**COMMISSION ON THE NATIONAL GUARD**

**AND RESERVES**

# 

**HEARING ON EMPLOYER AND FAMILY SUPPORT**

**EMPLOYER SUPPORT**

**FEATURED WITNESSES:**

**TED DAYWALT, CEO AND PRESIDENT,**

**VETJOBS, MARIETTA, GEORGIA**

**WILLIAM D. ELMORE, ASSOCIATE ADMINISTRATOR,**

**OFFICE OF VETERANS BUSINESS DEVELOPMENT,**

**U.S. SMALL BUSINESS ADMINISTRATION**

**DR. HEIDI L. W. GOLDING, PRINCIPAL ANALYST,**

**NATIONAL SECURITY DIVISION, CONGRESSIONAL BUDGET OFFICE**

**DR. L. GORDON SUMNER, JR., EXECUTIVE DIRECTOR,**

**NATIONAL COMMITTEE FOR EMPLOYER SUPPORT**

**OF THE GUARD AND RESERVE**

# 9:00 -- 11:00 A.M.

# THURSDAY, MAY 17, 2007

# 

*Transcript by:*

*Federal News Service*

*Washington, D.C.*

ARNOLD PUNARO: Just almost there, sir. Good morning. Commission will
come to order. We have three panels today to continue the commission's
exploration of a critical, and frankly in my mind one of the most critic
components of our national defense capability, and we're talking of
course about the high quality young men and women who wear the nation'
uniform, and particularly when we're talking about the Guard and
Reserve, we're talking about the businesses where they work in their
civilian capacities, we're talking about the support they have from
their key volunteers and many other factors.

At the current pace of operations, we've heard testimony yesterday as
well as in all our previous hearings as well our examinations and visits
to the field about some of the strains that the volunteer force is
feeling both on the active, and particularly on the Guard and Reserve
side. This is particularly evident in the Guard and Reserve, which has
evolved from its historic role as a strategic force geared primarily for
large scale mobilizations to a highly operational force serving in some
cases lengthy and repeated tours in the combat theatre, and all the
testimony we've had over the course of the last year is that the active
component just can't meet these demands without the Guard and Reserve.
So it's not like this is going to change anytime in the near future.

So our focus today is on the two critical influence of recruiting and
retention, and that is families and employers. As noted in the
commission's March 1 report, there are troubling indications on the
horizon. The December 2005 Defense Manpower Data Center survey of
spouse/significant other favorability to continued participation in the
National Guard and Reserve showed a continued downward trend, a three
percentage point decline from June to December 2005, and an 18
percentage point decline since May 2003. We certainly hope updated DMDC
survey data for 2006 will show an improvement in that trend, but I don't
believe anybody we've talked to really expects that, but we don't have
the data yet.

Similarly, the National Military Families Associations cycles of
deployment survey conducted April to September 2005 reported quote:
"that Army and National Guard and Reserve families experience family
separations of close to 18 months," and that quote, "these families are
quickly to point out they're experiencing the longest family separations
of any service families, and that the length of these deployments is
having a detrimental effect." On the employer side, as directed by
Congress, DOD has developed a Civilian Employment Information database
on the civilian employment and job skills of members of the National
Guard and Reserve. To date, I don't believe DOD has surveyed the
employers themselves, although we're advised by the office of the
Assistant Secretary of Defense for Reserve Affairs Tom Hall they're
working on fielding such a survey. Is my recollection from some previous
briefings that's been in the works for a long time, so it doesn't sound
like they're moving very quickly on it. I hope they're doing it, but I
don't believe they're moving very quickly on it. But that's certainly
understandable with everything else they have going on.

But we really do, I think, one of the things we're going to try to get
our witnesses to talk to us about today, we don't want to operate in a
fact-free environment, we don't want to operate on anecdotes. I think we
need some hard, cold facts to look at in these areas. As a result, the
data on employer impact that are currently available come from informal
private sector surveys, such as the one conducted online in January by
Workforce Management Magazine. This online survey found that more than
half of the companies responding said that they would not hire guardsmen
or reservists, current legal restrictions on hiring discrimination
notwithstanding if they quote: "as an employer, knew that a military
reservist or National Guard member could be called up and taken away
from their job for an indeterminate amount of time." So from today's
hearing we hope to get a deeper understanding of family member and
employer issues and concerns, as well as specific recommendations for
changes in law and policy that would foster and improve compact between
DOD and these two critical groups of influencers.

Our first panel is composed of William D. Elmore, associate
administrator for Veterans Business Development, Small Business
Administration. For those that are not familiar with the SBA, they're
kind of a government Rock of Gibraltar when it comes to significantly
promoting our ability of our small businesses in our country, and
frankly, I believe the data will show that we have a lot more small
businesses, in fact vastly more small businesses than we have large
businesses, and that small businesses are the bedrock of our economy.
This is a go-to-outfit in government that really does a heck of a lot of
positive things in the small business area and particularly for
veterans.

Dr. L. Gordon Sumner Jr., the new executive director of the Employer
Support of the Guard and Reserve are a critically important organization
in working with businesses.

Dr. Heidi Golding, principal analyst, Congressional Budget Office and
author of the May 2005 CBO paper entitled "The Effects of Reserve
Call-Ups on Civilian Employers," and we bragged about CBO yesterday in
our hearing, so we won't brag about them again today, but it's again one
of those organizations that's so essential to government because they
provide objective analytical information on a wide variety of subjects
and they don't deal in opinions; they deal in facts.

And Theodore L. Daywalt, CEO of VetJobs, an individual that has a lot of
experience in this area.

Then for our second panel this morning we'll receive testimony from a
group of five employers themselves ranging in size from very small to
large company including one public sector employer. And then our final
panel this afternoon will provide a spouse and family member perspective
including a discussion of current programs available to assist Reserve
and Guard families in coping with the many challenges of deployment,
particularly for those who live a considerable distance from military
support networks, as do most of the people in the Guard and Reserve.
They do not reside near Camp Pendleton, Camp Lejeune, Fort Bragg, Fort
Hood and they don't have that network that the active duty military has,
the active duty military deploys from a major military installation,
most of their families live and are educated on those installations and
shop and recreate on those installations, they come home to those
installations. That is absolutely not what happens with the Guard and
Reserve.

Several of our current panelists have testified before Congress more
than once in the past few months and can offer unique expertise on
employer issues and concerns. In addition, we hope you will also provide
your perspective on how current DOD and other governmental programs
could be improved to strengthen the compact between DOD employers as
well as any other suggestions for changes in laws and policies. Finally,
we welcome your suggestion of ways to mitigate the impact on small
businesses that often bear the brunt of the burden when their National
Guard and Reserve employees are mobilized.

Thank you again for your participation in this morning's discussion, for
your great service to our country. We look forward to your testimony.
Without objections, your entire prepared statements will be made part of
the hearing record, and with that, Mr. Elmore, why don't we start with
you, and we'll just go from left to right.

WILLIAM ELMORE: Let me make sure I have this on. Chairman Punaro, and
other distinguished commission members, thank you for the opportunity to
present the views of the U.S. Small Business Administration for your
consideration. The agency wishes to play its part in ensuring that the
National Guard and Reserve are fully supported to best meet the national
security requirements of the United States. Excuse me.

You asked me to address three broad areas including what do we do to
ensure that the relationship between reserve component employees and
their employers stay strong, what current programs could be improved to
keep employers appraised of federal laws and regulations concerning
reserve component members employment, and what can be done to lessen the
impact on a small business of a mobilization of a reserve component
employee. I will attempt to address these three questions in my comments
and recommendations overview.

According to 1992 Department of Defense report, following the Gulf War
I, economic injury can and does occur to self-employed and small
business owners who are reserve component members during Title 10
activations. The report gave the following findings. Approximately six
percent of mobilized Reserve and National Guard were self-employed. This
is Gulf War I. Approximately one-third of the self-employed were
officers and approximately two-thirds were enlisted. Approximately 17
percent were in the medical related fields. Approximately 40 percent of
enlisted were in the construction or mechanical fields. Approximately 45
percent of the self-employed officers lost income, and 55 percent of the
self-employed enlisted lost income. More than two-thirds of all
self-employed mobilized for Desert Storm Desert Shield lost income.
Eighty percent of self-employed officers and 70 percent of self-employed
enlisted incurred post-activation expenses. And 90 percent of
self-employed officers and 65 percent of self-employed enlisted suffered
post-activation income losses, and 48 percent of all the self-employed
small businesses suffered serious or moderate economic damage when the
owner was activated and deployed. Let me address to your directly.

One: what does SBA do to ensure that the relationship between reserve
component employees and their employers stay strong? We have many
programs in place, and Mr. Chairman, thank you for your kind comments at
the beginning. We have many programs in place to assist small businesses
when the owner is called to serve. In outreach and business counseling
following September 11^th^ 2001 attacks, we created a special agency
committee, and began to coordinate our efforts across the agency to
reach out to, to offer assistance to self-employed reservists and those
at risk of economic injury because of activations. SBA created a special
reservist web page, and we've had over 700,000 visits to that since
2002, and we met with the Defense Department's office of the assistant
secretary for Reserve Affairs to begin coordination of SBA outreach to
the reservists. This meeting led to our ongoing collaboration efforts
with the assistant secretary's office, with ESGR and with others to
conduct that outreach, and I'm pleased to get an opportunity to sit next
to the new ESGR executive director because I know we're going to be
working together a lot.

SBA also changed. Our business counseling and training program
agreements with our 1,100 Small Business Development Centers to
specifically target outreach and assistance for individual reserve
component small business owners and to Reserve and Guard units
themselves. Our agency's second largest business counseling program
SCORE has created special online counseling and mentoring assistance for
reserve component members, and some of our local SCORE chapters, and we
have about 40 chapters and almost 11,000 volunteers in SCORE, half of
which are veterans, by the way. Some of our local chapters have created
special efforts with Reserve and Guard in their areas; California and
Omaha, Nebraska come to mind specifically. In addition, my office
changed our written agreements with our five Veteran's Business Outreach
Centers and included in their outreach end service delivery reserve
component members and outreached to Reserve units as well.

We also threw a special effort that we call District Office Veterans'
Outreach Initiative include direction to our district offices and we
provide them competitive small grants to do this, to engage with
reservists, Reserve units, state adjuncts and generals, ESGR at the
state level, and any other system of organization that can identify that
may be of assistance in reaching and offering assistance, our business
counseling in training and funding assistance to reservist small
businesses.

