The Government Accountability Office (GAO) released a report Tuesday criticizing the government's financial records. This marks the eighth fiscal year in a row the GAO has been unable to determine whether the federal government's financial statements were accurate. They found 10 of 23 major agencies and departments had restated their fiscal 2003 records, an increase of six from the previous year.

Former EPA Administrator Michael Leavitt, who has been nominated to succeed outgoing Tommy Thompson as Health and Human Services secretary, may be organizing a new effort to curb the growth curve in Medicaid spending while ensuring smooth implementation of the Medicare overhaul law.

The choice of Leavitt came as a surprise to many who expected the President to replace Tommy Thompson with Mark McClellan, head of the Centers for Medicare and Medicaid Services (CMS). This move is seen by many as an effort on the part of the White House to install a very seasoned political hand at the top and to maintain a strong implementer at CMS.

Senate Democrats are already preparing for a battle. After Leavitt’s nomination, 47 Democratic senators sent a letter to President Bush drawing a clear line between Medicaid changes they would and would not accept.

Republican aides are avoiding any talk of block granting Medicaid. However, Democrats have also warned against a “capped allotment” proposal, which was advanced unsuccessfully by the administration during President Bush’s first term. That approach would have capped spending growth for parts of Medicaid. Democrats would support “structural changes that enhance state flexibility”.

Michael Leavitt explored Medicaid flexibility in a plan approved by the federal government in 2002. The “Utah waiver” expanded coverage of low-income workers by cutting benefits elsewhere in the state’s Medicaid program. Administration officials are praising the Utah plan as a way to increase access to care in tough budget times. However, advocates for the poor say the waiver took dental and vision coverage away from people whose incomes were at half the federal poverty level while imposing new co-payments that caused some Utah Medicaid beneficiaries to skip seeking medical care.

It is generally agreed that widespread adoption of the waiver approach would not by itself generate the Medicaid savings that congressional budget committees are seeking. Those kinds of numbers require approaches such as block grants or caps on per capita Medicaid spending.

It’s unclear how receptive Congress will be to cost-saving moves. The Senate Democrats said in their letter that they oppose flexibility that compromises “the health and well-being of beneficiaries.” Although, there will be fewer Senate Democrats in the 109th Congress, the Finance Committee is likely to be resistant.

President Bush signed the Intelligence Reform Bill today, enacting the largest series of changes to the Intelligence Community since many of the agencies involved were founded.

A new Director of National Intelligence position will now have to be found, but the position will have full control over the budgets of all the IC agencies, including the CIA, NSA, NRO, DIA and NGA.

House Majority Leader Tom Delay, credited with strengthening is party’s hand in Congress and persuading his caucus to protect his status as leader even if he is indicted, seems to recognize that his latest power play may be too much. Rep. Tom Delay (R-Texas) recently floated a proposal to uproot the jurisdictions of Appropriations subcommittees and reduce their number from 13 to 10, which would remove gavels from three of the panels’ powerful chairmen, known as cardinals.

Delay’s proposal is not getting a welcome reception from the cardinals themselves, or the Senate leaders. Delay’s moves demonstrate the degree to which he is exerting power in his chamber, and he is clearly positioning for advantage in what is expected to be a shake-up among appropriators in any event.

Currently Republican term limit rules require both House and Senate chairmen to step down at the end of this year. In the House, that will mean a new chairman beholden to the GOP leaders who will select him. In the Senate, Thad Cochran (R-Mississippi) is slated to resist the kinds of changes Delay is seeking.

In Rep. Delay’s proposal, he recommends completely unraveling the subcommittee jurisdictions, which in the same bill often pair unrelated agencies, requiring them to compete for limited funding. The Commerce, Justice and State Departments for example, are funded by one subcommittee, while veterans’ affairs, housing, space and environmental programs are mixed together in another bill known as VA-HUD. The jurisdictions have stayed essentially the same for decades. Difficult trade-offs occur because each subcommittee is given a sum of money to divide up, so that awarding budget increases to veterans’ programs, for example, comes at a cost to the budget of NASA, the EPA, or the Department of Housing and Urban Development.

Delay wants to replace these subcommittees with others more suited to GOP control. For example, under his plan the Regulatory Agencies Subcommittee would have jurisdiction over such agencies as OSHA, while another would cluster funding for Congress, the White House and the Judiciary. The idea is that certain bills would represent GOP priorities while others would focus on Democratic priorities such as public housing.

There are three candidates to succeed C.W. Bill Young (R-Florida) as chairman of the House Appropriations Committee, they include: Rep. Ralph Regula (R-Ohio), Rep. Jerry Lewis (R-California) and Rep. Harold Rogers (R-Kentucky). The race has put House leaders in a position to exact promises of fealty greater than that demonstrated by Young.

Regula has the most seniority of the candidates. He received accolades for taking on Democrats, who in 2003 opposed the fiscal 2004 Labor-HHS spending bill for insufficiently funding education programs. Regula retaliated by denying all requests for Democratic earmarks, and this year, Democrats voted for all appropriations bills in large numbers.

Next in seniority is Lewis, who appears to have the most support on the Appropriations panel. However, with the Ways and Means, Rules, Armed Services, Homeland Security and Resources panels also headed by fellow Californians, geographical considerations may work against Lewis.

Rogers chairs the Homeland Security Subcommittee and promises to implement tight budgets expected in the next few years. Sources on the Hill say there is no compelling reason to vault Rogers ahead of his more senior rivals.

