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H.R. 5215, CONFIDENTIAL INFORMATION PROTECTION AND STATISTICAL EFFICIENCY ACT OF

2002

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

H.R. 5215

TO PROTECT THE CONFIDENTIALITY OF INFORMATION ACQUIRED

FROM THE PUBLIC FOR STATISTICAL PURPOSES, AND TO PERMIT

THE EXCHANGE OF BUSINESS DATA AMONG DESIGNATED STATISTICAL AGENCIES FOR STATISTICAL PURPOSES ONLY

SEPTEMBER 17, 2002

Serial No. 107–227

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DOUG OSE, California

ADAM H. PUTNAM, Florida

JOHN SULLIVAN, Oklahoma

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

BONNIE HEALD, Staff Director

DAN DALY, Counsel

CHRIS BARKLEY, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on September 17, 2002 ..................................................................... 1

Text of H.R. 5215 ..................................................................................................... 5

Statement of:

Haver, Maurine, Ph.D., Chair, Statistics Committee, National Association

for Business Economics; William D. Nordhaus, Ph.D., Sterling professor

of Economics, Department of Economics, Yale University; Ralph Rector,

Ph.D., research fellow and project manager, Center for Data Analysis,

the Heritage Foundation .............................................................................. 54

Kroszner, Randall S., member, Council of Economic Advisers, Executive

Office of the President; Kathleen B. Cooper, Under Secretary for Economic Affairs, Department of Commerce; and Kathleen P. Utgoff, Commissioner, Bureau of Labor Statistics, Department of Labor ................... 33

Sawyer, Hon. Tom, a Representative in Congress from the State of Ohio .. 24

Letters, statements, etc., submitted for the record by:

Haver, Maurine, Ph.D., Chair, Statistics Committee, National Association

for Business Economics, prepared statement of ......................................... 56

Horn, Hon. Stephen Horn, a Representative in Congress from the State

of California, prepared statement of ........................................................... 2

Kroszner, Randall S., member, Council of Economic Advisers, Executive

Office of the President, prepared statement of ........................................... 36

Maloney, Hon. Carolyn B., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 83

Nordhaus, William D., Ph.D., Sterling professor of Economics, Department of Economics, Yale University, prepared statement of .................... 62

Rector, Ralph, Ph.D., research fellow and project manager, Center for

Data Analysis, the Heritage Foundation, prepared statement of ............. 70

Sawyer, Hon. Tom, a Representative in Congress from the State of Ohio,

prepared statement of ................................................................................... 26

Utgoff, Kathleen P., Commissioner, Bureau of Labor Statistics, Department of Labor, prepared statement of ......................................................... 45

(1)

H.R. 5215, CONFIDENTIAL INFORMATION PROTECTION AND STATISTICAL EFFICIENCY

ACT OF 2002

TUESDAY, SEPTEMBER 17, 2002

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 1:32 p.m., in room

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representative Horn.

Staff present: Bonnie Heald, staff director; Henry Wray, senior

counsel; Dan Daly, counsel; Chris Barkley, clerk; David McMillen,

minority professional staff member; Jean Gosa, minority clerk; and

Earley Green, minority assistant clerk.

Mr. HORN. A quorum being present, the subcommittee on Government Efficiency, Financial Management, and Intergovernmental

Relations will come to order.

Today, the subcommittee will consider a bill which I introduced

on behalf of myself and Representatives Tom Sawyer of Ohio and

Carolyn Maloney of New York. The bill is H.R. 5125, the Confidential Information Protection and Statistical Efficiency Act of 2002.

H.R. 5215 has primary objectives. One objective is to enable the

Federal Government’s three principle statistical agencies, the Bureau of the Census, the Bureau of Labor Statistics, and the Bureau

of Economic Analysis, to share the business data they collect. Such

data sharing would substantially enhance the accuracy of economic

statistics by resolving serious inconsistencies that now exist. It

would also reduce reporting burdens on businesses that must now

supply data separately to the individual agencies.

The bill’s second and equally important objective is to ensure

that the confidential data that citizens and businesses provide to

Federal agencies for statistical purposes are subject to uniform and

rigorous statutory protections against their unauthorized use. Currently, confidentiality protections vary among agencies and are

often not based in law. This bill would raise confidentiality standards for all Federal statistical agencies to the highest standard that

now exists.

The administration strongly supports H.R. 5215. This bill is similar to another bill I had introduced in the 106th Congress, H.R.

2885, the Statistical Efficiency Act of 1999. That bill received

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strong bipartisan support, and passed the House under suspension

of the rules. H.R. 5215 differs from its predecessor by narrowing

the data sharing provisions and broadening the confidentiality protections.

H.R. 5215 is a bipartisan, common-sense bill that we should

enact this year. Therefore, the subcommittee will hold a markup on

the bill immediately following the hearing.

The Heritage Foundation has raised a concern that the confidentiality provisions in H.R. 5215 could be misconstrued to prevent the

release of some data that is now available to the non-governmental

researchers. This information is released in a form that does not

directly or indirectly reveal the identity of the data provider. That

is not the intent of H.R. 5215. With the support of the administration, I will offer an amendment at the markup to clarify the language of the bill in this regard. My amendment also will strengthen the bills oversight provisions.

[The prepared statement of Hon. Stephen Horn and the text of

H.R. 5215 follow:]

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Mr. HORN. I welcome all of our excellent witnesses, and look forward to their testimony. I am particularly pleased that our colleague, Representative Tom Sawyer from Ohio, he is a very distinguished legislator and we are sorry to see him leave after this Congress. He has been an outstanding leader for many years in many

efforts to improve in this issue, to improve the Federal statistical

activities. And if Mr. Sawyer would like to come forward and make

his statement, and if you wish to, after your statement, come to the

dais. And you are welcome to answer questions and all the rest of

it. So, Tom, we are looking forward to it.

STATEMENT OF HON. TOM SAWYER, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF OHIO

Mr. SAWYER. Thank you very much, Mr. Chairman. And thank

you for those very kind words. It has been a pleasure to work with

you over all the years that we have worked here together, and on

no topic more than the one that brings us here together today.

You are right, I have spent a lot of my time in Congress in working on ways to improve Federal statistical systems so that the policies that we struggle over and the formulas that we agonize over

have some meaningful life when they go forward in the real world

and distribute dollars and lead to changed policies.

I am really pleased that you are moving forward on this legislation today. As you point out, this measure has been several years

in the making. It builds on your approach to provide limited data

sharing among agencies for the efficiency of the work of those agencies and my bill to strengthen the confidentiality of Government

statistics. Together, these two approaches, I believe, will reduce

statistical errors in many important arenas of Federal endeavor.

Both parts of this bill are worthwhile, but I will focus my remarks

on confidentiality today.

In that regard, the bill provides a clear and consistent standard

for the use of confidential statistical information, and prohibits its

use for any non-statistical purpose. It ensures that data gathered

under a pledge of confidentiality are used only for statistical purposes, and imposes penalties for the willful disclosure of confidential information. It would replace the current patchwork of rules,

and extend those protections to all individually identifiable data

collected for statistical purpose, and in that way, encourage greater

public cooperation with Government surveys and improve the quality of Federal statistics.

This measure, Mr. Chairman, I think is both timely and necessary. Confidence in Government data-gathering is fragile at best.

In the 2000 Census, more than a quarter of the occupied housing

units in this country did not respond to the mailed questionnaire.