Let me talk quickly about our Military Reservist Economic Injury
Disaster Loan, our "Mr. Eidl" as some people call it. The purpose of the
MREIDL loan program is to provide funds to eligible small businesses to
meet its ordinary and necessary operating expenses that could have met
but is unable to meet because an essential employee, and that can
include the owner was called up to active duty in their role as a
military reservist. To be eligible for an MREIDL, a small business must
suffer economic injury during the activation of the essential employee,
and the proceeds of the loan may be used to meet obligations as they
occur, pay ordinary and necessary operating expenses, that is working
capital, and enable the business to market produce or provide its normal
goods and services that cannot be provided due to the call-up of the
essential employee.

Since August of 2001, we have approved 272 MREIDL loans for a total of
\$24,712,000 on average of just slightly less than \$91,000 per loan.
And we have a special website for the MREIDL program and that's in the
testimony. It's kind of long to explain verbally.

Two: what current programs could be improved to keep employers apprised
of federal laws and regulations concerning Reserve component members
employment? Since 2001, we have produced and distributed more than
400,000 of what we call "Reserve and Guard Fact Sheets," and 225,000 of
those were inserted into demobilization kits with the assistance of
ESGR, and we thank you again for that. We also have produced what we
call "Reserve and Guard Business Planning Kits," and I believe we've
provided each of you a copy of that, and we've disseminated more than
40,000 of those to all of our partners, internal partners, all of our
program partners, all of our field offices, and to our external partners
as well including ESGR, Department of Labor, (one stops ?) any other
locations that we can identify, and we also respond to requests for
those kits. So anybody that contacts my office and asks for those kits,
we will produce them internally and we'll send them 10 or 100, and in
fact, I think our largest request so far has been for 1,000, and we're
preparing that now, and I have a staff person with me who can give us
details if we need them.

We have also provided testimony to Congress on numerous occasions, and
we worked to coordinate our outreach activity with our SBA programs and
our partners and with the Departments of Defense, Department of Labor
and Department of Veterans Affairs. While improved services are being
delivered to veterans, reservists, and discharging service members in
most of SBA's core programs, Administrator Preston and Deputy
Administrator Carranza have tasked each program office at SBA with
reviewing how their programs support veteran small business owners, and
that includes reservists, and we are in the process of identifying
additional and more specific steps that every program can take to better
deliver SBA assistance to veterans, reservists, discharging service
members and family members.

Three: what can be done to lessen the impact on a small business of the
mobilization of a reserve component employee? SBA is working, and will
improve its outreach efforts, and we look forward again to continuing
with ESGR and others in this, to ensure that small businesses know about
the assistance available should the owner or key employee be mobilized,
or they understand that they will be mobilized. We really try to
encourage small business owners that our Reserve and Guard members
themselves to take steps prior to mobilization. We understand that if
the time that you get your notice for your mobilization is too short,
the idea of putting changes in your business plan and assigning over
powers of attorney and all the other details that may be necessary,
there just may not be time to do that. So that's what we're trying to
do. The agency is examining our programs including MREIDL to determine
if application procedures can be improved given the short notice, again,
that activated reservists and Guard members often receive.

We have a couple of recommendations for consideration as well by the
commission. We would suggest that you should consider examining whether
policies and practices of our NATO allies, Japan or Australia support in
their activated self-employed reservists or for the reservist employers,
where applicable, should be considered. And as an example, Great
Britain, as I expect you are already aware, significantly revamped their
financial assistance regulations and programs for self-employed
reservists and their employers in 2005. If you have not looked at that,
I would suggest that you do that. It really was a significant change,
and they've gone through a significant amount of work to try to support
the reservists in this regard. It might be useful again to examine that
experience and see if there are any applicabilities to the United
States.

Second: consider how to better coordinate existing efforts among federal
departments and agencies to improve outreach and service delivery to
reservist-owned small businesses and employees that are activated. SBA
is proud to play its role in supporting these efforts.

In closing, SBA is grateful to the men and women who serve this country
with distinction and often a great personal sacrifice. In cooperation
with our federal partner agencies, we welcome the opportunity to assist
small business owners and their employees who face financial challenges
when called up to serve our country. Thank you, and I welcome any
questions you may have.

MR. PUNARO: Thank you very much. That's very helpful. Dr. Sumner. How
about turning your mike on there, if you don't mind. Thank you.

GORDON SUMNER: Mr. Chairman, and members of the commission. Thank you
for your invitation for me to offer my perspective on the challenges
facing self-employed reserve component members and the employers of
reserve component members. Your invitation letter asked me to cover
several salient points, and I will give you the department's position on
those areas.

First, you ask what government and quasi-government organizations do to
ensure the relationship between reserve component employee and employer
stay strong? ESGR, on its own as well as in conjunction with our
strategic partners, engages in a number of efforts to ensure that
Employer Support of the Guard and Reserve is maintained. The cornerstone
of ESGR employer support efforts is our statement of support. ESGR is
asking all of our known employers of guardsmen and reservist to sign a
statement of support which publicly affirms that the employer supports
the service of their employees in the National Guard or Reserve and
commits the employer to comply with the Uniformed Services Employment
and Reemployment Rights Act, knows as USERRA. When signed by the chief
executive officer or other senior executives, this statement of support
clearly communicates to all managers and employees within that
organization that reserve component service is supported. To date, I'm
proud to say over 36,000 employers have signed statements of support.

The preamble to USERRA states that is the sense of Congress that the
federal government be a model employer, and the federal government is
the single largest employer of guardsmen and reservists. Last year, ESGR
made history when it obtained a statement support signed by all 16
members of the president's cabinet. ESGR positively recognizes and
reinforces outstanding employer support through a series of awards,
beginning with the Patriot Award and culminating with the Secretary of
Defense Employer Support Freedom Award, the department's highest honor
for employer support. Any national guardsman or reservist can nominate
their superior for a Patriot Award and in the past two years, ESGR has
presented over 41,000 Patriot Awards to the supportive employers. Each
year, National Guardsmen and Reservists are encouraged to nominate their
employers for the prestigious Freedom Award. The secretary of defense
presents the Freedom Award to as many as 15 employers. In 2007, we
received more than 1,100 guardsmen and reservists at home and deployed
taking the time to nominate their employer for this Freedom Award. The
2007 Freedom Awards will be presented at a patriotic ceremony on
September 12^th^, at the Reagan Building in International Trade Center.
Mr. Chairman, I would be honored to have you and all of your commission
members attend this outstanding event.

ESGR also reinforces the relationship between employees and employers
through its informal USERRA mediation. ESGR has over 900 volunteers who
are trained in the USERRA and alternate dispute resolution techniques.
These are volunteers, and voluntarily assist members of the reserve
components and their employers when issues arise out of reserve
component service. While statutory authority to investigate USERRA
claims resides with the Department of Labor, ESGR's informal mediation
helps employers and their employees to quickly and easily resolve USERRA
issues. ESGR's informal mediation improves employer support by improving
the ease with which all employer, particularly small businesses can
comply with USERRA.

ESGR maintains a number of strategic partnerships with the other
government and quasi-governmental organizations as well as trade
associations, in order to positively impact employer support. As
mentioned earlier by my colleague, the Service Core of Retired
Executives, SCORE and the Small Business Administration are two of our
strategic partners that have expertise and programs that can benefit
small businesses and reserve component member owned businesses. As
reserve component members who own small business or other small business
owners contact the ESGR, we refer them to these organizations who we
feel are best suited to assist them. ESGR also has strategic
partnerships with the society for Human Resources Management, the
National Federation of Independent Business, and the U.S. Chamber of
Commerce. These organizations provide ESGR with a number of avenues for
communicating about USERRA and employer support, as well as provide ESGR
with important insight on how reserve component utilization affects
employers.

Your second question asked what current programs could be improved to
keep employers apprised of federal laws and regulations concerning
reserve component employment? Perhaps the most important development of
ESGR has been the development and implementation of the Civilian
Employer Information Database, CEI, at the Defense Manpower and Data
Center, prior to the development of the CEI, and the "Undersecretary of
Defense for Personnel and Readiness Memorandum," making it mandatory for
reserve component members to provide CEI with information on their
civilian employer. The Department of Defense had nothing more than
anecdotal evidence as to where guardsmen and reservists were actually
employed.

The CEI database has now allowed ESGR to communicate directly with the
known employers of guardsmen and reservists. ESGR is using the CEI
database to obtain signed statements of support. We have also produced a
training DVD as designed to educate first line supervisors on their
responsibilities under USERRA. Nearly 180,000 of these training DVDs
have been mailed to known employers of guardsmen and reservists as
identified through the CEI database over the last two weeks. In the 2007
report entitled "Military Personnel: Additional Actions Needed to
Improve Oversight of Reserve Employment Issues," the General Accounting
Office noted that of the seven components, only the Army Reserves had
met the Department of Defense's established goal of 95 percent
compliance with the under secretary's mandate for members of the
selected reserve to report civilian employment information. The
Department of Defense partially concurred with this recommendation, and
noted that timeframes for compliance are in place. Further more, the GAO
noted that all the reservists are required to update their employment
information when changes occur, the extent of which this update is
occurring and the extent of which DOD's employer data incurs current
information on employers that is unknown. The department concurred with
this recommendation, and noted that a revised DOD instruction 7730.54,
reserve components common personnel data system requiring guardsmen and
reservists to annually review and update their civilian employment
information is currently in the staffing process.

ESGR is routinely asked by members of Congress, senior defense
officials, industry trade groups and the media about the state of
employers support within the United States. To date, the Department of
Defense has not conducted a statistically valid survey of employer
attitudes regarding the transformation from a strategic reserve to an
operational reserve and the impact that mobilizations are having on the
American employer. ESGR needs a routine, systematic and statistically
valid survey, much like the status of -- (unintelligible) -- survey to
effectively track employer attitudes and issues, in order to advise and
assist the secretary of defense and the assistant secretary of defense
for Reserve Affairs of matters pertaining to employer support and its
impact on recruiting and retention. The office of the assistant
secretary of defense for Reserve Affairs has contracted for a research
and studies program to conduct a survey and analysis titled "Economic
Costs to Employers for Mobilized RC Employees." The results of this
study should be available this fall.

Your third and final question was what can be done to lessen the impact
on a small business of the mobilization of the reserve component
employee? To the extent that ESGR has considerable expertise on USERRA
and provides free education and training to employers, ESGR can
significantly reduce the cost of compliance for small employers. As you
are fully aware, the cost of USERRA compliance are relatively
insignificant compared to the operational and the economic impact on
small business when an employee is mobilized for military service. The
challenge in lessening the impact of the mobilization of a reserve
component employee or employees who (own ?) small businesses is that
ESGR's resident expertise is on USERRA, but really not on business.

