
             3B. INVESTING FOR PRODUCTIVITY AND PROSPERITY

                         INVESTING IN PEOPLE


----------------------------------------------------------------------
Our national economic strategy for America will put people first at
every stage of their lives. We will dramatically improve the way
parents prepare their children for school, give students the chance to
train for jobs or pay for college, and provide workers with the
training and retraining they need to compete in tomorrow's economy.


                                                President Bill Clinton
----------------------------------------------------------------------

  This discussion highlights significant Administration investments
that follow through on the President's commitment to "put people
first." These investments play a dual role. In a global economy where
a nation's only unique resources are the skills and knowledge of its
workforce, these investments are the key to prosperity. Further,
because many of these investments are targeted to our youngest and
least fortunate citizens, they also help break the cycle of poverty
and open success to all.

  The Administration is committed to producing real change in people's
lives. To do so within existing budget constraints requires choosing
investments with records of success or the ability to leverage other
resources. It requires reforming programs to make them more effective.
And it requires combining opportunity with an emphasis on
responsibility.


                Table 3B-1. MAJOR INVESTMENTS IN PEOPLE


     (Discretionary budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                               Actual Enacted Proposed   1994  1994 to
                                                       to 1995    1995
----------------------------------------------------------------------
Young children................   5,977   7,064   8,054    +990    +14%
Education.....................   7,278   7,539   9,089  +1,550    +21%
Workforce Investments.........   5,010   5,474   6,480  +1,006    +18%
National Service..............     279     575     850    +275    +48%
----------------------------------------------------------------------

  Each section of this discussion addresses an important aspect of
Investing in People:

 o Investing in Young Children will ensure that children start out
   healthy, are prepared to enter school, and receive good parenting.

 o Improving Education will raise the achievement of all children, and
   help reach the National Education Goals.

 o Investing in the Workforce will aid students' transitions from
   school to work, train the disadvantaged and retrain workers who
   lose their jobs in a changing economy.

 o Encouraging National Service will provide opportunities for young
   Americans to serve their communities and earn educational benefits
   in return.

 o Reforming Welfare will hold parents responsible for their children
   and provide them with the skills they need to support themselves
   and their families through work.

 o Redirecting Housing Assistance for families will provide better
   neighborhoods for raising children and expand opportunities for
   work.

                     INVESTING IN YOUNG CHILDREN

  As early as the fourth century B.C., the philosopher Plato stressed
the importance to a just and prosperous society of investing in
children from an early age. In The Republic, he discusses the type of
poetry youth should learn, physical exercise they should undertake and
diets they should follow to prevent diseases. He observes "... the
first step, as you know, is always what matters most, particularly
when we are dealing with those who are young and tender. That is the
time when they are taking shape and when any impression we choose to
make leaves a permanent mark."

  Several millennia later, numerous scientific studies confirm Plato's
suppositions about the importance of investing in our children.
Research on early, high-quality children's education programs shows
gains that may last into adulthood, including higher earnings, lower
unemployment rates, and lower crime rates. Supplementing the diets of
pregnant women and infants, and immunizing children against early
childhood diseases, also save lives and improve health. As Chart 3B-1
shows, these investments both enhance the life prospects of children
and save money for the taxpayer over the long run.




  Insert chart: CHRT3B_1



  Programs such as Head Start, childhood immunization and the Special
Supplemental Food Program for Women, Infants and Children (WIC), with
demonstrated success in stretching the minds and strengthening the
bodies of children, ought to reach more of their target population.
Other programs like Family Support and Preservation can teach
parenting skills, help families with children at risk of abuse and
neglect to stay together, and avoid foster-care placements.
Accordingly, the Administration is committed to expanding resources
for such programs. These and other programs for children and families
also need to be integrated in ways that insure seamless services to
recipients, as recommended by the National Performance Review.

  Working with the Congress, the Administration has already increased
funding for these programs by 19 percent. For 1995, the budget
proposes an additional 21 percent increase for a total increase
exceeding $2.6 billion (or 44 percent) over the two years it has been
in office (See Table 3B-2).


           Table 3B-2. PROGRAMS INVESTING IN YOUNG CHILDREN


            (Budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                               Actual Enacted Proposed   1994  1994 to
                                                       to 1995    1995
----------------------------------------------------------------------
Immunization Funds\1\.........     341     528     888    +68%    +54%
Children Receiving
 Immunization (000s)\2\.......     N/A     N/A  13,186     N/A     N/A


Head Start Funds..............   2,776   3,326   4,026    +21%  + 246%
Head Start Slots (000s).......     714     750     840    +12%    +53%
Percent of Target Population
 Reached\3\...................     51%     54%     60%     N/A     N/A


WIC Funds.....................   2,860   3,210   3,564    +11%    +54%
WIC Recipients (000s).........   5,920   6,510   7,220    +11%    +28%
Percent of Target Population
 Reached\4\...................     79%     85%     95%     N/A     N/A


Family Preservation and
 Support Funds\5\.............      --      60     150   +150%     N/A
Individuals Served (000s).....      --     N/A     N/A     N/A     N/A
Percent of Target Population
 Reached......................      --     N/A     N/A     N/A     N/A


Mandatory Programs............      --      60     574   +857%     N/A
Discretionary Programs........   5,977   7,064   8,054    +14%    +96%


Total.........................   5,977   7,124   8,628    +21%   +209%
----------------------------------------------------------------------

  \1\1995 funding shows a combined $464 million (current discretionary
immunization program) and $424 million (new entitlement program).
Specific goals will be established after survey data become available.
  \2\Data is for all children up through age 18.
  \3\Target population is 1.4 million Head Start eligible children.
  \4\Target estimate is based on a 1993 CBO study estimating that 84
percent of all WIC eligibles will apply for WIC.
  \5\Since Family Preservation and Support is a new entitlement
program, participation estimates have not yet been developed.
  N/A: Not applicable
----------------------------------------------------------------------

Childhood Immunization

  Children should be immunized against at least nine diseases. Most
inoculations should be received by age two. Through grants to State
and local health agencies, the Centers for Disease Control and
Prevention (CDC) currently finance about a quarter of all childhood
immunizations. State, local, and other Federal programs finance an
additional quarter. The remainder is financed through the private
sector.

  Investments in childhood immunizations have high returns in averted
medical costs, hospitalization and deaths. According to one study, the
combined measles, mumps and rubella vaccine saves more than $14 for
every dollar invested. Increasing childhood immunization keeps our
children healthy, prevents tragic, avoidable losses of life, and
reduces future medical costs.

  While countries such as Belgium, Denmark and Spain had immunization
rates at or above 80 percent for measles, polio, diphtheria and
tetanus by the mid-1980s, the United States had immunized only 55 to
65 percent of its pre-school children. A survey of nine cities in 1991
found a median measle, mumps and rubella immunization rate of 38
percent for children under two years. In some inner-city areas, the
vaccination rate may be as low as 10 percent. For 1992, data indicate
higher vaccination rates, but 71-72 percent of children at or below
the poverty level were still in need of at least one vaccine. In the
past, drops in vaccine use have caused dramatic increases in the
incidence of preventable childhood diseases such as measles and mumps.
Reported measles cases, for example, rose from a record low of 1,497
in 1983 to 46,000 between 1989 through 1991, before dropping again.

  One barrier to childhood immunization has been the high cost of
vaccine. To eliminate that barrier, the President sponsored an
initiative, enacted in OBRA 1993, to establish a new Federal vaccine
entitlement program by October, 1994. The new program, called the
Vaccines for Children Program, will buy free vaccine for underinsured
and certain low-income children. With the new program underway, health
officials have set a target of bringing vaccination rates for all
two-year olds nationwide up to 90 percent by the year 2000.

  Another barrier to childhood immunization has been access to
services. In 1995, the Administration will request $46 million in
added discretionary funds for extended clinic hours, mobile
vaccination units, vaccine purchases, publicity campaigns about the
importance of vaccinating young children and other outreach
activities. Combined funding levels for the new entitlement program
and the current discretionary program represent about a 68 percent
increase over the past year's funding level. Ultimately, the
President's health reform plan will have universal coverage for
childhood immunization as part of a comprehensive benefit package
available to all.

  The Administration will continue to explore linkages between
participation in federally assisted programs for child care and
immunization, along the lines of school immunization standards. When
children are in group settings like child care, infectious diseases
are the most dangerous. Immunizing children in child care programs can
prevent the spread of communicable illnesses.

  Preventing childhood diseases by early immunization makes good
sense. These measures also help children enter pre-school programs
(such as Head Start) and elementary school healthy and ready to learn.

Head Start

  Head Start is a $3.3 billion program offering comprehensive social
services for pre-school children. The 2,000 local Head Start centers
provide early childhood development services such as education, health
care, and nutritious meals. The program helps disadvantaged
preschoolers aged 3 to 5, 90 percent of whom must be from families
below the poverty line, prepare to succeed in school.

  In addition, virtually all of Head Start families receive social
services directly or through referral from Head Start, and 36 percent
of paid Head Start staff are current or former Head Start parents.

  Evaluations of Head Start children have found short-term gains in
IQs, better reading and math skills, higher socio-emotional test
scores, and improved health status. Former Head Start children are
more likely to be promoted to the next grade and less likely to be
assigned to special education classes. Long-lasting positive effects
are harder to prove. One long-term study, which followed a group of
participants in a high-quality pre-school program through age 27,
found that it returned $7.16 for every dollar invested because it
halved participants' crime rates, significantly increased
participants' earnings and property wealth as adults, and increased
their labor-force participation. Unfortunately, not all Head Start
programs deliver the high-quality services needed to produce such
results.

  For these reasons the Administration is committed not only to a
major expansion of Head Start, but also to improvements in quality. To
address both issues, the Administration appointed a bipartisan
Advisory Committee in June 1993 to review Head Start and make
recommendations for its improvement and expansion. This panel has
identified three principles to guide Head Start:

 o Excellence.--We must strive for excellence in serving both children
   and families. This means more emphasis on improvements in staffing,
   in financial management, in facilities, and in Federal oversight
   and research.

 o Expansion.--We must expand the number of children served and the
   scope of services provided in a way that is more responsive to the
   needs of children and families. This means more full-day, full-year
   programs, more targeting of resources to high concentrations of
   poverty, and a possible expansion to younger children.

 o Partnerships.--We must encourage Head Start to develop partnerships
   with key community and State institutions and programs with similar
   objectives.

  The Administration has embraced this framework in its vision of Head
Start for the 21st century. For 1994, it obtained a 20 percent
increase over the past year's funding level; and it requests a 21
percent funding increase for 1995. As Chart 3B-2 shows, the proposed
number of Head Start slots for children increases by about 18 percent
from 1993 to 1995.




  Insert chart: CHRT3B_2



  The budget supports significant and sustained increases to continue
expansion of Head Start services, to ensure quality in all aspects of
the program, and to provide local flexibility to respond to family and
community needs. Program quality set-asides of one quarter of the
annual increase in funding will be spent on higher staff salaries,
upgrades to facilities and teaching tools, and transportation (such as
new buses for the children). For the children of working parents, the
Administration plans to offer about 100,000 all-day program slots by
1995 (See Chart 3B-2) and about 290,000 by 1999. These expansions and
quality improvements invest not only more, but also more wisely, in
the future of our most vulnerable children and families.

  To maintain their intellectual and social gains, Head Start alumni
must enter stronger, more challenging schools. The Administration's
reauthorization proposal for Title I is an essential element in
reforming and restructuring schools attended by poor children, and for
providing continuity between pre-school and elementary school
education (See the following "Education" section).

Special Supplemental Food Program for Women, Infants, and Children
(WIC)

  The WIC program, established in 1972, improves the nutrition of
eligible low-income pregnant, breastfeeding or post-partum women, and
their children under age five. The program provides supplements such
as eggs, cereal, milk, juice, and cheese--foods often lacking in
low-income diets--as well as nutrition counselling and referrals to
other services such as health care. To be eligible, participants must
have incomes below 185 percent of the poverty line (about $22,000 for
a family of three in 1993) or receive Medicaid, Food Stamps, or Aid to
Families with Dependent Children, and be found to be at medical or
nutritional risk. The program is fully federally funded. Today, about
four in every ten babies born in America participate in WIC.

  Recent studies of WIC suggest the program improves the health status
of pregnant women and reduces by 25 percent adverse birth outcomes
such as low birthweight among Medicaid beneficiaries. Chart 3B-3, for
instance, shows that in five States WIC mothers consistently had lower
percentages of babies born with very low birthweights than non-WIC
mothers. (Low birthweight causes health and development problems--and
is present in 61 percent of all U.S. infant deaths.)




  Insert chart: CHRT3B_3



  WIC also improves nutrition and prenatal care, and lowers fetal
mortality. One study concluded that every dollar spent on WIC for
pregnant women saves $1.77 to $3.13 in Medicaid costs in the first 60
days after birth. WIC has also been found to reduce iron deficiencies
in infants and improve vitamin and mineral intakes in young children.

  Recognizing the role of WIC in children's health, the 1994 budget
provided a 15 percent increase, or $427 million above the previous
year. The budget proposed that by the end of 1996, States should have
the funds to serve the 7.5 million post-partum women, infants and
children who meet current eligibility requirements and want to
participate in WIC. In this year's budget, the President seeks to
increase WIC spending by another 11 percent. This will expand the
program to serve about 7.2 million women and children in 1995--up from
6.5 million in 1994--and maintain the funding needed to achieve the
participation targets in the 1994 budget.

  Because participation in WIC is so closely linked with improved
health, the Administration further addresses WIC in the Health
Security Act, the President's health care reform proposal. The Act
includes a special fund to supplement annual WIC appropriations, and
thus ensure that the program's participation targets for 1996 will be
met.

Parenting and Family Support

  Although government can improve the health, nutrition, and education
of children, even more important to their welfare is good parenting
and strong families. Yet some parents receive almost no help in
learning to raise the next generation, and new babies do not come with
easy-to-read instructions. The Home Observation for Measurement of the
Environment scale, which measures conditions like the quality of the
physical environment, the availability of intellectual stimulation,
and the degree of emotional support provided by parents, suggests that
11 percent of all children aged 3 to 5 years have deficient home
environments. Among low-income households, this rate more than
doubles. Today, parenthood is all the more difficult because of the
dual burdens of so many working mothers, parents who are trying to
raise children alone, and the gradual decline in informal sources of
information and support, such as extended families. Substance abuse,
community violence, poverty, and homelessness have touched too many
families, making the challenge of raising healthy children even
greater.

  Most families can raise their children with only a little extra
help, but some need more intensive services, and a few have such
serious problems that there is no alternative to out-of-home
placement. From 1981 to 1991, child abuse and neglect reports
increased two-fold to about 2.7 million (Chart 3B-4), and the foster
care caseload increased by roughly 60 percent, to nearly 430,000
children. By 1990, there were approximately six children per thousand
in foster care, the highest measured rate since 1962. Aside from the
trauma of being removed from their parents, children in foster care
also may face frequent shuttling between foster homes and interminable
waiting periods before permanent placement (a phenomenon known as
"foster care drift").




  Insert chart: CHRT3B_4



  To meet the needs of families for both preventive services, like
parenting education, and more intensive crisis services,
community-based programs have sprung up across the country. But such
services reach too few families. Recognizing this, the President
proposed a major new program, Family Preservation and Support, in
1993. This new law, the most significant change in over a decade, will
provide services such as family counselling, respite care of children,
stress management and parenting skills training. The new program:

 o provides community-based services that help and support parents to
   raise their children more effectively;

 o prevents abuse and neglect before they occur; and

 o helps children in foster care to return to their families as
   quickly as possible.

  Family Preservation and Support, which will provide over $900
million over five years, has a 75 percent Federal funding match rate.
Families with children at risk of placement in substitute care and
parents opting to improve their parenting skills are eligible, without
regard to income levels. Using the new funds, States could expand home
visiting programs like the Home Instruction Program for Preschool
Youngsters in Arkansas and the Parents as Teachers program in
Missouri, which have been replicated in almost every State.

  Home visiting programs, which are provided nationwide in countries
such as the United Kingdom and Denmark, can teach parents about child
development, provide developmentally appropriate activities for
parents and children to complete together, and ensure developmental
screening of participating children. Longitudinal studies have found
lasting benefits from some targeted home visiting programs in the
United States, including less welfare dependency, a lower incidence of
abuse and neglect, and higher IQ scores.

  States will also provide services such as intensive family
preservation. Such programs employ caseworkers to work intensively
with troubled families in their homes for a short time. Caseworkers
provide referrals for problems such as substance-abuse treatment where
needed, and help families cope with stress and other factors that may
lead to child abuse and neglect.

  In conjunction with the Family Preservation and Support program, the
Administration also obtained changes to the cluster of programs that
provide child welfare services:

 o States receive three years of enhanced (75 percent) Federal funding
   matches to develop automated child welfare management information
   systems. Such systems provide regular and timely status updates for
   each child in the child welfare system, allaying long-time concerns
   that many States do not have adequate information about the
   children they have in foster care.

 o An estimated $35 million of the Family Preservation and Support
   funds will be awarded as grants to State court systems to determine
   more effective, streamlined ways to handle foster care cases and to
   otherwise apply child welfare laws judiciously. Overcrowded court
   dockets make it difficult to adjudicate child welfare cases swiftly
   and contribute to foster care drift.

 o The Independent Living program, which provides transitional support
   to foster children who "age out" of the foster care system, was
   permanently reauthorized. Independent Living teaches teenagers
   basic skills such as how to budget their income, keep house, and
   find a job. The program will continue at its current annual level
   of $70 million.

 o $26 million of the authorized funding for Family Preservation and
   Support is set aside for evaluation, research, demonstration,
   training and technical assistance. Because the Family Preservation
   and Support program is new, it is important to monitor how well it
   works. Evaluation grants will help to determine which types of
   services best help families of at-risk children and teach good
   parenting skills.

  Millions of parents struggle to raise children with little
assistance or support from the community. New and inexperienced
parents may lack the knowledge to raise a child. Families may not get
services until they are reported for abuse or neglect, and sometimes
not even then. Family preservation and support services help
communities deliver parenting training and assistance to troubled
families before crises erupt.

  The Administration pledges to seek significantly greater resources
for programs such as childhood immunization, Head Start, WIC, and
Family Preservation and Support. Such programs can improve the life
prospects for children, especially those from low-income families, and
help ensure that they enter the school system ready to learn.

                              EDUCATION

  A world-class education for all children is one of the
Administration's highest priorities. The American education system is
a partnership of States, communities, educators, and parents, but
national leadership is essential. With enactment of the
Administration's legislative and budget proposals, the Federal
Government will become a full partner in the nationwide effort to
raise the educational achievement of all children and reach the
National Education Goals.

  The Administration has proposed new education legislation and seeks
increased resources to improve the education system. The discretionary
budget authority increase for the Department of Education--seven
percent, or $1.7 billion, over 1994--is one of the largest increases
for any department.

  The Administration is not just proposing to invest more. It is also
proposing to reinvent the Federal role in elementary and secondary
education to raise faltering educational achievement. The new role
would change the whole system, through high standards and
accountability for results; new flexibility for States, communities
and schools; and new Federal funding to support them.


----------------------------------------------------------------------
LEGISLATION PROPOSED AND ENACTED:
 The Student Loan Reform Act of 1993
 National Service Trust Act of 1993

LEGISLATION PROPOSED AND PENDING IN CONGRESS:
 The Goals 2000: Educate America Act
 The Improving America's Schools Act
 The Safe Schools Act
 The School-to-Work Opportunities Act
----------------------------------------------------------------------


Table 3B-3. FUNDING OF SELECTED INVESTMENTS TO RISE 23 PERCENT IN 1995


            (Budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                               Actual Enacted Proposed   1994  1994 to
                                                       to 1995    1995
----------------------------------------------------------------------
Goals 2000....................  ......     105     700    +595   +567%
School to Work (Education and
 Labor).......................  ......     100     300    +200   +200%
Title I Education for
 Disadvantaged................   6,696   6,912   7,579    +667    +10%
Safe and Drug-Free Schools....     582     472     660    +188    +40%
Head Start....................   2,776   3,326   4,026    +700    +21%
National Service..............     279     575     850    +275    +48%
                                --------------------------------------
  Total.......................  10,333  11,490  14,115  +2,625    +23%
----------------------------------------------------------------------

Elementary and Secondary Education




  Insert chart: CHRT3B_5



  The elementary and secondary education system is in serious trouble,
and has been for many years. Government at all levels, business
groups, and others have documented low educational performance
relative to other nations, declining college entrance test scores,
weak educational preparation of teachers, substantial numbers of
adults without the literacy skills to get a driver's license or read a
ballot, and inefficiencies in school management. Federal, State and
local spending for elementary and secondary education has soared
during this period--rising 33 percent in constant dollars from 1982 to
1992--without comparable nationwide improvement in student
achievement.

  Few States or school districts have established challenging
performance standards for their students; most measure progress with
tests that are not related to the material taught. Parents can rarely
obtain information to hold their children or the schools accountable
for performance. There are many examples of individual schools,
teachers, and States changing their systems and achieving good
results. But there are too few such examples to improve educational
performance nationwide.

  The Nation's Governors and the Federal Government agreed in 1990 to
the National Education Goals.



----------------------------------------------------------------------
                     THE NATIONAL EDUCATION GOALS.
                          By the Year 2000:

 1. All children will start school ready to learn.
 2. High school graduation rate at least 90 percent.
 3. Competency in challenging academic subjects.
 4. First in the world in science and mathematics.
 5. Literacy for all adults.
 6. Safe and drug-free schools.
----------------------------------------------------------------------

  National goals are the first step. Still needed are: challenging
academic standards; curricula designed around those standards;
teachers trained in helping children learn the curricula; and
assessments that fairly and accurately measure progress so that there
will be accountability to students and parents.

  Systemic Reform.--The centerpiece of the Administration's education
reform agenda is the Goals 2000: Educate America Act. Sent to Congress
by the President on April 21, 1993, Goals 2000 will provide the
national framework to coordinate Federal, State, and local efforts
into an integrated strategy for effective education reform.

  Goals 2000 will disseminate reforms throughout the education system.
In 1993, about half of the States were planning for one or another of
the components of systemic reform, but only one or two had fully
developed plans and timetables for reform. School reform has to move
more rapidly and more consistently in all school districts in order to
achieve dramatic improvement in educational achievement. Educators,
business leaders, and parents are beginning to learn what works; these
findings must now be used to improve schools in much larger numbers
and in approaches designed by each community to meet its needs. New
resources and national assistance under Goals 2000 will encourage
communities and States to focus their efforts and sharply accelerate
the pace of reform.

  States and communities will receive new Federal funds and other
assistance to change whichever parts of their systems stand in the way
of world-class performance. Some States need to plan and test new
ideas. Others need funds for teacher training and technical assistance
to implement reforms in all schools. Still others need to replace
outmoded tests with multi-faceted assessment systems linked to the new
standards and curricula.

  For 1995, the Administration seeks $700 million for Goals 2000, an
increase of $595 million over the 1994 appropriation. Beginning in
1996, the budget calls for annual appropriations of $1 billion. With
this major commitment, every State and as many as 20,000 public
schools (about one-fifth of all schools in the nation) would receive
financial assistance to implement reforms by 1996, with more schools
added every year thereafter.