And while that was an improvement over the previous Census, it

is an enormously difficult problem to overcome. There are many

reasons for this. One is the growing unease about confidentiality

that has grown with the unprecedented surge in the immigrant

population. While there are no known cases of Federal agencies

misusing such personal information in exactly this way, the risk is

real. The temptation to diminish civil liberties in the name of national security leaves ordinary people and businesses feeling vulnerable to disclosure.

25

We saw that risk in the post-Pearl Harbor anti-Japanese tide. At

that time, the Census Bureau worked closely with the War Department to help locate Japanese Americans. They didn’t turn over actual records or violate the less stringent standards of the time, but

the appearance of complicity acknowledged only 2 years ago shook

the confidence of many immigrant communities, especially Asian

American communities. Now, after September 11, the firewalls between individually identifiable information and aggregate statistics

appear to be at risk.

I am pleased that the House Homeland Security bill made clear

that it would not alter existing law on information collected for statistical purposes. However, in too many cases, existing law does not

ensure that such personal information will remain confidential.

More than 70 Federal agencies or statistical units collect such data,

but only 12, as you suggest, Mr. Chairman, are covered by regulations to protect personally identifiable information from disclosure,

and only a handful of those have the stronger protection of law.

Some of these uncovered units collect information on highly sensitive topics ranging from health care and substance abuse and

mental health. It involves millions of dollars of sensitive data, and

deserves the most stringent of protections from disclosure.

While agency policy may have once been enough, real public

trust requires that information be shielded by the force of law.

Statutory protection under H.R. 5215 would prevent any regulatory

or law enforcement misuse of these data. This recommendation was

first made under the Privacy Act of 1944. However, that act has

several loopholes that allow for the disclosure of personally identifiable information without the informed consent of those who supplied the information.

There are 12 categories of such exemptions, and the act fails to

distinguish between data collected for research purposes and that

collected for administrative purposes, and so offers minimal protection from improper disclosure.

The commission at that time that arose from the Privacy Act recommended that no record or information collected for statistical

purpose be used in identifiable form to make any decision or take

any action directly affecting the person to whom the record pertains. H.R. 5215 embodies the commission’s recommendation in

that regard.

In summary, these improvements, Mr. Chairman, are long overdue. They are needed to protect the public and ensure continued

public participation in essential governmental research. Informed

public policy relies on it. Thank you, Mr. Chairman, for the chance

to be here.

Mr. HORN. Thank you. And if you wish to come up here, why,

without objection we are delighted to have you with us.

Mr. SAWYER. Thank you, Mr. Chairman.

[The prepared statement of Hon. Tom Sawyer follows:]

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Mr. HORN. We will now go to the panel two, and that is the Honorable Randall S. Kroszner, member, Council of Economic Advisers,

Executive Office of the President; the Honorable Kathleen B. Cooper, Under Secretary for Economic Affairs, Department of Commerce; the Honorable Kathleen P. Utgoff, Commissioner of the Bureau of Labor Statistics, Department of Labor. And since it is a big

table, and three more—we will throw in panel three, if you would

like to come up to the table and just grab one of the chairs if we

are missing them. And Maurine Haver, doctorate, Chair, statistics

committee, representing the National Association for Business Economics; William D. Nordhaus, Sterling professor of economics, Department of Economics at Yale; Dr. Ralph Rector is the research

fellow and project manager, Center for Data Analysis, the Heritage

Foundation.

And we have to swear witnesses. If you will stand and raise your

right hand. And if you have anybody supporting you there, get

them behind you, too, so we don’t have to do it halfway through

the panel.

[Witnesses sworn.]

Mr. HORN. And the clerk will note that all six affirmed. And we

will start then with what it is on the agenda, and that is the Honorable Randall Kroszner, member, Council of Economic Advisers.

Those were people that were authorized by law under President

Truman; and the old humor that the President had, he said he was

tired of somebody saying on this bit and that bit and so forth, I

want some people that can give me some good economic data and

not just tell it on the right, he is saying, and then the left hand.

And this is the Council of Economic Advisers.

STATEMENTS OF RANDALL S. KROSZNER, MEMBER, COUNCIL

OF ECONOMIC ADVISERS, EXECUTIVE OFFICE OF THE

PRESIDENT; KATHLEEN B. COOPER, UNDER SECRETARY

FOR ECONOMIC AFFAIRS, DEPARTMENT OF COMMERCE;

AND KATHLEEN P. UTGOFF, COMMISSIONER, BUREAU OF

LABOR STATISTICS, DEPARTMENT OF LABOR

Mr. KROSZNER. Thank you very much, Mr. Chairman, and members of the subcommittee. And I am very, very pleased to be speaking before you today on what I consider an extremely important

initiative that has very big implications, but one that has no budget implications. And so what I am going to argue is that this is a

very, very valuable piece of legislation that does not take any additional costs on the—for the public sector, and actually can reduce

burdens on the private sector. And of course, since I am on leave

from the University of Chicago, our main theme there is, ‘‘there

ain’t no such thing as a free lunch.’’

So, why hasn’t this happened before? Well, members of the staffs

of all of the agencies that have been involved as well as the leaders

of those can tell you that this was not a free lunch. It required a

lot of work to make sure that we could get the language correct,

to make sure that we had the appropriate ideas in there, appropriate scope. And we got just fabulous support and cooperation

among the different agencies and with Capitol Hill.

So I am extremely pleased to be able to speak to you about this

very important issue.

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As we well know, Federal statistics in the United States are

among the best, if not the best, in the world. But that should not

make us complacent. We can still improve them. The U.S. economy

is an extremely dynamic one, and one in which we must respond

to changes, constant changes. And that requires constant improvement in our statistics. As we well know, Government statistics play

an important role not only for Government decisions, whether they

be Social Security decisions, budgetary decisions, monetary policy

decisions, small errors can have very large effects when we do our

budget projections. And this is something that is extremely important to the Council of Economic Advisers in providing information

to the President to be able to provide accurate forecasts.

The private sector, of course, relies very heavily on statistics for

their own budget and planning purposes, and, of course, academics

around the world rely on U.S. statistics to be able to do an appropriate analysis of both the effects of policy as well as more fundamental research. And so what we need to do is to improve those

statistics in a way that will help to reduce some of the data problems that we have seen recently.

We have had very large revisions of GDP. We have different estimates of productivity, one of the most important aspects of our

economy going forward. Depending on which measure you use from

the income and project accounts versus other accounts, the difference can be 35 basis points. Now, that is about a third of a percent. That doesn’t seem like very much, but that is a third of a percent difference in growth every year going out into the future. That

makes an enormous difference for our well-being over time, it

makes an enormous difference to our budget projections. There is

an approximate effect of about $200 billion for every point 1 percent difference in GDP growth over a 10-year budget horizon. So

we are talking real money here.

Also, when we think about the classification of firms, a very limited study was done a few years ago looking at the differences between the Census and the Bureau of Labor statistics on how they

classified firms. They found about a 30 percent difference in which

industries firms are classified into. This has led to very big differences in the estimates for the size of particular sectors of the

economy, the chemical sector, high-tech sector. And in particular,

in the new sectors, in emerging sectors it becomes very difficult to

try to classify these firms.

And that is how these data anomalies and these areas creep in.

Even though I think all the agencies do a superb job, just trying

to look over something as large as the U.S. economy is a very difficult thing, given the very limited budgets they have. By being

able to talk with each other and say, well, we have classified this

firm this way, but you’ve classified it that way, let’s try to understand what would be the best classification, that is a very simple,

straightforward thing that is basically impossible to do now. And

if we can allow for that, we can improve our Government statistics

and improve the numbers that we get out of that process and be

much more accurate.

