Federal Budget - Fiscal Year 2002; FEDERAL SECTOR REPORT, a newsletter

FEDERAL SECTOR REPORT

March 2001
(c) P2C2 Group, Inc.

The Federal Budget - FY 2002

FY 2002 Budget Blueprint Presents Opportunities, Limits for Contractors and Grantees

The President has submitted his $1.84 trillion fiscal 2002 "budget blueprint" to Congress yesterday with a promise that the detailed budget would be submitted on April 3rd. For government contractors and grantees, the blueprint portends both opportunities and constraints. This newsletter includes a large table identifying dozens of programs and needs that were cited in the budget blueprint.

The newsletter provides a high-level summary of the budget proposed by President Bush on February 28, 2001. It focuses on salient opportunities, which include new or redirected money ... and opportunities created by policy and management changes (such as financial management improvements and agency reorganizations). The summary does not address tax cuts, benefits to individuals (such as prescription drugs or rent subsidies), or "what's missing” (funding eliminated or reduced).

The Big Picture

The President proposed to increase discretionary spending by $26 billion. In addition, the President's budget would make room for a $5.6 billion "national emergency reserve" in fiscal 2002 which would create a new account for "unforeseen disasters." The increase for discretionary spending next year would be 4 percent, less than the 5.5 percent the Congressional Budget Office has determined would be necessary to maintain current services, reserving the biggest increases for education ($4.6 billion) and the military ($14.2 billion), and proposing the largest cuts in transportation, public safety, and agriculture. Over the next decade, the budget would not pay down the national debt entirely but instead would leave approximately $1.4 trillion worth of long-term debt. An analysis of the overall budget is available from the National Governors' Association at:
http://www.nga.org/nga/legislativeUpdate/.

Overall Forecast for Contracts and Grants

What's in: education, assistance for disabilities, regulatory compliance assistance (helping industries/employers figure out how to comply with regulations ... rather than first socking the fines to them), military R&D, certain IT, social services funds for faith-based and other community agencies. Non-enforcement tools for regulation: interactive electronic advisors, distance learning, Internet. Our overall forecast for federal contractors and grantees for Fiscal Year 2002 is as follows:

· The Bush Administration appears relatively friendly to the policy of channeling federal dollars to contractors and grantees, rather than increasing the internal size of federal agencies.

· A push toward e-Government will bring new opportunities to information technology contractors, especially those who can help agencies re-invent agency business processes and reduce the size of federal "middle management."

· However, some agencies will be hard-pressed for discretionary funds and may have to reduce or eliminate some current programs and procurements.

· Some contractors and grantees may face a serious decline in revenues, especially those who are too complacent about relying on existing funding sources.

The e-Government Theme

The Bush Administration applies e-Government and "new economy" strategies to government programs, as illustrated by the following excerpt from the blueprint:

True government reform must be based on a reexamination of the role of the federal government. The President has called for "active, but limited" government: one that empowers States, cities, and citizens to make decisions; ensures results through accountability; and promotes innovation through competition. Thus, if reform is to help the federal government adapt to a rapidly changing world, its primary objectives must be a government that is:

· Citizen-centered, not bureaucracy- centered;

· Results-oriented, not process-oriented; and

· Market-based-actively promoting, not stifling, innovation and competition.

Flatten the Federal Hierarchy: The first priority of the President's government reform initiatives is to make government citizen-centered. This means ensuring that there is as little distance as possible between citizens and decision-makers. In an effort to get closer to the customer, American businesses have increasingly replaced old, hierarchical organizations with flatter, more entrepreneurial ones. To shrink the distance between citizens and Cabinet members, the Administration will flatten the federal hierarchy, reduce the number of layers in the upper echelon of government, and use work force planning to help agencies redistribute higher-level positions to front-line, service delivery positions that interact with citizens. These actions should make the federal government more nimble and responsive.

Use the Internet to Create a Citizen-Centric Government: The explosive growth of the Internet has transformed the relationship between customers and businesses. It is also transforming the relationship between citizens and government. By enabling individuals to penetrate the federal bureaucracy to access information and transact business, the Internet promises to shift power from a handful of leaders in Washington to individual citizens. The President believes that providing access to information and services is only the first step in e-Government. In order to make government truly "citizen-centered," agencies will have to work together to consolidate similar functions around the needs of citizens and businesses. Citizen-centered government will use the Internet to bring about transformational change: agencies will conduct transactions with the public along secure web-enabled systems that use portals to link common applications and protect privacy, which will give citizens the ability to go online and interact with their government-and with their State and local governments that provide similar information and services-around citizen preferences and not agency boundaries.

