend FLTFA by expanding the set of lands that DOI would be authorized to sell
under the Act and by allowing some of the sale proceeds to be spent on a broader array of environ-
mental projects. Under the proposal, DOI would be able to retain a portion of the proceeds from the
sale of BLM lands that have been identified for disposal in any BLM land use plan. This proposal
would return 70 percent of net proceeds to the Treasury. In addition, 100 percent of revenues in ex-
cess of $60 million per year would be returned to the Treasury. This proposal will allow BLM more
flexibility over which lands it sells, minimize the amount of Federal spending not subject to regular
oversight through the appropriations process, and ensure that taxpayers directly benefit from these
land sales.
Recovering Endangered Species
The purpose of the Endangered Species Act (ESA) is to recover threatened and endangered species
so that they no longer need the protection of the Act. FWS plays a vital role in guiding, facilitating,
supporting, and monitoring the implementation of protections for species stemming both from its own
programs and from the resources invested by other Interior bureaus, Federal agencies, States, Tribes,
private landowners, nonprofit organizations, and other partners. These partnerships increase FWS’
ability to effectively protect endangered and threatened species. In 2007, FWS will spend roughly
$66 million to draft and implement recovery plans. DOI will also leverage more than $180 million in
a suite of programs designed to help species recover, prevent species from becoming listed under the
ESA, or keep them off the list once they have recovered.
Recovery of species is neither quick nor easy.

Nonetheless, the Nation is achieving some
significant results on the ground through
successful partnering with private landown-
ers, conservation organizations, and Federal,
State, and local governments. The proposed
delisting of the Yellowstone grizzly in 2005 ex-
emplifies these partnerships. The Yellowstone
grizzly population, once plummeting toward
extinction, has now recovered. NPS and FWS
will each allocate $500,000 to help implement
the Yellowstone Conservation Strategy, a
long-term framework for managing the grizzly
bears and monitoring the population after the
The Yellowstone grizzly bear. delisting.
Pick-Sloan Missouri Basin Program
Consistent with last year’s request, the Budget proposes to redistribute costs of the Pick-Sloan
Missouri Basin Program to power customers who are using the dams and power plants, originally
built during the 1950s and 1960s, in part to support irrigation. The proposed reallocation will recover
outstanding project costs from these power customers who currently benefit from the project.
Indian Education Programs and School Construction at BIA Schools
Schools Matter Education is critical to ensuring a viable and

Public Schools vs BIA Schools prosperous future for Tribes and individual In-
(2004- 2005 school year)
dians. The Bureau of Indian Affairs (BIA) pro-
vides an education to Indian children on feder-
AYP Goals
Met
ally recognized reservations at 170 elementary
and secondary BIA schools across 23 States. The
school population is about 46,000–roughly seven
23 States, Public Schools percent of all Indian children attending elemen-
BIA Schools
tary and secondary schools in the Nation—but
High School has been declining annually.
Graduation
Rate A principal objective of BIA is to achieve Ad-
equate Yearly Progress (AYP) in all BIA funded
0 20 40 60 80 100 schools. The AYP is the accountability system
Source: Department of the Interior.
Percent under the No Child Left Behind Act that mea-
sures student proficiency in math, reading, and
language arts. During school year 2004–2005,
only 30 percent of BIA schools met their AYP. This does not compare favorably with the public schools
located in the 23 States where BIA has schools; the number of individual public school districts meet-
ing their AYP targets averaged 75 percent for the same year. (See accompanying chart.)
The Administration is concerned about AYP

statistics in Indian Country and is taking
positive steps to revitalize Indian education.
Current performance is not acceptable, and
the 2007 Budget includes additional funding to
restructure the BIA Office of Indian Education
Program and establish leadership positions
that will be accountable for monitoring and
helping BIA schools achieve AYP targets.
In addition, BIA has developed Program
Improvement and Accountability Plans, similar
to those used by underperforming States to
achieve better performance.
Santa Fe Indian School in New Mexico. A new $40 million, 250,000 sq.
The 2007 Budget continues to provide signif- ft. campus with modern classrooms and dormitories for 900 7-to-12th
icant funding for BIA school construction that graders has replaced buildings more than 100 years old. Approximately
is sufficient for fully or partially funding up to 60 percent of the students live on campus. The classrooms and dorms
were finished in August, and a student life center is nearing completion.
four replacement schools and several major re-
hab projects. (One of BIA’s latest and largest projects is shown in the accompanying photo.) BIA
expects to complete 19 replacement schools in 2006 and 2007 that were funded during the last sev-
eral years.
Reforming Tribal Priority Allocation Funding
Tribal Priority Allocations (TPA) funds basic tribal services, such as tribal courts, social services,
adult vocational training, child welfare, and natural resources management. These funds help ad-
vance Indian self-determination by enabling Tribes to establish their own priorities and move Federal
funds among programs.
A key factor in strengthening Indian self-determination is a Tribe’s ability to contract or compact
for BIA-operated programs. The Indian Self-Determination Act requires BIA to provide contract sup-
port costs to Tribes willing to take over these BIA programs. The 2007 Budget proposes a $19 million
increase for BIA to fully fund indirect costs for contracting Tribes.
The Administration believes TPA could be improved by targeting funding to the areas of greatest
need. The funding process used today is a formula allocation based on historical funding levels es-
tablished in the early 1970s, and has remained essentially unchanged. DOI will consult with Tribes
on how best to focus program funds on areas of need, considering the incentive effects of any such
reallocation. The Administration continues to support Tribes as they strive for self-determination.
The table below provides an update on DOI’s implementation of the President’s Management
Budget and
Integration
Status
Progress
As part of the Human Capital initiative, DOI has linked employee performance plans to organizational goals for
more than 60 percent of its employees and is enhancing diversity in mission-critical operations and leadership
positions. DOI has a long-term competitive sourcing plan in place, and is striving to implement workforce
plans using public-private competition to improve the cost-efficiency of non-core mission areas, address
significant workforce skill imbalances, and modernize business processes. In 2005, DOI faced challenges in
the implementation of the new Financial and Business Management System, but has taken management
action and is moving forward with the project. DOI will devote greater attention to meeting E-Government
initiative milestones, work with the Inspector General to address security issues identified, and ensure that
Earned Value Management is incorporated into all information technology investments. DOI continues to
manage two Presidential E-Government Initiatives. Recreation One-Stop, www.recreation.gov, reduces the
time citizens expend searching for information about recreation sites and reservations. Geospatial One-Stop,
www.geodata.gov, reduces the burden on public entities by creating consistency, compatibility, and easy access
to geospatial data. DOI is expanding its use of Activity Based Costing as a management and planning tool, and
is increasingly using performance information to justify its budget requests. To improve program performance,
DOI is tracking implementation of its PART improvement plans.
DOI has made progress in completing an Asset Management Plan, assessing the condition of its facilities, and
reporting to a Government-wide inventory database. The next step is for DOI to use this information in managing
its diverse portfolio of buildings, roads, trails, and other assets.
Department of the Interior

2005 Estimate
Actual 2006 2007
Spending
Bureau of Land Management .......................................................................... 1,798 1,732 1,760
Minerals Management Service ........................................................................ 174 158 164
Office of Surface Mining ..................................................................................... 297 294 298
Abandoned Mine Land fee extension ....................................................... — — 312
Bureau of Reclamation/CUPCA ...................................................................... 966 1,011 890
U.S. Geological Survey ...................................................................................... 935 962 945
Fish and Wildlife Service ................................................................................... 1,292 1,308 1,292
National Park Service ......................................................................................... 2,315 2,256 2,156
Bureau of Indian Affairs ...................................................................................... 2,296 2,274 2,222
Office of the Special Trustee ............................................................................ 228 223 244
All other .................................................................................................................... 489 554 481
Mandatory Outlays:
Existing law ........................................................................................................ 1,543 1,795 1,038
Legislative proposal ........................................................................................ — 6 36
Total, Outlays .............................................................................................................. 9,273 9,319 9,641
Credit activity
Indian guaranteed loan program ..................................................................... 42 75 58
Total, Guaranteed loan commitments ................................................................ 42 75 58
DEPARTMENT OF JUSTICE

• Transformed the Federal Bureau of Investigation, dramatically improving the Nation’s
ability to combat potential terrorism and resulting in more than 400 individuals being
charged in terrorism-related cases, more than 220 of whom have been convicted or
pled guilty to date; and
• Made $2.3 billion in investments in critical crime fighting initiatives, including Project
Safe Neighborhoods and the DNA Initiative, accompanying a historic drop in the
violent crime rate, which has dropped to the lowest levels in at least three decades.

• Requests $6 billion for the Federal Bureau of Investigation, including $248 million for
improvements in critical intelligence infrastructure needed to support its counterter-
rorism mission and leverage its intelligence workforce;
• Provides $395 million for a more robust, refocused Project Safe Neighborhoods initia-
tive, which will combat violent gun crime and gangs with prosecution assistance and
grants, as well as Federal agents and training;
• Provides more than $6.3 billion to Federal detention programs, incarcerating violent
criminals and contributing to the decrease in crime at the local level; and
• Requests $25 million for the Drug Enforcement Administration to expand its overseas
operations and improve intelligence collection and coordination in order to further
reduce the availability of drugs in the United States.
169
170 DEPARTMENT OF JUSTICE
The Department of Justice (DOJ) plays a vital role in protecting our Nation through its
counterterrorism efforts and its prosecution, detention, and incarceration of Federal criminals.
While combating terrorism is the first priority of the Department, DOJ also leads Federal efforts
to fight corporate crime and eliminate drug trafficking organizations within the United States. By
maintaining key State and local assistance programs, the Department enhances the capability of
State and local governments to reduce crime in our communities.
DOJ’s top priority continues to be the prevention, investigation, and prosecution of those
responsible for terrorist attacks against U.S. citizens and interests. Since September 11, 2001, the
Department has charged over 400 individuals on terrorism-related charges and obtained convictions
or guilty pleas in over 220 terrorism-related and anti-terrorism cases. The President’s 2007 Budget
further strengthens these counterterrorism efforts by investing in critical intelligence infrastructure
and information technology.
Countering the Threat of Terrorism
The Federal Bureau of Investiga-

tion (FBI) has received significant The FBI efforts are central to our success in the war on terror...
resource increases in recent years,
with funding rising from $3.2 President George W. Bush
FBI Academy, Quantico, Virginia
billion in 2001 to $5.7 billion
July 11, 2005
in 2006. These increases have
supported a surge in the number of
personnel at the FBI, adding 6,700
positions since 2001, an increase of 27 percent. The 2007 Budget provides over $6.0 billion for the
FBI, a 6.6-percent increase over the previous year and an 87-percent increase over 2001, allowing
the FBI to focus on building the infrastructure critical to supporting its counterterrorism mission.
Investments in 2007 will empower the FBI to leverage and support its workforce, particularly the
agents, intelligence analysts, and support staff in the newly created National Security Branch, the
focal point for counterterrorism and counterintelligence efforts.
The FBI is continuing its transformation from a law-enforcement agency primarily dedicated to
criminal matters to a full member of the Intelligence Community focused on counterterrorism. Over
the past four years, the FBI has developed its intelligence capabilities and improved its ability to
protect the American people from threats to national security. It has built on its established capac-
ity to collect information and enhanced its ability to analyze and disseminate intelligence. The FBI
continues to work toward development of a specialized national security workforce, integration of
California Terror Plots Foiled

In August 2005, FBI Director Robert Mueller and Attorney General Alberto Gonzales announced the indict-
ment of four men planning terrorist strikes in southern California. The indictment alleged that the group
was plotting to attack military facilities, an Israeli consulate building, the El Al Israeli airline, and Jewish
synagogues in the Los Angeles area. FBI and State and local law enforcement officials in California broke
the case by sharing information through FBI’s Joint Terrorism Task Force in Long Beach, California.
its intelligence functions and operational elements, and coordination with other members of the In-
telligence Community. The President’s 2007 program supports FBI’s priorities and its continuing
transformation by providing critical infrastructure needed for its intelligence operations and contin-
ued modernization of its operations. These initiatives will:
• Increase the number of secure facilities for conducting intelligence analysis;
• Enhance intelligence collection, systems, and training;
• Continue development of the FBI’s new case management system that will reduce paperwork
and improve information sharing; and
• Upgrade fingerprint identification systems to improve screening activities to identify potential
terrorists.
The prevention of terrorist attacks and the FBI Funding Increases

prosecution of the war on terrorism remain Budget authority in billions
the top priorities of DOJ. The United States 6
Attorneys are critical to this effort. In the past Supplemental Appropriations
year alone, there have been several convictions 5 Regular Appropriations
in terrorism cases across the Nation. These
4
convictions follow a successful track record
established over the past four years in previous
3
cases, such as those involving John Walker
Lindh, Zacarias Moussaoui, and Richard Reid, 2
among others. The 2007 Budget supports these
ongoing activities with $1.6 billion in resources, 1
of which $92 million will support increased
national security and terrorism-related prose- 0
2001 2002 2003 2004 2005 2006
cutions.
Within the Office of Justice Programs (OJP),
the 2007 Budget provides $40 million for the Regional Information Sharing System, which helps local
police agencies, as well as their State and Federal partners, identify and share criminal intelligence,
including terrorist-related threats. The 2007 Budget also requests $5 million for the expansion of
Citizen Corps’ Neighborhood Watch and the Volunteer in Police Service programs, which are part of
USA Freedom Corps. Citizen Corps provides a way for volunteers to help their communities prepare
for and counter the threat of terrorism.
Enhancing Immigration-Related Enforcement and Litigation
On November 28, 2005, President Bush outlined his plan to enhance America’s homeland secu-
rity through comprehensive immigration reform. Two major partners in this reform are the Depart-
ment’s Executive Office for Immigration Review (EOIR) and the Civil Division’s Office of Immigration
Litigation (OIL). The 2007 Budget will strengthen the Department’s ability to handle increasing num-
bers of immigration cases and ensure that these cases will not take away from DOJ’s other critical
functions. The Budget provides EOIR with enhancements totaling $9 million. The increase will pro-
vide 20 new immigration judges, 10 new immigration appeals attorneys, and support staff that will
enable EOIR to adjudicate a larger percentage of an estimated annual increase of 25,000 detained
immigrant cases and 4,000 appeals. A stronger adjudication process will help make the best use of
Department of Homeland Security enforcement strategies and resources.
OIL is the last line of defense in immigration enforcement. OIL defends challenges to the
Government’s immigration laws and enforcement actions in the Nation’s courts. OIL’s immigration
attorneys have defended the Government’s efforts to detain and remove illegal aliens, many of
whom are criminals or suspected terrorists. The 2007 Budget provides $9 million in enhancements
to assist OIL in responding to litigation associated with immigration enforcement. Immigration
has been the fastest growing part of the Civil Division’s docket. Since 2001, OIL’s attorneys have
seen their average caseloads more than triple. These additional funds will support 86 new attorney
positions and reduce OIL attorneys’ cases-per-attorney ratio by 20 percent.
Prioritizing Assistance to States and Localities
The 2007 Budget includes $1.9 billion for State and local assistance programs, including Project
Safe Neighborhoods, the DNA Initiative, USA Freedom Corps, the Regional Information Sharing Sys-
tem, Methamphetamine Lab Cleanup, and other initiatives. These and other DOJ programs enhance
the capability of State and local governments to reduce crime in our communities, reduce domestic
violence, assist victims of crime, and reduce our vulnerability to terrorism.
Project Safe Neighborhoods.

Today, violent crime is at its lowest Project Safe Neighborhoods
rate in at least three decades,
decreasing 2.2 percent in 2004. Project Safe Neighborhoods has produced significant in-
The Project Safe Neighborhoods creases in Federal prosecutions of firearms violations. This
program succeeds because it relies on local information and
(PSN) initiative, announced by
local partners to fight local crime. In short, it relies on you.
the President and the Attorney
General in 2001, has helped Attorney General Alberto Gonzales
bring together Federal, State, Fraternal Order of Police, New Orleans, Louisiana,
and local resources to help stamp August 1, 2005
out firearms-related crime in our
communities. Beginning in 2007,
PSN will become a more robust
strategy that targets not just illegal gun crime, but also the violent gangs that plague some of our
communities. Since 2001, the Administration has dedicated over $1.5 billion in Federal resources
to PSN, including grants to State and local task forces through OJP, increased Federal prosecutors
in U.S. Attorneys Offices, and agents and training within the Bureau of Alcohol, Tobacco, Firearms,
and Explosives (ATF). For 2007, the Budget requests $395 million for PSN, an increase of $154
million, or 64 percent, over the 2006 enacted level. The program increase will:
• Provide $59 million in grant assistance for State and local prosecution of criminal misuse of
firearms and illegal gang activity;
• Increase funding for States to update criminal history records, which are needed to deter illegal
firearms purchases, by $29 million—almost four times the 2005 enacted level;
• Make available $15 million in technical assistance to State and local law enforcement to assist
in combating gangs; and
• Permit the deployment of ATF Violent Crime Impact Teams to 15 additional cities to assist
States/localities in combating violence.
The DNA Initiative. The 2007 Budget continues funding for the President’s DNA initiative,
Advancing Justice through DNA Technology, a plan to devote $1 billion over five years to help
realize the full potential of DNA technology in the criminal justice system. The initiative advances
the use of DNA to solve crimes and protect the innocent. The initiative will help clear the backlog
of unanalyzed DNA samples from the most serious violent offenders; invest in DNA analysis
technology for crime labs; train criminal justice professionals to make better use of DNA evidence;
and promote the use of DNA to identify missing persons. The Administration proposes $234
million in 2007 for this initiative, an increase of $68 million over the 2006 enacted level. Priorities
include using DNA to help solve crimes by eliminating backlogs of unanalyzed DNA evidence,
strengthening crime lab capacity, stimulating research and development, and training the criminal
justice community, as well as using DNA to help protect the innocent and identify missing persons.
With DOJ assistance, the backlog of convicted offender DNA samples was reduced by 67 percent in
2005, and casework samples were reduced by 21 percent. An important tool in this initiative is the
Combined DNA Index System (CODIS), an electronic DNA database that is maintained by the FBI
and shared among all 50 States and Puerto Rico. With the help of CODIS, DNA information can be
stored and used to help solve future crimes.
Protecting Our Children. DOJ is committed to fighting child pornography and obscenity, and
to protecting children from trafficking and other forms of exploitation. The Department works
with other law enforcement agencies to target, dismantle, and prosecute predatory child molesters
and those who traffic in child pornography. In 2005, the Department charged 1,616 individuals
and obtained 1,370 guilty pleas and convictions in criminal cases involving predation against
children—a 51-percent increase above the 2004 total of 907 guilty pleas and convictions. The 2007
Budget includes $15.4 million for local Internet Crime Against Children investigative task forces.
Child abductions, especially by strangers, are among the most tragic of crimes. With the help of
the growing AMBER (America’s Missing: Broadcast Emergency Response) Alert network, more chil-
dren are being found and returned to their homes every year. AMBER Alerts are emergency alerts
broadcast by local authorities when law enforcement discovers that a child has been abducted and
is in imminent danger of harm. Since the President announced an Administration effort to expand
and coordinate the AMBER Alert network in October 2002, AMBER Alert has been credited with
the recovery of about 200 children, or over 85 percent of all 230 recoveries since AMBER Alert began
in Texas in 1996. Today, there are 114 AMBER Alert plans operating across the country, including
37 local, 27 regional, and 50 State-wide plans. The Budget includes $5 million for the continued
development of the successful AMBER Alert network across America.
Violence Against Women. More than 500,000 reported incidents of domestic violence and over
200,000 reported rapes were committed in the United States in 2004. Approximately one-third of
women who are murdered each year are killed by their current or former husband or partner. In the
2002 Budget, the President requested and secured a $100 million increase in funding for Violence
Against Women Act (VAWA) programs and has continued to provide similar levels of funding in every
Budget since then. In an effort to combat the problem, the Administration has obtained over $2.2
billion in funding since 2001 for programs that combat violence against women. The Budget requests
$369 million for VAWA programs that target domestic violence and strengthen services for victims
and their dependents, and hold offenders accountable. Not only do VAWA-funded programs provide
training and support to local law enforcement, but VAWA programs also provide services and support
to hundreds of thousands of victims each year. VAWA programs are funded primarily through DOJ’s
Office on Violence Against Women.
Prisoner Re-entry. More than 600,000 offenders are released from local, State and Federal pris-
ons each year and face multiple barriers on their return to society, including inadequate job skills
and lack of housing. Approximately one-half of prisoners are re-arrested within three years of their
release, and half return to prison during that same period. To confront this problem, the President
announced in his 2004 State of the Union Address a four-year $300 million Prisoner Re-entry Initia-
tive to help individuals leaving prison make a successful transition to community life and long-term
employment. Drawing on the collaborative efforts of the Departments of Labor, Health and Human
Faith-Based Efforts
Government can hand out money, but government cannot put hope in people’s hearts, or a sense of purpose
in people’s lives. That’s why I’m such a strong believer in the faith-based initiative, an initiative which will
empower people of all faiths in America to do what they’ve been called to do, to help a neighbor in need, to
love somebody.
2002 Unity Luncheon, Atlanta, Georgia
October 17, 2002
Services, and Justice, and harnessing the experience of faith-based and community organizations,
the program offers a range of job training, housing, and mentoring services to help reduce recidivism
and ensure that former prisoners are reintegrated into society. The President’s Budget provides $59
million for this initiative in 2007, including $15 million within DOJ.
Improving Capital Litigation. The Nation’s criminal justice system depends not just on our ability
to apprehend criminals, but also on the ability of our courts to fairly prosecute those suspected of
crimes. Cases involving the death penalty must be handled in full accordance with constitutional
guarantees. The 2007 Budget provides $15 million to enhance the Capital Litigation Improvement
Grant program, an increase of $14 million over the 2006 enacted level. This program will provide
grants for training of defense counsel, State, and local prosecutors, and State trial judges, with the
goal of improving the quality of representation and the reliability of verdicts in State capital cases.
Cleanup of Methamphetamine Labs. Methamphetamine’s addictive and harmful properties are
well-documented. Production of methamphetamine (also known as “meth”) often takes place in small,
informal laboratories set up in homes, sheds, and other buildings. The hazardous byproducts of
methamphetamine production can threaten the health and life of those making the illegal drug, their
families and communities, as well as the law enforcement officers who respond. Cleanup of these sites
strains the resources of the communities, often rural, in which they are found. The Budget provides
$40 million for the clean-up of these toxic waste sites, an increase of $20 million and 100 percent over
the enacted 2006 level. The additional funding will ensure that the Drug Enforcement Administra-
tion (DEA) is able to respond to all requests for cleanup of methamphetamine laboratories seized by
State and local law enforcement agencies and fund the start up costs for container programs in all
States requesting them.
Drug Courts. The 2007 Budget provides $69 million to increase the number of America’s drug
courts, an increase of $59 million over the 2006 enacted level. In 2001, there were only 750 drug
courts offering treatment and other alternatives for non-violent drug offenders. Today, there are
over 1,600 drug courts, and more are in the planning stages. The funding will allow hundreds of
additional communities to plan for drug courts, and provide grants to implement or enhance over
100 drug courts across the country.
Combating Domestic Trafficking in Persons. The 2007 Budget provides $20 million for new grants
for State and local law enforcement to improve programs to investigate and prosecute acts of severe
forms of trafficking.
Enhanced Funding for Detention and the Bureau of Prisons
The 2007 Budget provides $5 billion for the Bureau of Prisons (BOP) and $1.3 billion for the Of-
fice of the Federal Detention Trustee (OFDT). These DOJ components ensure that Federal criminals
are safely detained and incarcerated to assure public safety. The costs of Federal incarceration and
detention activities account for almost a third of DOJ’s annual budget. At present, there are over
188,000 inmates in Federal custody, of which approximately 11 percent represent immigration-re-
lated arrests and over 53 percent represent drug-related offenses. The number of Federal detainees
has also experienced record growth, up over 300 percent over the past decade. The largest increases
in the detainee population have occurred along the U.S. Southwest border because of increased De-
partment of Homeland Security immigration enforcement. While current system-wide crowding at
Federal prisons is at the lowest level in several years, more prison and detention space is still needed.
In the recently released report, Contracting for Imprisonment in the Federal Prison System: Cost
and Performance of the Privately Operated Taft Correctional Institution, the National Institute of
Justice found that contractors can offer affordable and safe alternatives to building new low security
prisons, in turn reducing crowding at existing facilities. The 2007 Budget provides $40 million to add
new prisoner space located at a new contractor-managed low security prison in Philipsburg, Penn-
sylvania; to secure other new contractor-managed prison bed space; and to activate a new housing
unit at an existing correctional institution in the northeast region, adding 1,962 beds.
OFDT has implemented management efficiencies and streamlining that have reduced the amount
of time immigration offenders spend in detention awaiting incarceration. Innovative initiatives such
as the “e-designate” pilot—a paperless, electronic offender transition process that allows the courts,
the United States Parole Commission, the United States Marshals (USMS), BOP, and Immigration
and Customs Enforcement (ICE) of the Department of Homeland Security to move paperwork elec-
tronically between offices and agencies—has already reduced the amount of time offenders spend in
detention in Arizona from 147 to 118 days, resulting in savings of $28 million. In addition, BOP con-
tinues to make progress in its streamlining and other efficiency measures. BOP has already abolished
nearly 700 management positions, closed several outmoded and inefficient prison camps, and begun
the transfer of inmates with the most critical medical needs to consolidated BOP medical centers,
resulting in savings to the taxpayer.
Improving Drug Enforcement Efforts
DEA is responsible for investigating drug trafficking organizations in tandem with the other Fed-
eral agencies participating in the Organized Crime and Drug Enforcement Task Force (OCDETF) pro-
gram. DEA and OCDETF focus their efforts on Consolidated Priority Organization Targets (CPOTs),
the largest and most significant international drug trafficking organizations operating in the United
States. During 2005, DEA and OCDETF successfully dismantled 119 organizations linked to those
on the CPOT List, and significantly disrupted the activities of 208 others. The 2007 Budget continues
to support this focus on priority international organizations by expanding the Department’s overseas
presence. The Budget provides $9 million for enhanced DEA operations in the drug production and
transit zones of Central and South America, as well as $4 million in funding for DEA teams deployed
to Afghanistan to stem the supply of heroin entering the global narcotics market from that country.
The 2007 Budget also focuses on enhancing intelligence capabilities within the Department’s
drug enforcement components by providing $12 million to improve DEA’s intelligence collection and
coordination.
For 2007, the Budget also proposes transferring the High-Intensity Drug Trafficking Area (HIDTA)
Program, operated by the Office of National Drug Control Policy, to DOJ in order for the program
to be better coordinated with OCDETF and the Department’s other drug enforcement efforts. The
Improving Drug Enforcement Efforts

By investigating and dismantling drug trafficking
organizations overseas, DEA disrupts the flow
of illegal narcotics into the United States and
reduces the availability of drugs on our streets.
Colombian Coast Guard officers, working with
DEA agents and analysts, seized two tons
of cocaine, pictured here, before these drugs
could be shipped north for distribution in the
United States. The 2007 Budget provides
DEA with additional resources to expand their
overseas operations in Central and South
America, as well as Southwest Asia.
program originally was intended to focus resources on a limited number of regions experiencing the
most serious problems with organized drug trafficking. It now spends $225 million on 28 areas that
include much of the populated United States. Efforts to focus the HIDTAs on the President’s National
Drug Control Strategy priority of targeting high-level organizations, such as the CPOT List have
been hindered by the practice of funding individual HIDTAs at the same level year after year. As
a result, the Budget proposes a HIDTA program that will focus funds on regions that are primary
national drug distribution or transit zones. The Budget provides this new, better-focused HIDTA
program with funding of $208 million.
Other Federal Law Enforcement Efforts
ATF continues to play an integral role in the fight against illegal firearms traffickers, explosives
violations and arson. The 2007 Budget includes $980 million for ATF, of which $120 million will come
from a new user fee to help pay for regulations enacted to ensure that explosives stay out of hands
of terrorists and other criminals. The Safe Explosives Act of 2002, requires ATF to issue mandatory
permits for explosives purchasers and perform background checks for all licensees and their employ-
ees. Since the Act’s passage and implementation, regulatory activities have become a larger portion
of ATF’s budget.
The 2007 Budget also includes $16 million to increase the number of Violent Crime Impact
Teams—part of the Project Safe Neighborhoods initiative. By assisting local police forces, proactively
enlisting community involvement, and committing targeted Federal law enforcement resources,
these teams have proven to be effective at mitigating violent crime in communities that have
experienced sharp increases in such crime.
The USMS provides protection to Federal courthouses, members of the Federal judiciary, and
witnesses associated with Federal court cases. The 2007 Budget provides resources to expand the
USMS Office of Protective Intelligence and to enhance off-site judicial security. This will enable the
Marshals to detect, assess, and respond to potential threats in a timely manner and will strengthen
threat analysis capability. The Budget also provides new resources to make important upgrades to
USMS information technology and financial management capabilities.
The 2007 Budget aims to focus the Nation’s resources on priorities, which requires an evaluation of
existing programs to ensure they are continuing to meet an important national need and demonstrate
results. When programs can no longer demonstrate that they are effectively meeting an important
national priority, it is time to reconsider whether they should continue to be funded as spending
priorities.
Eliminating Non-performing Programs
The President’s Budget reduces or eliminates a number of programs that do not have a record of
producing results, including:
• The State Criminal Alien Assistance Program (SCAAP), which serves as a form of revenue shar-
ing rather than a program to improve Federal immigration-related enforcement. The President
is committed to protecting our borders and enforcing immigration laws. The President’s 2007
Budget reflects this commitment by proposing a 34-percent increase in Government-wide
immigration enforcement and a 90-percent increase since 2001. These increases will support
initiatives to expedite removal of illegal immigrants and expand successful partnerships
between Federal, State, and local entities committed to immigration enforcement. Currently,
SCAAP is not focused on crime reduction and cannot demonstrate an impact on crime, and
there is no requirement that funds be used to address local crime or correctional issues. A
2003 Program Assessment Rating Tool (PART) assessment rated SCAAP as Results Not
Demonstrated. Ending this program will save $400 million a year.
• General purpose State and local law enforcement programs, such as the Byrne Justice Assis-
tance Grants, which are not able to demonstrate an impact on reducing crime. A 2005 PART
assessment of the Byrne Justice Assistance Grants also found the program’s lack of long-term
goals and measures inhibited targeting of resources to address real crime needs, notwithstand-
ing funding of $542 million in 2005 and $327 million in 2006. Eliminating this program will
save $327 million a year.
• Programs such as the Byrne Discretionary Grants and the COPS Law Enforcement Technology
Grants, which are earmarked in their entirety by the Congress. Such programs prevent target-
ing of assistance based on competitive need. Eliminating these programs will save $317 million
a year.
• Juvenile Accountability Block Grants (JABG), which provide a variety of non-focused juvenile
justice grants to States and localities. A 2002 PART assessment rated JABG as Ineffective.
Without undergoing a major redesign, the program cannot target resources effectively. Termi-
nating this program will save $49 million a year.
Reductions Achieved in 2006
In 2006, the President’s Budget proposed a number of reductions in programs that have not demon-
strated results. Some of the reductions enacted by the Congress include:
• The COPS Hiring Grant program. A 2002 PART assessment rated the COPS Hiring Grants
as Results Not Demonstrated with respect to reducing crime. Additionally, the program has
already achieved its mandate, which was to help local police agencies to hire over 100,000 police
officers. As a result, additional funding is unwarranted. No funding was provided in 2006.
• COPS Interoperable Communications Grants. Redundant of Department of Homeland Security

efforts to assist States and localities with improving the emergency communications systems of
first responders, the 2006 enacted level fell to $10 million from the 2005 level of $99 million.
Providing For More Effective Government
The PART process assesses the effectiveness of programs and helps inform management actions,
budget requests, and legislative proposals directed at achieving results. During 2005, the Depart-
ment and OMB completed nine new PART assessments, bringing the total of DOJ’s programs that
have been assessed to 27; programs representing approximately 80 percent of the Department’s
resources. New assessments completed in 2005 include:
• DOJ General Legal Activities (GLA)—Rated Effective. In 2005, the GLA program successfully
resolved 91 percent of criminal court cases and 84 percent of civil court cases in favor of the Gov-
ernment, exceeding its targets. To continue improving, the program is seeking an independent
evaluation of its activities and implementing new skills and training programs for managers.
• The United States Trustees Program—Rated Effective. In 2005, the program achieved a 99-per-
cent success rate in its efforts to prevent fraud and abuse of the U.S. bankruptcy system. DOJ
is reviewing performance targets, aiming for more aggressive performance improvements.
• FBI Counterterrorism Program—Rated Adequate. To improve its counterterrorism program, the
FBI is increasing the percentage of human intelligence sources that have been validated and the
percentage of counterterrorism personnel who have been appropriately trained.
• FBI Counterintelligence Program—Rated Moderately Effective. The FBI is working to increase
the percentage of field offices that partner with other intelligence agencies, maintain contact
with possible targets of foreign intelligence services, and identify operations of threat countries.
• Bureau of Prisons Construction—Rated Adequate. BOP is evaluating low and minimum-security
prison space for the housing of higher-security prisoners and examining State, local, and private
facilities for housing more low and minimum-security inmates.
• National Institute of Justice—Rated Adequate. In 2005, the public requested over seven million
copies of the Institute’s reports and other publications. Future budget requests will provide more
information to help link resources requested for the Institute’s research programs to program
goals.
• Bureau of Justice Statistics (BJS)—Rated Effective. Each month 30,000 users access BJS’s
website for the latest in national criminal justice statistics. The Budget supports increased
funding to improve criminal justice statistics on crime and victimization.
• Multipurpose Law Enforcement Grants (Byrne Grants)—Rated Results Not Demonstrated. In
response to the assessment, the Budget eliminates funding for these grants.
• The Vaccine Injury Compensation Program—Rated Adequate. The program is planning to eval-
uate its impact and design, as well as improve techniques for projecting the program’s financial
liabilities.
The table below provides an update on DOJ’s implementation of the President’s Management
Budget and
Integration
Status
Progress
During 2005, DOJ has made strong progress in implementing most areas of the President’s Management
Agenda. DOJ launched a new human capital strategic plan and developed metrics to guide workforce-related
decision-making. After two quarters of strong performance in the area of human capital, DOJ has created sets
of best practices to be shared within and outside the Department. In competitive sourcing, DOJ is proceeding
with the development of a new FAIR Act inventory of commercial positions and will develop a plan for future
competitions in 2006. In 2005, DOJ completed five streamlined competitions, including a total of 58 full time
equivalents, which resulted in an estimated $2.3 million in savings. The Department has addressed weaknesses
in OJP’s grant accounting, restoring its unqualified opinion on the 2004 financial statements and leading to
an unqualified opinion on the Department’s 2005 financial statements. DOJ also is taking steps to develop a
Unified Financial Management System. DOJ continues information technology improvements in support of the
24 Presidential E-Government initiatives. Additionally, DOJ continues to improve its planning, management,
and execution of information technology projects. The Department also has made improvements in budget and
performance integration. Senior leaders now review integrated budget and performance information on a
quarterly basis and use it to make management decisions and to direct improvements in program results. Further,
the Department has created and approved efficiency measures for 100 percent of PART-assessed programs.
DOJ has launched and is operating several pilot programs open to faith-based and community organizations
(FBCOs), including: faith-based residential units in Federal prisons and in a State juvenile facility; projects to
train clergy in helping victims of domestic violence and elder fraud; and programs to provide sub-grants to
small FBCOs working with crime victims. The Department continues to conduct outreach to FBCOs and is
reporting accurate, timely information on the extent of FBCO participation in the Department’s discretionary
grant programs. In support of the Real Property initiative, the Department has appointed a senior officer with
responsibility for DOJ’s real property assets and implemented changes to its Department Rent Management
System (DRMS) to enable DRMS to serve as the repository for all Department real property assets. A complete
inventory of the Department’s real property assets has been completed and will continue to be maintained and
updated by DOJ.
Department of Justice
2005 Estimate
Actual 2006 2007
Spending
Federal Bureau of Investigation ...................................................................... 5,208 5,669 6,040
Drug Enforcement Administration .................................................................. 1,696 1,665 1,736
Federal Prison System ....................................................................................... 4,751 4,919 4,962
United States Marshals Service ...................................................................... 748 792 826
Bureau of Alcohol, Tobacco, Firearms, and Explosives ......................... 878 912 860
Detention Trustee ................................................................................................. 874 1,162 1,332
United States Attorneys ..................................................................................... 1,544 1,580 1,637
General Legal Activities ..................................................................................... 625 653 684
National Security Division.................................................................................. — — 67
Office of Justice Programs, COPS, Office on Violence Against
Women ................................................................................................................. 2,795 2,414 1,228
Organized Crime and Drug Enforcement Task Force ............................. 552 483 706
All other .................................................................................................................... 779 722 628
Subtotal, Discretionary budget authority .......................................................... 20,450 20,971 20,706

Less Crime Victims’ Fund rescission ............................................................ — — 1,255
Total, Outlays .............................................................................................................. 22,751 22,344 24,738

DEPARTMENT OF LABOR

• Launched a High Growth Job Training Initiative to train workers for jobs in the career
fields of the 21st Century;
• Developed and implemented the Community-Based Job Training Grant program
to bring community and technical colleges, employers, and job-seekers together
to prepare for the changing economy;
• Revised outdated and burdensome regulations in order to better protect workers by
strengthening overtime protections and improving the transparency of labor union
finances;
• Removed barriers to participation of faith-based and community organizations in grant
programs;
• Published the first-ever regulations explaining the reemployment rights and protec-
tions for our National Guard, Reserve, and active duty servicemembers serving in the
War on Terror and elsewhere around the world; and
• Posted the strongest-ever worker protection enforcement results.

• Gives workers more control over their own career planning, skills training, and
reemployment through innovative, flexible Career Advancement Accounts;
• Continues the commitment to help workers develop the skills necessary to compete
in the 21st Century through the High Growth Job Training and Community-Based Job
Training Grant Initiatives;
• Protects workers’ pensions and promotes the security of workers’ retirement savings;
• Reinforces critical worker protections, including worker safety and health;
• Streamlines and improves the Trade Adjustment Assistance Program to better assist
workers who have lost their jobs due to trade-related reasons; and
• Reduces improper Unemployment Insurance benefit payments and reduces
Unemployment Insurance tax evasion.
181
182 DEPARTMENT OF LABOR
The President’s priorities for the Department of Labor (DOL) include safeguarding workers’
pensions; helping job seekers gain the skills necessary to compete in the 21st Century; reforming
programs to give workers more choice and control over their job training and career development;
protecting workers through strong and effective enforcement of labor laws; improving workers’
access to health benefits; and managing for results. The 2007 Budget reflects these priorities and
continues the Administration’s commitment to workers and their families.
Safeguarding Workers’ Pensions
The President has proposed comprehensive pension reform to ensure that employers honor the
retirement promises they make to their workers, and the 2007 Budget continues that commitment.
The retirement security of the 34 million Americans who are participating in single-employer spon-
sored defined benefit pension plans depends on employers keeping the pension promises they make.
However, the current system does not ensure that pension plans are adequately funded.
The Pension Benefit Guaranty Corporation (PBGC) is a Government corporation created to insure
benefits promised under private defined benefit pension plans in the event the sponsor can no longer
maintain the plan. When underfunded plans terminate, PBGC becomes plan trustee and pays in-
sured benefits. When large plans terminate, they place a strain on the pension insurance system
and impose an increasing burden on employers who sponsor healthy pension plans. Over 1.2 million
workers and retirees participated in plans that have failed and now receive their benefits, subject to
guarantee limits, from the insurance program administered by PBGC. At the end of 2005, PBGC’s
liabilities exceeded its assets by nearly $23 billion. Although PBGC will be able to pay benefits for
some years to come, the Agency will be unable to meet its long term obligations under current law.
Current projections show that the Federal budget funds devoted to paying pension benefits will run
out in 2015. At that time, PBGC would liquidate assets held in trust as needed to pay benefits until
these funds, too, are exhausted. Underfunding must be corrected to protect worker benefits and to
ensure taxpayers do not risk paying for broken promises.
The Administration’s proposal will reform the funding rules to ensure pension promises are kept;
improve disclosure to workers, investors, and regulators about pension plan status; and adjust PBGC
insurance premiums to improve the financial condition of the insurance program. These reforms will
restore solvency to PBGC and encourage continued participation in the voluntary pension system
by healthy plans. The Administration is currently working with the Congress on pension legislation
to improve pension plan funding, transparency, and increase PBGC premiums above their current
level.
Preparing Workers for Careers in the Fastest Growing Economic Sectors
Our Nation’s economy is expanding and, as a result, the labor market is changing. The Admin-
istration’s goal is for all workers who want a job to find one. The President wants to ensure that
the United States meets the education and skills training challenges brought on by the growth in
industries requiring high-skilled workers. According to the Bureau of Labor Statistics, 26 of the 30
fastest growing jobs require some type of post-high school education or training. Many high growth
industries are reporting shortages of qualified, appropriately skilled employees.
To address these challenges the President has

proposed initiatives and reforms intended to
make the Nation’s workforce investment system
more responsive to the needs of workers and em-
ployers in the 21st Century. The Administration
and the Congress have worked together to enact
two important initiatives:
High Growth Job Training Initiative. In
2002, the Administration began this initiative
as a pilot to prepare workers for the jobs being
created in high growth industries. Through
2005, $256 million in grants went to 130
President Bush discusses job growth and job training. partnerships of training providers, employers,
and the workforce investment system. In
December 2004, legislation was enacted to permanently authorize the program and finance it
through fees that employers pay when they submit visa applications for high skilled foreign workers
to work in the United States. The 2007 Budget provides $125 million for this program, which will
train an estimated 50,000 U.S. workers and help meet American industries’ need for qualified,
skilled employees.
Community-Based Job Training Grants. The 2007 Budget continues the President’s commitment to
this initiative, which he introduced in the 2005 Budget. Community and technical colleges, working
in conjunction with local industries, are a powerful economic development tool. They are accessible
to many workers and job seekers who need the education and skills training necessary for improving
employment and earnings. In addition, these colleges are well positioned to respond to local employ-
ers and help train workers for jobs that are available in their community and region. In October
2005, the Department awarded the first 70 competitive grants, totaling $125 million, through this
Presidential initiative. The 2007 Budget provides $150 million, $26 million (21 percent) more than
2006 funding, to train an estimated 60,000 workers.
Giving Workers More Choice and Control Over Their Job Training, Reemployment,
and Career Development
This Administration is committed to helping America’s workers prepare themselves for the career opportuni-
ties of the 21st Century economy. Career Advancement Accounts will give workers more choice and control
over their job training and employment options.
Secretary Elaine Chao
The Administration supports an ownership society, in which citizens have a vital stake in the future
of the United States. In keeping with this emphasis, the Administration proposes to reform Federal
programs to give workers more choices to obtain the training and reemployment services they need.
Existing job training programs must be transformed to meet the needs of workers and businesses in
the 21st Century.
The 2007 Budget introduces an important ownership society initiative, Career Advancement
Accounts (CAAs). CAAs will be self-managed accounts available to workers entering the workforce
or transitioning between jobs, or incumbent workers in need of new skills to remain employed or
move up the career ladder. CAAs will give workers the resources they need to increase their skills
and compete for the jobs of the 21st Century economy. These accounts will:
• Empower individuals by significantly increasing workers’ choices in the job training and edu-
cation they need to get back to work. Workers will have the resources to take the longer-term
training that leads to higher paying jobs.
• Triple the number of workers trained by extending training opportunities to some 800,000
workers annually. This will be accomplished, in part, by reforming how training is delivered
by consolidating redundant programs.
• Increase flexibility by allowing individuals to use their accounts for training and other services
to help them advance their careers.
Protecting Workers
The President is committed to continuing the Department’s advances in worker protections. The
2007 Budget provides $1.4 billion for the enforcement of labor laws, improving worker safety, and
compliance assistance.
The Department’s Employment Standards Administration (ESA) enforces provisions regarding
minimum wages, overtime, family leave, and child labor. Since 2001, productivity in ESA’s labor
law enforcement programs has improved and, as a result, the amount of back wages collected, the
number of workers receiving back wages, and the amount of union dues protected has increased. For
example, compared to 2001, ESA’s investigators completed 15 percent more cases per investigator
per year. This has resulted in a 25-percent increase in the amount of back wages collected. The num-
ber of audits conducted by the Office of Labor Management Standards has increased by 157 percent
since 2001, and the amount of funds recovered by the office has increased tenfold.
The 2007 Budget requests $772 million for the Occupational Safety and Health Administration
(OSHA) and the Mine Safety and Health Administration (MSHA) to strengthen workplace safety and
health through strong enforcement and innovative partnerships and cooperative agreements with
employers. These efforts will be complemented by outreach, education, and compliance assistance.
This balanced approach is producing notable results. Between 2001 and 2004, the workers’ nonfatal
injury and illness rate dropped more than 10 percent and the fatal injury rate declined nearly five
percent. Between 2001 and 2005, annual mine fatalities dropped from 72 to 57.
Protecting Workers Through Education and Outreach