What this act would allow us to do is do that through two means,

through formal data sharing through a variety of memoranda of

understanding among the different agencies, but also by having

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consistent high confidentiality protections amongst all of the agencies. And this is very valuable for allowing the data sharing to

occur, because there has to be the same level of protection, and we

want to make sure that it is a high level of protection if the data

is going to move from one agency to another. And so that becomes

an extremely important part of the legislation itself.

And what this will also do is reduce the burdens on the private

sector. If the agencies can coordinate with each other, eventually

they may be able to reduce duplicative surveys, they can, in general, just reduce the burdens on the private sector.

And so I consider this something that is a triple win. First, by

improving these statistics directly through improved business lists,

we get better data from what is provided to the statistical agencies.

But by boosting confidence and by lowering the burdens on the private sector, we are likely to get much more accurate data from the

private sector so we also have more efficient Government, we have

lower burdens on the private sector, we have no budget cost. I consider this a triple win.

I think this is something that should have bipartisan support

going forward for everyone’s agenda because it is something that

I think clearly improves the Government, improves the private sector, has no budget costs, and I see very little—actually, absolutely

no downside. Thank you very much, Mr. Chairman.

Mr. HORN. Thank you. We appreciate your fine succinct presentation, and we will wait and go with your colleagues and then we

will start the question period.

[The prepared statement of Mr. Kroszner follows:]

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Mr. HORN. We now have the Honorable Kathleen Cooper, Under

Secretary for Economic Affairs at the Department of Commerce.

Ms. COOPER. Thank you very much, Chairman Horn, Congressman Sawyer. I am very pleased to be here with you today to discuss H.R. 5215. I need to get the—better volume. Is that better?

All right. I hope it is not too loud. But I also want to thank you,

Congressman Horn—I mean, Chairman Horn and Congressman

Sawyer, but certainly Chairman Horn, for your leadership on this

issue for a good number of years. As Under Secretary for Economic

Affairs of the Department of Commerce, I have the privilege of

overseeing the fine work of two of the jewels of the Federal statistical system, the Bureau of Economic Analysis and the Census Bureau.

And our economic statistics from these Bureaus are calculated by

experts and professionals who produce the most accurate numbers

possible with the tools available to them. The President has made

enhancing our economic data a priority and wants to give the Bureaus the tools they need to measure the twenty-first century economy. He appreciates that better information is fundamental to better public and private decisionmaking. With the President’s budget

request for the Census Bureau and BEA, you will see a range of

economic data sooner. The release of international trade data, for

example, will be available 20 days earlier. We plan to implement

an annual measure of investment in information technology and

quarterly measures of the services sector, the Census Bureau’s first

new economic indicator in 50 years.

Unfortunately, while these agencies are striving to improve economic statistics, the fiscal year 2003 funding level approved by

Senate appropriators is significantly below the President’s request,

and we simply will not be able to undertake these important improvements with the Senate’s flat funding level.

But today, I would like to discuss one way to improve our Federal statistics at next to no cost. If enacted, this legislation will

help us improve the measurement of inventories, one of the most

volatile components of GDP. We will develop more efficient samples, reduce the reporting burden, improve regional and State data,

and reduce revisions. And I would like to share with you some reallife examples of gaps in our Federal statistical system the datasharing bill would close.

Most of BEA’s data comes from elsewhere, the Census Bureau

and the Bureau of Labor Statistics being the main building blocks

for BEA products. The Census Bureau, BLS, and BEA already

work hand in hand. BEA is the Census Bureau’s most important

customer, and the two agencies are in contact every day. The staffs

at BLS and the Census Bureau meet routinely with their counterparts at BEA. Throughout the year, managers collaborate and ensure that our statistical infrastructure is efficient and productive.

However, H.R. 5215 would allow BEA, the Census Bureau, and

BLS to work even more efficiently together, to share knowledge,

and to borrow strengths. The most important result would be, as

my colleague mentioned, consistent classification of businesses by

the Census Bureau and BLS. BEA would be the first to stand and

cheer such an accomplishment. The Census Bureau and BLS place

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one third of the businesses in different boxes, and the BEA has to

sort out the resulting data.

In determining real output, for example, BEA looks at shipments

from Census and prices for BLS, and must untangle the classification confusion. With the data-sharing bill, the statistical agencies

could cross-validate their company lists and determine the most appropriate classification. By comparing corporate financial reports

with BLS and Census surveys, BEA can improve estimates of profits and of wages and salaries. This would help to reconcile the near

$100 billion statistical discrepancy between gross domestic income

and gross domestic product.

At the end of July, we saw large revisions to profits that indicated that corporate profits had peaked in 1997 rather than in

2000, and that other incomes were weaker than earlier estimated.

If BEA were able to access the firm level data from the Census Bureau, if you compare that information with corporate return data

from the IRS and publicly released financial reports and in this

way BEA could better capture the impact of corporate activity

where there is a difference between tax and financial accounting

methods.

I would like to see an improvement in the accuracy of State personal income as well. For the year 2000, estimates of growth and

payrolls for Delaware vary from a BLS estimate of 6 percent to

Census Bureau’s 14 percent estimate. Likewise, for Virginia, there

are sizable differences. Even for New York where the differences in

growth are smaller, the difference in dollars in over $7 billion in

wages or $380 million in State and local taxes for the State.

Amid the dynamic economy, how can our statistical agencies

keep track of businesses that come and go? The Census Bureau

and BLS have different sources of information that provide insight

into companies births and deaths. Combining the two measures

should give us better information than from either source alone.

Other legislation under congressional consideration would allow

the agencies limited access to IRS data. Today, Census and BEA

have access to difference set office tax data. Enhanced access to

IRS material would allow BEA to make its measure of corporate

profits and other business income all the more accurate.

As you will hear and have heard in part already from my colleagues, my fellow panelists, this bill also builds on the agency’s

unmatched record of confidentiality. It provides equally stringent

protection for all data, and avoids any perception of inappropriate

use.

Finally, Mr. Chairman, I would like to alert you to a concern that

I have about the most basic step in our data gathering, voluntary

participation in our surveys. In April, reporting by large semi-conductor companies in the Census Bureau’s monthly survey—in the

Census Bureau’s monthly survey of manufacturing activities

dropped to the point where the Bureau had to discontinue publishing data on semi-conductors. As a result, the Census Bureau could

no longer produce bellwether sales and inventory data for this very

important industry.

The Census Bureau and the semi-conductor industry have agreed

to a test to determine whether the industry can provide the desired

data. The results will not be known for 5 months, and in the meanVerDate 11-MAY-2000 09:28 Jul 29, 2003 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 D:\DOCS\88326.TXT HGOVREF1 PsN: HGOVREF1
42

time, gaps in our data persist. We will continue to work with businesses to find efficient means for them to report. Ultimately, Congress and the administration must encourage participation that

yields information vital to informed decisionmaking.

I thank you, Mr. Chairman. I appreciate your efforts to improve

the quality and the efficiency of our Nation’s statistics while protecting its confidentiality. Thank you.

Mr. HORN. Thank you. We are delighted to have you with us.

And we now will have the last part on panel one, and that is the

Honorable Kathleen Utgoff, Commissioner of the Bureau of Labor

Statistics.

During the Eisenhower administration, I was assistant to the

Secretary of Labor, and the first thing he said to me was: Nobody

around here fools with the commissioner of Bureau of Labor Statistics. And all of us were told he is untouchable. Now, you are untouchable. So.

Ms. UTGOFF. Thank you for that piece of history, Mr. Chairman.