  Goals 2000 would also establish an independent National Education
Goals Panel, consisting of governors, State legislators, Congressional
leaders, and Administration officials. The Panel would monitor the
Nation's progress toward the education goals and report annually on
accomplishments and remaining problems. The Act would also create: a
National Education Standards and Improvement Council to certify
voluntary national and voluntary student performance standards; and a
National Skill Standards Board, to work with business, labor and
schools to develop standards for what students should know to enter
different careers. State and local participation would be voluntary,
in keeping with this Nation's tradition of local and State control of
education. However, these groups will provide much-needed models of
world-class standards toward which reformers can aim.

  The Improving America's Schools Act.--Goals 2000 would provide the
new educational setting in which over $10 billion would be spent under
the Administration's proposal to reauthorize and restructure the
Elementary and Secondary Education Act (ESEA). The proposal was
transmitted to Congress on September 13, 1993 as The Improving
America's Schools Act.

  Particularly in the largest ESEA program, Chapter 1 (1994 funding:
$6.9 billion), Federal law and policy since the mid-1960s have
stressed discrete and separate services for children with low
educational achievement. Unfortunately, that approach has too often
failed to improve the overall education they received. Emphasis has
been on compliance with resource tracking rules, not on improved
educational performance. Constant testing is required, using tests
that stress mastery only of low-level basic skills, not challenging
subject matter. Little has been done to improve the training of
teachers or the quality of curriculum.

  National evaluation studies by independent groups and the Department
of Education document that Chapter 1 and other ESEA programs have had
little impact on the educational progress of the five million children
served, despite expenditure of tens of billions of dollars over the
years. Furthermore, studies provide stark evidence that the
educational achievement of children in schools with the highest levels
of poverty is very low. Over half the children in schools with the
highest concentrations of poverty are low achievers, compared to only
15 percent in schools with the least poverty. ESEA programs need to be
restructured to produce better results.

  The Administration's reauthorization proposal is based on five
principles:

 o High standards for all children.--This is the essential starting
   point for improving student and school performance. Federal
   programs, particularly those for at-risk children, have generated
   low expectations for students, focusing instruction on low-level
   basic skills. To receive funding under the new proposal, schools
   would set challenging performance standards for all students,
   including those at most risk of failure, and design curricula based
   on those standards.

 o Focus on teaching and learning.--Opportunities for professional
   development of teachers and other school staff have been haphazard,
   short-term and ineffective. An expanded "Eisenhower Professional
   Development Program" would support quality pre-service and
   in-service training and education for teachers and administrators.
   These would be tied to the high standards. A system of regional
   technical assistance centers would coordinate Federal programs and
   would assist States and communities implementing educational
   improvements. A new education technology program would support
   innovation to raise educational achievement for all students.

 o Flexibility to stimulate local initiative, coupled with
   responsibility for improved student performance.--Flexibility and
   responsibility would replace compliance with administrative process
   regulations as the hallmark of ESEA programs. The proposal would
   give schools and communities greater flexibility by simplifying the
   law and providing a broad waiver authority to remove Federal
   obstacles to State and community success. More schools with the
   highest concentrations of poor children could use Federal funds to
   raise educational improvement throughout the whole school rather
   than for selected grades or groups of students. A public "charter
   schools" initiative would encourage teachers, parents and others
   to create their own high-performance schools, "schools within
   schools," or clusters of schools, operated outside restrictive
   rules and regulations. Funding for the proposal's Title I
   (successor to Chapter 1) could help extend the school day or school
   year. Under Title I, schools and school districts would be
   sanctioned for failure to make progress toward State performance
   standards, and would be rewarded for outstanding performance.

 o Link schools, parents, and communities.--Schools alone,
   particularly in high poverty communities, cannot ensure that all
   students reach high standards. The new Act will encourage and
   enable parents to work in partnership with teachers and
   administrators to improve learning, and help schools forge strong
   ties with community social services. Parents would be encouraged to
   help their children do well in school.

 o Resources targeted to greatest needs and in amounts sufficient to
   make a difference.--Federal resources are currently spread too
   thinly across too many schools. Academic performance tends to be
   lowest in schools with high concentrations of poor children. Under
   the new Act, Title I funds would be better targeted to the poor
   children in the schools and school districts serving areas with the
   highest concentrations of poverty. In the Migrant Education
   program, funds would be targeted to the children with the greatest
   need for additional services: those children who have moved within
   the previous 24 months. Thirty percent of resources distributed by
   States to school districts under the Safe and Drug-Free Schools and
   Communities program would be targeted on a limited number of
   high-need school districts.

  Overall, spending on ESEA programs would increase more than $900
million over 1994. State and local programs under the restructured
ESEA Title I would be funded at $7.6 billion, an increase of $667
million, or 10 percent, over comparable activities in 1994.

  Safe and Drug-Free Schools.--Violence and drug and alcohol abuse in
many schools make effective teaching and learning impossible. On May
25, 1993, the Administration proposed the Safe Schools Act to help
schools reduce violence by adding security personnel, finding and
removing weapons, and teaching alternative approaches to dispute
resolution. Congress appropriated $20 million for 1994 contingent upon
enactment; the budget includes $100 million for 1995.

  In addition, the Administration proposes to expand the current
"Drug-Free Schools and Communities Act" into a new Safe and
Drug-free Schools and Communities program that would add violence
prevention activities. The budget requests $560 million for the new
Act, an increase of $108 million, or 24 percent, over comparable
activities in 1994. Beginning in 1996, the separate Safe Schools Act
would be phased out as comprehensive State and local violence and drug
abuse prevention strategies take over. (See also Chapter 5, "Personal
Security: Crime, Illegal Immigration, and Drug Control.")

  School-to-Work Opportunities Act.--In contrast to those in other
industrialized nations, few of our Nation's schools work with
businesses to prepare students for the workplace or further skill
training. The School-to-Work Opportunities Act, sent to Congress on
August 4, 1993, provides a framework to help States implement such
strategies, and increases funding to $300 million, $200 million more
than Congress appropriated for comparable activity in 1994. (See the
following "Workforce Investment" section.)

  Improving literacy.--Findings from the National Adult Literacy
Survey indicate that over 40 million adults can function only at the
lowest literacy proficiency level--unable to do even simple tasks,
such as locating a meeting time and place on a form. Literacy must be
addressed at all age levels. Even Start in the Education Department
and Head Start in the Department of Health and Human Services both
address inter-generational literacy by working with young children and
their parents together. Grants to States under the Adult Education
program would be funded at $267 million, an increase of $12 million,
or 5 percent over 1994, to help States provide basic literacy
improvement and high school equivalency degrees for disadvantaged
adults. Workplace literacy grants would be funded at $24 million, $5
million, or 26 percent above 1994 to help businesses work with
educational institutions to raise the literacy levels of workers.

  Head Start.--The budget provides $4 billion for Head Start in 1995,
an increase of $700 million, or 21 percent over 1994. Head Start is
the key program in the Federal Government's strategies to help the
Nation reach the first National Education Goal of all children
entering school ready to learn. The Administration's Title I proposal
calls for coordination with Head Start in each Title I school
district. (See the previous section, "Investing in Young Children.")

Postsecondary Education

  Increasingly, the economy demands, and high-paid jobs require,
education or training beyond the high school level. Yet without grants
or loans, higher education is beyond the reach of many families. The
Federal Government is the largest provider of need-based student aid.
The major Federal programs are Pell grants and student loans.

  The loan programs have become very costly, difficult to administer,
and subject to abuse. The growing use of loans to finance
postsecondary education and training overburdens increasing numbers of
borrowers, who often make career decisions based more on the income
needed to pay off debt than on real career desires.

  In response, the President sent to Congress two bills: The National
Service Trust Act and The Student Loan Reform Act. Both were enacted
in 1993. (See the  "National Service" section below.)

  The Student Loan Reform Act.--The guaranteed loan system that has
evolved since 1965 is riddled with administrative complexities;
provides high subsidy payments to banks, intermediary guaranty
agencies and secondary markets; confuses students and schools; and has
default costs in excess of $2 billion per year. It has been the
subject of repeated Congressional investigations and GAO and Inspector
General criticisms.




  Insert chart: CHRT3B_6



  The Administration's Student Loan Reform Act replaces guaranteed
lending with Federal direct lending. Direct lending, plus the Act's
reductions in the cost of the guaranteed program during the phase-in
period, saves taxpayers $4.3 billion (CBO estimate) over the first
five years. The Act lowers charges and interest rates paid by
borrowers and increases fees on banks, guaranty agencies and secondary
markets. Direct lending simplifies administration, over time
eliminating from new lending the 8,000 banks, 46 guaranty agencies and
the secondary markets. The Act phases in direct lending over several
years, so that by 1998, at least 60 percent of lending will be direct
lending--or more if the schools ask for it. The direct and guaranteed
loan programs together provide about $20 billion per year in loan
capital to 5.5 million borrowers.

  The new Act creates income-contingent repayment options for direct
loan borrowers. Instead of repaying on fixed or other amortization
schedules over ten years or less, regardless of earnings, borrowers
may repay loans as a small percentage of income over an extended
period. Borrowers may also suspend repayment during times of low
family earnings, to avoid defaults. All borrowers who now have loans,
or will take out guaranteed loans during the phase-in period, can
convert those loans to Federal direct loans to take advantage of
income-contingent repayment. Through this repayment option, borrowers
may take volunteer or low-paying community service jobs and still meet
their loan obligations.

  Program management.--The rapid growth in size and complexity of the
postsecondary grant and loan programs through the 1980s, accompanied
by inadequate Federal management, led to substantial abuses by some
schools and default costs exceeding $2 billion per year. Laws enacted
since 1989, especially the Higher Education Amendments of 1992, give
the Education Department many new tools to improve the integrity of
the programs, protect students, and reduce defaults. In particular,
the new State Postsecondary Review Program, for which the budget seeks
$35 million, $14 million--or 65 percent--over 1994, reviews schools
with indications of program abuses and helps remove unscrupulous
schools from student aid programs. The Student Loan Reform Act, when
fully implemented, will further simplify loan program administration.
The budget provides new staff and resources to manage student aid
programs.

  Pell grants.--The 1995 budget provides $6.5 billion for the Pell
grant program for school year 1995-1996. Of this amount, $118 million
would complete the retirement of the current estimate of the funding
shortfall from prior years. For school year 1995-1996, $6.4 billion
would provide grants to 4.1 million individuals, the most ever. The
Administration also proposes to increase the maximum award by $100 to
$2,400.


 Table 3B-4. EDUCATION DEPARTMENT BUDGET INCREASES 7 PERCENT OVER 1994


     (Discretionary budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                               Actual Enacted Proposed   1994  1994 to
                                                       to 1995    1995
----------------------------------------------------------------------
Goals 2000....................      --     105     700    +595   +567%
School to Work (Education
 share).......................      --      50     150    +100   +200%
Title I.......................   6,696   6,912   7,579    +667    +10%
Safe and Drug-Free Schools....     582     472     660    +188    +40%
Impact aid....................     840     798     750     -48     -6%
Professional Development......     711     650     800    +150    +23%
Bilingual and Immigrant
 Education....................     213     227     254     +27    +12%
Education of the Disabled.....   2,966   3,109   3,295    +186     +6%
Vocational and Adult Education   1,474   1,481   1,447     -34     -2%
Pell Grant Program............   5,788   6,304   6,393     +89     +1%
Pell Grant Shortfall..........     671     250     118    -132    -53%
Work-Study; Supplemental
 Grants.......................   1,200   1,200   1,300    +100     +8%
Other Student Aid Programs....     253     245      18    -227    -93%
Historically Black Colleges...      98     101     106      +5     +5%
Other Higher Education
 Programs.....................     735     793     783     -10     -1%
Research and Statistics.......     189     202     226     +24    +12%
All Other.....................   1,278   1,455   1,481     -26     -2%
                                --------------------------------------
  Total.......................  23,694  24,354  26,060  +1,706     +7%
----------------------------------------------------------------------

The Department of Education Budget

  Discretionary budget authority for the Department of Education in
the 1995 budget is $26.1 billion, an increase of $1.7 billion, or 7
percent over 1994. Although a number of programs would receive
increased funding, not all of Education's 230 current programs should
be funded or have funding increased. Many are too small to have any
significant impact. Others address lower-priority issues, are
ineffective, or have long since accomplished their original purpose.
The National Performance Review (NPR) cited 34 such programs. Seven of
these were terminated by Congress in 1994. The remaining 27 NPR
programs, plus another six programs, would be ended by the 1995
budget. Thus, 33 programs, funded for a total of $639 million in 1994,
would receive no funding in 1995. For example, the budget provides no
funding for the Impact Aid "b" program, funded at $123 million in
1994. Impact Aid generally compensates schools for educating children
who live on, or whose parents work on,  Federal property. Funding is
continued for children who both live on and have parents who work on
Federal property.

                        WORKFORCE INVESTMENTS

  Economic change has challenged America throughout its history, and
successfully meeting this challenge has long set America apart from
less flexible societies. But in recent years, advancing technological
developments, defense downsizing, corporate restructuring, and
intensifying global competition have altered the nature of our
challenge.  Many Americans are anxious about economic change and
fearful about their economic security.

  Current training and unemployment programs were designed in a
different time to suit a different economy. When the existing system
was established, a much larger number of low-skill, entry-level jobs
awaited high-school graduates. Today's typical eighteen-year-old needs
a higher level of skill to compete in the emerging global economy. A
large share of the unemployed cannot expect to return to their old
jobs, and must seek new work.  Gaining entry to the labor market
requires a higher level of skill.  Finally, maintaining membership in
the workforce requires greater flexibility.

  This means fundamentally rethinking government's role in the labor
market. The transition from school to work is at once more important
and more difficult to manage. As skill requirements rise, the
transition from one job to the next is more hazardous and, for some,
more common. To preserve Americans' historical adaptability and
openness to change, government must help citizens equip themselves to
negotiate these workforce transitions.

  To boost productivity growth and create a better-prepared workforce,
the Administration has proposed new investments in working people, and
a shift in policy from simply buffering the pain of unemployment to
actively promoting re-employment. Despite the extraordinary budget
constraints facing all discretionary programs, the 1995 budget
includes $6.5 billion in budget authority for employment and training
programs, an increase of $1.0 billion, or 18 percent, from the 1994
level. (See Table 3B-5.)


                    Table 3B-5. WORKFORCE PROGRAMS


            (Budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                               Percent
                                         1993    1994    1995  Change:
                                        Actual Enacted Propos- 1994 to
                                                          ed     1995
----------------------------------------------------------------------
Grants for Training the Disadvantaged.   1,692   1,647   1,729   +5.0%
Dislocated Worker Assistance..........     651   1,118   1,465  +31.0%
Job Corps.............................     966   1,040   1,157  +11.3%
Summer Youth Employment...............   1,025     888   1,056  +19.4%
School-to-Work (DOL Share)............      --      50     150 +200.0%
One-Stop Career Shopping..............      --      50     250 +400.0%
Other Employment and Training.........     676     681     673   -1.1%
                                        ------------------------------
  Total...............................   5,010   5,474   6,480  +18.4%
----------------------------------------------------------------------

  The Clinton Administration's three-pronged workforce investment
strategy will finance initiatives that promote: (1) first jobs for
people just entering the workforce; (2) new jobs by easing access for
workers in transition from one job to the next; and (3) better jobs
for all Americans as the economy continues to evolve.

First Jobs

  The Administration's budget request includes targeted increases in
high-payoff measures to ensure all young Americans a solid start in
the working world.

  Building a National School-to-Work System.--Too few young Americans
possess the skills they need to qualify for entry-level jobs in
high-wage careers. The proposed School-to-Work Opportunities Act,
passage of which is anticipated in 1994, will provide students with
on-the-job experience tightly integrated with classroom training,
leading to a school diploma and, for most students, a degree or
diploma certifying successful completion of at least one year of
postsecondary education, and an industry-recognized credential with
currency in the job market. The proposed legislation contains special
provisions for serving poor and at-risk youth.

  The program operated as a demonstration in 1994. For 1995, the
budget requests $150 million each for the Departments of Labor and
Education for expanded activities. Under the proposed legislation, a
nationwide system would be established in waves, with states
competing--on the basis of innovative program designs--to join earlier
waves. All States would have the opportunity to implement
school-to-work systems by the end of 1997. In the long run--once
Statewide systems are in place--the Federal role will be limited to
information dissemination and program evaluation.

  Expansion of the Job Corps.--The Job Corps is America's oldest,
largest, and most comprehensive residential training and education
program for young, unemployed, and undereducated youth. Designed for
severely disadvantaged youth ages 14 through 24, the program breaks
the cycle of poverty and welfare dependence by providing the
vocational training and job placement that youths need to become
taxpaying citizens. The $1.2 billion program boasts a proven track
record and is administered through a network of 109 centers, located
in 45 states, Puerto Rico, and the District of Columbia.

  The budget requests $100.5 million to expand this proven program. An
additional $30 million is requested to address a backlog of needed
repairs. The expansion funds would launch six new centers in addition
to the eight initiated last year. When the current expansion is
completed over the next decade, the number of centers will have
increased to 162 and the number of slots from 42,500 to 62,500--a 50
percent increase in capacity.

  Summer Youth Employment.--Title II-B of the Job Training Partnership
Act authorizes the Summer Youth Employment and Training program, which
provides temporary summer jobs and academic enrichment for
disadvantaged youth ages 14-21. Internal audits and external reviews
show that the young people involved in the program are
well-supervised, perform useful work for the community, and often
receive substantial education benefits. The increased funding will
maintain approximately the same participation level in the summers of
1994, 1995, and 1996 as were supported in the summer of 1993.

  The Administration's request for programs helping youth into their
first job does not reflect an automatic, across-the-board increase in
all programs. Indeed, while proven or promising approaches are
expanded, $60 million less is being sought for one major
program--Title II-C of the Job Training Partnership Act--until the
Administration can remedy problems it has identified in the program.

New Jobs

  Each year, about 27 percent of all U.S. workers move to new jobs,
whether to advance careers or rebound from job loss. Countless others
fear job loss and feel insecure about their employment outlook. The
Clinton Administration's "new jobs" investment initiative will help
experienced workers move from one job to the next, and ease fears
about job change. Proposed for this purpose are a $1.5 billion
comprehensive worker adjustment program for displaced workers and $250
million to continue work on a network of one-stop career centers with
improved labor market information and services for all job-seekers, as
well as a small but strategic investment in a national network of
occupational skills standards. The "new jobs" initiative also builds
on the recently mandated program for "profiling" claimants for
unemployment benefits. Profiling identifies workers likely to have
difficulty finding new jobs and refers them to intensive job search
assistance programs early in their period of unemployment.

  While the Federal Government spends more than $1 billion annually
for worker adjustment assistance, existing programs often are rigid
and ineffective, and serve only a fraction of the 2 million workers
permanently displaced each year. A patchwork of categorical programs
targets subsets of the dislocated worker population--such as workers
displaced by trade, defense downsizing, or environmental
initiatives--raising serious concerns about equity and efficiency.

  The Administration will propose legislation to consolidate, expand,
and improve existing programs under a comprehensive Workforce Security
program. The 1995 budget includes $1.5 billion for the new program, a
31 percent increase from the 1994 level. Serving some 750,000 workers
in its first year of operation, the Workforce Security program is
projected to serve 1.3 million dislocated workers or virtually all of
those estimated to need and want services upon full implementation.
Program expansion would refine and build on growth already begun with
the Administration's 1994 dislocated worker investment proposal. In
1994, the $1.1 billion in budget authority for dislocated worker
assistance was a 72 percent increase over the prior year, and the
corresponding number of participants is estimated to rise 43 percent,
reaching 500,000.

  The Administration's Workforce Security program emphasizes services
with proven effectiveness, and those that displaced workers find most
valuable. Early outreach is the critical first step in helping
dislocated workers. Thus, the new program will improve State
rapid-response activities and refer UI applicants who have been
identified as at risk of long-term unemployment to early reemployment
services. In addition, all dislocated workers will have access to
basic reemployment services, including (1) information on job
openings, labor market trends, and the quality of education and
training providers; (2) referral to appropriate programs, including
student financial aid; (3) individual assessment; (4) job counseling;
and (5) job search assistance, including job clubs. Dislocated workers
who need more intensive services can choose long-term training, in the
form of occupational skills training (both classroom and on-the-job),
basic skills training, and entrepreneurial training.

  Most importantly, the new program will hold training providers
accountable for their results. Potential trainees will be armed with
information on the track record of training providers, including their
success in keeping participants enrolled, placing them in jobs, and
securing higher earnings and licensure rates for their graduates.
Unscrupulous or unsuccessful training providers whose curricula fail
to meet these--and other--quality standards will be barred from
program participation.

  Finally, under the legislation, qualified long-term trainees will
receive supportive services and be eligible for income support to
allow them to complete training and launch new careers.

  As another part of the "new jobs" investment strategy, the
Administration proposes to establish a network of user-friendly
One-Stop Career Centers to provide a single point of entry into the
employment and training system. Growing from a 1994 budget of $50
million, the proposed 1995 funding of $250 million will provide
Federal "seed money" to help States plan and implement programs that
streamline access to the full range of employment and training
services--aided, where necessary, by waivers of Federal requirements.
Eventually, the Administration's One-Stop Shopping initiative will
provide all jobseekers with easy access to jobs, career information,
and Federal training and employment programs.

  Finally, one title of the Administration's "Goals 2000" initiative
(discussed under "Education" above) is pivotal to the "new jobs"
agenda. The Administration requests $12 million for Title IV of Goals
2000, which authorizes a National Skill Standards Board. This program
would create a national system of voluntary skill standards and
certification. These standards will introduce real accountability to
the training system and insure that workers make the investments that
firms value.

Better Jobs

  The Administration is pursuing three tactics to create an
environment for better jobs.  The first tactic focuses on the economy
in general, stimulating investment through low deficits; investing in
new technologies; expanding retraining programs; and opening global
markets to American made products.  The second and third focus on the
job site, promoting the high performance workplace and enhancing
enforcement of workplace laws.

  Toward the second goal, the Secretary of Labor is initiating a new
mission of promoting high performance workplace practices such as
employee training, performance-based pay, and front-line
decision-making.  This is an innovation with important practical
consequences for companies and workers, but one that, by design, has
few Federal budgetary consequences.

  To meet the third goal, the Department of Labor is launching new
efforts to enforce workplace rules that protect both workers and
responsible employers and that will total 355 staff and $66.7 million.
These additional resources would address new responsibilities under
recent laws such as the Family and Medical Leave Act and new
regulations.  Also included are initiatives addressing new workplace
hazards, inspection of small mines and mine health issues, review of
the periodic roll in the Federal Employees' Compensation Act program,
and coordinated, high-profile enforcement interventions that focus on
repeated and egregious violations of key labor laws.

  In addition, the Administration will work with Congress to improve
occupational safety and health. Reforms could include: a decentralized
worksite-based approach to workplace safety and health, such as
written health and safety programs and worksite health and safety
committees; extension of OSHA coverage to Federal, State, and local
government employees not now covered by the Act's provisions;
increased employee participation in workplace safety and in OSHA
inspections and accompanying protection measures; and targeting those
that historically have been egregious violators of Federal laws and
regulations. Included in the amounts referenced above are 132 staff
and $18 million for improved oversight of workplace safety and health.