The Southern California offices of the Wage and Hour Division (WHD) developed the Employment Education
and Outreach (EMPLEO) initiative. EMPLEO coordinates Federal and State governmental agencies and
non-profit organizations to promote compliance with labor laws. EMPLEO offers compliance assistance to
employers and workplace protection information to low-wage workers. Over the past 15 months, WHD has
assisted upward of 600 callers and collected $3.4 million on behalf of 2,004 low-wage workers. In one case,
a WHD investigation of Global Business Services, Inc. resulted in the recovery of $1.9 million in back wages
for 775 janitorial and related service workers.
Boosting Penalties for Non-Compliance
In some cases, employers’ compliance with Federal requirements hinges on the threat of enforce-
ment and monetary sanctions. Some of DOL’s current civil monetary penalties have not been raised
in decades (other than for inflation) and are not high enough to deter repeated or egregious offenses.
To strengthen deterrence, the Administration again calls on the Congress to pass legislation to in-
crease civil monetary penalties for violations of laws administered by MSHA. The Administration
proposes to raise the maximum penalty for egregious violations from $60,000 to $220,000, bringing
its penalties more in line with those assessed by OSHA. The 2007 Budget also proposes legislation
designed to further strengthen enforcement and protect families by increasing the amount of civil
monetary penalties that can be assessed to employers who willfully violate child labor laws.
Improving Workers’ Access to Health Benefits
The President is committed to helping small business owners and their employees gain access to
affordable healthcare. The 2007 Budget reproposes a plan to allow small businesses to join together
through industry and professional associations to purchase affordable health benefits for their work-
ers. These Association Health Plans (AHPs) will give small businesses the same purchasing power
and options that larger firms and unions currently enjoy and would expand health coverage for many
uninsured Americans in working families. The President also proposes to allow a broad range of civic,
faith-based, and community organizations to offer health benefits to their members through similar
AHPs. DOL would oversee and regulate AHPs to ensure that they meet strict solvency and other
requirements.
Helping Ex-Offenders Join the Workforce by Expanding Choices for Services
The Prisoner Re-entry Initiative is a four-year effort led by DOL, in partnership with the Depart-
ments of Justice (DOJ) and Housing and Urban Development (HUD), aimed at reducing recidivism
and the societal costs of re-incarceration by helping inmates find work when they return to their
communities. This initiative harnesses the resources and experience of faith-based and community
organizations in assisting ex-offenders. As part of their transition back to society, ex-offenders need
full access to job training, housing, and mentoring services provided by faith-based and commu-
nity organizations—access that can be accomplished through expanded choice. Unlike traditional
approaches to serving this population, the Prisoner Re-entry Initiative will enable participants to
choose from among a variety of service providers. A local community grantee organization will man-
age and monitor these opportunities that will allow each participant to decide which service providers
are best suited to meet his or her unique needs. The 2007 Budget requests $20 million in DOL, nearly
$25 million in HUD, and $15 million in DOJ for the Prisoner Re-entry Initiative.
The Administration is committed to ensuring that taxpayer dollars are spent wisely. The 2007
Budget proposes a series of reforms, including legislative action and other improvements to protect
taxpayer dollars. In addition, the Department continues its commitment to the President’s Manage-
ment Agenda (PMA) and to using the Program Assessment Rating Tool (PART) to identify ways it
can improve.
Controlling Spending While Getting Results
Through achieving results and doing more with less, the Department continues to make a posi-
tive difference in the day-to-day lives of America’s working families. Since 2001, DOL’s discretionary
spending has decreased, but the Department continues to attain positive results and meet perfor-
mance targets. For example, the Employee Benefits Security Administration (EBSA), responsible
for enforcing the Employee Retirement Income Security Act, has continued to meet its performance
goals by successfully closing an increasing percentage of its criminal cases, as well as 76 percent of its
civil cases, and obtaining monetary results of over $1.6 billion. EBSA’s customer satisfaction score
has also increased. The Federal Employees’ Compensation Act (FECA) program met all four of its
2005 goals. FECA reduced program costs by encouraging employees to return to work sooner and by
keeping medical costs down. This effort saved $21 million in 2005 alone. FECA also met its medi-
cal cost savings goal by keeping its average per case medical costs inflation well below the national
average.
Such results are complemented by the fact that DOL was the first agency to achieve an all-green
scorecard on the five Government-wide PMA components. DOL also received the 2005 President’s
Quality Award for Performance in Integrating Strategic Management Systems—which is the highest
award given to Executive Branch agencies for management excellence and for specific management
initiatives as outlined in President Bush’s Management Agenda. This was the first time an agency
achieved recognition in this top award category.
Reducing Workforce Investment System Overhead While Training More Workers
The 2007 Budget proposes reforms for job training that will increase individual choice and train
more workers, while reining in overhead costs. The President’s reforms would consolidate several
similar programs, put strict limits on overhead costs, and provide States with additional flexibility in
deciding how they provide employment services and job training. States should be allowed to redesign
their workforce investment systems so that they work better, with less Federal red tape. In return,
States should eliminate unnecessary overhead so that more resources can be directed to program
participants. Currently, too much funding is spent on competing and overlapping bureaucracies. In
addition, the 2007 Budget reduces funding for Workforce Investment Act pilots and demonstrations
by 40 percent from the 2006 level. The President’s proposal will save taxpayer dollars while training
more workers.
Reducing Improper Unemployment Insurance Benefit Payments
The Unemployment Insurance (UI) program provides monetary benefits to eligible workers who
become unemployed through no fault of their own. The UI program is a joint Federal-State partner-
ship. One of the challenges of the program is preventing improper payments. Almost $3 billion in
benefits were paid to ineligible workers in 2005. To attack this problem, the Administration proposes
a package of legislative changes that would reduce UI improper payments by an estimated $5 billion
over 10 years. The legislation would:
• Impose a penalty for UI fraud;
• Enlist private collection agencies in the recovery of overpayments;
• Charge employers when their actions lead to overpayments;
• Collect delinquent UI overpayments through garnishment of Federal income tax refunds;
• Boost States’ incentives to go after benefit overpayments by allowing them to use a portion of
recovered funds on fraud and error reduction; and
• Decrease benefit overpayments by providing more accurate date-of-hire information in State and
national new hire directories so that States can quickly stop unemployment benefit payments
to those people who have gone back to work.
Enhancing Unemployment Insurance Tax Integrity
UI is funded through employer payroll taxes. Unfortunately, some employers successfully evade
their responsibility to pay those taxes and impair the program’s effective service for other employers
and their workers. The Administration is committed to identifying tax violators and requiring them
to pay their fair share into the UI system. The 2007 Budget includes a new UI tax integrity proposal
that would reduce employer tax evasion by more than $400 million over 10 years. The legislative
proposal would:
• Reduce UI tax evasion by allowing States to use a portion of the taxes recovered following fraud
investigations for additional tax investigations and prosecutions; and
• Increase collection of delinquent unemployment taxes through garnishment of employer income
tax refunds.
Streamlining the Trade Adjustment Assistance Program
For more than three decades the Trade Adjustment Assistance (TAA) program has provided for
the training and income support that many workers have needed following a trade-related job loss.
An analysis by the PART found that the program was not well-coordinated with other programs that
could help trade-displaced workers return to work quickly. DOL is developing and implementing new
rules and strategies to make TAA more responsive and accessible to workers, including:
• Ensuring that all workers petitioning for TAA receive immediate rapid response assistance, in-
cluding financial and career counseling;
• Encouraging States to provide TAA participants the reemployment assistance available to all
displaced workers under the Workforce Investment Act and other programs, including skills
assessment, counseling, and job placement services;
• Providing a career assessment for each TAA participant to promote better training and reem-
ployment choices; and
• Providing greater flexibility in training programs by loosening restrictions on distance learning
and permitting workers to attend part-time training.
Strengthening Federal Workers’ Compensation Programs
The FECA and Black Lung Benefits Act programs play a critical role in protecting workers’
economic security, providing monetary and medical benefits, and rehabilitation services to Federal
employees and coal miners whose ability to work has been diminished by an occupational injury or
illness. The 2007 Budget proposes critical reforms to improve the operation and stability of these
programs.
FECA Improvements. FECA, which provides wage-replacement and medical benefits to Federal
employees for occupational illness, injury, or death, has not been substantially updated since 1974.
The Budget reproposes reforms to strengthen program integrity, promote benefit equity, and encour-
ages workers to return to work as early as possible. These proposals would save the Federal Govern-
ment $592 million over 10 years.
Black Lung Trust Fund Restructuring. The Black Lung Benefits Act provides wage-replacement
and medical benefits to coal miners who are totally disabled due to black lung disease and to eligible
survivors. The program pays benefits from the Black Lung Disability Trust Fund, which is financed
through an excise tax on coal. In the early years of the program, the excise tax did not cover the
program’s costs, so DOL had to borrow from the Treasury. Since 1990, the Trust Fund revenues have
been adequate to pay benefit amounts and administrative costs, but have not been enough to cover
the ever-growing interest accrued on these loans or any of the outstanding principal. As a result,
DOL continues to borrow just to pay interest on a debt approaching $9 billion. To restore the pro-
gram’s financial stability and integrity, the Administration will repropose legislation to restructure
the Trust Funds’ debt and eventually retire it.
Updating Key Economic Data
Each month, DOL’s Bureau of Labor Statistics (BLS) publishes the Consumer Price Index (CPI), a
key measure of the Nation’s economic well-being that directly affects the income of some 80 million
Americans. To construct this economic indicator, BLS gathers monthly data on prices in 87 U.S. urban
areas, and surveys more than 45,000 families to identify their spending habits, the importance they
place on the items they purchase, and where they go to buy these items. Changes in the CPI ripple
through the economy, influencing such diverse factors as school lunch prices, collective bargaining
agreements, alimony and child support payments, and income taxes. Because the CPI has a major
effect on the Nation’s economy—including consumers, financial markets, and Government benefit
programs—BLS must ensure that its data is accurate and up-to-date. The 2007 Budget includes $8
million to update the CPI’s housing and geographic area samples, thereby improving accuracy of the
CPI by incorporating recent demographic and geographic trends and changes in the Nation’s housing
stock.
Providing Timely Access to Employee Benefit Information
Workers need timely, accurate information about their employee benefit plans to make informed
decisions about their retirement and plan for the future. Additionally, DOL needs timely data about
the status of pension, health, and welfare benefit plans to evaluate plan sponsors’ financial obliga-
tions and to ensure compliance with the law. The 2007 Budget includes $12 million to allow EBSA to
launch a new data system that will electronically process employee benefit compliance information.
This new data system will replace the current reporting system, which is paper-based, error-prone,
and inefficient.
Automating and Improving Pension Reporting

Each year DOL receives over one million Form-5500 filings, which disclose the financial condition of an
employer’s pension and other benefit plans. Some of these reports are more than one thousand pages in
length. The vast majority of these reports must be manually scanned into a data processing system. This
outdated process takes years to finish and produces countless errors. DOL’s Inspector General and the
Government Accountability Office have criticized this inefficient process. The 2007 Budget will automate
pension reporting—eliminating needless errors, improving report auditing, and saving taxpayer money.
When fully implemented in 2008, the new system will provide more timely, accurate, and compre-
hensive data on employee benefits, and support the President’s plan to ensure the transparency of
retirement information for workers, investors, and retirees. The system also will help EBSA and
other Federal agencies to effectively target enforcement efforts and strengthen compliance with the
law.
Reforming Foreign Labor Certification Processing
The Permanent Foreign Labor Certification program was designed to help employers hire foreign
workers when no willing U.S. worker is available. However, the PART and other analyses have indi-
cated that this program requires major reform. In 2005, the backlog of employer applications stood
at more than 300,000, and in some instances it took applicants up to six years to receive the certifi-
cation necessary to work in the United States. DOL is overhauling the program and automating the
certification process. The Department recently created two processing centers to handle new appli-
cations and two backlog elimination centers to process and eliminate the application backlog. The
Department predicts that the new centers and processes will reduce average processing time to ap-
proximately two months, eliminate the backlog by the end of 2007, better monitor fraud, and improve
responsiveness to employer requests for foreign workers. The 2007 Budget also proposes legislation
to authorize a cost-based user fee to be paid by employers and finance the administrative costs of the
reformed Permanent Foreign Labor Certification program.
Returning Programs to Their Original Missions
The Administration is committed to focusing programs and agencies on achieving their core mis-
sion. Two DOL programs that have significantly expanded their activities to include grant-making
activities that are not part of their core missions are the International Labor Affairs Bureau (ILAB)
and the Office of Disability Employment Policy (ODEP). The 2006 Budget proposed significant re-
ductions in funding for these grant-making activities. Between 2005 and 2006, funding for these two
programs was reduced by approximately 22 percent and 40 percent, respectively. The 2007 Budget
furthers the commitment to restore ILAB and ODEP to their original mission of research and advo-
cacy by again reducing grant-making activities. The goal is to return these agencies to their original
roles and ensure they achieve desired results.
Modernizing the Senior Community Service Employment Program
The Senior Community Service Employment Program (SCSEP) provides part-time employment,
job training, and other assistance to 90,000 seniors each year. The aim of the program is to pro-
mote pathways to economic self-sufficiency for senior citizens, and help the business community
tap a steady stream of experienced, dedicated workers. A PART analysis indicated that reforms
were necessary to modernize and improve the effectiveness of SCSEP. DOL has completed one of
the PART recommendations, which called for an open competition of national grants. The expira-
tion of SCSEP’s authorization in 2007 presents a new opportunity to modernize the program. The
2007 Budget proposes legislation to streamline the administration of the program by eliminating
multiple, overlapping administrative structures, and strengthen emphasis on training and helping
participants secure jobs in the paid labor force.
Strengthening Performance Measures
An important component of the PMA is ensuring that Government programs produce results and
American taxpayers get the most for their money. One critically important component of this re-
sults-oriented management approach is the measurement of program performance. DOL continually
strives to identify, evaluate, and improve the performance measures it uses to ensure that they lead
to better management of programs and a focus on relevant results. One way to evaluate and improve
performance is to have common performance measures for programs with similar goals. DOL, in co-
ordination with other Federal agencies, has developed uniform evaluation metrics, called “common
measures,” for all job training and employment programs. For example, the common measures for
programs serving adult workers focus on whether they find and keep a job and how much they earn
after completing the program.
The table below provides an update on DOL’s implementation of the President’s Management
Budget and
Integration
Status
Progress
The Department continues to be a leader of the PMA. The Department is the first agency to receive an all-green
scorecard. In Human Capital, DOL conducted program reviews in several regional Human Resource offices,
developed and implemented a work-life management plan, analyzed and revised the employee incentive award
program, and developed a formal leadership succession plan. In Competitive Sourcing, DOL has completed
over 15 competitions, saving an estimated $19 million. DOL also continued the implementation of a new core
financial system, completed automation of many data sources, and refined metrics and targets for financial
performance plans. In E-Government, DOL improved information technology (IT) security, updated their IT
strategic plan, and invested resources in training of their IT project managers. In Budget and Performance
Integration, the Agency continued to demonstrate the use of logic models for estimating full and marginal
costs, develop more accurate efficiency measures, and use performance and PART results to justify funding
requests and management actions.
During 2005, DOL continued to demonstrate that it is a Government-wide leader on the improper payments
initiative, eliminating $600 million in improper payments in the UI program and reducing errors in the FECA
program by nearly 50 percent for a savings of approximately $3.1 million. To support the Real Property Asset
Management initiative, DOL has developed an accurate and current inventory of its property and has begun
implementing initiatives within its Asset Management Plan that will ensure that DOL’s real property inventory is
maintained at the right size and cost to best support its mission. Regarding the Faith-Based and Community
Initiative, DOL continues aggressive outreach, education, and technical assistance for State and local workforce
authorities that builds on successful pilot projects, evaluations of existing programs, and the use of practices
found to hold promise for successful implementation of program goals.
Department of Labor
2005 Estimate
Actual 2006 2007
Spending
Training and Employment Services 1 ........................................................... 5,318 3,357 5,133
Unemployment Insurance Administration .................................................... 2,673 2,549 2,650
Employment Service/One-Stop Career Centers 2 .................................. 963 850 40
Community Service Employment for Older Americans .......................... 436 432 388
Bureau of Labor Statistics ................................................................................. 529 537 563
Occupational Safety and Health Administration ........................................ 464 472 484
Mine Safety and Health Administration ........................................................ 280 277 288
Employment Standards Administration ........................................................ 401 411 437
Employee Benefits Security Administration ................................................ 131 134 144
Veterans’ Employment and Training .............................................................. 223 222 225
Departmental Management 1 .......................................................................... 228 1,782 230
Bureau of International Labor Affairs ............................................................ 93 73 12
Office of Disability Employment Policy ......................................................... 47 28 20
All other .................................................................................................................... 139 206 275
Memorandum: Budget authority from enacted supplementals ............... — 125 —
Mandatory Outlays:
Unemployment Insurance Benefits ................................................................ 32,412 35,986 37,838
Trade Adjustment Assistance ........................................................................... 845 902 939
Black Lung Benefits Program 3
Existing Law ....................................................................................................... 1,412 1,381 1,374
Legislative Proposal ........................................................................................ — — 2,282
Federal Employees’ Compensation Act
Existing Law ....................................................................................................... 212 234 227
Legislative Proposal ........................................................................................ — — 3
Energy Employees Occupational Illness Compensation Program
Act.......................................................................................................................... 736 1,729 1,035
Pension Benefit Guaranty Corporation 4 .................................................... 94 145 415
H–1B Training and Foreign Labor Certification Administration
Existing Law ....................................................................................................... 68 96 146
Legislative Proposal ........................................................................................ — — 35
All other 4 ................................................................................................................ 614 577 637
Total, Outlays .............................................................................................................. 47,021 51,447 53,368
1
2006 reflects the transfer of Job Corps from Training and Employment Services to Departmental Management.
2
2006 reflects the transfer of Employment Service State Grants to Training and Employment Services.
3
2006 reflects the Black Lung debt refinancing, which includes a one-time payment to Treasury. There is no Government-wide budgetary effect
until 2014, when the excise tax rates would be extended.
4
Net mandatory outlays are negative when offsetting collections exceed outlays.
DEPARTMENT OF STATE AND OTHER
INTERNATIONAL PROGRAMS

• Built and led a broad coalition of nations committed to winning the War on Terror
by removing oppressive regimes in Iraq and Afghanistan, destroying terrorist cells,
disrupting terrorist operations, and preventing attacks;
• Funded life-saving antiretroviral treatment for over 395,000 people in sub-Saharan
Africa and provided care services and prevention awareness to millions more;
• Completed Millennium Challenge Account compacts worth $1.2 billion, with seven
developing countries that govern justly, invest in the health and education of their
people, and promote economic freedom;
• Promoted democratic institutions and values, especially in the Muslim world, by more
than doubling the budget for the National Endowment for Democracy;
• Created and expanded education and cultural exchange programs in the Muslim world
to support underserved populations such as women and low-income youth; and
• Showed the compassion of the American people by providing humanitarian
assistance following the December 2004 tsunami in Southeast Asia and the October
2005 earthquake in Pakistan, and by assisting victims of violence in Sudan.
• Continues democracy building and reconstruction efforts in Iraq and Afghanistan, and
builds the capacity of our allies to fight terrorists by increasing key anti-terrorism and
security assistance;
• Provides $3 billion for the Millennium Challenge Account, enabling up to eight
additional compacts with eligible developing countries;
• Expands the number of people in Africa and the Caribbean who receive life-saving
treatment for HIV/AIDS to 1.3 million by 2008, an increase of almost 900,000;
• Meets the President’s commitments to fight malaria in Africa, provides 100 percent
debt cancellation to qualifying heavily indebted poor countries, and continues a path
to double aid to Africa by 2010;
• Promotes efforts to expand democracy in the broader Middle East, including
increased funding for education exchanges in the region, public diplomacy, democ-
racy programs, and broadcasting to the area; and
• Provides humanitarian relief, supports peacekeeping efforts, and continues
reconstruction in Sudan.
193
194 DEPARTMENT OF STATE AND OTHER INTERNATIONAL PROGRAMS
In this new century, we are less threatened by fleets and armies than by small cells of men who operate
in the shadows and exploit weakness and despair. The ultimate answer to those threats is to encourage
prosperous, democratic, and lawful societies that join us in overcoming the forces of terror…
Group of Eight Summit
June 30, 2005
Making the World Safer by Making the World Better
America is now threatened more by states that are failing than those seeking to conquer. Persis-
tent poverty and oppression can turn nations into havens for terror. In response to this threat, our
National Security Strategy commits the United States to “actively work to bring the hope of democ-
racy, development, free markets, and free trade to every corner of the world.” International Affairs
programs help achieve U.S. national security objectives to defend, preserve, and extend the peace.
Defend the Peace. Defending our Nation against its enemies is the first and fundamental respon-
sibility of the Federal Government. To help achieve this goal, America will aid nations that need our
assistance in combating terror. International Affairs programs provide essential expertise and equip-
ment to help our allies strengthen their military and police forces, and disrupt and isolate terrorist
networks.
Preserve the Peace. The United States encourages the advancement of democracy and economic
openness because these are the best foundations for domestic stability and international order.
International Affairs programs foster democratic institutions and development of economic security
around the world.
Extend the Peace. Poverty does not turn people into terrorists. Yet terrorists, criminals, and
drug traffickers take advantage of poverty, weak institutions, and corruption in troubled states to
spread terror. International Affairs programs, such as the Millennium Challenge Corporation, help
countries to reduce poverty, build strong democratic institutions, and create economic opportunity.
Making Foreign Aid More Effective
As our work to defend, preserve, and extend freedom and peace faces new and more complex
challenges, we must be ready to respond. Under President Bush’s leadership, the United States
has embarked on the most ambitious development agenda since the Marshall Plan, including the
Millennium Challenge Account, the President’s Emergency Plan for AIDS Relief, an ambitious
new debt relief initiative, and funding for the international financial institutions that is linked to
performance. In addition, our assistance programs in Iraq and Afghanistan have helped create
democratic governments now engaged in the fight against terrorism. Ultimately, our objective is a
world of democratic states that govern effectively, provide opportunity and protect freedom for their
citizens, and honor their international commitments.
To ensure that the Nation’s foreign aid programs are able to meet today’s challenges, the
Administration will:
• Set and measure clear outcomes and impacts for every dollar of foreign assistance;
• Develop and manage coherent, country-based strategies that integrate U.S. assistance programs
with diplomatic initiatives;
• Make the most effective use of U.S. resources to achieve foreign policy, national security, and
development objectives;
• Distinguish among the key challenges and constraints to nations at different stages of stability
and development, and select the most appropriate policy and assistance tools accordingly; and
• Encourage eventual “graduation” from foreign economic and governance aid.
The Administration will identify solutions to current global ills to ensure the U.S. Government can:
• Strengthen the security capacity of key allies in the Global War on Terror;
• Save and sustain lives in crises that result from natural and man-made disasters;
• Prevent the kind of state failure that leads to humanitarian crises, serious regional instability,
and the emergence of havens for terror and oppression, and help nations emerging from conflict
and war to move toward becoming stable, democratic nations;
• Invest in people and reform in stable, underdeveloped countries to help them create the
conditions for economic growth and democracy;
• Target significant aid to those nations that have demonstrated a commitment to economic free-
dom, ruling justly, and investing in people, and help them to address the key constraints to
growth and independence from foreign aid;
• Cooperate with other nations and institutions to fight against and eliminate the global or
transnational threats that cannot be dealt with solely within the national boundaries of
individual countries receiving aid; and
• Partner with faith-based and other international organizations to alleviate suffering and
promote hope and healing.
Winning the War on Terror and Spreading Freedom
The 2007 President’s Budget for Inter-

national Affairs supports the President’s
comprehensive strategy to win the Global War
on Terror as well as the commitment to spread
democracy and freedom throughout the world.
Supporting Freedom in Iraq. In December,
nearly 11 million Iraqis democratically elected
a government based on a constitution created
and adopted by Iraqis. The Iraqi people have
sent a clear signal that they support freedom
and oppose terrorism. Iraqis are now building
a democracy that supports minority rights and
fosters economic prosperity, which will give all Iraqi men proudly show their ink-stained fingers after voting in Hayji,
Iraq, on December 15, 2005.
Iraqis a stake in a free and peaceful country.
In just a few years, Iraq has gone from a brutal
dictatorship and statist economy serving only the interests of those in power, to a democracy
working to improve the lives of all Iraqi citizens. While Iraqis are increasingly taking the lead in
defining their own future, assistance from the United States and other countries remains critical to
help them finance important development priorities and projects. U.S. economic and reconstruction
assistance has strengthened civil society and democratic institutions, expanded and improved
electricity production and its availability, distributed millions of new textbooks, provided and
improved access to clean water for millions of Iraqis, and helped inoculate millions of Iraqi children.
However, Iraq still faces many challenges on the road to democracy. The Iraqi government must take
on a persistent insurgency, continue to rebuild infrastructure and basic services devastated during
decades of dictatorship, and create a government that operates in an open and transparent manner.
The 2007 Budget is closely linked with the President’s National Strategy for Victory in Iraq,
helping the Iraqi people defeat the terrorists and build an inclusive democratic and economically
prosperous state. The request provides $770 million to fund programs that are targeted to building
the democratic base from which the nascent Iraqi democracy can expand, sustaining the economic
infrastructure, enhancing Iraqi national capacity, and sponsoring economic development projects
that will enable the Iraqi economy to become an engine of growth capable of supporting the Iraqi
people, attracting investment, and creating jobs.
Building a Free and Stable Afghanistan. Today, Afghanistan is governed by a democratically
elected government committed to freedom and peace. On September 18, 2005, the Afghan people
voted in the first parliamentary elections held in that country since 1969. Building on the
momentum of the successful 2004 presidential election, over 6.8 million Afghan voters (43 percent
of whom were women) sent a message to the world, and to the terrorists that still threaten their
nation, that Afghanistan remains firmly on its path to becoming a free and modern nation. The
Afghan National Assembly met for its first session on December 19, 2005. Vice President Cheney
attended to recognize the importance of the Afghan accomplishment.
The United States is committed to supporting Afghanistan over the long term. The 2007
Budget provides an increase in funding to continue crucial investments in Afghanistan’s future.
These funds will help the new government fight the drug trade and give Afghan farmers viable
alternatives to poppy cultivation, invest in the health and education of its people, continue rebuilding
key infrastructure, and strengthen the capacity of the new government to collect revenues and
deliver services at both the national and provincial level. Our success in Afghanistan has a direct
impact on our national security.
…We’re working with President Musharraf to oppose and isolate the militants in Pakistan…We’re fighting the
regime remnants and terrorists in Iraq. The terrorist goal is to overthrow a rising democracy, claim a strategic
country as a haven for terror, destabilize the Middle East, and strike America and other free nations with
ever-increasing violence. Our goal is to defeat the terrorists and their allies at the heart of their power—and
so we will defeat the enemy in Iraq.
National Endowment for Democracy
October 6, 2005
Global War on Terror. Security and anti-terrorism programs assist like-minded governments by
building capacity to destroy the terrorist networks and incapacitate the networks’ leadership abroad.
The 2007 Budget sustains funding for these key programs.
Nonproliferation programs and tough diplomacy are denying weapons of mass destruction (WMDs)
to outlaw regimes and to their terrorist allies. The 2007 Budget proposes to increase the nonprolif-
eration programs of the Department of State that help countries control dangerous materials and
secure their borders, and that direct scientists with knowledge of WMD technology into productive
and sustainable civilian work.
Democracy and the Freedom Agenda. Democracy is on the march around the world. In 2005,
the world witnessed historic democratic elections in Iraq, Afghanistan, Liberia, Burundi, Lebanon,
Kyrgyzstan, and the Palestinian Authority. Advancing democracy and building democratic
institutions is a key goal of the President’s foreign policy and national security agenda.
As the President noted, “the survival of liberty in our land increasingly depends on the success
of liberty in other lands.” The 2007 Budget seeks an increase for the Human Rights and Democracy
Fund, as well as for democracy programs in the Middle East Partnership Initiative. The 2007 Budget
also includes $80 million for the National Endowment for Democracy, which provides grants to pri-
vate organizations that build and strengthen democratic institutions, promote the rule of law, human
rights, and a free press.
The Administration is also reviewing its
assistance programs to ensure a strategic
focus on countries where democracy is threat-
ened or a lack of democracy threatens others
in the region. The 2007 Budget provides
sufficient resources for robust democracy
strategies in those countries to ensure that
citizens have the tools and skills to elect
accountable governments and advocate for
peaceful change.
The Department of State’s educational,
professional, and cultural exchanges seek
to improve the world’s understanding of the
President George W. Bush meets with Secretary of State Condoleezza
Rice and Under Secretary for Public Diplomacy and Public Affairs Karen
United States and Americans’ understanding
Hughes. of the world and are key components of the
freedom agenda. The 2007 Budget includes
$474 million for Educational and Cultural Exchange programs, an increase of approximately $48
million over the 2006 level, with an emphasis on the Muslim world. These programs provide
opportunities for individuals from the United States and abroad to learn about each others’ societies
by direct experience, through educational, cultural, and professional exchange programs, including
Fulbright scholarships and exchanges that target high school students and professionals who are
“key influencers.” Special emphasis programs include ACCESS microscholarships, which provide
English language instruction to low-income and underserved youth abroad, and exchanges involving
journalists, teachers, women, and clerics.
Expanding democracy, supporting political, economic and social reform, and improving access to
education, information, and jobs is critical to eradicating international terrorism. The 2007 Budget
supports the expansion of American Corners in the Muslim world—centers dedicated to providing
information about the United States. The Administration will bring foreign journalists to the United
States to assist in producing programming related to American culture.
Language Education Initiative. Our national security depends, in part, on the ability of the
American people to speak and master critical foreign languages. During the Cold War, millions of
Americans took advantage of Government programs and learned to speak Russian. Now we must
improve our skills in learning such languages as Arabic, Farsi, Mandarin, Hindi, and Urdu to
promote our national security, foster greater economic integration, and further the freedom agenda.
The 2007 Budget includes $115 million for a new National Security Language Initiative. This
initiative will be implemented by the Departments of State, Education, Defense, and the Director of
National Intelligence, to fill a critical national security need by expanding the number of Americans
mastering critical need languages that are directly related to our efforts to wage the Global War on
Terror and spread democracy.
We must encourage young scholars to study the great history and traditions of the region. We need skilled
linguists who can communicate with their people so we can engage in a fruitful dialogue about what it means
to live in liberty.
September 9, 2005
International Broadcasting. The 2007 Budget continues to support radio, television, and internet
broadcasting of news and information about the world and the United States to people across
the globe. The Budget expands live news coverage in the Middle East from 18 to 24 hours a
day on Alhurra television and increases field news reporting for Radio Sawa. In addition, the
Voice of America will enhance its broadcasts of U.S. and world news to Venezuela, Zimbabwe,
and Afghanistan. Radio Free Europe/Radio Liberty will shift its Russian radio broadcasting from
shortwave radio transmission to more popular frequencies in major cities, and Radio Free Asia will
add medium wave transmission to North Korea.
Strategic States. In addition to an increased focus on spreading democracy and freedom around
the world, the long-standing relationships between the United States and our strategic partners are
also a critical component of our national security. The 2007 Budget continues strong U.S. support for
key countries and the world.
• The 2007 Budget includes security and

economic assistance to Israel, a key ally of
the United States and partner in the effort
to combat terrorism and achieve lasting
peace in the Middle East. The 2007 Budget
also includes economic assistance for the
West Bank and Gaza, to further support the
President’s vision of two states, Israel and
Palestine, living side by side in peace and
security.
• The 2007 Budget sustains our commitment
to Colombia, enabling it to build on progress
in the war against narco-terrorists. Building
the capabilities of Colombia to fight terrorists
Distribution of emergency relief supplies in Balakot, Pakistan, on strengthens a strategic partnership that is
October 12, 2005. vital to the security, prosperity, and freedom
of both our countries and the Americas.
• Funding is also provided for Pakistan, a key ally in the Global War on Terror. A stable,
economically thriving Pakistan serves U.S. interests in South and Central Asia. Our two
nations have coordinated intelligence, law enforcement, finance, and military activities to
successfully apprehend al Qaeda operatives and help bring peace to neighboring Afghanistan.
The Budget increases economic support to aid Pakistan in its recovery and reconstruction
from the cataclysmic earthquake that occurred on October 8, 2005. Quick efforts by the
United States reduced immediate suffering and averted a second disaster due to the extreme
conditions. Reconstruction efforts are underway to replace critical community infrastructure,
such as small hospitals, primary and secondary schools, and to train in earthquake resistant
construction techniques. These efforts will continue in 2007.
Preventing and Responding to Global Ills through Humanitarian Aid and

Transnational Programs
The 2007 Budget is committed to providing

support for efforts to address global health
problems such as the HIV/AIDS pandemic,
malaria, and avian influenza, as well as famine
and other humanitarian crises. The President
has committed to treating people with AIDS
in Africa and other regions, feeding hungry
people throughout the world, and responding
to international disasters and humanitarian
needs because the United States has a re-
sponsibility and interest in helping people
in desperate need overseas. Humanitarian
assistance demonstrates the compassion of the
American people. It also provides important
security benefits to the United States by The Emergency Plan not only purchases antiretroviral drugs like
ensuring stability in countries suffering from these, but also supports the delivery mechanism and infrastructure
development necessary to provide effective AIDS treatment.
humanitarian disasters.
The President’s Emergency Plan for AIDS Relief Provides Hope. The President’s Emergency Plan
for AIDS Relief (PEPFAR) is a five-year, $15 billion program that supports bilateral, regional, and
volunteer HIV/AIDS programs in over 120 countries around the world, with a specific focus on the 15
nations that represent one-half of the world’s infections: Botswana, Cote d’Ivoire, Ethiopia, Guyana,
Haiti, Kenya, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda, Zambia,
and Vietnam. The Emergency Plan also supports contributions to international organizations includ-
ing UNAIDS, and is the world’s most generous donor to the Global Fund to Fight AIDS, Tuberculosis,
and Malaria.
Since taking the ARV medicine, I have a lot more energy and can take care of my children. Before I had no
hope; now I know we have a future.
Hoa, a 27 year old woman who contracted HIV from her drug-addicted husband, receives care and treat-
ments from Ho Chi Minh City’s District 2 clinic, which has been open for less than one year and has almost
200 patients with HIV. Her husband is now in a drug rehabilitation center, leaving her to care for their two
young children. Six weeks after starting ARV, she is gaining weight, her skin is clearing up, and she does
not feel so tired anymore.
Office of the Global AIDS Coordinator

The initiative is providing hope to those who had none only a few years ago. In 2003, when the
Emergency Plan was announced, the World Health Organization reported that only 50,000 people in
sub-Saharan Africa were receiving antiretroviral (ARV) treatment. Three years later, in partnership
with the host nations, the Emergency Plan is supporting treatment for over 395,000 sub-Saharan
Africans in the 12 African PEPFAR countries. This treatment allows people living with HIV/AIDS
to earn a living and care for their children and families. Overall, in the 15 PEPFAR focus countries,
the Emergency Plan is supporting host government strategies to provide life-saving ARV treatment
for over 400,000 people, extend care services, and bring prevention awareness to millions more as of
September 2005.
The President’s 2007 Budget requests $4 billion, more than $740 million over 2006, to continue the
global fight against HIV/AIDS. The Emergency Plan’s commitment to holding programs accountable
for achieving results has ensured that funds are used effectively and has allowed the United States
to measure the outcomes achieved with its funding. The 2007 funds will be used to sharply ramp-up
the delivery of treatment, care, and prevention activities by building on the demonstrated success of
the programs on the ground and the capacity that has been built in the focus countries during the
first three years of the Emergency Plan.
In addition, two components of the Emergency Plan will further improve the ability to deliver these
services:
• The New Partners Initiative will provide $200 million through 2008 to build the capacity of
faith-based and other international organizations at the community level to support prevention
and care services to help build local ownership of HIV/AIDS responses for the long term.
• The Partnership for Supply Chain Management will strengthen the pipeline of essential drugs
and supplies for people living with or affected by HIV/AIDS and other infectious diseases in
developing countries.
Malaria. On June 30, 2005, President Bush challenged the world to reduce dramatically the burden
of malaria as a major killer of children in sub-Saharan Africa, and pledged to increase U.S. funding
of malaria prevention and treatment by more than $1.2 billion over five years. The United States
committed to work with the international community rapidly to increase preventive and curative in-
terventions by 2010 in 15 African countries that have particularly high rates of malarial infection.
The goal of this effort is to reduce malaria deaths by 50 percent in each of the target countries after
three years of full implementation. The United States is partnering with the World Health Organiza-
tion; the World Bank; UNICEF; the Global Fund to Fight AIDS, Tuberculosis, and Malaria; the Bill
and Melinda Gates Foundation; the Red Cross; the private sector; and others to make this initiative
Research Has Begun to Link Health Conditions with National Security

• Malawi troop strength has decreased significantly due to HIV/AIDS deaths and is half of the minimum
needed to guarantee state security.
• Nigeria has witnessed stark increases in non-combat mortality in its military ranks over the last five
years, with 43 percent directly ascribed to HIV/AIDS.
• In 2002 and 2003, about one-third of all Russian young men drafted were rejected for military service
for health reasons, including HIV/AIDS, tuberculosis, drug addiction, and psychological problems. The
HIV/AIDS rate has shot up 25 fold since 1999 among potential 18-year-old draftees.
Laurie Garrett
“The Lessons of HIV/AIDS,” Foreign Affairs
July/August 2005
a success and expand it to additional nations. The 2007 Budget includes $225 million for this critical
program.
Avian Influenza. While leading worldwide efforts to fight HIV/AIDS and malaria, the United States
is also playing a key role in the global preparedness effort amassed in response to the threat of an
avian influenza pandemic. In September 2005, President Bush announced the International Part-
nership on Avian and Pandemic Influenza. The Partnership brings together key nations and in-
ternational organizations to improve global readiness by elevating the issue on national agendas;
coordinating efforts among donor and affected nations; mobilizing and leveraging resources to fight
the disease; increasing transparency in disease reporting and surveillance; and building capacity to
identify, contain, and respond to a pandemic influenza.
The National Strategy on Pandemic Influenza states that the most effective way to protect the
American population is to contain an influenza outbreak beyond the borders of the United States.
In 2006, $280 million has been provided in supplemental appropriations for five U.S. Government
agencies to carry out international activities related to all three pillars of the strategy: Preparedness
and Communications, Surveillance and Detection, and Response and Containment. The 2007 Budget
includes an additional $214 million to continue these activities in countries where infected birds have
already been found and in other countries that are on the cusp of infection.
Humanitarian Crises. The United States
is the world’s most generous provider of food
and other humanitarian assistance, including
shelter, health, water, and sanitation. The
2007 Budget maintains strong support of
humanitarian needs, including the Admin-
istration’s commitment to protect and find
lasting solutions for refugees, and provides an
increase in funding for refugee resettlement in
the United States.
In 2005, the United States led the world
—both in terms of timeliness and funding—in
responding to humanitarian crises around
the world. When parts of Southeast Asia
were devastated by a tsunami at the end of The delivery of relief supplies in Lamno, Indonesia, following the tsunami
December 2004, swift action by the United in December 2004.
States provided relief, helped prevent the
spread of disease, and quickly began restoring livelihoods and rebuilding the region. The United
States is now reconstructing critical roads and infrastructure in the region and has already
completed more than 50 miles of road in Indonesia.
In the midst of the conflict in the Darfur region of Sudan, the United States assisted over 1.8
million internally-displaced persons and over 200,000 Sudanese refugees in Chad. The United States
is playing a key role in bringing peace to that region. The 2007 Budget continues this strong support
to the victims of Darfur, both in terms of humanitarian assistance and peacekeeping to monitor
security.
Food Aid. The United States alone accounts for over half of all food aid worldwide. In 2005, U.S.
food aid protected vulnerable populations around the world, with over $1.1 billion donated to emer-
gencies in Africa, notably Sudan, Ethiopia, Eritrea, and southern Africa, to help feed millions of
people. The 2007 Budget supports the Administration’s continuing efforts to prevent widespread
famine while continuing to encourage other donors to do their fair share. At the same time, the
Administration is continuing its efforts to address the root causes of famine.
Refugees. The 2007 Budget continues to sup-

port the protection and assistance of refugees
as well as conflict victims and internally
displaced persons. Through international and
non-governmental organizations, the United
States provides protection, shelter, safe water,
and health care, among other services. The
United States continues to support voluntary
repatriations as the primary lasting solution
for refugees.
In cases where voluntary return is not a

viable option, the United States leads the
international community in resettling refugees.
Internally displaced persons in West Darfur, Sudan receive sorghum
In 2005, the United States admitted over
provided by USAID through the World Food Programme. 53,800 refugees for resettlement in this country.
President Bush continues to support a strong
resettlement program, and the 2007 Budget provides the funds necessary to increase the number
of refugees resettled in the United States. By providing generous responses to immediate refugee
needs and persistently pursuing long term solutions, the United States enhances national security
at home by stabilizing crises around the world.
U.S. Humanitarian Efforts

In 2005, the United States was the world’s largest provider of global humanitarian assistance.
• When most donors had not yet acted in the face of a looming famine in the Horn of Africa threatening
14 million people, the President announced on June 7, 2005, that the United States would address the
remaining food needs there and increase humanitarian aid elsewhere. At the same time, he challenged
other donors to do more to address global humanitarian needs. These continuing efforts have already
galvanized the successful global response to a food crisis in southern Africa in 2005.
• The United States responded quickly and generously to the December 2004 tsunami in Southeast Asia,
providing over $840 million in relief and reconstruction assistance. The U.S. private sector pledged
more than $1.8 billion to assist the region.
• In October 2005, when Pakistan and India were hit by a major earthquake, the United States imme-
diately moved ships, aircraft, and relief coordinators to the area to begin relief efforts. In November
2005, the United States pledged $510 million to Pakistan relief and reconstruction efforts, including
over $110 million in military support to the relief efforts and at least $100 million in estimated private
sector relief.
• The United States provided about half of all emergency food aid received by the U.N. World Food
Program. As of December 2005, the United States alone accounted for the bulk of the food actually
delivered to victims of the conflict in Darfur, Sudan.
• The United States gave over $300 million to the United Nations High Commissioner for Refugees
(UNHCR) in 2005. Overall, including UNHCR, the United States provided about $100 million to help
refugees from Sudan, including $70 million for refugees from the conflict in Darfur.
Building State Capacity and Laying the Foundations for Development
The 2007 President’s Budget provides developing states with the tools needed to progress into thriv-
ing independent states by supporting post-conflict reconstruction and stability, putting countries on
stable macroeconomic footing by relieving debt and developing means to collect revenue, developing
education and trade initiatives, such as those announced at the 2005 Group of Eight (G-8) Summit,
enforcing peace, and fighting the illicit drug trade.
Conflict Response. The Administration is moving forward with its strategy to improve the response
to countries emerging from conflict or threatened by instability. The State Department’s Office of the
Coordinator for Reconstruction and Stabilization has been active in addressing complex and chal-
lenging conditions in Haiti and Sudan and in preparing for potential crises in other at-risk states.
The Administration is focusing on helping create the conditions necessary to move countries in crisis
on a path to lasting peace, good governance, and economic and social development. Ensuring that
failed states make the transition to stability is crucial to U.S. national security interests as unstable
or failed states can serve as bases for terrorism or rampant criminality. In order to accomplish such
transitions, the United States must be able not only to respond militarily to crises but also to apply
effective civilian stabilization and reconstruction resources necessary to ensure long-term success.
The 2007 Budget proposes to strengthen the Office of the Coordinator’s ability to lead U.S. planning
efforts for countries and regions of most concern, and to coordinate the deployment of U.S. resources
when needed. The Budget proposes funding for a Conflict Response Fund to build the civilian re-
sponse capabilities of the United States, including establishment of a civilian reserve component
that can quickly provide needed expertise to rebuild the institutions of government in post-conflict or
failed-state situations. With an early and effective civilian response, responsibility for key functions
can be transferred more quickly from military to civilian actors, thus reducing the need for a more
robust and costly military commitment over the long term.
Peacekeeping. Peacekeeping by the United Nations and partner organizations, such as the African
Union, are key to providing a stable political and economic environment that fosters democratic in-
stitutions and development. These missions create conditions conducive to democratic elections, and
facilitate the delivery of humanitarian relief, as well as to increase the security at home and provide
relief to our troops. The 2007 Budget provides over $1.1 billion for UN peacekeeping missions.
The 2007 Budget also includes over $100 million for the third year of the Global Peace Opera-
tions Initiative to train and equip 75,000 troops by 2010 to increase global capacity to conduct peace
support operations with a particular focus on Africa.
Counternarcotics Activities. The U.S. Government remains focused on curtailing the illicit drug
trade and dissolving the relationships between narco-traffickers, terrorists, and international crim-
inal organizations. The 2007 Budget provides $722 million for the Andean Counterdrug Initiative,
which advances the President’s goal of strengthening democracy, regional stability, and economic
development throughout the hemisphere. The Initiative provides balanced funding between law
enforcement and security programs, and alternative livelihood assistance for those who are at risk
from the illicit narcotics trade.
In Afghanistan, the United States is working closely with Great Britain to stem the illicit drug
trade. Poppy cultivation declined by 48 percent in 2005, including reductions in 19 of Afghanistan’s
26 poppy growing provinces. The United States will continue to provide Afghan farmers real economic
alternatives, support the Afghan central government and governors’ efforts to discourage cultivation
through public information and eradication, and sustain law enforcement efforts.
Debt Relief. Under the leadership of Presi-

dent Bush and in partnership with the United
Kingdom, the Governors of the International
Monetary Fund, World Bank, and African
Development Bank agreed to a G-8 proposal
to cancel 100 percent of the multilateral debt
for qualifying heavily indebted poor countries,
augmenting the existing Enhanced Heavily
Indebted Poor Countries (HIPC) Initiative.
The United States already provides 100
percent bilateral debt relief to such countries
under enhanced HIPC. Over time, 42 countries
are projected to receive up to $60 billion in
debt relief as a result of the G-8 initiative. This President George W. Bush sits with G-8 leaders July 7, 2005, during
action will conclusively end the destabilizing their first session at Gleneagles Hotel in Auchterarder, Scotland.
Clockwise, from the President, are: French President Jacques Chirac;
lend-and-forgive approach to development Prime Minister Tony Blair of England; Russian President Vladimir Putin;
assistance to low-income countries. The 2007 Germany’s Chancellor Gerhard Schroeder; Italian Prime Minister Silvio
Berlusconi; European Commission President Jose Manuel Barroso;
Budget request fully supports the U.S. share Canada’s Prime Minister Paul Martin; and Japan’s Prime Minister
of the multilateral debt forgiveness provided Junichiro Koizumi.
by the G-8 proposal, including funding for the World Bank’s International Development Association
(IDA) and the African Development Fund. The Budget also allows the United States to complete
the funding for the Democratic Republic of the Congo under enhanced HIPC.
G-8 Initiatives. In addition to the debt relief initiatives, world leaders at the July 2005 G-8 Summit
unveiled the most detailed and ambitious package for Africa ever supported by the G-8. The United
States will work with our G-8 and African partners to fight malaria, HIV/AIDS, and corruption—and
help create an environment where democracy and economic opportunity can flourish. In conjunction
with these vigorous efforts to reduce poverty, the G-8 leaders committed to meet the interlinked clean
development challenges of increasing access to cleaner energy sources, enhancing energy security,
cutting air pollution, and reducing greenhouse gas emissions to address global climate change.
At the G-8 Summit, President Bush announced that the U.S. Government will double assistance
to Africa between 2004 and 2010, a commitment sustained in this Budget. The 2007 Budget also
sustains the U.S. Government’s commitment to:
Asia-Pacific Partnership on Clean Development and Climate

On January 12, 2006, the United States joined with Australia, China, India, Japan, and the Republic of Korea
in launching the Asia-Pacific Partnership on Clean Development and Climate. The Partnership’s inaugural
meeting was held in Sydney, Australia. These six countries, which account for about half of the world’s pop-
ulation, economy, energy use, and greenhouse gas emissions, committed to accelerating the deployment
of cleaner technologies to support poverty reduction, enhance economic growth, improve energy security,
reduce pollution for improved human health and a cleaner environment, and reduce the greenhouse gas
intensity of their economies. The Partnership announced an action-oriented work plan covering eight initial
sectors: clean fossil energy; renewable energy and distributed power; power generation and transmission;
aluminum; cement; steel; buildings and appliances; and mining. Partner countries will focus on meeting na-
tional clean development goals, producing measurable results, and facilitating investments from the private
sector and multilateral development banks. The United States Government has pledged up to $50 million
toward this partnership in 2007.
• Provide $400 million for the African Education Initiative from 2007 to 2010, as well as increase
spending for trade capacity building in Africa; and
• Support efforts to combat sexual violence and abuse against women in Africa through a new
Women’s Justice and Empowerment Initiative.
Supporting Transformational Development and Participation in the Global

