Mr. FLOOD. That is a nice round figure.

Dr. WEIKEL. I remember last year Mr. Michel told us all we had to do is close our eyes and forecast $2 billion greater. Unfortunately since 1970 that appears to be true. And clearly this year that appears to be

true.

Mr. FLOOD. Your justification shows that the budget is based on State estimates in August of 1975. That is almost 8 months ago. A great deal has happened in that time. Doesn't that make your budget a little obsolete? Do you have more recent State estimates?

Mr. WORTMAN. Each quarter the States give us revised estimates, and we now have November 1975, whereas our budget was based on August estimates. And that is the way it went through the system.

Mr. FLOOD. Wouldn't a budget 8 months old be obsolete today? Mr. WORTMAN. Not necessarily-if our assumptions were good, and we have cranked in inflation factors in all of these budgets.

Dr. WEIKEL. In the case of the medicaid program as an example, the November estimates have been accurate within plus or minus 3 percent. Unfortunately the budget, as it was locked up did not utilize the November estimates. We had to use the August estimates. In this case, the November estimates indicate that they are within that range.

STATE ESTIMATES

Mr. FLOOD. Do you have any State estimates for February 1976? Mr. WORTMAN. Not at this point.

Mr. FLOOD. I will tell you what you do. For the record-supply information showing a comparison of the State estimates for August of 1975 that you are talking about, November of 1975, and then your pending request. Do that by fiscal category-for 1976 and 1977. Dr. WEIKEL. Yes, sir.

I might say we will have another quarterly report to you before you mark up this bill.

Mr. FLOOD. All right.

[The information follows:]

4/ Not estimated by States.

USE OF STATES' ESTIMATES

Mr. FLOOD. We asked for similar information at last year's hearings and we have the impression that the State estimates are more realistic than the estimates at HEW. You have reduced the State estimates, based on adjustments, from assumptions that never seem to materialize-just never happen.

If you are not going to use all these State figures, why in the world do you bother collecting them?

Mr. WORTMAN. They are the basic figures

Mr. FLOOD. You are not going to use them, are you?

Mr. WORTMAN. Yes, sir, we do. In fact, my opening statement acknowledged that these estimates that I was presenting were based on States' estimates. True, we do go through modifications, and in effect you might say in some cases we second guess

Mr. FLOOD. Do you have a copy of the last year's hearings?

Mr. WORTMAN. I can get one.

Mr. FLOOD. Well, for the record, then, I direct your attention to page 9 of part 4, "Fiscal year 1976." Then look at "State estimates, February 1975, $16,235,793." And right alongside of it is your request, 14,999,085."

Mr. WORTMAN. Yes, sir. But let me just point out one difference. Even at that time, on that table, sir, our November estimate was $16,002 million. This year the November estimate is $18,337,717,000, as compared to our $18,022,200,000 that we are requesting of the Congress. Mr. FLOOD. If you are not going to use the State figures, what are you collecting them for?

Mr. WORTMAN. We are using them. Our deviations from those are very specific. Like in AFDC, we reduced State estimates for explicit items like the quality control disallowance, and only in those cases do we differ significantly from States' estimates.

Mr. FLOOD. But you reduced the State estimates by over $1 billion. Mr. WORTMAN. That was true last year.

Mr. FLOOD. That is what I am talking about. You reduced the State estimates $1 billion last year.

Mr. WORTMAN. Well, the estimate last year would have been prepared based on August estimates.

Miss PERKINS. No; last year our request was based on November estimates, and I think we were optimistic.

Mr. FLOOD. That is an understatement, you were a little bit optimistic. What adjustments were made by HEW in the State estimates for 1977?

Dr. WEIKEL. In terms of the medicaid, the August estimates from the States were $9.6 billion. The reduction HEW made from those August estimates was $300 million, since we thought the State of Michigan had overstated their expenditures. They had dramatically increased their expenditures over the previous year. The November State estimates are $9.566 billion, and our budget request is $9.3 billion.

Mr. FLOOD. Now, what degree of confidence do you have in the public assistance budget estimates for 1977, in view of all this?

Mr. WORTMAN. I have more confidence than I would have had a year ago, had I appeared before this committee and reviewed the

information that was then available. Excluding the anticipated quality control disallowance, the States' estimates for November are within about $110 million of the total we are now requesting.

FORECASTING CAPABILITY

Mr. FLOOD. Have you refined your forecasting capability in putting this budget together?