The term small business also is emphasized and can refer to an employer
of one or 100. As the commission can appreciate, the impact of a
mobilization of an employer of one is dramatically different than it is
for an employer of 100. The mobilization of an employer of a law firm
will likely have a different impact than the mobilization of an employee
from a construction company or from an independent restaurant. The
mobilization of an employee of a family-owned business, or of a reserve
component member owned business will likely have a different impact on
the mobilization of an employee of a partnership.

Therefore I believe that the federal agency that is best suited to
assist and advise small businesses is indeed, from my colleague and the
Small Business Administration. As noted, the SBA aids, counsels, assist
and protects the interest of small business concerns, in order to
preserve free competitive enterprise and strengthen the overall economy
of our nation. And as I had mentioned before, the SBA is one of our key
strategic partners, and as a new executive director, I am committing to
working with the SBA and to ensure that we maximize the importance of
this operation as a strategic partner and to minimize the impact of
mobilizations on small businesses and reserve component member owned
businesses.

Ladies and gentlemen, this concludes my prepared remarks, and I hope
that I have been able to clarify some of those challenges facing
self-employed reserve component members and the employers of reserve
component members. I am prepared to answer you questions. I have members
of my primary staff members here. I thank you for this opportunity, and
I look forward to your questions. Thank you.

MR. PUNARO: Thank you very much.

Dr. Golding.

HEIDI GOLDING: Good morning. Good morning, Mr. Chairman, and members of
the commission. I welcome the opportunity to speak to you today about
the effects of call-ups on employers. The welfare of those serving our
country in the Reserves is an important and timely issue. However, the
concurrence of reservist call-ups with the concerns of small businesses
leads to difficult policy issues. My testimony today draws largely from
a CBO study on the subject of reservist employers, and before I proceed,
I'd like to thank the panel for their help or their organizations' help
in producing that report.

My testimony focuses on three points. First, it appears from the data
that CBO obtained that reservists are employed in a broad cross section
of the nation's businesses. Second, although that's the case, the
largest costs appear to be concentrated on relatively few businesses. Is
generally not a significant issue for most civilian employers as a
whole, but there is a sizeable impact on some small businesses and
self-employed reservists. My third point is that the policy options
revolve around either minimizing the overall cost of mobilizing
reservists between businesses, reservists and DOD, or choosing the right
balance between businesses, reservists, DOD and the taxpayer.

Now, whereas employers in the past have probably been able to adjust to
the absences of their reservist employees, there's more concern that
employers may be facing costly adjustments as their reservist employees
are mobilized more frequently and longer than in the past. I have just a
couple of statistics to give you to illustrate this point. In December
of 2006, for example, 25 percent of the force deployed in support of the
war were reservists, and through March of this year, the number of
reservists mobilized has exceeded 580,000. Tours are typically one year
longer. Prior to 9/11 in 1990, only about 20,000 reservists served for
more than 180 days. And average duty days now have exceeded 70 days
since 2003. In the late 1990s, the average duty days, excluding training
was about 15 days.

So how has the increased mobilization of reservists affected employers?
Well, first we need to know who are those employers, and there hasn't
been a large amount of work done on this, and from the data that we had
obtained, CBO found that reservists do work in all sectors of the
economy. About 75 percent of reservists work for pay in the civilian
sector. The remainder are students, are out of the workforce, are
employed or work as full time reservists, the AGRs. Of those who work
for pay, about 36 percent work for the government, the federal, local or
state governments. That's about 220,000 reservists. There are a large
number of reservists that are either self-employed or employed in small
businesses. Roughly 8.5 percent or over 50,000 reservists are
self-employed. About 18 percent of reservists who are employed in the
civilian sector work for firms with under 100 employees. That's about
110,000 reservists. I'm talking about the (fluxed ?) reserves too, by
the way. Of those 110,000 reservists, we estimate that between 7,000 and
28,000 of those reservists are likely to hold key or essential positions
in small businesses.

But the costs appear to be likely concentrated upon -- in some of these
firms. What are some of the costs that employers might face? Well,
there's uncertainty about when the call-up will occur and for how long,
which makes planning on the parts of businesses much more difficult, and
potentially more costly if they've planned incorrectly. If they
anticipate a small or short call-up and it's a long one, they may have
gotten a temporary hire and that temporary is no longer available. It
can be very difficult. There's the cost of the vacancy itself. The firm
incurs costs in hiring a replacement or overtime cost, if they have
sufficient workforce to cover that vacancy. There's a loss of skills
associated with that vacancy, and this can all be exacerbated by a lack
of notice from the call-up. There's also the potential continuation of
benefits that's required under USERRA, that's primarily retirement
benefits. And then of course, there's lost business income.

Now, there's not much evidence about the size of the losses, as my
colleagues have expressed. We in CBO just surveyed of a sample of
business that had reservist employees activated, and as has been
mentioned, our biggest hope here is the CEI in which DOD has been
collecting employer data, and will be conducting a survey within the
next year or sooner on business losses. But we do know some things, and
the first is that most businesses are not affected by reserve call-ups
simply because they do not employ reservists. Only six percent of
establishments, approximately, employ reservists. And CBO also concluded
a couple of other things, and the first is that the costs of the
call-ups are most likely higher for businesses requiring specialized
skills. These are businesses that there are relatively few individuals
with those skills, and so the time and money spent on recruiting or
training or replacement can be quite high relative to other businesses.
There's also the cost of the continued benefits which is higher for
these employees generally. They are more likely to receive retirement
and healthcare benefits than other employees.

Call-ups are probably more costly for small businesses losing key
employee for some of the reasons I've mentioned just now, but they have
even less ability to shift the workload among the remaining employees,
because it's unlikely that they have more than one individual with those
skills. And finally, the self-employed. They of course, posses special
skills knowledge essential to their business. One DOD survey found that
about 33 percent of the self-employed said that activation would pose a
serious or a very serious problem for their businesses.

While many reservists are self-employed or employed by small businesses,
there are roughly five million small businesses and 15 million
self-employed individuals in this country. So those reservists really do
make up a small fraction of the labor force. CBO calculates that about
20,000 firms, less than one half of one percent of small businesses have
had key employees called up, and that is slightly about 37,000
reservist, less than one half of one percent, again, of the
self-employed have been called up. But the losses that these
individuals, self-employed or small businesses have faced can be quite
severe. I think everyone has heard about some firms that closed down in
the worst case scenario, for example.

So what are the policy options? Well, one is to minimize the cost of
mobilizations assuming that the DOD policy of using reservists has not
changed. Or you can try to balance the cost between DOD and the
taxpayer, reservists and employers. Currently, USERRA shifts some of the
cost of call-ups onto employers. It's been a very useful piece of
legislation in that reservists do not fear retribution from their
employers, they have a job to come back to, for example, and so USERRA
regulates certain aspects of this employment. For example, businesses
cannot discriminate in hiring pay promotion or retention of reservists.
They must hold the job open for the reservists and the businesses must
pay certain benefits such as pensions. And as I said, that's very useful
for reservists, could aid the retention and recruiting in the reserves
for example. What happens, however, is that the additional costs from
having a reservist are borne by the employer. They can't be shifted to
the reservist through lower pay for example or benefits and there's a
cost to employers. And then what can happen or might be considered is to
shift some of those costs not onto employers now, but to the taxpayers
as part of the cost of the war.

CBO looked at four different options. One was to provide tax credits to
the employer or direct payment from DOD, and that could be based on any
number of factors, ideally lost profitability, but that's very difficult
to calculate, or it could be a paid, in lump sum payment for month
activated for example. Another possibility that we looked at was to
provide loans or subsidize loans, that would be similar to what Bill had
talked about, or it could simply an expansion of the MREIDL loans, but
greater flexibility and fewer eligibility requirements. Right now, for
an MREIDL, that's basically the last resort when there're no other
options for credit. The third option that we looked at was to provide
business interruption insurance for call-ups. DOD had once offered an
income maintenance insurance program for reservist in the mid 1990s,
which was not successful, and there are certain things to be learned
from that program, which we can get into if you'd like.

And finally, the other option that we looked at was whether to require
DOD to change some of their policies. Right now, DOD has two screening
programs. There's an annual screening which has been suspended actually,
and then there's screening for mobilizations, and there's a possibility
to exempts certain reservists when there's extreme hardship to the firm,
or you could require to the self-employed to submit business plans, so
that at least they have a way of tiding themselves over. Now, all the
mechanisms will incur costs, but they will help alleviate the problems
employers face. Just how much of the employers costs are offset however,
will largely depend on how that measure is structured. Thank you very
much, and I welcome your questions.

MR. PUNARO: Thank you. Mr. Daywalt.

TED DAYWALT: Excuse me. Good morning, Chairman Punaro, members of the
commission and your staff. First, let me thank you for this opportunity
to come before the commission today to share with you information that's
relevant to your discussions. It's an honor to be here. As a former
drilling Navy reservist who retired after 30 years of active and reserve
service, and as a business man, a significant senior level civilian work
experience over 27 years which I've been involved in that side of my
life, I feel like I'm bringing an unique perspective to your
deliberations. I've had the advantage of seeing these issues from the
perspective of a reserve component member trying to balance a civilian
career with my military obligations and as an employer of Guard and
Reserve. And at VetJobs we deal with these issues with the Guard and
Reserve on a daily basis, helping them and their families find good
jobs.

In my written testimony I've made many suggestions for consideration,
responses to three issues addressed in your letter of invitation. I can
read the many different recommendations I gave. I want to emphasize the
importance of assisting small and medium size businesses, which is what
the members of the panel have been talking about who employ members of
the National Guard and Reserve and the self-employed.

Now the big-buck companies don't have a problem. You've got 70,000,
80,000 employees, and 500 to 1,000 are gone, that's not a problem. If
you've got 60 employees and you take away my CFO or my VP at sales, I've
got a real problem, and that's the way we look at it. Small and medium
size companies, including small municipal organizations bear the largest
strain when their employees are called up for service in the National
Guard and Reserve. These employers have no legal and no financial
recourse for compensation for their losses when their employees are
called to active service. Traditional tax breaks take too long to be of
any assistance to the small employer, and that's why I strongly
recommend direct cash, reimbursement for the cost of these employers
must bear to hire temporary labor and all the other associated cost
while their employee is called to service. This is just the cost of
doing business if we're going to continue to use the National Guard and
Reserve beyond the traditional use for which they were established, and
I give a very nice history about that in my written testimony.