Economy
In 2002, in Monterrey, Mexico, President

Bush called for “a new compact for devel-
opment defined by greater accountability
for rich and poor nations.” Since then, the
Administration has worked to change the
way the United States fosters development,
with a greater emphasis on supporting truly
transformational programs and helping bring
the world’s poor into the global economy.
Millennium Challenge Account. In 2004, the

President and the Congress established the
Millennium Challenge Corporation (MCC) to
administer the Millennium Challenge Account
(MCA), an innovative initiative that is the
cornerstone of the President’s policy to forge MCC’s Compact in Cape Verde will help reduce poverty rates of women
by improving agricultural productivity.
new compacts that strengthen democracies,
reduce poverty through economic growth, and
in the process, help in the fight against global terrorism. Since 2004, the Congress has provided
less funding for this program than the President requested. For example, the Congress provided
only slightly more than half of the 2006 request. This Budget provides $3 billion in 2007 and the
Administration expects to provide $5 billion annually beginning in 2008.
MCA is the most concrete manifestation to date of the new approach to development the World
Community endorsed in 2002 at the Monterrey Financing for Development Conference, an approach
that stresses that countries have primary responsibility for their own development through
good governance, sound policies, and the rule of law. Accordingly, MCA provides aid only to the
highest-performing countries as identified by independent criteria that measure the extent to
which countries rule justly, invest in their people, and promote economic freedom. Countries then
prepare their own development assistance proposals—in full consultation with their citizens—and
include specific targets against which to measure results. MCC agrees to fully fund those multi-year
development programs most likely to lead to measurable increases in economic growth and a
reduction in poverty.
MCC has identified 23 eligible countries to date. Of these 23 countries, the MCC Board of Directors
has approved seven compacts worth $1.2 billion and another 10 countries have submitted proposals
worth $4 billion. The 2007 Budget request of $3 billion provides sufficient resources to sign up to
eight transformational compacts worth an average of $375 million; support a Threshold Program
that provides assistance to countries that narrowly miss qualifying for MCA Compact funding; and
provides for MCC administrative expenses. To show the Administration’s strong commitment to this
more common-sense way of ensuring our development assistance has results, it is essential that we
fully fund these compacts so we know that multi-year programs can be completed.
Millennium Challenge Compacts Approved to Date
Value
Country (in millions Description of Compact
of dollars)
Armenia .......................... 236 Reduces rural poverty through investments in the agricultural sector,
road and irrigation infrastructure, and technical assistance.
Cape Verde ................... 110 Increases incomes by improving the investment climate, reforming the
financial sector, and increasing agricultural productivity.
Georgia ........................... 295 Assists the poor by reducing transportation costs, facilitating access to
capital, and improving access to heat and electricity.
Honduras ....................... 215 Reduces poverty by increasing agricultural productivity and lowering
transportation costs between national, regional, and global markets.
Madagascar .................. 110 Raises agricultural incomes by protecting property rights, expanding
credit, and employing advanced farming techniques.
Nicaragua ...................... 175 Spurs economic growth by strengthening property rights, reducing
transportation costs, and increasing farm wages.
Vanuatu .......................... 66 Benefits agricultural producers and tourism-related providers by
reducing transportation costs and improving infrastructure conditions.
Free Trade. Promoting free trade is critical to supporting developing countries in their effort to
participate fully in the global economy. Increasing developing country integration into the global
economy, where the majority of the world population and therefore future consumers live, will also
create high-paying, export-related job opportunities for American workers, businesses, farmers, and
ranchers, while increasing the living standards and welfare of Americans through lower prices and
more choices.
The Bush Administration has signed or completed free trade agreements (FTAs) with Chile, Singa-
pore, Australia, Jordan, Bahrain, Oman, Morocco, five Central American countries plus the Domini-
can Republic, and Peru. Currently, we are in active negotiation with Panama, Thailand, Colombia,
Ecuador, the United Arab Emirates, and the Southern African Customs Union.
The United States has worked tirelessly with the member countries in the World Trade Organ-
ization (WTO) to reach agreement on new proposals to open trade and increase the integration of
developing countries in the global economy through the WTO Doha Development Agenda. The United
States has made very significant proposals to liberalize trade in agricultural goods, non-agricultural
goods, and services. Successful completion of an ambitious round is critical to the reduction of poverty
and the ability of developing countries to grow their economies and provide the private and public
resources critical to their transformational development.
Providing trade-related development assistance so that developing countries fully benefit from
FTAs and WTO agreements is a critical element of U.S. development policy. The United States has
also dramatically increased its investment in building the capacity of developing countries to trade.
Since 2001, U.S. trade capacity building assistance has more than doubled to $1.3 billion in 2005.
At the WTO Ministerial in Hong Kong, the United States pledged to increase this assistance to $2.7
billion by 2010, and with our G-7 partners have agreed to leverage the resources of the World Bank
and other international financial institutions in this effort.
The 2007 President’s Budget includes a number of innovative proposals to curb spending and focus
international assistance on the key countries in need of U.S. support, and to support key programs
that have proven to be successful. The 2007 Budget also supports efforts to make programs more
effective, including reforms to international organizations, making food aid more efficient, fighting
corruption, and improving border security initiatives.
Focusing on Key Countries. The President’s

2007 Budget aims to more effectively focus
international assistance funds on key priorities
and regions, as well as to identify the countries
that are most in need of U.S. security assistance
funding. For example, foreign military financ-
ing grants are directed toward supporting
the military capabilities of key strategic and
coalition partners and improving military
relationships with U.S. friends and allies. In
the 2007 Budget, U.S. military assistance is
focused on supporting U.S. coalition partners
in Iraq, Afghanistan, and the Global War on
Secretary Rice meets with Afghan President Karzai.
Terror.
The Administration has increasingly used the Development Assistance account to finance
initiatives designed to support developing countries in achieving better democracy and governance,
broader and more effective education and health programs, and more rapid transformational
development and participation in the global economy. Recent initiatives advanced by President
Bush are enhancing basic education and women’s justice programs, and assisting trade agreement
partners in building trade capacity in sub-Saharan Africa as well as in Central America and the
Dominican Republic.
Furthermore, the Broadcasting Board of Governors (BBG), which provides news and information
through radio, television, and internet broadcasting around the world, is focusing its international
broadcasting on specific populations, especially in the broader Middle East, using more popular media
such as television and FM radio. Based on this strategy, BBG is reducing its broadcasting in Croat-
ian, Serbian, Albanian, Bosnian, Georgian, Macedonian, Turkish, Hindi, Russian, Greek, Thai, and
English, as well as broadcasting in shortwave radio.
Graduating Middle-Income Countries and Focusing Our Resources. The 2007 Budget also
proposes to identify those countries that are ready to graduate from U.S. economic assistance. Since
the late 1980s and early 1990s, many countries in Eastern Europe and the former Soviet Union
have significantly progressed toward free market democracies. While eight Eastern European
countries formerly receiving U.S. economic assistance have already successfully joined the European
Union, several more, including Romania, Bulgaria, and Croatia, have reached sustainable levels
of democratic and economic development. The 2007 Budget recommends ending traditional
economic assistance to these countries while continuing to support them through security assistance
and diplomatic partnerships. In addition, Russia is an upper-middle-income country that has
demonstrated the economic progress and internal stability to be a member of the G-8 group, though
it faces public health and governance challenges. The 2007 Budget focuses economic assistance on
supporting civil society and addressing increasing HIV/AIDS infections and other health issues.
The Administration will continue to graduate countries when they are no longer in need of U.S.
assistance, recognizing that these countries should more appropriately utilize different tools better
suited for their stage of development, including trade flows and international capital markets. In
addition, many of the countries where the United States carries out assistance programs have also
become eligible for MCA resources or are on the threshold of eligibility. As the MCA builds up to its in-
tended $5 billion annual funding level, it will become the principal U.S. program in eligible recipient
countries, allowing the United States to focus its resources where they can have the greatest impact
on poverty reduction and key development needs, such as health and education. By focusing other
assistance programs on the key bottlenecks to development, the United States will help non-MCA
eligible countries qualify for the MCA, and attract increased trade and investment flows.
Leveraging Other Donors and the Private Sector. Ultimately, global problems require solutions that
include many participants, including other donors, international institutions, and the private sector,
as well as developing countries themselves. Efforts to increase the use of public-private partnerships
include USAID’s Global Development Alliance and African Development Foundation. In addition,
the President’s request of former Presidents Bush and Clinton to lead an effort to encourage private
sector contributions in the wake of the Asian tsunamis resulted in an unprecedented outpouring of
aid from charities, corporations, and ordinary citizens. Similarly, several corporate CEOs in cooper-
ation with the Administration are leading an effective campaign to spur private sector donations for
victims of Pakistan’s earthquake and the hurricanes that afflicted Central America.
Capital Security Cost Sharing. In response

to the 1998 bombings of two U.S. embassies in
East Africa, the Department of State embarked
on several ambitious initiatives to improve
physical security overseas. Many posts require
additional work to withstand terrorist attacks
and other dangers. In 1999, the Department
of State launched a security upgrade and
construction program to begin to address
requirements in more than 260 embassies and
consulates.
In 2005, the Administration initiated a

The new U.S. Embassy compound in Luanda, Angola. new program to dramatically expedite con-
struction of secure facilities worldwide, called
the Capital Security Cost Sharing Program
(CSCSP). CSCSP is a major component of the President’s Management Agenda initiative, A
“Right-Sized” Overseas Presence. Under this program, each agency with staff overseas contributes
annually toward construction of the new facilities based on the number of authorized positions and
the type of space they occupy. The cost shares in 2007 for each agency are based on the number of
positions an agency has overseas under Chief of Mission authority. This process ensures that the
size and scope of new construction projects are based on U.S. foreign policy goals. This cost sharing
plan will enable the Department of State to replace 150 embassies and consulates over 14 years at a
total cost of $17.5 billion.
In 2007, the Department of State will begin construction of 10 right-sized facilities, including new
embassy compounds in Addis Ababa, Ethiopia, and Riga, Latvia.
Reforms to International Organizations. The United States is leading efforts to reform the United
Nations and address concerns of organizational ineffectiveness, lack of accountability, irrelevance,
and redundancy. For example, the United States is pushing the UN to strengthen management over-
sight to root out corruption and abuse of power. In addition, the United States is a leading proponent
of reform of the UN High Commission on Human Rights, so that proven human rights violators, such
as Libya and Iran, cannot serve on the Commission.
To ensure that assistance through multilateral development banks (MDBs) is more effective, the
United States has led the effort to focus resources on countries that institute policies to promote
economic growth and adopt clear, measurable goals and targets for the assistance that they receive.
The MDBs are establishing results-oriented management processes and standards, in response to
several Program Assessment Rating Tool (PART) reviews, increasing the proportion of assistance
provided as grants instead of loans, and improving accountability and transparency. Building on
last year’s reform success in replenishments for IDA, the African Development Bank, and the Asian
Development Bank, the United States led efforts to extend these reforms in recently concluded re-
plenishment negotiations for the Inter-American Development Bank’s Multilateral Investment Fund
(MIF) and the International Fund for Agricultural Development (IFAD). For example, IFAD adopted
a debt sustainability framework as a basis for increased grant assistance and MIF instituted clear
results management and reporting criteria for its grant projects. The United States is pushing for
similar reforms in the Global Environment Facility (GEF), although with more limited success, which
is why the President’s Budget request for GEF has declined in 2007.
Cash Food Aid. The 2007 Budget supports the Administration’s continuing efforts to make U.S.
food aid more efficient and effective by requesting that a portion of food aid be available as cash
assistance for emergencies. Providing a portion of food aid as cash can in some circumstances allow
emergency food aid to be delivered more quickly and efficiently to address the most urgent needs. For
example, in 2005, as conditions worsened in Niger, the Administration devoted additional resources
to the growing crisis, but could have provided food aid more quickly had adequate food aid resources
been available as cash to purchase food regionally. The Administration continues to support the use
of in-kind food aid in most instances. The Budget proposes to use cash food aid only in those cases
where the ability to procure food more quickly with cash is critical to saving lives. Our objective must
be to assure that our food aid agencies have the necessary tools and flexibility to address each unique
emergency that arises.
Several vulnerable countries such as Uganda, Ethiopia, Afghanistan, Sudan, and Niger have some-
times produced surplus crops in certain areas but lacked the resources to make the food available
in areas suffering acute hunger. In such cases, had cash food aid been available, it could have been
used to buy these crops. These purchases would have helped prevent widespread famine and would
have helped sustain local food production into the future, reducing emergency food aid needs over
the long term in these countries, saving lives, and eventually freeing up U.S. food aid resources to
address needs elsewhere. The analysis of food assistance through the PART supports this decision
to allow a portion of food aid to be used as cash for food aid. The Budget requests authority for a
portion of U.S. food aid donations to be used for cash procurements when critical to saving lives in
food crises abroad. U.S. agricultural producers will continue to be the source for the majority of U.S.
food aid donations.
Fighting Corruption. Corruption is a major hindrance to economic growth in the developing
world, taking as much as one percent off a country’s growth rate, according to World Bank analysis.
Through international fora, including the G-8, Summit of the Americas, and the Asia-Pacific
Economic Cooperation, the United States has launched vigorous anti-corruption efforts, and the
President has signaled the importance of this issue by denying safe haven in the United States to
corrupt officials and their assets and making corruption levels a key determinant of MCA eligibility.
Reforms in MDBs strengthen efforts to fight corruption in recipient countries, bank projects, and
the institutions themselves. For example, IDA will conduct an independent assessment of its internal
controls framework, the African Development Bank has instituted a new anti-corruption and fraud
unit, and the InterAmerican Development Bank has overhauled its procurement policies and docu-
ments to conform to current best international practices. Anti-corruption efforts remain a top priority
for the United States in all MDBs and the Administration has worked closely with the Congress in
articulating key goals, objectives, and benchmarks in this essential task.
Border Security. The Department of State continues to work with the Department of Homeland
Security (DHS), the Department of Justice, the Intelligence Community as well as the Departments
of Labor, Commerce, and Defense to secure America’s borders against those who threaten national
security, while promoting legitimate travel for commerce, education, and tourism.
In the 2007 Budget, key Border Security initiatives include screening system interoperability and
real-time access to information collected by consular affairs and border officials, leading to a 10 fin-
gerprint collection standard from foreign travelers, as part of the US-VISIT program. In the future,
first-time visitors to the United States will be enrolled in the program by submitting 10 fingerprints,
allowing the U.S. Government to be able to identify visitors with even greater accuracy. This program
is being implemented in conjunction with DHS and the Department of Justice.
The Department of State will also be implementing the Western Hemisphere Travel Initiative in
2007, which mandates that all travelers within the Western Hemisphere travel with a passport or
other authorized document by 2009. Under this initiative, U.S. citizens and foreign visitors traveling
to and from the Caribbean, Bermuda, Panama, Canada, or Mexico will be required to have a pass-
port or other standardized document that establishes the bearer’s identity and nationality to enter
or re-enter the United States. The initiative will improve security at the borders by standardizing
entry and exit information and increasing the ability of Government agencies to work together. In
addition, the Department of State will implement the Hague Convention on Intercountry Adoptions,
which brings over 20,000 adopted children to the United States each year, and will increase the staff
dedicated to preventing and resolving cases of international parental child abduction.
The table below provides an update on the Department of State’s implementation of the President’s
Management Agenda as of December 31, 2005.
Budget and
Integration
Status
Progress
The Department of State has documented results in efforts to improve underrepresentation of minority
groups in the foreign service and to more closely link employee performance evaluations to accomplishment
of the Department’s strategic goals. For competitive sourcing, the Department of State is moving forward
with its competition for Multi-Media Services and numerous streamlined competitions. The Department has
developed efficiency measures for each of its programs and is actively tracking them to drive down cost
while achieving greater performance. It is also incorporating additional performance information in its budget
justification to strengthen the linkage between performance and funding requested in the Budget. State
continues to make progress on meeting its objectives to consolidate information technology systems under the
U.S. Government-wide E-Government lines of business, but will need to be aggressive in its certification and
accreditation process to ensure they meet security requirements. The Department’s FSI system was named
an approved E-training service provider.
A “Right-Sized” Overseas Presence
In 2006, State will be working with USAID to expand the State Asset Management Plan to include asset
management planning activities at USAID. The resulting joint plan will allow the two agencies to cooperatively
improve their asset management.
As noted earlier on right-sizing, this President’s Management Agenda (PMA) initiative seeks to ensure that our
overseas presence is aligned with overall mission priorities, security, and costs. The Right-Sizing PMA initiative
has accomplished key goals, including: 1) establishing formal Right-Sizing Reviews for all overseas posts; 2)
implementing a Capital Security Cost Sharing program in which agencies pay a pro rata share of embassy
construction costs for safe and secure facilities for their employees overseas; 3) using regionalization and shared
services to centralize and regionalize support services; and 4) an accurate accounting of overseas staffing and
uniform costs. These accomplishments provide the foundation for additional work. The Department of State
and other right-sizing partners will work to strengthen the mechanisms now in place to systematically quantify
outcomes and results to ensure safety, efficiency, and accountability in the U.S. staffing presence overseas.
The table below provides an update on the U.S. Agency for International Development’s (USAID’s)
implementation of the President’s Management Agenda as of December 31, 2005.
Budget and
Integration
Status
Progress
Arrows indicate change in status since the prior evaluation as of September 30, 2005.
PMA has become a central part of the Agency’s efforts to update its business model to more effectively
address the development challenges of the future. The Agency is developing a new Right-Sizing Strategy that
will provide agency policy on regionalization, proper headquarters to field alignment, improved alignment of
overseas staffing to agency goals, and other management policies. It has also developed and implemented
a Human Capital Model to enable more effective allocation of direct hire and non-direct hire personnel. The
Agency has developed performance metrics for all strategic objectives globally, and is increasingly holding
program managers accountable for results and using performance information to inform resource allocation
decisions. USAID is working closely with the Department of State on the development of a Joint Enterprise
Architecture, designed to more systematically examine the business processes of the two agencies, and make
improvements that increase collaboration and efficiency. USAID is fully participating in E-Government and Line
of Business initiatives, to better leverage resources across the Federal Government. USAID also partnered with
the Department of State to become a Financial Management Center of Excellence.
These efforts to transform Agency operations are in addition to focused efforts to improve the efficiency and
effectiveness of current operations. The Agency continues to successfully roll-out a new financial management
system, providing Agency managers with improved financial reporting and reducing financial weaknesses.
USAID has also been successful in reducing hiring timelines, and has improved the accountability of senior
managers for achieving performance results. The Agency has been recognized as one of the leaders in the
Federal Government for information technology security.
Arrow indicates change in status since the prior evaluation as of September 30, 2005.
USAID is actively working to remove barriers to participation by community organizations, including faith-based
organizations. It is also intensifying outreach and information dissemination to make USAID competitive grant
opportunities more accessible to a broader population of potential grantees.
In 2006, USAID will be working with the Department of State on their Joint Asset Management Plan. This plan
will allow the two agencies to cooperatively improve their asset management, both overseas and domestically.
Department of State and Other International Programs

2005 Estimate
Actual 2006 2007
Spending
Diplomatic and Consular Programs ............................................................... 4,202 4,304 4,652
Education and Cultural Exchange Programs ............................................. 378 426 474
Embassy Security, Construction, and Maintenance ................................ 1,504 1,470 1,540
International Peacekeeping .............................................................................. 483 1,022 1,135
International Organizations ............................................................................... 1,166 1,151 1,269
Economic Support Fund .................................................................................... 2,391 2,621 3,215
Emergency Plan for AIDS Relief ..................................................................... 1,374 1,975 2,894
International Narcotics and Law Enforcement ........................................... 493 472 796
Andean Counterdrug Initiative ......................................................................... 725 727 722
Migration and Refugee Assistance ................................................................ 764 783 833
Non-proliferation, Anti-terrorism, Demining Programs ............................ 384 406 449
Foreign Military Financing ................................................................................. 4,746 4,465 4,551
Legislative proposal, Conflict Response Fund ...................................... — — 75
Assistance for Eastern Europe and Baltic States ..................................... 308 357 274
Assistance for Independent States of the Former Soviet Union ......... 462 509 441
Child Survival and Health .................................................................................. 1,573 1,569 1,433
Development Assistance ................................................................................... 1,445 1,488 1,261
International Disaster and Famine Assistance .......................................... 466 361 349
USAID Operating Expenses ............................................................................. 610 624 679
Broadcasting Board of Governors .................................................................. 594 644 672
Millennium Challenge Corporation ................................................................. 1,488 1,752 3,000
Export-Import Bank.............................................................................................. 106 97 58
Overseas Private Investment Corporation .................................................. 180 160 160
Peace Corps ........................................................................................................... 317 319 337
Multilateral Development Banks ...................................................................... 1,219 1,277 1,329
Other State and International Programs ...................................................... 1,494 1,521 1,583
Food Aid (USDA PL 480 Title II) (non-add) ................................................ 1,173 1,139 1,219
Memorandum: Budget authority from enacted supplementals ............... 4,737 162 —
Total, Mandatory outlays ........................................................................................ 2,306 2,209 417
Total, Outlays .............................................................................................................. 27,502 28,553 31,967

Department of State and Other International Programs—Continued

2005 Estimate
Actual 2006 2007
Credit activity
Export-Import Bank.............................................................................................. 262 65 26
Total, Direct loan disbursements ......................................................................... 1,138 771 680

Export-Import Bank.............................................................................................. 9,317 12,630 13,829
All other programs ................................................................................................ 2,477 1,675 1,748
DEPARTMENT OF TRANSPORTATION

• Worked with the Congress to enact a fiscally responsible reauthorization of the
Department of Transportation’s highway, public transportation, and highway safety
programs that gives States more flexibility, increases funding, and targets priority
areas, such as safety and mobility;
• Helped stabilize the airline industry following the September 11, 2001, terrorist
attacks;
• Proposed to revolutionize the Nation’s passenger rail system to empower States to
develop train routes and services and better meet the public’s transportation needs;
• Reached key highway safety goals, including improving the national safety belt usage
rate to a record high 82 percent in 2005 and reducing the highway fatality rate to 1.43
fatalities per 100 million vehicle-miles traveled in 2005; and
• Completed the largest competitive sourcing effort undertaken by a Federal agency,
which will save taxpayers more than $2 billion by consolidating Federal Aviation
Administration facilities and modernizing their technologies.
• Supports an interagency effort to develop the Next Generation Air Transportation
System to meet growing demand for airspace capacity;
• Funds intercity passenger rail at a level that will encourage Amtrak to undertake
meaningful reforms and control spending;
• Increases funding for critical highway safety programs in support of changes made by
the recently-enacted surface transportation reauthorization law; and
• Proposes a $100 million pilot program to demonstrate the benefits of innovative
methods of financing highway construction and managing congestion.
215
216 DEPARTMENT OF TRANSPORTATION

The Department of Transportation (DOT) works to improve the safety and efficiency of the Nation’s
transportation system, and these priorities are reflected in the President’s Budget request for the
Department. To date, DOT has made great strides improving transportation safety, but now faces
difficult challenges to reduce accident and fatality rates further. In addition, across modes of trans-
portation, congestion is a growing problem that the Department is attempting to address through
new and innovative approaches.
Improving Transportation Safety
DOT’s top priority is improving transportation safety. The Budget requests additional funding to
improve aviation and highway safety in particular.
Improving Aviation Safety. The United
States has the largest, most complex aviation
system in the world. The Nation’s airspace
system includes 14,540 air traffic controllers,
3,388 airports, and 316 air traffic control
facilities. Because of the comprehensiveness
of the Federal Aviation Administration (FAA)
traffic management system, commercial
aviation is the safest form of transportation.
The current commercial accident rate is the
equivalent of one fatal accident for every
15 million passenger-carrying flights. FAA
has established strategic goals to continue to
reduce the commercial and general aviation
fatality rates, as well as to reduce the risk of
FAA safety inspectors check out an aircraft.
runway incursions (potential collisions on the
ground) and reduce cabin injuries caused by
turbulence.
FAA, working with industry, academia, and other Federal agencies, conducts aviation research to
improve safety. For example, in 2007 FAA will continue research to: improve weather forecasting;
minimize wake turbulence; ensure the continued airworthiness of older aircraft; and prevent uncon-
trollable in-flight fires.
Airline Safety: A New Focus on Individual Airlines

FAA has developed a new safety risk management system called the Air Transportation Oversight System
(ATOS), under which inspectors evaluate each air carrier as a whole rather than inspecting for compliance
with selected rules. FAA currently uses ATOS to evaluate 17 of the largest air carriers, and the 2007 Budget
request will enable FAA to review all 115 air carriers. This new system will:
• Target FAA resources on airlines of greatest risk;
• Eliminate deficiencies in air carrier operations before they cause accidents or incidents; and
• Correct deficiencies found in FAA’s older oversight programs.
In addition, through the Grants-in-Aid for Airports Program (AIP), the 2007 Budget provides $287
million to complete 52 runway safety projects. Runway safety improvement projects involve improv-
ing or expanding runway safety areas, installing technologies that can quickly and safely slow an
airplane, or modifying or relocating the existing runways. These 52 runways will bring the total
number of completed projects since 2000 to 296. Runway safety projects contribute to FAA’s goal of
reducing the commercial airline fatal accident rate to 0.01 fatalities per 100,000 departures by the
end of 2007.
Improving Highway Safety. On August 10, 2005, the President signed into law the Safe, Account-
able, Flexible, and Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The
law provides funding for highways, highway safety, and public transportation totaling $286 billion
for 2004 through 2009. SAFETEA-LU addresses a variety of surface transportation issues, such as
advancing highway safety, easing traffic congestion, and enhancing public transportation, as well as
laying the groundwork to address future challenges.
One of the primary objectives of Highway Fatalities Remain Relatively

SAFETEA-LU is to continue to improve Flat in Recent Years
Fatalities in thousands Per 100 million miles
highway safety. In 2005, the highway fatality 70 3.0
rate reached an historic low of 1.43 fatalities Total Annual Fatalities
Fatality Rate Per 100 million
per 100 million vehicle-miles traveled. 60
Vehicle Miles Traveled 2.5
While the fatality rate has greatly improved
50
over past decades, the actual number of 2.0
fatalities has remained fixed at essentially the 40
same level in recent years. In 2005, 42,643 1.5
people died in traffic accidents, including 30
vehicle occupants, motorcycle riders, and 20

1.0
non-motorists, compared to 1985 when

0.5
43,825 people died and the fatality rate was 10
2.47 fatalities per 100 million vehicle-miles
0 0
traveled. 1984 1987 1990 1993 1996 1999 2002 2005
Source: Department of Transportation.
Further gains will require that all levels of
government focus on the most important factors contributing to highway fatalities. These include
safety belt usage and alcohol-impaired driving. Safety belt usage has steadily improved from 75
percent in 2002 to a record high of 82 percent in 2005. However, more than 16,000 people were killed
in 2004 because they were not wearing a safety belt or some other kind of restraint. The National
Highway Traffic Safety Administration (NHTSA) has determined that one of the most significant
non-user groups is 16- to 24-year-olds. In 2005, this age group’s safety belt usage was 78 percent,
compared to 82 percent for adults between the ages of 25 and 69. Even more impressive is the 84
percent safety belt use among adults 70 and over.
Curbing alcohol-impaired driving is another difficult challenge. Despite NHTSA’s effective “You
Drink & Drive. You Lose.” message and a 2.4-percent reduction in alcohol-related driving fatalities
in 2005, nearly 17,000 people died that year in alcohol-related accidents.
To help mitigate these factors, SAFETEA-LU combines several of NHTSA’s safety programs into
a consolidated grant program. This program offers States more flexibility when administering their
grant funds if they develop performance-based highway safety plans. Each State may determine
how to best resolve its problems, whether they include alcohol and drug-impaired driving, occupant
protection, motorcycle safety, or other issues. In total, the President’s Budget requests $815 million
for NHTSA. NHTSA plans to dedicate its additional resources to those programs that most effectively
reduce the highway fatality rate.
In addition, DOT attempts to enhance highway safety by improving the design and condition of
the highways themselves. SAFETEA-LU dedicates $5.1 billion through 2009 for highway safety
programs administered by the Federal Highway Administration, including State grants aimed at
eliminating hazardous roadway conditions. Specifically, SAFETEA-LU authorizes a new $1 billion
core Highway Safety Improvement Program that will distribute formula funds to all States. Other
highway safety programs target particular areas of concern, such as work zones, older drivers, and
pedestrians.
DOT also works to improve large truck and bus safety. These motor carriers represented four
percent of registered vehicles and eight percent of vehicle-miles traveled in 2004. However, of the
total number of deaths from vehicle crashes, 12 percent involved motor carriers. Consistent with
SAFETEA-LU, the President’s 2007 Budget requests $517 million for the Federal Motor Carrier
Safety Administration, which provides grants to States to conduct enforcement and develop and
implement regulations, among other safety activities.
Improving Transportation Mobility
As every driver and airline passenger knows,

the Nation’s transportation system is becoming
increasingly congested. The Budget proposes
several measures to help alleviate this problem,
which affects people in their daily lives as well
as economic growth and job creation.
Improving Air Mobility. The demand for
air transportation is outpacing the ability to
increase capacity in some U.S. airports, and
FAA forecasts air traffic could triple by 2025.
This growth has been fueled by the airline in-
dustry’s ability to offer safe, affordable, and fast
service. To meet demand, FAA implemented An air traffic controller manages air traffic over the Atlantic Ocean.
new airspace procedures in 2005 that doubled
airspace capacity at high altitudes. This increase in capacity is expected to save airlines and other
aircraft operators more than $5 billion in fuel costs between now and 2016. In anticipation of
increasing long-term requirements, an interagency team is planning for the Next Generation Air
Transportation System. As part of this system, FAA will begin steps toward deploying Automatic
Dependent Surveillance-Broadcast (ADS-B) in 2007. The surveillance service is more accurate than
radar and provides better surveillance coverage in difficult geographical terrain. ADS-B will be
critical in FAA’s efforts to meet the future demand for air traffic services.
FAA Increases Airspace Capacity

FAA recently launched the Advanced Technologies and Oceanic Procedures system, which ensures safe
separation of aircraft in areas outside radar coverage or direct radio communication, such as over the ocean.
The system has yielded the following benefits:
• Improved communications for controllers, enabling reduced separation between aircraft;
• More efficient routing, saving fuel and improving on-time performance; and
• Higher safety standards for trans-oceanic flights.
Open Roads Financing Pilot Program

The Budget proposes a new pilot program to evaluate innovative ways to better finance and manage the
Nation’s highway system. In this pilot, $100 million will be made available for up to five States to conduct
a large scale (State-wide or in an urban/suburban area) field test using specific facility charges, charges
based on system-wide use, or some combination. The pilot program is intended to demonstrate the benefits
of more efficient methods of charging for highway system use, which can augment existing sources of State
highway funding as well as improve highway performance and reduce congestion.
Improving Surface Mobility. Traffic congestion on the Nation’s highways has steadily increased
over the past 20 years as the population, the number of drivers and vehicles, and total travel volume
have grown. To curb traffic congestion and improve system reliability, SAFETEA-LU encourages
the management and operation of integrated, intermodal surface transportation systems. The law
authorizes DOT to promote real-time traffic management in all States, which should help improve
transportation security and provide better information to travelers and emergency responders.
SAFETEA-LU also provides States increased flexibility to use road pricing to manage congestion.
Through road pricing, motorists are charged directly for driving on a particular roadway. Local
governments can use this tool to create incentives for more efficient use of existing highway capacity.
In total, the Budget includes $7.8 billion for programs that address highway congestion.
SAFETEA-LU authorizes a substantial investment in the Nation’s highways to enhance their phys-
ical condition. For 2007, the Budget provides $23.7 billion to maintain and improve the National
Highway System and to replace, rehabilitate, and preserve bridges and other infrastructure. The
condition of the highway system affects fuel consumption, wear-and-tear on vehicles, and the comfort
of travelers. The spending levels authorized by SAFETEA-LU and sought by the Budget will ensure
that the progress made during the last decade improving roadway conditions will continue.
To help close the gap between highway
Highway Pavement Quality is Improving
infrastructure investment needs and re-
sources available from traditional sources, Percent of highway travel meeting standards for a “good ride”
SAFETEA-LU advances innovative financing Actual Target
options and encourages private sector invest- 60
ment. For example, SAFETEA-LU expands
the private activity bond market by making
highway and surface freight transfer facilities 40
eligible for tax-exempt facility bonds. Qualified
projects include surface transportation projects,
bridge or tunnel projects, and truck-rail freight 20
transfer facilities.
SAFETEA-LU also continues the Federal 0
Government’s strong support for public trans- 2001 2002 2003 2004 2005 2006 2007
portation to ensure that both urban and rural Source: Federal Highway Administration.
commuters have alternatives to highway travel.

Following the funding increase authorized in SAFETEA-LU, the Budget requests $7.3 billion for
formula grants to States for investment in buses, rail cars, and maintenance facilities. The Budget
also includes $1.5 billion to fund capital investment in 27 existing or new fixed-guideway projects.
These New Start projects are distributed across 15 States and numerous counties and cities. When
complete, the projects will have the capacity to carry approximately 74.2 million passengers who
would have otherwise used automobiles for their trips.
The President’s Budget targets Federal spending at the most critical program areas. Where there
is not a clear need, the Budget proposes spending reductions. Moreover, DOT continually strives to
ensure that Federal funds are used effectively and that its programs make progress toward achieving
their goals.
Focusing Aviation Resources
The 2007 Budget proposes a funding level of $2.75 billion for AIP capital grants, marking a $765
million reduction from 2006. The Budget proposes reducing grant spending to increase funding for
FAA’s salaries and expenses program, which will enhance operational safety by funding the hiring of
1,136 air traffic controllers and 116 safety inspectors. The proposed funding level for AIP grants is
robust by historical standards—AIP was funded at just $1.9 billion as recently as 2000. The Budget
request would fund construction of all planned new runways, which is the most effective way to add
capacity. In the last eight years, 12 new runways have been opened, allowing 1.7 million more annual
takeoffs and landings. Five new runway projects will be commissioned in the next two years, allowing
these airports to accommodate 250,000 more takeoffs and landings annually. In addition to relying
on AIP, airports can meet infrastructure needs through revenues generated from passenger facility
charges.
Eliminating a Questionable Loan Program
The Budget also attempts to control spending by proposing to terminate DOT’s railroad loan pro-
gram. Through the Railroad Rehabilitation and Improvement Financing program, DOT offers ultra
low-cost loans to private railroads for infrastructure improvement projects or refinancing debt. All
railroads regardless of size, including publicly traded corporations, are eligible for this assistance.
SAFETEA-LU made substantial changes to the program, including blocking DOT’s discretion over
whether or not to issue a loan to a questionable applicant. In the event of a loan default, the Fed-
eral Government would be responsible for covering any unsecured losses, which could be significant
because the program has been expanded from $3.5 billion to $35 billion. Furthermore, railroads
already benefit from recent changes to the tax code, which eliminated the tax on rail diesel fuel. The
Administration recognizes that where there is a market failure or a compelling public interest, it
may be appropriate for the Government to offer some type of credit assistance. However, in this case,
there is not clear justification for the Federal Government to extend such favorable loan terms to
private rail companies.
Reforming Intercity Passenger Rail
Thirty-five years after its creation, Amtrak remains a money-losing, Government-sponsored

monopoly. A 2005 Program Assessment Rating Tool (PART) review of Amtrak found significant
shortcomings in Amtrak’s design and a lack of clarity about its purpose and mission. While other
countries have turned to new models for providing passenger rail service, the American approach
is unchanged. The Administration has consistently called for real reform of intercity passenger rail
and underscored its dissatisfaction with the status quo system in the 2006 Budget. This has led to
some progress on multiple fronts, but much more action is required to address Amtrak’s entrenched
and well-documented problems.
The Washington Post Editorial Board on the Administration’s Approach to Amtrak Reform
One bottom-line question is whether Amtrak should continue to operate money-losing long-distance routes
that make little sense today but that have entrenched political support in Congress. Amtrak shouldn’t be
spending millions on these uneconomical routes while failing to perform vital upkeep on the critical North-
east Corridor from Boston to Washington, where the infrastructure has been so neglected that it would cost
around $2 billion to remedy.
Describing the administration’s plans in a speech, Transportation Secretary Norman Y. Mineta said, “We are
willing to put taxpayer money to fund passenger rail where it makes sense, but we aren’t where it doesn’t.”
If that’s an accurate statement of the administration’s intentions, it’s on the right track.
December 3, 2005
The Administration believes that scarce taxpayer dollars must be spent wisely. As a private cor-
poration, Amtrak must make hard choices to reduce costs. For example, Amtrak’s 15 long-distance
trains that travel along World War II-era routes required $529 million in subsidies in 2005. The
DOT inspector general recently highlighted the disproportionately high cost of running sleeper cars
on long-distance trains where per-passenger subsidies can be as high as $627.
While Amtrak has struggled to maintain a long-distance network, important parts of the system
have experienced persistent underinvestment. For example, the busy Northeast Corridor between
Washington, D.C. and Boston, MA, which Amtrak mostly owns, has a several billion dollar backlog
of capital projects. Because Amtrak has not made the highly populated corridors its top priority,
operating performance has suffered. The system-wide on-time arrival rate fell between 1999 and
2005 from 79 percent to 70 percent.
The Administration remains

Amtrak’s Challenges are Significant and Well committed to fundamental reform
Documented and changing the manner by which
intercity passenger rail services are
For example, the Government Accountability Office re-
provided. Passenger rail service must
cently conducted a comprehensive review of Amtrak’s
be customer-focused, well-managed,
management and performance and found several serious
management deficiencies, including that:
and economically viable. In 2003 and
again in 2005, the Administration
• Amtrak lacks a comprehensive strategic planning sent to the Congress its Passenger
process; Rail Investment Reform Act, which
• Improvements are needed in the usefulness of infor- proposed opening passenger rail service
mation provided to management and stakeholders; to competition from outside operators,
• Efforts to contain costs have been limited; giving States freedom to develop
custom rail services, and focusing the
• Amtrak’s system for acquiring goods and services Federal Government’s role on funding
lacks critical elements needed to ensure efficiency,
capital investments as it does with
cost-effectiveness, and accountability; and
airports and highways. In the 2006
• Although Amtrak operates in the public spotlight, few Budget, the Administration issued a
formal accountability mechanisms apply, and those call to action.
that do have not been effectively used.
Amtrak’s Subsidized Food Services

Most businesses try to earn a profit or at least break even from food concessions. Amtrak, however, has
chosen not to function like most companies. The Government Accountability Office has found that between
2002 and 2004, Amtrak spent $2 for every $1 in revenue it earned from food and beverage sales. Amtrak’s
contract with its food concessions contractor provides little incentive to limit costs since the concessionaire
may pass its purchasing costs along to Amtrak. Amtrak also has poor cost controls and data monitoring.
Amtrak’s high-cost labor force further drives up the cost of serving hamburgers and hotdogs. Amtrak has a
responsibility to address such money-losing services or to eliminate them—not to pass them on to American
taxpayers.
In response, the Congress took some action to encourage cost efficiency and accountability, includ-
ing giving DOT increased authority over Amtrak’s funding; requiring Amtrak to achieve savings in
its food, beverage, and first-class service; and mandating that the Secretary assess fees to recover
direct capital and maintenance costs for using the Northeast Corridor. Likewise, Amtrak, through
its Board, has acknowledged the urgent need for reform and issued a Strategic Reform Initiative plan
that mirrors major elements of the Administration’s plan, such as introducing competition; empow-
ering States to participate in infrastructure decisions; reducing operating subsidies; and enabling
management to separate Amtrak’s train operations from its infrastructure management.
To sustain Amtrak while it undertakes further reforms, the 2007 Budget provides $900 million.
This level will enable Amtrak’s new management team to keep the trains running and act on its
mandate to reshape the company. The request includes $500 million for capital costs that, when
combined with collections from Amtrak partners, will assist in the restoration of the Northeast Cor-
ridor. For operating costs, the Administration proposes that DOT be given authority to issue $400
million of discretionary grants to Amtrak. DOT would be able to target funding based on Amtrak’s
progress in implementing reforms. The Administration believes Amtrak, working with DOT, could
achieve needed savings by moving aggressively in a number of areas, including:
• Phasing out costly overnight trains and restructuring its train schedules to emphasize regular
short trips;
• Overhauling money-losing food and dining services;
• Considering opportunities for competition, such as contracting with non-Amtrak operators; and
• Addressing the imbalance of Amtrak’s labor costs exceeding its ticket revenues.
Fundamentally, only a constrained budget will force Amtrak to change the way it conducts busi-
ness. With $900 million Amtrak would need to manage its resources much more strategically, which
is key to bringing costs under control and improving operating performance, so that a new and better
model of intercity passenger rail can begin. The reforms proposed in the Budget are also essential for
improving Amtrak, and the Administration would consider additional funding only if the Congress
adopted these proposals.
Financing Reform for the Air Traffic Control System
FAA is funded by a combination of aviation excise taxes and general fund contributions. The rapid
growth of low-cost carriers and continued pressure on ticket prices has made the stability of the
current tax structure unpredictable. Among users there is widespread recognition that the FAA’s
financing system needs reform. FAA aims to create a more direct relationship between user fees
collected and services received, thereby creating incentives to make the system more responsive to
user needs and more efficient. Such an approach would reduce costs for users, the taxpayers, and
consumers.
DOT has concluded that the problems faced by the air traffic control system require bold and fun-
damental changes. FAA’s programs and taxes expire on September 30, 2007. Accordingly, DOT will
propose a new cost-based financing system for FAA in spring 2006. This proposal will fulfill the goals
developed by the Administration, which are:
• Continue to control costs;
• Create a more direct relationship between revenue and use of the system; and
• Establish a more stable and predictable source of revenue and equitable treatment of stakehold-
ers.
Rethinking Human Capital Controller Workforce Statistics

Number of positions
Approximately 73 percent of the current air
1,400
traffic controller workforce will be eligible to Losses New Hires
retire by 2015. To ensure that adequate staffing 1,200
is available and is fully trained to perform this
1,000
critical safety function, FAA must hire 11,500
air traffic controllers in the next decade. 800
In 2005, FAA issued its 10-year strategy for 600

future controller staffing. An update to the plan
will be released during the second quarter of 400
2006. The plan helps ensure that FAA will have 200
the right people to fill open positions as they
0
become available. In addition, the plan details 2007 2008 2009 2010 2011
cost savings and productivity improvements Source: Department of Transportation.
that will enable the agency to reduce staffing

requirements 10 percent by 2010. The Budget requests a funding increase to hire 1,136 new
controllers, which is consistent with the updated staffing plan.
Employing Private-Sector Efficiencies
To increase Government performance, the Administration has attempted to take advantage of pri-
vate-sector efficiencies and expertise. Under its competitive sourcing initiative, agencies compare
the costs of performing a function in-house or through the private sector. In 2005, after completing a
thorough analysis, FAA determined it would be most cost effective for a private contractor to operate
58 automated flight service stations, which provide weather data to the general aviation community.
FAA’s competition was the largest public-private competition conducted by the Federal Government.
By contracting with a private vendor, the Federal Government will save more than $2 billion. The
contractor selected has offered employment to all of the affected 2,300 FAA employees who submitted
an application.
Making Highway and Transit Dollars Go Farther
DOT provides more than $40 billion annually in highway and transit grants to States, which are re-
sponsible for managing these resources. DOT has recently redoubled its efforts to make every Federal
dollar count through its Financial Integrity Review and Evaluation (FIRE) program. The program
tries to reduce project construction cost and schedule overruns, identify inactive funds, and generally
ensure that States manage their Federal grants responsibly. In the case of the Federal Highway Ad-
ministration, each of its State division offices must conduct a review identifying the largest financial
risks facing their respective States. The FIRE program was introduced in 2005, and should be fully
implemented in 2006.
Understanding the Results of Spending Decisions
Like all Federal agencies, DOT needs to know what programmatic results it can expect to achieve
based on a certain level of spending. DOT estimates the “marginal cost of performance” to identify
how changes in funding, both increases and decreases, impact program performance. For example,
NHTSA evaluated the timeliness of vehicle safety information for consumers through its New Car
Assessment Program. By improving the timeliness of safety information for consumers purchasing
a new vehicle, DOT estimates the number of safe vehicles on the road will increase. The results of
NHTSA’s evaluation indicated that the increased funding would make available safety ratings for an
additional 32 make/models, representing 3.5 million vehicles.
Update on President’s Management Agenda
The table below provides an update on DOT’s implementation of the President’s Management
Budget and
Integration
Status
Progress
With strong Departmental leadership and support from the Operating Administrations, DOT continued to
strengthen its human capital management. Several of its accomplishments include provisional certification for
a Senior Executive Service (SES) Performance Plan and an SES pay plan that links pay to organizational
performance; moving all employees to performance plans with multi-level systems that make distinctions
between levels of performance; and reducing hiring timeframes. While DOT received an unqualified financial
audit for 2005, it continues to have three material weaknesses, causing its financial management status score to
remain red. DOT has implemented E-Government initiatives, such as online rulemaking, business gateway, and
Grants.gov, which provide the public and regulated community easier access to the Government. Over the next
year, DOT will continue to improve the security of its information technology systems and implement controls to
address “at risk” programs in the Department. DOT continues to expand its use of performance information,
including in justifying its budget. In 2006, DOT plans to expand its efforts on estimating the marginal cost of
performance to all modal administrations. DOT’s budget formulation process also incorporates PART results in
the funding requests for each DOT modal administration and provides DOT executives with a tool to use when
considering funding tradeoffs between programs.
In 2005, DOT took several steps to improve the management of its real property, including enhancing
its management system to be consistent with newly created Government-wide standards, implementing
performance metrics, and establishing an agency-wide strategic and operational plan for managing real estate.
With these tools in place, DOT is now working to “right-size” its real property inventory by identifying assets
suitable for disposal or reinvestment. Regarding improper payments, during 2005, DOT conducted a research
project with the State of Tennessee’s highway department to develop a statistical methodology for testing for
improper payments at the local level. Starting in 2006, DOT plans to use this methodology to review States’ use
of Federal grants when rebuilding highways and bridges damaged by Hurricane Katrina.
Department of Transportation
2005 Estimate
Actual 2006 2007
Spending
Discretionary Budgetary Resources:
Federal Aviation Administration ....................................................................... 14,011 14,270 12,774
FAA operations, capital, and research programs (non-add) ........... 10,362 10,605 10,999
Rescission of unused contract authority (non-add) ............................ — — 975
Federal Highway Administration...................................................................... 34,152 35,571 39,083
Federal-Aid Highway Obligation Limitation (non-add) ....................... 33,306 35,551 39,083
Federal Motor Carrier Safety Administration (Obligation Limitation) . 443 489 521
National Highway Traffic Safety Administration (Obligation
Limitation) 1 ....................................................................................................... 450 806 815
Federal Transit Administration ......................................................................... 8,605 8,503 8,846
Federal Transit Administration Obligation Limitation (non-add) . 7,649 6,910 7,263
Rescission of unused contract authority (non-add) ....................... — — 29
Federal Railroad Administration ...................................................................... 1,426 1,502 1,086
Amtrak (non-add) ....................................................................................... 1,207 1,294 900
Maritime Administration ...................................................................................... 304 298 223
Rescission of unused balances (non-add) ........................................ 2 2 76
Pipeline and Hazardous Materials Safety Administration ...................... 111 115 121
Research and Innovative Technology Administration.............................. 4 6 8
Surface Transportation Board .......................................................................... 20 25 22
St. Lawrence Seaway Development Corporation ..................................... 16 16 8
All other programs (includes offsetting collections) ................................. 236 241 130
Total, Discretionary budgetary resources 2 .................................................... 59,778 61,842 63,637
Memorandum: Budget authority from enacted supplementals ............... 1,227 2,799 —

Department of Transportation—Continued
2005 Estimate
Actual 2006 2007
Mandatory Outlays:
Federal Highway Administration...................................................................... 817 1,256 1,340
Office of the Secretary ........................................................................................ 20 79 50
All other (including offsetting receipts) .......................................................... 2 336 259
Total, Mandatory outlays ........................................................................................ 839 999 1,131
Total, Outlays .............................................................................................................. 56,932 61,253 65,651
Credit activity
Transportation Infrastructure Finance and Innovation Program .......... 102 181 1,240
Railroad Rehabilitation and Improvement Program ................................. 87 287 —
Total, Direct loan disbursements ......................................................................... 189 468 1,240

Transportation Infrastructure Finance and Innovation Program .......... — 200 200
Maritime Guaranteed Loans (Title XI)........................................................... 12 205 —
Minority Business Resource Center .............................................................. 6 21 18
Total, Guaranteed loan commitments ................................................................ 18 426 218

1
Reflects the 2005 enacted level of $227 million for Operations and Research. 2005 actual was $202 million and the remaining $25 million was
transferred from the Federal Highway Administration to the National Highway Traffic Safety Administration in 2006.
2
Includes both discretionary budget authority, obligation limitations, and rescissions.
DEPARTMENT OF THE TREASURY

• Blocked the assets of 428 terrorist-related individuals and entities and 18 weapons of
mass destruction proliferators worldwide;
• Increased collections of delinquent tax debt from $34 billion in 2001 to $47 billion in
2005, an increase of 38 percent;
• Safeguarded our Nation’s currency through improved measures against counter-
feiting;
• Increased the percentage of Treasury payments to individuals and businesses made
electronically from 72 percent to 76 percent in 2005; and
• Facilitated increased electronic filing of tax returns from 31 percent in 2001 to 51
percent in 2005.