Good afternoon and—good afternoon, Mr. Chairman, Congressman

Sawyer. I appreciate the opportunity to testify in support of H.R.

5215. Having come on board as BLS commissioner just last month,

I am particularly pleased that my first chance to appear before

Congress is an opportunity to support something that is so important to the BLS. There are three main reasons we believe the proposal currently before the subcommittee is a good one, and you will

hear the other panelists give similar reasons.

First, all data users, researchers, analysts, policymakers, private

citizens, Government agencies, corporate decisionmakers will benefit from a higher quality economic statistics. Second, the major

Federal statistical agencies will be able to operate more efficiently.

Third, the protections of confidential statistical information will be

enhanced.

This carefully crafted bill is designed to meet all these aims. It

has come about through an extraordinary level of cooperation

among representatives from the Council of Economic Advisers, the

Bureau of the Census, the Bureau of Economic Analysis, the BLS,

the Office of Management and Budget, and the Internal Revenue

Service, coupled with outstanding congressional collaboration. The

bill is a testament to hard work and a shared belief in better Government.

Because BLS has an extensive network of cooperative arrangements with the State’s statistical agencies to produce State and

subcommittee—sublabor market estimates, I would like to note

that the intended benefits from data sharing will also extend to the

States. In addition to being large producers of their own economic

data, State governments are large consumers of federally produced

data, and therefore have an interest in Federal program improvement.

The enhanced data sharing that would be permitted under Title

2 will improve the ability of BLS, BEA, Census, and the States to

track rapidly changing trends in the U.S. economy. It will facilitate

joint projects among the agencies to improve data quality and to

reduce the reporting burden and costs of programs. In particular,

both the Federal and States’ statistical agencies will be better able

to classify business establishments in appropriate industries, they

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will be able to resolve data anomalies and correct reporting errors

more quickly and more efficiently.

Reconciling discrepancies between the BLS and the Census Bureau business registers is one critical example of why enhanced

data sharing matters. The tangible benefits will include improved

employment, unemployment, and income measures, better survey

sampling frames, improved payroll data for forecasting State government revenues, and a better foundation for economic development plans. More accurate business classification will ultimately

allow for the production of more accurate industry statistics, a vital

part of our national and State economic intelligence picture.

Another important area of potential improvement to BLS data

series is the measurement of multifactor productivity. These data

series track the contributions of capital, technology, and labor to

output. Productivity is widely regarded by analysts as a key ingredient of economic performance and the standards of living. By linking BLS work force and occupational data to Census Bureau production inputs and outputs data, better measures of productivity

can be developed. These better measures allow more complete research into understanding the factors that cause productivity

change particularly at the firm level.

Having access to data the Census Bureau collects on firm revenues by specific product lines would allow BLS to improve sampling and reduce respondent burden for the producer price index,

or the PPI. The PPI is one of the Nation’s most watched economic

indicators. It measures price pressures at the wholesale level of the

economy.

Turning now from the data-sharing provisions of the bill to the

confidentiality provisions, I would like to emphasize the importance

of Title I to Bureau of Labor Statistics. The BLS has long needed

the explicit statutory confidentiality protection that this legislation

offers for the data it collects. The fact that BLS lacks the specific

comprehensive protections already in place with the Census Bureau, to cite one example, is a historical omission that needs correcting. BLS has been successful in protecting the confidentiality of

the data it collects through an amalgam of statutes, precedents,

rules, and practices. A clear example—a clear, explicit, and comprehensive statutory assurance of confidentiality is essential to

maintain and improve our response rates by increasing respondent

confidence in improving our ability to protect their data.

In fact, it is not an overstatement to say that confidentiality is

the lifeblood for Government statistical agencies like BLS that depend upon the voluntary participation of survey respondents. We

rely on individual citizens in their private households and on companies of all sizes in all industries and across all States to entrust

us with their vital economic data. The voluntary transmittal of citizens to the Government of private information on, for example, job

status or earnings, or by a company of its core business information

such as employment wages and revenues is a remarkable example

of public/private partnership. Without the trust of our survey respondents, the BLS surveys and the important statistics they genVerDate 11-MAY-2000 09:28 Jul 29, 2003 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 D:\DOCS\88326.TXT HGOVREF1 PsN: HGOVREF1
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erate would be in jeopardy. H.R. 5215 will strengthen that trust.

Thank you, Mr. Chairman. I would be happy to answer any questions that you have.

Mr. HORN. Thank you.

[The prepared statement of Ms. Utgoff follows:]

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Mr. HORN. We will ask a few questions before we get to the next

panel, and then if you could all stay around, why, we would appreciate it. And that way we would have a better look at it.

Could you elaborate on how the bill will reduce data disparities.

For example, how will it solve the problem of inconsistent standard

industrial classification codes? Let’s just go right down the way.

Mr. KROSZNER. Thank you very much, Mr. Chairman. As I had

mentioned in my earlier remarks, a limited survey or limited study

that had been done in 1994 trying to compare the classifications of

firms by BLS versus the Census found about a 30 percent difference in the classifications. And so that’s a very, very concrete illustration of how, by working together, they can try to work out

some of the inconsistencies in the classification of firms.

Now, part of this is because firms change in a dynamic economy

and it is very difficult to keep up as rapidly with them. So the Census may have done their classification in 1995. That firm today

may still have the same name, but it may be doing something completely different that may be in a new area. Also, it may be doing

something that wasn’t even part of the classification codes from 5

to 10 years ago. And that is why it is very important to do this.

And also, I want to emphasize that I think the agencies do a superb job of this, but it is just hard to keep track of such a vibrant

entrepreneurial economy that we have.

And so I think it is extremely important to allow for this, and

we can reduce the anomalies and inconsistencies by allowing the

data to be shared, the different agencies to talk to each other to

keep up with our very dynamic economy.

Mr. HORN. Can you give us an idea of how much duplicate data

collection now occurs among the three agencies?

Ms. COOPER. How much? I’m sorry?

Mr. HORN. Just give us an idea of how much duplicate data collection now occurs among the three prime agencies here.

Ms. COOPER. Well, I think it’s hard to give a general statement.

My fellow panelist, Mr. Kroszner, mentioned with regard to classification of business firms. I think we also have to think about what

will happen over time among the three agencies. I think it is just

a very difficult question to answer; but we think that over time, we

will reduce the duplication, and that clearly is a plus for the reporters, for businesses out there in this economy. It will lower the burden on them. And with the comparisons that we could make of

cross agencies, that has to be a very real plus. But it is one of those

numbers that is very difficult to figure out.

Mr. HORN. Well, this next question is about the same as the last

one. But can you estimate the time and resources that this bill will

give the agencies by reducing duplicate information collection?

Ms. UTGOFF. Again, I don’t think we could give you a numerical

answer to that question. But there are many instances. For instance, the International Price Program. If we are able to use the

Census data, we will be able to reduce the number of people who

have to respond to the survey, and we will be able to reduce the

information that we get from each respondent.

Ms. COOPER. I might just add there, from the Census Bureau’s

point of view, that if we were able to reduce one survey across our

broad set of businesses that we tend to survey, that, in and of

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itself, would save us some $2 million. So I think we can begin to

see that there are some real savings out there as we go forward,

but it is just very difficult to come up with a precise number.

Mr. HORN. Now I am going to yield 10 minutes, to start with,

with the gentleman from Ohio on any questions you want to ask.

Mr. SAWYER. Thank you very much, Mr. Chairman.

