Step 2: Collecting More

Given the size of the federal deficit, government must find better, more efficient, and more effective ways to pay for its activities. In Chapter 2, we showed how government could become more businesslike. In this section, we propose three ways to increase federal revenues: introducing or increasing market-based user fees, collecting what is due the government in delinquent loans and in accidental or fraudulent overpayment of benefits, and refinancing debt at lower interest rates.

Some people take advantage of government's largesse. They default on loans, or they double claim for health insurance benefits. Government has made it far too easy for people to get away with such actions. As a result, honest people are subsidizing their less scrupulous neighbors. Their actions raise the costs of federal programs, divert money from where it was intended, and discredit our system of governance. Here are the first steps we will take to end these practices.

Raising User Fees

Congress and federal agencies have shied away from charging for federal services. But government surely produces many goods and services for which consumers could, and should, pay." User fees can serve exactly the same function as prices do--providing federal managers with invaluable information about their customers. If customers like the services they are paying for--if they find the experience of visiting a particular national park enjoyable, for example--revenues will increase. If the agency can keep some of its additional revenues, it will be able to pay the increased operating costs associated with its rising number of customers. It will, as a result, learn to care about satisfying those customers.

Paying for the services you receive also is an issue of fairness. Why should taxpayers subsidize concessionaires or visitors to National Parks, or pay the cost of determining whether a business should dump sludge into the nation's waterways? Many services government provides because they are in the national interest or because we do not expect people to pay for them. But the customers of some government activities could and should pay. Many agencies, including the Food and Drug Administration, The Patent and Trademark Office, the National Technical Information Service, and the Securities and Exchange Commission already charge their customers fees. In some cases, these fees cover the full cost of operations. Taxpayers are not called upon to pay for the services that others receive. But, most agencies aren't allowed to keep the fees--the revenues are sent to the Treasury. Under these circumstances, agencies have no incentive to increase fees if market conditions merit it.

Where fees are allowed, Congress often limits them--removing any discretion from local managers. The National Park Service, for example, cannot charge more than $5 per car or $3 a visitor at many parks. At busy Yellowstone, Grand Teton, and the Grand Canyon, fees are limited to $10 a vehicle and $5 a visitor. Ending subsidies to concessionaires and moderately increasing fees would let the National Park Service invest more in its crumbling infrastructure, and spend more to protect America's priceless natural heritage.

Two-thirds of all the National Park Services facilities charge no admission fee at all. Yet the Park Service suffers from a multi-billion dollar backlog in infrastructure repair and rehabilitation projects for the National Park System. One-third of NPS primary paved roads are in poor or failing condition; a tenth of employee housing is obsolete or deteriorated; and 4,700 planned natural and cultural resource projects are on the waiting list for funding. Meanwhile, demands on the parks are rising sharply as the number of visitors--both American and foreign--grows each year. See Note 38

Action: Allow all agencies greater freedom in setting fees for services and in how the revenues from these fees may be used.

See Note 39

Even with a modest increase in fees, a family of four will pay less to spend a week in Yellowstone National Park than they would to see a first-run movie. The National Park Service should be allowed to keep 50 percent of revenues from fees to pay for vital services and projects.

The natural fear is that federal facilities are monopolies and, unless their pricing policies were regulated, they would become price-gauging profiteers. The concern is appropriate, but the policies it has led to are not. We would not recommend that national parks or documents repositories, for example, become federal profit centers--but they could, certainly, cover a larger part of their costs. They cannot charge exorbitant prices--after all, parks are in competition with each other, and with many privately owned recreation areas. The market will control the revenues they can realistically collect.

Pricing policy is an important management tool, and we recommend that Congress place it in the hands of many more federal managers. The National Performance Review recommends increasing the use of user fees for many activities. For example:

The FDA must ensure that 1.5 million food products imported each year meet the same safety and labeling standards as domestic products. It also certifies the safety of exported foods. Taxpayers, not manufacturers, pay for these inspections. User fees could save taxpayers as much as $1.4 billion over 5 years. See Note 40 The agency should also have the power to collect fees for conducting inspections and reviews, processing petitions and applications, analyzing samples and issuing device reports for food, drugs, devices, and radiological products.

