PRESIDENT'S PROPOSED FISCAL YEAR 2000 APPROPRIATION

The President's proposed level of $86.5 million for the RRB's fiscal year 2000 administrative expenses raises serious issues for the RRB concerning our ability to provide adequate service to our customers. With a budget of only $86.5 million we will be required to reduce staffing and information technology investments thereby essentially halting the progress we have made the last few years in continuing to provide excellent customer service with vastly reduced resources. In order to continue to provide adequate service to our customers, we estimate that we will need an additional $7.5 million, for an appropriation of $94 million. We have determined that it will take additional amounts of approximately $5.9 million for salary and benefits and $1.6 million for information technology investments to continue the progress we are making. Specifics on these funding needs will be provided in this statement.

At the President's proposed funding level the RRB staffing cuts will have an immediate negative impact on our customers and our trust funds. The accuracy and timeliness of benefit payments would suffer. Program integrity activities, which help to identify erroneous payments, would be sharply curtailed. Reduced funding will also have a long-term negative impact on customer service because we will have to defer numerous automation initiatives geared to improving our operations and making them more efficient. These negative impacts will be discussed more fully in this statement.

We will also discuss the potential for a sizeable rent increase by the General Services Administration (GSA). GSA's intention is to charge us commercial rental rates rather than the actual costs currently charged to trust fund agencies. This action would increase our rent by an estimated $3.35 million in fiscal year 2000. Because GSA notified us only last month of its intentions, this potential increase in our rent is not included in our $94 million budget request.

We estimate that, based on the projected average salary for our employees in fiscal year 2000, the President's proposed funding would be sufficient for only 1,002 full-time equivalents (FTE's). Since we anticipate being reimbursed approximately $3.7 million from the Health Care Financing Administration for Medicare activities in fiscal year 2000 for an additional estimated 44 FTE's and other administrative costs, we will be able to fund 1,046 FTE's. This is 150 FTE's less than we expect to need in fiscal year 1999. To assist the RRB in reducing staff, the President's budget includes proposed legislation to allow voluntary separation incentive payments (buyouts) through December 30, 1999.

Over the last several years, the RRB has undergone dramatic reductions in both staffing and funding which affect our ability to withstand further cuts. As the chart on the following page shows, at the President's proposed level of $86.5 million, FTE reductions from 1993 through fiscal year 2000 are projected to total 652, or a reduction of about 38.4 percent of the RRB's total staff. This is more than double the reduction of 15.7 percent projected for total civilian employment in the Executive branch, and nearly seven times the reduction of 5.7 percent projected for non-defense employment shown in the Analytical Perspectives published as part of the President's proposed budget for fiscal year 2000.

 Further, while total government-wide discretionary outlays are projected to rise in fiscal year 2000 as compared to fiscal year 1999, the RRB's administrative budget would undergo a 3.9 percent cut. Within the proposed budget, we would be required to both absorb this actual cut in spending and pay for an expected 4.4 percent January 2000 pay increase for our employees. In addition, as mentioned earlier, the agency could be required to pay significantly higher rent, which is not factored into our budget request.

As you consider our request for funding of $94 million for fiscal year 2000, please remember that the RRB administers entitlement programs established by the Congress. Our basic entitlement programs are not subject to discretionary spending. In order for us to manage further significant cuts in staffing in future years, our agency must have the information technology tools in place to help maintain an adequate level of customer service.

POSITIONING THE RRB FOR THE NEW MILLENNIUM

As we approach the next millennium, it is appropriate to reflect on our present position as well as our future prospects. At this time, we are continuing to focus heavily on the year 2000 (Y2K) project, to ensure that our systems will function accurately with dates that include the year 2000 and beyond. Approximately $935,000 of the President's fiscal year 2000 budget will be allocated to fund the completion of our Y2K project. This will be almost entirely for employees' salaries during the first quarter. As of January 15, 1999, we had implemented 100 percent of our mission-critical systems and 68 percent of our non-mission-critical systems. With the implementation of all of our mission-critical systems completed, we are confident in our ability to bring this project to a successful conclusion before the new millennium. During the remainder of fiscal year 1999 and the first quarter of fiscal year 2000, we will focus on completing all non-mission-critical systems, on integration testing for systems already converted, and on independent verification and validation. We will also finalize our business continuity and contingency plans, to ensure preparedness of our staff in case of unforeseen problems at the turn of the century.

After the Y2K project, the major challenge we face is to solidify our plans to support our vision of how we should conduct our business in the 21^st century. We envision our customers having a variety of choices when contacting the RRB, whether that be in person, or by telephone, mail, interactive voice response system, or the Internet. Our customers should know that, in almost all cases, they will be able to conclude their business within the context of that one, initial contact. To create this environment, the RRB will need highly trained employees who are able to resolve customer issues or facilitate their resolution when contacted. RRB employees, in turn, will need enhanced information technology capabilities to complete their handling of each transaction on the spot. To enable the customer to leave with answer in hand, the RRB will have programmed most types of customer transactions into its systems for automated execution on the appropriate calendar date, without further intervention by RRB employees. The benefits of this business environment include a higher level of service to the customer, who will usually receive a final answer at the first contact with the agency. Moreover, handling each transaction only once is a much more efficient process requiring fewer resources resulting in fewer errors. With careful planning and investments, we believe we can establish a framework for an efficient and effective information technology environment that supports our vision and our strategic goals well into the future. To get to that point, the RRB is requesting additional funding in fiscal year 2000, as detailed in the next section.