Ms. Cooper, it’s my understanding that the Census Bureau is

currently conducting research on matching data from household

surveys with data from business surveys and censuses. The idea is

to use them to model changes in labor force composition, future

pension demands, and a variety of other important economic conditions. It’s my understanding that under the terms of this legislation, that those data could not be shared with researchers at BLS

or BEA, despite the fact of the substantial expertise in those agencies and the work that they might be able to do to understand

those data. Can you explain why the legislation has been changed

to exclude those data? Or am I incorrect in my understanding of

it?

Ms. COOPER. That this legislation has been changed to exclude

it?

Mr. SAWYER. I believe so.

Ms. COOPER. I honestly don’t know the answer to that one.

Ms. UTGOFF. There were questions—this bill deals only with the

information for firms. It does not deal with individual household

response. In the previous efforts to have this legislation passed, the

household response became very controversial, so it was not included in this round of the bill.

Mr. SAWYER. I would simply hope that as we gain experience

with this kind of information sharing, that we could find a way to

enable that kind of sharing. It is important. I couldn’t agree with

you more about the sensitivity of personal individual household information. But where it can be used to shape policy in important

ways, I think it would valuable to do.

It leads me to my second question: Does the administration have

a plan of action with regard to how, in future, this kind of legislation might be expanded to include sharing household data in order

to improve our understanding of the changing nature of poverty,

access to early childhood education, pension coverage, and a myriad

of other kinds of social statistics that shape an awful lot of the debate that characterize our work here?

Mr. KROSZNER. There is no specific plan right now. I think what

we want to do is gain experience with the data sharing with the

business data to avoid the concerns and controversies that had

been raised with the individual data. And I think as we have the

experience with that, both the researchers outside of the Government and internally, we will be able to see how best to shape the

memoranda of understanding to make sure that no data—no confidentiality agreements are violated.

And so I think it is an important foundation and first step. Much

like we had some experience with sharing some international data

back in 1990, I think that provides the basis for how well the agencies can work with that data to show that this will be functioning

very well. And then perhaps in the future we can take it another

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step, but there is no particular plan right now for that next step

to be taken.

Mr. SAWYER. Go ahead.

Ms. COOPER. And could I just add, Congressman Sawyer, going

back again to your question before and tying it to this one. I agree

that the work that is being done that ties the labor market and

other information together, the Census Bureau, is innovative and

can be very helpful longer term, but as long as we—at this stage

we can only do that in the confines of the Census Bureau. But as

my colleague has indicated, once we can demonstrate that there

will not be concerns longer term—I am not sure how long that

takes, but we are all hopeful that it will be sooner rather than

later—then perhaps this could be considered later, much later.

Mr. SAWYER. I appreciate the concerns that you have for confidentiality, which is what led me to my half of this legislation. I

don’t want those concerns, however, to stand in the way of serious

innovation that can come about as a result of better sharing.

Let me ask each of you to respond to the fact that the administration sought and was granted a provision under the PATRIOT

Act that provides the Attorney General access to individually identifiable survey records held by the National Center for Education

Statistics. If the administration sought access to similar records

held by the Census Bureau or BEA or even the Council of Economic Advisers, would you support or oppose access to survey

records for law enforcement purposes? Each of you, please.

Mr. KROSZNER. Well, we have no records at CEA. So, for our

data, we are happy to share what we have with anyone. Certainly,

that’s one issue that has arisen about maintaining confidentiality

versus collecting data for law enforcement purposes, and there can

sometimes be a tension there.

Mr. SAWYER. They are very much in tension, and I appreciate

that. I shouldn’t interrupt. Go ahead.

Mr. KROSZNER. No, no. And so we have tried to ensure that nothing that we have done in this legislation would, in any way, inhibit

the ability of the Department of Justice to mete out justice to

wrongdoers. But I don’t think we at CEA have a particular view

on that broader question.

Mr. SAWYER. Others?

Ms. COOPER. I don’t think I have more to say on that, either. I

think that is something that has to be settled elsewhere, and that

is a very real tension and concern.

Ms. UTGOFF. I agree with the other panelists on this point.

Mr. SAWYER. Let me touch on something that the chairman

touched on. This is kind of off the track. Nearly 20 years ago when

I was a mayor in Akron, Ohio, we had gone from an—about 80

years where our signature industry was in the tire and rubber industry. It was 1984, and we hadn’t made a passenger car tire in

Akron since 1979. And the truth is, we were trying to chart a new

future for ourselves as a community with some sense of realism.

We had done a great deal of work in expanding the product applications of synthetic materials and other kinds of polymeric applications in a wide range of different kind of product fields. And, but

before we committed ourselves to that kind of work and to bringing

together resources, as a city we decided we wanted to get a sense

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of the current state of play in what we were loosely referring to as

the polymer industry, and discovered to our frustration that it was

very difficult to track that because standard industrial codes simply did not reflect the way in which the industry had shifted its

field, not just individual companies—B F Goodrich, by the middle

of the 1980’s, was no longer a tire company, they were a chemical

and aerospace company. But that’s different from when an entire

industrial field shifts its ground.

Can you talk to me just briefly about the how the ability to share

data will help you track not the changing character of companies,

but the changing character of large-scale enterprise in the United

States?

Mr. KROSZNER. By being able to—actually, in some sense, by

being forced to resolve anomalies between the different agencies

when they’ve classify one firm one way and another firm another

way, that forces the agencies to address exactly that issue much

more head-on than they otherwise would have to, because suddenly

they now have the same firm classified in two different ways, and

neither of those classifications is appropriate for that firm anymore. And so by talking to each other, they’ll say, well, maybe our

classifications aren’t appropriate. We have to try to build on our

standard industrial classifications to take into account this dynamism.

And so I think that is one of the ways in which could help to

have the agencies speak with each other, because they can then

use their expertise together to say there is something wrong here,

we’ve both misclassified this firm, it should be something new, and

we have to innovate to come up with a new classification for it.

Mr. SAWYER. Thank you, Mr. Chairman.

Mr. HORN. Thank you. About 5 years ago, probably at maybe the

same relevant question of this, I wanted, when I had all those

brains looking at me, and I knew you had the answer. And that

is, how does the OMB have one set of assumptions for their accuracy of Federal statistics, and the CBO on Capitol Hill use different

assumptions? And is there any way we can get both of those wonderful, powerful operations that they can agree on a base? And how

can we handle that? I realize that might have nothing to do with

what you are saying. But I just want that now that I have got a

few bright economists.

Mr. KROSZNER. Well, I think it is a very important issue, because

it is sharing of a different type of sense of data and different types

of assumptions across different groups. I think this is certainly an

area of—in which reasonable people can differ about looking out,

let’s see, 10 years hence about what economic growth will be.

Actually, the long-term economic forecasts which we developed

through the process of CEA and OMB and Treasury, much of the

economics is actually quite similar to what we find in the CBO

forecasts for—especially for the long-range growth assumptions?

There is some differences on how the business cycle will move over

the short-term and then differences on views on how you turn GDP

into revenues. And so I think increasing the dialog between our

groups would be very—would certainly be very valuable, but I don’t

unfortunately have sort of the magic bullet that can make us all

agree. And if you look at private sector forecasters, they often have

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very different assumptions that they make, and in some sense

that’s appropriate that people have different views, and those

should be taken into account. I am not sure that we want to have

just one single view. I think we are relatively close; we’re not too

far apart, but I think further dialog would certainly be helpful.

Mr. HORN. Ms. Cooper.

Ms. COOPER. I might just add that indeed they certainly have

been fairly close in the last year, 2 years. They operate—the two

organizations operate under different rules in terms of what the

CBO’s goal is and what the OMB’s goal is. And the timing of their

forecasts clearly is slightly different, not largely different. So I am

impressed that they are as close to one another as they are, especially after they have a little bit of time to readjust.