Caveat

Our information is derived from the President's blueprint. The budget actually submitted to the Congress in April may reflect some adjustments and changes.

The Table

Following is a table listing programs and tables that offer opportunities for contractors and/or grantees. The list is organized by agency. In some cases a "problem" is listed, which was cited in the budget blueprint. Our viewpoint is that a "problem" is an "opportunity waiting for the right solution."

Agency	Category	Action
USDA	County office IT and process re-engineering	The federal government will continue to reduce the number of USDA's County Offices. The Department will review the efficiency of USDA's field office structure, recognizing that many farmers and other rural customers want to use computers and fax machines to transact business with USDA. The budget includes funds to continue efforts to streamline and modernize USDA's county office structure through completion of a common computing environment and reengineering the way USDA conducts business. In 2002, customers will be able to conduct business with the county-based agencies electronically.
USDA	Forest Service Re-engineering	Streamlining the Forest Service's Field Structure: The Administration will review and start to implement streamlining and efficiency-enhancing measures for the Forest Service's field structure, work force, and administrative operation to get more resources for "on-the-ground" activities. Centralized servicing and enterprise teams will be evaluated as possible ways to provide additional efficiency savings.
USDA	Financial management information systems	USDA will develop centralized and integrated management information systems to provide timely and reliable information on USDA's finances, people, and purchases. This should allow the Department to obtain a clean opinion on its financial statements and improve its computer security.
Commerce	Advanced weather satellite system	Commerce will have $83 million of additional funding to continue the $3 billion procurement of the National Polar-orbiting Operational Environmental Satellite System, being developed jointly with the Department of Defense.
Commerce	Statistical analysis	Funds for the collection and calculation of basic economic statistics will increase by $9 million.
Commerce	Operations	The program funding level of the Patent and Trademark Office will increase by 10% to support a growing workload.
Defense	Overall increase	DoD funding will increase by $14.2 billion with much of it going to boost military pay, improve housing for military personnel, and boost health benefits for over-65 military retirees.
Defense	Research and development	R&D will receive a $2.6 billion shot in the arm ($20 billion over 5 years) to fund leap-ahead technologies, improvements for laboratories and test infrastructure, technologies to cut the costs of weapons systems, counter-terrorism, counter-proliferation, and missile defense.
Defense	Maritime security	The Maritime Security Program will be transferred from the Maritime Administration (DOT) to DoD.
Education	Elementary and secondary education	Education gains a $4.6 billion budget increase. Nearly $1 billion is earmarked for reading (by grade three), and $2.6 billion is for states to boost teacher quality (professional development, recruitment, retention). The Safe and Drug-Free Schools and Communities program and the 21^st Century Community Learning Centers also get a boost. Schools will have flexibility in redirecting funds previously earmarked for facilities renovation. There will be an emphasis on school accountability and annual student achievement assessments.
Education	Higher education	Aid to minority institutions will increase 6 percent by FY 2002 and grow to 30 percent above current funding by FY 2005.
Education	Disability programs	There will be increased funding for special education, support for assistive technologies for students with disabilities, and R&D for technologies that improve access to education for individuals with disabilities.
Energy	Weapons stockpiling	Funding for stockpile stewardship of nuclear weapons increases by $275 million.
Energy	Coal research	More than $2 billion is added over 10 years for coal research programs with an industry consortium to reduce the environmental impact of using coal for electricity generation.
Energy	Solar and renewable energy research	$1.2 billion of the Artic National Wildlife Refuge bid bonuses will fund research for solar and renewable energy technology, beginning in FY 2004.
Energy	Low-income weatherization	The low-income home Weatherization Assistance Program is doubled with $1.4 billion in additional funds over 10 years. DOE will have the option of using some funds to test improved implementation approaches for the Weatherization program.
Energy	Management improvement	DOE must improve management practices-particularly those related to procurement, contract management, environmental management, and science projects. According to GAO, almost 40 percent of DOE projects are never completed. Less than 10 percent are completed on time and within budget.
Health and Human Services	NIH research programs	NIH budget will double in FY 2002, compared to the 1998 funding level-for a total of $23 billion next year. The number of new grants will increase.
Health and Human Services	Community health centers	The $1.3 billion Community and Migrant Health Centers Initiative is a $124 million increase over FY 2001. It is targeted for communities that lack access to primary health care.
Health and Human Services	Substance abuse treatment	The budget for the Substance Abuse and Mental Health Services Administration will increase by $100 million. The increase includes $60 million to help States finance treatment to those in need through the Substance Abuse Block Grant, and an additional $40 million will be made available through the Targeted Capacity Expansion grants designed to support a rapid, strategic response to emerging trends in substance abuse.
Health and Human Services	Community health system innovation	The existing Healthy Communities Innovation Fund Initiative will receive approximately $400 million in 2002 funding for existing grant activity for innovations at the local level, including programs to promote comprehensive care through integrated State health care delivery systems for women and children.
Health and Human Services	Social services	The "Promoting Safe and Stable Families" program is slated for a $505 million budget in 2002, a $200 million increase over the 2001 level. These additional resources will help States keep children with their biological families, if safe and appropriate, or to place children with adoptive families. The budget also includes a $60 million increase for education and training vouchers to youth who age out of foster care.
Health and Human Services	After-school care	$400 million is targeted for an after-school certificate program within the Child Care and Development Block Grant, raising total funding to $2.2 billion. The new program would provide grants to States to assist parents in obtaining after-school childcare with a high-quality educational focus.
Health and Human Services	Responsible fatherhood	Faith-based and community organizations will receive $64 million of competitive grants to strengthen the role of fathers in the lives of families. This program also funds "projects of national significance."
Health and Human Services	Maternity group homes	$33 million in 2002 funds will be for maternity group homes, which are community-based, adult-supervised group homes or apartment clusters for teenage mothers and their children.
Health and Human Services	Charitable giving	A "compassion capital fund" will provide $67 million of start-up capital and operating funds. A $22 million national fund will support and promote research on "best practices" among charitable organizations.
Health and Human Services	Improvement of research strategy	The Administration proposes to rationalize the HHS research agendas which (excluding NIH) encompasses $1.2 billion and eight agencies. There may be opportunities for strategic planning and analysis. At the same time, there may be priority shifts and realignments in the overall research program, over the long term.
Health and Human Services	HCFA management improvement	HCFA will undertake major efforts to modernize and streamline its operations. This may include restructuring the agency.
Health and Human Services	Information technology	HHS will also promote a Department-wide information technology (IT) system design, to find efficiencies in the Department's current internal IT spending base of $1.5 billion.
Housing and Urban Development	Community technology centers	The HUD Neighborhood Networks program will fund $80 million in competitive grants to help communities create or expand technology centers in high poverty urban communities.
Housing and Urban Development	Accessible community facilities	$20 million in competitive grants within the Community Development Block Grant Program be awarded to civic organizations and religiously affiliated service providers to make their facilities accessible to the disabled.
Housing and Urban Development	FHA information systems and controls	Inadequate information systems weakened FHA's ability to monitor lenders that use its guarantees and contributed to HUD's failure to obtain a clean opinion from its auditors in 1999.
Interior	Refocus Geological Survey	The Administration is examining how "to focus USGS on providing sound science to support the Department's land management agencies in their decision-making processes."
Interior	Property management systems	DOI is implementing new land records, real estate appraisal, leasing, and probate management systems.
State, Other International	Information technology	The budget increase spending for secure communications capability incorporating new tools and applications, opening access channels to the Internet to take full advantage of its information and communication capabilities, and sharing information among agencies in the foreign affairs community.
State, Other International	Counter-narcotics	Over $1 billion is proposed for counter-narcotics programs in Colombia and nearby countries, including coca eradication and "economic stability" programs
State, Other International	Security	The budget slates $1.3 billion for construction and operations that improve security at U.S. embassies and other facilities located in other countries.
State, Other International	USAID	The budget includes an increase for USAID activities targeted to HIV/AIDS and improvement of primary education in developing nations.
State, Other International	Military assistance	The budget increases military assistance to Israel including defense resources.
Justice	Immigration services	The Immigration and Naturalization Services will gain an additional $100 million in FY 2002 (and $500 million over five years). The number of Border Patrol agents will increase by 1,140.
Justice	FBI operations	The FBI gains an increase of 8 percent, primarily to combat terrorism and cybercrime through added personnel and new technologies.
Labor	"New Freedom" initiative	The new Office of Disability Employment Policy will double its budget ($20 million for a total of about $40 million). Seeks to get more individuals with disabilities in the workforce.
Labor	Core IT architecture	The new budget will support department-wide IT improvements including security, infrastructure and online service delivery.
Labor	Fund accountability	The budget document expresses a strong need to improve financial and performance accountability for $9 billion in grants (annually), as well as the address the vulnerability to fraud in Foreign Labor Certification, Unemployment Insurance, Black Lung Benefits, and Employee's Compensation.
Labor	Web-based compliance assistance	Continuation of efforts to use non-enforcement tools to improve compliance with DOL regulations (labor standards, safety and health, pension benefit, etc.). Methods include Internet content, interactive electronic advisors, etc.
Transportation	Highway Fund	DOT budget for highways is proposed at $32.3 billion, a 6.5% increase over FY 2001. Funding includes $145 million for transportation alternatives for people with disabilities: $100 million in matching competitive grants for community-based organizations, and $45 million to promote innovative transportation solutions for people with disabilities. Also, there is R&D funding to support technology initiatives that reduces traffic congestion.
Transportation	Mass transit	Mass transit will receive a 7.25% boost ... to $6.7 billion.
Transportation	Aviation	Aviation is slated for $13.3 billion, nearly a 5.5% increase.
Transportation	Coast Guard	The Coast Guard increases over 10 percent, primarily to support operations and begin rebuilding the fleet of ships/aircraft. A focus for the budget boost will be on building and deploying capabilities for drug interdiction.
Transportation	Management reforms	The budget stated that air traffic management needs major reforms. There was also concern about the need for effectiveness in overseeing the use of billions of dollars for highways and infrastructure.
Treasury	IT modernization	$400 million is proposed to modernize outdated IRS computer systems.
Treasury	IRS service improvement	Complete hiring of almost 4,000 IRS staff to boost audits and customer service.
Treasury	Drug interdiction	An additional $35 million will go to support the Western Hemisphere Drug Elimination Act, in coordination with the U.S. Coast Guard.
Treasury	Potential reforms	The budget stated that targets for potential reform at Treasury include improved management practices, additional technology modernization (particularly at IRS and Customs Service), law enforcement training, and an expanded "Youth Crime Gun Interdiction Initiative."
Veterans Administration	Speed up VA disability claims	The VA budget will "rejuvenate" efforts to ensure timely and accurate processing of vets' disability compensation claims. In addition, the Veterans Benefits Administration will complete the consolidation of aging data centers into a "state of the art" facility in Austin, TX.
Environmental Protection Agency	Wastewater grants	States will have access to $1.3 billion in funding for wastewater grants, a $500 million increase.
Environmental Protection Agency	Management changes	EPA will place a greater emphasis on innovative approaches to environmental protection, such as market-based incentives. In addition, this Administration's EPA will place an emphasis on (1) making better and more appropriate use of information and analysis and (2) consolidating and integrating data collection efforts.
NASA	Space Station	NASA boosts budget for helping commercial industry meet NASA's future space launch needs. Also, NASA increases funding for the International Space Station but trims budget for Station's hardware and human space flight programs. Cost containment for the Space Station will be a continuing theme.
NASA	Other initiatives	NASA continues to fund Mars Exploration Program and supports second-generation Earth Observing System measurements.
NSF	Math and science partnership	A NSF Partnership Program will spend $200 million a year ($1 billion over 5 years). Fund will be available through state governments and channeled to higher education, K-12 school districts, and science education.
NSF	Right sizing	NSF grants may be inefficient, and NSF will develop efficiency measures to determine what is the right grant size for research the agency funds.
SBA	Special emphases	SBA's budget includes $5 million to promote a drug-free workplace and $5 million to help small businesses comply with the Americans with Disabilities Act.
SBA	IT Modernization	$10 million is earmarked for continuation of systems modernization efforts and provide training.
SBA	Asset Loan Sales Program	SBA is in the process of changing its basic mission-from portfolio management to an ongoing $10 billion loan asset sale program.