  While seeking additional resources for some purposes, the
Administration also will reinvent its enforcement practices to be more
efficient, more strategic, more outcome-based, and fairer.  This
involves fairness to both workers and firms.  When irresponsible
companies seek competitive advantage by illegally underpaying wages
and taking shortcuts to health and safety, it undermines the position
of responsible companies that comply with workplace laws.  Good
corporate citizens, as well as workers, benefit from efficient and
even-handed enforcement of workplace rules.

                           NATIONAL SERVICE

  National service enhances educational opportunity, rewards
responsibility, rebuilds local communities and fosters a sense of
national community. Signed into law on September 21, 1993, the
National and Community Service Trust Act will provide Americans of all
ages and backgrounds with opportunities to serve their country
addressing educational, public safety, human needs, and environmental
problems. The Act established the new Corporation for National and
Community Service and a new "AmeriCorps," under which participants
will receive an education award of $4,725 per year in return for
service for up to two years. These awards may be used for
post-secondary education, approved training, or to pay off education
loans.

  The 1995 budget for the Corporation totals $850 million, a $275
million (48 percent) increase over 1994. This includes financing to
expand the new programs started in 1994, as well as to continue
existing programs formerly operated by ACTION and the Commission on
National and Community Service. With this funding, the Corporation
will provide opportunities for more than three-quarters of a million
Americans to engage in service.

  AmeriCorps is the heart of the President's vision of national
service. Through formula and competitive grants, local communities
will develop and implement programs to fund 20,000 service positions
by the end of 1994. The 1995 request will finance 33,000 service
positions (over three times the size of the Peace Corps and VISTA
combined in 1995).

                            WELFARE REFORM

  Our current welfare system violates two core American values: work
and responsibility. Instead of giving people the education and
training they need to work, it encourages dependence. Instead of
encouraging teenagers to defer parenthood and insisting that absent
parents support their children, it allows both to act irresponsibly.
Instead of assisting parents who are working hard to support their
families, it devotes most of its resources to those who are not.

  The Administration will forward to Congress in late spring a
detailed, comprehensive, deficit-neutral welfare reform plan. In the
interim, the Administration will consult extensively on a bipartisan
basis to finalize the plan  and the entitlement reforms which finance
it.

From Welfare to Work

  Fundamental reform of the welfare system will require four major
steps:

  1. Promoting parental responsibility to help prevent the need for
welfare in the first place.

  2. Rewarding people who go to work by insuring that families  have
the tax credits, the health insurance, and the child  care they need
to make work pay.

  3. Substituting work for welfare by providing job search, education,
and training to those who need it, and expecting them to work at the
end of two years.

  4. Reinventing government assistance to reduce administrative
bureaucracy, combat fraud and abuse, and give states greater
flexibility within a system focused on work.

  These reforms cannot be considered in isolation. The Administration
has undertaken many closely linked initiatives to spur economic
growth, improve education, expand opportunity, restore public safety
and rebuild a sense of community: worker training and retraining,
parenting education, family preservation and support, educational
reform, Head Start, National Service, Empowerment Zones, community
development banks, community policing, violence prevention, and more.
Welfare reform is one piece of a larger whole, but it is an essential
piece.

  Two important steps in the Administration's welfare reform have
already been taken: expansion of the Earned Income Tax Credit (EITC)
as part of the Omnibus Budget Reconciliation Act of 1993; and
introduction of The Health Security Act in September 1993. Both will
help to make work pay, as described in more detail below.

The Current Welfare System

  Currently, there are about 9.5 million children on Aid to Families
with Dependent Children (AFDC). This is 14 percent of all children, up
from 9 percent in 1970. Government at all levels spent $23 billion for
this aid in 1993, and more than twice that amount when noncash
benefits (like Food Stamps and Medicaid) for the same families are
included. Yet, the system left most of its families still poor. In
1993, AFDC benefits for a mother with two children and no other income
ranged from a low of $120 per month in Mississippi to $923 per month
in Alaska. The median for all states was $367 per month. Combined with
Food Stamps, the total was $652, about 70 percent of the poverty
level. Worst of all, the system discourages work and marriage. Under
current welfare rules, a recipient who goes to work or marries often
sees little increase in income. This system serves no one well. It is
anti-work; it is anti-family; and it leaves children in poverty.

Promoting Parental Responsibility

  Poverty (especially long-term poverty) and welfare dependency are
increasingly associated with growing up in one-parent families.
Although most single parents do a heroic job of raising their
children, the fact remains that welfare dependency could be
significantly reduced if more young people delayed childbearing until
they were ready to assume the responsibility of raising children.




  Insert chart: CHRT3B_7



  Increasingly, single-parent families are headed by an unwed mother.
Further, between 1983 and 1992, cases headed by unwed mothers
accounted for about four-fifths of the growth in the welfare rolls.
These mothers typically have little education or other resources with
which to raise children. About three-fourths receive AFDC. Only one in
six receives any financial help from the child's father.

  Given these trends, rebuilding an ethic of parental responsibility
is fundamental. No one should bring a child into the world until he or
she is prepared to support and nurture that child. Government does not
raise children; families do. To encourage parental responsibility, the
Administration's plan will:

 o Require absent parents to support their children by strengthening
   paternity establishment and collecting child support.

 o Reduce the number of teenagers having children through family
   planning and other measures.

 o Require unwed teens with children to live with their parents in
   order to receive benefits, except in exceptional circumstances.

  The first step in promoting parental responsibility will be to
ensure that both parents support their children. Welfare reform will
expect parents who go on welfare to work to support their children.
Noncustodial parents should be held equally accountable. Unfortunately
our current system of child support enforcement sends the opposite
message. Almost two-thirds of single women with children receive
little or no child support; and the gap between what absent parents
could pay and what they do pay was an estimated $34 billion in 1990.




  Insert chart: CHRT3B_8



  To improve on the current system, the Administration is considering:

 o A universal and simplified paternity establishment   process at
   time of birth;

 o A strict requirement that mothers applying for welfare cooperate
   with the authorities in establishing paternity;

 o Periodic updating of child support orders to reflect the current
   income and circumstances of the noncustodial parent;

 o Greater penalties for nonpayment combined with more help for
   noncustodial parents who need education, training, or other support
   to stay involved in their children's lives; and

 o More streamlined establishment of paternity, better record-keeping
   at the state and national level, and other measures to insure that
   those who should pay, do pay.

  Better child support enforcement will not only add to the incomes of
single-parent families but may also deter some men from fathering
children they are not prepared to support. The problem of
irresponsible childbearing is particularly acute among teenagers.
Teenage birth rates, after dropping in the 1970s and early 1980s, have
been rising since 1987. By one estimate, about 40 percent of all women
will experience at least one pregnancy before age 20. Most teen
mothers do not intend to get pregnant; most teen fathers do not intend
to start a family. Unfortunately, the majority of the mothers end up
on welfare. The Nation paid about $34 billion in 1992 to assist
families begun by a teenager.

  To remedy this situation, the Administration will:

 o Encourage and support more responsible family planning;

 o Work with community leaders, educators, and the media to foster
   more responsibility; and

 o Experiment with programs to reduce teen pregnancy and other high
   risk behavior among youth, especially in distressed communities.

Making Work Pay

  Even full-time work can leave a family poor--especially as real
wages have declined significantly over the past two decades. In 1974,
some 12 percent of full-time, full-year workers earned too little to
keep a family of four out of poverty. By 1992, the figure was 18
percent.

  To support the efforts of parents to work their way off the welfare
rolls, the President has already launched an expansion of the EITC.
Unlike welfare, the EITC is available only for people who work.
Because the EITC is refundable, an eligible family may receive any
portion of the credit not needed to offset tax liability through a
direct payment from the Department of the Treasury. When the
expansions enacted last year are fully implemented, a parent with two
children may qualify for an EITC totalling more than $3,500. Combined
with the current federal minimum wage of $4.25 per hour, the maximum
EITC increases the effective wage for a worker with two children to
about $6.00 per hour. The expanded EITC brings such a family up to the
poverty level, even if the parent is working at a low-wage job.
However, we must find better ways to deliver the EITC on a timely
basis throughout the year.




  Insert chart: CHRT3B_9



  Ensuring that all Americans can count on health insurance coverage
is also essential. Non-working poor families on welfare often have
better coverage than working families. Enactment of the Health
Security Act will end this inequity. Health reform is necessary to
make work better than welfare so that no parent need sacrifice his or
her children's health by going to work.

  With the EITC and health reform, the major missing element to make
work really pay is child care. For this reason, the Administration's
plan will include:

 o Expanded child care and Head Start for the working poor and public
   assistance recipients moving toward independence.

 o Coordinated child care programs and requirements that States
   ensure seamless coverage for persons who leave welfare for  work.

Providing Education and Training, Imposing Time Limits, and Expecting
Work

  The Family Support Act of 1988 provided a new vision of mutual
responsibility and work. Government would provide welfare recipients
access to the education and training they need to find employment, and
recipients would be expected to take advantage of these opportunities
to move from welfare to work. This legislation created the Job
Opportunities and Basic Skills (JOBS) program to deliver the services
for recipients to become economically independent. The
Administration's plan will build on the Family Support Act. As an
architect of that effort, the President is committed to building on
its vision.

  Unfortunately, the site visits and hearings of the President's
Welfare Reform Working Group over the past year indicated that this
vision is largely unrealized at the local level. The primary function
of welfare offices is still writing checks while conforming to all the
myriad administrative rules concerning eligibility and the calculation
of benefits. The Administration seeks to transform the culture of the
welfare bureaucracy and fulfill the promise of the Family Support Act.
We do not need a welfare program built around "income maintenance;"
we need a program built around work.

  The Administration's goal is to establish a welfare system in which
people are asked to move toward work and independence. Welfare
recipients will be required to look for work from day one. If none is
available, they will enter into a social contract to help develop and
then follow a plan for self-sufficiency, if the State provides the
services in the plan. After two years, people still on welfare who can
work but have not found a private sector job will be required to
search for a job and work in community jobs to support their families
while they are searching.

  The Administration's plan will transform the current welfare system:

  Expanded Access to Education and Training Services Through the JOBS
Program.--The current JOBS program serves only 7 percent of adult
welfare recipients. The plan will expand the JOBS program to give many
more recipients the services they need to find lasting employment, and
many more recipients will be required to participate.

  A More Integrated Education and Training System.--Under reform, the
JOBS program will not be a completely separate education and training
system for welfare recipients, but will provide access to, and
information about new job search and placement, training and education
programs, including National Service, School-to-Work, One-Stop
Shopping and income-contingent student loans. The plan will also serve
as a link to such existing programs as Pell grants,  JTPA, and Job
Corps.

  A Time Limit for Cash Benefits.--Limiting the length of time
employable persons can receive cash assistance to two years is part of
the effort to shift the welfare system from issuing checks to
promoting work and self-sufficiency. The two-year time limit will
guide both the recipient and welfare agency toward continuous efforts
to find a job.

  Making Work Available to Those Who Have Reached the Time
Limit.--Persons who have reached the time limit for cash assistance
will have to work, preferably by finding regular work in the private
sector. The goal is for participants to find lasting employment
outside the program. States will likely have discretion in the work
programs to achieve this end. For example, a State could subsidize
short-term private sector jobs or positions in not-for-profit
agencies, in the expectation that many of these positions would become
permanent.

Reinventing Government Assistance

  The current welfare system is enormously complex, with multiple
programs with different rules and requirements that confuse and
frustrate recipients and caseworkers alike. The welfare reform plan,
in keeping with the Administration's commitment to reinvent
government, will rationalize, consolidate and simplify the existing
social welfare system. It will:

 o Establish performance measures which emphasize moving people from
   welfare to work, while giving States and localities flexibility to
   design their programs for the task.

 o Use technology to prevent waste, fraud and abuse.

 o Streamline AFDC application, budgeting and redetermination
   processes by simplifying and eliminating rules and reporting
   requirements, particularly those concerning earnings.

 o Make AFDC rules more consistent with those in the Food Stamp
   program.

  The above measures are a fundamental change in direction, from a
system based on welfare, to support for work and family. Welfare
reform means more independence, control, and security for America's
families. It means government helping people to help themselves.
Ultimately, it means fewer people on welfare, a more productive
citizenry, and lower costs for the taxpayer.

           MOVING TO INDEPENDENCE: HOUSING AND THE HOMELESS

  The 1995 budget also includes initiatives to expand and reform
low-income housing and aid to the homeless in ways that better support
families and work. These proposals will redirect housing and homeless
programs to complement the Administration's proposals for welfare
reform.

Reforming Housing Assistance for Families

  Housing assistance can and should support those who work at
low-paying jobs or who are struggling to grow from dependency to
economic independence. Too often, however, it has trapped families in
poor neighborhoods and increased their dependency. Timely housing
assistance, combined with other services, should instead encourage
transitions. A mother or father can use a housing voucher to move to
an area offering greater job opportunities, better schools for the
children, and safety. A young resident of public housing can gain
skills and job experience rehabilitating the apartments where he or
she lives. Homeless families and individuals can have shelter and
stability, appropriate transitional services, and rent subsidies, to
allow them to live independently, with dignity.

  All this can be done with:

 o Faster expansion of housing assistance to help program
   beneficiaries live in safe neighborhoods with job opportunities;

 o Redirection of some family housing assistance to the homeless and
   those working or moving toward work to emphasize and reward
   transitions from dependency to independence; and

 o Changes in Federal program organization and administration to link
   programs for the homeless with existing mainstream programs to
   provide a "continuum of care;"

  The cost can be paid with careful trimming of many existing Federal
housing subsidies and other money-saving reforms.

  Moving to Independence.--The budget redirects the Department of
Housing and Urban Development's (HUD's) housing assistance for
families to provide stronger support for economic transitions. The
Moving to Independence initiative combines housing certificates with
counseling and apartment search assistance to ensure that all
certificate holders can truly choose where they will live. Some
families, particularly those in high-poverty communities, may choose
to move to neighborhoods where they will have more housing choices,
better access to jobs, and less concern about their safety and the
quality of schooling. Too many assisted tenants have been housed in
distressed neighborhoods. These families pay lower rents, but lack
some basic amenities: community services, safety from violence,
neighbors who work and serve as positive role models for children, and
access to good jobs. Experience with housing assistance in combination
with support for wider apartment search suggests that it has long-term
benefits for low-income families, especially the children.

  Metropolitan area-wide assisted housing.--In addition, the
Administration proposes a three-year demonstration ($24 million in
1995) to improve social and economic opportunities for low-income
families who live in highly segregated neighborhoods. Such
neighborhoods are often particularly isolated from good schools,
social services, and employment opportunities.

  This initiative would establish pilot programs in three locations
around the country. Each pilot would be operated by a private
non-profit organization. Each organization would be charged with
expanding housing opportunities for low-income families by
coordinating the region's tenant selection, assignment, and counseling
services. This approach to housing assistance would reduce the
concentration of families by race, ethnicity, and income and link them
to opportunities for sustained self-sufficiency.

  Other reforms affecting families.--To emphasize that housing
assistance supports transitions to independence, working families who
cannot afford adequate housing will be selected ahead of similar
welfare-dependent families from the waiting lists for public and other
assisted housing. As working poor families increase their incomes and
no longer need housing subsidies, those funds will be freed to serve
additional families.

  As another support for economic transitions, the budget also
proposes expanded use of public housing modernization and other
Federal resources to create jobs for public housing residents,
especially youth. Other public housing initiatives include an expanded
Tenant Opportunity program to help residents organize and conduct job
training, and develop businesses; and continued support for Family
Investment Centers, to expand access to education and jobs. The budget
also expands support for Family Self-Sufficiency Coordinators to link
housing with other social services for families in transition.

  To meet the housing needs of families in rural areas, the budget
proposes to double the amount of guaranteed loans for single-family
housing and maintain direct loans at the 1994 level. These loans are
for very low-, low-, and moderate-income rural households who
otherwise cannot secure mortgage financing. Interest rates on the
direct loans vary by recipients' income and can be as low as one
percent. In 1995, the budget proposes to conform to other Federal
housing standards the amount of income loan recipients contribute to
their direct loan mortgage payments; recipients would pay 30 rather
than 20 percent of their income. To aid rural renters, the
Administration proposes to continue funding for rural housing
vouchers, which received their first appropriation last year, at the
1994 level. These vouchers provide a flexible source of housing
assistance, especially in areas with a surplus of rental units.

Homeless Assistance

  Homelessness is one of the most disturbing products of the failure
of society to provide adequate opportunity and care for all of its
citizens. Communities, States, and the Federal Government have
expanded their efforts. Annual Federal appropriations have surpassed
$1 billion. Most of the funds for aid to the homeless were authorized
in the 1987 Stewart B. McKinney Homeless Assistance Act--with HUD and
HHS receiving the largest share of funds. To date, these responses do
not appear to have substantially reduced the numbers of people with no
place to call home.

  One problem is a lack of coordination both across Federal agencies
and at the local level. Federal homeless funds often do not link with
mainstream Federal programs for which the homeless may be eligible, or
with other homeless programs in the locality. Providers are heroes
battling on the front lines, but they cannot succeed unless programs
properly diagnose the needs of the homeless, give them appropriate
transitional services, and graduate them from shelters to relatively
independent, stable housing.

  Increases in 1994.--In 1994, the Administration made homeless
assistance a top priority, proposing more than $1.4 billion for
assistance targeted to homeless families and individuals. Congress
provided more than $1.3 billion--about 25 percent above the 1993
level.

  Federal Plan.--Federal assistance aims to break the cycle of
existing homelessness and prevent future homelessness. To advance
these goals, President Clinton signed an Executive Order on May 19,
1993, calling for the Interagency Council on the Homeless, chaired by
HUD Secretary Cisneros, to develop a Federal plan to break the cycle
of homelessness. This plan, which will be completed in February 1994,
will review the distribution of funding and the way current programs
work together. The Interagency Council is now compiling and analyzing
information from Federal sources, States and localities, nonprofit
providers, advocates, and homeless persons through the Domestic Policy
Council.

  1995 overall proposed increase.--The 1995 budget proposes more than
$2.1 billion in funding for programs specifically targeted to aid
homeless families and individuals--an increase of 60 percent over 1994
and almost double the 1993 appropriation. This increase is in addition
to the mainstream Federal assistance provided to the homeless (e.g.,
through programs like Food Stamps and AFDC) and surplus Federal
equipment, food and real property provided to homeless persons. For
HUD alone, the budget proposes $1.76 billion, more than 85 percent
over the 1994 level. Components of the HUD funding include:

--$1.12 billion to reorganize the HUD McKinney Act programs. Under the
  proposed reorganization, funds would support activities to form a
  "continuum of care" to assist homeless persons and prevent future
  homelessness. Grant funds would initially be allocated to
  communities that can demonstrate a comprehensive plan to address
  homelessness; forge partnerships with local, private, and nonprofit
  providers; and improve participants' access to mainstream services
  and income-support programs. In subsequent years, awards may be
  phased out as mainstream programs take over. Some of the funds could
  be used for the Secretary's Innovative Homeless Initiative, which
  also promotes comprehensive homeless systems through local
  partnerships:

--$514 million for 15,000 rental vouchers for five years to help
  previously homeless families pay the rent in private apartments that
  they select. These vouchers provide a vital last link of the
  "continuum of care" that moves families from homelessness through
  shelter and transitional housing to relative independence.

--$130 million to continue the Emergency Food and Shelter program
  authorized under Title III of the McKinney Act and previously
  administered by FEMA.

  Focus on mainstream programs.--In addition to the increases in
funding targeted to homeless persons, the President's budget also
links homeless assistance with mainstream programs providing services
and income support, to help homeless people to break the cycle of
homelessness. The mainstream Job Training Partnership Act program has
been modified to focus more funding on persons with the greatest need,
including the homeless population. Similarly, HHS' mainstream
Community Services Block Grant program, along with existing HHS
targeted programs, helps states and localities to provide health and
substance abuse treatment services to the homeless. Finally, HUD's
reorganization of its McKinney Act programs also increases linkages
with mainstream sources, with some grants initially allocated to
communities that have demonstrated efforts to improve access by
homeless persons to mainstream services and income-support programs.

                        INVESTING IN KNOW HOW

                        SCIENCE AND TECHNOLOGY


----------------------------------------------------------------------
Investing in technology is investing in America's future: a growing
economy with more high-skilled, high-wage jobs for American workers; a
cleaner environment ... Scientific advances are the wellspring of the
technical innovations whose benefits are seen in economic growth,
improved health care, and many other areas.


                                                President Bill Clinton
                                            February 1993/October 1993
----------------------------------------------------------------------

  Investment in science and technology (S&T) is essential to build a
prosperous economy, create high quality jobs, improve health care and
education, and maintain national security. Federal programs can play a
key role in supplementing private research in areas where returns on
research investments are too distant or uncertain for private firms to
bear. During the Cold War era, Federal S&T programs were dominated by
investments in space, defense, and basic research; civilian technology
benefited primarily by serendipitous spin-off. The end of the Cold War
and sharp increases in international competitive pressure on U.S.
industries demand a new approach. The Administration's response was
outlined in `Technology for America's Economic Growth, A New Direction
to Build Economic Strength' (February, 1993), including three main
goals:

 o Reaffirming our commitment to fundamental science, the foundation
   upon which all technical progress is built.

 o Improving the contribution of federally sponsored S&T innovation to
   economic growth and environmental protection by forging closer
   working partnerships among industry, Federal and state governments,
   workers, and universities.

 o Coordinating federally supported S&T investments across the Federal
   Government.

  The major progress made toward these goals during 1993 was reported
in "Technology for Economic Growth: President's Progress Report"
(November, 1993). Programs proposed for the 1995 budget are designed
to sustain this momentum.

S&T Highlights

  National Science and Technology Council (NSTC).--In responding to a
key recommendation of the National Performance Review, the
cabinet-level NSTC was created in November 1993 (Executive Order
12881) to coordinate Federal S&T investments and policies. While we
are imposing strict limits on Federal spending to reduce our Federal
budget deficit, the NSTC will ensure that taxpayers receive the
maximum benefit for their investment. The Committee of Advisers on
Science and Technology was established along with the NSTC to serve as
a private sector advisory group to the President and the NSTC. The
NSTC will spend the next year examining how to improve the integration
of S&T activities in a broad range of areas, including information
technology, manufacturing, health, transportation, environment,
fundamental science and education. This more comprehensive review
process should be ready for the 1996 budget.

  Research and Development (R&D) Investments.--While there are some
sophisticated technologies that are not included in the Federal R&D
budget (e.g., the Space Shuttle, operational weather satellites,
technical information services, etc.), the R&D budget has
traditionally been considered the most comprehensive summary of
Federal S&T activities. The Administration is proposing $71 billion in
R&D investments (excluding facilities) in 1995, a $2.5 billion or four
percent increase over 1994 (Table 3B-6). Civilian R&D will increase
over $1 billion or four percent to $32 billion. The combination of
continued annual growth for civilian R&D, anticipated decreases in
defense R&D after 1995, and the inclusion of dual-use defense R&D is
likely to cause the civilian share of the R&D budget to exceed 50
percent earlier than the 1998 date predicted in the 1994 budget. Much
of this increase will be focused on cost-shared and competitively
selected projects that are industry-defined and industry-led (i.e.,
consortia, cooperative R&D, etc.). In 1995, university-based research
will increase to $12 billion, a $437 million or four percent increase
over 1994. University-based research continues to provide an important
contribution to the creation of knowledge, technological innovation,
and the training of scientists and engineers.