But I would agree with my colleague that it’s good to have not

just one view going forward. It would be surprising if we had terribly different points of view on potential GDP growth and we actually don’t. It’s trying to wrestle at this point more than anything

else with what level of revenues come with each dollar of GDP.

Mr. HORN. Ms. Commissioner.

Ms. UTGOFF. I don’t have anything to add to that. I agree with

what the panelists have said.

Mr. HORN. Well, maybe we will get something out of the next

panel. Because up here—and, you know, various presidents have

said, well, gee, I’ve got OMB; at that point it is what the President

wants to have done. And then up here, we’d like to having something because, we are trying on spending and we are trying on not

spending. And so everything we do, going through the appropriations, we have got to show them that this is going to be in either

5 years or whatever. And that tightens up things quite a bit

around here. And so I still think there ought to be some way that

they get together and they say, look, this is what is here and this

is what we ought to know, and deal with it.

So, then in other administrations, why, they say, gee, we like

what CBO did and so forth. And it’s all back and forth. It’s like a

tennis game and little people return running every day over the,

with getting the ball halfway over the net. So, anyhow, that’s one

little gripe I have. And I don’t think it will ever be solved, but it

would be nice if we had sort of a treaty of Versailles here for economics and, you know, maybe the mirrors in the palace of Versailles would do it with all the things they can get it through the

sun, through the windows and everything.

Mr. SAWYER. That was as remarkable of a mixed metaphor as I

think I’ve heard all day. I just thought maybe we could think of

these guys as line judges in your game of tennis.

Mr. HORN. My colleague here and I have both been dealing with

the European parliament since we got here, and he’s very good

with that group. And so I will leave it right there.

OK. Is there anything that we should have asked you that we

didn’t ask you? Well, that’s to make a good conscience somewhere.

But we will get the next panel up. And then if we could get all—

if you can stay, we can get the questions with all of you there.

We have Maurine Haver, William D. Nordhaus and Ralph Rector. They were previously sworn. Let’s take Dr. Haver, start with

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her. She is the chair of statistics committee of the National Association for Business Economics.

STATEMENTS OF MAURINE HAVER, PH.D., CHAIR, STATISTICS

COMMITTEE, NATIONAL ASSOCIATION FOR BUSINESS ECONOMICS; WILLIAM D. NORDHAUS, PH.D., STERLING PROFESSOR OF ECONOMICS, DEPARTMENT OF ECONOMICS, YALE

UNIVERSITY; RALPH RECTOR, PH.D., RESEARCH FELLOW

AND PROJECT MANAGER, CENTER FOR DATA ANALYSIS,

THE HERITAGE FOUNDATION

Ms. HAVER. I am pleased to testify today in support of H.R. 5215.

I am speaking in my capacity of chair of the statistics committee

of the National Association for Business Economics, on behalf of

our 3,000 members. The members of our association have a keen

interest in the quality of economic statistics produced by the BEA,

Census and the BLS. We use these statistics daily in our work to

help our companies and clients make informed business decisions

that have real dollar consequences.

We believe that passage of this legislation will protect the confidentiality of our companies’ proprietary information supplied to

the Government. It will minimize the burden imposed on our companies by the statistical agencies because duplicate surveys can be

eliminated. And, finally, it will improve the quality of our national

economic information, especially statistics at the industry level, because of more complete and consistent source data.

The business community and financial markets derive significant

benefits from the collection and dissemination of economic data.

Complaints of respondent burden are often misinterpreted. Most

companies recognize the value of Government statistics and actively use statistics produced by these agencies for the basis of

many operation and planning decisions. Companies need industry

and national statistics to have highest quality and are willing to

do their part as long as confidentiality of their proprietary information can be assured and data collection is done efficiently.

This bill is important because it extends confidentiality protection for respondents to all Federal agencies that collect data for

statistical purposes under a pledge of confidentiality, and it prohibits the use of those data for any other purpose. It also specifically prohibits disclosure of information under the Freedom of Information Act. This uniform set of confidentiality protections will

do a great deal toward reducing concern about reporting to national

Government agencies.

I believe the prior witnesses have devoted sufficient time to talking about the improvements that data sharing will make in our

statistics. Let me just say that current statutory barriers to the

sharing of business data do result in duplicate surveys that not

only increase respondent burden, but also introduce classification

errors that reduce accuracy. This bill will address both of these obstacles.

In summary, we believe this bill will encourage business participation in Government surveys and will improve the quality of the

statistics available to business and policymakers.

We strongly urge passage of H.R. 5215. I would like to thank

you, Mr. Chairman, for your invitation to participate in this hearVerDate 11-MAY-2000 09:28 Jul 29, 2003 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 D:\DOCS\88326.TXT HGOVREF1 PsN: HGOVREF1
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ing today, and also for your efforts ever since 1995, when I was

President of the NABE. You were there to help us work toward a

more efficient Federal statistical system, and we greatly appreciate

that. I would be happy to answer your questions.

[The prepared statement of Ms. Haver follows:]

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Mr. HORN. Thank you, and we will pursue the questions with the

two our presenters here.

William D. Nordhaus, Dr. Nordhaus, Sterling Professor of Economics, Department of Economics at Yale.

Mr. NORDHAUS. Thank you very much, Mr. Chairman. I would

like to—I have some prepared remarks which I would like to submit for the record.

Mr. HORN. That is automatically put in the record.

Mr. NORDHAUS. I will summarize those briefly. I am delighted to

have the opportunity to discuss the proposal for the sharing of statistical data in H.R. 5215. I think it is an important and useful bill

and urge its passage.

I am involved with a number of different groups that are involved with economic statistics. I won’t go over all of those, but

they do include one that is closely related to the statistical agencies

that I am the chair of the advisory committee of the Bureau of Economic Analysis. That committee has—actually saw an early draft

of the data sharing proposal a couple of times in its oversight meeting and discussed those.

I emphasize that the remarks I am making are only my own and

don’t implicate any other organizations who like to have their own

views. But I did do a nonscientific sample of a number of statisticians and economists and they are highly enthusiastic of this bill.

Good economic statistics, as you know, are important because

they are critical inputs into the decisions of public and private decisionmakers, the Congress in its budgetary decisions, companies on

their investments, State and local governments on their infrastructures, and the private sector and households on their financial decisions. All of these issues involve and require good statistical information.

Earlier this year, the Commerce Department conducted a brainstorming session of leading academic and business economists to

consider improvements in the national economic accounts. And

then earlier this year, the Joint Economic Committee held some

hearings where it inquired into some different proposals for improving the Federal statistical system.

I appended at the end of my testimony a summary list of the recommendations that I made to the JEC. One of the major recommendations I made was that the Congress should move ahead

expeditiously with improved data sharing among statistical agencies.

Now, the Federal—I would just say one word about source data.

This is one of the less romantic parts of the statistical system that

people don’t really know much about. We see published in the

newspaper every day the data on the GDP or the inflation rate or

the balance of trade.

But these are really just the visible tips of the statistical icebergs, and below the surface lies vast volumes of source data from

all corners of the economy, and they are collected by the Census

Bureau, the Bureau of Economic Analysis, the Bureau of Labor statistics, the IRS, the Federal Reserve and many other Federal agencies, and the quality of our economic statistics depends crucially on

accurate, timely and comprehensive source data.

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Now, this bill—there are many ways to improve source data, but

this bill proposes one that is extremely economical and useful, and

that is solving the difficulties that arise from the decentralized nature of our Federal statistical system.