Mr. WORTMAN. We put a tremendous investment in with the States, right from our regional offices, to refine their estimating process. I frankly think last year a lot of people were surprised with the severity of the recession. And a lot of these estimates got turned around more than people had thought. Hopefully this year, with the improved economic forecast, we will have a more predictable environment on which to base these estimates.

Mr. FLOOD. How long have you been on board in this job?
Mr. WORTMAN. Two months, sir.

Mr. FLOOD. I ask you that for this reason. We are not upset with you personally, but we cannot help but feel somebody downtown is playing games with these budget figures. What are they using down there, a crystal ball, a dart board, a Ouija board, or what?

Mr. WORTMAN. When we were up here for the supplemental, and Mr. Forbush was with us at that time, he and I discussed with you the extent to which in the budgetary process state estimates are modified. And I think it was his recollection that we do not modify those that extensively.

Mr. FORBUSH. The question was, how much does OMB modify our estimates. They don't modify our estimates very much.

Mr. FLOOD. What?

Mr. FORBUSH. I might say one thing: The reason I think we were so much lower last year is because we just had that terrible experience of having a large overestimate-when the States came in and said. they were going to spend far more than they actually did. So we thought that was going to happen again, and discounted their estimate. But that time it turned out to be better. And this year we are assuming they are pretty close to the mark.

Dr. WEIKEL. In terms of the medicaid State estimates-
Mr. FLOOD. You always wind up with that pigeon.

Dr. WEIKEL. That is right. We have assessed the accuracy of the States' estimates over the last 3 years, and we have done it for all States combined. And it is on that basis that we have used it as a factor. Ar.d we also have analyzed the accuracy of the State budgets on a State-by-State basis.

Mr. FLOOD. When you were here with the supplemental request, we asked you a couple of times about changes being made in your estimates by OMB. Somebody told us they usually accept your figures. Now we have information which indicates that is certainly not the case Well, do you want to add anything to your previous testimony on that point?

Mr. WORTMAN. In the course of the time between when the agency submits its request internally, and when we finally have the President's budget, there are changes going on. A lot of that is a result of mutual agreement on changes in estimates.

I have before me the changes that occurred during the course of this last year.

Mr. FLOOD. They certainly do not accept your figures.

Mr. WORTMAN. Yes, that is correct, they never do, exactly. I think what we testified to was that basically the States' estimates provide the framework, and, in some cases, these estimates are modified. At one stage of the 1977 process they were modified in the other direction, as more information became available. Basically we originally requested $18.6 billion, and ended up with $18.022 billion. What I was confirming before is that the current State estimates are not too far apart from that figure.

Mr. FLOOD. All right.

STATE AND LOCAL ADMINISTRATION

Now you want $6.2 billion for what you call maintenance assistance, including around $700 million for State administration and local administration.

Why have these administrative costs increased by over 37 percent since 1975? You made quite a big deal about the cost of living and what not, but 37 percent is certainly far in excess of the cost of living, and any recipient increases by far.

Mr. WORTMAN. Well, that concerns us, too.

I think one of the points we have in our narrative justification is that we have a two-pronged effort under Mr. Norton's leadership this year. One is to look at eligibility, to see what we can do to simplify it, and the other is to look at administrative costs per se. The one thing I would say on behalf of the States is we have put them under considerable pressure with our quality control program, and to some extent I would assume States have added eligibility workers in order to meet our quality control tolerance levels. But Mr. Norton should have an opportunity to comment on this.

Mr. NORTON. Mr. Chairman, the quality control effort, as Mr. Wortman has pointed out, does have a major bearing here, because the States have in fact responded very positively to the Federal effort to reduce errors. We have known from the beginning of the intensified quality control program in 1973 that two of the areas that have contributed most to error production in the program were lack of staff, or inadequate staff, and lack of training. So States' costs have tended to increase in both of those areas.

Another thing which has been happening, which is perhaps not caused directly by our investigations into errors, is the effort to sophisticate the management of the program, and especially the use of automated data processing. There is a very heavy startup cost in using computer technology in the welfare system.

DATA PROCESSING EQUIPMENT

Mr. FLOOD. Do you buy that hardware or rent it?

Mr. NORTON. Normally it is rented. There is a good deal, however, of contract expense for the State, with the providers of these serviceseither the firm which supplies the leased equipment, or some other firm which is advising the State.