  Research Grant Overhead Payments.--The Federal Government awards
over $17 billion in research grants each year to universities and
other non-profit institutions, including substantial amounts (over $3
billion) for reimbursement of overhead costs. In a year in which total
discretionary spending is being frozen, and government administrative
costs are being aggressively reduced, it is necessary to ask
universities and other non-profit institutions to participate in this
restraint. Instead of a permanent cut or cap on overhead payments, the
1995 budget proposes a one year pause that instructs grantee
institutions not to seek additional payments for overhead above the
amounts claimed in 1994.(See the Supplemental Proposals section of the
Budget Appendix for specific implementation language.) The yearlong
pause will provide time for the Council of Economic Advisers, the
Office of Science and Technology Policy, and the Office of Management
and Budget--with advice from representatives of affected
institutions--to conduct a comprehensive review with the goal of
improving the incentives that govern overhead reimbursement for a wide
range of federal research grantees and contractors.

Putting S&T to Work for America's Future.

  Expand Cost-shared R&D Partnerships/Technology
Transfer.--Partnerships ensure that federally sponsored research is
relevant and efficiently put to use in private markets. The Federal
agencies (including Defense, Energy, Health and Human Services, NASA,
Transportation, EPA, and Agriculture) play a key role in building
these partnerships with industry and the university community,
including the use of cooperative research and development agreements
(CRADAs). There will be over 3,200 CRADAs in 1995, a 453 or 16 percent
increase over 1994, with public and private cash and non-cash
investments exceeding $1.5 billion. The Federal agencies will also
invest $865 million in 1995 on technology transfer activities, a $314
million or 57 percent increase over 1994.

  Expand the Commerce Department's National Institute for Standards
and Technology (NIST) R&D Programs.--The Advanced Technology Program
(ATP), Manufacturing Extension Partnerships (discussed latter),  and
in-house research on measurements, standards, data verification, and
test methods form the core of the NIST activities. The $451 million
budget more than doubles the ATP in 1995. The budget will support
roughly 200 ATP projects, with 100 new projects in strategic program
areas chosen in cooperation with industry. Funding for in-house
research increases to $316 million in 1995, with major new increases
in advanced manufacturing ($18 million), biotechnology ($4 million),
environmental technology ($5 million), advanced materials ($17
million), information infrastructure ($38 million), international
standards ($5 million), and math and science post-doctoral education.


       Table 3B-6. FUNDING FOR SCIENCE & TECHNOLOGY HIGHLIGHTS


           (Budget authority; dollars amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                               Actual Enacted Proposed   1994  1994 to
                                                       to 1995    1995
----------------------------------------------------------------------
Research & Development (R&D):
Civilian:
 Basic........................  11,951  12,578  12,880    +301     +2%
 Applied & development........  16,384  17,770  18,621    +850     +5%
                                --------------------------------------
  Total.......................  28,335  30,349  31,500  +1,152     +4%
Defense:
 Basic........................   1,411   1,212   1,232     +20     +2%
 Applied & development........  40,004  36,923  38,296  +1,373     +4%
                                --------------------------------------
  Total.......................  41,415  38,136  39,528  +1,393     +4%
Total R&D (without facilities)  69,750  68,484  71,029  +2,544     +4%
Total R&D (with facilities)...  72,478  71,073  73,045  +1,972     +3%
Civilian share of R&D\1\......      43      47      47      NA      NA
Defense share of R&D..........      57      53      53      NA      NA
R&D by agency (without facilities):
 Defense......................  38,617  35,538  36,971  +1,433     +4%
 Health & Human Services......  10,336  11,033  11,484    +451     +4%
 National Aeronautic and Space
  Administration..............   8,090   8,493   8,597    +105     +1%
 Energy.......................   5,827   6,054   6,052      -2      -*
 National Science Foundation..   1,882   2,026   2,220    +194    +10%
 Agriculture..................   1,335   1,393   1,394      +1     +*%
 Other........................   3,664   3,948   4,310    +362     +9%
                                --------------------------------------
  Total R&D...................  69,750  68,484  71,029  +2,544     +4%
R&D support to university
 researchers..................  11,674  11,719  12,156    +437     +4%
Cost-Share R&D Partnerships/Technology Transfer
 Technology Transfer..........     384     551     865    +314     57%
 Number of CRADAs.............   2,230   2,758   3,211    +453     16%
 Public/Private Cash and
  Non-cash value of CRADA
  Investments.................     813   1,176   1,504    +328     28%
NIST R&D programs.............     366     490     874    +384    +78%
National Science Foundation...   2,734   3,018  +3,200    +182     +6%
NASA's new technology
 investments..................  ......      42      67     +25    +60%
Health research...............  10,336  11,033  11,484    +451     +4%
 (National Institutes of
  Health).....................   9,891  10,486  10,994    +508     +5%
Human genome project:
 National Institutes of Health     106     129     152     +23    +18%
 Energy.......................      63      70      89     +19    +27%
International space station...   2,262   2,104   2,121     +17     +1%
Civilian industrial technologies:
 Manufacturing technologies...      NA   1,841   2,000    +159     +9%
 NIST manufacturing extension
  partnership.................      18      30      61     +31   +103%
National information infrastructure:
 National Telecomunications
  Information Administration..  ......      26     100     +74   +285%
 National Technical
  Information Service.........       8  ......      18     +18      +*
 High performance computing and communications:
  Defense.....................     298     341     397     +56    +16%
  National Science Foundation.     225     267     329     +62    +23%
  Energy......................     100     123     125      +2     +2%
  National Aeronautics and
   Space Administration.......      82     113     125     +12    +11%
  National Institutes of
   Health.....................      47      58      82     +24    +42%
  Commerce....................      12      29      82     +53   +183%
  EPA.........................       8       7      14      +7    +92%
                                --------------------------------------
   Total HPCC.................     772     938   1,154    +216    +23%
Transportation:
 Federal Aviation
  Administration research.....     230     254     267     +13     +5%
 New generation of vehicles
  (Energy only)...............     107     141     175     +34    +24%
 Alternative fuel vehicles....      29      44      69     +25    +57%
 Intelligent vehicles/highway
  systems.....................     155     214     289     +75    +35%
 Next generation high-speed
  rail........................       5       4      33     +29   +725%
 NASA aeronautics research....     129     287     347     +60    +21%
U.S. Global Change Research Program
 National Aeronautics and
  Space Administration........     932   1,022   1,236     214    +21%
 National Science Foundation..     125     142     208     +66    +46%
 Energy.......................      87      93     126     +33    +35%
 Commerce.....................      67      63      84     +21    +34%
 Agriculture..................      48      49      58      +8    +19%
 Environmental Protection
  Agency......................      25      27      31      +4    +14%
 Interior.....................      38      33      33      -1     -1%
 Smithsonian..................       7       7       8       *     +3%
 Defense......................       7       6       6       *     +*%
 National Institutes of Health       3       3       4       *    +13%
 Tennessee Valley Authority...       *       *       1      +1   +233%
                                --------------------------------------
  Total USGCRP................   1,338   1,446   1,794    +348    +24%
----------------------------------------------------------------------

  \1\Includes Defense Dual-Use Activities.
  *Less than $500 thousand.
  NA: Not applicable.
----------------------------------------------------------------------

  National Science Foundation (NSF).--The budget proposes $3.2 billion
for NSF, a $182 million or six percent increase over 1994. The NSF
supports peer-reviewed, university-based science and engineering
research, including interagency research efforts in global change
research, high performance computing, and manufacturing.

  NASA's New Technology Investments (NTI).--The budget proposes $67
million for the second year of the NASA NTI program (a $25 million or
60 percent increase over 1994). The NTI is focused on industry-led
projects, including industry-defined advanced technologies and small
satellite technologies

  Health Research.--The budget proposes roughly $11.5 billion for
health-related R&D activities funded through the Department of Health
and Human Services, a $451 million or four percent increase over 1994.
Of these funds, roughly $11 billion is for the National Institutes of
Health, $508 million or 5 percent over 1994. NIH supports biomedical
and behavioral research.

  Human Genome Project.--The budget proposes 241 million in Energy and
NIH, a $42 million or 21 percent increase over 1994, for this
multi-year effort to decode the information locked in the chemical
building blocks that form human genetic inheritance.

  New Facilities for Fundamental Science and Applied Research.--The
budget includes $40 million to begin constructing the Advanced Neutron
Source (ANS) research reactor project at the Oak Ridge National Lab, a
$23 million increase over 1994. In addition, $116 million is included
for the B-meson research facility at Stanford ($46 million) and the
Tokamak Physics Experiment (TPX) facility at Princeton ($70 million).
The ANS will replace aging neutron sources and supports research on
disease and human genetics, high-temperature superconductivity,
nuclear medicine, and advanced materials. The B-meson facility will
explore the dynamics of matter in the Universe's earliest moments, a
central question in science. The TPX will advance the development of
an economically attractive fusion energy reactor.

  International Space Station.--The budget includes $2.1 billion for
the redesigned space station and Russian participation. The space
station will be a premier orbital research facility for life science
and materials research. NASA also plans a number of Shuttle flights to
the Russian Mir space station. This collaborative project on the Mir
will provide valuable information for the construction and operation
of the international space station.

Moving Manufacturing Technologies to the Global Marketplace.

  Accelerate Investments in Civilian Technologies.--Federal programs
aimed at increasing competitiveness of civilian industries while
improving the environment will be coordinated by the NSTC's Committee
on Civilian Industrial Technology. Working closely with the private
sector, the Committee will develop a government-wide plan for
improving manufacturing technologies that are broadly applicable to
U.S. industries and of special importance to our nation's economy. In
1995, nine agencies propose to spend over $2 billion for R&D in
manufacturing technologies, a $159 million or 9 percent increase over
1994. Defense, Energy, Commerce, NASA, and NSF are the primary
contributors.

  Deployment of Civilian Industrial Technologies.--The Federal
Government's effort to deploy technologies includes NIST's
Manufacturing Extension Partnerships (MEP). The budget funds NIST's
MEP at $61 million, a $31 million increase or doubling over 1994. This
partnership will help small- and medium-sized manufacturers to tap
into regional and national sources of information, knowledge, and
assistance in the use of modern manufacturing and production
technologies. The Administration anticipates more than 100
manufacturing extension centers by 1997. The Technology Reinvestment
Project in Defense and programs in industrial extension in Energy will
complement the NIST MEP program.

Realizing the Opportunities of the Information Age

  Improve the National Information Infrastructure (NII).--All
Americans have a stake in the construction of the communications
network, computers, databases, and consumer electronic products that
constitute the NII. While the private sector will build the NII, the
Federal Government has a key role to play by investing in research and
advanced communications applications, and by becoming a leading-edge
adopter of information technologies. Federal NII projects are
coordinated by the Information Infrastructure Task Force chaired by
Commerce. In January, the Vice President challenged the private sector
to connect all our classrooms, libraries, hospitals and clinics to the
NII by 2000.

  High Performance Computing and Communications (HPCC).--The HPCC,
which will become part of the NSTC Committee on Information and
Communications, funds research programs to create more powerful
computers, faster computer networks, and more sophisticated software;
and to address complex scientific and engineering computing problems
known as `Grand Challenges,' such as weather forecasting, designing
life-saving drugs, and modeling aircraft. For 1995, the budget
proposes $1.2 billion for HPCC, a $216 million or 23 percent increase
over 1994. The HPCC program also includes a component called
Information Infrastructure Technologies and Application (IITA) which
applies HPCC technologies in a broad range of applications with large
societal impacts, including health care, education, libraries, and
manufacturing.

  National Telecommunications and Information Administration's (NTIA)
Networking Pilot and Demonstration Projects.--The NTIA funds
competitively selected grants to connect schools, clinics, hospitals,
libraries, and other non-profit entities to existing computer
networks. The budget proposes $100 million for this activity, a $74
million or 285 percent increase over 1994.

  National Technical Information Service (NTIS).--The NTIS proposes a
one-time $18 million pool of investment capital to help support the
electronic dissemination of data generated by the Federal Government.

Transportation and the Economy

  A transportation system that can move people, goods, and services
quickly and efficiently needs technologies to minimize the maintenance
of existing transportation infrastructure, and lead to the next
generation of transportation modes.

  Federal Aviation Administration (FAA) Research, Engineering, and
Development (RE&D).--The budget includes $267 million for FAA RE&D, a
five percent increase above 1994. FAA conducts research in improving
the safety, security, productivity, and capacity of the air traffic
control system, including the use of satellite-based navigation and
communications technologies.

  Partnership for a New Generation of Vehicles.--President Clinton,
Vice President Gore, and the CEOs of General Motors, Ford, and
Chrysler agreed to an ambitious set of research goals to enhance the
competitiveness of the U.S. automobile industry and to improve the
environment. This agreement, which involves Commerce, Defense, Energy,
Transportation, NASA, EPA, and NSF, will target advanced manufacturing
processes, technologies for near-term improvements in fuel economy,
and up to three-times improvement in fuel economy in about a decade.
While the interagency budget will be fully developed during 1994,
Energy alone is proposing $175 million for these activities, a 24
percent increase over 1994. Energy's efforts focus on advanced
lightweight and ceramic materials, fuel cells, more efficient engines,
electric vehicles, and hybrid vehicles. Another $69 million is
proposed in 1995 by Energy for alternative fuel vehicle development
and purchases of alternative fuel vehicles for the Federal fleet, a
$25 million or 57 percent increase over 1994.

  Intelligent Vehicles/Highway Systems.--The Department of
Transportation (DOT) is conducting research on improving highway
safety, increasing highway automation and productivity. The 1995
budget proposes $289 million, an increase of $75 million or 35 percent
over 1994.

  Next Generation High-Speed Rail.--The objective of this DOT program
is to promote private industry investments in futuristic,
cost-effective rail technologies through the use of existing
infrastructure. The program will be funded at $33 million in 1995, a
$29 million increase over 1994. Where possible, the program will be
administered in conjunction with Commerce's Advanced Technology
Program and Defense's Technology Reinvestment Project.

  NASA Aeronautics Research.--The aviation industry employs nearly 1
million people, generates almost $100 billion in annual sales, and
produces tens of billions of dollars in exports. In collaboration with
industry, NASA is sponsoring high-speed research (HSR), advanced
subsonic technologies (AST), and the HPCC activities mentioned above.
Industry concepts envision a high-speed civil transport that could
carry 300 people overseas at Mach 2.4 (arriving in roughly half the
current subsonic transport time and at comparable subsonic fares). The
AST program will increase subsonic aircraft productivity and lower
operating costs through the development of lightweight engines and
airframes, optical flight systems, and integrated wing designs, and
other technologies. For 1995, the budget proposes $347 million for HSR
and AST, a $60 million or 21 percent increase over 1994. In addition,
most of the $74 million of 1994 funding is available in 1995 for the
definition of requirements and design, in collaboration with industry,
for new or drastically modified U.S. wind tunnels.

Energy and Environment: New S&T for Environmentally-Safe Economic
Growth

  Energy and environment S&T activities can help balance economical
growth with lower energy use and environmental protection. The
Administration is developing a comprehensive energy and environment
approach, including the U.S. Global Change Research Program to improve
knowledge of our planet's climate, the Climate Change National Action
Plan to curb greenhouse emissions, and the development of
environmental and energy conservation technologies (for more details,
see the Investing in the Quality of Life section).

Defense Technology: The Payoffs for Economic and Military Security

  For 1995, $9.3 billion is proposed for defense S&T programs. This
includes $4.2 billion for basic and applied research, as well as $5.1
billion for advanced technologies. These efforts form the foundation
for advanced military capabilities--such as stealth aircraft and
precision weapons convincingly demonstrated during Operation Desert
Storm. In addition, in  the post-Cold War era defense technology
investments can provide for national security requirements and
contribute to economic growth. In 1995, Defense dual-use S&T
activities will total $2.1 billion, which includes both established
programs and initiatives such as the Technology Reinvestment Project,
an effort jointly funded by the Federal Government and private sources
(for more details, see the next section on Defense Reinvestment and
Conversion).

                 DEFENSE REINVESTMENT AND CONVERSION


----------------------------------------------------------------------
Clearly, defense conversion can be done and can be done well, making
change our friend and not our enemy.  But in order to do it we must
act, act decisively, act intelligently and not simply react years
after the cuts occur.


                                                President Bill Clinton
                                                        March 11, 1993
----------------------------------------------------------------------

  The end of the Cold War provides an opportunity to reinvest some
defense industrial, technological and work force capabilities to
contribute to our Nation's economic competitiveness: those who helped
us win the Cold War can help us compete globally. The Administration's
five-year, multi-agency Defense Reinvestment and Conversion program,
unveiled in March 1993, capitalizes on this opportunity through the
President's investment priorities of worker retraining, community
redevelopment, and advanced technology investments.

  For workers, the Department of Labor's (DOL) workforce security
initiative provides retraining and job search assistance. In 1995, an
estimated $195 million of the overall initiative could be expected to
be used to assist displaced defense workers. SWAT teams of labor
program experts respond to layoff announcements or base closures to
provide quick-reaction job-search services and assistance information.
For Department of Defense (DOD) civilian and military personnel, the
conversion program provides funding for separation and transition
programs, including the Troops-to-Teachers program which provides
financial incentives to local school districts to hire separating
military personnel. DOD also provides early retirement incentives to
manage the personnel drawdown and ease the transition for those
leaving military service.

  For communities, DOD's Office of Economic Adjustment (OEA) is often
the first Federal agency on the scene after the announcement of
intended military base closures  or defense contract cutbacks.  The
$39 million requested in 1995 ensures access to redevelopment and
diversification planning grants. The Department of Commerce's Economic
Development Administration (EDA) funds long-range economic planning,
construction of infrastructure and development facilities, and
management and technical assistance. For 1995, $140 million is
requested for EDA's defense conversion activities, a $60 million
increase over 1994.

  In response to the July 1993 round of military base closure
announcements, the Administration developed a five-point plan for
revitalizing affected communities. The plan, distinct from the overall
conversion program, promotes redevelopment through the transfer of
base property to communities at low or no cost, rapid environmental
cleanup, and improved access to Federal programs and funding.

  For industry, the defense conversion program reflects a two-pronged
strategy: invest in civilian high-technology conversion opportunities
for defense firms, and promote dual-use technologies that have both a
commercial and military application.


               Table 3B-7. DEFENSE REINVESTMENT AND CONVERSION\1\


                   (Budget authority in millions of dollars)

--------------------------------------------------------------------------------
                                                          Proposed        Total
                               1993     1994     ----------------------  -------
                             Actual Estimate     1995     1996     1997  1993-97
--------------------------------------------------------------------------------
Department of Defense
 Personnel Assistance and
 Community Support........    1,020    1,265    1,192 \2\1,192 \2\1,192    5,861
Department of Energy
 Worker and Community
 Transition Program.......       92      200      125      100      100      617
Department of Labor
 Workforce Security
 Program..................      \3\   \4\125   \4\195   \4\195   \4\195      710
Department of Commerce
 Community Diversification
 Assistance (EDA).........      \5\       80      140      140      140      500
                            ----------------------------------------------------
 Total: Worker and
  Community Assistance
  Programs................    1,112    1,670    1,652    1,627    1,627    7,688
Department of Defense
 Dual-Use Technology......      882    1,441    1,429    1,454    1,479    6,685
 Technology Reinvestment
  Project (TRP)...........   \6\465      554      625      650      675    2,969
 Other Dual-use
  Initiatives.............      417      887      804   \2\804   \2\804    3,716
New Federal High
 Technology Investments
 (Conversion
 Opportunities)\7\........  .......      907    1,734    2,054    2,444    7,139
Other Industry Assistance
 Programs.................  .......    \8\50    \8\50  .......  .......      100
                            ----------------------------------------------------
  Grand total: Programs
   that will assist
   defense workers,
   communities and firms..    1,994    4,068    4,865    5,135    5,550   21,612
--------------------------------------------------------------------------------

  \1\This program reflects funding above 1993 levels plus that portion of
existing programs re-directed to conversion efforts.
  \2\This is the 1995 level. Specific estimates for 1996 and 1997 are not yet
available.
  \3\$75 million was transferred in 1993 from the Department of Defense to the
Department of Labor.
  \4\This is the portion of the overall investment increase that could be
expected to be used to assist displaced defense workers.
  \5\In addition, $80 million was transferred in 1993 from the Department of
Defense.
  \6\In addition to $465 million of TRP funding, the 1993 TRP solicitation
included $7 million in separately budgeted Small Business Innovative Research
funds for a total of $472 million.
  \7\This includes investment programs that provide direct conversion
opportunities (e.g., NASA's aeronautics initiative) and 50 percent of programs
that provide some conversion opportunities (e.g., Department of Commerce program
for Information Highways.)
  \8\ This reflects the National Shipbuilding Initiative which the Congress
funded in 1994 in the defense budget. Funding for 1995 loan subsidies is
provided in the Department of Transportation budget.
--------------------------------------------------------------------------------

  Civilian Technology Investment. The multi-agency conversion program
provides more than $7 billion over five years for civilian
high-technology investments. For example, NASA's aeronautics
initiative helps defense firms and workers use defense expertise in
civilian aircraft technology development. The Department of Commerce's
Information Highways use defense-related software and hardware. These
investments leverage the talents and resources of defense workers and
firms, diversify the economy, and build overall competitiveness.

  Dual-Use Technologies. The defense technologies that make us the
strongest military power can also promote industrial competitiveness.
At the same time, dual-use technology increases national security
because the unprecedented advances in civilian technology benefit
military systems. For 1995, the defense conversion program provides
$1.4 billion for dual-use programs including the Technology
Reinvestment Project (TRP), a multi-agency effort administered by
DOD's Advanced Research Projects Agency  to promote
commercial-military technology integration. 1995 funding for the TRP
has been increased to $625 million, over $70 million more than the
1994 level.

  Coordination of the Defense Reinvestment and Conversion program is
within the Executive Office of the President, to ensure that resources
are delivered effectively, fairly and in keeping with the goals of the
program.

  Funding. As shown in Table 3B-7, the conversion program brings
together activities from across the Federal Government.  In almost all
cases, increased funding has been requested for 1995.  These
increases, when combined with additional 1993 and 1994 spending in key
conversion programs, bring the defense conversion program to about $22
billion over five years--$2 billion over the $20 billion level
announced in March 1993.

                    INVESTING IN PHYSICAL CAPITAL

                IMPROVING THE NATION'S INFRASTRUCTURE


----------------------------------------------------------------------
To build a twenty-first century economy, America must revive a
nineteenth century habit--investing in the common, national economic
resources that enable every person and every firm to create wealth and
value.  The only foundation for prospering in the global economy is
investing in ourselves.


                                                President Bill Clinton
----------------------------------------------------------------------

  Americans have come to expect public infrastructure investments that
are safe, dependable, and well maintained.  Investments in
transportation, water resources, and the environment:

 o promote growth of production, employment, productivity, and living
   standards;

 o make the Nation more competitive in the world economy;

 o contribute to a clean environment; and

 o create jobs.