The current system has many advantages, but one big disadvantage is that agencies have a variety of statistical data that they

cannot share. In a sense the Government has imported data in its

left pocket, but that data cannot be moved to the right pocket, and

that restriction just make no sense and should be lifted.

There are many examples of how data sharing will improve the

quality of Federal economic statistics. I will concentrate on the national income and product accounts, which is the system I know

best. I will just mention four briefly.

One is that early estimates of our gross domestic product are

subject to large revisions because the source data are sparse and

often based on voluntary reporting.

With data sharing, BEA will be able to use statistical techniques

to correct the data for omissions to get more accurate early estimates of quarterly GDP.

A second problem is annual revisions which come in the middle

of every year. And these are often large because many monthly

Census surveys are based on voluntarily supplied data. The July

2002 revisions were particularly large because some of the data

that came in during this year showed revisions that were far different from the preliminary data.

By working with individual company data and comparing them

with publicly available data, BEA can identify discrepancies earlier

and thereby reduce annual revision.

A third example is the statistical discrepancy between the product and income side of our accounts. This is currently running at

$166 billion in the last quarter, which is more than 11⁄2 percent of

total GDP.

The source of the statistical discrepancy is still a mystery. But

by comparing IRS, Census, and public data, BEA may be able to

sharpen its estimates of different sources, particularly of income,

and narrow that discrepancy.

A final example, and one that has been very much in the news,

involves data on corporate profits. These are one of the most important and hard to measure of the statistics. And accurate measures

of total corporate profits are produced only with a 3-year delay, and

this is because it takes that amount of time to gather all of the different tax returns and tabulate them completely.

Inaccurate profit data may well have contributed to the boom

and bust cycle of stock prices in the last few years. I believe that

by triangulating data from tax returns, quarterly financial reports

and publicly available financial statements, BEA can develop statistics on corporate profits more accurately and in a more timely

fashion, and this, of course, can help investors gauge the true

movement of profits in an era when financial reports are not always reliable.

As Dr. Kroszner noted, these statistical innovations can improve

the quality of Federal statistics with little, no or even negative cost.

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So, in summary, I think the proposal for data sharing contained

in H.R. 5215 is a small but important step toward improving the

efficiency and the use of Federal statistical resources, and I support

strongly its enactment.

[The prepared statement of Mr. Nordhaus follows:]

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Mr. HORN. Dr. Ralph Rector, is the research fellow and project

manager at the Center for Data Analysis at the Heritage Foundation. Welcome.

Mr. RECTOR. Thank you. Chairman Horn, thank you for inviting

me to testify today. My name is Ralph Rector. I am the Project

Manager of the Heritage Foundation’s Center for Data Analysis. It

should be noted that the following testimony is my own view, not

necessarily that of the Heritage Foundation or any other organization.

Today, I would like to discuss three standards I believe should

guide any proposal to improve America’s statistical system. These

standards are, first, protection of individual identity for the respondents who provide data; second, production of useful, timely

information for data users; and third, independent evaluations of

data for decisionmakers. I think of these as the three I’s of statistical policy: Identity protection, information value, and independent

evaluation.

The sections concerning statistical efficiency contained in title II

of H.R. 5215 are examples of measures that can enhance information value by improving the accuracy and timeliness of economic

data.

My testimony will focus primarily on the issues related to title

I, Standard 1, identity protection. Those who provide data to statistical agencies should not have to worry that the data they provide

to the Government will be used against them. In addition, statistical agencies must protect the identity of individuals who provide

data that may eventually be released to the public. Provisions for

protecting individual identities can be found in plans such as H.R.

5215, which clearly distinguish between statistical and nonstatistical data.

Also, these prohibit the release of data in a form that could reasonably be expected, either directly or indirectly, to yield the identity of the respondent.

Standard 2, information value. Although necessary, procedures

that protect confidentiality also tend to reduce the amount and the

value of data that can be released. It is not, however, necessary to

adopt such extreme forms of data suppression as those found in

H.R. 5215.

As currently written, this bill states that agencies cannot disclose

data in identifiable form. The bill further defines identifiable form

to mean representation of information that permits information

about a respondent to be reasonably inferred through either direct

or indirect means.

This method of protecting confidentiality precludes the disclosure

of all individual level information that respondents would provide,

despite the use of safeguards that protect the identify of the respondents. The problem with H.R. 5215 arises because it does not

clearly distinguish between the identity of the individual respondent and the information they provide.

Denying researchers access to all individual level data would

drastically reduce the value of publicly available information and

would undermine the quality of important research conducted in

the United States.

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Standard 3, independent evaluation. Although valuable, it is not

enough for Government statisticians to approach data availability

solely in terms of the amount of data they provide. In addition, the

data should be sufficient so that researchers outside the Government can respond effectively to evaluate the proposals, either to

validate them or challenge them.

My written testimony includes two examples that may help clarify why the distinction between the amount and the form of data

accessibility is so important to nongovernment researchers who

provide public policy analysis.

To implement three statistical standards described in my testimony, I believe Congress should, with regard to identity protection

and information value, provide guidelines similar to H.R. 5215.

However, the guidelines should be modified to clearly indicate that

confidentiality applies to the identity of the respondent. The current version of H.R. 5215 is not sufficiently clear in this respect.

With regard to independent evaluation, Congress should require

that whenever possible Federal agencies provide data to independent researchers in a form that permits them to conduct complete

and independent evaluations.

Thank you.

[The prepared statement of Mr. Rector follows:]

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Mr. HORN. Thank you. Let’s go to a few questions here. Where

in the bill would you like, Dr. Rector, to solve that problem?

Mr. RECTOR. I believe that the problem exists in the definition

of identifiable form, and I have provided specific line numbers to

the staff so that they can see exactly what the language would, I

think—it would need to be in order to very clearly distinguish between the individual respondent, their identity and the information

that they provided.

Mr. HORN. And my staff has provided you a copy of the amendments I intend to offer at today’s markup on H.R. 5215. Does this

amendment satisfy your concerns with the original language of the

bill?

Mr. RECTOR. I have read the substitute amendment to H.R. 5215

provided by your staff, and I do believe that the new version does

correct this problem.

Mr. HORN. So that solves that problem, good. Something is happening today anyhow.

Let me ask you a few questions that my colleague didn’t have a

chance to do it, Dr. Sawyer, who was needed elsewhere. And he

and I both worry about the Attorney General, who has sought access to survey information provided by individuals. What would be

the effect on economic statistics of information collected from businesses for statistical purposes if it was used in legal proceedings

by the Government against the businesses and the executives that

provided that information? How do you feel about that one way or

the other?

Ms. HAVER. I am only speaking for myself now, because we certainly haven’t queried our members. But I would not be supportive

of the Attorney General having access to information that is provided to the Government for statistical purposes.

Mr. HORN. Dr. Nordhaus.

Mr. NORDHAUS. My own view again, it depends a little bit on the

context. But it seems to me that whether it is a person or a business responding to a survey for statistical purposes, I think it

would be very chilling for—to get good responses to that if there

were the possibility of it being used in legal proceedings. I think

that is particularly applicable for voluntary surveys. For mandatory then the person would have some—would have a tug of war

between which of the two provisions were more—he was more fearful of.

But in the case of voluntary surveys, people would say, well, it

is voluntary, why should I fill it in if there is any chance that this

would be used against me in a legal proceeding. So I think that is

a serious, serious concern.

Mr. HORN. Dr. Nordhaus, the Federal Economic Statistics Advisory Committee is a unique committee in that it is charged with

addressing the interaction among these three statistical agencies.