I'd also like to emphasize the concept of providing year-around full
health, dental and eye care to participating members and the families of
the National Guard and Reserve. This should be a tremendous benefit to
the employers who want to hire National Guard and Reserve. This should
also be a major recruiting tool for the National Guard and Reserve. And
this program is not at all that expensive when compared to what we're
currently forking out at DOD.

In the written testimony I provided data from studies by business law
report workforce management -- sorry, Human Resource Management. In the
civilian world these are considered to be extremely credible sources,
and they clearly indicate that there is being resistance by corporate
America to the way their employees are now being used as you pointed
out. One study showed that over 54 percent said that they would not
currently hire active duty people in the Guard and Reserve.

And while the findings of these societies are abhorrent to me, as a
senior executive in civilian business I understand where they're coming
from. You see, companies have a fiduciary responsibility to their
shareholders and owners to run an efficient and profitable operation.
Companies cannot do so if they cannot count on having their employees,
their human capital being readily available. And companies rightfully
consider the employees to be their human capital, not DOD's human
capital. While for anyone who's been in a civilian senior management
position, this is just common sense. Those making decisions on how to
utilize the National Guard and Reserve at DOD seem to have missed what
corporate America has been saying for the last 10 years. Yet, with the
BLR workforce management, SHRM studies on the reemployment of the
National Guard and Reserve personnel concern the express --
(unintelligible) -- the major VSOs, Veteran Service Organizations, and
even with the multitude of press articles on the subject, senior level
decision makers at the Office of Personnel Readiness at DOD seem bent on
refusing to admit that there's even a problem, and this denial of
reality is extremely disturbing to the civilian sector.

We should take a look at why the National Guard and Reserve have been
used beyond their traditional role. It comes from needing boots on the
ground in Iraq and Afghanistan. As a drilling reservist, I understand
that. We've had to have our boots on the ground. And the fact that
recruiting is suffering now, there are some ways to fix this.

In the short term, you can conduct a recall, voluntary mandatory,
retired military and/or recruit retired military back to active duty.
There are several hundred thousand in this pool. At VetJobs we hear
regularly from people in their 40s who've retired, who go to recruiters,
and the recruiters tell him, well, you retired, we can't bring you back
in. There's a problem in the law there. These people would be more than
willing to volunteer to come back. This is a highly trained reservoir of
talent that could be mobilized quickly, if we can make a quick change in
the law and the recruiting force can get the word out. This reservoir of
talent can cut down the need to active the Guard and Reserve so
frequently, and I talk in my written testimony about the other domestic
things that have been traditionally used for which they can't be used
for now.

In the long term, let foreigners join the military as a way to
citizenship. This was done very successfully, by the way, by the Army in
the 1920s. Seems that after World War I, due to all the carnage, you had
a hard problem getting people to want to join the Army. The United
States today has -- depending upon what study you believe -- 20 million
plus or more illegal aliens in the United States. Such a move would give
the military the needed troops for the Army and the Marine Corps. We're
also teaching illegal aliens how to become good citizens, learn the
language, pick up skills needed by industry. This would also address a
political issue dealing with the illegal aliens in the workforce. In my
neighborhood this guy that was -- he's fourth generation Filipino -- and
his great, great grandfather came to the United States working for the
U.S. Navy. We have hundreds of stories like that throughout the country.
It would be a very good resource for us.

The country and DOD need to act quickly to rectify the situation
regarding the frequent use of National Guard and Reserve. At a press
conference in January 11^th^, Dr, David Chu, the under secretary of
Defense for Personnel and Readiness was quoted to saying, the fact that
some of the previsions Iraq experience will end up spending more than 24
months on active duty is no big deal. This cavalier attitude towards
corporate America is damaging to DOD in its efforts to maintain the good
relations with companies. And that one comment negated much of the fine
work that ESGR and other organizations have done. We don't need
situations like that.

Since the announcement of the policy and its various revisions, I've had
the opportunity to confidentially talk with hundreds of human resources
managers and senior executives with brand name companies, small medium
size. Uniformly, they say they cannot support the way DOD now uses the
National Guard and Reserve with the long call. They used to support it.
It's the changes they don't like. And without the support of corporate
America, the citizen soldier concept as we use it here in America cannot
work. It just will not work. With all due respect with Dr. Chu it is a
big deal, and DOD needs to face reality and quit denying the truth.

In the civilian world we work in reality, because if I go out denying
the truth, companies have a tendency to go bankrupt, and then boards of
director have a tendency to fire presidents like me, so we pay real
close attention to reality. George Orwell once said we sleep safe in our
beds because rough men stand ready in the night to visit violence on
those who would do us harm. The American public and especially the
Congress need to understand the importance of Orwell's comments in
today's world. The public and Congress needs to be supporting the
National Guard and Reserve. These members are part of our frontline of
protection against those who would do the United States harm and deserve
our full support while they're on active duty and when they return.

This concludes my testimony. I appreciate your time. I'll be glad to
answer any questions you may have.

MR. PUNARO: Thank you very much. All the testimonies have been extremely
informative. Let me throw out a very general question to see if we can
get, not some consensus on how to fix it, but just to make sure we
understand what are the top two or three concerns -- as you talk to
people and visit around, whether you're kind of gathering data
analytically, or you're gathering data anecdotally, you interact with
small businesses all over the country, as do you and Mr. Daywalt -- he's
dealing with real people looking for real jobs, and I appreciate all
these perspectives, but one of the top two or three concerns -- you hear
from employers when they come to the SBA and they say, wholly smokes,
Bill, if only you guys could kind of get some out here in Washington the
focus on this. What are the top two or three things that people in the
business world are worried about when it comes to the Guard and Reserve?

MR. ELMORE: Certainly, the reservists -- when I say reservists I mean
Reserve and Guard -- that I talked to personally, because some do find
me, and I'm pleased when they do and we usually talk about some of these
things. For the ones that I've identified that I think have been most
damaged when they've been called there's a couple of things that come to
mind. One is they lose their market. If you take a dentist away from his
practice, I shouldn't say perhaps if you take him away, but if a dentist
leaves his practice for mobilization, his customers go elsewhere because
they still need dental care, his employees may go elsewhere, his
equipment, his facilities may get old, the expenses are likely to
continue, so while he's gone, those things carry on. He or she comes
back and they have to almost start all over again depending again on the
individual circumstances of the business. If they're in partnership with
other dentist, perhaps they can overcome this and they just need to have
some additional help. If it's a sole proprietor, then that's a
significant problem.

So I think it's really loss of market is perhaps how I would think of
it. And I think the other area that I find myself being concerned about
is -- as I've tried to pay attention and work with this community over
these years now, I have a concern that we're eroding some of the very
skills that we so seriously and desperately need in our reserve
components. If our dentists, our doctors or attorneys, our construction
business owners face significant financial challenges every time they're
called and they have to come back and continue to recover after they
return, how many times can they go? And at what point do we no longer
have those civil skills, at least as I read the QDR, what point don't we
have those skills in the reserves anymore that the QDR tells us we need
to fight and win the long war. So I think where we're heading is
dangerous, and when we get to that point, I honestly can't tell you,
because of most of mine it's anecdotal; it's the people that I talk to.

MR. PUNARO: Great. Thanks.

Dr. Sumner?

MR. SUMNER: Mr. Chairman, in discussions that I've had the opportunity
to receive in my short tour here I've been able to go out so far to
about two or three different states and talk to various committees that
we have within the ESGR as well as employers, there really is a couple
of things that I picked on rather rapidly. The first one is
predictability, that our employers out there, be large or small, they
would just like to have some sense of predictability as to when those
Guard and Reservists will be called up. It's very difficult for a
company, and having come from a small business myself since my
retirement in the Army and worked in the industry for the last 10 years,
having had guardsmen and reservists within my organization, it really is
a challenge at the production level when I find, out short notice, that
this individual or individuals are going to be deployed, and I have very
little reaction time to replace that individual, shift personnel around,
especially when you've got to take care of everybody else in that
organization, too.

So I would say that the number issue that has been -- (unintelligible)
-- to me is just predictability. Tell me what you're going to require,
when you're going to require it and then stick to it. Which leads into
the second one. A promise equals reality. If we're going to deploy an
individual, or individuals, and we say that deployment is going to be
for a certain mission and we assume that it's going to be for a certain
time, then they're asking that that be the promise which then equals the
reality. To read on the front page of the local newspaper that a Reserve
unit from home town U.S.A. has been extended x-number of months, is the
wrong way to approach it from the business view point. There should be
some kind of connection so that we tell that employer, that business,
upfront, not having them read it on page three. So I think that's one
issue that I've been receiving from my visits and talking with those in
the field.

MR. PUNARO: Great. Dr. Golding?

MS. GOLDING: Well, I defer to the other gentlemen here, but I do want to
add on one more point about the predictability. It's also the time to
(plan ?). There was a survey it was a couple of years ago from DOD, but
the reservists said that they -- quite a large number of them were
giving seven days notice or less to their employers. That's quite a
scramble. You're going to have a vacancy at that point. If you can
change that to two, three four weeks -- four weeks would make a large
difference in hiring a temporary employee. And one other point that I'd
like to make, and that was just the limited talks that I had with
employers that some of them were surprised about how long time it took
them to recover once that employee was back. So loans were not
necessarily in place, especially if it was for a self-employed, a
reservist, and that could take several more months.

MR. PUNARO: Great. Thank you. Mr. Daywalt.

MR. DAYWALT: Excuse me. The Society of Human Resource Management has a
survey just on that very topic. Last year, while some people call that
anecdotal or not credible evidence, what they found -- I think SHRM is
very credible. It's the largest HR organization in the world. The
primary thing they found -- and these were medium to large size
employers, not the small employer. I think Bill Gordon mentioned the
small employer issue very well, but the number one concern they had was
how long they were going to be away from the job, because --
(unintelligible) -- tell you you're only going to be gone six months.
National Guard people being called up today are being told to plan on
being gone for 24 months. That's what their colonels are telling them.

The other concerns in the -- (unintelligible) -- the burden on remaining
employers who cover for the open positions. This is shifting my human
capital around to cover production -- (unintelligible) -- with my
company. Then number three, discontinuation cost for the employees and
their families. The burdens that I got bear financially while this
person is gone for which I get no compensation. And then the loss of
productivity is number four. But that how long are they going to be gone
-- predictability is very, very important to know. At least then I can
plan. They could plan on if it's only 30 or 60 days. When they have been
gone for two years, companies will be totally changed in two years. So
those are some of the major things I see.