• Provides the resources necessary for the Department of the Treasury to fight the War
on Terror by disrupting the support structures of terrorists and proliferators of weapons
of mass destruction;
• Promotes economic opportunity and job creation by ensuring the ability of the
Treasury to develop economic and tax policies that encourage savings, investment,
and ownership;
• Maintains the tax enforcement funding increase provided in 2006 to improve tax
compliance;
• Makes targeted changes in the tax code to improve tax enforcement; and
• Creates a new office to assess the dynamic economic effects of major tax policy
proposals.
227
228 DEPARTMENT OF THE TREASURY
Fighting the War on Terror
Overall, the budget priorities for the Treasury reflect the Department’s dedication to promoting
economic opportunity and job creation through lower, fairer taxes, strengthening natural security,
and exercising fiscal discipline, and steadily improving the Department’s operations to ensure it
remains a world-class organization. In recent years, this Nation has become sharply cognizant of
the fact that a country must be secure in order to be prosperous—the constant goal of the Treasury.
Fighting the financial war on terror is therefore a top priority of the President’s Budget.
The President’s Budget places a priority on funding Treasury’s efforts to detect and disrupt
terrorist financing, the proliferation of weapons of mass destruction (WMD), narco-trafficking,
money laundering, and other financial crimes. Through the Office of Terrorism and Financial
Intelligence (TFI), Treasury gathers, analyzes, and produces financial intelligence about these
threats and wields its economic authorities and influence to undermine these threats at home and
abroad. TFI has achieved many successes in the past year, including:
• designating and financially isolating front companies, non-governmental organizations, and
facilitators supporting terrorist organizations, such as al Qaeda, Jemaah Islamiyah, and
Egyptian Islamic Jihad;
• striking a deep blow against the illicit financial networks of North Korea;
• implementing financial sanctions against Iranian, North Korean, and Syrian facilitators of
WMD proliferation; and
• destabilizing the financial empire of the Rodriguez Orejuela drug lords in Colombia.
The 2007 Budget provides critical funding to expand the Department’s tools and efforts in the War
on Terror.
TFI’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade
sanctions based on U.S. foreign policy and national security goals against targeted foreign countries,
terrorists, international narcotics traffickers, and proliferators of WMD. Since 2001, the United
States has designated 428 terrorist-related individuals and entities; 320 of these designations have
been carried out in coordination with our allies and designated at the United Nations as well. In
addition, since June 2005, OFAC has prepared evidentiary packages related to the designations of
18 WMD-related entities worldwide. The Budget provides additional resources for OFAC to monitor
and update existing designations and track the development of new support structures and funding
sources.
TFI’s Financial Crimes Enforcement Network (FinCEN) helps to safeguard the United States’
financial system from the abuses of financial crime, including terrorist financing, money laundering,
and other illicit activity. This is accomplished primarily through the Bank Secrecy Act that requires
financial institutions to report on financial transactions such as suspicious activities that may be
indicative of financial crimes. FinCEN also supports law enforcement, intelligence, and regulatory
agencies through sharing and analysis of financial intelligence, and building global cooperation with
financial intelligence units (FIUs) in other countries. FIUs collect information on suspicious financial
activity from the financial industry in their countries and make it available to appropriate national
authorities and other FIUs for use in combating terrorist funding and other financial crime. As part
of such efforts, and as the United States’ FIU, FinCEN hosted the 10th Anniversary Plenary meeting
of the Egmont Group of FIUs, which now has 101 nations participating as members. In addition,
Attacking Proliferators of WMD

On June 28, 2005, the President signed Executive Order 13382, authorizing Treasury to target key nodes of
WMD proliferation networks, including their suppliers and financiers. A Treasury designation cuts the target
off from access to the United States’ financial and commercial systems and puts the international community
on notice about these dangerous entities. Based on evidentiary packages prepared by OFAC, the President
designated eight entities in North Korea, Iran, and Syria for sanctions. Continuing investigations by OFAC
then resulted in the designation of eight additional North Korean entities and two additional Iranian entities.
These actions have exposed key players in the support structures of proliferation networks and impeded
their access to the world’s financial and business sectors. OFAC continues to investigate potential WMD
targets worldwide.
over the last year, FinCEN strengthened oversight of Bank Secrecy Act compliance by establishing
41 information sharing agreements, to include agreements with 35 States.
Based on findings in a Program Assessment Rating Tool (PART) analysis, FinCEN is making
efforts to improve the efficiency of its collection, retrieval, and sharing of information collected under
the Bank Secrecy Act by tracking the number of major filers of information (e.g., large banks) that
submit information electronically against ambitious targets. And in the future, FinCEN is going
to begin measuring the quality of information provided through new analysis of information filed
and by surveying users of its new online information sharing environment—BSA Direct—to ensure
users are receiving needed information in a timely manner and that the information is helpful, and
determine if there are any problems with the information and format. The 2007 Budget provides
additional resources to FinCEN to streamline data processing and enhance its e-filing capabilities
to increase the ease of compliance with regulations and improve its abilities to track users’ needs.
TFI’s Office of Intelligence and Analysis (OIA) was created to focus expert analytical resources
on the financial and other support networks of terrorists, WMD proliferators, and other key
national security threats. Over the past year, OIA has assumed an increasingly important role
in Treasury’s efforts to combat national security threats in Iran, Syria, and North Korea. OIA’s
top strategic priority is to provide policymakers with relevant intelligence and expert analysis to
support policy formulation and carry out Treasury’s role in the War on Terror. Other OIA strategic
priorities include providing intelligence support to senior Treasury officials on the full range of
economic and political issues and communicating with other members of the Nation’s Intelligence
Community. The 2007 Budget provides funding to OIA to increase its analytical capacity and for
critical infrastructure improvements, to ensure the Department has a reliable and secure system
to receive and share intelligence information and comply with applicable information sharing
directives promulgated by the Director of National Intelligence.
TFI’s Office of Terrorist Financing and Financial Crime (TFFC) develops counterterrorism
financing and anti-money laundering policy and initiatives at home and abroad. TFFC, along with
interagency counterparts, has been a driving force behind the worldwide propagation of strong
anti-money laundering standards via the Financial Action Task Force (FATF), the preeminent
international body on money laundering issues. Over the past two years, critical new coun-
tries—from North Africa to the Persian Gulf region to Eurasia—have joined FATF-style regional
bodies, and more than 150 nations have now committed themselves to adopting FATF’s standards
and to being evaluated against them. The Budget continues the Administration’s support of TFFC’s
efforts to engage foreign countries and international organizations to identify and target entities
that fund terrorist and other criminal activity.
TFI also works with the Office of International Affairs to direct overseas specialists who promote
sound and secure financial systems in countries such as Iraq, Afghanistan, and India. In addition,
TFI provides policy guidance for the Internal Revenue Service’s (IRS’) Criminal Investigation staff.
These IRS special agents are experts at gathering and analyzing complex financial information
from numerous sources and applying the evidence to tax, money laundering, and Bank Secrecy
Act violations. These agents support the national effort to combat terrorism and participate in the
Joint Terrorism Task Forces and similar interagency efforts focused on disrupting and dismantling
terrorist financing. The Budget continues to support these critical efforts.
Strengthening Financial Institutions
Treasury maintains the health of the national banking and thrift system through the Office of the
Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). OCC charters, regu-
lates, and examines approximately 1,930 national banks and 51 Federal branches of foreign banks
in the United States, accounting for more than $5.8 trillion in assets, or 67 percent, of the Nation’s
commercial banking assets. Likewise, OTS charters, regulates, and examines approximately 866
thrifts with approximately $1.43 trillion in assets. OTS also provides for the registration, exam-
ination, and regulation of approximately 486 savings and loan holding company enterprises with
consolidated assets of over $7 trillion. The mission of both agencies is to ensure a safe, sound, and
competitive national banking and thrift system that supports the citizens, communities, and econ-
omy of the United States. On-site examinations ensure that institutions are properly capitalized and
soundly managed; customers have fair access to financial services through institutional compliance
with consumer banking laws; and institutions are complying with the Bank Secrecy Act and other
laws that prevent banks and thrifts from allowing criminals to launder money or provide terrorists
with financing through financial institutions. PART analyses of OCC’s and OTS’ oversight of banks
and thrifts have shown that they contribute to the safety and soundness of the banking and thrift
industry. In response to the PART, they are working with other Federal financial regulators to better
align outcome goals to allow for greater comparison of program performance in the industry.
In coordination with other regulatory agencies, OCC and OTS issued interagency guidance in
2005 on a wide variety of specific topics, such as customer identification program requirements;
the provision of services to foreign embassies and foreign political figures; and information sharing
requirements under the USA PATRIOT Act. To address the specific issue of examination consistency,
the agencies issued examination procedures that provide valuable guidance to both examiners and
the banking industry. Additionally, in furtherance of their commitment to the efficient and effective
management of their agencies and the tenets of the President’s Management Agenda, in 2006, OCC
and OTS will implement a performance measure to gauge the total cost of supervision relative to
each $100,000 in assets regulated.
During 2007, OCC and OTS will continue to monitor the health of the banking industry and ensure
it is sufficiently capitalized through risk-based examinations of institutions, and will also strive to
reduce regulatory burden on institutions. OCC and OTS will continue to combat fraud and money
laundering and protect the integrity of the financial system by building upon the success of the com-
mon examination procedures, guidance, and outreach programs. In addition, they will help address
the banking industry’s needs and issues brought about by Hurricanes Katrina and Rita and will
work with other Federal agencies to monitor the long-term economic impact of the hurricanes and
take appropriate bank supervisory actions. The work of OCC and OTS will continue to be funded by
the entities they regulate, without appropriations from the Congress. In 2007, OCC will spend an
estimated $605 million and OTS will spend an estimated $221 million on the supervision, regulation,
and chartering of banks and thrifts.
Response to Hurricane Katrina

The Treasury Department assisted victims of Hurricane Katrina in a number of ways. The IRS granted tax
filing and payment relief to all affected taxpayers, provided nearly 5,000 IRS employees to help the Federal
Emergency Management Agency (FEMA) register hurricane victims on a dedicated toll-free disaster phone
line, and provided a special information section on the IRS website. The Financial Management Service also
responded by issuing 1.3 million FEMA disaster assistance payments valued at $2.6 billion, establishing a
debit card program that issued 11,374 FEMA Assistance Cards valued at $22.7 million to evacuees in three
Texas cities, and by providing guidance and relief to financial institutions in cashing Treasury checks for
hurricane victims.
The Budget supports the Administration’s continuing efforts to make multilateral development
banks more efficient and effective and to improve the ability of debt-vulnerable poor countries to
manage their debt. For more information, see the Department of State and Other International Pro-
grams Chapter.
Securing the Nation’s Currency
The United States Mint and the Bureau of Engraving

and Printing (BEP) are responsible for ensuring that our
Nation continues to produce the world’s most accepted coin
and currency. In 2006, the United States Mint will introduce
new 24-karat gold bullion coins. These gold bullion coins
will complement the popular 22-karat American Eagle gold
bullion coins, and will give investors a second U.S.-produced
option in the global precious metal market. In 2007, the
popular 50 State Quarters® Program will introduce quarters
representing Montana, Washington, Idaho, Wyoming, and
Utah.
During 2007, BEP will continue its efforts to design and
manufacture the most secure currency for the Nation. The
current plan includes introducing the new design of the $100 The 2006 Return to Monticello nickel bears a
note in 2007, as part of its ambitious multi-year initiative to forward-facing President Thomas Jefferson.
redesign and enhance the security of U.S. currency. The re-
design of the $100 note follows the introduction of the redesigned $10 note in 2006. A PART review
of the New Currency program found that the BEP was successful in meeting its production and time-
line goals for the rollout of the new $20 note. BEP also will continue to work with the Advanced
Counterfeit Deterrent Steering Committee to assess the impact of new currency on counterfeiting
performance measures across Government.

In recent years, IRS has seen a significant IRS Enforcement Revenue
shift in the ways Americans seek service.
Percent of Taxpayers Filing Electronically
(In billions)
60
Fewer taxpayers are choosing to write or
call, and even fewer taxpayers are using
the walk-in taxpayer service centers, down
28 percent since 2003. Instead, more and
40
more Americans are using electronic services,
especially the IRS internet site. In 2007, IRS
will continue focusing efforts on providing
taxpayer service through these more effi-
20
cient automated methods. This approach is
consistent with the follow-up actions of the
2004 PART analysis of this program. Thanks
to investments in technology, taxpayers can
0
now access a vast amount of information 2001 2002 2003 2004 2005
Source: IRS.
on the IRS website (www.irs.gov), including
frequently asked tax law questions and tax publications. For example, in 2005, 22 million taxpayers
checked on their refund status using the IRS’ internet based Where’s My Refund? tool. They also
can use automated features found at 1–800–829–1040 to answer tax questions. In addition, IRS
has deployed a nationwide Internet Employer Identification Number to reduce the burden for
businesses that file electronically and reduce total processing time required for processing accurate
tax information.
The 2007 Budget funds continued investments in IRS technology modernization that support im-
provements in electronic filing options for taxpayers, tools to help IRS manage private debt collectors,
and continued work to replace IRS’ antiquated core taxpayer databases. IRS is revising its modern-
ization strategy to emphasize incremental release of projects to deliver business value sooner and at
lower risk.
IRS continues to achieve savings and improve service through increased electronic filing (see ac-
companying chart). The free e-filing website, www.irs.gov/app/freefile/welcome.jsp, reduces burden
and costs to taxpayers. Electronic filing is fast, easy, and far less prone to error than paper-filed
returns. In addition, electronic filing saves the Government on average more than $2 per return.
In response to PART assessments on several tax enforcement programs, IRS is setting a long-term
goal for improving tax compliance. IRS will improve voluntary compliance from the 83.5-percent
level found in its 2001 study to 85 percent by 2009. IRS will achieve this improvement through
IRS Partners with Volunteer Organizations to Produce Better Service for the American Taxpayer
IRS outreach programs, conducted under the Volunteer Income Tax Assistance and Tax Counseling for
the Elderly grant programs, offer free tax preparation services for low-income, elderly, and limited English
proficient individuals and families, and persons with disabilities. There are currently 14,000 volunteer tax
preparation sites nationwide. In the past five years, IRS has doubled the number of volunteer-prepared tax
returns to more than two million. In 2005, IRS received the Connect America Partner of the Year Award,
presented each year at the National Conference on Community Volunteering and National Service. IRS is
the first Federal agency to receive the award.
targeted changes in the tax code, emphasizing tax enforcement and, as described earlier, focusing on
automated taxpayer service tools and technology investments to increase productivity.
Tax Year 2001 Federal Tax Gap The Budget proposes improvements in the
(In billions of dollars) tax law to help address the tax gap, which is the
Gross Tax Gap gap between taxes voluntarily paid on time and
312-353 total taxes owed. These improvements include
expanding third-party information reporting
Non-filing Underreporting Underpayment to include Government payments for goods
30 251-291 32
and services, as well as debit and credit card
reimbursements paid to merchants; clarifying
Individual Employment Corporation Estate & Excise
Income Tax Tax Income Tax Taxes joint liability for employee leasing companies
150-187 66-71 30 4 and their clients; expanding IRS’ authority to
impose penalties on paid tax return preparers
Net tax gap after Certainty of the Estimates
:
enforcement actions and who help facilitate the filing of improper
late payments = 257-298 Actual amounts, or updated in
2001 study returns; and expanding IRS’ authority to issue
Bolded Boxes Reasonable estimates
Updated Using levies to collect employment tax debts prior to
Preliminary Tax Older, weaker estimates
Year 2001 Results Source: IRS.
completing all administrative hearings. These
changes are carefully targeted to areas where
research shows significant compliance problems and where improvements can be made with as
little burden on taxpayers as possible. The changes are part of the Administration’s broader focus
on finding appropriate ways to address the tax gap.
IRS continues its emphasis on increasing IRS Enforcement Revenue

Enforcement Revenue
tax enforcement revenues, and has increased (In billions)
Billions of dollars
the collections of delinquent tax debt by 38 50
percent, from $34 billion in 2001 to $47 billion
in 2005 (see accompanying chart). The Budget 40
maintains the enforcement funding increase
provided in 2006 to continue this success. The
30
effort includes an aggressive campaign to stop
promoters and taxpayers from marketing and
20
buying abusive tax shelters, transactions that
serve no purpose other than to reduce taxes.
10
This has included a tough but balanced series
of settlement initiatives to close illegal tax
shelters, which, in the case of one type of tax 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
shelter, brought in close to $4 billion in taxes, Source:
Source: IRS. IRS
interest, and penalties.
IRS had also targeted unprofessional and unethical behavior by tax practitioners with a revitalized
oversight program by its Office of Professional Responsibility. Partnering with the Department of
Justice, the IRS’ aggressive promoter examination program has produced a goldmine of information
on abusive tax shelters, particularly lists of investor/taxpayers that have engaged in abusive deals.
The Department of the Treasury is also improving its payments and collections processes and
moving toward an all-electronic Treasury. Treasury administers the Government’s payments and
collections systems through the Financial Management Service (FMS). FMS issues 85 percent of
the Government’s payments, valued at $1.5 trillion annually, including Social Security benefits, tax
refunds, and veterans’ benefits. In 2005, FMS issued 725 million electronic payments (20 million
more than in 2004) and 227 million paper checks.
To increase the use of direct deposit, FMS began a nationwide campaign called Go Direct to
encourage current Federal check recipients to switch to direct deposit. Direct deposit represents a
significant savings over paper checks; each check converted from paper to electronic format saves
the taxpayer about 75 cents and is more secure for recipients. A six-month Go Direct pilot campaign
was extremely successful in convincing tens of thousands of Social Security and Supplemental
Security Income recipients to switch to direct deposit. Go Direct was launched nationwide in the
summer of 2005 and will continue through mid-2006, at which point it will be evaluated for future
continuation and expansion.
Electronic collections increased 10 percent over last year, including over 76 million tax payments
valued at $1.7 trillion collected through the Electronic Federal Tax Payment System. Streamlining
the payments and collections processes and continually investing in state of the art technology is
integral to processing these payments and collections accurately, timely, and more safely and securely
for the taxpayer. The Budget provides funding for FMS electronic initiatives including: Pay.gov, a
Government-wide web portal to collect non-tax revenue electronically; Paper Check Conversion, a
system that converts checks into electronic debits, thereby moving funds more quickly; and Stored
Value Cards, smart cards with electronic money that directly support military operations overseas.
FMS also serves as the Government’s central debt collection agency, managing a portfolio of
non-tax delinquent debt such as overdue or defaulted loans owed to the Government, penalties or
fines assessed by Federal agencies, and overpayments made by Federal agencies. FMS collected a
record $3.25 billion in delinquent debts in 2005. A PART analysis on this program found that it was
effective at collecting delinquent debts and that it is capable of taking on additional debt collection
responsibilities. As a result, the Budget proposes legislation to increase and enhance debt collection
opportunities.
In 2007, the Bureau of the Public Debt (BPD) will continue its efforts to improve the efficiency of
the securities services it offers to retail investors. BPD developed TreasuryDirect as the centerpiece
of Treasury’s effort to achieve all-electronic issuance of retail securities, allowing investors to conduct
their investment and account management activities online through a single portfolio account. The
system currently offers both Series I and EE savings bonds and marketable Treasury securities for
purchase. TreasuryDirect holds more than $3.1 billion in 464,000 accounts. A PART review of BPD
found that the program meets its annual performance goals, such as reducing the time it takes to
release auction results from one hour in 2001, to two minutes, plus or minus 30 seconds, in 2005.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible for the regulation of the
alcohol and tobacco industries, and the collection of approximately $15 billion annually in alcohol,
tobacco, firearms, and ammunition excise taxes. TTB protects the consumer by ensuring that
alcohol beverages are labeled, advertised, and marketed in accordance with the law; facilitates the
import and export trade in beverage and industrial alcohols; promotes voluntary tax compliance;
and enforces the provisions of the Federal Alcohol Administration Act. In 2007, TTB anticipates
receiving and screening more than 100,000 label applications, more than 400,000 tax returns and
operational reports, and more than 4,000 applications for permits to enter the alcohol and tobacco
industries. In 2007, TTB will process an estimated 30 percent of its label applications electronically,
up from just three percent in 2003.
The table below provides an update on the Department of the Treasury’s implementation of the
President’s Management Agenda as of December 31, 2005.
Budget and
Integration
Status
Progress
Arrows indicate change in status rating since prior evaluation as of September 30, 2005.
Treasury has demonstrated that it is effectively managing its human capital programs by closing skill gaps,
shortening hiring timelines, addressing and sustaining diversity, strengthening its performance management
programs, and using its accountability system to drive continuous improvement. As a result of competitive
sourcing studies, the Treasury Department anticipates more than $200 million in savings over the next five
years, and it has studies underway to produce additional savings in the future. In financial performance,
Treasury received a clean audit opinion on its financial statements for the sixth year in a row, closed its monthly
accounting in just three days, and for the past three years completed its accountability report by November 15,
2005. In addition, Treasury again issued the Government-wide Consolidated Financial Report on December 15,
2005, 75 days after the close of the fiscal year. The Department is still working to correct significant material
weaknesses in its financial accounting systems.
In 2005, the Department made progress in its capital planning process including developing its Enterprise
Architecture and improving the security of its information technology systems. In 2006, the Department will
focus on both ensuring and demonstrating that its information technology projects are within 10 percent of
cost, schedule, and performance goals. Finally, the Department improved its budgeting and performance
management by reporting the full cost of program performance, and by implementing a Treasury Performance
Dashboard of program performance “vital signs.”
In 2006, an estimated 22 million families will receive $40 billion in Earned Income Tax Credit (EITC) payments
to reward work and help lift them out of poverty. Unfortunately, due to mistakes and fraud, about one EITC
dollar in four is paid in error. IRS is piloting new strategies, such as qualifying child certification, to target the
most significant causes of error.
The Budget introduces a new initiative to improve the management of the Federal Government’s credit portfolios.
Treasury’s FMS is included in this initiative as the Government’s primary collector of $45 billion in delinquent
debt at the end of 2005. This initiative will be included in the scorecard beginning in the second quarter of 2006.
Department of the Treasury

2005 Estimate
Actual 2006 2007
Spending
Internal Revenue Service .................................................................................. 10,236 10,545 10,591
Financial Management Service ....................................................................... 229 234 234
Departmental Offices .......................................................................................... 220 231 258
Bureau of Public Debt ......................................................................................... 176 175 178
Inspectors General ............................................................................................... 144 149 153
Alcohol and Tobacco Tax and Trade Bureau .............................................. 82 90 64
Legislative proposal ........................................................................................ — — 29
Financial Crimes Enforcement Network ....................................................... 72 73 90
Community Development Financial Institutions Fund ............................. 55 54 8
All other .................................................................................................................... 225 7 5
Mandatory Outlays:
Payment where earned income exceeds liability for tax ........................ 34,559 35,098 35,645
Payment where child credit exceeds liability for tax ................................. 14,624 14,113 13,538
Payment where health care credit exceeds liability for tax .................... 90 94 109
Interest payments on advances to the black lung disability fund trust
fund ....................................................................................................................... 675 695 717
Legislative proposal ........................................................................................ — — 2,282
Alcohol and Tobacco Tax and Trade Bureau User Fees
Continued dumping subsidy offset act .......................................................... 296 249 1,928
Internal revenue collections for Puerto Rico ............................................... 421 372 362
Legislative proposal ........................................................................................ — 69 95
All other .................................................................................................................... 3,373 3,261 2,215
Total, Outlays .............................................................................................................. 56,604 57,568 58,583
Credit activity
Community Development Revolving Loan Fund ....................................... 8 7 —
Total, Direct loan disbursements ......................................................................... 8 7 —
DEPARTMENT OF VETERANS AFFAIRS

• Increased the medical care budget (including collections) by 69.1 percent, an average
of 9.2 percent a year, and the number of patients treated by 1.1 million;
• Expanded the national cemetery system to ensure that more veterans will have a
burial option within 75 miles of their residence;
• Kept its promise to award disability claims faster;
• Expanded and improved seamless transition from active duty to civilian status and
access to Department benefits; and
• Provided medical care to almost 100,000 returning Operation Iraqi Freedom and
Operation Enduring Freedom servicemembers in 2005.

• Meets the growing challenge of health care costs and needs of our Nation’s veterans;
• Continues the collaboration between the Department of Veterans Affairs and
the Department of Defense to better serve veterans and returning Operation Iraqi
Freedom and Operation Enduring Freedom servicemembers;
• Continues improving the electronic medical record system, which has been recog-
nized nationally for increasing patient safety; and
• Supports continued restructuring of the veterans’ medical care system to ensure that
health care services are available where veterans live.
237
238 DEPARTMENT OF VETERANS AFFAIRS
Refocusing Medical Care to Current Combat Veterans and Veterans Who Have
Service Disabilities, Lower Incomes, or Special Needs
The Department of Veterans Affairs (VA) operates the largest direct health care delivery system in
the country, providing care at over 800 locations to about five million veterans—one in five veterans
receives medical care from VA. As the veteran population continues to age over the next 20 years, the
total number of veterans will decline from 25 million to 17 million. While the number of patients has
grown in the last five years, the annual increase is now slowing down and is expected to continue to
do so as the overall veteran population declines.
VA is also meeting the needs of veterans returning from Afghanistan and Iraq. In 2007, VA will
provide medical care to over 100,000 combat veterans returning from Operation Enduring Freedom
(OEF) and Operation Iraqi Freedom (OIF). Veterans deployed to combat zones are entitled to two
years of eligibility for VA health care services following their separation from active duty, even if
they are not immediately otherwise eligible to enroll in VA.
As health care costs continue to rise and

the amount and intensity of care provided to
patients increases, VA’s cost per patient will
continue to grow. VA patients are increasingly
older and sicker and are receiving improved,
more costly treatments. At the same time,
patients with other health-care alternatives
who have traditionally used VA for only part
of their medical care needs are relying more
heavily on VA as quality and access have
improved and alternatives have become costly.
In addition, VA is providing more mental
health and prosthetics services for all veterans.
The 2007 Budget provides an 11.3-percent
increase in funding for medical care over last
year (including collections), and a 69.1-percent
increase since President Bush took office. This funding level will provide needed resources to ensure
that VA continues to provide a high level quality of care to veterans.
Resources are focused on VA’s core medical care mission—to serve current combat veterans
and veterans who have service disabilities, lower incomes, or special needs. Other veterans
(higher-income and non-disabled) were unable to receive VA medical care at all or on a case-by-case
space-available basis until 1999, when a new law allowed these veterans to enroll for care in any
year that the Secretary determined enough resources were available. In 1999 through 2002, the
Secretary determined each year that all categories of veterans were able to enroll. However, the
rapid growth in the number of higher-income and non-disabled veterans (lower-priority veterans)
threatened VA’s ability to deliver quality and timely care to service-disabled and lower-income
veterans. As a result, in 2003 enrollment of lower-priority veterans was stopped, a move supported
by the Congress in all appropriations bills since. Those lower-priority veterans who were already
enrolled in the system before 2003 retained their eligibility and today comprise 27 percent of all
enrollees.
The Budget continues the priority of providing timely and accessible medical care that sets a
national standard of excellence for the health care industry. As President Bush took office, the
number of new enrollees unable to get an appointment peaked at 176,000 and has dropped to 22,494
in 2005. To ensure timely care, VA now monitors the percentage of appointments scheduled within
30 days of the desired date and reports this measure to be 93.7 percent.
The VA medical care system is recognized as a leader in using high standards and technology to
improve the quality of health care. Over the past seven years, the Institute of Medicine has lauded
VA’s use of performance measures to improve quality as one of the best in the Nation. It particu-
larly praised VA’s use of performance measures, reports, self-assessment tools, site visits, and best
practices in the surgical area where their impact reduced the number of deaths within 30 days after
surgery by 27 percent over nine years. VA’s electronic medical record system and bar coding program
are key components in improving health care quality and patient safety and have been recognized
for advancing the profession as a whole in the United States. VA’s programs have been adopted in
other countries, such as Australia, Japan, and Denmark. VA’s research program continues to address
health care problems that impact veterans and the general population. In fact, the research Program
Assessment Rating Tool (PART) score improved this year due to the increased use of performance
measures and data.
VA Cemeteries Honor Veterans with a Final Resting Place
VA operates 125 national cemeteries and 33 other facilities with the goal of providing compassion-
ate burial services in settings that are maintained as national shrines. The 2007 Budget continues to
fund the next phases of construction for the six new cemeteries announced by the President in Novem-
ber 2003. These new cemeteries will assist in the goal of ensuring that most veterans have a national
or State veterans’ cemetery within 75 miles of their home. VA has begun opening gravesite sections
in new cemeteries under construction rather than waiting for the entire cemetery to be completed,
providing services to families in the area up to two years earlier. The program’s PART assessment
determined that it provides a valuable service to veterans and their families.
The State Cemetery Grants Program was

established in 1979 to complement VA’s system
of national cemeteries. Grants are provided
to the States for the establishment, expansion,
or improvement of State veterans’ cemeteries.
They cover the total cost of construction as
well as certain equipment costs. The States
are responsible for continued operations and
maintenance. State veterans’ cemeteries can
provide access to a burial option for veterans
residing in geographic areas not served by a
national cemetery.
Reducing the Processing Times for Disability Claims
The Veterans Disability Compensation Program provides financial benefits for income loss due
to service-related disabilities. It is the worker’s compensation program for military members and
complements retirement pay and disability annuities provided by the Department of Defense (DOD).
In 2007, 3.7 million veterans and beneficiaries will receive approximately $38 billion of tax-free
disability benefits.
The number of days to process a disability claim has dropped from a high of 230 days when the
President took office to approximately 167 days in 2005. Recently enacted statutory outreach re-
quirements will increase the number of claims by nearly 100,000, so the average number of days to
complete a claim is expected to temporarily rise to 185 days in 2006 and 182 days in 2007. Despite
this temporary increase, VA remains committed to bringing this processing time down to its ultimate
target of 125 days by continually improving processing methods and focusing on ways to improve the
system. In response to its prior PART rating, the program is improving its ability to measure perfor-
mance using new measures.
VA has sought to reduce processing times by increasing the use of electronic, centralized opera-
tions and the latest technology. Working closely with the military Services, VA provides briefings to
servicemembers prior to their separation from Service. By meeting with members before separation,
all required tests and forms are collected and rating decisions are made prior to separation. The goal
of the program, which is currently used at 140 military installations, is to process claims within 30
days.
VA also improves timeliness by moving work between Regional Offices when regional backlogs
develop in one area and can be processed in another. For example, in the wake of Hurricane Katrina,
the New Orleans Regional Office was unable to process claims for the veterans of Louisiana. Rather
than waiting for the office to reopen, VA moved claims to neighboring States to ensure that claims
were processed in a timely manner.
Capital Asset Realignment for Enhanced Services (CARES)
In 1999, the Government Accountability Office reported that VA was wasting $1 million a day
on underused or unneeded health facilities. VA entered the 21st Century with an infrastructure
system largely designed and built to provide medical care as it was practiced in the middle of the 20th
Century, i.e., centered around hospital inpatient care. American medicine has transformed itself
from a hospital-based system to one centered on outpatient and home services. VA medicine has
kept up with, and sometimes led, these innovations, leaving many hospitals and their associated
medical staff underutilized. As a result, VA implemented and completed the CARES process—the
most comprehensive evaluation of the Department’s capital assets and service needs ever conducted.
In addition to the clinical changes in the how and where we treat patients today, there is a migra-
tion of the population to warmer climates. Many veterans have moved to the South and Southwest,
and VA has been maintaining older underused hospitals in areas losing population. The CARES
process will bring health care closer to where most of VA’s enrolled veterans live, while eliminating
or downsizing underused facilities. VA is continuing to convert many of its older, massive hospitals
to more efficient clinics, while at the same time building hospitals in more populated areas. This re-
configuration will increase access to care for many veterans, and improve the efficiency of operations
in all sections of the country.
It will take time to implement the nationwide changes that were recommended in the 2004 CARES
Commission’s final report. In the last three enacted Budgets (2004–2006), a total of $2.2 billion was
allocated to this effort. The 2007 Budget includes $457 million for CARES—and an additional $293
million was enacted in the Hurricane Katrina emergency funding package in late December 2005,
to fund a CARES project—bringing the total CARES funding between 2004 and 2007 to almost $3
billion. The Administration continues to fully support this initiative and will request funding that
aligns this activity with other Administration priorities.
Proposed New and Expanded User Fees for Higher-income Non-disabled Veterans
The Administration is reproposing two user-

Typical Patient Cost Sharing
fee proposals for lower-priority veterans in the
system (Priority Level 7/8 veterans) who do not Priority Priority Federal
Level 7/8 Level 7/8 Employee Health
have service disabilities or lower incomes. The Current Proposed Benefits
proposals include a $250 annual enrollment fee Program*
Drug
and an increase in the drug copay from $8 to $15 Copays
$8 $15 25 to 45 percent
for a 30-day supply of prescription drugs. The Primary
$15 up to
accompanying chart shows that these fees align Doctor $15 $15
25 percent
Copay
veterans’ payments for care more closely with Specialty
other public and private health care plans. Doctor $15 up to
$50 $50
Copay 25 percent
Similar proposals are included in the DOD
Deductible $0 $0 $250
budget for career military retirees under the
Annual
age of 65. In addition to these proposals, Premium
$0 $250 $1,510
the Budget includes a legislative provision to *Based on the Individual rates for the most popular Federal
correct an inequity in the administration of Employee Health Benefits Program (2006)
existing copays. Today, if a veteran has another

source of health insurance the copay requirement is eliminated if the insurance payment is equal
to or greater than the copay. The proposal would charge copays to all eligible veterans equally.
These proposals do not pertain to veterans who are considered among VA’s core mission and our
highest priority—those with service disabilities, lower incomes, or special needs. The President
is committed to ensuring that their care is not jeopardized in any way. These proposals will save
taxpayers $795 million in 2007.
Seamless Transition from Active Duty Status to Civilian Status
Since 2001, the Administration has emphasized increased collaboration between VA and DOD in
providing care to the military community. President Bush identified this activity as one of the 14
key management priorities for his Administration, and these efforts have already resulted in a more
efficient delivery of services and benefits to active and separated servicemembers and their families.
DOD and VA have been working closely to ensure that returning servicemembers transition from
active duty to civilian status in a seamless manner. VA outreach programs are ensuring that return-
ing combat veterans of OIF/OEF are receiving medical care and other services from VA quickly and
with minimal paperwork. Servicemembers who become disabled and need to separate from active
duty because they can no longer fulfill their duties are assigned to a DOD case manager and linked
to a VA benefits counselor while still in the Service. They also receive transition assistance through
various assistance centers and offices. VA and DOD are working together to establish a cooperative
separation exam process so that departing servicemembers only need to have one exam that meets
the needs of both Departments.
VA and DOD are also identifying departing servicemembers who may be at risk for Post Traumatic
Stress Disorder, and have implemented an aggressive plan to determine the appropriate care best
suited to each veteran. VA is assisting DOD with dental examinations and care for demobilized re-
servists, and is providing prosthetics care to veterans after separation. In addition, VA has assigned
full-time counselors in seven major military medical centers to work closely with DOD staff to ensure
that returning servicemembers receive information and counseling about VA benefits and services.
To date, VA staff have facilitated transfers of more than 2,900 OIF/OEF returning servicemembers
from military medical facilities to VA medical centers.
During 2005, VA established the Seamless Transition Office to improve communication and
cooperation with DOD, and ensure that transition to civilian life is as trouble-free as possible for
all veterans and not just those disabled in combat. For example, the Departments have worked to
educate servicemembers on all VA benefits and assist them in applying for these benefits prior to
separation from active duty. The program that allows servicemembers to begin the VA disability
application process 180 days prior to separation was expanded to 140 military installations in the
United States, Germany, and Korea. These applications are now processed at two locations to speed
up the processing time.
Other VA/DOD Collaboration Efforts
VA and DOD are expediting the two-way transfer of medical records between the two Departments,
largely using state-of-the-art new electronic medical records systems. This sharing of electronic
health information is necessary to ensure that when patients are seen at one facility, their infor-
mation will be available to doctors and nurses at other facilities where they may seek care in the
future. Because the information is available more rapidly, patients can receive needed care without
extensive waits and unnecessary duplication of tests.
The Departments have been working together for a number of years to increase their joint pur-
chasing of drugs, medical supplies, and equipment. This has been accomplished, in part, through
the development of joint standards, allowing for purchase of larger quantities by both agencies. VA
and DOD expect that this collaboration will continue to grow—resulting in significant savings to the
Government.
Both VA and DOD conduct training pro-

grams for their medical staff (physicians,
nurses, and others). These post-graduate
training and continuing education programs
help maintain a highly qualified Federal
workforce and contribute significantly to the
medical training of providers for the Nation.
In order to reduce duplication and increase
efficiency, VA and DOD are expanding the use
of joint training programs.
VA and DOD have continued to expand the
sharing of medical services and facilities. Both
Servicemember using therapeutic equipment at a joint VA/DOD facility. Departments jointly examine construction
plans for sharing when possible and cost
effective. For example, VA and DOD are working on a shared solution to the damage caused by
Hurricane Katrina to the Keesler Air Force Medical Center, the VA Biloxi Medical Center, and the
VA Gulfport hospital in Mississippi. VA’s nationwide infrastructure plan (CARES) assumed that the
Gulfport hospital would be demolished, and the Biloxi hospital would be expanded to cover Gulfport
veterans. While this particular CARES project was originally planned to begin several years from
now, it will now be started in 2006. While VA and DOD were already sharing some services before
the hurricane, they are examining even greater sharing opportunities at this critical and unique
point in time as they rebuild their Gulf presence.
The table that follows provides an update on VA’s implementation of the President’s Management
Budget and
Integration
Status
Progress
VA continues to make progress on many aspects of each of the initiatives, but its overall status in implementing
the President’s Management Agenda has for the most part remained unchanged over the past year. VA is
coming close to finishing its development of a human capital workforce and succession planning training
program; has completed its annual Human Resources Accountability Report; and has begun the final review
process. VA’s competitive sourcing progress was delayed by legal decisions that prohibit VA from conducting
cost comparisons on VA positions, unless the Congress provides specific funding for the competitions. VA has
also completed corrective actions on its payroll system material weakness, but remains red in status for financial
performance because of limitations in its financial management and data systems. For E-Government, VA has
provided a remediation plan for its failed financial management information technology system, but still needs to
develop acceptable business cases for its major systems that align with the resource levels in the Budget. VA
has also implemented the online use of the Presidential initiative e-QIP for all clearance investigations in VA’s
central office and is completing implementation nationwide. VA plans to enhance its health care actuarial model
to include VA-specific trend assumptions and better link model output with monthly reports.

Coordination of VA and DOD Programs and Systems
Coordination of VA and DOD programs and systems has resulted in impressive improvement in the seamless
transition programs of active duty members transferring to the VA for medical care. For example, VA counselors
are now stationed at major DOD medical centers to provide assistance to injured returning servicemembers.
However, the agencies have not reached agreement upon goals for some joint initiatives, such as how to share
DOD data with VA in order to streamline access to VA services. VA is making progress in managing real property,
and within the last fiscal year vacant space at VA declined 15 percent, and 16 non-mission critical properties
were disposed of or demolished. VA completed consolidation of improper payment and recovery auditing data
for all risk susceptible programs. It is working to simplify regulations for disability determinations, which will
decrease improper payments by improving accuracy of beneficiaries and payment amounts. VA has established
strong faith-based data collection and pilot programs. The President’s 2007 Budget introduces a new initiative to
improve the management of the Federal Government’s credit portfolios. VA is included in this initiative because
it has a portfolio of $1.3 billion in outstanding direct loans, $202 billion in outstanding loan guarantees, and $496
million in delinquent debt. This initiative will be included in the scorecard beginning in the second quarter of 2006.
Department of Veterans Affairs

2005 Estimate
Actual 2006 2007
Spending
Medical Programs ................................................................................................ 27,949 28,772 31,462
Medical Services .............................................................................................. 21,376 22,547 24,716
Medical Services Collections (non-add):
Existing law ................................................................................................... 1,868 2,054 2,289
Legislative proposal ................................................................................... — — 544
Medical Administration ................................................................................... 3,310 2,927 3,177
Medical Facilities .............................................................................................. 3,263 3,298 3,569
Medical Research ............................................................................................ 390 412 399
Information Technology ...................................................................................... 1,284 1,214 1,257
Construction ........................................................................................................... 820 923 714
Construction, Major ......................................................................................... 455 607 399
Construction, Minor ......................................................................................... 229 199 198
Grants for State Extended Care ................................................................. 104 85 85
Grants for State Cemeteries ........................................................................ 32 32 32
General Operating Expenses ........................................................................... 1,299 1,350 1,481
Veterans Benefits Administration ............................................................... 1,033 1,054 1,168
General Administration .................................................................................. 267 296 313
Other ......................................................................................................................... 364 373 384
Housing ................................................................................................................ 153 154 153
Other Credit ........................................................................................................ 1 1 1
National Cemetery Administration ............................................................. 142 150 161
Office of Inspector General .......................................................................... 68 69 69
DOD/VA health care sharing incentive fund (HCSIF), DOD
contribution ......................................................................................................... 15 15 —
Supply Fund/Franchise Fund ........................................................................... 75 — —
Other funds and transactions ........................................................................... 4 2 —
Subtotal, Discretionary budget authority (without collections).................. 32,043 33,057 35,697
DOD/VA HCSIF adjustment .............................................................................. 15 13 —
Total, Discretionary budget authority (without collections)......................... 32,058 33,044 35,697
Total, Discretionary budget authority (with collections) ............................... 33,975 35,097 38,530
Mandatory Outlays:
Medical Programs ................................................................................................ 31 32 31
Benefit Programs and Receipts:
Disability Compensation and Pension ...................................................... 34,693 35,010 34,979
Readjustment Benefits ................................................................................... 2,940 3,265 3,409
Housing ................................................................................................................ 1,889 60 43
Insurance ............................................................................................................ 1,281 1,299 1,302
Other Receipts and Transactions ............................................................... 1,605 1,851 552
Supply Fund/Franchise Fund ....................................................................... 392 — —
Department of Veterans Affairs—Continued

2005 Estimate
Actual 2006 2007
Total, Outlays .............................................................................................................. 69,995 70,410 73,844
Credit activity
Vocational Rehabilitation Loans ...................................................................... 3 3 3
Native American Transitional Housing Loans............................................. 7 10 20
Vendee and Acquired Loans ............................................................................ 155 369 590

Veterans Home Loans ........................................................................................ 22,544 36,110 37,189
CORPS OF ENGINEERS—CIVIL WORKS

• Completed 64 civil works construction projects;
• Focused the Corps construction program on building projects with the highest
economic and environmental return;
• Helped protect the Nation’s environment by encouraging developers to avoid
development on 25,000 acres of wetlands; and
• Led efforts to prioritize resources for the completion of ongoing construction projects
before starting new ones.