  This Administration is committed to increasing funding to improve
the infrastructure and to targeting resources to projects that provide
the greatest benefits.  Therefore, this budget:

 o fully funds core highway investments at the congressionally
   authorized level, but eliminates funding for selected so-called
   "demonstration projects";

 o increases formula capital grants for mass transit and proposes an
   urban congestion initiative, but waits for a revised evaluation
   process to fund additional discretionary "new starts;"

 o increases funds for air traffic control improvements, and maintains
   the current level of airport grants; and

 o increases funds for water treatment and supply facilities, and
   funds ongoing water resources development projects.

  The 1995 budget proposes $34.4 billion for infrastructure spending.
(See the summary Table 3B-8 below and the detailed Table 3B-9 at the
end of this section.)  This is $0.5 billion, or 2 percent, more than
proposed for 1994. Chart 3B-10 displays the percent of 1994 spending
for types of infrastructure. Highway spending accounts for 60 percent
of the total.


           Table 3B-8. SUMMARY OF INFRASTRUCTURE INVESTMENT


      (Discretionary program level; dollar amounts in billions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                               Actual    Pro-    Pro-    1994  1994 to
                                       posed\1\  posed to 1995    1995
----------------------------------------------------------------------
Highways......................    18.0    20.3    20.3      -*     -*%
Other Transportation..........     7.1     7.5     8.3    +0.7    +10%
Water Treatment and Supply....     3.1     3.1     3.3    +0.3     +9%
Water Resources Development...     2.2     2.1     1.6    -0.5    -22%
Other Infrastructure
 Investment...................     0.8     0.9     0.9      --      --
                                --------------------------------------
  Total Infrastructure........    31.3    33.9    34.4    +0.5     +2%
----------------------------------------------------------------------

  Note: Program level is budget authority, obligations, or obligation
limitation.
  *$50 million or less or 0.5 percent or less.
  \1\Includes proposed supplementals and rescissions for 1994.
----------------------------------------------------------------------




  Insert chart: CHT3B_10



  Federal, State, and local governments all have important roles in
infrastructure investment.  Infrastructure investment by all levels of
government totaled $65.9 billion in 1990.  State and local governments
financed $40.2 billion or 61 percent of this amount (according to a
recent study by the Congressional Budget Office (CBO); latest data
available).  The Federal Government financed the remaining $25.7
billion, of which $21.4 billion was grants to State and local
governments.

  In order to improve the Nation's infrastructure, the Administration
seeks not only greater investment, but also more effective investment.
Toward this end, the President recently issued an Executive Order
setting forth principles for Federal infrastructure investments.  The
Order instructs agencies to conduct systematic economic analysis of
these investments.  Because the benefits from infrastructure
facilities depend in part on how well they are managed, the Order also
requires periodic reviews of management practices, including operation
and maintenance activities, contracting practices, and pricing
policies.

  Economic Growth.--Many recent studies (such as How Federal Spending
for Infrastructure and Other Public Investments Affects the Economy,
CBO, 1991) have documented the important contribution of
infrastructure investment to economic growth. Transportation and other
infrastructure systems can reduce costs and increase productivity,
helping the private sector compete in the international arena.
However, public investment financed at the expense of more productive
private investment can hinder economic growth. Thus, increased public
investment is important, but only the most effective investments merit
funding, and there must be a balance between public and private
investment.

  Clean Environment.--Selective infrastructure investments also
protect the environment. Because pollution crosses State lines, there
is an important Federal role in investments in water and wastewater
treatment systems.

  Job Creation.--Infrastructure investment also contributes to job
creation. Estimates indicate that $1 billion of Federal highway
construction generates as many as 26,000 jobs and, by increasing the
productivity and competitiveness of the economy generally, aids job
creation and retention in the private sector.

Addressing Infrastructure Problems in the 1995 Budget

Highways

  The Administration proposes full funding of the Intermodal Surface
Transportation Efficiency Act (ISTEA) authorized level for the core
highway programs, which are the categorical grants distributed to the
States under the Federal-aid highway programs. These grants help
finance the preservation of 900,000 miles of major highways, including
the 43,000 miles of the Interstate Highway System. Individual projects
are selected by the States.

  For these core programs, the Administration requests $19.8 billion
in budgetary resources for 1995, $0.7 billion or 4 percent more than
in 1994.

  This funding permits the States to address a wide range of
priorities from Interstate preservation to congestion mitigation and
air quality improvement. Full funding also permits the States to take
maximum advantage of the flexibility provisions of ISTEA. ISTEA
provides States the discretion to transfer funding between highway and
transit uses.

  The Administration has submitted to Congress recommendations for the
National Highway System. The proposed system includes nearly 159,000
miles of Interstate highways, major arterials and defense support
roads, and key corridors. If enacted as proposed,  the System would
include highways that carry about 40 percent of total vehicle miles
travelled and 75 percent of interstate truck traffic. The National
Highway System will provide the focus for major State highway
investment decisions.

  Elimination of Funding for Low Priority Highway Projects.--To "free
up" limited funding for the core highway programs, the Administration
proposes rescissions of $4.7 billion for selected "highway
demonstration" projects.  This includes prior year balances and
authorized amounts for 1995-1997.

  Both the recent National Performance Review (NPR) and the General
Accounting Office (GAO) have criticized increased congressional
earmarking of projects at the Federal level. According to these
reports, there are three reasons that rescission of these projects is
warranted. First, most of the projects do not respond to the most
critical Federal-aid highway needs of States and regions. For example,
in more than half of the cases, the projects were not even included in
State or regional plans. Second, there is no guarantee that these
projects, once started, would be finished. GAO determined, for
example, that project costs greatly exceed authorized Federal and
State funding levels, and that State officials are uncertain of their
ability to contribute more. The excess costs have been estimated to be
more than $27 billion for ISTEA projects.  Third, many States are of
the view that these projects offer only limited benefits, especially
compared with other projects that could use additional Federal funding
to greater advantage. In conclusion, reducing or eliminating these
projects allows funding for other, critical highway spending. If the
projects are a high priority, the States may choose to fund from the
core programs.

  Increased Funding for Smart Cars/Smart Highways.--To promote more
efficient use of the existing infrastructure, the Administration
supports the intelligent vehicle highway system (IVHS), or "smart
cars/smart highways," which uses advanced technology to provide
drivers with congestion and safety information. This will improve
traffic flow, reduce congestion and travel time, and improve safety.
The budget requests an increase of $75 million for 1995 for this
program, from $214 million in 1994 to $289 million in 1995.

  Emergency Highway Repair.--The 1995 budget estimates do not display
requested funding for the repair of highways in and around Los Angeles
damaged by the recent San Fernando Valley earthquake. Funding of $1.4
billion for highways has been transmitted to Congress separately. Much
of the 1994 amount for emergency repairs ($0.7 billion) included in
the budget and shown in Table 3B-9 is associated with continuing
repair work for highways damaged in the 1993 floods and the Loma
Prieta earthquake in Northern California in 1989.

Mass Transit

  Formula Capital Grant Increases.--Mass transit is critical to
reducing congestion and pollution. The Administration proposes a 40
percent increase for formula capital spending, from $1.6 billion in
1994 to $2.3 billion in 1995. With this funding, the Federal
Government shares with State and local governments the cost of
purchasing and rehabilitating buses, bus facilities, rail systems, and
other investments.  These investments improve public mass
transportation in approximately 500 urban and rural areas in the
country.

  Reductions for Discretionary Projects.--Compared with formula grant
funding, discretionary grant funding is normally allocated to
relatively few cities.  For some discretionary projects, costs have
been much higher, and ridership lower, than originally estimated. To
ensure that Federal resources are directed only to the most effective
investments, the Administration is developing a revised "new start"
evaluation process, as required by ISTEA.

  The $1.5 billion in budgetary resources for transit discretionary
capital grants would maintain 1994 funding levels for rail
modernization and bus projects, but limit funds for "new start"
construction to projects already approved.

  Urban Congestion Relief Initiative.--Highway congestion has
increased, especially in large urban areas. The percentage of urban
Interstate travel that is congested during the daily peak travel hour
increased from 55.4 percent in 1983 to 70.2 percent in 1991.
Congestion in the Nation's 50 largest urban areas now costs more than
$39 billion annually in lost productivity and fuel costs.  Many of
these areas also have serious automobile-related air quality problems.

  The Administration is developing an urban congestion initiative to
address this growing and costly problem. As part of this initiative,
10 percent of the formula capital grants would be used as an incentive
to urban areas to implement projects that will contribute to decreased
traffic congestion.

Railroads

  Improving Rail Transportation in the Northeast Corridor.--The
Federal Government invests in improved passenger rail service in the
Northeast Corridor between Washington, D.C., and Boston. Grants to the
National Railroad Passenger Corporation (Amtrak) are used to electrify
track between New Haven, Connecticut and Boston, and for other
projects to reduce travel time. The Administration requests $0.2
billion to continue this program in 1995.

  The Administration also proposes to form a partnership with New York
State, New York City, and Amtrak to redevelop Penn Station in New York
City. Penn Station is the largest intermodal hub in the country, and
serves Amtrak, the Long Island Railroad, New Jersey Transit, and the
New York City subway. For 1995, the Administration requests $90
million to support this project, which will renovate the James A.
Farley Post Office building as a train station and commercial center,
and upgrade Penn Station. Funds will be contingent upon financial
contributions from the State of New York, New York City, and Amtrak. A
1994 supplemental appropriation of $10 million is requested to
initiate the project.

  The grant to Amtrak for capital spending will allow for the purchase
of new equipment, station improvements, and capital equipment
overhauls, all of which will reduce operating costs in the long run.
The Administration is requesting $0.3 billion for these grants for
1995, an increase of 29 percent over 1994.

Air Transportation

  The Federal Government invests in air transportation through
modernization and maintenance of facilities and equipment for the air
traffic control system and through airport development grants.

  Air Traffic Control Investment.--The Federal Aviation
Administration's air traffic control modernization program supports
growth in aviation activity. Benefits include reduced delays, more
efficient aircraft routing, fewer accidents, and more cost-effective
operation.

  The Administration requests $2.3 billion in budget authority for
facilities and equipment, an increase of $0.2 billion (nine percent)
over 1994. The 1995 proposal implements the Capital Investment Plan
with new solid-state navigation and landing aids and highly-automated
work consoles to replace controller work stations to handle increased
air traffic of the 1990s and beyond.

  Airport Grants.--Approximately 3,300 large and small airports are
eligible to receive capital grants from the Federal Government to
assist local airport authorities in the construction of runways and
other capital improvements.

  The Administration requests $1.7 billion for the airport grants
program for 1995, the same amount as for 1994, to assist with capital
needs. These grants supplement locally generated capital, which on
average funds 90 percent of the development costs of large hub
airports. This local funding includes approximately $0.7 billion in
local passenger facility charges, which were authorized in 1990 and
are paid by passengers for the improvement of the aviation facilities
they use. The collections go directly to the local airports for
improvement projects.

Water Treatment and Supply

  The Administration requests $3.3 billion in budget authority for
1995 for water treatment and supply programs, $0.3 billion or 9
percent more than in 1994. Most of this spending is in the
Environmental Protection Agency (EPA).

  Clean Water and Drinking Water State Revolving Funds (EPA).--The
clean water State revolving fund (SRF) program provides capitalization
grants to State revolving funds, which make low-interest loans to
municipalities to finance wastewater treatment facilities and other
specified activities to improve water quality. The goal of the program
is to create, in each State, a fund to provide steady loan amounts
year after year, even after the Federal Government has ended its
annual capitalizations. This will occur as loan repayments to the fund
are loaned out again. To date, the Federal Government has provided
more than $9 billion in capitalization funds.

  The Administration requests $1.6 billion for the clean water State
revolving funds, $0.4 billion more than the 1994 amount, to meet the
immense needs for water quality protection and restoration. With
leveraging and repayments of prior loans, States will be able to
provide more than $2 billion in loans in 1995.

  The Administration will apply the revolving loan fund concept to
drinking water as well, to meet treatment requirements under the Safe
Drinking Water Act. In 1994, $0.6 billion was provided for drinking
water State revolving funds. For 1995, the Administration is
requesting $0.7 billion in budget authority, to become available after
the drinking water State revolving fund program is authorized.

  Targeted Wastewater Assistance.--EPA also provides wastewater
assistance targeted to special needs outside the normal State
revolving fund allocation formula. For 1995, the Administration
proposes $250 million, including $150 million for Mexican border
environmental projects in support of NAFTA--of which $50 million will
be devoted to the colonias in Texas--and $100 million for cities that
meet stringent criteria of high needs for secondary treatment and high
current user charges.

  Rural Water and Wastewater Programs.--The Department of Agriculture
funds construction, repair, and improvement of rural water and
wastewater disposal systems through direct loans and grants for
low-income communities with populations of less than 10,000. Many
rural communities need Federal assistance for water and sewer systems
because they cannot afford private credit terms for needed facilities,
including those necessary to meet the requirements of the Clean Water
Act and the Safe Drinking Water  Act. The interest rate on the direct
loans varies depending on the income of the community and whether the
water or sewer project is necessary for health and safety reasons.
Under a proposed reorganization, these programs will operate through a
"Rural Utilities Service."

  The Administration requests $1.0 billion in loan authority for rural
water and wastewater facilities, a 17 percent increase above 1994; and
$0.5 billion in budget authority for grants, a $25 million or 5
percent increase above 1994. The proposed loan level will support
about 934 systems, while about 896 communities will receive grants.
This will give rural Americans access to clean water and will also
provide important environmental benefits. In addition, the
Administration is requesting $25 million in grants for drinking water
projects targeted to the colonias along the Mexican border.

Water Resources Development

  Water Resources Projects Already Underway.--Water resources
investments include multi-use facilities such as dams that provide
flood control, water storage for irrigation and drinking water,
hydropower, and recreation; single-purpose facilities, such as
channels and levees for flood damage reduction, and locks and dams for
inland waterways; and major commercial ports to aid water
transportation. The Administration requests $1.6 billion for 1995 for
water resources infrastructure, $0.5 billion less than in 1994.  These
programs are operated primarily by the Army Corps of Engineers and the
Bureau of Reclamation.  The request will support work on projects
already underway.

  Army Corps of Engineers.--The Corps of Engineers operates more than
400 multi-purpose dams. In addition, the Corps is responsible for
locks and dams along major water routes. It has constructed and now
maintains 25,000 miles of navigation channels that serve 130 of the
Nation's 150 largest cities, and is responsible for construction and
maintenance of 100 major commercial ports. Ports and waterways now
handle more than 2 billion tons of cargo per year. Corps facilities
provide 4 percent of the Nation's electrical energy, water supply for
more than 9 million people, and account for 644 million recreational
visits.  Infrastructure programs of the Corps are cost-shared with
State and local governments and through collection of user fees.

  For 1995, the Administration requests $1.2 billion in discretionary
budget authority for the construction programs of the Corps, $0.4
billion or 24 percent less than the 1994 amount of $1.6 billion. The
1995 request emphasizes completion of projects already underway. There
will be no new starts--170 projects will be funded and 13 are expected
to be completed in 1995. These projects are economically justified and
environmentally sound.

  Bureau of Reclamation.--Programs of the Bureau of Reclamation are
located exclusively in the western United States. The Bureau has
constructed multi-purpose projects for storage and conveyance of water
to almost 10 million acres.  These projects service the full water
supply needs of 15 million people, provide 2 percent of the Nation's
electrical energy, and account for 79 million recreational visits.
Program emphasis is shifting from project construction to resource
management, consistent with recommendations of the National
Performance Review. As an example of this transition, the budget
includes $10 million in grants to the Los Angeles area to fund a water
reclamation and reuse pilot program, which is not a traditional water
resources development project and is included as an environmental
investment.

  The Administration requests $371 million in infrastructure
development budget authority for 1995, $67 million or 15 percent less
than the 1994 amount of $438 million. The decrease is largely the
result of construction projects nearing completion. As with the Corps,
there are no new water resources development projects proposed for
1995.

Other Infrastructure Investment

  Approximately 20 percent of the Community Development Block Grant
program (Department of Housing and Urban Development) is used for
urban streets and other infrastructure. Infrastructure spending from
this grant is estimated to be $0.9 billion in 1995, the same as in
1994.

Additional Information on Investment Spending in the 1995 Budget

  Other sections in this Chapter discuss budget proposals for
investing in research and development and education and training.
Chapter 8 of 1995 Budget Analytical Perspectives, "Federal Investment
Outlays and Capital Budgets," provides more comprehensive information
on outlays for all physical capital investment, including
infrastructure, and outlays for research and development and education
and training. The Historical Tables volume, which also accompanies
this budget, provides historical data on investment outlays: outlays
for physical capital are in Section 9; and outlays for the conduct of
research and development and for education and training are in Section
10.


                 Table 3B-9. INFRASTRUCTURE INVESTMENT


         (Discretionary program level in billions of dollars)

----------------------------------------------------------------------
                                                               Dollar
                                         1993    1994    1995  Change:
                                        Actual   Pro-    Pro-   1994
                                               posed\1\  posed to 1995
----------------------------------------------------------------------

           TRANSPORTATION

Department of Transportation:
 Highways:
  Core categorical highway grants.....    16.5    19.1    19.8    +0.7
  Emergency repair\2\.................     0.5     0.7     0.1    -0.6
  Highway demonstrations and other
   projects...........................     1.0     0.5     0.4    -0.1
                                        ------------------------------
 Subtotal, highways...................    18.0    20.3    20.3      -*
 Mass transit:
  Formula capital grants..............     0.9     1.6     2.3    +0.7
  Discretionary grants................     1.7     1.7     1.5    -0.2
                                        ------------------------------
 Subtotal, mass transit...............     2.6     3.3     3.8    +0.4
 Railroads:
  Northeast corridor..................     0.2     0.2     0.2      --
  Penn Station redevelopment..........      --       *     0.1    +0.1
  Amtrak capital......................     0.2     0.2     0.3    +0.1
                                        ------------------------------
 Subtotal, railroads..................     0.4     0.4     0.5    +0.1
Air transportation:
  Air traffic control facilities and
   equipment..........................     2.3     2.1     2.3    +0.2
  Grants for airports.................     1.8     1.7     1.7      --
                                        ------------------------------
 Subtotal, air transportation.........     4.1     3.8     4.0    +0.2
                                        ------------------------------
Subtotal, transportation..............    25.1    27.9    28.6    +0.7

      WATER TREATMENT AND SUPPLY

Environmental Protection Agency:
 Clean water State revolving funds....     1.9     1.2     1.6    +0.4
 Drinking water State revolving funds.      --     0.6     0.7    +0.1
 Targeted wastewater assistance\3\....     0.6     0.6     0.3    -0.3
Department of Agriculture:
 Rural water and wastewater programs:
  Grants and loans....................     0.5     0.6     0.7      +*
  Loan level..........................   (0.8)   (0.8)   (1.0)   (0.1)
                                        ------------------------------
Subtotal, water treatment and supply..     3.1     3.1     3.3    +0.3

     WATER RESOURCES DEVELOPMENT

Army Corps of Engineers...............     1.7     1.6     1.2    -0.4
Bureau of Reclamation (Department of
 Interior)............................     0.5     0.4     0.4    -0.1
                                        ------------------------------
Subtotal, water resources development.     2.2     2.1     1.6    -0.5

   OTHER INFRASTRUCTURE INVESTMENT

Community development block grants\4\.     0.8     0.9     0.9      --

                                        ==============================
Total infrastructure..................    31.3    33.9    34.4    +0.5
----------------------------------------------------------------------

  Note: Program level is budget authority, obligations, or obligation
limitations.
  *$50 million or less.
  \1\Indicates proposed supplementals and rescissions for 1994.
  \2\Budget does not include estimates associated with the recent San
Fernando Valley earthquake.  Funding of $1.4 billion for highways has
been transmitted separately.
  \3\$500 million in 1994 for targeted wastewater assistance is
subject to congressional authorization.
  \4\Includes 20 percent of these grants, which is the approximate
amount used for infrastructure.
----------------------------------------------------------------------

                 DEVELOPING URBAN AND RURAL ECONOMIES


----------------------------------------------------------------------
The best way to serve distressed communities in urban and rural
America is through a comprehensive, coordinated, and integrated
approach that combines bottom-up initiatives and private sector
innovation with responsive Federal-State support.


                                                President Bill Clinton
----------------------------------------------------------------------

  This budget includes an array of new initiatives for the economic
development of distressed urban and rural communities. Taken together,
they will:

 o mobilize underused human and physical capital resources; and

 o redress inequalities in economic opportunity arising either from
   history or from more recent dislocations.

  The Clinton Administration's strategy to increase economic
opportunity for people in distressed urban and rural communities
balances investments in human and physical capital, in businesses and
in housing. The evolving new approach to aiding distressed communities
both provides financial resources and additional flexibility to use
them for redevelopment. In addition to creating new jobs in areas of
concentrated poverty, it provides residents of those areas with new
means to obtain training and to move to areas with jobs and economic
stability. Finally, it reforms the relationship between the Federal
government and State and local governments. Communities are encouraged
to think and plan strategically, to form new community-based
partnerships, to integrate resources from different Federal programs,
and to set measurable performance objectives. Their efforts will be
judged primarily on whether they achieve the objectives they have set
for themselves. Proposed 1995 funding for urban and rural development
initiatives is highlighted in the Table 3B-10.


    Table 3B-10. PROPOSED URBAN AND RURAL DEVELOPMENT INITIATIVES


(Discretionary loan levels and grant budget authority; dollar amounts
                             in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
     Agency/Program             Actual Enacted   Pro-   1994   1994 to
                                                 posed to 1995    1995
----------------------------------------------------------------------
HUD:
 Community/Economic Development Assistance
  Project-Based Community Development Grants
   Economic Revitalization
    Grants....................      --      --     150    +150      NA
   Community Viability Fund...      --      --     150    +150      NA
   Empowerment Zones Grants...      --      --     500    +500      NA
   Colonias Assistance Program      --      --     100    +100      NA
                                --------------------------------------
    Subtotal, HUD.............      --      --     900    +900      NA
USDA:
 Rural and Infrastructure Investment
  Water and wastewater
   disposal loans.............     850     834     977    +143    +17%
  Water and wastewater
   disposal grants............     425     500     525     +25     +5%
  Community facilities loans..     152     300     375     +75    +25%
 Rural Community and Business Assistance
  Business and Industry
   guaranteed loans...........     187     249   1,116    +867   +348%
  Intermediary relending
   direct loan program........      34     100     125     +25    +25%
  Rural Development Grants....      21      42      50      +8    +19%
 Rural Housing Assistance
  Single family direct loans..   1,295   1,800   1,800      --      --
  Single family guaranteed
   housing loans..............     580     728   1,300    +572    +79%
  Rural rental assistance
   grants.....................     404     447     523     +76    +17%
  Other rural housing loan and
   grant assistance...........      49      85      85      --      --
                                --------------------------------------
 Subtotal, USDA...............   3,997   5,085   6,876  +1,791    +35%
Commerce:
 Urban/Rural Business Development
  EDA Guaranteed Loans........  ......  ......     269    +269      NA
Other Independent Agencies:
 Community/Economic Development Assistance
  Community Development Financial
   Institutions...............  ......  ......     144    +144      NA
                                --------------------------------------
TOTAL, URBAN AND RURAL
 DEVELOPMENT INITIATIVES......   3,997   5,085   8,189  +2,691    +53%
----------------------------------------------------------------------

  NA: Not applicable.
----------------------------------------------------------------------

Empowerment Zones and Enterprise Communities

  The Administration's effort was launched in 1993 with enactment of
its Empowerment Zones and Enterprise Communities. This new approach to
urban and rural redevelopment is designed to empower people and
communities all across the nation by inspiring Americans to work
together to create jobs and opportunity. It combines tax benefits,
social service grants, improved program coordination, and local
flexibility in nine Empowerment Zones and ninety-five Enterprise
Communities. The competitive application process will encourage
creative planning by requiring each applicant to develop and submit a
strategic vision for change. The community must demonstrate strong
relationships between the local government and the private sector and
show how its plan will combine resources from Federal programs and
other sources. Urban Zones and Communities will be designated by the
Secretary of HUD; Rural Zones and Communities will be designated by
the Secretary of Agriculture.