REQUEST FOR ADDITIONAL FUNDING IN FISCAL YEAR 2000

As set forth earlier, we estimate that the RRB will need an additional $7.5 million in fiscal year 2000, for a total administrative appropriation of $94 million. This assumes that we will continue to pay actual costs for rent of our facilities. GSA, however, has recently notified us that it intends to charge us full commercial rental rates. We estimate that GSA's action could result in increased rental charges of approximately $2.74 million in fiscal year 1999 and $3.35 million in fiscal year 2000. For these two fiscal years, GSA is asking that we pay the increased rent A...to the extent funds are available.@ We strongly oppose this request because Atrust funds@ should not be asked to pay anything more than the actual costs. For fiscal year 1999, our appropriation includes dollars for actual rental costs only. For fiscal year 2000, the President's budget and our requested funding level of $94 million also include funding for actual rental costs only, not full commercial rental rates.

Thus, assuming that the rent increase does not apply to fiscal year 2000, we would need an additional $7.5 million. Approximately $5.9 million of this increase is needed for salary and benefits to maintain our current level of customer service by funding 1,182 FTE's in fiscal year 2000. This funding would enable us to pay for the anticipated government-wide cost-of-living increase of approximately 4.4 percent on January 1, 2000. It would also enable us to avoid a reduction-in-force of 119 FTE's on October 1, 1999, or about 10 percent of our staff, and to ensure that critical positions remain filled throughout the fiscal year. Additional information concerning our need for adequate staffing is presented in the following section.

Simply put, a large staff reduction would have a serious negative impact both on the service we provide to our customers and on the agency trust funds. The trust funds would suffer greatly if staff shortages result in inaccurate payments or limit our ability to prevent and detect improper payments. In addition to funds for an adequate staffing level, we will need a net increase of approximately $1.6 million for automation initiatives to achieve our long-term objective for improved efficiency to maintain quality customer service.

Our requested technology initiatives will help position the agency to achieve its vision in the new millennium. The RRB's Information Technology Capital Plan was developed in support of our Strategic Information Resources Management Plan. Both support the agency's Strategic Plan, prepared in accordance with the Government Performance and Results Act. These plans outline a comprehensive approach toward maintaining and enhancing our customer service, but cannot be implemented without closing the near-term gap between our planned initiatives and those which a reduced level of funding would permit. Accordingly, we are requesting a net increase of $1.6 million above the President's budget for information technology. This will help support a broad range of additional technology investments needed to ensure excellent customer service in the future by improving our efficiency. Specifically, these are:

Document imaging and workflow system. To increase the use of electronic information and automation and thereby efficiency, the RRB plans to implement a comprehensive document imaging and workflow system for railroad retirement claims in the day-to-day operations of the agency. This system will provide benefits through reduced contract costs for folder storage and retrieval, improved access to claims material, elimination of paper and folder handling, and improved customer service. The estimated cost in fiscal year 2000 for this multi-phase project is $325,000.

Consolidated LAN/Server operations. In recent years, the RRB has established local area networks that allow integrated desktop computing throughout the agency. These networks rely on hardware (local area servers) and software (network operating systems), which must be maintained and kept current for effective and efficient information processing and communications. As part of the agency's ongoing need to maintain our LAN's, an estimated $100,000 is needed in fiscal year 2000 to provide for technological upgrades and/or replacements.

Standard workstation infrastructure. As part of an ongoing effort to maintain an adequate workstation infrastructure, additional funds are needed to ensure that adequate desktop computers are provided for all RRB employees. We would also replace or upgrade aging peripheral equipment, such as printers and scanners, to support an up-to-date desktop computing environment throughout the agency. Our estimate for these additional investments in fiscal year 2000 is $200,000.

Expansion of Federal Financial System software. The RRB would enhance its use of the Federal Financial System by procuring new software that will improve the capabilities of the financial staff in allocating, controlling, and tracking trust fund dollars and operating budgets. The estimated cost is $88,000.

Development of Internet initiatives. The RRB plans to develop three information technology initiatives to expand operations into the Internet environment. These include development of an Extranet for use by rail employers, development of Internet transaction software for use by railroad retirement beneficiaries, and development over 2 years of an Internet claims system for use by unemployment and sickness insurance beneficiaries. The estimated cost of all three of these initiatives during fiscal year 2000 is approximately $400,000.

PC-based employer reports software. This investment will provide for the development of new software to be used by small railroad employers to submit their service and compensation reports to the RRB. By replacing a large volume of paper reports currently being submitted, this initiative will allow for more efficient processing and up-front editing of reports. Planned for development in phases over 2 years, the project is estimated at approximately $100,000 during fiscal year 2000.