• Completes an additional 16 construction projects in 2007, with an average return of
$9.57 per dollar invested;
• Initiates a comprehensive inventory and risk assessment of the Nation’s flood and
storm damage reduction projects;
• Invests in maintenance of key locks and dams on the Nation’s busiest inland
waterways; and
• Supports improvements in the Corps emergency management program that build
upon lessons learned from Hurricane Katrina.
247
248 CORPS OF ENGINEERS—CIVIL WORKS
Katrina Response and Recovery: Emergency Management in Action
The 2007 Budget reflects the Administra-

tion’s robust support for the Corps emergency
management program and its ongoing con-
tribution to the Gulf Coast recovery effort.
The Administration will continue to work
with the Congress to fund and complete vital
improvements to the New Orleans levee
system, which will help provide protection
for New Orleans that is better and stronger
than ever before. In addition to emergency
preparedness, response, and recovery work
performed under its own authority, the Corps
responds to national emergencies, such as
Hurricane Katrina, as part of the larger, Planning for Emergencies Now Pays Off Later. The Budget supports
critical training and preparedness activities so the Corps can respond
Federal response team led by the Federal quickly and effectively to emergencies, such as Hurricane Katrina.
Emergency Management Agency (FEMA). Ensuring a rapid, effective, and efficient response to future events
requires budgeting for preparedness, response and recovery activities
As part of the coordinated Federal response now.
to Hurricane Katrina in 2005, the Corps
mobilized over 2,500 of its employees to meet the critical needs of hurricane victims quickly and
effectively. A response of that magnitude is a major logistical challenge, and the Corps emergency
operations team met that challenge. As of January 2006, the Corps had:
• Delivered 232 million pounds of ice and 112 million gallons of drinking water to hurricane
victims;
• Removed 34 million cubic yards of debris from affected areas; and
• Placed 189 thousand temporary roofs for residents of damaged homes.
The Budget takes steps to improve upon the successes of both the Corps’ direct emergency response
program and its support to FEMA’s Federal response team, building upon several lessons learned
from the 2005 hurricane season. First, the Budget provides funding to improve the Corps’ overall
logistics capability so that its emergency operations teams will be prepared for a broader array of
post-disaster logistical challenges, including commodities distribution and tracking, and response
team mobilization and integration.
Second, the Budget continues the Administration’s policy of ensuring an effective response to future
emergencies through responsible funding and planning now. In recent years, the Corps has often not
received funding for emergency management in regular annual appropriations, and instead has had
to rely upon support from emergency transfers or supplemental funding. The 2007 Budget supports
a more proactive approach to emergency management by funding the Corps’ planning, preparedness,
response and recovery activities through the regular budget process.
Third, the Budget provides $20 million for three key efforts that will help ensure that Americans
can make more informed decisions on building homes, locating businesses, and purchasing flood
insurance based upon the actual risk of flood and storm damages where they live. The Corps will:
(1) inventory the Nation’s levees and other flood and storm damage reduction projects, including
those built or maintained by State, local, or private entities; (2) develop a risk assessment tool for
evaluating the structural and operational integrity of these identified projects; and (3) create a na-
tional flood and storm project database that identifies project location, actual level of protection,
maintenance condition, and the parties responsible for project maintenance. The Corps will coordi-
nate these efforts with FEMA’s Map Modernization Program to enhance the accuracy of that ongoing
floodplain mapping effort. This collaboration builds upon two Corps pilot projects now underway to
better integrate Federal and non-Federal floodplain management programs and policies.
Maintaining Key Inland Navigation Infrastructure
The 2007 Budget increases funding to

properly maintain locks and dams on the
Nation’s three busiest inland waterways—the
Ohio River, the Mississippi River, and the
Illinois Waterway. Since the 1960s, the
Federal Government has invested heavily in
the maintenance and rehabilitation of these
major transportation arteries, which support
substantial movements of agricultural prod-
ucts, energy-related materials, and other bulk
commodities and handle the vast majority
of all inland waterway traffic. The Corps is
giving priority to the continued maintenance
The Budget gives priority to the maintenance of infrastructure on the and rehabilitation of the locks and dams on
Nation’s most important inland waterways. these key waterways.
For example, a series of rehabilitation projects at locks and dams 24 and 25 on the Upper
Mississippi River over the past 10 years has contributed to improved performance by reducing the
incidence of malfunctioning and breakdowns. These investments reduce the likelihood that barges
will encounter unexpected, protracted delays. The Corps periodically evaluates the condition of
all of the lock and dam sites on the Upper Mississippi River and the Illinois Waterway, and has
concluded that the existing locks can continue to process tows safely and reliably for the next 50
years or more, as long as we continue to invest prudently in their maintenance and rehabilitation.
The Budget furthers this objective by funding four rehabilitation projects and boosting spending for
maintenance.
Helping to Restore Nationally Significant Aquatic Ecosystems
The 2007 Budget includes a focus on the restoration of three important aquatic ecosystems: Coastal
Louisiana, the Upper Mississippi River, and Everglades/South Florida.
Coastal Louisiana. The wetlands of coastal Louisiana support many plant and animal species,
but are subject to continuing pressures as a result of human intervention and natural causes. The
1990 Coastal Wetlands Planning, Protection and Restoration Act took steps to address this ecological
challenge. The Administration seeks to build upon the 1990 Act by supporting generic authorizing
legislation to address the most critical ecological needs over the next 10 years, with the understand-
ing that significant additional work will be needed in subsequent years. These wetlands also provide
a natural buffer that can lessen the impacts of some storms, and are in fact an important part of the
overall storm damage reduction system for coastal communities, such as New Orleans. The Budget
includes $25 million for studies, design work, and a science program to lay the groundwork for this
effort, a $4 million (19-percent) increase over the 2006 level of funding.
Upper Mississippi River. Through the

Upper Mississippi System Environmental
Management Program, the Corps is helping
to revitalize the side channels of the Upper
Mississippi, where habitat has been damaged
by the construction and operation of the
existing navigation system. The Budget
includes the funding needed to continue
critical baseline environmental data collection
and related analysis, while making further
progress on the ongoing projects. A Corps
report has recommended a major expansion
of the Federal commitment to restore this
ecosystem. The Budget includes $3 million for
a focused 10-year plan—modeled after the one
Restoring the Mississippi Flyway. The Upper Mississippi River, the
recently developed for Coastal Louisiana—that Illinois Waterway, and their floodplains support one of the principal
will establish near-term priorities for this flyways for migratory birds in North America. The area includes
285,000 acres of National Wildlife Refuge and is home to nearly 500
program. species of fish, amphibians, reptiles, birds, and mammals, 10 of which
are listed as endangered or threatened.
Everglades/South Florida. The Corps bud-
get includes $164 million for activities that will benefit the ecosystem of South Florida, including the
Everglades, while supporting future population growth. In 2007, the Corps will begin construction
of one or more bridges along the Tamiami Trail (U.S. Highway 41), allowing more water to enter
Everglades National Park. Work on seepage control north and south of Tamiami Trail, the Kissimmee
River, and aquifer storage and recovery pilot projects will be a priority. The Corps will also work
with the non-Federal sponsor to develop a full range of options to: (1) optimize management of the
waters in and around Lake Okeechobee over time, based on the expected net environmental and
net economic returns; and (2) develop a full range of options for improving water flows through the
Central Everglades, both in the Water Conservation Areas and in Everglades National Park.
Strengthening the Regulatory Program for Wetlands
The Budget provides $173 million for the Corps regulatory program, a $15 million (9-percent)
increase over the 2006 funding level. The program helps to preserve and protect the Nation’s
wetlands. The Corps evaluates permit applications submitted by developers of roads and real estate
and others whose activities will affect wetlands. It requires developers to avoid, minimize, and
mitigate any wetland damage. Increased funding for the program will allow the Corps to improve
permit processing, increase compliance by permit recipients with the terms of their permits, and
upgrade the ability of the Corps to assess and review wetland-related projects using a broadly
focused watershed approach rather than a narrower and less effective site-by-site approach. The
funding increase will also allow the Corps to work with local officials to identify environmentally
sensitive areas in advance of development and to work with the Environmental Protection Agency
to upgrade the database both agencies use to track and coordinate wetland-related data.
Setting Priorities for the Construction Program
The 2007 Budget provides strong support for the Corps construction program with a sharpened
focus on completing more projects sooner, building the best projects faster, and ensuring that tax-
payer dollars are spent on projects with the greatest return on the investment, based on objective
performance criteria. The Budget again proposes to use performance guidelines to guide the devel-
opment of the Corps construction budget and establish a clear, performance-based framework for
selecting the most worthy construction investments. This approach mimics the decision-making of
businesses and individuals who seek the greatest return from the investment of their own resources.
The Budget supports a major change to the guidelines proposed in the 2006 Budget to ensure fund-
ing for flood and storm damage reduction projects that address a significant, ongoing risk to human
safety.
One of the lessons learned from Hurricane Katrina is the importance of setting spending priorities
to meet the water resources needs that are most compelling from a national perspective. To that end,
the budget for construction focuses funding on six national priorities and other high-ranking projects
within the Corps main mission areas.
2007 Budget
Authority
Priority Construction Projects Project Purpose
(in millions
of dollars)
Sims Bayou, Houston (TX) ......................................................... 22 Flood Damage Reduction

New York/New Jersey Harbor (NY, NJ).................................. 90 Commercial Navigation
Olmsted Locks and Dam, Ohio River (IL, KY)..................... 110 Commercial Navigation
Oakland Harbor (CA).................................................................... 44 Commercial Navigation
Upper Mississippi River System Environmental
Management Program (IL,IA,MN,MO,WI) ............................ 27 Commercial Navigation/Mitigation
Everglades/South Florida Ecosystem Restoration (FL) .. 164 Aquatic Ecosystem Restoration
Two other efforts are also national priorities—the work now underway in the Columbia River and
Missouri River basins to benefit listed species. The Budget funds these efforts under the operation
and maintenance program. The Budget does not include additional funding for the flood damage
reduction project in the West Bank and Vicinity, Louisiana, because sufficient funds to complete that
project were provided in 2006.
Staying on Mission
In any given year, there are about 300 new or ongoing construction projects that compete for limited
available resources in the Corps construction budget. Not all of these projects, however, are appro-
priate investments. For example, many projects fall outside the Corps main missions—commercial
navigation, flood and storm damage reduction, and aquatic ecosystem restoration. Other projects
have not completed the necessary policy review within the Executive Branch or, as a result of such
review, have raised serious policy concerns.
Staying and Spending on Mission Matters In response to an Administration proposal

last year, the Congress took an important
2002-2006 Congressional Spending
for Non-Mission Projects in
2007 Corps Construction
Budget for Main Missions
step and placed limits on the Corps’ use of
Corps Construction Budget
(dollars in millions)
(dollars in millions) continuing contracts. The 2007 Budget builds
All Other Missions
upon this successful effort by improving and
reproposing performance guidelines for the
2006 $200 $935 Corps construction program. The guidelines
2005 $121 continue to focus on projects that are within
2004 $141 $750 the Corps mission areas and have completed
2003 $144
rigorous policy review. Projects are then ranked
Flood/Storm Damage Reduction
within each mission area by their estimated
2002 $229
economic or environmental return. Projects
with economic outcomes are ranked by the
5-Year Total = $835 million Lvs. $750 million = 2007 Total
for Projects Outside the Corps for Flood/Storm Damage ratio of their remaining economic benefits to
Missions Reduction
the remaining costs. Environmental projects
are given priority if they involve restoration of
a nationally or regionally significant aquatic ecosystem that has become degraded as a result of a
Corps project or, if the Corps is otherwise uniquely suited to undertake the restoration. Flood and
storm damage reduction projects that address significant risk to human safety also receive priority.
The highest-ranking projects in each mission area will receive at least 80 percent of the maximum
amount the Corps can efficiently spend, and the lowest-ranking projects will be considered for
deferral. Setting priorities and adhering to objective performance criteria will help ensure that the
construction program produces the best value for the American taxpayer. The Administration will
continue to work with the Congress to achieve this worthy goal.
Authorizing New Ways to Support Recreation at Corps Lakes and Reservoirs
The Corps manages 4,300 recreation areas at 465 Corps projects (mostly lakes and reservoirs) in 43
States. Millions of people each year enjoy the marinas, camping areas, and conference centers that
line Corps lakes. The Corps spends about $267 million each year to support this popular program. To
help finance upgrades to recreation facilities at Corps lakes, the Administration reproposes a recre-
ation modernization (RecMod) initiative that would improve these facilities and increase program
quality through additional fees (e.g., entrance fees, which are not now authorized), leasing arrange-
ments, and public/private partnerships. The RecMod initiative would provide better service to all
visitors at less cost to taxpayers. The initiative would be implemented in a collaborative manner
that draws on local leadership and protects environmental values, similar to the approach taken in
the President’s cooperative conservation efforts.
Budgeting for Operation and Maintenance
The Budget supports development of risk-based facility condition indices to enable strategic,
objective investment decisions on the maintenance of the Corps’ aging infrastructure. The Corps
will use these analytic tools to standardize decision-making across its divisions and districts and to
help set priorities for maintenance spending. In addition, to improve accountability and oversight,
reflect the full cost of operating and maintaining existing projects, and support an integrated
investment strategy, the Budget transfers the following activities from the construction program to
the operation and maintenance program:
• Rehabilitation of navigation and hydropower infrastructure, where the extent of the work is not
large enough to be considered a replacement;
• Endangered Species Act compliance, where the Corps is implementing a reasonable and prudent
alternative set forth in a biological opinion in order to be able to continue operating an existing
project without jeopardizing the existence of listed species;
• Construction of facilities, projects or features (including islands and wetlands) to use materials
dredged during navigation maintenance; and
• Mitigation of impacts on shorelines from navigation maintenance activities.
Assessing Corps Program Performance and Management
The Corps worked with the

Office of Management and Budget Innovations in Management: Improving the Quality of
to assess two programs this year Water Resource Project Review
using the Program Assessment
In March 2005, the Corps established a Civil Works Review
Rating Tool (PART). These assess-
Board to serve as a corporate checkpoint for reviewing the
ments yielded a set of findings and
quality of the recommendations that Corps field offices make
follow-up actions for improving the regarding future Federal water resource projects. The Board,
performance and management of chaired by the Deputy Commanding General of the Corps of
each program. For example, an Engineers, will allow for improved quality control in project
assessment was completed for the formulation and a more integrated and collaborative project
Corps environmental stewardship review process.
program, which involves manage-
ment of 12 million acres of land
and water nationwide (equal in size
to the States of Vermont and New Hampshire combined). The assessment found that the natural
resource inventories and management plans for these properties are in many cases incomplete or
out of date. In response to this finding, the Corps will complete and update these inventories and
plans to ensure Corps environmental assets are managed in a more responsible way. An assessment
was also completed for the Corps program tasked with cleaning up sites contaminated as a result
of the Nation’s early efforts—mostly under the Manhattan Project—to develop atomic weapons.
The assessment found that many stakeholders at individual clean-up sites have significantly
differing views on the purpose and goals of this program. In response, the Corps will work with
local community leaders and other stakeholders to better document and clarify agreements on the
program’s goals and commitments at the 22 sites scheduled for clean-up.
The table below provides an update on the Corps’ implementation of the President’s Management
Budget and
Integration
Status
Progress
The Corps continued to refine improvements to its 2012 Reorganization Plan while deploying over 2,500
employees to areas affected by Hurricanes Katrina, Rita, Ophelia, and Wilma. The Corps is aggressively
working to ensure the security of its information technology systems and expects all systems to be secure and
fully accredited by the end of 2006. The Corps is taking advantage of competitive sourcing to lower costs
and improve the performance of information technology, finance, and public works activities. The Corps is
working diligently to address and resolve problems identified in past financial audits, which it must do to lay
the groundwork for a future audit. To advance Budget and Performance Integration, the Corps has completed
assessments of two additional programs this year using the PART: the Environmental Stewardship program and
the Formerly Utilized Sites Remedial Action Program.
The Corps is completing its real property inventory, asset management plan and performance measures, as
called for by the Federal Real Property Council. These efforts are expected to be completed by mid-2006.
Corps of Engineers—Civil Works

2005 Estimate
Actual 2006 2007
Spending
Construction 1 ....................................................................................................... 1,755 2,348 1,555
Operation and Maintenance 1 .......................................................................... 1,944 1,970 2,258
Flood Control, Mississippi River and Tributaries ....................................... 298 396 278
Flood Control and Coastal Emergencies ..................................................... 59 — 81
Investigations ......................................................................................................... 144 162 94
Regulatory Program ............................................................................................ 144 158 173
Formerly Utilized Sites Remedial Action Program ................................... 164 139 130
Expenses ................................................................................................................. 166 152 164
Office of Assistant Secretary (Civil Works) ................................................. 4 4 —
Memorandum: Budget authority from enacted supplementals ............... 772 2,900 —
Mandatory Outlays:
Existing law ........................................................................................................ 119 33 45
Legislative proposal, Recreation Program User Fee .......................... — — 9
Total, Outlays .............................................................................................................. 4,766 7,413 5,879

1
The 2007 Budget reflects a transfer of certain activities from the construction program to the operation and maintenance program.
ENVIRONMENTAL PROTECTION AGENCY

• Issued strict limits for new diesel engines that will reduce harmful emissions by more
than 90 percent;
• Removed over 120 million pounds of contaminated sediment from areas of concern
through the Great Lakes Legacy Act;
• Proposed Clear Skies legislation to reduce power plant emissions nationwide and
finalized similar rules to reduce sulfur dioxide, nitrogen oxide, and mercury emissions
by nearly 70 percent;
• Helped 8,500 drinking water systems complete vulnerability assessments, improving
homeland security emergency preparedness and response; and
• Supported business investment and community revitalization efforts through historic
Brownfields legislation.

• Provides $50 million to implement grant programs that reduce harmful emissions from
diesel engines;
• Increases funding for the Underground Storage Tank program by $26 million to
accelerate inspections and implement new preventative requirements;
• Develops the necessary tools and protocols to mitigate the environmental and human
health effects of chemical, biological, or radiological attacks;
• Continues the Administration’s commitment to provide a total of $6.8 billion for the
Clean Water State Revolving Fund between 2004 and 2011, helping communities
finance their wastewater infrastructure needs; and
• Reforms the process for awarding State grants to improve performance, consistency,
and accountability.
257
258 ENVIRONMENTAL PROTECTION AGENCY
Improving Energy Security, the Economy, and the Environment
On August 8, 2005, President Bush signed the Energy Policy Act of 2005 into law. This Act will
help transform the way energy is produced and used, resulting in greater energy security, a growing
economy, and a healthier environment for generations of Americans to come.
Fossil fuels—coal, oil, and natural gas—currently provide more than 85 percent of all the energy
consumed in the United States. To help diversify our energy sources, the Energy Policy Act included
a provision that requires the use of renewable fuels such as ethanol and biodiesel, and directed the
Environmental Protection Agency (EPA) to develop a Renewable Fuels Standard. EPA is working
to develop proposed standards that increase the use of renewable fuels both efficiently and flexibly.
In 2007, the program will require the use of 4.7 billion gallons of renewable fuel in U.S. passenger
vehicles, approximately three percent of the total fuel used to power them.
As emissions from fuel combustion are among the leading causes of air pollution in the United
States, the Administration continues to support efforts to supply cleaner energy, protecting human
health and our economic growth. The Energy Policy Act authorized new EPA grant programs that
target emissions from higher polluting diesel engines, and the 2007 President’s Budget provides $50
million to begin implementing these programs.
These grants build upon efforts already
underway at EPA—the Clean School Bus USA
program and the Clean Diesel Initiative—and
cover many types of diesel-powered vehicles,
including trucks, buses, tractors, ships,
and trains. The new grants will promote
further deployment of new and existing emis-
sions-reduction technologies and encourage
the development of new cost-effective tools. In
addition, because on- and off-road diesel vehi-
cles and engines account for roughly one-half
of the nitrogen oxide and particulate matter
mobile source emissions, efforts undertaken
with these grants will help regions meet new
air quality standards.
On August 22, 2005, EPA Administrator Steve Johnson announced the
The grants also will complement the strict
first of EPA’s Clean Diesel Initiative grants. EPA awarded $1.4 million
in support of the initiative, and non-Federal sponsors provided a $5.8
emissions limits for new diesel engines issued
million match. These grants will fund 16 new diesel pollution reduction
projects. during the President’s first term. These rules,
which begin to take effect in 2007, ensure that
the next generation of diesel trucks, buses, and off-road equipment will be more than 90 percent
cleaner than those on the road today.
The Administration has also proposed legislation and regulations to reduce emissions from power
plants. When implemented, the President’s Clear Skies legislation will result in dramatic nation-
wide reductions in emissions of sulfur dioxide, nitrogen oxides, and mercury. These reductions will
increase protection of human health and the environment, allowing most of the country to meet new
air quality standards, especially in the Northeast and Midwest, while harnessing market forces to
reduce emissions cost-effectively. It relies on the same market approach successful in reducing acid
rain by offering flexibility in achieving the mandated reductions. In the absence of congressional
action, EPA finalized two rules that will control these same emissions from States in the eastern half
of the United States—the Clean Air Interstate Rule and the Clean Air Mercury Rule.
The 2007 President’s Budget also provides $26 million over 2006 levels for the Underground
Storage Tank (UST) leak prevention and detection grant program. EPA will work with the States
to increase inspections and training, institute new financial assurance or secondary containment
requirements, and initiate delivery prohibitions for non-compliant tanks. EPA will also continue
to work with States to clean up leaking underground storage tanks (LUST), including those with
MTBE contamination. The Federal and State UST/LUST programs have decreased the number
of leaks by nearly 75 percent since the last time new preventative measures were mandated, and
exceeded annual cleanup goals in seven of the last 10 years.
Cleaning Up the Great Lakes
The Great Lakes comprise the largest freshwater system on Earth, representing a tremendous
natural resource and providing billions of dollars of benefit to the U.S. and Canadian economies. In
recognition of the Great Lakes’ national significance, in May 2004, President Bush signed the Great
Lakes Executive Order (E.O.). The E.O. established a Federal Great Lakes Interagency Task Force
(IATF), chaired by the EPA Administrator, and directed agencies to better coordinate Federal, State,
and local efforts to clean up the Great Lakes. On December 12, 2005, after numerous meetings
with Great Lakes governors, mayors, and Tribes, the IATF announced several actions the Federal
Government would take to further protect the Great Lakes. These planned actions include an EPA
pilot program to help States implement a risk-based approach for beach assessments, and an equally
shared Federal/State effort to develop plans to restore, enhance, and protect 200,000 acres of wetlands
in the basin.
Great Lakes Legacy Act Helps Restore Michigan’s Black Lagoon
Last fall, EPA announced that it successfully

completed its first Great Lakes Legacy Act
project, Michigan’s Black Lagoon. More
than 470,000 pounds of contaminants were
removed from the Black Lagoon inlet on
the Detroit River, which for many years was
a trap area for polluted sediment moving
downstream from Detroit. Contaminants
included lead, zinc, PCBs, and oil and
grease.
EPA shared project costs (65 percent
Federal) with the Michigan Department of
Environmental Quality (DEQ). Dredging of
the area began in October 2004 and took 13
months. After the dredging was complete,
the bottom of the lagoon was covered with
While EPA and the Michigan Department of Environmental Quality
clean sand and stone to protect fish and dredged the Black Lagoon, yellow silt barriers kept contaminated
wildlife from any lingering contamination. sediments from spreading in the Detroit River.
EPA and the Michigan DEQ will monitor the
site to ensure it remains safe and clean.
In addition to the Great Lakes commitments made in December 2005, the President’s Budget
continues the Administration’s strong support for the Great Lakes Legacy Act by requesting $50
million, a $20 million increase over 2006 levels. These additional funds will allow EPA to accelerate
the cleanup of contaminated sediments in the region, preventing contaminants from entering the
food chain.
Making America Safer
Four years ago EPA assumed significant new homeland security responsibilities. EPA now plays
a lead role in coordinating security of America’s water infrastructure and managing the decontam-
ination of buildings, equipment, and the environment should a chemical, biological, or radiological
attack occur. EPA’s homeland security program is integrated into the larger Federal effort, comple-
menting the work of the Department of Homeland Security and other Federal partners. In total,
the President’s Budget requests $184 million for EPA’s homeland security activities, a 43-percent
increase over 2006.
EPA works with water utilities serving greater than 100,000 people to ensure they have the tools
and information to prevent, detect, and respond to a terrorist or other intentional attack. To further
support this effort, EPA recently initiated Water Sentinel, a pilot demonstration program that will
provide early warning of a terrorist or other intentional drinking water contamination event. The
President’s Budget proposes to expand Water Sentinel to four additional community systems in 2007,
and requests $38 million for this program. This effort will help protect thousands of miles of drinking
water infrastructure and provide an early chemical and biological terrorism warning mechanism for
millions of drinking water consumers.
In 2007, EPA’s National Homeland Security

Research Center will continue developing
decontamination options, methods, and
protocols to ensure that the Nation can quickly
recover from a terrorism event. The Budget
supports this effort by providing $40 million,
an $8 million increase over 2006, to support
new decontamination research. EPA also will
accelerate development of Acute Exposure
Guideline Levels (AEGLs) that are needed by
first responders and chemical risk managers
for use in chemical emergency and counter-ter-
rorism planning, prevention, and response
programs. In 2007, EPA plans to develop
proposed AEGL values for 24 chemicals.
EPA directs field activities during testing of a portable chlorine dioxide
Effective and responsive decontamination
generation system that could be used to decontaminate small, indoor
efforts will also depend upon the ability to
areas after an indoor anthrax spore release. EPA collaborated with the
Department of Defense to carry out the field tests.
quickly process a surge of samples following a
terrorist incident with accurate and consistent results. As part of a Government-wide initiative to
integrate and leverage national laboratory resources, the Budget provides $10 million so EPA can
standardize analytical testing methods and establish connectivity between laboratories. The Budget
also includes resources of $96 million to continue support for investigation and training activities;
technical assistance to States; cooperative research; and EPA’s national response teams.
Providing Clean Technologies and Reducing Poverty
In January 2006, the United States and five other countries (Australia, China, India, Japan, and
the Republic of Korea) formally launched the Asia-Pacific Partnership for Clean Development and
Climate at a ministerial conference in Sydney, Australia. The Partnership will facilitate the deploy-
ment of cleaner technologies in Partner countries to support poverty reduction; enhance economic
growth; improve energy security; reduce pollution for improved human health and a cleaner environ-
ment; and reduce the greenhouse gas intensity to address the long-term challenge of global climate
change. Results-oriented action plans are being developed and implemented through public-private
task forces and other partnering activities. The Departments of State and Energy will lead the U.S.
implementation of this effort, with EPA and the Departments of Commerce and Transportation as
the initial participating agencies. The President’s Budget provides $5 million for EPA’s Asia-Pacific
Partnership activities.
Revitalizing Communities
Brownfields Grant Results in Creation of Affordable Housing

Ten contiguous brownfields properties in Elizabeth, New Jersey are now the location of a 35-unit affordable
residential development called Marina Village. The 10 properties are located in the Elizabethport
neighborhood, the oldest section of the city. An EPA Brownfields Assessment grant award and a
Memorandum of Agreement with the New Jersey Department of Environmental Protection enabled
environmental assessments to be performed on the properties. Based on the assessments, the New
Jersey Redevelopment Authority awarded the city $525,000 for the cleanup of metals and semi-volatile
organic compounds in the soil. The resulting redevelopment effort leveraged $6.2 million in additional
investment and created 35 affordable housing rental units.
Vibrant, healthy communities encourage business investment and job creation. However, economic
changes over several decades have left thousands of communities with contaminated properties and
abandoned sites known as brownfields. EPA’s Brownfields grants support local revitalization efforts
by funding environmental assessment, cleanup, and job training activities, so that properties can
be used for business, green space, or housing. Since 1995, EPA grantees leveraged $7.3 billion in
cleanup and redevelopment funding. Additionally, participants have reported that more than 7,500
brownfields sites have been assessed and over 2,400 properties are ready for redevelopment. In 2007,
the funds requested will assess 1,000 more brownfields properties, clean up 60 communities, and
address petroleum contamination found on brownfields sites in 45 communities.
Responding to Disaster
After the disaster caused by Hurricane Ka-

trina, hundreds of EPA’s emergency response
personnel worked virtually nonstop along the
Gulf Coast. As an integral part of the Federal
team implementing the National Response
Plan, EPA joined with the U.S. Coast Guard
to address reported spills and releases of oil
and chemicals. From September to December
2005, EPA analyzed over 3,000 air, water,
sediment, and fish tissue samples to determine
the kinds and extent of possible biological
and chemical contamination. Along with the
Corps of Engineers, EPA worked to dispose
of the enormous amounts of hazardous waste
and other debris left behind by Hurricane Following Hurricane Katrina, EPA collected household hazardous
Katrina, and established several sites for wastes at a central facility in St. Tammany Parish, Louisiana. EPA
identified the wastes, categorized and separated the containers, and
debris collection. From September to December then consolidated the wastes for transport to recycling, treatment or
2005, the EPA team removed more than a disposal facilities.
million unsecured or abandoned containers of
potentially hazardous wastes.
In addition to potential threats from toxic spills and hazardous waste, Hurricane Katrina rendered
many drinking water systems in the Gulf States non-operational, highlighting the importance of safe
drinking water to public health. In early September, more than 895 public water systems in Alabama,
Louisiana, and Mississippi had no water available to their customers or had boil water advisories in
place. EPA, State and local officials, systems operators, and volunteers worked around the clock to
assist in repairing drinking water infrastructure so that all people in the region had safe drinking
water.
Looking ahead, EPA is coordinating with the National Oceanic and Atmospheric Administration,
the Food and Drug Administration, and the U.S. Geological Survey to develop an environmental
impact assessment of Hurricane Katrina’s effect on coastal waters of Louisiana, Mississippi, and
Alabama. EPA is also supporting local, State, and national efforts to assess aquatic resources,
identify factors that harm them or cause their deterioration, and document these changes over time.
Improving Water Quality
The President’s Budget continues to support

2007 Budget Meets Capitalization Goal
for Clean Water State Revolving Fund State and tribal efforts to improve water qual-
ity though the Clean Water State Revolving
Billions of dollars (cumulative)
7
Fund (SRF). In the 2004 Budget, the President
$6.8
proposed funding the Clean Water SRF at
6 $850 million annually for 2004–2011, for $6.8
5 billion in total funding. Due to significant
additional funds appropriated in 2004–2006,
4 the 2007 Budget reduces annual funding
3 for the Clean Water SRF to $688 million for
2007–2011. At this funding level, the Budget
2
meets the 2004 capitalization commitment,
2004 Budget
1 2007 Budget, adjusted for enacted ensuring communities have access to capital to
finance their wastewater infrastructure needs.
0
Additionally, this funding level will still allow
2004 2005 2006 2007 2008 2009 2010 2011
the Clean Water SRF to meet its long-term
revolving level goal of $3.4 billion. The revolving level is the amount of loans available annually
over the long-term after Federal capitalization ends, and an indicator of the Clean Water SRF’s
financial stability.
Evaluating Performance
The Administration is committed to performance-based budgeting that ensures the maximum

return on taxpayers’ dollars. As the Administration works to cut the deficit in half, it uses
performance-based budgeting to better determine the appropriate use of taxpayer resources and
determine which programs are delivering measurable results.
The Program Assessment Rating Tool (PART) is one of several mechanisms the Administration
uses to help inform its budget decisions. The PART provides the framework for an integrated
evaluation of budget and performance criteria and holds programs accountable for achieving results.
To date, 43 EPA programs have been evaluated using the PART.
EPA’s Alaska Native Villages program provides grants to the State of Alaska for rural and Native
villages that lack basic wastewater and drinking water systems. A 2004 PART evaluation found the
program suffered from management deficiencies, and EPA’s Office of Inspector General and Alaska’s
Legislative Audit Office published similar findings. The 2004 evaluation included follow-up actions
for improvement, but over the past year, the program has not made progress in implementing these
changes. Therefore, the Budget provides $15 million for the program, a reduction of $20 million
from 2006. The Administration believes that implementation of the necessary program reforms will
improve program efficiency and effectiveness, and ensure the grants provide maximum benefit to the
intended recipients.
The PART also informed funding decisions for the Ecosystem Research program. The Ecosystem
Research program is one of EPA’s largest research programs, and develops protocols and tools for use
by EPA and the States on a range of ecological issues. A 2003 PART evaluation included follow-up
actions directing the Ecosystem Research program to develop additional long-term and annual perfor-
mance measures to improve accountability. However, a reevaluation in 2005 found that the program
had not made progress in developing these measures. As a result, the President’s Budget provides
$80 million for the Ecosystem Research program, a reduction of $5 million from 2006.
The Environmental Technology Verification program is a partnership between the public and
private sectors that tests and verifies the performance of environmental technologies. A PART
evaluation found that this program could not demonstrate results. Though EPA has been funding
up to 30 percent of the program’s costs, the program primarily benefits manufacturers and product
vendors. As a result, the Budget eliminates Federal funding for the program and transforms the
program into a fully vendor-funded model.
Enhancing Accountability
The Administration believes that accountability improves a program’s effectiveness and en-
sures resources are providing the intended results. However, EPA faces difficulties in getting
States—which receive nearly 40 percent of EPA’s budget—to report consistent, meaningful
performance information. To address this issue, EPA will develop a standardized template that
all States will use to develop and submit their State grant agreements. This new template will
include clear linkages to EPA’s Strategic Plan and long-term and annual goals, as well as consistent
requirements for regular performance reporting. It also will allow for meaningful comparisons
between various States’ past and planned activities and performance, making progress more visible
and programs more transparent.
Providing Incentives for Improvement
The Clean Water Act created the National

Pollutant Discharge Elimination System
(NPDES) program, which helped reduce point
sources of pollution and is credited with much
of the water quality improvements of the last
30 years. The NPDES program is primarily
implemented by States and regulates the
amount of pollutants industrial and municipal
dischargers can release to waters of the United
States through permits. To help offset the
costs of running their NPDES programs, many
States charge permit fees based on varying
fee structures. However, many States do not,
The 2007 Budget provides financial incentives for States to implement
reducing the resources available to them for permitting fees for municipal and industrial dischargers, such as this
water quality programs. The 2007 Budget wastewater treatment plant. This will result in increased resources for
commits to providing incentives for States to water quality activities across the United States.
implement or improve their NPDES fee programs, while ensuring that total Federal and State
water quality resources do not decline following a State’s adoption of a fee system. This proposal will
ensure the beneficiaries of services help offset NPDES program costs and will increase resources
available for water quality.
The table below provides an update on EPA’s implementation of the President’s Management
Budget and
Integration
Status
Progress
In Human Capital, EPA has demonstrated progress toward development of appropriate performance measures,
completion of its workforce plan, and implementation of its new five-tiered performance appraisal system,
which will improve employee accountability. EPA also completed its first standard public-private competition
and expects significant savings as a result of additional completed and planned competitions. EPA continues
its focus on management reforms with strong performances in financial management and E-Government.
In financial management, EPA met its deadlines for 2005 financial reporting and is working to integrate
financial data into management decision-making. As of December 2005, it has achieved a fully successful
status for five of the nine Government management indicators that assess the financial management health
of the Federal Government as a whole and for each individual agency. For example, EPA meets the highest
standard for on-time payment of non-credit card invoices in accordance with the Prompt Payment Act, reflecting
a high degree of accountability and integrity. EPA also has done well implementing the various elements
of E-Government this year. The agency has an effective Enterprise Architecture and is actively working to
ensure that information technology investments take advantage of existing Government-wide efforts to improve
effectiveness and save money. Additionally, EPA is the lead agency for implementing the E-Rulemaking
E-Government initiative. E-Rulemaking’s one-stop website, Regulations.gov, enables citizens to more effectively
participate in their Government and assists Federal agencies in managing and organizing rulemaking materials.
The initiative promotes public access to the regulatory process while reducing the number of redundant Federal
systems. Ultimately, E-Rulemaking’s new system will replace 20 existing individual agency electronic regulatory
systems and over 150 paper-based systems. As part of the Budget and Performance Integration initiative, EPA
is developing outcome-oriented performance and efficiency measures for its programs.
Under the Eliminating Improper Payments initiative, EPA completed evaluation of its direct payments and
continues to assess subrecipient payments to develop a complete assessment of improper payments in its
State Revolving Fund Grants programs. As reported in EPA’s Performance and Accountability Report, error
rates for improper payments remain low.
Environmental Protection Agency

2005 Estimate
Actual 2006 2007
Spending
Operating Program .............................................................................................. 4,271 4,215 4,275
Clean Water State Revolving Fund ................................................................ 1,091 887 688
Drinking Water State Revolving Fund ........................................................... 843 837 842
Brownfields Cleanup funding ........................................................................... 89 89 89
Clean Diesel Grants ............................................................................................ 7 7 50
Targeted water infrastructure funding ........................................................... 408 281 41
Requested (non-add) .................................................................................... 94 84 41
Unrequested (non-add) ................................................................................ 314 197 0
Superfund ................................................................................................................ 1,247 1,231 1,259
Leaking Underground Storage Tanks ........................................................... 69 72 73
Mandatory Outlays:
Superfund Recoveries ........................................................................................ 63 54 54
All other .................................................................................................................... 24 16 76
Total, Outlays .............................................................................................................. 7,920 7,930 7,904

NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION

• Embarked upon the President’s vision to implement a sustainable and affordable
program to explore space;
• Began the necessary transition away from the aging Space Shuttle and toward new
vehicles that can support exploration missions beyond low Earth orbit; and
• Expanded NASA’s space science programs, resulting in hundreds of new scientific
discoveries.

• Focuses resources to continue construction of the International Space Station and
the development of new space vehicles needed for exploration; and
• Continues to support the exploration of the solar system and to expand our knowledge
of the universe to better understand its origin, structure, evolution, and destiny.
267
268 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
We will explore space to improve our lives and lift our national spirit. Space exploration is also likely to
produce scientific discoveries in fields from biology to physics, and to advance aerospace and a host of other
industries. This will help create more highly skilled jobs, inspire students and teachers in math and science,
and ensure that we continue to benefit from space technology, which has already brought us important
improvements.
June 16, 2004
Recognizing the need to reinvigorate the Nation’s civil space program and keep the National
Aeronautics and Space Administration (NASA) focused on compelling and inspiring goals, President
Bush outlined a bold, new vision for human and robotic space exploration on January 14, 2004. The
United States will extend human presence across the solar system, starting with a human return to
the Moon by the year 2020, in preparation for human exploration of Mars and other destinations.
Extending space exploration will require a sustained and affordable human and robotic program
using innovative technologies, knowledge, and infrastructures. NASA will cooperate with our
international partners throughout this endeavor and will promote commercial involvement
whenever practical.
To support exploration missions, NASA is initiating development of a new spacecraft called the
crew exploration vehicle that will be safer and more reliable than the Space Shuttle and that will
allow astronauts to land anywhere on the Moon, support a lunar base, and eventually enable human
missions to Mars and other destinations.
NASA will launch this vehicle, as well as

other exploration cargo, using rockets that are
derived from components of the Space Shuttle.
This approach will allow NASA to use tried and
tested components, benefit from an experienced
workforce, and smoothly transition many of its
operations when the Space Shuttle is retired by
2010.
NASA will continue to pursue an expanded
robotic program to explore the solar system and
Artist’s impression of NASA’s planned heavy-lift cargo rocket
leaving the Earth and carrying a lunar lander toward the Moon.
universe. The Lunar Reconnaissance Orbiter is
scheduled to launch in the fall of 2008, to map
the surface of the Moon and search for future landing sites. NASA’s recent successful robotic
investigations of Mars and Saturn will be followed by missions that will explore some of the least
known areas of the solar system: Mercury, the asteroids, and Pluto. The Mars Science Laboratory
will launch in 2009 to sharpen our scientific understanding of the red planet; future spacecraft will
conduct research and test technologies to support future human exploration of this planet.
The Agency will also build on its legacy of revolutionizing the science of astronomy. NASA will
continue to operate space telescopes such as Hubble, Chandra, and Spitzer, while planning for the
next generation of spacecraft that will enhance our ability to find planets around other stars and
peer deep into the history of the universe to better understand its origins and structure. All the
while, NASA will continue to play a major part in the interagency Climate Change Science Program
and participate in the international initiative on the Global Earth Observing System of Systems,
retaining critical investments in satellites, technologies, and research that will improve forecasting
of the weather, monitoring of forest fires, and tracking the spread of pollutants here on Earth. The
Agency will also continue to develop space probes to study the Sun’s influence on Earth and the space
environment.
Restructuring to Improve Results
In support of the President’s goal to make Government spending more effective, some NASA
programs that are not directly relevant to the exploration mission or other agency priorities, have
underperformed, or are financially unsustainable, will be reformulated or terminated to allow for
greater focus on the Agency’s high-priority programs.
The 2006 Budget terminated the

Commercial Supply for the Space Station Jupiter Icy Moons Orbiter, the flagship
mission of NASA’s space nuclear power
Following the tragic loss of the Space Shuttle Columbia, program, because it was costly and
the International Space Station relied on Russian crew
not well aligned with the new focus on
and cargo delivery services to continue operating. NASA
exploration. The 2007 Budget further
has since implemented a program intended to allow U.S.
companies to compete commercially to deliver cargo, and
trims the space nuclear program, which
eventually crew, to the International Space Station. If this will continue as a research and devel-
program is successful, it will reduce the cost of space opment effort until its technologies are
operations, freeing NASA to focus on exploration, and needed in later years.
may encourage the growth and diversification of the U.S. NASA’s aeronautics research pro-
commercial launch industry. gram is also being refocused to improve
its effectiveness and to yield greater
benefits for the Nation with a leaner
budget. NASA is the Nation’s leading
Federal organization for aeronautical research, known for its dedication to the mastery and intellec-
tual stewardship of aeronautics. In recent years however, an emphasis on transferring technologies
pulled the organization away from its focus on cutting-edge research. NASA is restructuring its
aeronautics programs to support fundamental research in traditional aeronautics disciplines and
relevant emerging fields. NASA will maintain core expertise at its research centers but will also
reach out to fund promising work at universities. The Agency’s research will enable both the civilian
and military communities to design and build aerospace systems that meet their specific needs.
Addressing Problem Areas and Increasing Accountability
NASA is transforming itself into a better-managed Federal agency. The Agency is addressing
several of the management challenges identified by the Program Assessment Rating Tool (PART). For
example, the PART noted that the Space Station program’s inability to achieve results was largely
due to its over-reliance on the Space Shuttle for transport of cargo and crew. To solve this problem,
NASA is now pursuing alternative means for supplying the Space Station. The PART assessment
of NASA’s Office of Education found that NASA lacked data on the effectiveness of its education
programs and was unaware of the degree to which program participants had taken jobs with NASA
or in related fields. In response, the Office of Education will now require all of its programs to con-
duct self-evaluations, report annually on accomplishments (including the career paths of alumni),
and make these data available to the public.
NASA is also instituting reforms to increase accountability and make its programs more effective.
For example, the Agency is undertaking independent reviews of many programs to evaluate their
effectiveness and relevance to NASA’s mission and to find areas where they could be improved. In
addition, the Agency has begun to monitor and report on a more regular basis the cost and schedule
progress of its space and Earth science missions. This practice will improve the Agency’s account-
ability for the Federal resources it receives to complete these projects.
The table below provides an update on NASA’s implementation of the President’s Management
Budget and
Integration
Status
Progress
Arrow indicates change in status rating since prior evaluation as of September 30, 2005.
As its high ratings on most initiatives of the President’s Management Agenda show, NASA is better managing
its human capital needs, developing business cases to support major information technology efforts, and
justifying budget requests in terms of the results the Agency expects its programs to achieve. For example,
NASA used public-private competition to consolidate human resources, procurement, financial management,
and information technology activities performed at 10 NASA centers to one shared services center. The
elimination of redundant systems and processes will improve efficiency and reduce agency costs. NASA has,
however, had significant difficulties in effectively implementing a system that can reliably track and manage the
Agency’s finances. In response, it is developing a financial management system to help the Agency organize
and better account for its finances.
NASA has developed an accurate and current inventory of its property and has begun implementing initiatives
within its Asset Management Plan, which will ensure that the Agency’s inventory is maintained at the right
size and cost to best support its mission.
National Aeronautics and Space Administration

2005 Estimate
Actual 2006 2007
Spending
Science, Aeronautics, and Exploration ......................................................... 7,891 9,664 10,524
Science (non-add) .......................................................................................... 5,824 5,254 5,330
Biological and Physical Research (non-add) ........................................ 925
Exploration Systems (non-add) ................................................................. 3,114 3,978
Aeronautics Research (non-add) .............................................................. 962 929 724
Cross-Agency Support Programs (non-add) ........................................ 179 367 491
Exploration Capabilities ...................................................................................... 8,149 6,578 6,234
Space Operations (non-add) ...................................................................... 6,988 6,578 6,234
Exploration Systems (non-add) ................................................................. 1,161 — —
Inspector General ................................................................................................. 31 32 34
Total, Mandatory outlays ........................................................................................ 1 — 2
Total, Outlays .............................................................................................................. 15,613 15,554 16,356

NATIONAL SCIENCE FOUNDATION

• Funded 49,000 research grants in science and engineering at the National Science
Foundation through a competitive, merit-based process;
• Directly supported 58,000 graduate students and 24,500 undergraduate students in
science and engineering fields; and
• Completed funding for the construction of four major research facilities to support
particle physics, supercomputing, and research on earthquakes and the atmosphere.

