August 25, 2000

Major Points

• Our federal statistical system faces a crisis which could threaten the ability of business and government to make informed decisions that keep our economy strong and prospering. 
• Vital economic data are jeopardized by a lack of financial support.  In particular, statistics that are critical for economic success are being compromised, such as the Gross Domestic Product (GDP) estimates and the international balance of payments estimates at the Bureau of Economic Analysis and the export statistics and several economic surveys at the Census Bureau.
• Dramatic changes in the economy, such as increasing globalization of transactions and the growth in e-business, require significant investment in our fundamental economic statistics to insure that we accurately understand our competitive status in the world’s dynamic economy.
• The frequency of vital national economic account data is being threatened by the lack of budget support, which may require a reduction in the number of releases and the level of detail released.
• The lack of investment in information technology threatens the ability of statistical agencies, in particular, the BEA, to provide timely data to a broad user audience.

Bureau of Economic Analysis

• The statistical programs at BEA are particularly jeopardized.  Data quality is being seriously compromised by the lack of sufficient funding to update and improve such critical national estimates as trade statistics and GDP. 
• A relatively small investment to improve the quality of BEA data has an enormous impact.  Business and government leaders use BEA measures daily to make decisions that affect the economy.  For example, the GDP estimates are used to forecast federal expenditures, revenues and budget surpluses and deficits; U.S. businesses rely on BEA’s trade and GDP estimates when making investment and financial decisions; and state and local governments depend on BEA’s state personal income data to determine expenditure caps and make revenue projections.

• In fiscal year 2000, BEA received an appropriations of $43.8 million.  For FY 2001, the House has recommended flat funding of $43.8 million, providing no additional funds for program improvements, cost of living adjustments, or required staff benefit increases.  The Senate Appropriations Committee has recommended a slightly higher level for FY 2001 of $48.3 million.  This Senate level is an absolute minimum for BEA to maintain its current programs.
• Seven years of flat funding at BEA have resulted in the current hiring freeze and a devastating 7 percent reduction of staff since 1994.  This reduction has occurred during a period of dramatic changes in the economy, which require significant work to update and improve national economic estimates such as GDP and trade statistics. 
• Years of funding shortfalls have caused major erosion in the quality of BEA’s GDP, trade, and other U.S. economic statistics.  It is estimated that the GDP may contain errors on the order of 0.5 percent to 0.6 percent.  Balance of payments estimates are undervaluing exports in the range of three to seven percent.
• A lack of investment in BEA has also brought its outdated and overburdened computer system to the brink of collapse.  As a result, on several occasions, the prompt release of BEA’s monthly GDP estimates has been at risk.  The financial markets eagerly anticipate these data.

Without adequate funding, BEA will be forced to make major cuts in some of the country’s most important statistical programs, in order to address its statistical quality and computer reliability problems.  These cuts could include:

• Reducing the frequency of GDP releases from monthly to twice quarterly;
• Delaying research needed to reduce errors in GDP estimates;
• Cutting back estimates of international trade in services from monthly to twice quarterly;
• Perpetuating the undervaluation of exports;
• Reducing the frequency of release of estimates of state personal income; and
• Scaling back the range of data collected on foreign direct investment in the United States. 

BEA will not compromise the quality of its measures; thus reduction in the number of releases is the option most available to adjust to a lack of funds.

Census Bureau

• The sharp fall in funding for the decennial census in the Census Bureau’s FY 2001 budget masks the deep cuts recommended by the Congress for the other vital programs at the Bureau, including the economic programs.  The House mark for current economic programs was $22.7 million below the Administration’s request, representing flat funding from the FY 2000 appropriations and $3.9 million under the FY 1999 level.
• This funding level would preclude vital improvement in the collection of basic data on the economy.  For example, a broad consensus exists that our current export statistics underestimate U.S. exports by tens of billions of dollars, resulting in a systematic overstatement of the trade deficit.  For FY 2001, the Census Bureau has planned a $1.4 million “Improvement of Export Coverage” initiative to improve coverage and timeliness of export statistics.  This initiative includes targeted outreach and education to ensure that exporters know what they must report under law and regulations, and how they should do it.  It also includes an audit program to monitor the accuracy of the data and improve the quality of the estimates of low-value exports not currently reported.  Without additional funding, the bureau cannot undertake these improvements.

• While the Census Bureau is still in the early stages of measuring e-business, it recognizes that one challenge before it is to measure how transactions executed over the Internet are affecting the international trade of the United States. This is part of the Bureau’s FY01 initiatives that are not being funded by the current appropriations levels.
• If the funding levels recommended by the House are enacted, a number of Census Bureau economic programs would have to be cut back.  Major programs that would be affected include:
• No improvements to the export  coverage work that is currently estimated to be undervalued by three to seven percent;
• Curtail the expansion of electronic filing of the exports; shippers’ export declarations, the source of export trade statistics;
• Cancellation of improvements to the e-business surveys that seek to measure the fast growing electronic commerce sectors;
• Halting future improvements to NAICS and its more detailed incorporation into the 2002 Economic Census;
• Jeopardizing several of the Census Bureau’s current surveys, including current activities with the Current Industrial Reports, County Business Patterns, and Quarterly Financial Reports.

In addition, the health and safety of the 4,500 federal employees at the Census Bureau are at risk without the $3.2 million investment required to remodel or replace the deteriorating facilities at Census headquarters in Suitland, Maryland. While the Senate has included these funds, the House mark does not.

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