Customer/event-initiated transaction system. This initiative involves the development of a new application system that will create automated transactions based on specific types of events or activities, such as reports of earnings, related to retirement and survivor claims. This system will provide staff savings by eliminating delays and handoffs in the processing of claims, and will initiate debt recovery sooner than under current processing. Planned for development in phases over a 4-year period, the estimated cost of the first phase during fiscal year 2000 is $150,000.

Integrated application processing system. This initiative would create an integrated application processing system to provide service at the point of contact for the majority of the RRB's applicants. It is intended to streamline claims processing, reduce the number of handoffs, and improve customer satisfaction with the initial application process. The first phase of this multi-year project would be in fiscal year 2000, at an estimated cost of $180,000.

Real-time calculation system. This initiative would make the necessary components of annuity calculations available for immediate use by other existing systems that require the data for claims processing. This capability is a prerequisite for providing both the customer/event-initiated transaction system and the integrated application processing system described above. To be developed as a multi-year project, this system is estimated to cost approximately $250,000 during fiscal year 2000.

Integration and support services. Finally, the agency requires outside expertise on an ongoing basis to achieve enhanced integration and support services. Contract support, on a task order basis, would be used to provide technical assistance as needed in new technologies and programming languages at an estimated cost of about $50,000.

EFFECTS OF STAFFING AND FUNDING REDUCTIONS

In our transmittal letter for the RRB's Congressional Justification of Budget Estimates for Fiscal Year 2000, we listed a number of negative effects which would result from insufficient staffing and information technology support at the President's proposed budget level of $86.5 million. Not only would customer service suffer, but there would also be a serious negative impact on the agency's trust funds. We estimate that a large staff reduction would result in losses exceeding $19 million to our beneficiaries or the trust funds in fiscal year 2000 due to less accurate benefit payments, diminished program integrity activities, and uncollected debts. The appropriation of an additional $7.5 million to the RRB would prevent these negative effects. Listed below are some examples of the negative impact that reduced funding would have on customer service and the trust funds.

• The accuracy of all categories of claims being processed would decrease, and claims processing and correspondence workloads would become backlogged. The slightest change in accuracy results in millions of dollars of overpayments and/or underpayments. We estimate that erroneous benefit payments would increase by more than $8.3 million in fiscal year 2000.
  
• The scope of our program integrity activities would be seriously reduced. For example, insufficient staffing would result in the RRB discontinuing our wage matching program with the 50 States which is used to help ensure the accuracy of payments in both the unemployment/sickness insurance program and the retirement/survivor benefit program. In addition, continuing disability (medical) reviews would drop by 53 percent and result in undetected overpayments. Many other program integrity activities would be eliminated or reduced in scope. Overall, the impact on the trust funds would be a loss of about $7.8 million in fiscal year 2000.
  
• Reconsideration and appeals workloads would become delayed.
  
• The percentage of claims paid timely would decline, causing additional correspondence and processing workloads. For example, the percentage of railroad employees or spouses who receive their initial annuity payment within the time frame set in our performance goal would decrease from almost 92 percent in fiscal year 1998, to 80 percent in fiscal year 2000.
  
• We would need to decide whether we should close additional field offices, thus moving the point-of-contact further away from the customer.
  
• Approximately $3.1 million in debts would not be collected.
  
• The number of audits performed of railroad employers would be significantly reduced. These audits have averaged over $5 million a year in collections, offsets, or other receipts since inception.
  
• With reduced staffing, we would undertake fewer system development projects. Projects which would be deferred include future phases of a system to allow survivor applications to be taken on-line in a paperless, folderless environment, and further development of a real-time communications link with the Social Security Administration.
  
• In addition, as mentioned earlier, we would need to defer numerous new automation initiatives. These initiatives are essential if we are to make significant progress toward a streamlined, interactive, and flexible customer service environment that provides a broader range of choices and more cost-effective, efficient, and secure operations.

FINANCIAL STATUS OF THE TRUST FUNDS

Railroad Retirement Accounts. At the end of fiscal year 1998, the net position in the railroad retirement accounts was $16.4 billion, an increase of more than $1.1 billion over the previous year. In June 1998, we released a report on the actuarial status of the railroad retirement system covering the 25-year period 1998 through 2022. That report, which is generally favorable, indicates that cash flow problems arise only under the most pessimistic employment assumption, and even then not until 2022. This is one year later than in last year's report.

Railroad Unemployment Insurance Accounts. The equity balance of the railroad unemployment insurance accounts at the end of fiscal year 1998 was $102.5 million, an increase of $17.5 million from the previous year. The RRB's 1998 railroad unemployment insurance financial report was also favorable, indicating that even as maximum benefit rates increase 40 percent (from $43 to $60) from 1997 to 2008, experience-based contribution rates are expected to keep the unemployment insurance system solvent, even under the report's most pessimistic employment assumption.

In concluding our testimony, we want to stress the RRB's continuing commitment to improving our operations and providing quality service to our beneficiaries in the face of tight budgetary resources. Without the continuing appropriate level of funding support from Congress, we cannot continue to improve the efficiency of our operations.

Thank you for the opportunity to appear before you today. We will be happy to respond to any questions you may have.

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