• Dramatically improves the National Science Foundation’s efforts to build and sustain
U.S. world leadership across many fields of science and engineering;
• As part of the President’s American Competitiveness Initiative, begins a 10-year
commitment to double funding for research that will provide breakthroughs in
information technology, nanotechnology, and other fields of science that will have
significant impacts scientifically and economically;
• Provides enhanced infrastructure and tools to strengthen research capabilities in
physics, astronomy, earthquakes, and the oceans;
• Strongly supports the United States’ role in the International Polar Year; and
• Attracts more of the most promising U.S. students into graduate level science and
engineering by funding over 4,500 new graduate fellowships.
273
274 NATIONAL SCIENCE FOUNDATION
Doubling Research in the American Competitiveness Initiative
As part of the President’s American Compet-

itiveness Initiative, the 2007 Budget provides
an increase of 7.9 percent for the National
Science Foundation (NSF), initiating a 10-year
commitment to double NSF’s investments in
science and engineering. NSF research builds
the foundations for innovative technologies
that drive economic growth and enhance
America’s quality of life. A broad portfolio
of research—from physics, chemistry, math-
ematics, engineering, and computer science,
to the geological, biological, behavioral, and
social sciences—will energize science broadly
and sustain the productivity of the Nation’s
science and engineering enterprise and keep
America at the forefront of world discovery
and innovation. Past NSF research has
contributed to the development of the Internet
and Internet search engines, fiber-optics, color
plasma displays, magnetic resonance imaging, NSF’s investments in adaptive optics give solar astronomers the
and other advances that now help each of us in sharpest insights yet into the magnetism that drives sunspots. This
our daily lives. composite photo from the National Solar Observatory shows an image
of a sunspot alongside an image of the earth, to convey scale. The
Through the President’s 10-year Compet- clarity of the image to the right is possible due to adaptive optics, while
normal ground-based telescope images would appear as shown on the
itiveness Initiative, the Administration is left.
strategically targeting the investments of NSF
and other agencies in emerging fields of research that are particularly likely to impact broadly
across fields of science and engineering, stimulate innovation, enable a high-tech workforce, and
further strengthen the economy.
NSF is a leading agency in the National Nanotechnology Initiative, funding nanotechnology
investments at $373 million in 2007, an increase of 8.6 percent from 2006 and of nearly 150
percent since 2001. Nanotechnology research will continue to advance fundamental understanding
of materials at the subatomic, atomic, and molecular levels and will enable the development
of capabilities to design, manipulate, and construct revolutionary devices and materials with
unprecedented properties. A broad range of developing technologies is likely to emerge from this
field, including high-performance materials; more efficient manufacturing processes; increased
computer storage capacity; and biomedical applications ranging from efficient drug delivery systems
to cancer therapies. The 2007 Budget funds approximately 50 new nanotechnology interdisciplinary
research teams.
NSF is also a leading agency in Networking and Information Technology Research and Devel-
opment (NITRD). The 2007 Budget provides $904 million of NITRD funding, an increase of 11.5
percent from 2006. This investment will support fundamental research in information, computer,
and communications sciences, laying the groundwork for next-generation technologies. NSF pro-
grams will also support access to cutting-edge computing and networking infrastructure essential
for America’s scientists, engineers, and students to remain at the forefront of discovery. Funding for
both nanotechnology and information technology research supports education and training for the
next generation of researchers and the science, engineering, and technology workforce.
The 2007 Budget provides over $55 million for research and education activities during the first
year of the International Polar Year (IPY), 2007 to 2009. NSF will lead the U.S. research community
in working with scientists supported by other agencies and countries to advance our understanding
of the Earth’s poles. Major areas of research will include Arctic environmental change, the influence
of polar ice sheets on global phenomena, and organisms that live in the cold and dark. NSF’s IPY
research will include a focus on education and outreach to motivate future generations of scientists,
engineers, and educators.
Producing Tools for Science and Engineering
The 2007 Budget supports research tools critical to scientists and engineers, such as instruments,
equipment, facilities, databases, and large surveys. Development of state-of-the-art infrastructure
and facilities substantially enhances research efforts throughout a wide range of fields, including
astronomy, earthquake research, and environmental research.
Computing and advanced networking tools that broadly benefit the Nation’s entire science and
engineering community, collectively known as “cyberinfrastructure,” have become essential to ad-
vancing the frontiers of knowledge through science and engineering. The Budget provides $600
million for NSF’s targeted investments in these tools. While hardware performance has been grow-
ing exponentially—with storage capacity doubling every 12 months and network capability every
9 months—it has become clear that increasingly capable hardware is not the only requirement for
computation-enabled discovery. Sophisticated software, visualization tools, middleware (that is, soft-
ware acting as intermediary between different application components) and scientific applications
created and used by interdisciplinary teams are critical to turning bytes and bits into scientific break-
throughs. It is the combined power of these capabilities that is necessary to advance the frontiers of
science and engineering, to make seemingly intractable problems solvable, and to pose profound new
scientific questions.
The 2007 Budget proposes two new research-

related construction starts: the Alaska Region
Research Vessel (ARRV) and the Ocean Obser-
vatories Initiative. ARRV is a ship that will
provide dramatically improved access to Alaskan
waters, enabling further research and exploration
throughout a greater period of the year. As
scientists strive to understand a variety of complex
regional and global ecosystem and climate issues,
the need to conduct research at the ice edge and in
ice up to three feet thick has become increasingly
urgent. With an operating year of up to 300
days, this ship could accommodate upwards of
500 scientists and students at sea annually. The
The Alaska Region Research Vessel, pictured here in an artist’s Budget provides $56 million to initiate ARRV
rendition, is a new addition to the national academic research fleet
that will provide improved Arctic science capabilities for extended construction.
periods of the year in the challenging icy waters of the Arctic.
Implementing the Ocean Observatories Ini-
tiative represents a bold step forward in advancing the Nation’s ability to study and understand
the world’s oceans. Consisting of a network of sensors, imaging systems, cable networks, and
buoys distributed among U.S. coastal and worldwide deep-sea sites, the observatories will improve
scientific understanding of physical and biological features and processes in the oceans. These
observatories will be coordinated with the Government-wide Integrated Ocean Observing System
to provide a large group of researchers with fundamentally new tools for local, regional, and global
ocean science. The Budget provides $13.5 million to start construction toward this initiative.
Strengthening the U.S. Science and Engineering Workforce
The 2007 Budget will continue NSF’s efforts to expand scientific and numerical literacy and pre-
pare U.S. students for the science and engineering workforce, with a focus on broadening participation
in those fields. NSF makes strategic investments in K–12, undergraduate, graduate, and postdoc-
toral education. The Budget funds graduate fellowships and traineeships for approximately 4,500
graduate students across the country. NSF funding for basic research at U.S. academic institutions
supports the education of future U.S. scientists and engineers.
Critical to the success of future generations of scientists and engineers is the education that the
Nation’s youngest students receive today. NSF is working to address the critical issue of improving
grade-school science education by increasing the funding for its core education programs, includ-
ing rigorous education research and evaluation, by 3.6 percent, and making those programs more
focused, flexible, and effective.
NSF’s programs support participation in science and engineering by individuals and by institu-
tions that serve significant numbers of students and communities, including women and minorities.
An increasing emphasis on educational programming and outreach by NSF-supported researchers
is expanding the resources available to the Nation’s K–12 and postsecondary institutions to develop
and strengthen programs in science, technology, engineering, and mathematics.
NSF continues to demonstrate flexibility and responsiveness in managing its programs. This
is evidenced in the Effective ratings across all the Program Assessment Rating Tool assessments
for NSF’s programs, as well as in the leadership NSF has provided in E-Government and other
President’s Management Agenda activities.
NSF uses a competitive awards process to ensure the quality of individual grant recipients, as well
as periodic external expert review of its programs that approve those grants. This process is an effi-
cient and effective way of funding the most promising proposals. The 2007 Budget supports enhanc-
ing the tools NSF uses to solicit, process, and review its proposals and monitor its awards. FastLane,
NSF’s Internet-based grants processing system, enables NSF to electronically process virtually all
of the proposals the Agency receives each year. Over 250,000 scientists, engineers, educators, and
research administrators use this system to submit and review proposals and report project results.
NSF’s web-based system to process proposals electronically is the cornerstone of NSF’s efforts to
modernization its information technology (IT) systems, leveraging innovative technology to re-engi-
neer and optimize business processes. This system, called eJacket, provides NSF staff with a single,
web-based application designed to process proposals electronically from submission through decision.
eJacket is a key electronic work horse, supporting the processing of 41,700 proposals in 2005.
NSF will be providing IT services for other research-focused grant making agencies in light of the
goals established by the Office of Management and Budget for the emerging Government-wide Grants
Management Line of Business. As a designated Consortia Provider Candidate for that initiative, NSF
will leverage its extensive capability and experience base to provide grants management-related in-
formation technology services for other Government agencies. In 2007, NSF will begin developing
the infrastructure and capabilities necessary to cross-service other grant making agencies.
The table below provides an update on NSF’s implementation of the President’s Management
Budget and
Integration
Status
Progress
NSF made great strides this year in improving its management of human capital, documenting its accountability
system, and updating its Senior Executive Services performance policy and appraisal system. The Agency
receives virtually all of its research proposals electronically and has a comprehensive plan for continued
improvement of its information technology security program. It is an active partner in several interagency E-Gov
initiatives, and was recently designated as a Consortia Provider Candidate for the Grants Management Line of
Business. NSF prepared its 2005 audited financial statements on time and earned an unqualified opinion in its
2005 audits. NSF can report the full cost of achieving its performance goals. NSF completed a streamlined
competition for administrative and technical support for award oversight and monitoring.
Arrows indicate change in status rating since the prior evaluation as of September 30, 2005. Double up arrows
indicate that the status rating was upgraded from red to green.
NSF produced a new Improper Payments plan and successfully executed it. A review found NSF’s improper
payments rate to be only a few hundredths of one percent.
National Science Foundation

2005 Estimate
Actual 2006 2007
Spending
Research and Related Activities ..................................................................... 4,230 4,331 4,666
Education and Human Resources ................................................................. 841 797 816
Major Research Equipment and Facilities Construction ........................ 174 191 240
Salaries and Expenses....................................................................................... 223 247 282
Office of the National Science Board ............................................................ 4 4 4
Office of the Inspector General ....................................................................... 10 11 12
Mandatory Outlays:
H–1B Fee Programs ............................................................................................ 44 76 87
All other .................................................................................................................... 19 61 25
Total, Outlays .............................................................................................................. 5,435 5,760 5,838

SMALL BUSINESS ADMINISTRATION

• Supported nearly $86 billion in small business loans through 2005;
• Provided tax relief of more than $80 billion annually to 25 million small businesses
since 2003. The average tax savings in 2005 was $3,235 per small business;
• Signed free trade agreements and provided trade promotion services that help small
business exporters sell their products to the world; and
• Reduced Small Business Administration staffing by 24 percent while improving
customer service and making record numbers of Government-backed loans.

• Provides $28 billion in Government-backed small business loans for 2007, the highest
level ever for the Small Business Administration. This will help create and retain an
estimated one million jobs;
• Proposes modest fee increases on very large loans to cover the administrative costs
associated with providing Federal Government guarantees on these loans; and
• Reforms Disaster Loan program interest rates to ensure that borrowers receive
generous benefits after a disaster event while reducing taxpayer costs.
279
280 SMALL BUSINESS ADMINISTRATION
Small businesses provide more than half of existing private sector jobs, two-thirds of new private
sector jobs, and more than half of the United States’ Gross Domestic Product. The Small Business
Administration’s (SBA’s) mission is to promote small business development and entrepreneurship
through business financing and technical assistance programs. SBA also works with other Federal
agencies to reduce regulatory and paperwork burdens on small businesses.
In addition to SBA’s programs,

Reduced Taxes Help Small Businesses the Administration is championing
small business interests through tax
[W]hen the tax cut hit the paychecks, our revenue went up. cuts and health care reform. The
In fact, it saved us last year…[W]e were not having a good
President’s jobs and growth agenda is
year last year, and we were looking at some retrenchment
creating the right economic conditions
and stopping our growth. When the tax cut hit, we imme-
diately began the move up, and had a strong fall, got back
to encourage innovation and growth by
to even, which was good. small businesses. The Administration
has taken important steps to assist
Scott George small businesses and the people they
Mid-America Dental and Hearing Center, Kansas City
employ by reducing taxes, encouraging
investment, and removing obstacles to
growth.
As a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003, 25 million small busi-
nesses and their owners received tax relief averaging more than $3,235 each in 2005. The lower
marginal income tax rates have assisted more than 90 percent of small businesses that pay taxes at
the individual income tax rates.
Recently enacted free trade agreements help small and medium-sized businesses (those with fewer
than 500 employees) sell their products to the world, as these entities represent 97 percent of all
exporters.
Continuing regulatory relief efforts ensure that Federal regulations do not unduly handicap
America’s entrepreneurs. Regulatory and paperwork requirements can be especially burdensome
on small businesses. An SBA study found that small businesses with fewer than 20 employees
spend an average of $7,647 per employee complying with regulations as compared to $5,282 per
employee for firms with 500 or more employees. SBA works with Federal agencies to minimize the
burden of new regulations. As a result of the Administration’s efforts since 2001, SBA estimates
that small businesses have been spared over $41 billion in regulatory costs by filtering out
unnecessary, over-burdensome, or duplicative requirements prior to finalizing new regulations. In
2007, SBA efforts are expected to save $6.16 billion in forgone regulatory costs. SBA also launched
www.business.gov as the official Federal business portal to reduce the amount of redundant data
and forms submitted to the Government. This reduces the burden on small businesses.
The Administration also supports legislation enabling creation of Association Health Plans, which
will allow small businesses to band together and purchase insurance at lower rates, and making
insurance premiums associated with Health Savings Accounts tax deductible. In addition, the
proposed comprehensive reform of the Nation’s medical liability laws will make insurance costs
more affordable and reasonable for small businesses.
Helping Small Businesses’ Capital to Grow
SBA Helps South Central Los Angeles Business Expand

Abel Diaz is a true local success story. After graduating from Inglewood High School in 1970, he went to
work as an apprentice at Inglewood’s Kream Krop Bakery. During 10 years of learning the bakery business,
he moved up the ladder and was named the firm’s general manger in 1980. Diaz spent the next six years
managing the company before he struck out on his own and opened Lupita’s Bakery in South Central Los
Angeles in 1986. Diaz’s 16 years of experience in the bakery business served him well. His well-managed
business grew by leaps and bounds, allowing him to open a second bakery in South Central Los Angeles
in 1990 and a third location in Huntington Park in 1996. Ever alert for new business opportunities, by 1998
Diaz became conscious of the fact there was a definite need for a banquet and restaurant facility in the
community served by his bakeries that could also accommodate weddings and large group functions. He
turned to SBA for assistance. Thanks to SBA-backed financing through Banco Popular, Diaz opened his
Fiesta Mexicana Family Restaurant with available space for a banquet hall. It is strategically located next
to Lupita’s Bakery and is continually booked, busily providing a valuable and popular community gathering
place. “Abel Diaz is a perfect example of how SBA financing can facilitate growth for an Emerging Market
community,” Los Angeles SBA District Director Alberto G. Alvarado said. “He has succeeded in both the
bakery and catering businesses thereby creating new jobs in a historically underserved area. I congratulate
him on his success.”
To meet the demand of the growing small business sector, the Budget supports $28 billion in
small business lending. SBA’s 7(a) program, which received an Adequate rating under the Program
Assessment Rating Tool, is being increased to support $17.5 billion in guaranteed loan volume in
2007, the largest level in the history of the program. This will provide financing to entrepreneurs
who could not obtain affordable loans without a Federal Government guarantee. SBA’s Section 504
loan program will support an additional $7.5 billion in guaranteed loans for fixed-rate financing of
fixed assets such as land, equipment, and buildings. SBA will also supplement the capital of Small
Business Investment Companies with $3 billion in guaranteed long-term loans for venture capital
investments in small businesses.
Providing Technical Assistance
SBA and its partners provide technical assistance programs, including training, counseling,
mentoring, and information services to more than four million existing and potential entrepreneurs
annually. SBA provides grants to a network of over 950 Small Business Development Centers; 389
SCORE chapters, which match executives with entrepreneurs for business counseling; and over 80
Women’s Business Centers. The Budget requests $104 million for technical assistance programs
in 2007.
The 2005 Budget included a proposal to eliminate the subsidy cost of the 7(a) guaranteed loan pro-
gram, which was successfully implemented. The program assisted more small businesses in 2005
than the previous year and this trend is continuing in 2006. In addition to saving taxpayers $100
million per year, this budgeting change has brought stability to the program. Lending in the 7(a)
program grew from $9 billion in 2003 to $14.3 billion in 2005. Whereas 2003 and 2004 shortfalls in
appropriations required SBA to suspend program lending in several instances, the current zero sub-
sidy has enabled lending to grow and not be interrupted by funding lapses. The 2007 Budget builds
upon this success by proposing authority for $17.5 billion of 7(a) lending, with borrowers covering
the costs of administering Federal guarantees on business loans greater than $1 million. This will
make these loans self-financing and further reduce the need for taxpayer support.
Since 2001, the demand for SBA loans has grown significantly. At the same time, the Administra-
tion has maintained budgetary discipline in delivering small business services. During the period
there was a 24-percent decrease in agency staffing but a rapid increase in agency services. For exam-
ple, lending under the flagship 7(a) program increased from 43,000 to 89,000 loans per year, yet the
cost of providing these services has dropped dramatically. In 2001, SBA programs cost $1 billion in
appropriations. The 2007 Budget will provide expanded services while only costing taxpayers $624
million, a 38-percent cost decrease.
The Budget supports $3 billion in new guaranteed venture capital investments for small businesses
through the Small Business Investment Company Debenture program. However, with realized and
projected losses exceeding $2 billion in the Participating Securities program, which provided eq-
uity-type venture capital financing, the 2007 Budget does not support new guaranteed investments
in this program. Rather than make new investments through this program, SBA will continue to
improve efforts to monitor and mitigate risk in the outstanding $6 billion Participating Securities
portfolio.
The 2007 Budget proposes to continue

providing preferential loan terms to victims of
disasters. However, to contain the escalating
costs of the loans, the Budget proposes to
adopt graduated interest rates for the Disaster
Loan program beginning with disaster events
occurring in 2007. During the first five years
after a disaster, interest rates will remain deeply
subsidized, as they are currently structured,
although interest rate caps would be eliminated.
Thereafter, rates would graduate to those of
a comparable-maturity Treasury instrument.
This structure would continue to provide
As a result of the unprecedented damage caused in the Gulf area
from Hurricanes Katrina and Rita, SBA received a record number of borrowers with deep interest subsidies when
disaster loan applications. they need them most—immediately after a
disaster—and after five years the subsidies
would be reduced for the remainder of the loan period. This proposal would not affect loans made
for recovery from disasters occurring before 2007.
Consistent with the President’s Management Agenda, SBA is administering its programs more
efficiently to improve customer service and reduce program costs. Building upon its success in con-
solidating loan liquidation functions from 69 district offices to a single location, SBA is also working
to consolidate loan guarantee processing and other management functions. While providing admin-
istrative cost savings, these changes ensure that loans are managed more consistently and efficiently.
The consolidation of loan liquidation activities in 2004 reduced agency costs for this function from
$32 million in 2003 to $7 million in 2005.
SBA seeks to target assistance more effectively to credit-worthy borrowers who would not get loans
from the commercial markets in the absence of a Government guarantee. SBA is actively encouraging
financial institutions to increase lending to start-up firms, low-income entrepreneurs, and borrowers
in search of financing below $150,000. Preliminary evidence shows that SBA’s outreach for the 7(a)
program has been successful. Average loan size has decreased from $232,000 in 2001 to $160,000 in
2005, while the number of small businesses served has more than doubled during the same time.
SBA has also begun monitoring and managing its portfolio risk through the Loan Monitoring Sys-
tem. The implementation of this system enables the Agency to track the performance of lenders
relative to the credit scores of borrowers in their guaranteed loan portfolio. This provides SBA with
a tool to identify lenders that pose the greatest risk to Federal taxpayers and to suggest intervention
when necessary to avoid further risk.
The 2007 Budget reproposes termination of the Microloan program, which has been excessively
expensive relative to other programs. The 7(a) program is capable of serving similar clientele through
the Community Express program at a much lower cost to taxpayers.
The Budget requests additional administrative funding for SBA’s critical investments in informa-
tion technology. New investments include web-based data reporting and processing systems, which
will expedite and facilitate the use of agency programs and allow growth in program usage while
maintaining streamlined staffing levels.
The table below provides an update on SBA’s implementation of the President’s Management
Budget and
Integration
Status
Progress
To improve service to the public, SBA assessed its staff’s skills, contracted for training, increased accountability
of managers, and conducted competitive sourcing competitions in 2005. As the leader of the Business Gateway,
SBA launched the website www.Business.gov, which helps small business owners easily find, understand, and
comply with Federal regulations. SBA is working with other Federal agencies to reduce the paperwork burden
on businesses. In the area of Budget Performance and Integration, SBA has also made progress in developing
new estimation models to improve financial management and more accurately measure the cost of providing
credit to small businesses. In 2005, SBA received an unqualified opinion on its financial statements, although
one repeat material condition remained.
The Agency established a faith-based center that works with community and faith-based groups to ensure
access to SBA technical assistance grants. SBA continues to assess its loan programs for improper payments,
particularly its 7(a) program.
SBA will participate in the new credit initiative because it has a portfolio of $3.6 billion in outstanding direct
loans, $63 billion in outstanding loan guarantees, and $681 million in delinquent debt. This initiative will
be included in the scorecard beginning in the second quarter of 2006. SBA is developing new strategies to
improve performance and outcomes in these areas. The Agency has also implemented a best-practices lender
monitoring system that tracks performance through the use of credit scores.
Small Business Administration

2005 Estimate
Actual 2006 2007
Spending
Salaries and Expenses....................................................................................... 318 306 291
Business Loans Administration ....................................................................... 126 121 121
Disaster Loans....................................................................................................... 111 — 195
Surety Bond Guarantees Revolving Fund ................................................... 3 3 3
Unrequested projects .......................................................................................... 39 90 —
Total, Discretionary budget authority ................................................................. 610 534 624
Total, Discretionary outlays ................................................................................... 850 1,744 630
Total, Mandatory outlays ........................................................................................ 1,652 556 25

Total, Outlays .............................................................................................................. 2,502 1,188 605
Credit activity
Direct Disaster Loans .......................................................................................... 995 3,532 693
Direct Business Loans ........................................................................................ 19 18 5
Total, Direct loan disbursements ......................................................................... 1,014 3,550 698

Guaranteed Business Loans ............................................................................ 18,551 24,490 22,940
SOCIAL SECURITY ADMINISTRATION

• Improved productivity by 13 percent, enabling the Social Security Administration to
provide more services with fewer resources;
• Increased work opportunities for beneficiaries with disabilities;
• Decreased the average waiting time for decisions on disability applications from 106
to 93 days; and
• Expanded online service options on www.socialsecurity.gov and 1–800–772–1213
that are secure, citizen-friendly, and available 24 hours a day.

• Is committed to Social Security reform that strengthens the safety net for future
generations, protects those who depend on Social Security, and offers every
American a chance to experience the opportunity of ownership through voluntary
personal retirement accounts. Seniors at or near retirement will see no changes to
their benefits;
• Simplifies the administration of the Social Security retirement and disability programs,
making the programs clearer and more fair and reducing improper payments;
• Promotes the President’s vision for an Ownership Society by providing incentives for
low-income disabled individuals to save; and
• Increases operational productivity by two percent while maintaining service to the
public.
285
286 SOCIAL SECURITY ADMINISTRATION
Strengthening Social Security
As the President has emphasized with respect to the Social Security system:
“One of America’s most important institutions—a symbol of trust between generations—is also
in need of wise and effective reform…And so we must join together to strengthen and save Social
Security…We must make Social Security permanently sound, not leave the task for another day.”
Social Security is sound for today’s seniors and for those nearing retirement, but it needs to be
fixed for younger workers. Social Security today operates on what is known as a “pay-as-you-go”
basis, in which current worker payroll taxes are used immediately to pay for the benefits of current
retirees and other beneficiaries. In 1950, there were about 16 workers for every retiree. Today, there
are slightly more than three workers for every beneficiary. By the time today’s 20-year-olds retire,
that number will drop to two workers for every beneficiary. Furthermore, people are living longer
than when the system was created. As the baby boom generation begins retiring in 2008, there will
be a dramatic rise in the number of retirees, putting added strain on the system. In 2017, the Social
Security system will collect less in taxes than it pays in benefits and will shift into a permanent
cash deficit that will grow every year. In 2041, Social Security will exhaust its Trust Fund assets. If
Social Security’s problems are left unresolved, today’s young workers will see their benefits sharply
and suddenly cut, their children’s payroll taxes raised, or both.
The President is committed to strengthening the Social Security system and has put forward three
goals for any reforms: strengthen the safety net for future generations; protect those who depend
on Social Security; and offer every American a chance to experience the opportunity of ownership
through voluntary personal retirement accounts.
The President has proposed reforms to address the system’s long-term financial shortfall while
making Social Security a better deal for today’s young workers. Under the President’s approach, So-
cial Security would include voluntary personal accounts funded by a portion of workers’ payroll taxes.
The 2007 President’s Budget includes the estimated impact from the creation of personal accounts.
The accounts will be funded through the Social Security payroll tax. In the first year of the accounts,
contributions will be capped at four percent of Social Security taxable earnings, up to a $1,100 limit
in 2010, increasing by $100 each year through 2016. The President has also embraced the idea of in-
dexing the future benefits of the highest wage workers to inflation while providing for a higher rate of
benefit growth for lower-wage workers. This measure would significantly contribute to the solvency
of the system. By adjusting the way benefits are calculated, progressive indexing would eliminate
nearly 70 percent of annual cash shortfalls by the end of the Social Security Trustees’ long-range
(75 year) valuation period, trending towards greater improvement thereafter. Because progressive
indexing would index benefits for lower-wage workers to wage growth, which generally grows faster
than inflation, benefits would grow faster than the poverty level. This will keep a greater portion of
future seniors out of poverty than today.
By adopting progressive indexing and allowing young workers to create voluntary personal retire-
ment accounts within the Social Security system, the President’s recommendations would provide
future seniors with real money instead of the current system’s empty promises. Indexing benefits
partially to inflation rather than wages allows the Government to save significant sums in future
decades, money that would be used to maintain faster benefit growth for low-income seniors. Without
Social Security reform, benefits for future seniors will have to be cut about 30 percent across-the-
board.
Extra Help with Drug Costs for Seniors and Persons

with Disabilities
Under the Medicare Prescription Drug Improvement and

Modernization Act of 2003, the Social Security Administration
(SSA) is helping eligible Social Security and Medicare benefi-
ciaries obtain extra help paying for prescription drugs.
To be eligible for the additional assistance, Medicare
beneficiaries must have limited resources (below $10,000 for an
individual or $20,000 for a married couple) and limited income
(no more than 150 percent of the poverty level). Individuals
have the option of applying for the extra help through the
Internet, telephone, mail, or at a local Social Security office.
SSA is continuing its outreach efforts to ensure that all who
are eligible for the extra help know about it and have the
opportunity to apply. From May through mid-August 2005, SSA
sent 19 million applications to potentially eligible beneficiaries. SSA is involved in reaching out in many ways
to seniors who may be eligible for help with
prescription drug costs, including conducting
Flexibility to Save more than 60,000 community outreach events.
The Budget promotes the Administration’s Ownership Society agenda among the low-income
disabled. In 2007, SSA will launch the Disability Freedom Account demonstration project to help
disabled Supplemental Security Income (SSI) beneficiaries save more money to pay for their first
home, education, or other services needed to get back to work, or for assistive technologies to
make their lives easier. Current SSI asset limits will be waived for these individuals. Certain SSI
recipients who also receive Medicaid and self-direct their long-term care support services may also
be eligible to participate in this demonstration.
Removing Barriers to Work
Only about a half of one percent of SSA’s disability program

beneficiaries ever leave the rolls for work. To better connect
these beneficiaries with employment opportunities and in
response to a Program Assessment Rating Tool (PART) review,
SSA is implementing several demonstrations to test various
types of assistance to help those who are able to return to work.
Among the projects is the National Benefit Offset Demonstra-
tion, which will test the effects of allowing Disability Insurance
(DI) beneficiaries to work without total loss of their benefits by
reducing their monthly benefit one dollar for every two dollars
of earnings above $830 per month. Within the benefit offset
demonstration, SSA will also test an early intervention model in
which SSA will provide cash and medical benefits to disability
applicants with certain impairments presumed disabling who
elect to pursue work rather than proceed through the disability
A disabled beneficiary (left) receiving a Ticket
determination process. to Work, enabling him to work again without
total loss of Social Security benefits.
Under the Ticket to Work and Work Incentives Improvement Act of 1999, SSA provides disability
beneficiaries with a “ticket” that can be used to receive vocational rehabilitation and employment
support services to go back to work without losing health benefits. SSA has proposed regulatory
changes to the Ticket to Work program to improve its overall effectiveness. These changes include
offering enriched payments to service providers and allowing disability beneficiaries with medical
conditions likely to improve to participate in the program.
Quicker Decisions
Providing Relief to Hurricane Victims
SSA has reduced its average
Hurricane Katrina struck the central Gulf Coast on August
processing time for initial disability
29, 2005, and the resulting flooding and wind damage led to
claims by about two weeks since the displacement of hundreds of thousands of people, major
2001. While applicants waited on disruptions in mail delivery, and bank closings. SSA went
average 106 days for a decision to great lengths to ensure that all beneficiaries in the area
in 2001, SSA improved the wait received their Social Security and Supplemental Security In-
in 2005 to 93 days. In 2005, SSA come payments, issuing almost 74,000 immediate payments.
was able to reduce initial disability SSA staff set up payment centers at the Houston Astrodome
claim backlogs by 64,000 cases, a and other evacuation centers, manually prepared the payment
more than 10-percent reduction checks and solved thousands of individual problems. In addi-
from the prior year. Implementing tion, SSA worked closely with the Department of the Treasury
the new approach to disability and the United States Postal Service to ensure timely delivery
determinations, as noted in the of checks and to provide special handling for undeliverable
checks. SSA also worked with financial institutions to facilitate
DI PART evaluation, will further
check cashing, including helping verify identity.
reduce processing time.
Productivity Gains
In 2005, SSA made payments to more than 52 million people each month. Further, SSA served
approximately 30 million visitors to its more than 1,300 field offices in communities across America,
processed 3.8 million applications for retirement and survivors benefits, processed 2.6 million
applications for disability benefits, handled more than 55 million 1–800 number transactions, and
processed more than 1.6 million electronic transactions.
The 2007 Budget projects that SSA will improve productivity in 2007 by two percent over the prior
year, based on the Agency’s proven track record. Increased productivity means that SSA can provide
more services to citizens with fewer resources. SSA has an impressive track record in increasing
agency-wide productivity. In 2005, productivity climbed 2.7 percent over the previous year—for a
total gain of 12.6 percent since 2001. SSA continually evaluates its business processes and invests
heavily in its information technology systems to ensure these improvements. For example, eDib,
SSA’s new electronic folder for disability applications, allows SSA to store disability cases electroni-
cally, which reduces staff time spent looking for and reconstructing lost folders.
Program Integrity
Program integrity efforts ensure that only eligible individuals receive benefits, and that they
receive the correct benefits. As part of these efforts, SSA re-verifies beneficiaries’ eligibility status,
collects overpayments, and uses other methods to investigate and deter fraud.
The Budget increases funding for continuing disability reviews (CDRs), assessments of whether
the beneficiary still meets the medical requirements of the program. SSA generates savings of $10
for each $1 spent on CDRs. SSA’s 2004 CDRs are expected to yield more than $5 billion in program
savings.
SSA is engaged in many other activities to improve payment accuracy, including SSI redetermina-
tions—checks of whether the benefit amount is correct—that yield savings of $7 for every $1 spent on
them. SSA is refining its redetermination process to produce an even greater return on investment.
SSA is also fine tuning electronic matches with financial institutions to make sure that people who
have assets exceeding the allowed limits do not receive SSI. SSA is working with States to develop
speedier, electronic systems for reporting deaths, so that benefits can be terminated on a timely
basis. Additionally, the Agency is exploring approaches to make it easier to update earnings records,
including telephone technology and a centralized unit to process wage reports.
Simplifying Program Administration
The Budget includes several

Telephone Wage Reporting Helps SSI Beneficiaries proposals that would simplify the
Keep in Touch administration of SSA’s benefit
programs. These proposals would
SSI recipients can supplement their monthly benefit
make the program rules clearer and
checks by working. Because the amount they earn can
easier to understand, reduce improper
affect their benefit payments, they must periodically up-
date SSA on their earnings.
payments, and reduce the costs to SSA
of administering the programs.
Starting in 2006, SSA’s new telephone wage reporting
pilot will enable SSI recipients to report wages more One proposal would replace the
quickly and will reduce incorrect payments. Participants current, complicated reduction to DI
in the pilot will call a special 1–800 number and report benefits for beneficiaries in some States
their monthly wages, send in pay stubs to verify wages, who also receive Workers Compen-
and SSA will then adjust benefits accordingly. In addition sation benefits with a uniform offset
to making it easier for the participants, the pilot will reduce that would affect all such beneficiaries
SSA’s administrative costs by cutting down on contacts for not more than five years. This
with employers. Speedier reporting via the telephone simplified offset will reduce erroneous
wage reporting pilot promises to allow SSA to improve DI payments and the burden on
SSI payment accuracy.
claimants in making large repayments,
and will save SSA $7 million a year in
administrative costs.
A second proposal will give SSA the ability to independently verify whether beneficiaries have
pension income from employment not covered by Social Security. The law requires that Social
Security benefits be reduced in such cases, recognizing, in effect, that these pensions are designed
as a substitute for Social Security. This proposal would eliminate the current self-reporting burden
on individuals and will improve payment accuracy.
A third proposal will eliminate the lump sum death benefit that currently goes to surviving spouses
and children who receive benefits under a deceased worker’s Social Security record. This one time
payment of $255 no longer provides meaningful monetary benefit for survivors and is normally less
than one month’s widow/widower benefits and children’s benefits. This small payment costs SSA
$15 million to administer annually, which will be redirected to higher priority activities beginning in
2007.
Finally, SSA remains committed to restructuring and simplifying the SSI program, including the
complicated in-kind support and maintenance rules. It is exploring ways to do this in a fair and
equitable manner and at the same time, be budget neutral in regard to program costs.
New Approach to Processing Disability Claims
Despite recent improvements in reducing waiting times, timely and accurate processing of dis-
ability claims has been a longstanding challenge for SSA. In recent years, the rapidly rising volume
and complexity of these cases has greatly increased the challenge. In 2005, those who were denied
benefits initially and again upon appeal had to wait on average 14 months for a decision from an
Administrative Law Judge (ALJ).
To address these issues and

ensure decisional accuracy, SSA Hurricane Katrina Highlights the Importance of Electronic
is implementing several changes Files
to the disability determination
Over the past several years, SSA has been moving to
process. An integral part of the
electronic disability file folders (eDib) and away from paper
new approach is implementation
folders. The benefits of this initiative were particularly evident
of eDib, which enables SSA in the aftermath of Hurricane Katrina. Of the 5,000 cases
to use technology to replace a in the New Orleans, Louisiana, Disability Determination
paper-driven process. SSA has ini- Services office, 1,500 had been stored electronically since the
tiated the electronic folder process State began implementation of eDib. None of these records
in all SSA field offices and in all were lost or damaged and SSA was able to immediately trans-
State Disability Determination fer the electronic cases to other offices where they remained
Services sites except New York, active.
where it will be implemented
shortly. Under the new approach,
quick decision units will make
disability determinations within 20 days or less for individuals who clearly have disabilities, thereby
reducing waiting times. A national network will be established to consistently make available
medical, psychological, and vocational experts to assist all adjudicators. The new approach also
introduces a Federal attorney review level prior to the ALJ hearing. Decisions made at all levels
of review will be well-documented and evaluated by a centralized unit for quality. Together, these
changes are expected to reduce processing time by at least 25 percent over the current process and
result in making the right decision earlier in the process.
The table below provides an update on SSA’s implementation of the President’s Management
Budget and
Integration
Status
Progress
SSA is a well-managed agency that uses technological and program design changes to improve productivity
annually. Most recently, it implemented an electronic disability claims folder and is streamlining its appeals
process. In Budget and Performance Integration, SSA is able to determine the full and marginal costs of
processing applications for benefits and uses that information to reallocate work among offices to process
applications more quickly. In the area of Financial Performance, SSA produces accurate and timely financial
information so managers can drive better results, thus reducing the administrative costs of SSA’s benefit
programs. In Human Capital, the Agency now has a multi-tiered performance appraisal system for executives
and senior managers that effectively differentiate between different levels of performance. SSA is working
to include all employees under such a system. Using its Human Capital Plan and the Future Workforce
Transition Plan as roadmaps for its workforce planning initiatives, SSA has recruited a talented and dedicated
workforce with the bilingual skills and cultural diversity to serve the American public. In achieving its recruitment
needs, SSA is one of the few Federal agencies that has equaled or surpassed the civilian labor force in
all under-represented groups, including employees with disabilities. In E-Government, SSA increased its
processing of electronic transactions, which includes Internet applications and applications received through the
1–800 number voice recognition system, to 1.6 million in 2005, a 470-percent increase. SSA also implemented
the largest electronic disability claims process in the world in 2005. In addition, through the Presidential E-Gov
initiative E-Vital, SSA has reduced the frequency and amount of erroneous payments as a result of untimely
and inaccurate vital records. Finally, SSA completed nine competitive sourcing studies in 2005, including
competitions of mailroom functions and occupational health nurses. The Agency estimates savings of $37
million from 12 competitions since 2003 that have increased operational efficiency and improved services.
SSA has established measures of improper payments for its three major benefit programs: Old-Age and
Survivors Insurance (OASI), DI, and SSI. It uses established business practices for analyzing and reporting
improper payments in all three programs, and has completed a risk assessment of administrative payments
as well. The OASDI programs had an accuracy rate of 99.5 percent in 2004. SSA did not meet its target for
improper payments for SSI in 2004 and has implemented a corrective action plan with specific reduction targets.
SSA is working to meet its improper payment reduction goals, with targeted efforts to determine program
eligibility more quickly and accurately.
AGENCY-SPECIFIC GOALS
SSA sets goals to provide high-quality service, which is reflected in the Agency’s commitment to
increase productivity, timeliness, and accuracy in processing applications for disability benefits. With
this Budget, SSA expects to achieve the performance targets outlined in the accompanying table.
Goal
2005
Goal
Actual 2006 2007
Productivity:
Disability Decisions, Per Worker Per Year 1 ........................................................ 260 262 276
SSA Hearings Decisions, Per Worker Per Year ................................................. 102 104 106
Timeliness (in days):
Average Processing Time for Initial Disability Claims ...................................... 93 93 93
Average Processing Time for Hearing Decisions .............................................. 443 467 467
Accuracy:
Disability Determination Services Accuracy Rate ............................................. NA 97% 97%
Accuracy Rate for Hearing Decisions .................................................................... NA 90% 90%
1
In 2005, an SSA worker on average made 260 disability decisions in that year. The higher number in a given year, the greater the productivity.
Social Security Administration

2005 Estimate
Actual 2006 2007
Spending
Limitation on Administrative Expenses (LAE) Base 1 ............................ 8,733 9,109 9,496
Research and Development ............................................................................. 28 20 20
Subtotal, Discretionary budget authority .......................................................... 8,851 9,220 9,612
All other .................................................................................................................... 8 1 1
Mandatory Outlays:
Old-age, Survivors, and Disability Insurance ............................................. 518,772 550,594 581,428
Supplemental Security Income........................................................................ 38,258 38,011 36,915
Special Benefits for Certain World War II Veterans ................................. 11 12 11
Offsetting Collections .......................................................................................... 3,034 3,508 3,275
Legislative proposals ........................................................................................... — — 162
Total, Outlays .............................................................................................................. 563,030 594,374 624,458

1
The LAE account includes funding from the Hospital Insurance and Supplementary Medical Insurance trust funds for services that support the
Medicare program, including implementation of Medicare Reform.
OTHER AGENCIES
COMMODITY FUTURES TRADING COMMISSION
The Commodity Futures Trading Commission (CFTC) ensures the integrity and effectiveness of the
U.S. futures and options markets. It protects investors by preventing fraud and abuse and ensuring
adequate disclosure of information. Major activities of the Agency include: promulgating regulations
governing commodities futures markets; detecting and prosecuting investor fraud; and monitoring
the markets in order to prevent illegal price manipulation efforts. In 2005, CFTC initiated 132 new
investigations and filed 69 enforcement actions against 218 suspected violators of commodity trading
laws.
The 2007 Budget proposes to fund CFTC’s activities through a new transaction fee. CFTC is the
only financial regulator not funded through fees; this proposal will shift the regulator’s cost from
the general taxpayer to the primary beneficiaries of CFTC’s oversight. The Budget proposes a $127
million program level for CFTC.
In response to its Program Assessment Rating Tool assessment, CFTC has begun to work with
other agencies that perform similar regulatory and oversight functions to develop performance mea-
sures that better reflect program effectiveness, including one that can quantify increased efficiencies
in the enforcement of violations of commodity laws and regulations.
CONSUMER PRODUCT SAFETY COMMISSION
The Consumer Product Safety Commission

(CPSC) is responsible for protecting families
from hazards related to consumer products
in its jurisdiction, such as toys, baby cribs,
power tools, cigarette lighters, and household
chemicals. CPSC monitors injuries and deaths
resulting from consumer products and works
with industry to develop voluntary standards
to make products safer. Where these steps
are insufficient to protect Americans from
unnecessary risks, CPSC develops mandatory
rules and conducts product recalls. CPSC also
Baby cribs are one of 15,000 consumer products under CPSC’s
educates consumers on potentially dangerous
jurisdiction. products. A list of recalled products can be found
at www.recalls.gov. The President’s 2007 Budget
includes $62 million for CPSC to sustain existing safety efforts and continue providing national
consumer product safety leadership.
295
296 OTHER AGENCIES
CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

The Corporation for National and Community Service (CNCS) provides service opportunities for
Americans of all ages and backgrounds to address critical community needs. Through AmeriCorps,
Senior Corps, and Learn and Serve America, CNCS helps Americans answer the President’s Call
to Service. These programs support volunteer activities that include tutoring and mentoring chil-
dren, assisting the elderly, preserving the environment, building homes for low-income families, and
mobilizing volunteers to respond to disasters. The 2007 Budget requests $851 million for CNCS to
continue its core national service programs. This level will allow CNCS to generate service opportu-
nities for some 2.5 million Americans.
Strengthening Communities Through Service
According to the Bureau of Labor Statistics, volunteer service is on the rise. In 2005, more than
65 million Americans volunteered, an increase of 2 million from 2003. The Corporation is commit-
ted to accelerating this trend and engaging 75 million Americans in service by 2010. In 2005, the
spirit of volunteerism was a key factor in the recovery and relief efforts following the devastation
in the Gulf Coast caused by Hurricane Katrina. More than 13,000 participants in the Corporation’s
programs—including AmeriCorps, Senior Corps, and Learn and Serve America—helped in the relief
efforts by clearing debris, evacuating individuals with disabilities, rebuilding homes, and establish-
ing volunteer centers. The 2007 Budget requests a total of $479 million to support the President’s
goal of 75,000 AmeriCorps members, including $95 million for the AmeriCorps VISTA program and
$125 million in the National Service Trust to support member education awards. The Budget will
enable AmeriCorps members to continue assisting with the long-term disaster relief activities in the
Gulf Coast and help meet other pressing community needs while earning an education award of up
to $4,725 to help finance college costs or repay student loans. In addition, the Budget provides $218
million to support nearly 500,000 Senior Corps volunteers; $34 million for Learn and Serve Amer-
ica to engage one million youths in service-learning education; $10 million for the Points of Light
Foundation to connect individuals, businesses, and community-based nonprofits to volunteer oppor-
tunities across America; and $5 million for America’s Promise to support a Communities of Promise
network to help build the character and competence of young people.
Cultivating a Culture of Performance and Accountability
The 2007 Budget continues the Corporation’s program and management reforms. It requests $70
million, a $4 million increase, for program administration to implement recommendations of the
National Academy of Public Administration, including reducing management overhead costs. The
Budget also provides $5 million to close out operations of the National Civilian Community Corps
(NCCC) demonstration program, which was rated Ineffective in a recent assessment using the
Program Assessment Rating Tool (PART). The PART analysis found that the program’s residential
design significantly contributed to its $28,000 per-participant cost, and found no rationale for
NCCC’s existence as a residential program.
DISTRICT OF COLUMBIA
The District of Columbia (D.C.) is the Seat of Government of the United States, over which the
Congress exercises exclusive authority to legislate. In the exercise of that authority, the Congress
has established by law a government for D.C.
The 2007 President’s Budget provides $143 million for D.C. This includes $76 million to support
D.C. school children, as well as $67 million in funding for other D.C. programs. The 2007 Budget
continues the investment initiated in 2004 in the D.C. School Choice program, with $15 million.
This program helps increase the capacity of the District to provide parents—particularly low-income
parents—more options for obtaining a quality education for their children who are trapped in low-per-
forming schools. Since 2004, over 2,700 children have matriculated to their preferred school. As part
of the Administration’s commitment to improving education in D.C., the Budget continues funding
for D.C.’s public and charter schools, with $26 million. The Budget also continues to support the D.C.
Resident Tuition Assistance program, with $35 million. This program was started in 1999 and allows
District residents to attend public colleges nationwide at in-State tuition rates.
The 2007 Budget also supports D.C.’s public safety response to events directly related to the
Federal Government’s presence in the District, with $9 million to defray the cost of events, such
as protection for the annual World Bank and International Monetary Fund meetings. In addition,
the Budget proposes $20 million to expand the capacity of the Navy Yard Metro station, which is
expected to accommodate an additional 10,000 Federal employees and contractors upon completion
of the Federal Center Southeast area. Furthermore, the Budget includes $30 million in Federal
support to begin construction on a new central library and renovate neighborhood branches.
The President’s Budget proposes an increase in the amount of Federal funding the District receives
for child welfare services, specifically foster care and adoption assistance. The Budget increases the
District’s reimbursement rate under Title IV-E of the Social Security Act from 50 to 70 percent. Title
IV-E is the primary Federal funding source that provides foster care and adoption subsidy payments,
which enable families to adopt special needs children from foster care. This adjustment will bring
the Title IV-E Federal match rate in line with the District’s Medicaid match rate, as it is in other
States.
The Federal Government has a particular interest in ensuring the Nation’s capital provides a
healthy, vibrant environment for its employees, local citizens, and visitors from across the United
States and the world. Accordingly, the Administration presented a bill to the Congress last spring
that would transfer land between D.C. and the Federal Government. The proposed bill would facil-
itate construction of a secure headquarters for the U.S. Coast Guard and dismiss lawsuits brought
against the Federal Government by the District. The Administration will continue to work with the
Congress to enact this important legislation.
DISTRICT OF COLUMBIA COURTS

Federal appropriations finance the capital and operating expenses of District of Columbia Courts
pursuant to the 1997 National Capital Revitalization and Self Government Improvement Act. The
President’s Budget provides $240 million to the Courts, including $51 million for significant improve-
ments in the Judiciary Square area. Judiciary Square is the center of many criminal justice functions
in the District and is the home of the D.C. Superior Court, as well as a variety of other city and Fed-
eral criminal justice agencies. Improvements in the area include a full restoration of the city’s Old
Courthouse. Work on the Old Courthouse began in early 2005. The Old Courthouse was originally
built between 1821 and 1881 and is listed on the National Register of Historic Places. The D.C. Courts
will also undertake significant design and renovation work on the H. Carl Moultrie Courthouse.
ELECTION ASSISTANCE COMMISSION

The Election Assistance Commission provides funding to States to improve election equipment
and the administration of Federal elections. Since enactment of the Help America Vote Act of 2002,
298 OTHER AGENCIES
the Federal Government has provided approximately $3 billion to upgrade voting systems, develop
electronic voter registration lists, assure access for individuals with disabilities, and train election
officials for all 50 States, the District of Columbia, and four territories (Puerto Rico, Guam, American
Samoa, and the American Virgin Islands). The 2007 President’s Budget proposes $17.1 million for
the Commission to continue work on the Voluntary Voting System Guidelines, which includes stan-
dards for accessibility, security, usability, and core software and hardware requirements for all voting
systems, as well as accreditation of testing laboratories, and certification of voting systems.
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION

The Equal Employment Opportunity Commission (EEOC) enforces Federal laws that prohibit
employment discrimination based on race, color, sex, religion, national origin, age, or disability.
EEOC also seeks to prevent discrimination through outreach, education, and technical assistance
that promote employers’ voluntary compliance with the law.
In 2005, EEOC marked its 40th anniversary and took significant steps to improve its service. The
Agency launched a two-year pilot national contact center, which operates a toll-free phone number
(1–800–669–4000) and has made the Agency even more accessible to the public. The pilot phase will
end in 2006. The center has answered more than 24,000 calls a month and offers translation services
so that people can communicate in more than 150 languages. To reflect the changing geographic
distribution of its caseload, the Commission approved a plan to reposition the Agency’s field office
structure. This plan is designed to enhance service delivery and improve the efficiency of EEOC’s
operations.
The 2007 Budget provides $323 million for EEOC. With this funding, EEOC’s employees will con-
tinue to meet its important responsibilities of enforcing civil rights law, investigating and litigating
discrimination charges, and reaching out to inform workers and employers about their rights and
responsibilities. To support the President’s New Freedom Initiative—a strategy to integrate people
with disabilities fully into the Nation’s life—EEOC will continue its project to identify States’ best
practices for removing employment barriers faced by people with disabilities. The Agency will publish
a report on this project in 2006.
EXECUTIVE OFFICE OF THE PRESIDENT

The Executive Office of the President (EOP) includes a number of organizations dedicated to serv-
ing the President. As part of the 2007 Budget, the Administration requests a three-part initiative,
which would:
• Consolidate the annual appropriations for the White House Office, the Office of Policy
Development, Executive Residence, the Office of Administration (OA), White House Repair and
Restoration, the National Security Council, and the Council of Economic Advisers into a single
appropriation called The White House;
• Extend the general provision for limited transfer authority in section 725 of the Departments
of Transportation, the Treasury, Housing and Urban Development, the Judiciary, the District
of Columbia, and Independent Agencies Appropriations Act, 2006 (Title VII of Public Law 109-
115), to provide a 10-percent transfer authority among the following accounts: The White House,
Special Assistance to the President and Official Residence of the Vice President, the Office of
Management and Budget, the Office of the United States Trade Representative, the Office of
National Drug Control Policy, the Council on Environmental Quality, and the Office of Science
and Technology Policy. Transfers from the Special Assistance to the President and the Official
Residence of the Vice President account are subject to the approval of the Vice President; and
• Continue centralization of common services into OA.

