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Testimony of
Commissioner Richard L. Gregg
Financial Management Service - U.S. Department of the Treasury
before the
Subcommittee on Government Efficiency, Financial Management
and Intergovernmental Relations
House Committee on Government Reform
November 13, 2002
"Federal Debt Collection: Significant Progress Made During the Past Year"

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me to testify this morning to provide an update on the Financial Management Service’s (FMS) implementation of the Debt Collection Improvement Act of 1996 (DCIA).As always, the Subcommittee’s and your strong personal support has helped the Treasury Department in implementing a remarkably successful government-wide debt collection program that provides exceptional leadership across government, has significantly increased the collection of delinquent debt, and has greatly improved the government’s ability to accurately report outstanding delinquent debt.

Mr. Chairman, I understand you are retiring at the end of this Congress. I would like to take this opportunity to state that it has truly been a pleasure to work with you and your staff. I believe you leave behind an important legacy in greatly improving the government’s debt collection. I would like to wish you all the best in the coming years.

It is now apparent that Treasury’s debt collection program is a fully mature one, and it has developed into an integral component of federal financial management. You may be interested to know that the Treasury program has become a benchmark model. The United Kingdom and an Australian state government are both studying our policies and procedures as they develop their centralized debt collection programs.

Today, Mr. Chairman, I will discuss our future/near-term program plans as well as update you on our overall progress. Before I discuss these two issues, I would like to begin by giving you a brief program report on the U.S. Department of Agriculture’s (USDA) participation in the program, as well as share my views on the initiative commonly referred to as “gainsharing”. Mr. Chairman, I would also like to submit for the record a report on the progress FMS made during FY02 in the debt collection program.

I am pleased to report a substantial increase in the number of delinquent debt referrals from the USDA. Specifically I would single out the Rural Housing Service, from which we received approximately $231 million in cross-servicing referrals in FY02. Through FY01, we had received only $8.5 million. The Farm Service Agency has also taken some recent positive steps in transferring debts to FMS. The Food and Nutrition Service, I would add, continued to excel in its participation. You may be assured that Treasury remains committed to working with USDA to eliminate any barriers to program participation.

As you know, Mr. Chairman, the DCIA also includes a provision designed to provide an incentive known as gainsharing for agencies to increase collections of delinquent debt by reimbursing them for certain expenses related to collection. no funds have actually been appropriated for gainsharing accounts for reimbursement purposes, Treasury has developed procedures that would enable us to activate the program if and when funds do become available.

Since enactment of the DCIA, FMS has collected about $15 billion in delinquent debt. Since FMS was given responsibility for centralized collection of debt, we have sharply increased collections through program changes, adding numerous payment streams and categories of debt, and have actively worked with agencies to overcome obstacles. In FY02 alone, Treasury collected over $2.8 billion in delinquent debt, including $1.47 billion in past due child support; $1.2 billion in federal non-tax debt; and almost $180 million in state and federal tax debt. FY02 collections exceeded the amount collected in FY01 by $144 million.

Treasury has also worked hard to have agencies refer eligible debt in a timely manner. Last fall, at your suggestion, Secretary O’Neill wrote to the heads of all departments and agencies on the importance of debt referral. In the last year, FMS made important enhancements to the Treasury Report on Receivables Due from the Public (TROR) which enables us to more thoroughly monitor and evaluate agency referral and collection performance by generating computerized five-year trend analysis reports. Also, in the last year, more than 1,100 agency participants attended FMS workshops, conferences, symposia, and seminars on debt collection throughout the country. FMS also conducts meetings with agency Chief Financial Officers (CFO) and finance offices on debt referral and other debt collection developments.

These actions have produced outstanding results. For both the Treasury Offset Program and cross-servicing, currently 93 percent of debt identified as eligible has been referred. To put this in perspective, at the end of FY99, agencies had referred to Treasury only 43 percent of their eligible delinquent cross-servicing debt. During the first four years of the program – 1997 through 2000 – agencies referred roughly $4.3 billion for cross-servicing. In the two years since then, agencies have referred an additional $6 billion.