MR. PUNARO: All right. I think on a couple of those they are well
identified, and DOD realizes the Guard and Reserve personnel and the
families, they want predictability as well and they want long leave time
to get ready and all that, and their work and all that. Let's talk then
a little bit about -- we've got these concerns what we might do to help
the employers ease some of their concerns. Over the years, as Dr.
Golding pointed out, we had the mob insurance, the reservist -- that was
for the reservists, so the idea was to make up the differential in their
pay if they got mobilized. Very few signed up for it, so obviously, they
didn't consider it a very good deal so it kind of went crashing and
burning. I don't think anybody ever looked at any kind of insurance for
the employers. I frankly should known better. I didn't realize that the
employers were required to pay into the retirement or the benefits.
That's a hit to the bottom line for no productivity whatsoever. The
individual is gone, and of course the government is paying into the --
(unintelligible) -- fund for the retirement for that Guard and Reserve
person when they retire from the government if they stay long enough,
and what we're now seeing is -- is that -- very few companies anymore
have qualified benefit plans, so I assume that you're talking 401(k)s
and things like that, so -- I don't know how's the duty expert here. The
employer is required to continue to pay the same amount that that
employee would earn -- the employee match in a 401(k), is that correct,
while they're gone?

MR. DAYWALT: The direct answer is yes. And not only cover that, if other
people in their peer group are promoted, I would have to promote that
person even thought they're not there working. I have to guarantee them
an equal job in terms of paying responsibility for when they come back.
There's a lot of different things that we have to absorb here as
civilian employers, but I think the real issue here is the length of
time they're being used. Civilian employers are more than willing to
help -- I find universally most employers are very patriotic, very
patriotic. They want to support. But when it got moved from 90 days to
six months of being called up they start to say, wait a minute. You're
hurting me here. Then when it went to one year, you're hurting me even
more. I was talking about General Stoltz (ph). He's working at some
plant -- (unintelligible) -- and had calling people up for two years,
calling them up for 90 days every three years type thing. And trying --
it wouldn't be as much of a burden, but it still comes back to the fact
we don't have enough troops on active duty to meet the obligations. I
know that's a policy issue above what you're looking at here, but those
are the types of things that we got to consider.

MR. PUNARO: What are some of the -- to close out here, what are some of
the -- people talk about tax breaks for businesses. You pointed out it
takes long, and frankly, as Dr. Golding knows, we on this commission we
deal in common sense, and when you're dealing with pay-as-you-go
provisions, if you've got a revenue loser in the Congress right now,
you've got to offset it somewhere else, so if the kind of the defense
side of the House wants to say, okay, we're going to bring some kind of
tax credit or tax benefit for employers that have reservists that are
called up, that's just going to be back to -- one, it's not going to
pass unless there's an offset, two, it's going to come out of somebody's
budget and it's going to probably come out of the defense budget, so
they're not going to look very favorably on that. So what are some of
the practical common sense incentives that we can give employers? I
heard one which was if they're got -- why not have the government cover
health insurance for Guard and Reserves? That's a recruiting incentive
for them to join the Guard and Reserve and frankly, a lot of employers
now, a lot of states for example, if you're a retired military, they
won't let you use the insurance in the company or in the state
government. They say you've got your health insurance from DOD, we're
not going to let you use it, and the companies will give a nominal
amount of money to the employee, which is less than they would have to
pay if they were paying for the health benefits. So there may be some
options in there. Do any of you all have any thoughts on that one? We
start with you.

MR. ELMORE: A couple of thoughts, and one is just I'm not sure that it's
the answer, but I think there's been amongst the areas that we lack any
real knowledge or information is what's the value, especially the small
business that employ reservists. Because I think reservists bring skills
and experience, DOD training, technology background to the employers
that hire them, and I think there's a value there. So while that might
exacerbate the problem when they're activated, the fact is -- my guess
is that if you looked at the high technology world in America,
reservists as employees and perhaps as business owners probably play and
important role there, so DOD's training is an important piece as it
plays into private employment. I think understanding that and being able
to demonstrate that might help.

Now, the other would be I would suggest again you look at the United
Kingdom's program. Having looked at that, I'm not suggesting that we
should go to that because it's a really significant departure from what
we do in America and what our allies do, but they recognized that there
was a problem, their system was more similar to ours before they changed
it, and they now do provide payments to employers, they provide coverage
for everything from pet care to maintenance on your home while your
activated and a number of other things in between. So they've really
taken very significant steps. I realize their scale of reservist
activated is different from ours, so it may not be a good model, but I
think there are a lot of things to learn.

MR. PUNARO: We'll take a hard look at that.

Dr. Sumner?

MR. SUMNER: Sir, what you've asked is really kind an area that we don't
fall in. However, I would like to add on to what my colleague has
mentioned already as far as we go out and we're talking to these
employers and they're asking us the "so what" question, if we were to do
this. And again, we like to tell them about the benefits of having a
reservist and a guardsman, the fact that you get somebody who's not only
trained, but they're physically fit, drug free, they've already been
screened, they have leadership training, and then what I ask them to do
is put a dollar value onto that kind of training that they would then
have to take, had that individual or individuals not been in the reserve
components, put them through their management cycle and how many dollars
they're going to have to invest in this qualified and highly skilled
individual to get them where they are, and then put a comparison to that
of what we already bring in, and the answer comes back nine out of 10
times they'll say what we just probably skipped anywhere from three to
five years of employee training cycles, so then you do that and you can
put a dollar figure to that. The other thing is is what I've asked my
individuals to do, my staff and myself as I go out, is I like to hear
from them what are their issues, and from that I can better feed that
into my colleagues and their organizations so that we can have the right
policies, the right procedures to ensure that our reservists, as well as
our employers of these great men and women in the Guard and Reserve are
taken care of, both as active duty times as well as at home stations.

MR. PUNARO: Dr. Golding?

MS. GOLDING: I just want to add that a slight (change ?) here that some
firms really do want to employ reservists for different reasons. The
bottom line, they're more skilled potentially, but there's evidence that
they continue to want to employ these reservists, and that is many of
the employers that we've come across actually have benefits that exceed
USERRA's requirements where they pay the differential, if there is a
differential between the military pay and what they were earning before,
and that's I think a very important aspect to this, that you're not
necessarily going to want have all these businesses not wanting to have
the reservists. They are a valuable resource. But for those businesses
that are harmed, if there are difficulties with broad program, there are
certainly certain targeted or limited programs that might be very
helpful, and it could be DOD payment to just a very targeted population.
Those things would need to be worked out.

MR. PUNARO: Great. Thanks. Mr. Daywalt.

MR. DAYWALT: I want to reinforce what Dr. Golding just pointed out. Most
people actually do want to hire military. They like everything that
comes from for the reasons that Gordon and Dr. Golding mentioned, and of
course one of the biggest reasons we find is they want those security
clearances. But they're concerned about -- if you're going to do
something, we recommend that you don't call people up for two years at a
time. I can't run a company with somebody gone two years. Keep it to six
months. We can almost tolerate six months, unless it's a key position.
When I was president of one company, if my board knew that I could have
been called away for a year, I would have been dismissed. My board of
directors wouldn't like me to sit there. I didn't tell them but -- I
would have been dismissed. It's that simple. You've got to be realistic
about this, so if you want to make a really strong -- what's going to
help the employers? Make better use of the Guard and Reserve and reduce
the amount of time they're being called up and solve the other political
problems so that we're using them the way they should be.

MR. PUNARO: I think Dr. Sumner -- you want to add -- we're getting ready
to switch here to another commissioner so --

MR. SUMNER: Just real quick, sir. Again, I mentioned in my testimony
about our Freedom Awards and this was alluded to what the employers are
doing above and beyond the USERRA law. It's absolutely fascinating what
these employers are doing out there for our Guard and Reservists. You
read these stories and it almost brings tears to your eyes it's what
they do. And I would again, please invite you to look on your calendars
for 12^th^ September, and be part of our Freedom Award ceremony that
night at the Reagan Building.

MR. PUNARO: Well, thank you very much on that. And as we switch over to
Commissioner Lewis for her questions, she reminds me that there was a
legislative provision in last year's Authorization Bill that prohibits
employers from paying employees to not take the healthcare cost provided
by the business and use the government system. So that loophole is no
longer there.

So Commissioner Lewis.

PATRICIA LEWIS: Although, Mr. Chairman, I'm sure there's ways to find
out there are incentives around that, but I do believe the Arms Services
Committee did address that in some way last year. I'd like to continue
just a little bit on healthcare, if we could for a couple of minutes.
The fiscal year '07 Authorization Act expanded the TRICARE Reserve
Select benefit to make all members of the selected reserve eligible to
participate in the program at a premium of 28 percent comparable to what
the federal employees pay for the Federal Employee Health Benefit
Program. Mr. Elmore, in your testimony you talk about outreach in
business counseling. Are provisions like this something that you
incorporate in your regular interactions as part of that outreach in
counseling?

MR. ELMORE: It's a very good point, and I think to be honest with you, I
really don't know that answer in detail. My guess is given -- this is a
guess -- given the breadth of our business counseling experts, unless
they've been provided some detailed information about that very
provision, they're not going to be aware of that. So the idea that we
can provide that level of reservists specific business counseling, I
think is probably at least not right now realistic. I think we'd have to
take some special effort to identify those kinds of things and perhaps
we could that with DOD, and I think we'd be open to that.

MS. LEWIS: That would be great, because that was rather significant, and
I know there's a strong arguments for going even further with the health
benefits, and we'll get to that in just a moment as well. Dr. Golding,
have you done any analysis of the potential impact of providing stipends
for healthcare, either to the employees or to employers?

MS. GOLDING: Apparently we have not at CBO looked at that issue at this
time.

MS. LEWIS: If any other witnesses have any comments on their views on
the benefit for detriment of offering a stipend, I'd be very happy to
hear that.

MR. DAYWALT: I wouldn't call it a stipend, but the idea -- as in my
written testimony, I think it would be a real recruiting hook if -- if
someone joined the Guard and Reserve, and you said, okay, just because
you're in the Guard and Reserve now, you'll have complete medical care
for your family, the entire time that you stay with the Guard and
Reserve. That would help. Now, whether you do through stipends or
through a TRICARE -- please don't do it through VA.

MS. LEWIS: The reason I asked the question is because of the continuity
of care issue, and I understand a lot of family members are hesitant to
move from TRICARE to their employee provided health plans, and we've
given some thought and done some analysis of whether or not a stipend or
some sort of payment to subsidize their existing programs might be
appealing in some venues. Mr. Elmore.