This initiative enables the EOP and the Office of the Vice President to exercise best business prac-
tices through the efficient use of budget resources supporting the offices of the President and Vice
President.
Resources requested for the EOP appropriations in 2007 total $331 million, or 0.6 percent below
the 2006 funding level.
FEDERAL COMMUNICATIONS COMMISSION
The President’s 2007 Budget proposes $303 million for the Federal Communications Commission
(FCC), of which $302 million would be offset directly by regulatory fees. This funding supports
the Commission’s ongoing work to ensure that Americans have rapid and efficient communications
services.
There has been enormous growth in ad- U.S. Broadband Growth

vanced communications technologies in recent Millions of lines
years. According to the most recently issued 40
FCC report on broadband high-speed Internet
access, at the end of 2004, the number of total
broadband subscribers reached approximately 30
38 million. This represents a 34-percent
increase from 2003, and a 440-percent increase
20
from 2000, when the United States had
seven million broadband lines. The dramatic
growth in broadband depicted in this report 10
shows that progress is being made toward the
Administration’s goal of universal, affordable
access to broadband by 2007. 0
2001 2002 2003 2004
FCC plans to auction 90 megahertz of spec- Source: Federal Communications Commission.
trum for advanced wireless services in 2006
and 2007, half of which represents spectrum moving from Federal to private use. This spectrum
will allow mobile wireless companies the opportunity to become broadband providers—further
stimulating vigorous competition and bringing better prices and improved services to consumers.
Ensuring Public Resources Are Used Effectively

The radio spectrum plays an increasing role in everyday life, as wireless devices and technologies proliferate.
To promote efficient spectrum use, the Administration supports granting FCC authority to set user fees on
unauctioned spectrum licenses based on public-interest and spectrum-management principles.
Spectrum assignment policy has not kept pace with the changing market. Service providers using different
technologies to deliver a similar product can face different spectrum license acquisition costs. The lack of
parity in spectrum assignment creates incentives that can diminish the overall utility of the spectrum.
User fees will help to ensure that spectrum is put to its highest and best use, by internalizing the value of
spectrum to license holders. This will have the effect of advancing U.S. economic growth and technological
progress. Fee collections are estimated to begin in 2007 and total $3.6 billion in the first 10 years.
300 OTHER AGENCIES
Spectrum auctions have proven to be an effective mechanism to assign licenses for certain
spectrum-based services. The Administration supports legislation to permanently extend FCC’s
auction authority.
To ensure that public funds are used effectively, the Administration proposes to eliminate the
Telecommunications Development Fund, a poorly performing venture capital enterprise financed
by interest earned on spectrum auctions.
The Administration supports reconciliation legislation that sets a date certain for the transition
from analog to digital television broadcasts, requires the auction of recovered analog television spec-
trum, and provides for consumer education on the transition. The legislation will ensure the provision
of advanced multi-channel video service to consumers, as well as make available valuable spectrum
for public safety use and telecommunications innovation. When this transition occurs, it will bring
benefits to consumers as well as emergency responders, and support the Administration’s priorities
of homeland security and economic growth.
FEDERAL DEPOSIT INSURANCE CORPORATION AND NATIONAL

CREDIT UNION ADMINISTRATION
Federal insurance of the public’s deposits in banks, thrifts, and credit unions maintains stabil-
ity and public confidence in the Nation’s banking system. Federal deposit insurance, offered by
the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration
(NCUA), is designed to protect depositors from losses due to failures of insured commercial banks,
thrifts (savings institutions), and credit unions. Individual deposits of up to $100,000 are covered in
most U.S. banks, savings associations, and credit unions.
Currently, the Federal Government, through FDIC and NCUA, insures $4.3 trillion in deposits at
more than 17,000 institutions. These agencies maintain insurance reserves to reimburse depositors
at failed institutions. FDIC and NCUA fund these reserves through assessments on insured institu-
tions, recoveries of assets liquidated from failed institutions, and interest credited to these reserves
from U.S. Treasury securities. At the end of 2005, the insurance reserves at FDIC exceeded $48
billion, while the insurance fund balance at NCUA was over $6 billion.
Financial Reporting Modernization

On October 1, 2005, FDIC, together with the Federal Reserve and the Office of the Comptroller of the
Currency, implemented a new financial reporting system to process the Reports of Condition and Income
for the Nation’s 8,000 commercial and savings banks. These Call Reports provide data on institutions’ finan-
cial condition and are used by Federal regulators in their daily offsite bank monitoring activities. They are
the only publicly available source of information regarding the status of the U.S. banking system and thus
are also used by the public, academics, the Congress, State banking authorities, and bank rating agencies.
The Central Data Repository (CDR) is the first financial regulatory reporting system in the United States to
employ eXtensible Business Reporting Language (XBRL), and to date is the largest such effort worldwide.
CDR’s use of XBRL—an open Internet data standard that improves the transparency and accuracy of the
reporting process by adding descriptive “tags” to each data element—has resulted in high quality data being
available much faster to regulators and the public about the condition of the $9.3 trillion commercial banking
industry. In addition, CDR’s implementation has resulted in a more efficient and lower cost data collection
and validation process for the Federal banking agencies.
A Program Assessment Rating Tool analysis of NCUA’s oversight of Federal credit unions has
shown that it contributes to the safety and soundness of the credit union industry and performance
measures support the fact that the industry is in sound financial condition.
While the deposit insurance system for banks and thrifts is generally sound and well managed,
inherent weaknesses in the system prompted the President to propose reforms. In 2005, the
Congress included these reforms in the Deficit Reduction Act, which the Budget assumes will be
enacted. Under the Act, the bank and thrift insurance funds will be merged, which will provide for
a stronger and more diversified fund better able to withstand future losses. FDIC will have more
flexibility to manage the fund and charge risk-based premiums, so fund reserves can grow when
economic conditions are good and allow the fund to better absorb losses under adverse conditions
without sharp premium increases. Additional reforms will also provide authorization to FDIC and
NCUA to increase deposit insurance coverage limits for non-retirement accounts based on inflation
in future years if determined prudent by their Boards, and the limit on deposit insurance for
retirement accounts will be increased to $250,000 for retirement accounts.
FEDERAL ELECTION COMMISSION

The Federal Election Commission (FEC) administers the Federal laws governing financing of
candidates for the Presidency, Vice Presidency, the U.S. Senate, and the U.S. House of Represen-
tatives. FEC requires candidate disclosure of campaign finance information, enforces financing
and contribution limits, and overseas the public funding of Presidential elections. The President’s
Budget proposes $57.1 million to fund these activities in 2007.
FEDERAL HOUSING ENTERPRISE REGULATOR

The Administration again proposes broad reform of the supervisory system for Government-spon-
sored enterprises (GSEs) in the mortgage market: Fannie Mae, Freddie Mac, and the Federal
Home Loan Bank System. Part of this reform includes establishing a new, independent safety and
soundness regulator for the housing GSEs with powers comparable to other world-class financial
regulators, and with the stature and resources necessary to carry out its responsibilities. The
Administration’s proposal promotes a strong, resilient financial system and increased opportunities
for affordable homeownership. (See the Credit and Insurance chapter in the Analytical Perspectives
volume for a background discussion.)
FEDERAL TRADE COMMISSION

The Federal Trade Commission (FTC) enforces consumer protection laws that prevent fraud,
deception, and unfair business practices. The Commission also enforces Federal antitrust laws,
which prohibit anticompetitive mergers and other business practices that restrict competition
and harm consumers. In addition, FTC promotes consumer choice and public understanding of
free markets. The President’s 2007 Budget proposes $223 million for FTC, which will be partially
offset by fee collections from businesses for merger filings, and from telemarketers who access the
National Do Not Call Registry to avoid calling registered phone numbers.
Identity theft is among the Nation’s fastest growing crimes and affects approximately 10 million
Americans every year. Identity theft has resulted in billions of dollars in losses for businesses and
consumers. The fight against identity theft is a key Administration priority. Accordingly, the Budget
provides FTC with $27 million to further its consumer protection mission, a large part of which
is FTC’s commitment to identify and prevent identity theft. This enhancement will strengthen
302 OTHER AGENCIES
Consumer Sentinel, a secure website that relays fraud and identity theft complaints to more than
1,300 domestic and international law enforcement agencies.
As part of its continued efforts to stop identity theft and increase consumer credit protection, FTC
will continue to work on new rules to implement the Fair and Accurate Credit Transactions Act.
Most notably, FTC has issued a new rule requiring businesses and individuals to take appropriate
measures to dispose of sensitive information derived from consumer reports.
The Budget includes funding for FTC to continue enforcing the National Do Not Call Registry in
partnership with States and the Federal Communications Commission. Since its inception, more
than 110 million numbers have enrolled in the Do Not Call Registry, which has stopped over 835
million unwanted telemarketing calls each month. In various external surveys, a large majority of
consumers who registered numbers have reported receiving fewer telemarketing calls.
In addition, FTC will continue to analyze the many factors that influence fluctuations in the prices
that Americans pay for gasoline at their local gas stations. As part of its efforts to monitor the market-
place for anticompetitive mergers and practices, FTC pursues remedies in antitrust cases regarding
a variety of consumer issues, such as high technology, health care, and oil and gasoline.
The Budget supports FTC’s continued work to help ensure that American businesses and
consumers reap the full benefits of our free market.
GENERAL SERVICES ADMINISTRATION

The President’s Management Agenda and related administrative reforms have raised the
standards that Federal agencies are expected to meet for performance, efficiency, and compliance
with applicable laws, regulations, and policies. The General Services Administration (GSA) assists
Federal agencies in meeting those higher standards by providing superior workplaces, expert
information technology solutions, and best value acquisition services.
GSA owns approximately 1,600 buildings, accounting for about 177 million square feet of space.
GSA continues its efforts to assess the financial and physical condition of its existing inventory and
is restructuring its real estate portfolio to focus its capital reinvestments primarily on its highest
performing properties. Since 2001, GSA has completed 32 construction projects and 58 major repairs
and alterations projects. In 2007, the Budget proposes funding for 11 major construction projects and
11 major repair and alteration projects. The most sizable project is the redevelopment of the West
Campus of St. Elizabeth’s Hospital in Washington, D.C. The first phase of this project will be a new
headquarters facility for the U.S. Coast Guard.
The 2007 President’s Budget reflects GSA’s continuing progress on combining its technology and
supply organizations into the new Federal Acquisition Service (FAS). Merging the two organizations
will allow GSA to offer Federal agencies a balanced suite of best value services and products that
will help them meet their mission performance and efficiency targets. The new FAS will also help
agencies participate in Government-wide efforts to improve administrative efficiencies by identify-
ing procurements that support strategic sourcing and developing information technology systems
that support the Federal Enterprise Architecture. The FAS vision is to become the premier source
of contracting, technology and project management expertise within the Federal Government. FAS
will enhance GSA’s capability to meet Federal customer requirements for timely delivery of qual-
ity goods and services while at the same time improving internal efficiencies at GSA. The result of
the restructuring will yield significant organizational efficiencies, streamline processes, and increase
agency savings. GSA will also continue to pursue legislation to merge the Information Technology
and General Supply Funds. The merger of these two funds is essential to realize fully the objectives
of the reorganization.
The President’s Budget will advance the President’s Management Agenda on Electronic
Government (E-Gov) by providing $5 million for E-Gov Fund projects that use improved Inter-
net-based technology to make it easy for citizens and businesses to interact with the Government
and save taxpayer dollars. The Budget also would allow GSA to utilize up to $40 million in surplus
revenues obtained from the fees agencies pay when procuring goods and services from GSA to
significantly expand the scope and number of these E-Gov projects.
INSTITUTE OF MUSEUM AND LIBRARY SERVICES
The Institute of Museum and Library Services (IMLS) is established within the National Founda-
tion on the Arts and Humanities. Through its grant programs and leadership activities, IMLS assists
museums and libraries in performing their vital role in educating our citizens and strengthening our
communities. The Administration continues to support the important role of libraries and museums
with a 2007 Budget proposal of $262 million, a $15 million increase over the 2006 level.
The Budget proposes an $8 million increase for the Library State Grants program, which supports
State efforts to promote access, for individuals of all ages, to learning and information resources at
all types of libraries. The Administration is requesting $26 million for the Laura Bush 21st Century
Librarians Program, a $1 million increase, to continue support for innovative programs for the
recruitment and education of a new generation of library professionals who are prepared to tackle
the technological challenges of the information age.
In addition, the Budget proposes the consolidation of the National Commission on Library and
Information Sciences, as well as the current National Commission for Education Statistics programs
for public and State library statistics into IMLS, beginning in 2008. The Administration believes
that this move would strengthen Federal library policy efforts and enhance our National research
capacity on domestic and international library trends.
NATIONAL ARCHIVES AND RECORDS ADMINISTRATION
The National Archives and Records Administration (NARA) safeguards records of all three
branches of the Federal Government and ensures ready access by the public to records documenting
the actions of Government officials and agencies. NARA thus has a crucial role in facilitating public
understanding of the functions of the Federal Government under the Constitution and in preserving
the Nation’s history. In 2007, the Budget proposes $338 million for NARA. Of this funding, $45
million will go toward development of basic preservation and access capabilities of the Electronic
Records Archives project, a comprehensive means for NARA to address the challenges of preserving
and providing access to the growing number of Government electronic records.
NATIONAL ENDOWMENT FOR THE ARTS
The National Endowment for the Arts (NEA) supports excellence in the arts, brings the arts to all
Americans, and provides leadership in arts education. In 2007, the Budget proposes $124 million for
programs and associated costs, including Challenge America: Reaching Every Community grants;
and national initiatives, such as American Masterpieces: Three Centuries of Artistic Genius. The
American Masterpieces initiative will continue to celebrate our Nation’s great artistic achievements
with special touring programs in dance; visual arts; literature; choral music and musical theater;
local presentations; in-school arts education programs; and student visits to exhibitions, presenta-
tions, and performances. NEA will fund projects that extend the reach of the arts by supporting
304 OTHER AGENCIES
works of artistic excellence and promoting projects in communities that have not had access to qual-
ity arts programming. These projects will be supported with public and private partners, including
State arts agencies and regional arts organizations.
NATIONAL ENDOWMENT FOR THE HUMANITIES
The National Endowment for the Humanities (NEH) serves and strengthens our Nation by
promoting excellence in the humanities and conveying the lessons of history to all Americans. NEH
accomplishes this mission by providing grants for high-quality projects in humanities education,
research, preservation and access, and public programming. In 2007, the Budget provides $141
million for NEH. Of this, $15 million is for the continued support of the Agency’s We the People
program, which is strengthening the teaching, study, and understanding of our Nation’s history
and culture. NEH funding also supports: partnerships with State humanities councils; the
enrichment of humanities education; efforts to preserve and increase access to important cultural
and intellectual resources; and museum exhibitions, television and radio documentaries, as well as
reading programs in the humanities that reach millions of Americans.
NATIONAL LABOR RELATIONS BOARD
The National Labor Relations Board (NLRB) administers the National Labor Relations Act by
regulating private-sector employer and labor relations to minimize disruptions to commerce caused
by strikes, lock-outs, and other forms of worker-management discord. NLRB supervises secret-ballot
elections in which employees determine whether to be represented by a union. The Board also inves-
tigates and remedies charges of unlawful acts, called unfair labor practices, by unions or employers.
In 2007, NLRB expects to receive some 26,000 unfair labor practice cases and 5,100 union represen-
tation cases.
The 2007 Budget requests $250 million for NLRB activities. Fair and expeditious case resolution
will continue to be NLRB’s highest priority in 2007. The Agency is more effective when it can achieve
a voluntary resolution to meritorious cases, thereby reducing the need for time-consuming and costly
litigation. In 2005, NLRB’s case settlement rate of 97.2 percent exceeded its goal of settling 95 per-
cent of its unfair labor practice cases before they require litigation. NLRB has also implemented case
management improvements to reduce its case backlog. Between 2003 and 2005, the backlog dropped
from over 1,000 cases to fewer than 400, a reduction of over 60 percent.
NATIONAL TRANSPORTATION SAFETY BOARD
The National Transportation Safety Board (NTSB) is charged with determining the probable
causes of transportation accidents and promoting transportation safety. The Board investigates
accidents, conducts safety studies and issues recommendations, and evaluates the effectiveness of
other Government agencies in preventing transportation accidents. The Board also coordinates
Federal assistance to the families of victims of catastrophic domestic transportation accidents. The
2007 Budget provides funding for NTSB to investigate more than 2,500 accidents.
The 2007 Budget provides $80 million for salaries and expenses for NTSB to fulfill its role of
improving the Nation’s transportation safety.
NUCLEAR REGULATORY COMMISSION

The Nuclear Regulatory Commission (NRC) regulates the commercial use of nuclear material in
the United States. Its programs facilitate the Nation’s safe and effective use of nuclear materials
for civilian purposes. Consistent with the National Energy Policy (May 2001), the President’s 2007
Budget provides NRC with the funds it needs to keep pace with the industry’s interest in the renewal
of nuclear power reactor licenses and the possible construction of new nuclear power plants. To date,
NRC has renewed the operating licenses for 39 of the existing 104 nuclear power plants. In 2007,
NRC expects to begin reviewing six new renewal applications and to complete the reviews of two
applications. NRC will continue to improve the effectiveness and efficiency of its review of designs
for new reactors and to prepare for expected combined license applications. In addition to licensing,
NRC also performs inspections on all existing nuclear power plants to ensure that safety issues are
identified and resolved before they affect safe plant operation.
Since September 2001, NRC has strengthened its regulatory programs to enhance homeland
security and preparedness, including actions to improve security at the Nation’s civilian nuclear
power plants, nuclear fuel facilities, and other licensed users of radioactive materials. These efforts
will continue in 2007.
The Department of Energy (DOE) plans to submit an application to build a high-level waste repos-
itory at Yucca Mountain, Nevada, to NRC. This first-of-a-kind undertaking will involve conducting
thorough safety and security evaluations, performance assessments, adjudicatory hearings, and site
inspections. NRC will continue to interact with DOE as the Department prepares its license appli-
cation. Once the application is received, NRC will complete its review and reach a license decision in
a timely manner. To carry out these and other activities, the Budget proposes $777 million in 2007
for NRC. With the exception of those activities that are statutorily excluded from being financed by
user fees, NRC will recover 90 percent of its budget from licensees. Appropriations from the Nuclear
Waste Fund will cover the costs of the high-level waste repository effort.
OFFICE OF PERSONNEL MANAGEMENT

The Office of Personnel Management (OPM) leads Federal agencies in the strategic management
of their human capital, proposes and implements human resources management policy, and provides
agencies with ongoing advice and technical assistance for implementing these policies and initiatives.
OPM oversees and safeguards the Merit System Principles and veterans’ preference, and adminis-
ters Federal employee benefits programs. OPM also manages the process for personnel security and
background checks for national security clearances and the fitness and suitability of applicants, for
and appointees to, positions in the Federal service.
The 2007 Budget proposes $256 million to support OPM’s core missions: leading a human capital
transformation within the Executive Branch and administering the Federal employees’ retirement,
health, and life insurance benefits programs efficiently.
Through the Strategic Management of Human Capital, a component of the President’s
Management Agenda, OPM continues to work with agencies to transform their management of
the Federal workforce. In this capacity, OPM provides agencies with the tools to manage their
workforce and implements new human resources management policies. In 2007, OPM will take
steps to support implementation of major reforms in the Federal civil service, as contained in the
Administration’s proposed Working for America Act. These reforms include an effort to replace the
current antiquated General Schedule pay system with a modern classification, pay, and performance
management system that is both results-driven and market-based. The new system also will replace
306 OTHER AGENCIES
the current formula-driven, “one size fits all” annual pay adjustment process with a process that
allows the President to set and target civilian pay raises in a manner that assists Federal agencies
to better manage, develop, and reward employees to better serve the American people.
In addition, OPM is the managing partner for the Human Resources Line of Business and the
Enterprise Human Resources Integration project. The Human Resources Line of Business estab-
lishes common standards so that back-office personnel processing can be consolidated in common
service centers, thereby achieving savings and efficiencies, and allowing agencies to focus on their
core mission. The Enterprise Human Resources Integration project will reduce the need for paper
personnel documents and improve the currency and accuracy of Federal human resources data.
OPM will pay out $99 billion in benefits in 2007: $61 billion to more than 2.5 million Federal
retirees, survivor annuitants, and other beneficiaries; $35 billion in health benefits for about eight
million enrollees and dependents; and about $2.4 billion in life insurance claims from policy holders.
The 2007 Budget includes $27 million to continue efforts to greatly improve the speed and accuracy
of Federal retiree benefit payments by implementing the Retirement Systems Modernization (RSM)
effort. RSM is OPM’s central information technology strategy to meet its long-term customer ser-
vice, business, and financial management goals for Federal employee retirement benefit programs.
RSM will allow OPM to process retirement claims in a much more timely and cost-efficient man-
ner. In coming months, the Administration will also identify options for increasing price competi-
tion among health plans offered to Federal employees and retirees through the Federal Employees
Health Benefits program. Finally, OPM will continue to conduct evaluations of the benefit programs
to ensure that they are meeting the needs of Federal employees and retirees and the recruitment and
retention needs of the Federal Government as an employer.
POSTAL SERVICE
The Administration continues to strongly support efforts to enact comprehensive postal reform
legislation that fosters a healthy Postal Service for future generations. The Postal Service provides
an important service to the American people and the economy, and the Administration believes that
the Postal Service should continue providing affordable and reliable universal service, while limiting
exposure to taxpayers and operating appropriately in the competitive marketplace.
Postal reform must be accomplished in a responsible manner that is fair to taxpayers, ratepayers,
and Postal Service employees. It must be consistent with the principles of best governance practices,
transparency, flexibility, accountability, and self-finance, as expressed by the President in December
2003, and not have an adverse impact on the Federal budget. To this end, the Administration sup-
ports reforms that: allow the Postal Service pricing flexibility, but within a firm annual Consumer
Price Index rate cap and with a strict limit on the circumstances when rates can exceed the cap; re-
quire compliance with all Securities and Exchange Commission financial reporting standards; and
permit greater flexibility in the use of negotiated service agreements and worksharing arrangements.
In addition, the 2007 Budget proposes to use the pension savings provided to the Postal Service by
the Postal Civil Service Retirement System Funding Reform Act of 2003 (P.L. 108-18) that would
otherwise be held in escrow in 2006 and beyond, to put the Postal Service on a path that fully funds
its substantial retiree health benefits liabilities.
REGIONAL ECONOMIC DEVELOPMENT AGENCIES

The President’s 2007 Budget proposes $78 million for the three regional economic development
agencies: the Appalachian Regional Commission (ARC), the Delta Regional Authority, and the Denali
Commission. The President’s Budget provides the necessary funding to continue the constructive role
that these agencies play as regional coordinators and planners of other Federal investments in their
respective regions. Assessing these agencies’ performance is difficult, given the small share of total
Federal spending in their regions they represent. To help address this and carry out the President’s
goal of reforming Federal economic development efforts, ARC is working with its State and local
partners in creating a Challenge Grant for Regional Innovation. These grants will be awarded to
communities that have shown potential to increase economic opportunity and will include perfor-
mance measures to track a community’s progress and ensure wise use of taxpayer funds.
SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission (SEC) protects investors and works to maintain fair,
honest, and efficient markets; and facilitates capital formation. SEC’s activities are critical to the
transparency and efficiency of the Nation’s securities markets, which in turn are a vital part of our
national economy. In calendar year 2005, the dollar volume of shares traded on the New York Stock
Exchange and the Nasdaq Stock Market was almost $33 trillion. SEC enforces Federal securities laws
with respect to key participants in the securities world, including stock exchanges, broker-dealers,
investment advisors, mutual funds, and public companies. In 2007, the President’s Budget proposes
$905 million for SEC.
Protecting Investors
SEC is the preeminent enforcement agency in investor markets. It works to protect free markets
by preventing fraud and manipulation in securities markets by reviewing corporate disclosure data,
investigating investor complaints, and monitoring exchanges for unusual activities. In addition, SEC
recently created a new Office of Risk Assessment designed to improve the Commission’s ability to
anticipate potential problem areas across the securities industry by focusing on early identification
of new or resurgent forms of fraud and illegal activities. In 2005, SEC opened 947 investigations
and initiated an estimated 629 enforcement actions against individuals and entities for violations of
securities laws. Through these efforts, SEC was able to halt fraudulent activities quickly, seek civil
penalties, and order violators to disgorge ill-gotten gains.
SEC is also an active participant in the President’s Corporate Fraud Task Force, an interagency
working group led by the Department of Justice designed to aggressively pursue joint civil and
criminal actions against corporate wrong-doers.
Improving Transparency
SEC works to strengthen effective competition in free markets by ensuring that all investors
have access to certain basic facts about potential investments. SEC acts aggressively to prevent
fraud and misrepresentation of facts in securities markets. SEC requires that public companies
submit detailed financial information, which it makes available to the public through its website
www.sec.gov/edgar.shtml.
SEC focuses on making sure that rules and regulations are clear for market participants, especially
small business and individual investors. It is important to the health of the economy, and the role
that public companies play in job creation, that the benefits of securities regulation outweigh its costs.
SEC established the Advisory Committee on Smaller Public Companies to examine the benefits and
costs of the Sarbanes-Oxley Act and other Federal securities laws on smaller public companies. For
example, the advisory committee is reviewing the impact of new internal control rules, financial re-
porting regulations, and corporate governance requirements to evaluate the net benefits to investors.
308 OTHER AGENCIES
Its members are also developing recommendations to SEC to ensure that smaller companies are able
to grow and succeed by accessing capital in the public markets.
SMITHSONIAN INSTITUTION
In 1829, James Smithson, a British scientist, bequeathed his estate to the American people for
the “increase and diffusion of knowledge.” Today, the Smithsonian Institution supports that goal
through its operation of National museums and research institutes. Approximately two-thirds of the
Smithsonian’s funding is from direct Federal appropriations; the remainder comes from its endow-
ment fund, private donations, business activities, and grants from other Federal agencies.
The 2007 Budget provides $644 million in funding for the Smithsonian. Funds are provided to
complete a major revitalization project at the National Museum of American History, continue an
ongoing revitalization project at the National Museum of Natural History, and continue ongoing im-
provements at the National Zoo. The Budget also includes lease and utility costs and inflation-related
adjustments across the Institution. Addressing these increases in a time of fiscal constraint requires
that the Smithsonian continue to prioritize and seek out innovative cost-saving mechanisms.
Over the past year, the Smithsonian has made significant progress in many of the President’s
Management Agenda initiative areas. In particular, the Smithsonian has made marked progress
in coordinating its information technology portfolio, assessing its future workforce needs, meeting
Federal requirements for financial management, and linking its budget and senior staff compensa-
tion to performance measures.
TENNESSEE VALLEY AUTHORITY
The Tennessee Valley Authority (TVA) was created by the TVA Act in 1933 and provides electric
power, performs natural resource stewardship services, and promotes economic development in the
Tennessee Valley region. TVA is the largest public electric power system in the United States and
is the wholesale power provider to a population of more than eight million consumers throughout
most of Tennessee, northern Alabama, northeastern Mississippi, southwestern Kentucky, and small
portions of Georgia, North Carolina, and Virginia.
TVA has a diverse mix of power generation assets, including coal, hydro, and nuclear generation.
TVA is working to restart its Browns Ferry Nuclear Plant Unit 1, which will be the Nation’s first nu-
clear generation capacity added in the 21st Century, a milestone in implementing the nuclear power
elements of the President’s National Energy Policy. The unit is scheduled to come online in May 2007.
TVA uses its power revenues and borrowing authority to fund power generation and transmis-
sion operations as well as its resource stewardship programs. TVA’s 2005 operating revenues totaled
approximately $7.8 billion and its receipts and expenditures are reflected in the Federal budget. In
2005, TVA devoted approximately $93 million to its resource stewardship program, which includes
dam safety, river management, recreational activities, and navigation services. The remaining funds
are devoted to power generation and transmission services.
TVA has a statutory debt limit of $30 billion, TVA’s Debt Reduction Path
which is available to fund capital investments (2006 Budget Path vs. Current TVA Path)
and other Agency operations. Currently TVA Dollars in billions
has $25.6 billion in debt outstanding, which 30
includes alternative financing transactions
such as equipment lease/leasebacks and
long-term power prepayment agreements.
25
To respond to an ever changing business
and economic environment, TVA developed 2006 Budget Path
a strategic plan released in 2004, which was
designed to better position TVA for the future 20
TVA’s Current
competitive electricity market. Included in Debt Reduction Plan
that plan was a commitment by TVA to reduce
its debt levels by $3 billion to $5 billion over
15
a 10- to 12-year period. In order to achieve 2005 2007 2009 2011 2013 2015
greater financial flexibility, TVA has since
tightened that goal even more to reduce total debt obligations by $7.8 billion by 2016.
The 2007 Budget proposes legislation requiring TVA to register its debt securities with SEC to
provide investors with greater insight into the characteristics and risks inherent in TVA securities.
This proposal is part of the overarching goal of preparing TVA to help it better serve its customers
and investors and to reduce any service or financial risk to taxpayers and other stakeholders.
SUMMARY TABLES
THE BUDGET FOR FISCAL YEAR 2007
Table S–1. Budget Totals
(Dollar amounts in billions)
2005 2006 2007 2008 2009 2010 2011
Budget Totals:
Receipts ....................................................... 2,154 2,285 2,416 2,590 2,714 2,878 3,035
Outlays ......................................................... 2,472 2,709 2,770 2,814 2,922 3,061 3,240
Deficit ..................................................... 318 423 354 223 208 183 205
Gross Domestic Product (GDP) .............. 12,290 13,030 13,761 14,521 15,296 16,102 16,955
Budget Totals as a Percent of GDP:

Receipts ....................................................... 17.5% 17.5% 17.6% 17.8% 17.7% 17.9% 17.9%
Outlays ......................................................... 20.1% 20.8% 20.1% 19.4% 19.1% 19.0% 19.1%
Deficit ..................................................... 2.6% 3.2% 2.6% 1.5% 1.4% 1.1% 1.2%
313
314
Table S–2. Discretionary Totals
(Net budget authority; dollar amounts in billions)
Change:
2006 2007 2006–2007
Enacted Request
Dollar Percent
Discretionary budget authority:

Department of Defense ......................................................................................... 410.8 439.3 28.5 6.9%
Homeland Security (non-Department of Defense) ...................................... 32.1 33.1 1.0 3.3%
Other Operations of Government ...................................................................... 400.4 398.3 2.2 0.5%
Total, Discretionary budget authority ............................................................. 843.3 870.7 27.3 3.2%
Enacted supplemental and emergency funding:

Global War on Terror .............................................................................................. 50.0
Hurricane Response 1 .......................................................................................... 4.6
Pandemic Influenza Preparedness ................................................................... 3.8
Total, Enacted supplemental and emergency funding .......................... 58.4
Estimated future emergency requests: 2

Global War on Terror ............................................................................................. 70.0 50.0
Hurricane Response ............................................................................................. 18.0 —
Pandemic Influenza Preparedness .................................................................. — 2.3
Total, Estimated future emergency requests .............................................. 88.0 52.3
1
In total, $84.5 billion has been provided in 2005 and 2006 for response to the Gulf Coast Hurricanes through both discretionary and mandatory
emergency funding, including amounts for the Social Services Block Grant and Flood Insurance.
2
Estimated future emergency needs are included as Allowances in the 2007 Budget. The Administration anticipates transmitting official requests
for these funds at a later time.
SUMMARY TABLES
Table S–3. Growth in Discretionary Budget Authority by Major Agency
(Net budget authority; dollar amounts in billions)
Growth:
2001 2006 2007
Agency 2006–2007 Average Cumulative
Actual Enacted Request
Dollar Percent 2001–2007 2001–2007
Agriculture..................................................................................................... 19.2 21.1 19.7 1.4 6.5% 0.4% 2.5%
Commerce .................................................................................................... 5.1 6.4 6.1 0.2 3.7% 3.1% 20.4%
Defense ......................................................................................................... 302.5 410.8 439.3 28.5 6.9% 6.4% 45.2%
Education ...................................................................................................... 40.1 56.5 54.4 2.1 3.8% 5.2% 35.7%
Energy ............................................................................................................ 20.0 23.5 23.6 0.0 0.1% 2.7% 17.6%
Health and Human Services .................................................................. 54.0 69.2 67.6 1.6 2.3% 3.8% 25.2%
Homeland Security .................................................................................... 14.0 30.5 30.9 0.4 1.3% 14.1% 121.0%
Housing and Urban Development ........................................................ 28.4 34.3 33.6 0.6 1.8% 2.9% 18.7%
Interior ............................................................................................................ 10.3 10.8 10.1 0.6 5.9% 0.2% 1.2%
Justice ............................................................................................................ 18.4 21.0 19.5 1.5 7.2% 1.0% 6.0%
Labor............................................................................................................... 11.9 11.3 10.9 0.4 3.9% 1.5% 8.7%
State and Other International Programs............................................ 21.7 30.2 33.9 3.7 12.2% 7.7% 55.8%
Transportation.............................................................................................. 14.6 14.6 13.2 1.4 9.4% 1.6% 9.3%
Treasury ......................................................................................................... 10.3 11.5 11.6 0.1 0.5% 1.9% 12.3%
Veterans Affairs........................................................................................... 22.4 33.1 35.7 2.6 8.0% 8.1% 59.5%
Corps of Engineers ................................................................................... 4.7 5.3 4.7 0.6 11.2% 0.2% 1.0%
Environmental Protection Agency ........................................................ 7.8 7.6 7.3 0.3 4.0% 1.1% 6.6%
Executive Office of the President ......................................................... 0.3 0.3 0.3 0.0 0.6% 4.0% 26.4%
Judicial Branch ............................................................................................ 4.0 5.3 5.9 0.5 9.9% 6.7% 47.9%
Legislative Branch...................................................................................... 2.8 3.8 4.3 0.5 12.1% 7.6% 55.1%
National Aeronautics and Space Administration ............................ 14.3 16.3 16.8 0.5 3.2% 2.8% 17.8%
National Science Foundation ................................................................. 4.4 5.6 6.0 0.4 7.9% 5.2% 35.9%
Social Security Administration............................................................... 6.0 7.3 7.9 0.5 6.8% 4.5% 30.2%
Other Agencies ........................................................................................... 6.7 6.9 7.3 0.4 6.0% 1.5% 9.3%
Total, Discretionary Spending .............................................................. 643.8 843.3 870.7 27.3 3.2% 5.2% 35.2%
Note: Supplementals and emergencies, both enacted and anticipated, are excluded.
315
316
Table S–4. Discretionary Funding By Appropriations Subcommittee
(Net budget authority in billions of dollars)
2006 2007 Change

Appropriations Subcommittee
Enacted Request 2006–2007
Agriculture and Rural Development .................................................................................... 18.5 17.2 1.3

Defense ......................................................................................................................................... 399.2 423.2 24.0
Energy and Water Development........................................................................................... 30.1 29.4 0.7
Foreign Operations .................................................................................................................... 20.7 23.7 3.0
Homeland Security .................................................................................................................... 30.5 30.9 0.4
Interior and Environment ......................................................................................................... 25.9 25.2 0.8
Labor, Health and Human Services, and Education ..................................................... 141.8 137.8 4.0
Legislative Branch...................................................................................................................... 3.8 4.2 0.5
Military Quality of Life and Veterans Affairs ...................................................................... 45.2 52.5 7.3
Science, State, Justice, and Commerce ............................................................................ 58.7 59.7 1.0
Transportation, Treasury, Housing and Urban Development, Judiciary, and
District of Columbia............................................................................................................... 68.8 67.1 1.8
Allowances ................................................................................................................................... — 0.4 0.4
Total, excluding supplemental and emergency funding ................................ 843.3 870.7 27.3
Notes: Supplementals and emergencies, both enacted and anticipated, are excluded.
The House and Senate adopted different spending committee structures in the 2006 appropriations season.
This table is consistent with the structures in which the 2006 appropriations bills were enacted.
SUMMARY TABLES
Table S–5. Homeland Security Funding By Agency
(Budget authority in millions of dollars)
2006 2007
Enacted Supplemental Request
Homeland Security Funding:

Agriculture .......................................................................................................... 564 — 650
Commerce .......................................................................................................... 181 — 218
Defense-Military (DOD) 1 ............................................................................ 16,441 — 16,699
Energy ................................................................................................................. 1,704 — 1,700
Health and Human Services ....................................................................... 4,300 — 4,565
Homeland Security.......................................................................................... 25,503 173 27,776
Interior.................................................................................................................. 56 — 55
Justice .................................................................................................................. 2,976 16 3,279
State ..................................................................................................................... 1,107 — 1,213
Transportation ................................................................................................... 182 — 206
Treasury .............................................................................................................. 117 — 134
Veterans Affairs ................................................................................................ 310 — 314
Corps of Engineers ......................................................................................... 72 — 43
Environmental Protection Agency ............................................................. 129 — 183
General Services Administration ............................................................... 99 — 96
National Aeronautics and Space Administration .................................. 213 — 203
National Science Foundation ...................................................................... 344 — 387
Smithsonian Institution .................................................................................. 83 — 80
Social Security Administration .................................................................... 177 — 184
Other Agencies................................................................................................. 304 — 297
Total, Homeland Security Funding 2 ...................................................... 54,862 189 58,282
Less, Defense-Military (DOD) ..................................................................... 16,441 — 16,699
Less, Mandatory Homeland Security Funding 3 ................................. 2,232 — 2,455
Less, Discretionary Fee-Funded Activities 4 ........................................ 4,127 — 6,019
Net Non-DOD Discretionary Homeland Security 2 .......................... 32,062 189 33,109
1
Reported DOD homeland security funding has been revised upward in all years to reflect better estimating methodologies for DOD homeland
security programs. See the Homeland Security Funding Analysis chapter of the Analytical Perspectives volume for more details.
2
Amounts are rounded to the nearest million at the account level, which accounts for any discrepancies with the Homeland Security Funding
Analysis chapter in the Analytical Perspectives volume.
3
Mandatory homeland security programs include Agriculture Quarantine and Inspections, Border Protection, and Immigration Enforcement.
4
Discretionary fee-funded homeland security programs include Visa Processing, Airport Security, and Social Security physical and computer
security measures.
317
318
Table S–6. Mandatory Proposals
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Reforms Resulting in Savings:
Agriculture:
Commodity Program changes .................................................... — 1,081 1,079 945 965 917 4,988 8,933
Restrict Food Stamp categorical eligibility ............................. — 76 154 155 159 162 706 1,585
Allow State Food Stamp agencies to access the National
Directory of New Hires (NDNH) ............................................. — — 1 1 1 1 4 9
Subtotal, Agriculture .............................................................. — 1,157 1,234 1,101 1,125 1,080 5,698 10,527
Defense:
Increase National Defense Stockpile Sales ........................... — 1 50 72 80 96 299 347
Energy:
Repeal Oil and Gas Research and Development
Program .......................................................................................... — 20 40 50 50 50 210 460
Health and Human Services:
Medicare ............................................................................................. — 2,452 5,485 7,948 9,343 10,663 35,891 105,016
Medicaid/State Children’s Health Insurance Program ....... — 723 876 1,062 1,116 1,168 4,945 11,859
Child Support Enforcement ......................................................... — 2 1 3 5 6 17 60
Child Welfare Program option ..................................................... — 22 5 55 27 61 6 1
Subtotal, Health and Human Services ................................ — 3,155 6,357 8,958 10,491 11,898 40,859 116,936
Interior:
Arctic National Wildlife Refuge lease bonuses:
State of Alaska’s share:
Receipts ..................................................................................... — — 3,502 2 503 3 4,010 4,025
Expenditures ............................................................................ — — 3,502 2 503 3 4,010 4,025
Federal share:
Receipts ..................................................................................... — — 3,502 2 503 3 4,010 4,025
Amend Bureau of Land Management (BLM) Land Sale
Authority ......................................................................................... — 1 28 40 42 71 182 351
Eliminate BLM Range Improvement Fund ............................. — 7 10 10 10 10 47 97
SUMMARY TABLES
Recover Pick-Sloan Project Cost............................................... — 23 23 23 23 23 115 230
Repeal Energy Bill Fee Prohibition ........................................... — 5 27 27 27 24 110 209
Subtotal, Interior .......................................................................... — 36 3,590 102 605 131 4,464 4,912
Table S–6. Mandatory Proposals—Continued
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Labor:
Reform Pension Benefit Guaranty Corporation .................... — — 4,195 4,181 4,164 4,140 16,680 37,056
Unemployment Insurance Integrity legislation:
Benefit Payment Recoveries ................................................... — — 482 515 365 376 1,738 3,774
Reform Federal Employee’s Compensation Act .................. — 3 8 10 11 13 45 140
Subtotal, Labor............................................................................. — 3 4,685 4,706 4,540 4,529 18,463 40,970
Treasury:
Eliminate 10-year Statute-of-Limitations on Non-Tax
Debt.................................................................................................. — 11 6 6 6 6 35 65
Federal Communications Commission (FCC):
Extend Spectrum Auction Authority .......................................... — — — — — — — 1,000
Terminate the Telecommunications Development Fund ... — 5 5 6 7 7 30 65
Subtotal, FCC ............................................................................... — 5 5 6 7 7 30 1,065
Office of Personnel Management:
Amend Federal Employee Health Benefits Program
Statute ............................................................................................. — 34 134 231 306 367 1,072 3,431
Total, Reforms Resulting in Savings .................................... — 4,422 16,101 15,233 17,210 18,164 71,130 178,713
User Fee Proposals:
Agriculture:
Food Safety and Inspection Service User Fees* ................. — 105 155 148 151 154 713 1,535
Grain Inspection User Fees* ....................................................... — 20 20 21 21 22 104 220
Animal Plant Health Inspection User Fees* ........................... — 8 11 11 12 12 54 117
Agricultural Marketing Service User Fees* ............................ — 2 2 2 2 2 10 20
Federal Crop Insurance User Fees* ......................................... — — 15 15 15 15 60 135
FDA User Fee Proposal* .............................................................. — 26 27 27 28 28 135 286
Homeland Security:
Extend Customs User Fees......................................................... — — — — — — — 5,830
Treasury:
Alcohol and Tobacco Tax and Trade Bureau User Fees* . — 29 29 29 29 29 145 290
319
320
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Environmental Protection Agency (EPA):
Pesticide Fees*................................................................................. — 56 66 53 53 53 281 546
Pre-Manufacturing Notification Fee*......................................... — 4 8 8 8 8 36 76
FCC:
Authorize Spectrum License Fees ............................................ — 50 150 300 300 400 1,200 3,625
Total, User Fee Proposals ....................................................... — 300 483 614 619 723 2,739 12,680
Subtotal, Reforms Resulting in Savings and User Fee
Proposals ......................................................................................... — 4,722 16,584 15,847 17,829 18,887 73,869 191,393
Program Augmentations:
Agriculture:
Exclude retirement savings in Food Stamp Program ......... — 47 96 145 149 152 589 1,415
Energy:
Bonneville Power Administration borrowing authority ........ — — — — — — — 200
Medicaid/State Children’s Health Insurance Program ....... — 1,227 686 539 425 601 3,478 6,773
Cover the Kids outreach grants .................................................. — 100 100 100 100 100 500 1,000
Grants to States for chronically ill .............................................. — 250 375 493 506 523 2,146 5,000
Temporary Assistance for Needy Families ............................. — 40 149 425 473 488 1,575 4,070
Foster Care District of Columbia Federal Medical
Assistance Percentage Rate .................................................. — 5 6 6 6 6 29 65
Treasury:
Extend the Rum Carryover for Puerto Rico ........................... 69 95 24 — — — 119 119
Office of Personnel Management:
Make Changes to Federal Retirement Improvement Act .. — — 3 5 7 9 24 85
Social Security Administration:
Extend Supplemental Security Income eligibility for
refugees.......................................................................................... — 70 75 74 — — 219 219
Total, Program Augmentations ............................................... 69 1,834 1,514 1,787 1,666 1,879 8,679 18,946
SUMMARY TABLES
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
User Fee Proposals with Mandatory Spending:
Marketing Agreements and Orders User Fees:
Receipts .............................................................................................. — 12 12 13 13 13 63 132
Spending............................................................................................. — 12 12 13 13 13 63 132
Net effect ........................................................................................ — — — — — — — —
Increase Indian Gaming Commission Fees 1 ........................... — — 4 5 5 5 19 44
Foreign Labor Certification User Fees:
Receipts .............................................................................................. — 35 35 35 35 35 175 350
Spending............................................................................................. — 35 35 35 35 35 175 350
Net effect ........................................................................................ — — — — — — — —
Immigration Examination Fees:
Receipts .............................................................................................. — 31 31 31 31 31 155 310
Spending............................................................................................. — 25 31 31 31 31 149 304
Net effect ........................................................................................ — 6 — — — — 6 6
Army Corps of Engineers: Additional Recreation User Fees
and Contributions:
Receipts.......................................................................................... — 9 17 17 17 17 77 162
Spending ........................................................................................ — — 8 16 17 17 58 143
Net effect ................................................................................... — 9 9 1 — — 19 19
Total, User Fee Proposals with Mandatory
Spending........................................................................... — 15 5 4 5 5 6 19
Subtotal, Including Program Augmentations and
User Fee Proposals with Mandatory Spending ........ 69 2,903 15,075 14,056 16,158 17,003 65,196 172,428
Further Hurricane Response:
National Flood Insurance (emergency)........................................ 5,040 560 — — — — 560 560
Social Security Personal Accounts (off-budget) ................... — — — — 24,182 57,429 81,611 712,144
Outlay Effects of Tax Proposals: 1
Health Tax Credit.................................................................................. — 720 1,250 1,679 1,876 2,015 7,540 19,778
Child Tax Credit .................................................................................... — — 383 368 422 427 1,600 3,897
Earned Income Tax Credit ................................................................ — 188 4 68 79 69 400 903
Total, Outlay Effects of Tax Proposals ..................................... — 532 871 1,243 1,375 1,519 5,540 14,978
321
322
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Other Mandatory Proposals:
Use Escrow Account for USPS Retiree Health Benefits:
On-budget effect .............................................................................. 1,220 1,203 1,175 1,140 1,098 1,049 5,665 10,138
Off-budget effect .............................................................................. 1,220 1,203 1,175 1,140 1,098 1,049 5,665 10,138
Unified budget effect .................................................................. — — — — — — — —
Refinance Black Lung Disability Trust Fund debt:
Black Lung Disability Trust Fund................................................ — 2,282 450 453 461 470 448 3,069
Interest receipts on repayable advances ................................ — 2,282 450 453 461 470 448 3,069
Net effect ........................................................................................ — — — — — — — —
County Payments Safety Net:
County Payments ............................................................................ — 78 303 179 120 97 777 777
National Forest Land Sales ......................................................... — 78 303 179 120 97 777 777
Net effect ........................................................................................ — — — — — — — —
Full-time Attendance Required for Child’s Social Security
Benefits at age 16 (off-budget) ................................................... — 11 84 150 155 159 559 1,461
Enforcement of Windfall Elimination Provision/Government
Pension Offset (off-budget) .......................................................... — — — — 133 294 427 2,431
Replace Disability Insurance/Worker’s Comp Offset with
Uniform Offset (off-budget) .......................................................... — 8 35 50 63 72 228 402
Eliminate Lump Sum Death Benefit (off-budget)...................... — 171 203 205 205 205 989 2,014
Correct trust accounting deficiencies in individual Indian
money investments (non-paygo) ................................................ 6 — — — — — — —
Indirect Effects (Third Scorecard):
Amend Federal Employee Health Benefits Program
statute.............................................................................................. — 28 86 139 182 220 655 2,035
Unemployment Insurance Integrity legislation ...................... — — 58 124 129 135 446 1,215
Food Stamp Impact of Commodity Supplemental Food
Program elimination ................................................................... — 49 61 53 48 45 256 439
SUMMARY TABLES
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Refine Department of Defense Medicare-Eligible Retiree
Health Care Accrual Calculation ........................................... — 73 77 82 87 92 411 967
Temporary Assistance for Needy Families impact of
Social Services Block Grant reduction and Other........... — 108 20 116 29 12 29 84
Subtotal, Indirect Effects ...................................................... — 258 186 34 159 210 847 2,142
Total, Other Mandatory Proposals ............................... 6 68 136 371 397 520 1,356 4,166
Grand Total .............................................................................................. 5,115 1,744 14,339 13,182 9,004 41,426 21,166 551,103
Memorandum: Savings Net of Program Augmentations
Medicaid/State Children’s Health Insurance Program ........... — 504 190 523 691 567 1,467 5,086
Food Stamp Program ......................................................................... — 29 59 11 11 11 121 179
* Once the fees are enacted, the Administration will work to reclassify them to offset discretionary spending beginning in 2008.
1
Affects both receipts and outlays. Only the outlay effect is shown here. Excludes tax extenders assumed in the baseline.
323
324
Table S–7. Effect of Proposals on Receipts
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Make Permanent Certain Tax Cuts Enacted in 2001
and 2003 (assumed in the baseline):
Dividends tax rate structure ................................................. 288 571 1,329 14,161 537 6,545 22,001 128,050
Capital gains tax rate structure........................................... — — — 14,183 5,519 6,606 26,308 74,931
Expensing for small business.............................................. — — 4,679 6,498 4,872 3,853 19,902 32,620
Marginal individual income tax rate reductions ............ — — — — — 66,918 66,918 605,961
Child tax credit 1 ..................................................................... — — — — — 5,452 5,452 116,691
Marriage penalty relief 2 ....................................................... — — — — — 4,968 4,968 37,578
Education incentives .............................................................. — — — — 3 1,098 1,095 10,960
Repeal of estate and generation-skipping transfer
taxes, and modification of gift taxes ............................. 205 1,102 1,728 2,181 2,676 23,758 31,445 339,022
Modifications of pension plans ........................................... — — — — — 346 346 2,858
Other incentives for families and children ....................... — — — — 5 170 165 4,362
Total make permanent certain tax cuts enacted
in 2001 and 2003 ....................................................... 83 531 7,736 37,023 13,596 119,714 178,600 1,353,033
Tax Incentives:
Simplify and encourage saving:
Expand tax-free savings opportunities ............................ — 4,796 10,407 7,507 3,970 383 26,297 122
Consolidate employer-based savings accounts ........... — — 542 579 618 1,826 3,565 20,063
Establish Individual Development Accounts (IDAs) .... — — 134 286 326 300 1,046 1,763
Total simplify and encourage saving........................ — 4,796 9,731 6,642 3,026 2,509 21,686 21,948
Encourage entrepreneurship and investment:
Increase expensing for small business ............................ — 2,522 3,527 2,625 2,037 1,645 12,356 18,713
Invest in health care:
Expand health savings accounts (HSAs) 3 ................... — 1,978 4,321 6,201 7,720 8,826 29,046 87,212
Provide an above-the-line deduction for
high-deductible insurance premiums 4 ...................... — 2,519 3,815 3,840 3,691 3,668 17,533 38,127
Provide refundable tax credit for the purchase of
SUMMARY TABLES
health insurance 5 .............................................................. — 254 861 1,194 1,404 1,362 5,075 11,154
Improve the Health Coverage Tax Credit 6 ................... — 1 3 4 5 5 18 51
Table S–7. Effect of Proposals on Receipts—Continued
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Allow the orphan drug tax credit for certain
pre-designation expenses 7 ........................................... — — — — — — — —
Total invest in health care ............................................ — 4,752 9,000 11,239 12,820 13,861 51,672 136,544
Provide incentives for charitable giving:
Permit tax-free withdrawals from IRAs for charitable
contributions.......................................................................... — 102 510 512 501 497 2,122 4,706
Expand and increase the enhanced charitable
deduction for contributions of food inventory ............ — 44 96 106 116 127 489 1,345
Reform excise tax based on investment income of
private foundations ............................................................. — 56 85 90 96 102 429 1,074
Modify tax on unrelated business taxable income of
charitable remainder trusts .............................................. — 1 6 6 6 6 25 62
Modify basis adjustment to stock of S corporations
contributing appreciated property ................................. — 3 15 21 25 28 92 301
Repeal the $150 million limitation on qualified
501(c)(3) bonds ................................................................... — 2 3 6 10 11 32 81
Repeal certain restrictions on the use of qualified
501(c)(3) bonds for residential rental property ......... — 2 5 9 16 24 56 278
Total provide incentives for charitable giving ........ — 210 720 750 770 795 3,245 7,847
Strengthen education:
Extend the above-the-line deduction for qualified
out-of pocket classroom expenses ............................... 17 171 178 180 183 185 897 1,867
Provide assistance to distressed areas:
Establish Opportunity Zones ............................................... — 221 411 439 451 482 2,004 4,960
Protect the environment:
Extend permanently expensing of brownfields
remediation costs ................................................................ 98 146 163 177 168 157 811 1,503
Restructure assistance to New York City:
Provide tax incentives for transportation
infrastructure ......................................................................... — 200 200 200 200 200 1,000 2,000
325
326
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Repeal certain New York City Liberty Zone incentives — 200 200 200 200 200 1,000 2,000
Total restructure assistance to New York City ...... — — — — — — — —
Total tax incentives ................................................ 115 3,226 4,268 8,768 13,403 19,634 49,299 193,382
Simplify the Tax Laws for Families:
Clarify uniform definition of a child 8 .................................... — 17 66 50 32 48 213 395
Simplify EITC eligibility requirement regarding
filing status, presence of children, and work and
immigration status 9 ............................................................... — 27 24 21 26 28 72 207
Reduce computational complexity of refundable child
tax credit 10 ............................................................................... — — — — — — — —
Total simplify the tax laws for families .......................... — 44 42 29 6 20 141 188
Strengthen the Employer-Based Pension System:
Ensure fair treatment of older workers in cash balance
conversions and protect defined benefit plans ............. 3 53 62 77 89 100 381 1,039
Strengthen funding for single-employer pension plans .. — 536 2,290 153 2,336 1,611 1,274 9,180
Reflect market interest rates in lump sum payments ...... — — 3 9 17 24 53 274
Total strengthen the employer-based pension
system ................................................................................ 3 589 2,349 85 2,264 1,535 946 8,415
Close Loopholes and Improve Tax Compliance:
Combat abusive foreign tax credit transactions ................ — 1 2 2 3 3 11 26
Modify the active trade or business test .............................. — 6 8 8 8 8 38 89
Impose penalties on charities that fail to enforce
conservation easements ....................................................... — 3 8 8 9 9 37 91
Eliminate the special exclusion from unrelated business
taxable income for gain or loss on the sale or
exchange of certain brownfields ........................................ — 2 14 30 43 41 130 201
Limit related party interest deductions ................................. — 82 141 148 155 163 689 1,635
Clarify and simplify qualified tuition programs ................... — 4 12 13 14 20 63 222
SUMMARY TABLES
Total close loopholes and improve tax compliance — 98 185 209 232 244 968 2,264
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Tax Administration, Unemployment Insurance, and
Other:
Improve tax administration:
Implement IRS administrative reforms and initiate
cost saving measures 11 .................................................. — — — — — — — —
Reduce the tax gap................................................................. — 259 351 311 296 308 1,525 3,560
Total improve tax administration .................................... — 259 351 311 296 308 1,525 3,560
Strengthen financial integrity of unemployment
insurance:
Strengthen the financial integrity of the
unemployment insurance system by reducing
improper benefit payments and tax avoidance 12 .. — — 31 30 106 143 188 2,246
Extend unemployment insurance surtax 12 ................... — — 1,085 1,490 1,526 1,564 5,665 710
Total strengthen integrity of unemployment
insurance 12 ...................................................................... — — 1,116 1,520 1,420 1,421 5,477 1,536
Other proposals:
Increase Indian gaming activity fees ................................ — — 5 5 5 5 20 45
Total tax administration, unemployment insurance,
and other 12 ........................................................................ — 259 1,472 1,836 1,721 1,734 7,022 2,069
Modify Energy Policy Act of 2005:
Repeal reduced recovery period for natural gas
distribution lines ....................................................................... — 12 44 80 112 125 373 833
Modify amortization for certain geological and
geophysical expenditures ..................................................... — 38 140 206 169 88 641 730
Total modify Energy Policy Act of 2005....................... — 50 184 286 281 213 1,014 1,563
Promote Trade:
Implement free trade agreements 12 ..................................... — 236 456 593 741 832 2,858 8,200
Extend GSP 12 .............................................................................. — 412 617 666 723 786 3,204 3,445
Total promote trade 12 ............................................................. — 648 1,073 1,259 1,464 1,618 6,062 11,645
327
328
Total
2006 2007 2008 2009 2010 2011
2007–2011 2007–2016
Extend Expiring Provisions:
Minimum tax relief for individuals....................................... 13,664 20,495 — — — — 20,495 20,495
Research & Experimentation (R&E) tax credit ............. 2,097 4,601 5,944 6,889 7,669 8,340 33,443 86,440
Combined work opportunity/welfare-to-work tax
credit ........................................................................................ 80 144 86 25 7 3 265 266
First-time homebuyer credit for DC ................................... 1 18 — — — — 18 18
Authority to issue Qualified Zone Academy Bonds ..... 3 8 13 18 20 20 79 179
Disclosure of tax return information related to
terrorist activity 7 ................................................................. — — — — — — — —
Excise tax on coal 12 ............................................................... — — — — — — — 750
Total extend expiring provisions 12 ............................ 15,845 25,266 6,043 6,932 7,696 8,363 54,300 106,648
Total budget proposals, including proposals

assumed in the baseline 12 .......................................... 15,874 28,631 14,888 51,707 36,183 148,653 280,062 1,667,039
Total budget proposals, excluding proposals
assumed in the baseline 12 .......................................... 15,957 28,100 7,152 14,684 22,587 28,939 101,462 314,006
1
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $45 million for 2011 and $51,809 million for 2007–2016.
2
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$371 million for 2011 and $7,346 million for 2007–2016.
3
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $91 million for 2007, $178 million for 2008, $253 million for 2009, $310 million for 2010, $352
million for 2011, $1,184 million for 2007–2011 and $3,500 million for 2007–2016.
4
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $244 million for 2007, $315 million for 2008, $319 million for 2009, $303 million for 2010,
$305 million for 2011, $1,486 million for 2007–2011 and $3,200 million for 2007–2016.
5
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $381 million for 2007, $747 million for 2008, $1,095 million for 2009, $1,249 million for 2010,
$1,343 million for 2011, $4,815 million for 2007–2011 and $12,939 million for 2007–2016.
6
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $4 million for 2007, $10 million for 2008, $12 million for 2009, $14 million for 2010, $15 million
for 2011, $55 million for 2007–2011 and $139 million for 2007–2016.
7
No net budgetary impact.
8
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$170 million for 2008, -$196 million for 2009, -$250 million for 2010, -$234 million for 2011,
-$850 million for 2007–2011 and -$2,224 million for 2007–2016.
SUMMARY TABLES
9
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$188 million for 2007, $123 million for 2008, $102 million for 2009, $96 million for 2010, $95
million for 2011, $228 million for 2007–2011 and $687 million for 2007–2016.
10
Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is -$332 million for 2008, -$342 million for 2009, -$347 million for 2010, -$357 million for 2011,
-$1,378 million for 2007–2011 and -$3,263 million for 2007–2016.
11
Outlays from this proposal will be reflected in the Financial Management Service’s budget.
12
Net of income offsets.
Table S–8. Receipts By Source—Summary
(In billions of dollars)
2005 Estimate
Source
Actual 2006 2007 2008 2009 2010 2011
Individual income taxes............................... 927.2 997.6 1,096.4 1,208.5 1,268.4 1,370.1 1,466.9
Corporation income taxes .......................... 278.3 277.1 260.6 268.5 277.1 282.0 292.0
Social insurance and retirement
receipts ......................................................... 794.1 841.1 884.1 932.1 980.7 1,037.4 1,096.7
(On-budget) ................................................ (216.6) (231.1) (241.8) (253.0) (264.5) (278.9) (295.1)
(Off-budget) ................................................ (577.5) (610.0) (642.3) (679.1) (716.2) (758.5) (801.6)
Excise taxes .................................................... 73.1 73.5 74.6 75.9 77.5 78.9 83.1
Estate and gift taxes .................................... 24.8 27.5 23.7 24.4 26.0 20.1 1.6
Customs duties .............................................. 23.4 25.9 28.1 31.4 31.7 34.0 36.2
Miscellaneous receipts................................ 33.0 42.8 48.4 49.4 52.7 55.7 58.4
Total receipts .......................................... 2,153.9 2,285.5 2,415.9 2,590.3 2,714.2 2,878.2 3,034.9
(On-budget) ............................................ (1,576.4) (1,675.5) (1,773.5) (1,911.1) (1,998.0) (2,119.7) (2,233.3)
(Off-budget) ............................................ (577.5) (610.0) (642.3) (679.1) (716.2) (758.5) (801.6)
329
330
Table S–9. Economic Assumptions
(Fiscal years)
2005 2006 2007 2008 2009 2010 2011
Gross Domestic Product (GDP):

Nominal level, in billions of dollars ..... 12,290 13,030 13,761 14,521 15,296 16,102 16,955
Percent change 1 ..................................... 6.5 6.0 5.6 5.5 5.3 5.3 5.3
Real GDP 1 ................................................. 3.6 3.4 3.3 3.3 3.2 3.1 3.1
GDP price index 1 .................................... 2.8 2.5 2.2 2.2 2.1 2.1 2.1
Consumer Price Index 1 .......................... 3.3 3.3 2.4 2.4 2.4 2.4 2.4
Unemployment rate 2 ............................... 5.2 5.0 5.0 5.0 5.0 5.0 5.0
Interest rates: 2
91-day Treasury bill .................................. 2.7 4.1 4.2 4.2 4.3 4.3 4.3
10-year Treasury note ............................. 4.2 4.9 5.3 5.5 5.6 5.6 5.6
1
Year-over-year percent change.
2
Annual averages, percent.
SUMMARY TABLES
Table S–10. Comparison of Economic Assumptions
(Calendar years)
Projections Average
2006 2007 2008 2009 2010 2011 2006–2011
GDP (billions of current dollars):

2007 Budget...................................................................................... 13,210 13,949 14,713 15,493 16,310 17,177
CBO January .................................................................................... 13,263 13,960 14,696 15,455 16,208 16,954
Blue Chip Consensus January 1 .............................................. 13,237 13,939 14,703 15,505 16,372 17,280
Real GDP (chain-weighted): 2
2007 Budget...................................................................................... 3.4 3.3 3.3 3.1 3.1 3.1 3.2
CBO January .................................................................................... 3.6 3.4 3.4 3.3 3.0 2.8 3.3
Blue Chip Consensus January 1 ............................................... 3.4 3.1 3.2 3.1 3.3 3.2 3.2
Chain-weighted GDP Price Index: 2
2007 Budget...................................................................................... 2.4 2.2 2.1 2.1 2.1 2.1 2.2
CBO January .................................................................................... 2.4 1.8 1.8 1.8 1.8 1.8 1.9
Consumer Price Index (all-urban): 2
2007 Budget...................................................................................... 3.0 2.4 2.4 2.4 2.4 2.5 2.5
CBO January .................................................................................... 2.8 2.1 2.2 2.2 2.2 2.2 2.3
Unemployment rate: 3
2007 Budget...................................................................................... 5.0 5.0 5.0 5.0 5.0 5.0 5.0
CBO January .................................................................................... 5.0 5.0 5.1 5.2 5.2 5.2 5.1
Interest rates: 3
91-day Treasury bills:
2007 Budget ................................................................................. 4.2 4.2 4.3 4.3 4.3 4.3 4.3
CBO January................................................................................ 4.5 4.5 4.4 4.4 4.4 4.4 4.4
Blue Chip Consensus January 1 .......................................... 4.5 4.5 4.4 4.3 4.4 4.4 4.4
10-year Treasury notes:
2007 Budget ................................................................................. 5.0 5.3 5.5 5.6 5.6 5.6 5.4
CBO January................................................................................ 5.1 5.2 5.2 5.2 5.2 5.2 5.2
Blue Chip Consensus January 1 .......................................... 4.9 5.0 5.3 5.3 5.4 5.4 5.2
Sources: Congressional Budget Office; Blue Chip Economic Indicators, Aspen Publishers, Inc.
1
January 2006 Blue Chip Consensus forecast for 2006 and 2007; Blue Chip October 2005 long-run extension for 2008—2011.
2
Year-over-year percent changes.
331
3
Annual averages, percent.
332
Table S–11. Budget Summary by Category
2005 2006 2007 2008 2009 2010 2011
Outlays:
Discretionary:
DOD military........................................... 473 510 503 471 471 484 499
Homeland security ............................... 30 32 34 35 36 38 40
Other ......................................................... 465 490 492 473 468 461 455
Total,Discretionary........................... 968 1,032 1,029 980 975 983 994
Mandatory:
Social Security:
Current program ............................... 519 550 581 612 645 683 722
Personal accounts ........................... — — — — — 24 57
Medicare .................................................. 294 338 387 399 421 447 489
Medicaid and SCHIP .......................... 187 198 205 218 233 250 270
Other ......................................................... 320 370 320 332 355 367 386
Total, Mandatory .............................. 1,320 1,457 1,494 1,562 1,655 1,771 1,924
Net Interest ................................................. 184 220 247 272 291 307 322
Total Outlays ................................................... 2,472 2,709 2,770 2,814 2,922 3,061 3,240
Revenues ......................................................... 2,154 2,285 2,416 2,590 2,714 2,878 3,035
Deficit ............................................................ 318 423 354 223 208 183 205
SUMMARY TABLES
Table S–12. Current Services Baseline Summary by Category
2005 2006 2007 2008 2009 2010 2011
Outlays:
Discretionary:
DOD military........................................... 473 480 440 438 445 456 472
Homeland security ............................... 30 32 34 35 35 36 38
Other ......................................................... 465 486 488 484 493 498 507
Total, Discretionary ......................... 968 998 962 957 973 990 1,017
Mandatory:
Social Security ...................................... 519 550 581 612 645 683 723
Medicare.................................................. 294 338 390 405 429 457 500
Medicaid and SCHIP .......................... 187 198 205 219 234 251 270
Other ......................................................... 320 365 319 340 359 371 390
Total, Mandatory .............................. 1,320 1,451 1,495 1,575 1,668 1,762 1,883
Net Interest ................................................. 184 219 244 266 284 298 310
Total Outlays ................................................... 2,472 2,669 2,701 2,798 2,925 3,050 3,210
Revenues ......................................................... 2,154 2,301 2,444 2,597 2,729 2,901 3,064
Deficit ............................................................ 318 367 257 201 196 149 146
On-budget deficit ...................................... 494 549 449 416 428 402 420
Off-budget surplus.................................... 175 182 192 216 233 252 274
333
334
Table S–13. Federal Government Financing and Debt
Actual Estimate
2005 2006 2007 2008 2009 2010 2011
Financing:
Unified budget deficit ( ) ....................................................................................... 318 423 354 223 208 183 205
Financing other than the change in debt held by the public:
Net purchases ( ) of non-Federal securities by the National
Railroad Retirement Investment Trust ...................................................... 2 * * * * * 1
Changes in: 1
Treasury operating cash balance ............................................................... 1 — — — — — —
Checks outstanding, etc. 2 .......................................................................... 17 — — — — — —
Seigniorage on coins ........................................................................................... 1 1 1 1 1 1 1
Less: Net financing disbursements:
Direct loan financing accounts .................................................................... 5 16 18 19 19 19 21
Guaranteed loan financing accounts ........................................................ 11 12 1 0 0 0 1
Total, financing other than the change in debt held by the public 22 4 18 19 18 19 20
Total, requirement to borrow from the public................................. 297 427 373 242 226 201 225
Change in debt held by the public....................................................................... 297 427 373 242 226 201 225
Changes in Debt Subject to Limitation:
Change in debt held by the public....................................................................... 297 427 373 242 226 201 225
Change in debt held by Government accounts .............................................. 254 279 311 328 346 344 329
Change in other factors .......................................................................................... 13 * 1 1 3 2 3
Total, change in debt subject to statutory limitation ................................. 538 707 685 570 574 548 557
Debt Subject to Statutory Limitation, End of Year:
Debt issued by Treasury ......................................................................................... 7,879 8,586 9,270 9,841 10,413 10,959 11,514
Adjustment for discount, premium, and coverage 3 .................................... 8 8 8 8 6 4 3
SUMMARY TABLES
Total, debt subject to statutory limitation 4 ................................................. 7,871 8,578 9,262 9,833 10,407 10,955 11,512
Debt Outstanding, End of Year:
Gross Federal debt: 5
Debt issued by Treasury .................................................................................... 7,879 8,586 9,270 9,841 10,413 10,959 11,514
Debt issued by other agencies ........................................................................ 26 26 25 25 24 23 23
Total, gross Federal debt ............................................................................... 7,905 8,611 9,295 9,865 10,437 10,983 11,537
Table S–13. Federal Government Financing and Debt—Continued
Actual Estimate
2005 2006 2007 2008 2009 2010 2011
Held by:
Debt held by Government accounts .............................................................. 3,313 3,593 3,904 4,232 4,578 4,922 5,251
Debt held by the public 6 .................................................................................. 4,592 5,019 5,391 5,633 5,859 6,061 6,286
As a percent of GDP ....................................................................................... 37.4% 38.5% 39.2% 38.8% 38.3% 37.6% 37.1%
* $500 million or less.
1
A decrease in the Treasury operating cash balance (which is an asset) is a means of financing a deficit and therefore has a positive sign. An increase in checks outstanding (which is a
liability) is also a means of financing a deficit and therefore also has a positive sign.
2
Besides checks outstanding, includes accrued interest payable on Treasury debt, uninvested deposit fund balances, allocations of special drawing rights, and other liability accounts;
and, as an offset, cash and monetary assets (other than the Treasury operating cash balance), other asset accounts, and profit on sale of gold.
3
Consists mainly of Federal Financing Bank debt (which is not subject to limit), the unamortized discount (less premium) on public issues of Treasury notes and bonds (other than
zero-coupon bonds), and the unrealized discount on Government account series securities.
4
The statutory debt limit is $8,184 billion, enacted on November 19, 2004.
5
Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost all measured at sales price plus amortized discount or less amortized premium.
Agency debt securities are almost all measured at face value. Treasury securities in the Government account series are otherwise measured at face value less unrealized discount (if
any).
6
At the end of 2005, the Federal Reserve Banks held $736.4 billion of Federal securities and the rest of the public held $3,855.9 billion. Debt held by the Federal Reserve Banks is not
estimated for future years.
335
GLOSSARY
Accrual Method of Measuring Cost

This accounting method records cost when the liability is incurred. As applied to Federal
employee retirement benefits, cost is recorded when the benefits are earned rather than when
they are paid at some time in the future.
Appropriation
An appropriation provides legal authority for Federal agencies to incur obligations and to make
payments out of the Treasury for specified purposes. Appropriations bills, such as the Depart-
ment of Homeland Security bill or the Departments of Labor, Health and Human Services, and
Education bills, are considered every year by the Congress and supplemental appropriations bills
are considered from time to time.
Authorization
An authorization is an act of the Congress that establishes or continues a Federal program or
agency and sets forth the guidelines to which it must adhere.
Balanced Budget
A balanced budget occurs when total receipts equal total outlays for a fiscal year.
Budget Authority
Budget authority is the authority provided by law to incur financial obligations that will result
in outlays.
Budget Enforcement Act (BEA) of 1990

The BEA is a recently expired law that was designed to limit discretionary spending while ensur-
ing that any changes to entitlement programs or tax laws did not increase deficits. It set annual
limits on discretionary spending.
Budget Resolution
The budget resolution is the Congress’ annual framework that sets targets for total budget
authority, total outlays, total revenues, and the deficit (on-budget), as well as discretionary
and mandatory allocations within the spending targets. These targets guide the committees’
deliberations. A budget resolution does not become law and is not binding on the Executive
Branch.
Cap
A “cap” is a legal limit on annual discretionary spending.
337
338 GLOSSARY
Continuing Resolution
A continuing resolution provides for the ongoing operation of the Government in the absence of
enacted appropriations, usually at the same spending rate as the prior year.
Debt
Debt Held by the Public—The cumulative amount of money the Federal Government has
borrowed from the public and not repaid.
Debt Held by Government Accounts—The debt the Treasury Department owes to accounts
within the Federal Government. Most of it results from the surpluses of the Social Security and
other trust funds, which are required by law to be invested in Federal securities.
Debt Limit—The maximum amount of Federal debt that may legally be outstanding at any
time. It includes both the debt held by the public and the debt held by Government accounts.
When the debt limit is reached, the Government cannot borrow more money until the Congress
has enacted a law to increase the limit.
Deficit
A deficit is the amount by which outlays exceed receipts in a fiscal year.
Discretionary Spending
Discretionary spending is spending that the President and the Congress control through annual
appropriations bills. Examples include spending for such activities as the FBI, the Coast Guard,
education, space exploration, highway construction, defense, and foreign aid.
Entitlement
An entitlement program is one in which the Federal Government is legally obligated to make
payments or provide aid to any person who meets the legal criteria for eligibility. Examples
include Social Security, Medicare, Medicaid, and Food Stamps.
Fiscal Year
The fiscal year is the Federal Government’s accounting period. It begins on October 1st and
ends on September 30th. For example, fiscal year 2007 begins on October 1, 2006, and ends on
September 30, 2007.
Full-time Equivalents (FTEs)

Civilian employment in the Executive Branch is measured on the basis of full-time equivalents.
One FTE is equal to one fiscal work year. Thus, one full-time employee counts as one FTE, and
two half-time employees also count as one FTE.
Gross Domestic Product (GDP)

GDP is a measure of the market value of goods and services produced within the United States.
It is the standard measure of the size of the economy.
Mandatory Spending
Mandatory spending is controlled by permanent law rather than annual appropriations. Exam-
ples are Social Security and the Student Loan Program. The President and the Congress can
change the law with respect to the eligibility criteria or the payment formula, and thus change
the level of spending on mandatory programs, but annual action is not necessary to ensure
the continuation of spending. In addition, budget authority provided in annual appropriations
acts for certain programs is treated as mandatory because the authorizing legislation entitles
beneficiaries to receive payment or otherwise obligates the Government to make payment.
Obligations
Obligations are binding agreements that result in outlays, immediately or in the future.
Offsetting Collections and Offsetting Receipts

Offsetting collections and offsetting receipts are income that is deducted from outlays, rather
than counted on the receipts side of the budget. They result primarily from business-type
or market-oriented activities with the public and intragovernmental transactions with other
Government accounts.
Off-Budget
By law, Social Security and the Postal Service are accounted for separately from all other
programs in the Federal Government and are designated as off-budget.
On-Budget
Those programs not legally designated as off-budget.
Outlays
Outlays are the primary measure of Government spending. Outlays are payments to liquidate
obligations, largely measured on a cash basis. Total Federal outlays are a net figure, consisting
of gross payments minus the amount of business-like collections and intragovernmental trans-
actions, in a given fiscal year.
Program Assessment Rating Tool (PART)

The PART is an analytical device used to evaluate program effectiveness and inform budget,
management, and legislative decisions aimed at improving performance. It consists of a se-
ries of questions about program purpose and design, strategic planning, management, and re-
sults. Answers to PART questions require specific evidence to prove program effectiveness. Part
summaries and assessment details are available on the ExpectMore.gov website.
Pay-As-You-Go (PAYGO)
Created by the Budget Enforcement Act, PAYGO refers to requirements that new mandatory
spending proposals or tax reductions must be offset by cuts in other mandatory spending or by
tax increases. The purpose of these rules is to ensure that the deficit does not rise or the surplus
does not fall because of policy changes to mandatory spending and taxes.
President’s Management Agenda

The President’s Management Agenda is a strategy to improve the management and performance
of the Federal Government. The Agenda includes five Government-wide initiatives and multiple
program-specific initiatives. The five Government-wide initiatives are:
Strategic Management of Human Capital—having processes in place to ensure that the right
person is in the right job, at the right time, and is performing well.
340 GLOSSARY
Competitive Sourcing—regularly examining commercial activities performed by the Govern-

ment to determine whether it is more efficient to obtain such services from Federal employees
or from the private sector.
Improved Financial Performance—accurately accounting for the taxpayers’ money and
giving managers timely and accurate program cost information to inform management decisions
and control costs.
Expanded Electronic Government—ensuring that the Federal Government’s information
technology investments significantly improve the Government’s ability to serve citizens, and
that information technology systems are secure, and delivered on time and on budget.
Budget and Performance Integration—ensuring that performance is routinely considered
in funding and management decisions, and that programs achieve expected results and work
toward continual improvement.
Receipts
Governmental receipts (sometimes called receipts or revenues) are the collections of money that
primarily result from taxes and similar Government powers to compel payment. Examples of
governmental receipts include income taxes, payroll taxes, excise taxes, and customs duties.
They do not include offsetting receipts or collections from the Federal Government’s business-like
activities, such as the entrance fees at national parks, or collections by one Government account
from another.
Surplus
A surplus is the amount by which receipts exceed outlays in a fiscal year.
Trust Funds
Trust funds are Federal Government accounts designated as such by law and which record
receipts for spending on specified purposes.
Unified Budget
The unified budget includes receipts from all sources and outlays for all programs of the Federal
Government, including both on- and off-budget programs. It is the most comprehensive measure
of the Government’s finances.
Unobligated Balance
An unobligated balance is funding that has been approved or is available, but not yet obligated
for any particular purpose.
OMB CONTRIBUTORS TO THE 2007 BUDGET
The following personnel contributed to the preparation of this publication. Hundreds, perhaps
thousands, of others throughout the Government also deserve credit for their valuable contributions.
A Jennifer Wagner Bell C Francis R. Crumlish

Rochelle Bell Craig Crutchfield
Rein Abel Stuart Bender Basilio Cabradilla Edna Falk Curtin
David Abraham Meredith Benson Kathleen Cahill William P. Curtis
Andrew Abrams Shalini Benson Steven Cahill
Brenda Aguilar Elizabeth Bernhard Patricia L. Cain D
Ricardo Aguilera Evett F. Best Philip Calbos
Michele Ahern Pamela L. Beverly Christa Capozzola Josie R. Dade
Steven D. Aitken Terrence Blackburne Michael Casella Philip R. Dame
Jameela Raja Akbari Mathew C. Blum Mary I. Cassell J. Michael Daniel
David Alekson James Boden Michael J. Cassidy Elizabeth Davis
Susan Alesi Joshua B. Bolten Alejandra O. Ceja Brandon Davisson
Tyrone P. Alion Melissa B. Bomberger Jeffrey Chamberlin Caitlin Davitt
Richard Allen David S. Bortnick Richard Chandler Arline P. Dell
Victoria Allred Evangelia Bouzis Edward H. Chase Jun De Leyos
Stephanie Alonzo Joseph Bowab Richard Chasez DeAnna DeMott
Lois E. Altoft Constance J. Bowers Anita Chellaraj Bruce Deng
David Anderson Thomas A. Bowman Joanne W. Chow Carol R. Dennis
Robert B. Anderson James Bradford, Jr. Margaret B. Davis Yvette M. Dennis
Bill Apgar Betty I. Bradshaw Christian Mary Derr
Donald R. Arbuckle Irene T. Brahmakulam Evan W. Christman Aurelia A. DeRubis
Katherine T. Astrich Denise M. Bray Dean F. Clancy Melissa Dettmer
Lisa L. August Anna M. Briatico Bobby Claflin Shivani Desai
Renee Austin Derwin Bronson Toni G. Clark Denise Y. Dick
Patrick Aylward Charles H. Brown Toni M. Claud Howard Dickenson
Dustin S. Brown Barry T. Clendenin Monique Dilworth
B James A. Brown Norris Cochran Anthony S. Dobbins
Jennifer E. Brown Allison Cole Clare C. Doherty
Peter Babb Ruby Brown Debra M. Collins Angela Donatelli
Paul W. Baker Paul Bugg Dr. Linda M. Combs Logan E. Dryden
Lesia M. Banks Benjamin Burnett R. Alex Conant Catherine DuRant
Jorge Barcia John D. Burnim Paul Conner Louise Dyer
Mary C. Barth John Burton David J. Copley
Adrienne N. Bartlewitz Robert A. Burton Daniel Costello E
John Bartrum Nancy S. Bushi Stephen M. Cote
Juliana Basile Mark Bussow Siobhan Crawford Jeffrey Eanes
Robert Batson Susan G. Crawford Jacqueline A. Easley
Richard B. Bavier Joseph Crilley Eugene M. Ebner
Sally Clark Beecroft Michael F. Crowley
341
342 LIST OF CONTRIBUTORS AND IMAGE CREDITS
Jeanette Edwards Alexandra Gianinno Christine P. Holmes Ann H. Kendrall

Stephen G. Elmore Tony Gilbert Rebecca Hooper Virginia M. Kennamer
Rocco Emelio Brian Gillis Libby Horan Marc L. Kesselman
Richard P. Emery Jr. Ursula Gillis Sarah Horrigan Irene Kho
Noah Engelberg Adam Goldberg Patrick Hough John H. Kitchen
Michelle A. Enger Robert Goldberg Michael Houlihan Robin Kitterman
Elizabeth Erickson Jeffrey Goldstein Emily A. House Carole Kitti
Dinee Eriksen Oscar Gonzalez Kathy M. Hudgins Eva Kleederman
Danny A. Ermann Susana Gonzalez Kimberly Hughes Brian S. Kleinman
Diana Espinosa John D. Graham Eric Hunn John Knepper
Catherine H. Megan A. Grasso Alexander T. Hunt Allison L. Knippen
Evangelisti Jason Gray James C. Hurban Nathan Knuffman
Karen Evans Tye Gray Jaki Mayer Hurwitz Jack Koller
Rowe Ewell Arecia A. Grayton Lawrence W. Hush Chad Kolton
Christopher M. Toni S. Hustead Elissa Konove
F Greaver Emily M. Kornegay
Pierre Green I Mary L. Koskinen
Chris Fairhall Richard E. Green John Kraemer
Lisa B. Fairhall Aron Greenberg Lori A. Krauss
Danilo Ibanez
Robert S. Fairweather Hester Grippando Jennifer Kron
Michael C. Falkenheim Adam Grom Kristi Kubista-Hovis
J James M. Kulikowski
William (Dick) Feezle
Chad Ferguson H Sara E. Kuncaitis
Patricia A. Ferrell Andrea E. Jacobson Ross M. Kyle
Jennifer N. Field Laurence R. Jacobson
Curtis Hamlin
Lesley A. Field Dana M. James L
Eric V. Hansen
M.J. Fiocco Don Jansen
Jennifer Hanson-
E. Holly Fitter Carol D. Jenkins
Kilbride Brian Labonte
Darlene B. Fleming Christopher S. Johns
Linda W. Hardin Joseph F. Lackey Jr.
Joseph A. Fleming Carol Johnson
Dionne M. Hardy Christina Lagdameo
Ellen Fletcher-Shields Clay Johnson III
David Harmon Leonard L. Lainhart
Keith Fontenot Kim A. Johnson
Craig Harper Kristy L. LaLonde
J. D. Foster Kim I. Johnson
Ken Haskins Adam H. Langton
Wanda J. Foster Margretta Johnson-
Erin Hassing Daniel LaPlaca
Katherine Fox Garnett
David J. Haun Jill Larsen
Rusty Francisco James F. Jordan
Donald Hawkins Lauren Larson
Steve Francisco James J. Jukes
Sarah Hawkins Justin B. Latus
Sara Frankfurt Mark H. Hazelgren Jackie Lawson
Jason Freihage Hans E. Heidenreich K Jane K. Lee
Gregory G. Henry Karen Lee
G Michael Hickey Natasha K. Kallay Sarah S. Lee
Beth Higa Derek Kan Susan Leetmaa
Anne Gable Stacie Higgins Joel D. Kaplan M. Bryan Legaspi
Pat Galvin Mary Lou Hildreth Kara Kasper Wayne Leiss
Marc Garufi Andrew Hire Stanley Kaufman Daniel A. Lerner
Darlene O. Gaymon Joanne Cianci Hoff James B. Kazel Derrick Lett
Kimberly A. Geier Adam Hoffberg Matthew J. Keeneth Sheila D. Lewis
Cindy George Derrek J. Hofrichter John W. Kelly Richard A.
Jennifer Gera Marilyn Holland Kenneth S. Kelly Lichtenberger
Michael D. Gerich James S. Holm Karyn Kendall Tung-Yen Lin
Susanne D. Lind P. Thaddeus Kristy Park Rod Robinson

Ron Little Messenger Sangkyun Park Marshall Rodgers
Lin C. Liu James D. Mietus Sera H. Park Justine F. Rodriguez
Patrick G. Locke Scott Milburn Joel R. Parriott Amy J. Rogers
Richard C. Loeb Julie L. Miller John Pasquantino Kathleen Romig
Aaron M. Lopata Ken Miller Marcus Peacock Elizabeth L. Rossman
Carolyn L. Lovett Kimberly Miller Jacqueline M. Peay David Rostker
Adrienne C. Erbach Neile Miller Robert J. Pellicci Jason Rothenberg
Lucas Daniel Moncada Jack Pennington David Rowe
Vernell Lucas Joe Montoni Kathleen Peroff Mario D. Roy
Kimberley Luczynski John B. Moore Andrea M. Petro Renee Grade Rupp
Sarah Lyberg John F. Morrall III Nicole S. Petrosino
Randolph M. Lyon Mike Morris John R. Pfeiffer S
Jonathan D. Morse Stacey Que-Chi Pham
M Delphine C. Motley Carolyn R. Phelps Erika Saleski
Jennifer C. Elizabeth C. Phillips Robert L. Sandoli
Debbie Macaulay Moughalian Gerald Phillips, Sr. Narahari Sastry
Lisa Macecevic Jane T. Moy Joseph G. Pipan Keya Sau
Robert Mahaffie Kevin Murphy Pamela L. Piper Ruth D. Saunders
Paul Mahoney Chris Music Douglas Pitkin Susan Schechter
Margaret A. Malanoski David L. Muzio Benjamin Powell Suzanne K. Scheele
Paul Mamo Clifford Preston Glenn Schlarman
Dominic J. Mancini N Sharon Price Michelle Schmith
Karen A. Maris Jamie Price-O’Donnell Andrew M. Schoenbach
Brendan A. Martin Larry J. Nagl Larry Proctor Carrie A. Schroeder
Christopher J. Martin Mateo Naldo Jason Pugh Ingrid M. Schroeder
James R. Martin Barry Napear Kenneth L. Schwartz
Kathryn Martin Robert J. Nassif R Mark J. Schwartz
Kate Massey Chandra Navneeta Nancy Schwartz
Larry R. Matlack Kim Nelson David P. Radzanowski Ardy Diann Scott
Brian Matteson Moni Nejati Latonda Glass Raft Jasmeet K. Seehra
Kathryn Thompson Noam Neusner Adrienne Ramsay Melissa Seeley
Maxwell Kimberly A. Newman Terrill W. Ramsey Paul Shawcross
Nancy E. Mazyck Jennifer G. Newstead Lorenzo Rasetti Robert J. Shea
Shelly McAllister Kevin F. Neyland Gareth J. Rawle- Kent Sholars
Erin McCartney Teresa Nguyen Diedrick Maiselle Shortley
Alexander J. Paul Noe Peter J. Ray Elizabeth Shortino
McClelland S. Aromie Noe Francis S. Redburn Harold F. Shrewsberry
Anthony W. McDonald Douglas A. Norwood Rosalyn J. Rettman Mary Jo Siclari
Christine McDonald Alan B. Rhinesmith Matthew J. Siegel
Katrina A. McDonald O Keri A. Rice Leticia Sierra
Andrew McIlroy Sarah Richardson Ronald Silberman
Matthew McKearn Kathleen E. O’Connell Renee P. Richburg Garrette M.K.
Erin McNeece Lewis W. Oleinick Shannon Richter Silverman
William J. McQuaid Marvis G. Olfus Nancy S. Ridenour Diana Simpson
Inna L. Melamed Derek J. Orban Antonio Rivers Charlotte Skidmore
Mark David Menchik Crystal Roach Jack A. Smalligan
Richard A. Mertens P Lara Robillard Bryan Smith
Steven M. Mertens Donovan O. Robinson Augustine T. Smythe
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2007 Federal Budget Document

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2007 Federal Budget Document

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BUDGET

BUDGET OF THE UNITED STATES GOVERNMENT

Fiscal Year 2007

programs to a firm test of accountability, we

In addition, we have seen dramatic increases

(GDP) is estimated to have grown at a strong

The strength of our economy has produced 1

ECONOMIC GROWTH AHEAD

Inflation Remains Low and Inflation Future economic growth is predicated on

PRODUCTIVITY: THE KEY TO FUTURE GROWTH

have varied over long periods. From the 5.0

Productivity is the Driving Force Behind Strong productivity growth is important to

In contrast, Government policies can en- Business Equipment and

American Competitiveness Initiative : Private industry is responsible for much

Education and Training

To make a college degree more affordable, the

The President’s 2007 Budget addresses

THE NEAR-TERM OUTLOOK

An important indicator of the fiscal outlook

Increasing Revenues through Economic Growth

The President’s program of comprehensive

investment, acted to jump-start the economy

tax rates on dividends and capital gains. This

With receipts returning to historically healthy levels as a result of a strengthening economy,

Spending on discretionary programs is relatively controllable because funding decisions are

THE LONG-TERM OUTLOOK

Social Security Current Trends Are Not Sustainable

Health Care Entitlements

Medicare is similar to Social Security in Social Security and Medicare Unfunded

BUDGET PROCESS REFORMS AND MANAGEMENT AGENDA

Mandatory Spending Restraint

Discretionary Spending Limits

Focusing Spending on Priorities

Notwithstanding the recent progress in restraining discretionary spending, there is a widespread

Sunset and Results Commissions

THE PATH FORWARD

Agencies are also identifying the

To improve the results the Executive Branch

IMPROVING HUMAN CAPITAL MANAGEMENT

USING INFORMATION TECHNOLOGY MORE EFFECTIVELY

IMPROVING REAL PROPERTY MANAGEMENT

ELIMINATING IMPROPER PAYMENTS

USING COMPETITION TO REDUCE COSTS

STRENGTHENING FINANCIAL MANAGEMENT

Explanation of Status Scores

Explanation of Progress Scores

Executive Branch Management Scorecard

Com- Budget/ Com- Budget/

Program Initiative Scorecard

Initiative Status Progress

Faith-Based and Community Initiative:

Real Property Asset Management:

Program Initiative Scorecard—Continued

Initiative Status Progress

Eliminating Improper Payments:

Privatization of Military Housing .................................

R&D Investment Criteria ...............................................

Housing and Urban Development Management

Broadening Health Insurance Coverage through

A “Right-Sized” Overseas Presence.........................

Coordination of VA and DOD Programs and

Since 2001, the Administration:

The President’s Budget: