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Mr. Chairman and Members of the Subcommittee:
Thank you for this opportunity to tell you about our progress in transforming the Office of Student Financial Assistance (OSFA) into the first Performance Based Organization (PBO) in the Federal Government, authorized by Congress last fall in the Higher Education Amendments of 1998. Before discussing our budget request, I would like to share with you my background and current plans for the PBO.
I've spent most of my career in the private sector. In 1993, I sold my software development firm and joined Vice President Gore's National Partnership for Reinventing Government to make government work better and cost less. I led initiatives to improve customer service, including the IRS Customer Service Task Force, and became the Chair of the Government Information Technology Services Board, an interagency group of government technology leaders of which I remain the Chair.
First, the new organization will be obsessed with its customers: students. In February, we formed a Customer Service Task Force, comprised of key staff and front-line employees, to gather information about our customers and recommend concrete steps we should take to enhance customer satisfaction dramatically. This will include ways of working more effectively with our partners - schools, lenders, guaranty agencies, and others - on a constant basis to meet our students' needs and improve operations. The Task Force has already reported back to us a preliminary set of over 300 ideas, the most promising of which will be included in a final report this July.
Second, the PBO legislation requires us to implement an open, common, and integrated system for delivering student aid, that contains complete, accurate, and timely data to ensure program integrity. The first step is to develop a systems architecture, and a step-by-step modernization blueprint showing how we move from our current cumbersome processes and stovepipes to a streamlined, integrated system our customers and partners can rely on.
Because the Title IV delivery system depends on many players, OSFA must collaborate with its trading partners to improve the delivery of grants and loans. Most of our current processes were developed for a paper-based environment and are very inefficient by today's standards. Over the last four years, major investments of time and money have been made in Project Easy Access for Students and Institutions (EASI), to document current processes and determine how they could be reengineered to take advantage of new technologies. The work to date has not been translated into a concrete plan on what to do with our systems and what changes should come first, nor has it been reconciled with other OSFA modernization efforts and acquisition plans.
To bring EASI and our other modernization activities together into a coherent plan, we have begun an intensive effort to develop a modernization blueprint for all the Title IV systems. This effort aims to validate the work we have done to date through Project EASI, revise it where necessary, and fill in the gaps so we can move ahead to develop the integrated, customer-focused system envisioned in our legislation. The exhibit presented here (see attachment) provides a simplified view of the complex delivery system we have today. Our draft blueprint for change will be released shortly, and next month, I will begin working with the outside community to ensure it has their support.
Before the end of this fiscal year, I expect to have a clear picture of what the future system should look like, and the sequence of steps that will be needed to get there. We will adopt a modular approach to creating a new system, as allowed for in our new legislation, and rather than build all of it from scratch, we will use existing commercial systems if doing so will improve service and reduce costs.
Third, I will work to develop a financial management system equal to the best in business. In order for the PBO to meet its mandate to reduce costs and improve accountability, we must know how much we are spending, for what activities, and have reliable financial documentation on which to base timely payments, analyze our risk exposure, and inform strategic management decisions. Achieving this objective will require setting higher standards for ourselves and our trading partners in how we account for Federal funds, assets, and liabilities. By investing in high-end financial management software and systems now in use in the private sector, we can move from heavily manual systems to highly automated ones that will ultimately reduce errors and administrative costs for both the PBO and its Title IV partners.
Fourth, I will work with employees to develop a human resource plan that will transform us into a high-performing organization. The success of the PBO rests on its employees. Meeting ambitious performance goals requires creating an environment where employees can work productively, and ensuring they have the skills required to do their jobs well. The space most of our Washington, D.C. staff now occupy is overcrowded - a third smaller than it should be under the Department's work station standards. The overcrowding has contributed to documented air quality problems. Few staff have had training in customer service, information technology, and contract management strategy. These skills are essential to creating a modern, customer-focused delivery system for Title IV.
Last week, I submitted to Congress an interim budget plan, required by the Higher Education Amendments, that outlines the major cost components of OSFA and the factors that will affect our resource requirements in the coming years. By fall of 1999, we will submit the PBO's five-year performance plan. Our next budget submission to Congress will be tied to that plan.
The Title IV system involves the delivery of over $50 billion in Federal aid annually to approximately 9 million students. OSFA interacts with over 6,000 schools, over 4,000 lenders, 36 guaranty agencies, dozens of accrediting agencies, as well as secondary markets and other organizations. Under the FFEL and Direct Loan programs, OSFA oversees or directly manages over $150 billion in outstanding loans, representing nearly 100 million individual student loans.
As outlined in our April budget plan, most of our FY 2000 funds will be used to maintain current services without interruption to students, institutions, and financial partners, and to service Direct loans in repayment status. We are allocating $74 million - 11 percent of the total request - for critical investments to enable us to improve service, reduce unit costs over the long term, and handle the increased workload that is projected in the outyears, particularly as a result of growth in both the FFEL and Direct Loan portfolios.
Of the total FY 2000 request for OSFA operations, $407 million or 61 percent is for maintaining ADP systems, and $96 million or 15 percent is for personnel costs. Other basic operating costs, such as postage, printing, travel, rent, and non-ADP contracts, will require $85 million.
The $74 million set aside for modernization investments will be allocated as follows, subject to adjustment once we have our modernization blueprint and Customer Service Task Force Report:
OSFA is facing dramatic workload increases in future years, due to growth of the two student loan programs and increasing numbers of student aid applicants. Because statutory resource levels are not expected to increase after FY 2001, there is particular urgency in making investments in FY 2000 - particularly for systems modernization - that will significantly improve our cost efficiency in the years ahead.
I look forward to developing a positive constructive working relationship with your committee and other committees in Congress that oversee our programs and administrative processes. Working together, with input from students and our service delivery partners, I am confident the new PBO can produce the results Congress intended.
I will be happy to respond to any questions you may have.
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