The Department of Veterans Affairs runs a program to guarantee home loans for veterans. It lets them borrow at lower costs and make smaller down payments than would be possible without assistance, because the guarantee protects lenders in the event of foreclosure by reducing their potential loss. The department collects fees for this service, yet they are set very low. A modest increase in fees costing an extra $6 per month, for example, would still provide homebuyers with better-than-market terms. Yet it would generate an additional $811.4 million over 6 years. See Note 41

Under the Clean Water Act, the Army Corps of Engineers issues permits for discharges of dredged or filled materials into rivers, lakes and streams. The Corps has processed 15,000 applications at a total cost of $86 million. Yet it has charged only token fees for its services, collecting only $400,000 annually. This amounts to a $12 million annual subsidy for commercial customers, according to Defense Department estimates. Higher fees would help not only taxpayers but Corps customers, because additional revenues could pay for faster processing of applications. See Note 42

The Small Business Administration should have the power to establish user fees for the services they provide through the nationwide Small Business Development Center (SBDC) program. SBDC customers like the services they get, so the revenues from fees will enable the centers to expand successful programs.

Action: Increase revenues by refinancing debt or raising federal hydropower rates to cover full operating costs.

See Note 43

The Power Marketing Administrations (PMAs), such as Alaska Power, were mandated in 1944 to sell their power at low rates to help promote development in sparsely populated areas. Rates are still low today; in fact, the PMAs sell power to their public, private and cooperative utility customers at below market rates. Thus, the low electricity rates enjoyed by customers in some areas are subsidized by American taxpayers in others. Taxpayers subsidize PMA utility customers through low-interest loans. The interest rates most PMAs pay the government are artifically low. As the interest on the Treasury's long-term debt climbed in the 1960s, 1970s, and 1980s, the differential between those rates and rates on PMA loans created federal subsidies for these projects.

The Energy Department will take immediate steps to increase revenues from hydropower operations. The department will set a new rate policy for specified PMAs to seek recovery of full operating costs. As an alternative, the Energy Department may attempt to restructure the financing of the Bonneville Power Administration's debt, allowing Bonneville to issue bonds at market rates and repay its low-interest Treasury loans. The department will attempt to achieve such a refinancing with minimal effects on the near-term rates paid by its customers by seeking favorable bond interest rates and lengthening terms of repayment.

Collecting Debt

At the end of last year the federal government was owed $241 billion by former students, small businesses, farmers, companies developing alternative energy sources-- even foreign companies and governments. This makes the federal government the nation's largest lender. Of this total, a shocking $47 billion--20 percent of the total--was delinquent. See Note 44

To some extent, the federal government's unpaid debts reflect the fact that some of its loan programs operate more like grant programs. They are designed to meet national policy goals such as increasing the number of physicians in rural areas and supporting democratic governments overseas. But in other cases agencies have done a poor job in collecting what they are owed. After all, agencies are rarely held accountable for unpaid loans. All too frequently, neither are delinquent borrowers.

If agencies were to put a higher priority on pursuing delinquent debt and if Congress were to grant them greater flexibility in their debt collection operations, the federal government could collect more of what it is owed. The Office of Management and Budget will work with each agency to develop debt collecting strategies that employ the following expanded powers.

Action: Give agencies the flexibility to use some of the money they collect from delinquent debts to pay for further debt collection efforts, and to keep a portion of the increased collections.

See Note 45

Small investments in debt collecting can yield high returns. In 1989, the GAO discovered that the Veterans Administration had not recovered $223 million in health payments from third parties, such as insurers. Congress then changed the rules, allowing the VA to keep a portion of recovered third-party payments for administrative costs. With this incentive, the VA increased its recovery effort. The result: a four-fold increase in collections since 1989.

The VA, now called the Department of Veterans Affairs, wants to go even further by expanding its cost recovery efforts into its loan programs and establishing cost-sharing, performance incentives. Local hospitals, for example, might be allowed to keep some of the revenues they generate to buy new medical equipment. Overall, VA believes it could pull in another $500 million through 1999.

Opportunities like this occur throughout the federal government. The Education Department, for example, wants to use the additional repayments it would collect to pay for further collections of Higher Education Act debts. Budget offices tend to oppose the idea of sharing new earnings with the agency in question, because they want 100 percent of the earnings to meet deficit reduction targets. But unless the agencies have incentives to generate the earnings, they rarely produce them in the first place.

The solution is twofold. First, Congress should allow agencies to use some of the money they now collect from delinquent debts to pay for further debt collection efforts. Second, it should increase the incentives agencies have to pursue debt collections, by letting them use a small portion of their increased collections to invest in improving their overall operations.

Action: Eliminate restrictions that prevent federal agencies from using private collection agencies to collect debt.

See Note 46

In addition to sharing in their earnings, agencies would benefit from being able to use private debt collectors, as the Department of Education has done. While we know how cost-effective private collection agencies are, many agencies--including the Farmers Home Administration, Social Security, the IRS, and the Customs Service--are statutorily prohibited from using private agencies for the job, even on a contingency-fee basis. Congress should lift those restrictions.

Action: Authorize the Department of Justice to retain up to one percent of amounts collected through civil debt collections to cover costs.