  Federal financial support will be concentrated primarily in the six
urban and three rural Empowerment Zones. Enterprise Communities will
also receive grant money, and will benefit mostly from special access
to other Federal programs as well as regulatory waivers from various
program requirements. The President's Community Enterprise Board--the
White House committee established in September to develop and
implement the Administration's urban and rural revitalization
strategy--communicates with leaders from local government, community
and religious groups, private businesses, and others to implement the
new community empowerment program. The Administration plans to
designate the six urban and three rural Empowerment zones and a large
portion of the Enterprise Communities by August, 1994.

  Tax incentives available to designated Enterprise Communities and
businesses include:

 o tax exempt facility bonds for qualified zone businesses; and

 o tax credits of 50 percent for individual and group contributions to
   Community Development Corporations.

  Additional tax incentives available to Empowerment Zone communities
and businesses include:

 o a wage tax credit for private employers hiring Zone residents. An
   employer located within a Zone receives a 20 percent tax credit on
   the first $15,000 in wages or certain training expenses for
   employees who live in the Zone;

 o accelerated depreciation for certain property in the Zones; and

  In addition, $1 billion of Title XX Social Service Grants will be
divided among the Empowerment Zones and Enterprise Communities. Each
urban Zone receives $100 million; each rural Zone receives $40
million; and each urban and rural enterprise community receives $2.95
million. Communities may use these funds for a broad range of
activities, including making investments in community development
corporations; purchasing or improving land; paying wages to
individuals as a social service; creating drug and alcohol prevention
and treatment programs; establishing training programs for zone
residents on construction and rehabilitation of affordable housing;
public infrastructure and community facilities; afterschool programs
to protect families and children; job counseling; transportation
services; and homeownership counseling.

New Community and Economic Development Initiatives

  The Department of Housing and Urban Development (HUD) is proposing a
set of new initiatives to help local governments create jobs and bring
new economic vitality to urban neighborhoods. These will not only fund
individual projects but also strengthen local capacity to plan,
design, and implement community-building efforts.

  The new community economic development initiatives reinforce and
enhance other programs including Empowerment Zones and Enterprise
Communities, the Community Development Block Grant (CDBG) program, and
the related Section 108 loan guarantees. They reflect the National
Performance Review's recommendation of flexible assistance to enable
localities to identify and respond to their specific needs. All will
be competitively awarded, based on the strength of local commitments
as well as needs. They all address the shortage of jobs and economic
opportunities in so many urban neighborhoods. The new initiatives
include:

 o Economic Revitalization Grants. The budget proposes $150 million in
   grants to help finance projects under the Section 108 loan
   guarantee program. Section 108 loans, which are guaranteed by
   future CDBG revenues, finance a wide range of community economic
   revitalization activities. The proposed grants, which would be
   awarded on a competitive basis, would encourage greater use of
   Section 108 loans by giving localities a source of loan repayment
   and a way to reduce the effective interest rates on the loans.

 o Community Viability Fund. Many distressed communities lack the
   capacity to use existing Federal and state resources. The budget
   proposes $150 million in competitive grants for strategic local and
   regional planning, innovative urban design, and comprehensive local
   and regional planning for strategic economic development. This fund
   would focus national attention on local and regional efforts for
   economic redevelopment; reduce the spatial isolation of
   lower-income groups; and expand amenities and community services in
   distressed urban areas. Twenty million dollars of these funds will
   be used to continue the NCDI initiative authorized last year.

 o Empowerment Zones and Enterprise Communities Grants. The budget
   proposes $500 million in grants to finance capital projects,
   including housing, in urban Empowerment Zones and Enterprise
   Communities. These grant funds would complement other Federal
   resources (e.g., tax incentives and Title XX Social Service Block
   Grants) authorized in the Omnibus Budget Reconciliation Act of
   1993. The grants could be used for a range of activities, at local
   discretion, including: repayment of debt financed by municipal
   bonds; financing section 108 loan guarantee projects and other
   economic development projects; and project-based rental assistance,
   and other housing activities.

 o Leveraged Investments for Tomorrow (LIFT). The budget proposes $200
   million within CDBG for the LIFT competitive grant program to
   provide subsidies for private investment in strategic
   nonresidential or mixed-use development projects in distressed
   urban neighborhoods.

 o Colonias assistance. The Colonias program will provide $100 million
   for severely distressed settlements along the United States-Mexico
   border. These areas have inadequate roads and drainage, inadequate
   or nonexistent water and sewer facilities, and grossly substandard
   housing. Applicants would be required to develop comprehensive
   action plans to address housing, infrastructure and social service
   needs in conjunction with other Federal and state resources.

  Economic Development Administration (EDA) Guaranteed Loans. The
budget proposes creation of a $50,000,000 EDA credit subsidy reserve
to guarantee $269,000,000 in loans to private and public entities. The
loans will have broad eligibility and will help businesses in
distressed communities to access investment capital. This credit
reserve will complement similar programs of the Small Business
Administration and Farmers Home Administration by targeting potential
commercial borrowers that do not meet the criteria used by these
agencies.

Rural Development Initiative

  The Administration's Rural Development Initiative (RDI) was first
proposed in 1994 when Congress enacted 67 percent of the requested
$1.9 billion investment increase. For 1995, the Administration again
requests increased resources to improve rural infrastructure, which
provides the necessary underpinning for rural economic development. It
would also directly assist rural communities and businesses to improve
the quality of rural life, increase rural employment and housing
opportunities, and further diversify the rural economy.

  The budget request includes a significant increase in funding for
Department of Agriculture (USDA) Small Community and Rural Development
Programs by leveraging Federal investment loan and grant programs to
allow rural areas to help themselves. Overall, the total 1995 program
level for the RDI is $6.9 billion (grants plus loans at face value),
which is a 35 percent increase over the comparable 1994 enacted level,
and more than a 70 percent increase over 1993. (See Table 3B-10.)

  $1.5 billion will be available in 1995 for loans and grants to
improve rural water and wastewater disposal systems. Often small rural
communities are unable to meet expensive water and sewage standards
without Federal assistance. Community facility loans are proposed at
$375 million. These loans are available to finance essential community
facilities, such as hospitals and fire stations. To help support
business development and job creation in rural areas, $1.1 billion
would be available through USDA's Business and Industry guaranteed
loan program. In addition, $125 million in one percent interest rate
loans would be available to State-sponsored rural economic development
intermediaries, that, in turn, relend to rural businesses and emerging
"micro-enterprises". All assistance would continue to be coordinated
through existing State Rural Development Councils, whose members
include representatives from Federal, State and local government
agencies, as well as the private sector.

  The RDI would also improve the housing conditions of low- and
moderate-income persons in rural areas. Direct and guaranteed
homeownership loans totaling $3.1 billion would be provided in 1995,
an increase of nearly $600 million over 1994. Rental assistance in
rural areas would also be provided through housing vouchers and grants
for use in rental units. Vouchers would be targeted to areas where
rental units are available, but not currently affordable for
low-income persons.

Community Development Financial Institutions

  The Administration has proposed the creation of a Community
Development Financial Institutions Fund (Fund) to provide assistance
to qualifying community development lenders. The purpose of the
program is to support lenders who are committed to providing credit
and related financial services to currently underserved and distressed
communities. For example, the program will help lenders provide loans
to otherwise creditworthy first-time homebuyers with limited or mixed
credit histories, or to offer financing to local community groups
hoping to start a daycare program, or to provide credit to an
entrepreneur planning to rehabilitate affordable apartment buildings
in a deteriorating area. In addition, the program will help lenders
offer basic banking services--checking and savings accounts--in
communities where a lack of depository institutions forces residents
to rely on expensive check cashing services.

  The Administration supports legislation currently before Congress
which would establish the CDFI Fund as an independent agency. To be
eligible for assistance, a community development financial institution
(CDFI) must have a primary mission of lending to and developing an
underserved target population that is low-income or disadvantaged. All
types of new and existing community development financial institutions
will be eligible for assistance, including community development
banks, community development credit unions, revolving loan funds,
micro-loan funds, minority-owned banks, and community development
corporations. All CDFIs will be required to present a strategic plan
in their application which clearly states how they will meet the
economic and community development needs of their targeted
communities.

  The Fund will provide capital (equity investments and grants),
loans, and technical assistance to qualifying applicants. A
dollar-for-dollar match for investment in insured depository CDFIs
will be required. A match is also required for investment in other
CDFIs, but the amount is at the discretion of the Fund. Eligibility
for assistance will also be based on the applicant's level of
community support, the likelihood that the applicant will become
self-sustaining, and the extent of community lending that will result
from the federal support. All insured depositories receiving
assistance from the Fund will still be subject to all laws and
regulations established by Congress and the banking regulatory
agencies.

Community Reinvestment Act

  In July 1993, the President requested the Office of the Comptroller
of the Currency, the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation and the Federal Reserve Board to undertake a
comprehensive review and overhaul of the interagency regulations
implementing the Community Reinvestment Act (CRA). Under the CRA,
banks and thrifts have an affirmative obligation to help meet the
credit needs of their entire communities, including low and moderate
income areas. The President charged the agencies with reforming the
CRA regulations to emphasize performance over documentation, and to
refocus the regulations on making credit and financial services
available to all communities, including underserved areas throughout
urban and rural America. In response to the President's request, the
agencies issued proposed revised regulations on December 21, 1993.
Following a public comment period, final regulations will be issued.

  Currently, banks and thrifts' CRA assessments are based on 12
general factors. The regulatory agencies and examiners within the
agencies have interpreted and judged these factors differently,
resulting in inconsistent CRA ratings. The Administration's initiative
calls for more specific, uniformly applicable assessment standards
based on measurable performance in three specific areas: lending,
service, and investment. Under the proposal, banks and thrifts would
be evaluated based on the products and services offered in their
normal course of business.

  The proposed revisions will improve the implementation of the CRA in
four key ways. First, financial institutions will have clearer
guidance. Quantitative measures of performance will be stressed
instead of the current public relations and documentation focus.
Second, public participation will be encouraged by advance publication
of examination schedules and solicitations for public comments prior
to examinations. Third, unnecessary compliance burdens will be reduced
and improved performance will be rewarded. The proposal provides for
streamlined, but rigorous, small institution examinations and shifts
the examination burdens from the institution to the examiner. Fourth,
the proposal provides for flexibility for examinations of diverse
institutions by distinguishing between large and small retail
institutions and among retail, wholesale, and limited-purpose
institutions. The proposed reforms will help financial institutions
focus on what they do best--lending--rather than on regulatory
compliance. This in turn, will greatly expand the credit and financial
services available in currently underserved, distressed communities.

 INVESTING IN THE QUALITY OF LIFE: INCREASED ENVIRONMENTAL PROTECTION
     AND NATURAL RESOURCES ENHANCEMENT, WITH ECONOMIC EFFICIENCY


----------------------------------------------------------------------
Preserving our heritage, enhancing it, and passing it along is a great
purpose worthy of a great people. If we seize the opportunity and
shoulder the responsibility, we can enrich the future and ennoble our
own lives.


                                                President Bill Clinton
----------------------------------------------------------------------

  With these words in his April 1993 Earth Day speech, President
Clinton offered a new set of challenges to the American people
regarding environmental policy and the need to invest in our own
quality of life.

  The 1995 budget carries through that theme by focusing resources on
strengthening our stewardship of the Nation's natural resources and
improving our environmental regulatory and management programs.

  The aim of the environment and natural resources budget is to
achieve these two goals by targeting limited financial resources to
high-priority areas to support key programs and, in many cases, fund
the initial stages of powerful new approaches to environmental
management, such as ecosystem management. These priority areas
comprise about one-third of total spending on the environment and
natural resources. The budget request increases discretionary funding
for these investment priorities by 18 percent above the 1994 enacted
levels, from $8.8 billion up to $10.4 billion. (See Tables 3B-11 and
3B-12.)

  These priority investments include funding for such programs as
State revolving funds for clean water and drinking water; natural
resource protection and enhancement of our national forests, national
parks, and other protected lands and waters; global climate change
national action and research programs; pilot programs in ecosystem
management; and international programs supporting the North American
Free Trade Agreement (NAFTA).

  Funding for most other environment and natural resource programs is
being maintained at about the same level as in 1994, with a number of
individual programs increasing substantially--EPA's Operating Program,
energy conservation, solar and renewable energy research and
development, international environmental aid, and the Montreal
Protocol. Federal facilities cleanup funding also continues to
increase, though not at the same rate as in recent years.

  Overall, total discretionary funding for environment and natural
resources increases for 1995 by 5 percent, or $1.6 billion, over 1994,
from $33.6 billion to $35.2 billion. Compared to 1993, this represents
a 12-percent increase, when spending totalled $31.4 billion (Table
3B-11).


  Table 3B-11. TARGETING RESOURCES TO HIGH-PRIORITY ENVIRONMENT AND
                      NATURAL RESOURCE PROGRAMS


     (Discretionary budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                                Actual Enacted   Pro-   1994   1994 to
                                                 posed to 1995    1995
----------------------------------------------------------------------
Priority Investments..........   8,100   8,798  10,385  +1,587    +18%
Total Spending by Program Category:
 EPA's Operating Program......   2,750   2,689   3,051    +362    +13%
 Stewardship..................  15,136  15,129  15,409    +280     +2%
 Ecosystem Management and
  Biodiversity................      56     511     610     +99    +19%
 Cleanup and Compliance.......  11,643  13,438  13,931    +493     +4%
 International Cooperation....   1,810   1,807   2,238    +431    +24%
                                --------------------------------------
  Total.......................  31,395  33,574  35,239  +1,665     +5%
----------------------------------------------------------------------

  This discussion presents the 1995 environment and natural resources
budget in five major categories, which are briefly summarized below:

  EPA's Operating Program.--The budget for this program is one of the
key indicators of the Administration's commitment to providing
adequate resources to manage the country's environmental protection
activities, carry out numerous Congressional mandates, and introduce
needed reforms in overall Environmental Protection Agency (EPA)
management.  The budget requests an increase of 13 percent, to $3.051
billion, up from $2.689 billion in 1994. Along with this, the budget
includes an increase in staffing to fulfill one of the recommendations
of the National Performance Review, which is to encourage some
conversion from contractor to Federal employees in key areas where the
result will be better program control and management.

  Stewardship of Natural Resources.--In keeping with the President's
Earth Day statement, the budget places a high priority on the
management, protection, and enhancement of the Nation's natural
resources. Management of Federal lands in the national parks, national
forests, national wildlife refuges, lands under management by the
Bureau of Land Management, and coastal and marine areas under
management by the National Oceanic and Atmospheric Administration all
receive increased funding. In addition, the budget requests increased
support for the Climate Change National Action Plan and for State and
local water infrastructure grant and loan programs. The budget request
in this area is for $15.4 billion, an increase of $280 million.

  Ecosystem Management and Biodiversity.--Nothing better characterizes
the Administration's new approach to natural resource management than
the emphasis on ecosystem management. This emphasis on managing whole
ecosystems replaces the piecemeal approach of the past wherein land,
water, air, endangered species, and mineral and other resources were
primarily dealt with one by one. The budget includes funding for four
pilot projects covering a range of ecosystems: the forests of the
Pacific Northwest; the Everglades of Florida; the marine ecosystem of
Prince William Sound in Alaska; and an urban river in the Nation's
capital. In addition, the Administration plans strong support for
information collection and other programs to protect and preserve our
rich heritage of biodiversity. The budget request in this area is $610
million in discretionary spending, an increase of 19 percent over
1994.

  Cleanup and Compliance.--A very large share of the Federal
government's discretionary spending on environmental issues is devoted
to cleaning up the problems of the past. The largest Federal programs
are those at the Departments of Energy and Defense, cleaning up the
environmental legacy of the Nation's weapons and defense programs of
the past fifty years. Another key program is the Superfund, dealing
with hazardous wastes at over one thousand inactive contaminated sites
around the country. The Administration is proposing significant
changes in this program in order to streamline it, speed cleanups,
reduce their cost, and decrease private-sector spending on
litigation--without sacrificing human health or the environment. The
1995 budget request for cleanup and compliance is $13.9 billion, an
increase of 4 percent over 1994.

  International Cooperation.--International environmental leadership
is part of our Nation's global role. The budget includes a significant
increase in funding to support the implementation of the NAFTA
agreement, the U.S. global change research program, a new initiative
in global environmental education, the Montreal Protocol on reducing
ozone-depleting chemicals, and environmental funding through
multilateral and bilateral assistance programs. The request for $2.2
billion represents a $431 million increase over 1994.


  Table 3B-12. PRIORITY INVESTMENTS AND OTHER MAJOR ENVIRONMENT AND
                      NATURAL RESOURCE PROGRAMS


     (Discretionary budget authority; dollar amounts in millions)

----------------------------------------------------------------------
                                                       Dollar  Percent
                                 1993    1994    1995  Change: Change:
                                Actual Enacted   Pro-   1994   1994 to
                                                 posed to 1995    1995
----------------------------------------------------------------------
PRIORITY INVESTMENTS:
Stewardship:
 Clean water state revolving
  funds (SRFs) (EPA)..........   1,944   1,240   1,600    +360    +29%
 Drinking water SRFs (EPA)....  ......     599     700    +101    +17%
 Water/wastewater grants/loans
  (USDA)......................     548     616     661     +45     +7%
 Watershed restoration (EPA)..      50      80     100     +20    +25%
 So. CA water reclamation and
  reuse pilot prog. (DOI).....  ......      10      10      --      *%
 Needy cities (EPA)...........     100  \1\100     100      --      *%
 Climate charge national
  action plan
  (DOE/EPA/USDA/Others).......  ......      45     283    +238   +529%
 Enhanced Federal natural resource protection and environmental
 infrastructure:
  National parks (DOI)........     984   1,062   1,128     +66     +6%
  National forests (USDA).....     749     735     782     +47     +6%
  Wildlife refuges (DOI)......     506     483     541     +58    +12%
  Public lands (DOI)..........     293     269     296     +27    +10%
                                --------------------------------------
   Subtotal...................   2,532   2,549   2,747    +198     +8%
  Recover fisheries and
   protected species (NOAA)...     232     231     281     +50    +22%
 Wetlands plan
  (Corps/DOI/EPA/Others)......     590     635     708     +73    +11%
 Environmental technology
  (EPA).......................      92     128     172     +44    +34%
 Green programs (EPA).........       8      26      35      +9    +35%
 Federal aid highways,
  congestion mitigation & air
  quality (DOT)...............     601     681     718     +37     +5%

Ecosystem management and biodiversity:
 Pacific northwest forest plan
  (USDA/DOI/Others)...........  ......     302     372     +70    +23%
 Everglades/South FL
  restoration
  (DOI/Corps/EPA/NOAA)........      52      39      59     +20    +51%
 National Biological Survey
  (DOI).......................  ......     167     177     +10     +6%

International cooperation:
 NAFTA env. support
  (EPA/USDA/Treasury/Others)..     209     148     300    +152   +103%
 U.S. global change research program:
  Ground-based
   (DOE/NSF/USDA/NOAA/Others).     406     424     558    +134    +32%
  Space-based (mission to
   planet earth) (NASA).......     932   1,022   1,236    +214    +21%
                                --------------------------------------
   Subtotal:..................   1,338   1,446   1,794    +348    +24%
 Global environmental
  education (NOAA/NASA).......  ......       1      12     +11 +1,100%
                                ======================================
Total, priority investments\2\   8,100   8,798  10,385  +1,587    +18%

OTHER MAJOR PROGRAMS:
EPA's operating program.......   2,750   2,689   3,051    +362    +13%

Stewardship:
 o Wetlands reserve program
  (mandatory) (USDA)..........      15      67     283    +216   +322%
 o Solar and renewable energy
  research and development
  (DOE).......................     302     340     390     +50    +15%
 o Energy conservation (DOE)..     576     690     978    +288    +42%
 o Pesticide reduction
  initiative: selected
  programs (USDA).............     103     118     159     +41    +35%

Cleanup and compliance:
 o Federal facility/site cleanup:
  DOE (environmental
   management program)........   5,521   6,175   6,280    +105     +2%
  DOD.........................   1,686   2,579   2,710    +131     +5%
  Others (USDA/DOI/DOT/Others)     196     201     229     +28    +14%
                                --------------------------------------
   Subtotal...................   7,403   8,955   9,219    +264     +3%
 o Superfund (EPA)(Non-Fed.
  facility/site cleanup)......   1,589   1,497   1,499      +2      *%
 o Environmental compliance
  and pollution prevention
  (DOD).......................   1,804   2,324   2,557    +233    +10%
 o Research and development
  for environmental programs
  (DOD).......................     373     343     353     +10     +3%

International cooperation:
 o Montreal Protocol
  (EPA/STATE).................      25      25      48     +23    +92%
 o Multilateral and bilateral
  international assistance
  (Funds Appropriated to the
  President/AID)..............     272     277     326     +49    +18%
                                ======================================
Total, other major programs\2\  15,202  17,315  18,839  +1,524     +9%
----------------------------------------------------------------------

  \1\1994 funding level not yet determined pending Congressional
reauthorization.
  \2\Total does not add due to elimination of double counts and
mandatory spending.
  *$500 thousand or less or 0.05 percent or less.
----------------------------------------------------------------------

  The sections below on EPA's operating program, stewardship,
ecosystem management and biodiversity, cleanup and compliance, and
international cooperation provide more detail on the Administration's
budget for increasing environmental protection and enhancing natural
resource conservation, with economic efficiency.

                       EPA'S OPERATING PROGRAM

  The budget requests $3.1 billion for the EPA's Operating Program,
providing a 13-percent increase over 1994. The Operating Program
provides funding for research, regulatory development, enforcement,
and State grants. This major increase signals the Administration's
commitment to increased environmental protection and includes these
specific initiatives:

 o A $53 million increase to continue the Climate Change National
   Action Plan implemented in CY 1993, 98 percent over 1994.

 o A $44 million, or 34-percent, increase in funding for environmental
   technology.

 o A $20 million, or 25-percent, increase for watershed resource
   restoration grants to States.

 o A $56 million, or 12-percent, increase for implementing the 1990
   Clean Air Act Amendments.

  EPA's workforce will increase 4.5 percent from the 1994 approved
level. Specific workforce increases are provided to continue
implementation of the Climate Change National Action Plan (98 FTEs),
and convert up to 900 contractor positions to EPA employees. This
contractor conversion will allow EPA to address Congressional and EPA
Inspector General criticisms of its reliance upon, and ability to
manage, contractors by increasing contractor oversight and by
reassigning certain critical tasks to Federal employees.