MR. ELMORE: Can I make what I think is a fairly generic comment? In the
context of issues that small business owners face, if not the number one
issue, certainly very near the top is access to healthcare, and if a
reservist who is in the labor market has that healthcare they bring with
them, that would, I think, be a really strong incentive in addition to
the skills that they bring, because it almost would give a small
business a competitive advantage if that expense is no longer theirs.
Now, it may cause problems with other employees of that small business
so that probably would have to be looked at, but I think overall it
would really give a competitive edge to the reservist in the small
business commitment looking for employment, and perhaps as well for
those that are self-employed.

MS. LEWIS: Which leads perfectly to my next question. Is there some way
to develop some sort of compact with employers that could include the
expanded or full health benefit for employees and their families
directly with the employers in exchange for some sort of commitment
rather than have it be more open-ended or with the reserve component
member themselves?

MR. ELMORE: I think from my perspective, that's the kind of question I
probably would need to go back to the agency and talk with our experts
around healthcare and the whole arena, small business employers and the
healthcare question, perhaps our office of advocacy, perhaps our office
of policy, and others. So I think if you wanted to follow up with us, or
you wanted us to follow back to you on that, we'd have to take a look at
that in a more clear way and understand where you might be trying to go
and probably give you some response to that.

MS. LEWIS: Okay. Thank you. Dr. Sumner, do you have any comments? No?
Mr. Daywalt?

MR. DAYWALT: I'm not an expert on healthcare. I just pay the bills, but
my gut would tell me that if you did a national program for members of
the Guard and Reserve through somebody like a Prudential or Blue Cross
Blue Shield, the insurance companies would definitely be interested in
that, and it would be like Bill was talking a real benefit for -- as an
employer, if I didn't have to pay healthcare costs, I'd run
organizations with thousand and thousands employees. If I could say
these 600, I don't afford the healthcare cost, just help my bottom line
big time, and I'd be all behind you.

MS. GOLDING: I just wanted to add that, because you are helping
employers so significantly, you really need to look at the cost on the
government's side to that. I think that one of the -- the Kaiser survey
as of a couple of years ago, the employer costs for a family was over
\$8,000 per year. I'm sure it's much higher than that at this point. So
if you're going to give that coverage to every selected reservist, you
have 800,000 selected reservists. That could be a large tab.

MS. LEWIS: Absolutely.

MR. DAYWALT: She's correct to a point, but if you take what we're paying
the Guard and Reserve now after de-mob, while they're mobilized,
pre-mob, and you start working things out on large programs, if you took
some of the money out or recruiting where we're spending hundreds of
millions of dollars just trying and we're still not making our numbers,
you saw what the April numbers were, they were all down for the Guard
and Reserve, we could take some of that money, move it over, I think
you'd find it to be more of a (wash ?) than a real cost.

MS. LEWIS: Thank you. Mr. Chairman, I have more questions, but I'll let
my colleagues have a round first.

MR. PUNARO: Okay. Thank you. And I think one of the things we will do
particularly in the personnel and compensation area, one of the
principles that we had at the beginning of our commission was think
smarter not richer, but you have these tradeoffs that make a lot of
sense. My guess is, and CBO will not want to hear this, is as we get
some of these provisions, we're going to want to get some real cost data
and some economic data to make sure we don't throw just benefits at the
wall, because that's kind of what's been having in the cumulative effect
of these benefits is the testimony yesterday that the cost of personnel
and the cost of healthcare has just eaten at this budget in large
Packman bites. Commissioner Dawson.

RHETT DAWSON: Thank you, Mr. Chairman. Thank you for your testimony,
each one of you on the panel. I appreciate it. I'm going to actually
direct my question at just two of the witnesses. One, first, Dr. Sumner
and then Mr. Daywalt. What I couldn't tell from your testimony, Dr.
Sumner, is the extent of the commitment that the Department of Defense
has to talking to and working with employers, and I'm going to be a bit
bureaucratic about this and try to ask you to answer that question in
terms of how many people you have working for you that are undertaking
to communicate to the employers. And then secondly, how many people you
actually have working for you just generally? And then third, whether
you view it as your job within the Department of Defense to be -- I
noticed you're the advisor to the assistant secretary of defense for
Reserve Affairs on all matters involving employer support programs for
the reserve components, but are you the principal voice between the
employers and the Department of Defense? Is that how you view yourself?
Any order you'd like you can take those three questions.

MR. SUMNER: Thank you, sir. Will go with the hard one first. As far as
my duty assignment, principal voice. I have a great boss that is very
interested in letting the new kid on the block come in with some ideas,
a fresh set of eyes to an ESGR organization that has been around sine
1972. And from that, and having been a volunteer in the organization off
and on for the last 10 years, I've had the privilege of --
(unintelligible) -- what you would say both sides of the fence. So
having the principal voice with the amount of work that we do and my
travel schedule, where I get that opportunity to go out and meet and
greet various employers of large and small businesses scattered around
our country, I get feedback from them, and I have an open door where I
can go in and talk to my boss, the assistant secretary for Reserve
Affairs any day of the week, as well as emails so that we can maintain
that contact, I can give him a feel, a pulse of what's going on from the
employer view point. So yes, sir, I do have that privilege. As far as
the staff --

MR. DAWSON: So you do view yourself as the principal advisor to the
assistant secretary as to what's going on out there in the employer
community. Is that --

MR. SUMNER: With regards to what some of their feelings are along with
my strategic partners, (that would ?) then our organization within DOD
for questions involving the employers' feelings, concepts, thoughts,
concerns with having reservists secretary calls me.

MR. DAWSON: Thank you.

MR. SUMNER: Yes, sir. Staff. I have approximately 50 full time staffers
in our office in Roseland, a mixture of military and government
civilians and few defense contractors. However, the bulk of our work and
really where the success of the ESGR is coming is from our over 4,200
volunteers in every state and territory in the United States as well as
Heidelberg, Germany. We have 56 field committees, and the reason it's 56
because you add up the states and the territories and it doesn't add up
is California is so large geographically that we split in into a
northern and a southern region, so we have two field chairs for the
state of California plus our additional one in Heidelberg, Germany. So
that's where we get the bulk of our work.

And as far as talking with our employees, a significant challenge that
we have at one of our mantles is our outreach program, and with our
4,200 plus volunteers, they are out and about within the communities. We
have a variety of programs and you're welcome to visit those as well off
our website to get additional information, because we are under a time
constraint, but such events as Boss Lifts where we bring certain
individuals together, we fly them to an installation so they can see
their reservists, their guardsmen working in that environment so they
can gain their appreciation. We have breakfast for the boss, we can
brief them about our organization and what we can do to help them and
carry that message back to the Department of Defense, that voice, that
principal voice, so we have those kinds of relationships, that kind of
makeup.

My goal this year is two primary things within this arena: maintaining
line of communications both ways from the fields to my office, my office
up and back, as well as increasing our volunteer support. I would like
every volunteer out there to bring one person to that field committee
over the course of the year. I think the benefits would be more than
just double.

MR. DAWSON: Thank you. Now, Mr. Daywalt. My impression, and you can
correct me if I got a bad impression or a wrong impression, what you
said was implicitly to criticize, not just the programs that might get
in the way of employer support, but just as importantly the fact that
how those programs are communicated, and whether or not the Pentagon is
doing a good enough job of communicate with the employers. Did I get
that right? Was that -- did I read too much into what you were saying? I
found it eye opening actually.

MR. DAYWALT: I think I'll start answering your questions by saying I'm
not politically correct.

MR. DAWSON: We knew that I think from your testimony but --

MR. DAYWALT: And I'm proud of that. I'm one of his 5,400 volunteers and
I think what ESGR does is incredible. If anything, they don't have a big
enough budget, personal opinion. Because what they do really impacts the
employers.

MR. DAWSON: I was going to ask him that question, but I think he is
bound to give me the answer. He (certainly ?) has enough resources.

MR. DAYWALT: And to be fair, some of chairs are better in some states,
and not as good as others, but it's a really vital -- (unintelligible)
-- to the employers. I think they need more money so that they can be
involved with the local Chambers of Commerce. Most people don't realize
that all the U.S. Chambers of Commerce compete with each other. The
Atlantic Chamber competes with U.S. Chamber competes with the Dallas
Chamber. There's a lot of money that needs to be spent in those areas to
get the word out. But yes, I am a little critical. I have a generalist
view of the way some secretaries have treated civilian employers and
that is a very fair assessment.

MR. DAWSON: The U.S. Chamber did write a letter back in January, I
think, saying that it's imperative that DOD do a better job of
communicating its policies surrounding the use of the reserve component
to the employer community and that was kind of my impetus behind my
question.

MR. DAYWALT: That's why I put in the recommendation of a maybe a
civilian review panel. I don't care what you call it, I'm presently --
(unintelligible) -- is nonprofit supports the ESGR. They can be used for
this. Bounce some of these ideas off of the civilian employers, not just
the (big-box ?) stores, but a representative around the country of
medium and small companies, so that the employers don't feel like
they're being kicked around, because that's how they feel.

MR. DAWSON: Okay. Thank you. So that gives me one more -- I still have
time to let you expand on that, Dr. Sumner. What do you think about that
idea of having a committee that comes in and gives you more support and
tells you how to communicate better?

MR. SUMNER: Sir, I've got 56 leaders out there who provide me all kinds
of advice on a daily basis. I have --

MR. DAWSON: How often have they met with the secretary of defense?

MR. SUMNER: Right now, we have no procedure in place for the state
representatives to have direct access to the secretary of defense. We do
have within the organization out of OSD Reserve Affairs and the
secretary's office, the Defense Advisory Board. Their charter is to
provide advice to the secretary on those issues affecting Guard and
Reserves and their employment and the employees. So they meet
semi-annually, that's a directed chair position appointed by the
secretary for defense, our organization provides them support on this
annual basis, and so that's really a good mechanism for the secretary to
get a feel. We just had a meeting about two or three weeks ago, and the
deputy secretary came down and spoke as well to the board. So it has
quite a bit of visibility.

The one thing I wanted to add real quick is that when you were talking
about the staff, one of our new initiatives is that we have contract
support right now, we have over 150 personnel, support personnel that
are assigned to every state in territory that could use that kind of
support out there, and some have one, some have two, depending on the
needs, size -- (unintelligible) -- those committees, and that's contract
support. Absolutely a great program, extremely high return on investment
for our taxpayer dollars. The challenge is within the budget that we
have, that's primarily funded through supplemental funding, so one of my
goals is to make sure that we have the right funding that's in the
budget cycle that will continue this really outstanding program through
our PSS and APSS program.

MR. DAWSON: Mr. Chairman, Mr. Daywalt. I'm going to use up more of my
time. It's up to you whether you want to allow that or not.