Mr. Chairman, I would like at this time to give the Subcommittee a progress report on some of Treasury’s collection initiatives.

With the cooperation of the Social Security Administration (SSA), the offset of benefit payments, an extraordinarily complex undertaking, continues to go smoothly. In fact, for FY02, FMS collected approximately $55 million in federal non-tax debts through this program.

And as you know, Mr. Chairman, the House version of the welfare reform legislation includes a provision to authorize offset of federal payments including SSA payments to improve collection of delinquent child support debt. FMS and the Department of Health and Human Services (HHS) are working with the Senate in an effort to include a similar provision in the Senate version of the bill. An estimated $50 to $100 million annually in lost child support collections are at stake. This provision would enable us to aggressively target the collection of these funds.

With the good support of the IRS,implementation of the continuous federal tax levy initiative continues to go smoothly. Of all the payments being levied, Social Security benefit payments account for most of the levies. For FY02, approximately $60 million was collected, primarily as a result of the SSA benefit levy, which accounts for $43 million of the total.

FMS implemented the program to collect delinquent state tax debt in 2000. For FY02, $119 million was collected. Currently, 25 of 41 states that collect state income tax and the District of Columbia are participating. Next year, six additional states are expected to begin. FMS is actively encouraging the remaining states to participate. For example, FMS has entered into discussions with the State of California, and as a result, FMS intends to visit with state officials shortly to discuss the program.

FMS has issued regulations to enable federal program agencies to garnish private sector wages. FMS views Administrative Wage Garnishment (AWG) as a powerful collection tool with enormous potential. So that agencies can take full advantage of FMS’ centralized processes and established safeguards, we strongly encourage them to use administrative wage garnishment through Treasury’s cross-servicing program.

Some agencies are currently using this debt collection tool through FMS, including the Department of Housing and Urban Development. Another agency, HHS, has recently published regulations and several others are preparing to publish regulations which will allow them to participate. FMS is also working closely with the Department of Veterans Affairs and the Department of Defense to help facilitate their participation.

As you are aware, Mr. Chairman, the present contract with private collection agencies went into effect October 1, 2001. We reduced the number of collectors from eleven to five, and have seen solid improvements in performance and service. Since the inception of this program in early 1998, PCAs have collected $109 million.For FY02, PCAs collected $43 million, up from $27 million for FY01.

Future/Near-Term Plans

Centralized Federal Salary Offset

In 2001, FMS began phasing in federal salary payment offsets. Of the five major salary paying agencies, USDA’s National Finance Center and the Department of the Interior, both of which process payroll for numerous federal agencies, now participate. The U.S. Postal Service and the Department of Defense have committed to participate by the end of this calendar year. In addition to collecting federal non-tax debt, we have also begun to collect tax debt by levying federal salaries. We collected $1.9 million for FY02.

Offset of Non-Treasury Disbursed Vendor Payments

I am pleased to tell you that another new element of our debt collection program is close to fruition. FMS has completed systems testing of the new offset of non-Treasury disbursed payments. We are currently working with the Department of Defense and the U.S. Postal Service to test the transfer of data files between our respective systems. Debts in the FMS debtor database will be compared to Department of Defense and U.S. Postal Service vendor payments. When there is a match, DOD and USPS will offset the payment. This will also be done for debts under continuous tax levy. We believe this initiative holds great promise and will significantly enhance debt collection, and we plan to implement the program next month.

Delinquent Debtor Database Information Sharing

Barring delinquent debtors from obtaining federal loans and loan guarantees is a high priority for both FMS and for those federal agencies with loan authority. FMS has been developing a system we call “Debt Check” that will allow lending agencies to access information from the FMS delinquent debtor database so that government loans are not made to previously identified delinquent debtors. The database is designed to complement existing sources of information available to agencies – to provide an additional tool to bar delinquent debtors from obtaining federal loan assistance.  Debt Check is scheduled to be implemented as a Web-based initiative with agencies being phased in gradually.

Mr. Chairman, in summary, Treasury’s debt program is one that is both robust and effective, one that has consistently met or exceeded its performance measures. This concludes my remarks. I would be happy to answer any questions you or the members of the Subcommittee might have.