                             STEWARDSHIP

Water Infrastructure

Environmental Protection Agency (EPA)

  The budget requests substantial additional funds for EPA water
infrastructure in 1995. For the Clean Water State Revolving Funds
(SRFs), $1.6 billion is requested, a $360 million increase over the
1994 enacted level for continued capitalization of these SRFs. In
addition, the Administration is proposing substantive changes to the
Clean Water Act (CWA) that address remaining national water quality
impairments and promote flexibility in implementing the CWA.  These
changes were not final when the 1995 budget process was complete.
Therefore, the budget reflects only the increased Clean Water SRF
capitalization.

  For additional Drinking Water SRF capitalization, $700 million is
requested, a $101 million increase over 1994 enacted. The budget also
includes $150 million for wastewater infrastructure to control
municipal sewage along the Mexico border in support of NAFTA; and a
$100 million grant in targeted clean water assistance for cities that
meet stringent need and user-charge criteria established last year by
the Administration.

Rural Water and Wastewater Infrastructure Investment

  The Department of Agriculture's new Rural Utilities Service funds
the construction, repair, and improvement of rural water and
wastewater disposal systems through direct loans and grants. These
loans and grants are awarded to low-income, rural communities with
populations of less than 10,000. The budget requests $977 million in
loan authority, a 17-percent increase over 1994, and $525 million in
grants, a 5-percent increase over 1994, for these programs. Within the
amount proposed for grants, $25 million is targeted to the colonias
along the U.S./Mexico border.

Southern California Water Reclamation/Reuse Pilot Program

  The budget proposes $10 million in 1995 for a Bureau of Reclamation
water reclamation/reuse pilot program in Southern California. The
pilot provides Federal funds for several projects in the Los Angeles
area that will contribute to efforts to improve water quality in Santa
Monica Bay; reduce dependence on water imports from Mono Lake, the San
Francisco Bay/Sacramento-San Joaquin Delta, and the Colorado River;
and create jobs as part of the Rebuild L.A. effort.

Air Quality

  EPA's operating program request includes an increase of $56 million
for carrying out the Administration's commitment to implement  the
1990 Clean Air Act (CAA) Amendments effectively. Included in this
funding is $24 million, a $14 million increase, for assistance through
the Montreal Protocol Facilitation Fund to help developing countries
reduce their emissions of ozone-depleting chemicals. Coupled with a
similar amount being provided through the State Department, this
funding will enable the U.S. to meet its current commitments under the
Montreal Protocol and eliminate the current payment arrearage over two
years.

  In addition, the budget for the Department of Transportation
includes estimated obligations of $718 million (a 5-percent increase
over 1994) in Federal highway funds designed to improve air quality
through projects to mitigate congestion. The Congestion Mitigation and
Air Quality (CMAQ) Improvement Program, which is one of several
sub-programs funded by the Federal-aid highways grant program, directs
funds toward transportation projects in CAA non-attainment areas for
ozone and carbon monoxide. The projects funded by the program must
help areas make progress toward the CAA standards. Examples of
projects that may be funded through this program include any
Transportation Control Measure (TCM) in the CAA, construction of
pedestrian and bicycle facilities, transit programs, and advanced
traffic management systems that help reduce vehicle emissions.

Climate Change National Action Plan

  On Earth Day 1993, the President announced an ambitious but
achievable goal--to reduce U.S. greenhouse gas emissions to their 1990
level by the year 2000. To meet this commitment, the President
announced last October the Administration's Climate Change National
Action Plan comprising 50 new and expanded initiatives. The budget
provides $283 million in 1995, a $238 million, or 529-percent
increase, over 1994.

  The Action Plan is comprehensive, targeting all significant
greenhouse gases--carbon dioxide, methane, nitrous oxide, and
hydrofluorocarbons--and all emitting sectors of the economy. It will
foster partnerships with business to solve environmental problems and
stimulate investments in the technologies of the future.

  The Action Plan will encourage individuals and firms to invest in
cost- and energy-efficient equipment or other technologies--over $60
billion in private investment and energy savings between 1994 and
2000, with additional energy savings of over $200 billion by the year
2010. These investments will create new jobs in the sectors and
industries that produce, market, or install technologies that save
energy or reduce greenhouse gas emissions.

  Between 1994 and 2000, the Administration is committed to spending
approximately $1.9 billion (generally from existing Federal resources)
on the Action Plan.

Enhanced Natural Resource Protection of Federal Lands

  The budget reflects the President's Earth Day commitment to "...set
our course by the star of age-old values, not short-term expediencies;
to waste less in the present and provide more for the future; to leave
a legacy that keeps faith with those who left the Earth to us." The
foundation for the environmental legacy that today's Americans will
leave to future Americans is the beauty and wonder embodied in the
Nation's national parks, forests, wildlife refuges, marine
sanctuaries, and other public lands and waters. The Administration is
committed to enhancing these national treasures and managing them into
the future for their long-term environmental and sustainable economic
value, not for short-term gain.

  For those areas set aside for natural resource preservation,
Interior's National Park Service and Fish and Wildlife Service, and
Commerce's National Oceanic and Atmospheric Administration (NOAA) will
increase their efforts to protect our Nation's unique natural places
found in the national parks, wildlife refuges, and marine sanctuaries.

  The budgets of the Agriculture Department's Forest Service and
Interior's Bureau of Land Management show significant increases for
efforts to manage the landscape as integrated ecosystems on a
sustainable basis, rather than as unrelated fragments to be exploited
and depleted separately. The budget acknowledges that these
multiple-use lands can continue to provide our Nation with wealth only
if they are managed with future generations in mind.

  Part of our Nation's legacy includes the diversity of life. The Fish
and Wildlife Service, the National Biological Survey, and the National
Oceanic and Atmospheric Administration will make major strides in 1995
not only to protect the Nation's endangered species, but also to
prevent more of our biological heritage from becoming endangered in
the future.

National Park Service

  The President's priority investments expand funding for enhanced
protection of our national parks (a total of $1.1 billion, 6 percent
over 1994). Beyond additional funds for basic operating requirements
and specific resource protection needs in selected parks, the budget
proposes an additional $23 million for improving the professionalism
of park rangers and other Park Service employees.

Improving Entrepreneurial Management of National Parks

  To implement the National Performance Review's recommendations on
promoting entrepreneurial management by the National Park Service, the
budget seeks expanded authority to increase park entrance and other
recreation user fees. In addition, funding is included to cover the
costs of collecting these fees. This legislative proposal will raise
an additional $32 million in revenues in 1995 and create a new,
mandatory National Park Renewal Fund, which will receive half of the
additional revenues, net of fee collection costs, and return them to
the collecting parks for direct expenditure in 1996. To ensure
accountability, expenditures will be held to strict performance
standards based on demonstrated results in program output and project
execution.

Managing and Conserving Marine and Coastal Resources and Habitat

  The budget for the Department of Commerce's National Marine
Fisheries Service (under NOAA) provides a total of $281 million to
strengthen the Federal role in marine fisheries and protected species
management and conservation. This is a 22-percent increase over 1994,
and reflects the Administration's commitment to reversing declining
marine populations, particularly commercially important fish species.
The budget supports the restoration of marine species through
implementation of improved fishery management practices, information,
and science. Improved fishery management will help restore jobs in the
depressed commercial fishing industry, as well as provide for the
sustainable use of our marine resources.

  In addition, the budget for the National Ocean Service (NOAA)
provides $12 million (a 31-percent increase over 1994) for the
designation and operation of national marine sanctuaries. Sanctuaries,
the marine equivalent of our treasured national parks, define areas of
the marine or Great Lakes environment of special resource or human-use
values. During 1995, NOAA will improve the management, research and
educational aspects of twelve designated national marine sanctuaries.
Three additional sanctuaries will be in development during 1995.

Implementation of the Administration's Wetlands Plan

  In August 1993, the Administration announced a comprehensive
wetlands plan to protect natural resources without impeding economic
growth. The plan was developed after consultation with Congress, State
and local governments, the development community, and environmental
organizations. The budget provides additional resources to implement
the plan, improve the wetlands regulatory process, encourage voluntary
wetlands restoration on private lands, and enhance State capacity to
assume a larger share of the effort to protect wetlands.

  The budget requests nearly $1 billion in total spending (a
41-percent increase over 1994) for wetlands restoration, acquisition,
protection, research, mapping, monitoring, and education; and improved
non-Federal capabilities for wetlands management. This includes $283
million (322 percent over 1994) in mandatory spending for USDA's
Wetlands Reserve Program, which in 1995 will retire, on a
willing-seller basis, up to 300,000 acres of current or former
wetlands from agricultural production. EPA's budget includes a $5
million (50-percent) increase to its wetlands grants program,
primarily to assist State governments in operating their delegated
Clean Water Act Section 404 programs for regulating activities in
wetlands. An enhanced non-Federal role in wetlands management is a key
tenet of the Administration's wetlands policy.

  The budget also incorporates a legislative proposal authorizing an
increase in Section 404 wetlands regulatory permit fees charged by the
Army Corps of Engineers. The increased fee revenue will total $6
million in 1995, and $12 million in each subsequent year. Commercial
applicants may be assessed fees on a sliding scale based on the degree
of the proposed development's impact on the affected wetland and the
amount of effort required to conduct the permit review.

Energy Conservation

  The Department of Energy (DOE) conservation program funds research
and development (R&D) and commercialization activities to improve
energy efficiency and reduce the generation of waste and pollutants in
virtually all sectors of the U.S. economy: transportation, buildings,
industry, and utilities. The program also includes funding for grants
to States for low-income home weatherization and State-level energy
efficiency programs. The environment-related activities are
concentrated in the R&D component of the program.

  Energy conservation activities are funded at $978 million, up $288
million (42 percent) from 1994. This increase reflects both Energy
Policy Act and Climate Change National Action Plan initiatives.  Major
components include: a doubling of funds for R&D and commercial
promotion of advanced building, heating/cooling, and appliance
technologies ($179 million, up $98 million, or 120 percent over 1994);
expanded R&D on electric and hybrid vehicles and other transportation
technologies ($228 million, up $49 million, or 28 percent); increased
outreach, demonstration, and commercialization efforts for industrial
energy efficiency and waste minimization ($181 million, up $56
million, or 44 percent); improved utility planning ($13 million, up $6
million or 86 percent); and an increase in weatherization and State
energy conservation grants ($325 million, up $71 million or 28
percent).

  These energy conservation activities will save 4 percent of the
energy consumed in the U.S. by the year 2000, resulting in savings of
$25 to $30 billion for consumers. These conservation efforts will also
achieve a 50 million metric ton reduction in carbon dioxide (CO2) gas
emissions.

Solar and Renewable Energy

  The solar and renewable energy program within the Department of
Energy funds research and development and commercialization activities
to enhance the use of renewable energy sources in all sectors of the
economy.  These sources include photovoltaics, solar thermal, wind,
and biomass energy.  The program also funds research and development
on high temperature superconductivity, electric transmission, and
energy storage, including hydrogen.  For 1995, the solar and renewable
program is funded at $390 million, up $50 million or 15 percent over
1994.  The 1995 program includes significant increases in areas such
as photovoltaics, biomass use for utility electric generation, wind,
and health effects of electric and magnetic fields.

Grazing Fees

  The Administration supports reforms in the management of public
rangelands and is committed to bringing Federal grazing fees closer to
market value in order to improve the long-term health of America's
rangelands. While discussions continue with Western Governors,
interested groups, and the general public to refine the
Administration's grazing fee proposal, the budget assumes reforms and
fees announced by the Secretary of the Interior in August 1993.

Hardrock Mining

  The Administration is committed to comprehensive reform of the
Mining Law of 1872 to bring Federal policy on public land hardrock
mining into the twentieth century, and do so without threatening the
health of the domestic mining industry. The budget assumes fee levels
and reforms consistent with H.R. 322, the House-passed version of
hardrock mining law reform. Royalties are assumed at 8 percent on a
"pre-smelter" basis; additional user fees to cover the costs of
implementation are also assumed. The royalties and increased fees will
finance a new abandoned mine restoration fund and the increased costs
of implementing hardrock mining reform.

Acquisition Strategies for the Conservation and Protection of Land and
Water

  The Administration proposes several means to protect our natural and
cultural assets. A primary tool is the Land and Water Conservation
Fund (LWCF) administered by the Departments of the Interior (DOI) and
Agriculture (USDA), funded at $254 million (same as the 1994 enacted
level). LWCF funding finances land acquisition to preserve nationally
important natural and historic resources and incorporate them into the
Nation's national park, forest, refuge, and public land systems. It
also finances State grants supporting outdoor recreation activities.

  The budget also includes $18 million (a $2 million, 11-percent
increase over 1994) for DOI's Partners in Wildlife Program. This
voluntary Federal-private partnership administered by the Fish and
Wildlife Service implements fish and wildlife habitat restoration on
private land. From revenues generated from Duck Stamps and other
sources, DOI's Migratory Bird Conservation Fund is used by the Fish
and Wildlife Service to acquire important waterfowl habitat. The
Administration proposes $41 million in mandatory spending for
Migratory Bird Conservation Fund acquisition in 1995. The Fish and
Wildlife Service will also spend approximately $14 million in 1995
(17-percent increase over 1994) from the North American Wetlands
Conservation Fund to acquire additional wetland habitat consistent
with the North American Waterfowl Management Plan.

                ECOSYSTEM MANAGEMENT AND BIODIVERSITY

  The Administration is reinventing the way the Federal Government
uses and cares for the environment. Several agencies have issued new
or revised statements and policies supporting "ecosystem management"
to maintain the sustainability and biodiversity of ecosystems, as well
as economies and communities. The human component is fundamental.

  To ensure Federal efforts are comprehensive and efficient, the
National Performance Review recommended a coordinated ecosystem
management policy be established across the Federal Government.

  The Administration is considering the following principles for
ecosystem management:

 o Manage along ecological rather than political or administrative
   boundaries.

 o Ensure coordination among Federal agencies, and increased
   collaboration with State, local, and tribal governments, the
   public, and Congress.

 o Use monitoring, assessment, and the best science available.

 o Consider all natural and human components and their interactions.

  The budget accelerates implementation of selected, on-going
interagency ecosystem management efforts. Each effort described below
will entail better management of existing activities. Modest savings
may be possible as conflicts and the need for remediation are reduced.

Ecological and Economic Sustainability: The Pacific Northwest Forests

  Following the April 1993 Forest Conference in Portland, Oregon, the
President directed a Federal inter-agency team to develop a
comprehensive, integrated approach to managing old-growth forests and
their biological diversity west of the Cascade Range in Washington,
Oregon, and Northern California. The Forest Plan that the President
subsequently approved offers such a new approach, based on sound
science and a commitment to existing law. It identifies and protects
key watersheds, old-growth forests, and scores of species--such as the
northern spotted owl, the marbled murrelet, and salmon--as well as the
region's drinking water.

  Regional economic and social needs were integrated into the Forest
Plan. The Administration proposed new assistance for local workers,
businesses, and communities to diversify the region's economy.
Implementation has already begun with oversight by an inter-agency
team and participation from State and local agencies. $372 million in
proposed 1995 funding (a 23-percent increase over 1994) will be used
for worker retraining, business loans, watershed analysis, and
ecosystem restoration.

Looking at the "Big Picture": South Florida Ecosystem Restoration

  The natural systems from the Kissimmee River, south of Disney World,
to the coral reefs off the Florida Keys are an interdependent
landscape and seascape. Historically, however, these systems have been
managed as if they functioned in isolation from one another. Half of
the Everglades have been drained and converted to agriculture or urban
development. As a result, populations of wading birds have declined by
more than 90 percent, and South Florida has 56 threatened or
endangered species. Florida Bay, which in the past supported huge
commercial and recreational fisheries, is in a State of ecological
collapse.

  The Administration is developing a comprehensive restoration
approach to better manage the South Florida Ecosystem as a whole,
working closely with State, tribal, and local governments. To support
this effort, a regional working group will develop an integrated,
long-term budget. This budget proposes $59 million in 1995, a
51-percent increase over 1994 enacted funding for restoration
activities. A preliminary restoration plan has been developed and is
being reviewed. In addition, issues of water quality, water quantity,
and the effect of water delivery on the natural systems central to the
restoration effort are being analyzed.

Using Available Resources More Effectively: The Restoration of Prince
William Sound (Alaska)

  In the past year, significant strides have been made to restore the
natural and economic resources of Prince William Sound, which were
heavily damaged by the March 1989 Exxon Valdez oil spill--the largest
in U.S. history. The Administration committed $25 million to acquire
environmentally sensitive lands, worked closely with the State of
Alaska to hire an Executive Director for joint Federal/State
restoration, and published a draft restoration plan outlining the use
of the restitution and settlement payments that are being made by the
Exxon Corporation into the next century (a total of $1.1 billion). In
1995, the Administration will continue leadership in the acquisition
of environmentally sensitive habitat, and the development of a
comprehensive research and monitoring program in the spill zone. The
budget includes $90 million in mandatory spending for these
activities.

Restoring a Forgotten River:  The Anacostia (Maryland and the District
of Columbia)

  The Anacostia River watershed covers 170 square miles in Maryland
and the District of Columbia. The river flows through some of the most
densely populated and economically depressed areas of the Nation's
capital. Once covered with forest and wetlands, the watershed is now
highly urbanized, the natural river flow has been altered, and the
river is best known for its extremely poor water quality. Until
recently, little attention was given to the Anacostia in contrast to
the Potomac River. In fact, while over $1 billion has been spent to
bring Lyndon Johnson's dream of a fishable, swimable Potomac to pass,
less than 1 percent of that sum has been spent on restoration of the
Anacostia. As a result, the Anacostia has been rated among the
Nation's 10 most threatened rivers.

  In 1987, the District of Columbia, the State of Maryland, and two
Maryland counties signed a landmark restoration agreement for the
Anacostia, and established a committee of local governments and
regional organizations to develop a comprehensive restoration plan.
The role of the Federal Government in the Anacostia is different than
in the Pacific Northwest and South Florida. Rather than being a
primary organizing force, it is a participant in an effort developed
and led by State and local governments. The budget proposes $2.3
million in Federal funding for river basin restoration efforts in
1995. Participating Federal agencies include the Army Corps of
Engineers, EPA, the National Park Service, the Forest Service, and the
Fish and Wildlife Service.

  An example of the Administration's leadership in addressing urban
watershed issues, the Anacostia River restoration effort is well
underway. A recently completed restoration project that doubled the
amount of wetlands in the tidal Anacostia and a soon to be completed
Corps of Engineers' feasibility study of restoration alternatives are
two projects jointly funded by the Federal Government, the District of
Columbia, the State of Maryland, and local governments.

The National Biological Survey

  In his Earth Day speech, the President announced his intent to
create a new agency in the Department of the Interior, the National
Biological Survey (NBS), to avoid the costly and unnecessary economic
and environmental "trainwrecks" of the recent past.

  The new agency will provide better, more reliable, objective
scientific information in advance of problems that might threaten
animal and plant species with extinction. Inadequate science has led
to poor decisions that years later have posed a false choice between
jobs and the environment. By identifying potential problems early,
while society still has flexibility to address them, the NBS will make
it easier to continue economic growth in harmony with the environment.

  The budget includes $177 million for the NBS, a 6-percent increase
over 1994. The increase will accelerate world-class research and
monitoring of key U.S. ecosystems, such as the Northwest forests and
the Everglades.

The Bottom Line

  The Administration will better manage natural resources by bringing
together all interested parties, with a focus on natural systems
(rather than bureaucracy) to make informed decisions for the long run.
The ecosystem management efforts and the NBS will improve the way
decisions are made on the ground across the Nation.

                        CLEANUP AND COMPLIANCE

Midwest Flood Response/Recovery, and Alternatives to Levee
Construction

  The 1993 Midwest floods were unmatched in U.S. history in property
damage, environmental harm, disrupted business, and personal tragedy.

  To assist States and localities meet this unique challenge, the
Administration proposed, and Congress enacted, an emergency
supplemental bill totalling $5.7 billion to fund the Federal share of
the relief effort. This budget proposes additional emergency
supplemental funding totalling $411 million for the Army Corps of
Engineers and the Department of Agriculture's Soil Conservation
Service (SCS) for levee repairs that could not be addressed within the
amounts in the 1993 supplemental. Over 450 levees should be repaired
by the end of the 1994 construction season.

  The Administration's first priority after the floods was to return
people's lives to normal as quickly as possible. At the same time,
however, the Administration reviewed existing flood recovery and
floodplain management policies and practices to reduce future damages
and disruption of lives, and restore the environment and the natural
functions of the floodplains:

 o In August 1993, the Administration promulgated procedures to ensure
   that non-structural levee repair alternatives were considered.

 o In November, the Administration published a list of Federal
   programs offering floodplain management alternatives to States,
   localities, and private citizens.

 o In the emergency supplemental, the Administration requested, and
   Congress provided, language to allow the SCS, under certain
   circumstances, to fund wetland restoration in lieu of levee repair
   if local landowners agreed. With the additional SCS funding
   requested in the budget, this new authority should result in over
   100,000 acres of restored, protected wetlands. For example, levees
   in Louisa County, Iowa, protecting 3,000 acres of land, 2,000 acres
   of which are cropland, have received Federal repair funds 14 times
   in 60 years, totalling $3.5 million in 1993 dollars. The local
   levee district has applied to restore the lands to wetland
   condition through SCS's Emergency Wetland Reserve Program--an
   opportunity for a major change from the wasteful flood/repair
   cycles of the past.

 o The Administration also supports new approaches to recovery and
   long-term mitigation of flood hazards in urban areas. Hundreds of
   communities have requested assistance to relocate damaged homes,
   businesses, and facilities out of harm's way.

  Not simply reacting to the Midwest floods, the Administration also
commissioned a study by Federal agency experts to ensure that the
assets of the floodplain are used to the fullest extent compatible
with economic and environmental values. The views of State and local
governments and the private sector should be carefully considered and
addressed in this study, to be released in the spring of 1994.

Department of Energy Federal Facility Cleanup and Compliance

  The Department of Energy (DOE) faces one of the Nation's most
complex environmental challenges. Its Office of Environmental
Restoration and Waste Management (EM) must safely manage the
generation, handling, treatment, storage, transportation, and disposal
of DOE nuclear and hazardous waste (including waste management,
environmental restoration, facility transition, and technology
development). The budget provides $6.28 billion, an increase of 2
percent over 1994, for these key programs. Additionally, DOE has been
authorized to convert 1,200 contractor positions to Federal positions
through 1994 and 1995. This conversion will enable DOE to strengthen
its management and improve EM effectiveness and efficiency.

  Waste Management activities (47 percent of the EM budget) include
the minimization, characterization, transportation, treatment,
storage, and disposal of radioactive, hazardous, mixed, and sanitary
wastes generated by past and ongoing operations.

  The Environmental Restoration program (33 percent of the budget)
manages assessment and cleanup at surplus and inactive sites. DOE
implements 93 cleanup and compliance agreements with State regulators
and EPA. These agreements include specific activities and schedules
required to meet environmental laws and regulations.

  Facility Transition (14 percent of the budget) coordinates and
oversees the transition of DOE surplus contaminated installations,
facilities, and materials into the EM program for deactivation,
decommissioning, or disposition.

  Technology Development (6 percent of the budget) is the applied
research and development arm of the EM program, supporting new
technologies for environmental restoration and waste management.