President Bush has nominated Environmental Protection Agency head Michael Leavitt to lead Health and Human Services. Leavitt used to be the governor of Utah until he joined the administration in 2003.

The twenty-one GOP lawmakers in the House who supported doubling Amtrak's budget extracted a promise from Speaker Dennis Hastert (R-Illinois) that he would attempt to restore funds for highway projects cut in the omnibus spending package. The projects were cut by Appropriations Chairman Ernest Istook (R-Oklahoma) in retaliation for a letter all 21 signed supported an increase in Amtrak's budget. Because of the timing of the move, the bill was signed before any of the affected members could protest the cuts.

Over the weekend, Bernard Kerik's nomination for Homeland Security Secretary was scuttled, and it now appears that the head of NASA, Sean O'Keefe, may also be on his way out to take a job at LSU.

The President nominated Samuel Bodman for the position of Secretary of Energy today. Bodman is currently serving as deputy treasury secretary.

This leaves Health and Human Services as the only remaining cabinet agency with no one currently nominated for the top slot.

President Bush announced today that any alterations to Social Security would not be funded by an increase in the payroll tax. He also repeated that there would be no changes in benefits for retirees or those close to retiring.

The transition costs of partially privatizing social security have been estimated as up to $2 trillion. Without an increase in payroll taxes or a decrease in benefits, few options remain on the table to come up with the funds needed for such a move.

Speaking at a conference of transportation industry executives on December 8, Secretary of Transportation Norman Y. Mineta said the Bush administration will resubmit its surface transportation reauthorization proposal early in the 109th Congress, but few substantive changes are expected. The new proposal is necessary because the reauthorization proposal DOT submitted for the 108th Congress is now almost two years old and there might be new issues that need to be included. When asked if President Bush would budge from his insistence that surface transportation programs receive at most $256 billion over the next six years, Mineta quickly stated "next question." He did go on to reiterate three principles that Bush said must guide reauthorization negotiations. Whatever legislation makes it to Bush's desk cannot boost excise taxes, fund projects through bonding, or authorize highway spending from the general fund.

Mineta did not address a specific funding level or any explicit changes that might appear in next year's proposal, including whether the legislation would still run through fiscal year 2009, or if it would go through fiscal 2010.

Although many transportation industry representatives would like to see Bush support a proposal similar to the $375 billion plan originally offered by the House Transportation and Infrastructure Committee, many have sent numerous letters expressing support for the $318 billion in contract authority and $301 billion in guaranteed spending contained within the original Senate-passed bill.

President Bush has asked the remainder of his cabinet to stay on today. He also nominated Jim Nicholson, the current ambassador to the Vatican, to helm the Veteran's Affairs Department.

The secretaries remaining include Labor Secretary Elaine Chao, Interior Secretary Gale Norton and Housing and Urban Development Secretary Alphonso Jackson.

Late last night, the Senate passed H.R. 5419 which included a temporary 1 year USF/E-Rate fix. Senator McCain released his hold after a verbal guarantee by Speaker Dennis Hastert (R-Illinois) that his Boxing Commission bill, legislation that would promote boxing safety, would be considered in the House next session. H.R. 5419 is now being sent to the President for his signature.

Reports are emerging from the White House this morning that Secretary of Transportation Norman Y. Mineta has been asked by President Bush to stay in his post as Secretary of Transportation. There had been reports widely circulating in recent weeks that Secretary Mineta would be departing the cabinet shortly. Transportation advocates will be largely relieved by today's news that he will remain at the helm while major issues such as the reauthorization of TEA-21, the future of Amtrak and others are considered.

A similar announcement was made yesterday regarding Secretary of the Treasury John Snow. Veterans' Affairs Secretary Principi announced yesterday his resignation.

We will have a summary report on the Bush II Cabinet in the near future.

Today the Senate voted 98-2 to approve the Intelligence Reform Bill which passed through the House yesterday (336 to 75), moving the measure to the President's desk.

The package would create a director of national intelligence, who would have budgetary power over the entire Intelligence Community (IC). Currently, the Director of Central Intelligence, Porter Goss, has control over the entire IC, but no budgetary powers except for the Central Intelligence Agency, which he helms. Over eighty percent of the funds for the IC currently reside under the control of the Pentagon, until this bill is signed by the President.

The AP is reporting that President Bush asked Department of Treasury Secretary John Snow to remain on the job.

This leaves Snow and Secretary of Defense Donald Rumsfeld as the only two cabinet members whose positions are now secure.

Lawmakers have not been able to reach an agreement on how to resolve a funding shortfall of E-Rate, the federal program that finances Internet connections in schools and libraries. Therefore, consumers could see an increase of approximately $12 on their telephone bills.

The shortfall has arisen due to an FCC mandate that the Universal Service Administrative Company (USAC) change how it accounts for grants given under the E-Rate program. The change bars agencies agencies from making expenditures without the cash on hand and would cause a nearly $3 billion dollar shortfall. The fix would have exempted the USAC for a year while they figure out how to make a permanent fix.

Senator Snowe had legislation that would have made the fix in a last ditch effort as part of a broader package of telecommunication legislation that passed out of the House. It was stalled in the Senate when Senator John McCain (R-Arizona) tried to attach boxing safety legislation. Senator McCain agreed not to block the narrower bill, but it did not have support in the House.