MR. PUNARO: Go ahead, Rhett.

MR. DAYWALT: Sometimes perception becomes reality, commissioner. When I
go to Society Human Resource Management Conference and the president's
award is given out, it's given out by the president of SHRM, the same
thing with -- (unintelligible) -- and all these others. I encourage you
all to go to the Freedom Award, but it's called the Secretary of Defense
Freedom Award. In the last three or four years, the secretary of defense
hasn't been there to give the awards even though he was in town. And the
way employers look at that, they say, gee, I'm getting this award but I
guess you don't think enough of it to come down and give it to me.

MR. DAWSON: Thank you, Mr. Chairman.

MR. PUNARO: Thank you.

Commissioner Eckles.

LARRY ECKLES: Good morning and thank you for your attendance and your
valuable input to this commission. Mr. Elmore, this morning you made
reference to the Military Reserve Disaster Economic Injury Disaster Loan
program. Are you satisfied with this program, or do you have any
specific changes that you would recommend to improve the program?

MR. ELMORE: Actually, I've been tasked by my administrator to produce a
plan and some recommendations for how we can improve the program. I'm
not sure that I should go into details here since my boss has asked me
to produce that for him, but I'm sure when I'm done with that, it will
be out there and publicly available, and I expect, if it includes for
example changes to the legislation, which it likely would, that will
probably go through the OMB to Congress to seek those changes.

MR. ECKLES: Do any of the other witnesses have any input as to how this
program could be improved?

MS. GOLDING: I just want to add one or two comments on that, and the
program as it exists now, those loans are available only during the
period of military conflict, so of course right now they're available.
But if the reserves are continued to be used after this conflict, in
large numbers, these loans would go away. So that's one thing to
consider. The second thing is that the eligibility is restricted to
businesses who cannot secure credit elsewhere, which really quite limits
the population. Now, that would be one thing that I would consider
whether or not to change that. One other aspect of those loans that we
heard was that for some of the self-employed, they couldn't apply for
those loans, they didn't apply for those loans until they had come back
from their mobilization, which they're already in the crunch. So you
might want to consider pre-approving the loans prior to activation. Now,
I'm not a banker so I don't know. These are just some thoughts that
we've had.

MR. ECKLES: Okay. Thank you very much. Mr. Chairman, that's all I have.

MR. PUNARO: Commissioner McKinnon.

DAN MCKINNON: Just to endorse your being not politically correct, Mr.
Daywalt, I think having illegal aliens serve in the military is the
wrong thing. They have no loyalty to America, they're here by violating
the law. That's not the kind of people you want in the military. But I
want to talk a moment about the act that concerns service members and
their protection, Servicemembers Civil Relief Act, but more importantly
here, I think you rise, and also Dr. Golding raised the issue about
benefits to employers. And we keep hearing stories about tax relief,
about subsidizing loans to employers and so on, but nobody offers
anything specific. What kind of tax benefits work for an employer? What
are the details? Do any of you have any ideas on that, because all this
keeps bubbling up but nobody has specifics. How do you deal with an
employer? Go ahead, sir.

MR. ELMORE: I'm not sure that I can tell you how you deal with it, but
I'll give you what I believe. If you're talking about a real small
business, a self-employed reservist, I'm not convinced that tax credits
are going to do somebody who faces insolvency much good at all. So I'm
not convinced that that's really the direction to go, but I also think
if you read Dr. Golding's report, what they really talked about is sort
of a range of how do you deal with this, given the range of the size of
businesses and the specific kinds of effects that an activation may have
on one business compared to another, so as a part of a continuum, if you
will, of how you deal with this there may very well be a good set or a
good fit for some kind of tax credits, but I'm not convinced for the
smallest businesses it really would be very helpful.

MR. MCKINNON: And exactly what kind of tax credits would you -- we talk
about employer problems here, and the war on recruiting and providing
benefits to people who would be recruited in the Guard and Reserves, and
the problem is we want to talk about employers, and nobody really seems
to come up with anywhere we've been, solutions.

MR. ELMORE: One of the pieces that I did in reference in my testimony,
but that I've reviewed it was a 2004 Institute for Defense Analyses
report that Dr. Godds (ph) had produced, and he raised this question of
sort of fairness. We have six percent of employers and less than one
half or one percent of the self-employed, essentially subsidizing the
war effort, and I think that's not the exact language he used, but it
was pretty close to that. If tax credits made sense in how to mitigate
that sort of subsidy that's implied for employers who incur expenses
through USERRA requirements, perhaps that would make sense. I'm not a
tax expert though, and I think if you wanted a sort of a detailed
response from us about tax applicability to this issue, I probably would
ask you to send us that question and let me engage my tax experts at the
agency so we could come back to you with a better answer.

MR. MCKINNON: Well, I hope you would for the record. Does anybody else
have any specifics -- Dr. Golding?

MS. GOLDING: Just a couple of comments. We dealt with the question of
tax credits versus directs payments from DOD, because you do have some
tradeoffs between the two. For tax credits, I think Bill is correct.
Those are most hurt by a call-up may already have no profitability, they
won't receive anything depending on how it's structured, it's also
non-profits that aren't paying taxes in the first place, so you need to
consider that carefully. You have problems with compliance, et cetera,
when you have the tax credits.

Some have thought of different ways to pay directly or through a tax
credit. It can be structured very differently. Ideally, you want to
structure a credit or a direct payment so that you compensate for the
decrease in profits. That's very hard to do. We talked with employers
that they couldn't really tell us how many they lost because there was a
downturn in the economy and their sector at the time, and so there are
many factors that affect profitability. Instead, a payment could be
based on different measures, one of which could be the reservist
civilian pay, for example. That's a measure of productivity. Or you
could have a fixed reimbursement rate.

Now, there are pluses and minuses to each of those things. For example,
a fixed reimbursement rate for month activated, some employers are going
to get overcompensated potentially, some under compensated. As once this
DOD survey is out and we have more information, we will hopefully know
what segments of businesses, what fields they're in, and so --
(unintelligible) -- that have higher losses you might be able to tailor
a fixed reimbursement rate although more directly to the losses. But it
is a -- I think in all these methods, some employers are going to get
overcompensated, some of them not compensated enough.

MR. MCKINNON: Mr. Daywalt, did you have something you want to say? Okay
--

MR. PUNARO: Right. Thank you.

Commissioner Sherrard.

JAMES SHERRARD: Good morning. Just to follow up in the questions that my
colleagues have been going for. I'm going to talk a little -- ask you a
few questions about USERRA, and specifically, it's the information
passage of the requirements of USERRA to employers. Are there
recommendations that any of you might have that we could help improve
how the employer really understands the requirements of USERRA, and tied
with that are there ongoing studies that you may know of looking into
the requirements of USERRA and trying to change some of those
particularly as they relate to those self-employed members because many
of the provisions of USERRA don't cover those people and they're left
out there after their activation sometimes with some unbelievable
challenges facing them as they come back, and as you may have mentioned,
sir, the individual using the dentist, for example, who loses his or her
practice starting all over again. You can't do that more than once, I
think, and survive as a family. There are some horrible stories that go
back from the First Gulf War, and I'm sure there's others that are going
on here. So I would ask each of you related to USERRA how can we better
-- recommendations that you may have on how we can better get to the
employers exactly what those provisions are, and then the other is
changes that we need to make that law better for both the employer and
the reservists and such.

MR. ELMORE: I can try to start. I'm not an expert on USERRA. I've
certainly done a lot of work with the Department of Labor and ESGR, but
I will share with you, I think, a little bit different approach to that.
One of the things that has come to me from the reservists that I've
talked with, and I think you have some reservists on your next panel and
you may talk with them about this is not USERRA as much as the
Servicemembers Civil Relief Act. There's really not a lot of
applicability the way its drawn right now to small businesses, and I
actually have chatted with my staff this morning. I've been doing this
work now for years and I'm still challenged to figure out who is
responsible for Servicemembers Civil Relief Act. And that may be just as
important to the self-employed small business man or woman who's in the
reserves as USERRA is.

MR. SHERRARD: Thank you.

MR. SUMNER: Sir, to help answer some of your questions, one of the
things that I've noticed in looking at the history of the ESGR, now that
I've come on board, and it's a good new story I think. If you look at
the 2004 data, we had over 8,000 USERRA type actions where we were going
out to talk, and from that -- and when I say USERRA, I'm talking about
just talking going out. And we were just getting more and more going
with that. We have, as I've said in my testimony over 9,000 --
(unintelligible) -- trained individuals that are out and are stayed in
territories doing good work in this -- (unintelligible) -- field
surrounding the USERRA facts.

The other piece that I'm very excited about is that, just recently in
our 2006 data, we had 3,100 requests for assistance pertaining to the
USERRA law. That's just over 50 percent of what we had of the same type
of request for USERRA assistance as early as 2004. So the numbers are
coming down. We also have noticed that we are now less than 50 percent
of those case studies that are having to be referred to the Department
of Labor in this last year since 2004. Again, that's another great new
story that we are getting the word out. However, can we do better?
Absolutely. ESGR has linked with the Department of Labor and has
recently put online what we call the USERRA one on one online training
course that anybody can go online and be informed and well trained in
the USERRA requirements for businesses. It's a great opportunity, very
easily, it's very user friendly, and it's one of those things that I
believe will also assist in answering your question how we get out.

And last but not least, again with our outreach program as we talk to
individuals, we want to make sure that the core element of our
organization being that -- (unintelligible) -- program surrounded by
USERRA that's part of our keystone piece in our outreach program, and we
do that through a variety of ways and means that I've mentioned earlier,
as well as through our DVD training, our DVD, the 180,000 went out that
provides that information and we get early reports that they've only
been for two weeks, early reports are that it's been well received and
we're already getting more and more requests for additional DVDs.

MS. GOLDING: I would just go back to the Civil Relief Act. Currently,
some of the self-employed can get some relief from that. There are
certain business loans that can be deferred or lower interest or such,
and it might be worth looking at that act to see what else could be done
for employers.

MR. DAYWALT: I want to take a different tack. The Civil Relief Act and
USERRA were written for a different environment. I don't think none of
those laws were written -- or policies were put forth, nobody's thinking
of people being gone for two years. They were thinking in terms of 60 to
90 days. So you may need to take a look at that. The real issues from
the civilians employers side is most of them don't have a problem with
USERRA. Once it's explained to them, they say okay, we'll be glad to
help, and ESGR has been great at getting that out. They're just upset
that you take my human capital away for two years.

MR. SHERRARD: Thank you very much, Mr. Chairman.

MR. PUNARO: Okay. Dan, you had a quick question before we go to
Commissioner Stockton.