Department of Defense Federal Facility Cleanup, Compliance, Research
and Development, and Conservation Programs

  The Department of Defense (DOD) continues to make significant
progress in environmental cleanup, compliance and pollution
prevention, research and development, and conservation. The budget
provides a total of $5.7 billion for these programs, an increase of 6
percent above 1994.

  DOD plans to spend $2.7 billion, a 5-percent increase over 1994
(including the defense environmental restoration and base closure
accounts) for environmental cleanup--the identification,
investigation, and cleanup of past contamination from hazardous
substances and wastes. Since 1984, DOD has been engaged in cleanup at
about 1,800 military installations and 8,000 formerly used defense
locations, including over 60 installations scheduled for closure or
realignment under the President's Fast Track Cleanup Program.

  In addition to cleaning up past contamination, DOD plans to spend
nearly $2.6 billion for environmental compliance and pollution
prevention (a 10-percent increase over 1994)--meeting current
standards in air and water permits, maintaining and repairing
environmental treatment facilities, and undertaking construction to
meet new environmental standards. This allows DOD to comply with all
applicable Federal, State, and local environmental laws. Pollution
prevention includes activities designed to eliminate or reduce
pollution at its source.

  DOD provides $353 million for research and development in 1995. This
will accelerate development and deployment of dual-use technologies
for environmental cleanup, waste minimization, and substitutes for
hazardous waste materials. It also provides funding for research on
global environmental change.

  Finally, funding for the DOD conservation program is $108 million in
1995. DOD is the steward for over 25 million acres of public lands.
Its conservation program ensures that the biological, cultural, and
historical resources on these lands are managed in balance with the
Department's military mission.

Superfund

  The Administration is proposing legislation to reform the Superfund
program. Reforms to the current liability system will reduce
litigation and related transaction costs for the private sector of our
economy, enhance the program's fairness, speed site cleanups, and
promote economic development. Reforms to the existing remedy selection
process will reduce cleanup costs without sacrificing human health or
the environment, while increasing community involvement. Because the
Administration was still finalizing its Superfund legislative reforms
when the 1995 budget data base was locked, the current request does
not reflect the budgetary impact of these reforms.

Pesticide Use Reduction Initiative

  The Administration is committed to reducing pesticide use and
promoting sustainable agriculture practices. In June 1993, it
announced a series of food safety legislative, regulatory, and
administrative initiatives. These initiatives were designed to
maintain and enhance food safety for all Americans; address
recommendations of a 1993 National Academy of Sciences report on ways
to protect children from pesticide risks; and strengthen Federal
regulatory agency authority to make and enforce sound, timely,
science-based decisions for protecting both public health and the
environment.

  The budget supports the pesticide use reduction initiative (total
funding of about $160 million, 35 percent over 1994) by increasing
support for research and extension activities such as Integrated Pest
Management, biological and cultural pest and disease control systems,
and other sustainable agriculture systems. The budget also includes
substantial increases for USDA's food intake surveys to include more
information on small children, and to expand USDA's chemical use
surveys and restricted use pesticide surveys to include more States
and crops and post-harvest chemical use.

  The budget also reinstates fees on pesticide manufacturers to cover
EPA's costs of issuing new pesticide registrations; and extends and
increases existing fees to support EPA's program to re-evaluate the
safety of pesticides already in use and re-register those determined
to be safe.

                      INTERNATIONAL COOPERATION

North American Free Trade Agreement (NAFTA) Environmental Support

  The budget includes $300 million in support of NAFTA and the
U.S.-Mexico Border Environmental Plan. This represents a $152 million
(103-percent) increase over 1994 that will continue existing
anti-pollution activities and provide additional resources targeted
along the border with Mexico.

  The budget continues construction of the new Tijuana sewage
treatment plant near San Diego and expands treatment capacity at the
plants in Nogales, Arizona, and Mexacali, Mexico. These projects will
dramatically improve water quality along the Mexico border. The budget
also includes $50 million in EPA State grants to address wastewater
treatment needs in colonias (unincorporated sub-divisions) along the
border in Texas. These border communities lack the health and
environment infrastructure enjoyed by other areas of the country. In
addition, the budget requests $25 million in new resources for USDA
grants for colonias to improve the quality of drinking water by
installing necessary infrastructure. This will bring total EPA/USDA
colonias funding to $186 million since 1993.

  NAFTA's environmental side agreement and related agreements between
the United States and Mexico established three new institutions--the
Commission for Environmental Cooperation (CEC), the Border Environment
Cooperation Commission (BECC), and the North American Development Bank
(NADBank).

  The EPA budget includes $5 million as the U.S. share for a
permanent, independent CEC Secretariat to facilitate cooperation among
the United States, Mexico, and Canada on environmental and
conservation issues. $3 million is requested in the State Department
budget for BECC operations, assisting U.S. and Mexico border States
and communities design and finance wastewater treatment, drinking
water, and municipal waste projects. The NAFTA Implementation Act
provided Treasury with $56 million as the first of four payments to
capitalize NADBank (a total U.S. share of $225 million over 1995-98).
NADBank will backstop shortfalls in private-sector financing for
border environmental projects. Finally, the Interior Department budget
includes $11 million to enhance endangered species protection along
the border, and invest more funding in national wildlife refuges and
fisheries habitat restoration in the border area.

U.S. Global Change Research Program (USGCRP)

  The Administration is committed to support a series of international
agreements and national policies that address environmental changes
that can have significant impacts on the world's society and economy
(global warming, ozone depletion, and biodiversity). The USGCRP's goal
is to support the development and implementation of these policies by
continually improving our knowledge of the natural and anthropogenic
processes and forces that influence these changes. In 1995, $1.8
billion is being proposed for this interagency research effort, a $349
million or 24-percent increase over 1994.

  The budget proposes a special research emphasis on improving our
understanding of the dynamics between human behavior, the economy, and
environmental change; terrestrial ecology; international ground-based
data campaigns; and climate change modeling. The budget also funds the
continued development of a comprehensive space-based data collection
system (NASA's Mission to Planet Earth).

International Environmental Funding

Global Environment Facility

  The Global Environment Facility (GEF) was created in 1991 as a
three-year pilot collaboration among the World Bank, the United
Nations Development Program, and the United Nations Environment
Program. Originally capitalized with approximately $1.3 billion from
both direct contributions to the Global Environment Trust Fund of the
GEF and co-financing arrangements, the GEF provides concessional
financing to developing countries to address the problems of global
warming, ozone depletion, loss of biodiversity, and pollution of
international waters. The pilot phase of the GEF expires in 1994.

  International negotiations are underway to restructure the GEF as a
permanent entity. The Administration is committed to the successful
conclusion of these negotiations and the creation of a transparent,
accountable GEF that can serve as the funding source for achieving
global environmental benefits, including those related to the Climate
Change and Biodiversity conventions.

Montreal Protocol

  The EPA and State Department budgets provide a total of $48 million
to replenish the Montreal Protocol multilateral fund, a $23 million
(92-percent) increase over 1994. This will both meet the second year
of a three-year U.S. commitment (1994-96) totalling $114 million, and
pay down over a two-year period amounts not paid from previous years.
The multilateral fund helps developing countries finance
ozone-protection training, research, investments, and projects
(chlorofluorocarbon (CFC) recycling/recovery equipment and devices;
and retooling of manufacturing facilities for non-CFC alternatives).

Global Environmental Education

  The budget provides a total of $12 million in 1995 for the "Global
Learning and Observations to Benefit the Environment" (GLOBE)
initiative. NOAA and NASA began this effort in 1994 with a total
commitment of $1 million from existing resources. EPA will also
participate in the initiative, beginning in 1995. Students around the
world will take part in an environmental observations program designed
by educators and scientists to enhance awareness of the environment
and the impacts of human activities, and collect environmental data
for increased scientific understanding of the earth. Although the
United States would take the lead, GLOBE's long-term goal is a global
partnership. Over 1,000 schools will participate globally by the
spring of 1996, with a target of 100,000 by the year 2000.

Multilateral and Bilateral Assistance

  The budget requests an increase of $49 million (an increase of 18
percent over 1994) for bilateral and multilateral environment
assistance. Bilateral assistance comprises Agency for International
Development (AID) activities to improve climate change, biodiversity,
tropical forests, urban and industrial pollution, coastal zones and
water resources, environmentally sound energy use, and sustainable
agriculture in developing countries. Multilateral assistance funds
U.S. voluntary contributions to the United Nations environment system
and other international organizations that address a wide range of
international environment activities, including the United Nations
Environment Program (UNEP), Convention on International Trade in
Endangered Species (CITES), and the World Meteorological Organization
(WMO).

Green GDP and Economic/Environmental Accounting

  The Department of Commerce's Bureau of Economic Analysis (BEA) has
an ambitious plan to improve understanding of the interaction between
the economy and the environment. BEA's three-phase plan calls for the
development of a comprehensive, integrated set of economic and
environmental accounts. By Earth Day 1994, BEA will present prototype
estimates of the economic value of nonrenewable natural resources
(including oil and gas, coal, uranium, and nonfuel minerals with a
scarcity value) and a measure of gross domestic product (GDP) adjusted
for the depletion of these resources. The prototype estimates will
utilize a range of alternative methods for measuring the stocks of
natural resources, new discoveries and extensions, and depletions. In
addition, BEA will present an integrated economic and environmental
accounting framework for renewable natural resources and a broader
range of environmental assets.

  Subsequently, BEA will extend the nonrenewable natural resource
accounts to renewable natural resources such as forests, soil, water,
water aquifers, and fish stocks. BEA ultimately will value a broader
range of environmental assets, such as clean air and the environment
as a recreational resource. These final estimates will be more
difficult because they must be based on less well-developed concepts
and data sources. Although significant advances will be required in
data as well as methods, BEA will move from near ground zero to the
forefront of world efforts in integrated economic and environmental
accounting. To carry out these activities, the budget proposes $1.9
million, an increase of $1.5 million over 1994.

                       OPENING MARKETS OVERSEAS


----------------------------------------------------------------------
The truth of our age is this and must be this:  Open and competitive
commerce will enrich us as a Nation.


                                                President Bill Clinton
----------------------------------------------------------------------

  Opening overseas markets to U.S. exports increases employment and
incomes in the United States, and gives foreign consumers the same
range of choices of products and services that U.S. consumers have in
our open market. This Administration made great progress last year,
and has a full agenda for the future.

                            URUGUAY ROUND

  The Uruguay Round represents the largest, most comprehensive set of
trade agreements since the GATT's inception in 1947, involving 117
countries and directly affecting approximately 85-90 percent of global
trade. At the insistence of the United States, the Round not only
involved traditional trade liberalization by reducing tariffs, but
also, more importantly, it opened trading opportunities for many
sectors of the American economy, including services, that had never
previously benefitted from multilateral trade agreements. The Council
of Economic Advisors tentatively estimates that, once the Uruguay
Round is fully implemented in 2004, it will add $100 to $200 billion
to U.S. annual GDP per year (1.5-3.0 percent of current GDP) as a
direct result. The Uruguay Round will:

 o Reduce tariffs by an average of one-third. Significant reductions
   or eliminations of tariffs will occur in such sectors as
   construction, medical and agricultural equipment, steel, beer,
   pharmaceutical goods, paper, toys, furniture, and certain
   electronics. Chemical tariffs will be set at low rates.

 o Cover trade in agriculture in a comprehensive way for the first
   time. Countries must permit a minimum level of agricultural imports
   (e.g., rice imports by Japan), must cut agricultural export
   subsidies by 36 percent and reduce the quantity of exports
   subsidized by 21 percent over 6 years for developed countries (10
   years for developing countries). Domestic subsidies to agriculture
   must be at levels 20 percent below their 1986-90 base. The United
   States has already achieved the required reductions in domestic
   subsidies. Efficient U.S. producers of farm commodities will
   realize significant benefits from freer markets.

 o Eliminate the current trade regime for textiles and apparel over a
   10-year period.  American consumers will pay lower prices for
   clothing as a result of this part of the Round. At the same time,
   the agreement provides a mechanism to cushion the impact on U.S.
   producers from sudden increases in imports.

 o Provide new coverage of trade in services and intellectual
   property.  The achievement of this major U.S. objective will create
   a framework for the liberalization of the $900 billion worth of
   cross-border trade in services and approximately $3 trillion of
   international activity that has not traditionally been regarded as
   trade such as some forms of legal services.

 o Prohibit many export subsidies. Government subsidies generally
   provided for domestic purposes (e.g., for industrial research) that
   might give a commercial advantage to a benefitting firm are
   allowed, but only under certain prescribed circumstances.

 o Reduce other non-tariff barriers to trade. A wide range of other
   barriers to trade, such as unfair licensing procedures and
   trade-related investment measures, have been made less restrictive
   or removed entirely.

North American Free Trade Agreement (NAFTA)

  NAFTA creates a $6.5 trillion market with 370 million people and
eliminates most restrictions on trade between the U.S. and Mexico, our
third largest and fastest growing export market. Since Mexico began to
open its markets in 1986, U.S. merchandise exports to Mexico have
risen by 228 percent, reaching $40.6 billion in 1992. NAFTA locks in
this liberalization and eliminates the remaining Mexican barriers to
U.S. exports, which are 2.5 times larger that current U.S. barriers to
Mexican exports.

  As of January 1, 1994, 50 percent of all U.S. exports to Mexico
enter Mexico duty-free, including some of our most competitive
products, such as semiconductors and computers, aerospace equipment,
telecommunications equipment, electronic equipment, and medical
devices. NAFTA has opened Mexico's markets to U.S. service exports
(e.g., telecommunications services, insurance, and banking) and
eliminated numerous Mexican requirements on U.S. investment. Service
trade with Canada will also be further liberalized. Unlike previous
trade agreements, the NAFTA text also explicitly provides for the
consideration of environmental standards and concerns, such as
discouraging a NAFTA country from weakening its environmental
protection to attract investment. Provisions of the NAFTA also ensure
that the U.S. can maintain and enforce its existing environmental
standards as well as international treaty obligations to limit trade
in controlled products such as endangered species.

  A consensus of the economic studies of NAFTA have found that it will
increase U.S. GDP, employment, and probably wages. Most studies
suggest that the U.S. GDP will increase by approximately one-quarter
to one-half a percentage point once NAFTA is fully implemented.
Export-related jobs are expected to rise. Currently, the number of
American workers producing merchandise exports to Mexico is estimated
to be 700,000. With NAFTA, employment related to exports to Mexico is
projected to increase by another 200,000 by 1995. This adds to the 1.5
million U.S. jobs that are already supported by merchandise exports to
Canada. Real wages may also benefit, since the wages of U.S. workers
in jobs related to exports to Mexico are 12 percent higher than the
national average.

  Although NAFTA's net effect on U.S. jobs will be positive, it is
also likely to lead to some job displacement. To assist those workers
who may face job loss, the Administration has in place a transitional
program until the Administration's comprehensive workforce security
program has been enacted.

  Key to NAFTA's effective implementation are the side agreements
negotiated by the Administration on labor, the environment and import
surges. Both the labor and environment agreements obligate each NAFTA
partner to enforce its domestic laws. Each of these agreements also
creates a commission charged with monitoring progress under the
agreements. An additional side agreement between the U.S. and Mexico
will address the serious environmental problems in the border region
and ensure that the environmental consequences of increased trade with
Mexico will be affirmatively managed. The side agreement on import
surges creates an "early warning" mechanism to identify sectors
where explosive trade growth may occur and significantly harm domestic
industry during the transition period.

                           THE TRADE AGENDA

  The Administration has an ambitious agenda to continue market
opening and export promotion. It will implement NAFTA's side
agreements and other provisions such as transitional support for
workers adversely affected by NAFTA and environmental cooperation
between the United States and Mexico. Once the Uruguay Round of trade
agreements is signed, the Administration intends to submit legislation
to implement the Uruguay Round agreements for Congressional approval
under the fast track procedures. The Administration will also examine
the prospects for future bilateral and multilateral trade
negotiations, with the latter focused on the relationship between
trade and the environment, competition policy and worker rights. In
addition, the Administration is engaged in comprehensive negotiations
with Japan, through the U.S.-Japan Framework, in order to improve
market access.

  The end of the Cold War has changed the nature of the requirement
for export controls on critical military technologies. The
Administration is relieving unnecessary burdens on U.S. business by
eliminating unilateral dual-use export controls unless they are
essential to national security and foreign policy interests. The
Administration has significantly liberalized control levels for
computers, and is negotiating with our allies to liberalize control
levels for supercomputers and telecommunications. These actions carry
out the President's pledge at the United Nations to "work with our
partners to remove outdated controls that unfairly burden legitimate
commerce and unduly restrain growth opportunities all over the
world."

  On other issues also on the legislative agenda, the Administration
will seek the renewal of the Generalized System of Preferences (GSP),
a program that provides duty-free treatment to selected items from
eligible, less developed countries that meet certain worker rights and
other criteria. The agenda also includes a decision on whether to seek
a renewal of Most Favored Nation (MFN) trade status for China. The
Administration has conditioned MFN renewal on China's progress in the
human rights area. Consistent with the Budget Enforcement Act, the
Administration will seek bipartisan agreement on offsets for the
budgetary cost of any trade legislation that reduces tariff revenues.

  Finally, the Administration recognized the need for a unified review
of the budgets of U.S. agencies that promote trade and for the
creation of a unified export provision budget as mandated by the
Export Enhancement Act of 1992. The Administration is committed to
strengthening the country's trade promotion efforts because exports
play a vital and increasing role in creating high skill, high wage
jobs for our economy. In a report published last September by the
Trade Promotion Coordination Committee (TPCC) Toward a National Export
Strategy, the Administration lays out a set of initiatives to enhance
coordination and to consolidate federal export promotion efforts. In
furthermore of this goal, and the statutory mandate, the TPCC will
shortly issue a companion document which details the allocation of
Federal resources across agencies involved in export promotion
efforts. One focus of the review was how best to promote higher
technology, U.S. exports, and ensure that budget resources went to
high priority programs. The Trade Promotion Coordination Committee
made several recommendations to OMB that were used in planning the
1995 budget:

1. Costs of Trade Negotiations. The five agencies with the most direct
  responsibility--the Departments of Commerce, State, Treasury and
  Agriculture, as well as the U.S. Trade Representative--expect to
  spend about $190 million in 1995 in negotiating and implementing
  trade agreements.

2. Providing Credit to Less Developed Countries. Eximbank and other
  agencies provide loans, insurance and guarantees to developing
  countries to purchase U.S. exports. The 1995 budget will request
  $1.4 billion to pay for this credit.

3. Helping Correct Market Imperfections. The Commerce Department and
  other agencies provide assistance, such as market information, to
  U.S. exporters. The budget will request about $290 million for these
  services.

4. Matching Foreign Export Subsidies. Eximbank and the Agriculture
  Department provide subsidies to U.S. exporters to counter foreign
  export subsidies. The most significant development in this area is
  the $150 million "tied-aid fund" that Eximbank will administer.
  The budget will request $682 million for matching U.S. subsidies.

5. Other Trade Related Subsidies. The Agriculture and State
  Departments provide subsidies to foreign importers of U.S. goods,
  both for business and foreign policy reasons. These subsidies will
  decline from about $1.0 billion in 1994 to about $0.5 billion in
  1995.

  The review revealed that export-related expenditures total about
$3.4 billion in the 1995 budget as Table 3B-13 shows:

  Two caveats about these figures should be borne in mind. First, the
primary contribution the U.S. Government can make to promote U.S.
exports is to reduce the deficit, which constricts resources for the
exporters and the economy as a whole. Second, budget resources are
measures of inputs not outcomes, such as increased U.S. exports. The
major determinants of U.S. exports, which totalled $592 billion in
1992 for merchandise trade and services, are underlying
competitiveness, foreign exchange rates and open trade regimes, not
U.S. Government budget support for a limited number of U.S. exporters.


         Table 3B-13. EXPORT-RELATED EXPENDITURES BY CRITERIA


                       (In millions of dollars)

----------------------------------------------------------------------
                              1993 Actual 1994 Estimated 1995 Proposed
                             ------------ -------------- -------------
                             Budget        Budget         Budget
                            Author-       Author-        Author-
                              ity  Outlays  ity  Outlays   ity Outlays
----------------------------------------------------------------------

(1) Credit problems in LDC markets.

 a. These programs provide credit-worthy emerging markets with
 otherwise unavailable credit so that they can purchase U.S. goods

 Department of
  Agriculture--Mandatory....    752    534    403    368    394    396
 Department of
  Agriculture--Discretionary    346    324    330    419    280    297
 Export-Import Bank.........    647    259    944    458    694    555
                              ----------------------------------------
 Subtotal...................  1,745  1,117  1,677  1,246  1,368  1,248

 b. These programs provide credit and/or grant assistance to U.S.
 companies interested in investing in or exporting to less-developed
 countries.

 Trade and Development
  Agency....................     36     23     36     32     40     39
 Department of Energy.......  .....  .....  .....  .....     20      8
 Overseas Private Investment
  Corporation...............     18     11     17     13     20     21
                              ----------------------------------------
 Subtotal...................     54     34     53     45     80     68
                              ----------------------------------------
 Total......................  1,799  1,151  1,730  1,291  1,448  1,316

(2) Negotiating open markets and lowering/removal of trade barriers.
 These programs negotiate to open markets to U.S. goods and services.

 Department of
  Agriculture--Discretionary     11     11     12     12     12     12
 Department of the Treasury.      7      7      7      7      7      7
 Department of State........     62     61     65     64     66     66
 Department of Commerce.....     78     68     77     75     81    119
 Office of the U.S. Trade
  Representative............     20     20     21     22     21     21
                              ----------------------------------------
 Total......................    178    167    182    180    187    225

(3) Costs of exporting that small- and medium-sized firms cannot
 fully bear. These programs provide market information, matching
 services, trade events, etc.

 Department of
  Agriculture--Mandatory....     50     57     33     43     26     26
 Department of
  Agriculture--Discretionary     17     17     19     19     18     18
 Export-Import Bank.........      1      1      1      1      1      1
 Trade and Development
  Agency....................      4      3      4      4      5      4
 Department of Energy.......      4      4      9      6     13     12
 Department of Commerce.....    161    142    187    178    199    210
 Small Business
  Administration............     19     19     10     10     15     15
 Department of State........     12     12     13     13     14     13
                              ----------------------------------------
 Total......................    268    255    276    274    291    299

(4) Matching foreign export subsidies. These programs attempt to
 combat foreign export subsidies.

 Department of
  Agriculture--Mandatory....    567    504    563    563    532    532
 Department of
  Agriculture--Discretionary      1      1      1      1      1      1
 Export-Import Bank.........     27      3    100     13    150     44
                              ----------------------------------------
 Total......................    594    507    663    576    682    576

(5) Other trade related expenditures (e.g., direct subsidies) that
 serve objectives other than those listed above.

 Department of
  Agriculture--Mandatory....    665    637    631    673    582    582
 Department of
  Agriculture--Discretionary     52     52     53     53     43     43
 Department of
  State/Commodity Import
  Program...................    223    223    325    325    125    125
                              ----------------------------------------
 Total......................    940    912  1,009  1,051    750    750
                              ========================================
 Grand Total................  3,779  2,992  3,860  3,372  3,358  3,166
----------------------------------------------------------------------