See Note 47

When borrowers default on their federal loans, the first step is for the lending agency to try to collect--or, if permissible, to use a private debt collection agency. If these measures fail, agencies refer claims to the Department of Justice. While the Department handles the larger claims itself, it refers those under $500,000--which constitute 90 percent of all claims--to local U.S. attorneys' offices. In overworked U.S. Attorney's offices, debt collection is often a low priority.

To encourage the Department of Justice to collect debts, Congress should allow the department to retain 1 percent of everything it collects through litigating civil debt cases under $500,000. These retained funds should be used for paying staff working on debt collection, for paying case-related costs, and for paying for training and other investments to improve local debt collection programs.

Action: The Royalty Management Program will increase the royalty payments it collects by developing new computer programs to analyze and cross-verify data.

See Note 48

The federal government collects royalty payments from mining companies recovering minerals from federal land. The Interior Department's Minerals Management Service (MMS), the agency charged with the job, collects $4.7 billion annually. But its auditing system is limited and focuses heavily on the companies paying the largest royalties--so smaller companies don't always pay their share. The Department of the Interior will increase its collections--by as much as $28 million over five years--by developing better accounting and auditing systems. To make sure MMS can collect its dues, the Interior Department will ask Congress for permission to assess penalties on substantial underpayments and to impose fees on a broader range of administrative costs.

Action: HUD should offer incentive contracts to private companies to help federally subsidized home owners refinance their mortgages at lower rates.

See Note 49

HUD has succeeded in extending the dream of home ownership to many people. But the program does not take advantage of lower interest rates because the assisted owners do not have enough incentive to go through the work and bother of refinancing.

We recommend that HUD offer incentive contracts to private companies to let them share a percentage of the savings to the government of refinancing the mortgages. They could work with the home owners to arrange refinancing, doing the necessary leg work and make cost effective payments to home owners to induce them to refinance. Projected savings from this program could exceed $210 million over five years. Yet program beneficiaries would continue to receive exactly the same benefits.

Eliminating Fraud

While many think government steals from people, the reverse is also true: People steal from government. And, unlike private companies, some government agencies aren't very good at finding and prosecuting thieves. Moreover, the bureaucracy does too little to deter dishonest people.

Action: Make it a felony to knowingly lie on an application for benefits under the federal Employees' Compensation Act and amend Federal law so individuals convicted of fraud are ineligible for continued benefits.

See Note 50

The federal government manages many programs that provide benefits to people injured or taken sick. Not all the recipients are legitimate. When agencies discover fraud, however, they are often hamstrung in their ability to terminate benefits--so they keep paying fraudulent claims. For example, under the Federal Employees' Compensation Act (FECA), the Office of Workers' Compensation Programs cannot terminate benefits even after finding that someone made false statements about a disability or an illness.

In one case, a former federal employee collected almost $200,000 in benefits under the FECA disability program while working. When a witness told the government about the fraud, the employee hired someone to kill him. The employee was convicted of falsifying his application for FECA benefits, but the government could not cut off his compensation on the basis of his original false statements alone. See Note 51

Action: Improve processes for removing people who are no longer disabled from disability insurance rolls.

See Note 52

The Social Security Administration serves more than 10 million people through two disability programs, Disability Insurance and Supplemental Security Income. But the General Accounting Office has estimated that 30,000 of these recipients are no longer eligible. Overpayments from the trust funds to ineligible people are projected to reach $1.4 billion by 1997. See Note 53 The Social Security Administration faces a dual problem: overpayment to unlawful claimants and lengthy delays in providing benefits to legitimate claimants. Using present management practices, the agency lacks the staff to review its rapidly escalating caseload. The backlog of 700,000 pending claims is taking priority over reviewing continuing cases.

The agency is working to create a single disability claims processing system, but it needs greater budget flexibility to invest in hardware and software and to redeploy staff to meet growing demands. See Note 54

Action:Create a clearinghouse for the reporting and disclosure of death data.

See Note 55

Obviously, no federal agency should continue paying benefits after recipients have died. But stopping payments is not easy because sharing death information among different levels of government is restricted and not always reliable. The Social Security Administration regularly obtains death information from states under agreements with each of them (except Virginia). But most agreements restrict SSA's disclosure of death data, so the information the SSA collects cannot always be shared with those running other federally- and state-administered benefits programs. The result is millions of dollars in overpayments. For Americans living overseas, the problem is even worse. SSA gives benefit checks to overseas embassies to deliver. The State Department claims that SSA must check that the recipients are still alive; SSA says that it's the State Department's job.

We need not serve customers who are no longer alive. Congress should amend the Social Security Act to allow SSA to share death information with other programs. See Note 56