MR. ELMORE: Excuse me. Is it not an employer, I think, in Ramona who's
with me. She can correct me. I think it's the state of Oregon or it may
our Veterans' Business Development officer assigned to our district
office who's working with the state of Oregon. If it wasn't Oregon it
may Washington State.

MR. PUNARO: Thanks. Commissioner Stockton.

DONALD STOCKTON: Thank you all for being here today. I'd like to direct
this question to Dr. Sumner. I know you're only been on the job for 50
days and you've not had the opportunity yet, with all the opportunities
and the possible problems that might be in this regard be fixed in 50
days, you've at least had an opportunity to get your feet wet. I guess I
really have just one question, and I'd like to know are there any
programs under consideration now by the Department of Defense that are
designed to reduce the financial impact to reserve component service
members and their employers when they're called to extended active duty.

MR. SUMNER: Mr. Commissioner, I appreciate these comments. At the least
the president gets 100 days, so I'm still in the middle of my honeymoon.
But in answer to that question, again, that's one of those areas that's
not within my organizational charter so I'm not really prepared to
answer that, but I'd be more than happy to turn that over with my staff,
and we'll at that and come right back.

MR. STOCKTON: I suppose part of that answer might be to once we get the
full report that you mentioned in your testimony, that's going to be a
key thing, and in your job to advise the assistant secretary about these
types of issues, that's going to be a critical report that we can hang
our hat on and really start working on it.

MR. SUMNER: Yes, sir.

MR. STOCKTON: Do any of the rest of you have any comments about any
knowledge of any specific DOD programs that are being considered?

MS. GOLDING: For reservists also?

MR. STOCKTON: Yes.

MS. GOLDING: There is a Reserve Income Replacement program that I think
it passed in the (MDAA ?) in for '07, it might have been '06, and so
it's fairly limited program of income replacement. You have to have
(involuntary ?) status and then completed 18 months of consecutive duty,
active duty or there are some other conditions, or 24 months within the
previous 60 months. So it's a very limited program, and as of January
'07 this is the first year it's been enacted. Only eight people had
applied. There is some program out there. I think the number of people
that qualify for it is very limited. On the employer side, there has
been legislation for tax credits in the past. I do not believe that any
of these have passed as of yet.

MR. ELMORE: Your reference DOD, and I just received and email from a
colonel that I've been working with now for a number of years and trying
to help envision through and design what they call the Army Advantage
Fund, so you may want to look at that, because as I understand it
presently, that will include active Army and Army Reserve. So back to
your question, that may be effective and helpful especially in
recruiting for Army Reserve.

MR. STOCKTON: Thank you all.

MR. PUNARO: Commissioner Stump.

GORDON STUMP: Dr. Golding, I'm very aware of the failed insurance
program for Desert Storm one. The government was saying, hey, this is
going to pay for itself, everybody's going to sign up for it, and then
only a few will be activated and it will all pay as you go, except they
didn't make it mandatory and the only people who signed up for it were
those who were activated, and I had people doing that, encourage them,
yes, you all should sign up for this, this is a good deal. And of
course, the thing went bankrupt over night. But I think that there is
something out there especially for the self-employed, the doctors, the
dentists, the et cetera. Has anybody even considered, I think, a full
proof method is to take the previous years' income tax return and make
up the difference, and this won't be -- you're not going to be able to
figure out how to make the soldiers to pay for this. This is going to
have to be above and beyond.

MS. GOLDING: Well, the Reserve Income Replacement program also applies
to the self-employed. As it's structured now, you'd have to be on active
duty for quite and extended time. I guess there have been questions
about what to do for the self-employed, and that's a very difficult
issue because they are very different from the rest of the employers,
and some people have been really strong advocates of some type of income
replacement, some because the deployment lengths have been so extended
and the argument is that the individuals when they first joined could
not have known what to expect. There have been other individuals also
who have argued that the self-employed really shouldn't get any type of
extra consideration, and this is just something to keep in the
background, and that's simply because when they joined the Reserves,
they knew that their businesses could take a hit, and so when they
joined even knowing that they joined. And it's a voluntary type of
thing.

One concern that I might have in the replacement scheme for reservists
is just the pay equity issue within the military. There has been really
the idea of paying for the military skills that you have, and this
breaks that link to a certain extent so that you're being paid based on
your civilian skills that you bring in as opposed to the skills that
you're using in DOD. Presumably, there's a good match. One alternative
is some type of activation pay if there are shortages with the medical
occupations, which then you're not talking about different pay amounts
for different individuals. Everybody in that occupation would get this
activation pay or this reenlistment bonus or what have you, and you
would still be able to meet your recruiting and your retention needs. So
that's just --

MR. STUMP: That's an idea. Somebody looking at it?

MS. GOLDING: I don't know how far they've been going into that. But
there are reenlistment bonuses for medical. I don't know if they're
adequate or not at this point.

MR. STUMP: Mr. Elmore?

MR. ELMORE: Sir, our office of advocacy has had discussions with folks
that work in the assistant's secretary for Reserve Affairs office and
part of the discussions have been about trying to access perhaps
quarterly or monthly tax deposit records in congregate, not
individually, so that we can identify pre-mobilization income compared
to post-mobilization income. So you may want to follow up with the
assistant secretary's office on that. And I think to Heidi's point, I
don't know of anybody doing this, but others have suggested to me, for
example, with high level recruitment and retention bonuses, if that's
the proper terminology. I don't know how much funds go into those arenas
if you're having a special recruitment effort to identify doctors and
bring them in for example, and is it more cost effective to do those
sort of individually focused where you have serious shortage recruitment
efforts, or is it more cost effective to have a broader program that
includes that that may be based on what you're asking about them, some
form of income insurance or whatever it might be. I honestly don't know
the answer, but certainly I think those are questions worth considering
on the part of the commission.

MR. STUMP: I think in the last year the Army spent a billion dollars on
those particular things, so that's a good point. Dr. Sumner, the one
thing that -- I know the CEI database is good because it helps you
identify all of these employer whether they're big, small et cetera, but
there are some reservists who would just as soon not have their
employers know that they're in the Guard and Reserve for reasons that
were indicated earlier. Now, I think you can require -- I guess you're
trying to require them to tell who their employers are and they're going
to be a little nervous about that probably, but is there some provision
to say, okay, I'll tell you who he is, but don't you dare contact him.
Is there a box you can check to do that or --

MR. SUMNER: Yes, sir. The CEI database is the non-attribute type. So
we're just looking to see what employers are out there that have a guard
or a reservist within that organization. It doesn't specify who, what
department or anything. It's just we know that this particular company
has reservist personnel in that organization.

MR. STUMP: Oh, good. A significant number of the reserve component
members that are called up to active duty work as first responders in
their civilian jobs and they'll pull over 2,100 law enforcement agencies
by the -- Police Executive Research found that 44 percent of the police
forces have lost personnel to call-ups and 80 percent of law enforcement
agencies in the country have 20 or few smaller officers, the loss of one
or two can leave really significant gaps. Law enforcement agencies say
they're already suffering from a shortage of sworn officers, some of
them drawn to the private sector where newly created homeland security
jobs pay more than what the small cities do, but should we have some
laws, regulations or policies instituted to restrict the ability of
first responders to serve in the reserve components, because I know in
Michigan we had four transportation companies and we had a lot of our
first responders and police officers that were dual members, and these
guys get called up and you have a big emergency, a civil emergency and
they can't be in both places. Do you think we need to restrict that or
leave it open? Any thoughts?

MS. GOLDING: DOD does have two screening mechanisms. The one has been
suspended, the annual one, and then I think there's a screening
mechanism for mobilizations now, and one of the exemptions can be based
on community hardship. Now, I don't know how well known it is, I don't
know exactly what the procedures are or how many people have been
exempted through that program, but it might be something to look at.

MR. STUMP: Okay. Thank you, Mr. Chairman.

MR. PUNARO: Okay. Commissioner Thompson.

STANTON THOMPSON: A couple of just short questions looking at my watch,
and to you Mr. Daywalt. I appreciate the effort of the ESGR in terms of
their statement of support which is a commitment from employers, but do
you think, when an individual service member puts their hand in the air
and takes the oath, they sign a contract with DOD that says they're
going to serve for a period of time, would employer agree to sign that
contract?

MR. DAYWALT: It's a good question. The answer would probably be some
yes, some no. Keep in mind that historically, most of the people that
went into the Guard and Reserve came off active duty. Today, most of
those people aren't joining the Guard and Reserve because they know
they're going to be recalled right away. And in the Navy Reserve
intelligence area that I used to be in for the last year and a half, all
the people going to the new officer course had no prior service because
they couldn't get people security clearances to join the Navy Reserve.
But the -- I'm not sure all employers would want to sign that.

MR. THOMPSON: Well, I guess where I was coming from, if there is some
kind of compensation packet put together, I would think if I were an
employer, not necessarily -- well, I won't say that the way I thought it
-- I would want some assurances that the government would deliver the
benefits. It seemed to me like there's some kind of contractual
agreement with the employer would almost be necessary if we could keep
it within 400 pages of obligation. The second question, and you were
concerned about duration of deployment, is something that I hear from
other employers that I've talked to, but it's a little difficult for
operational commanders fighting the fight to be able to give employers
certain guarantees unless we have this huge pool of manpower that will
allow us to do that. Would an incremental phase of benefits, the longer
the (duration of ?) activation, the increase in benefits compensation
would that help offset some of your concerns?

MR. DAYWALT: I think for many employers, that would, but I think that
comes back to something that you pointed out that DOD is going to make a
commitment, it needs to stay behind it.

MR. THOMPSON: Yes. Okay. That's all I had, Mr. Chairman.

MR. PUNARO: Okay. Thank you. We hit our timing on the mark, not by
precision but by luck, so I want to thank each of our witnesses here
today for your terrific service. Those of you that are serving in
government, those in government that have previously served in uniform,
our private sector witness who's also served his country in uniform and
continues to work as a volunteer in the Employee Support of the Guard
and Reserve. This has been extremely helpful. As I mentioned, as we
develop some options here, we'd like to get back with and bounce them
off of you and get your reactions to them. We found that in our March 1
report that was a good way to make sure unintended consequences were
aired out. As you develop some of your new initiatives, we'd love to
have you feeding them into the committee in the course as CBO does their
work, we'll continue to look at your reports as they come out. So thank
you all very much for being here today. Again, tremendously helpful, and
looking forward to staying in close touch. What we'll do know is we'll
-- commissioners can take a quick break as we reset for the second
panel. Give you about five minutes.

(End of panel.)