Would you please comment on the role that the committee might

play in advising those agencies in carrying out the intent of this

legislation?

Mr. NORDHAUS. The FESAC, as it is called, is an agency or was

a group that was set up a couple of years ago. The Bureau of Labor

Statistics was the lead agency on that, although the Census Bureau and the Bureau of Economic Analysis were also participants.

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I was—I have met with that as—in terms of my advisory capacity

of the BEA.

I think all of these advisory committees can play a very useful

role in terms of reviewing proposals like this. As I think I mentioned in any oral remarks, the BEA advisory committee actually

discussed the proposal that Dr. Kroszner brought before it earlier

this year. I think it was a very useful discussion among the different people, because people from different points of view, from

business, from the research community and from Government, all

had something to say.

So I think this is a useful forum, these are useful forums for discussions of those kinds of issues. It has been useful in the past, and

I hope it can be again in the future.

Mr. HORN. Mr. Sawyer’s question is to Dr. Nordhaus. While this

bill provides a mechanism to bring the collective talents of these

three agencies to bear to improve economic statistics, it does not

provide a mechanism to draw on the expertise in universities and

private research organizations.

Do you have thoughts on how we can take that next step?

Mr. NORDHAUS. Well, I—there are two separate issues here. One

is the actual production of statistics. I regard producing the GDP

and the CBI as production. I mean it is a very intellectual and high

level production, but it is like producing cars in the sense you have

got to roll them out every month.

There is a separate question, which is the research that lies behind those statistics, and there is where a very useful role can be

played. Some of the agencies, particularly the Census, has taken

the lead on this, have basically taken researchers as employees of

those statistical agencies to help do research on behavior, on the

behavior of particular series or relationships, and I think those

have been very useful in bringing academic research to bear on the

questions.

But for the most part, actually I think the research staffs of

those agencies are very high level, and I think the data sharing

will go a long way in improving some of the easily fixed problems

with the statistics.

Mr. HORN. Dr. Haver, do you agree with him?

Ms. HAVER. Yes, I do. I think that certainly the production of the

statistics is something that requires compromises that sometimes

our academic colleagues would prefer not to see. We occasionally

find the theory is wonderful, but then there is the application of

that theory, and that sometimes becomes much more difficult. But

I think that the academic community has a lot to contribute and

is doing so, for example, through organizations like the BEA Advisory Committee which Professor Nordhaus chairs and other organizations like these.

Mr. HORN. Dr. Rector, would you agree with both of those colleagues?

Mr. RECTOR. I would, but I would like to followup on a comment

just made about the compromises. As I had indicated in my testimony, I think that there is a tradeoff between protecting individual

identity and information value.

The protection of identity tends to reduce the quality and the

value—the amount of information that can be released. I believe

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that the agencies’ data disclosure review boards, the boards that

make many of the compromises that were just described, they do

not work closely enough with data users to produce compromises

that are needed, and I would encourage Government statisticians

to work with users more closely as they go through their normal

effort to review these tradeoffs, make the decisions, and to involve

data users earlier on in that process.

Mr. HORN. Well, I think that makes sense. As a user of Government data, what suggestions would you give to the Federal statistical agencies as they implement the provisions of this bill?

Mr. RECTOR. Well, again my focus is more on the title I aspects,

and those are very wide ranging. They don’t just deal with the

business data. I think that there are many data bases that the

Government produces, not only that have to do with statistical reports and the activities of the statistical agencies, but there are

many data bases that are produced in conjunction with reports that

Congress has mandated for policy evaluation, policy review.

It is difficult, sometimes impossible, for independent researchers,

whether it is in a think tank, or whether it is in the Academy, to

gain access to these data bases. I would encourage agencies, again

not just the statistical agencies but all Federal agencies that collect

data, to require as part of that, particularly the program evaluation

studies, to include a mechanism for the timely release of these data

bases to independent researchers.

Mr. HORN. I learned about 30 years ago that it was very difficult

to get faculties involved with the politicians, now that I am one,

and the problem is time, and we need it in 24 hours. They need

the sabbatical every 7th year, and they will think about it. So that

is a little problem that we have got there.

But what do you feel should be done by the Government side, although you touched some of it, what can be done with these data?

Mr. RECTOR. Well, specifically with regard to policy evaluations,

because so many of those are mandated by Congress, I would like

to see that data dissemination actually be built into the requirement when a report is released, that the data be made available

at that point in time for independent review, peer review, evaluation by other researchers, that just be part of the grant process.

Mr. HORN. What do you see as the greatest hurdle in trying to

improve response rates from private sector companies?

Ms. HAVER. I think it is a very big problem actually of—certainly

as corporations are having more and more financial difficulties or

are not performing as well as they might like, they are looking at

all corners of their business and trying to make sure that every

person in that company is doing something that enhances profitability.

So clearly filling out Government forms isn’t on that list, or isn’t

high on that list. So it really is important that the data that is released by the Government really accurately reflect the industry, if

it happens to be industry data, that companies might actually find

useful.

I think we will go a long way toward improving response rates

if in fact companies do believe that the information reported on

their industry is accurate.

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We had a reference earlier today to the semiconductor reporting

problem. That was very simply that the companies did not think

that those statistics accurately reflected their business. And so I

think it is very important that we improve those statistics. And, as

was explained earlier, part of improving our industry data is simply getting establishments put into the right classification. And if

our—if the study that was done with 1994 data is accurate today,

and I think it is probably worse rather than better, then we have

to believe that only 70 percent of single establishment companies

are classified correctly.

And, therefore, you know, we have a lot of mistakes going into

that information, which explains why companies often don’t think

they truly reflect the reality that is out there.

Mr. HORN. Dr. Haver, you indicate that data users in industry

are strong supporters of H.R. 5215. Do you know what industry

data suppliers think of the bill?

Ms. HAVER. Well, after I was asked to testify today I called up

a variety of representatives of data suppliers, the National Association of Manufacturers, the U.S. Chamber of Commerce, the NFIB,

the Semiconductor Industry Association, and so on, to discuss this

bill with them.

They were quick to point out that they really couldn’t speak on

behalf of their members because they had not asked their members

their opinions on this legislation. However, they did say to me that

they could see absolutely nothing in this bill that would cause their

members, in their personal opinion, to not support the legislation.

In other words, it seemed to them, in one person’s words, a nobrainer. This was legislation that improved assurances of confidentiality for companies and at the same time provided our fundamental general statistical agencies with the capabilities of sharing information to really improve our data and to make it more relevant.

So although I can’t say that there is not some company out there

that might have a problem with this legislation, I have to say,

among the numerous organizations I did talk to, I did not hear

anyone express that view.

Mr. HORN. For all three of you, do you see any downside to the

bill from the viewpoint of industry? We have heard Dr. Haver.

Ms. HAVER. No.

Mr. HORN. Dr. Nordhaus.

Mr. NORDHAUS. No. I think it is a plus. I think that we can actually do more with the data that we have now with data sharing.

So I think it is a plus.

Mr. RECTOR. I am unaware of any downside.

Mr. HORN. OK. What do you see as the greatest benefits of data

sharing provisions for users of Government data like yourselves?

Ms. HAVER. More accurate, relevant data. I think that we have

discussed this really at some length today, so I won’t go through

some of the points again. But there are many cases where the ability to share information among our agencies will at least give us

the possibility of improving our statistics, and there are many situations today where we know that somebody is wrong.

You know, in 1997, information technology firms had a certain

level of employment, but if you compare the numbers of the Bureau

of Labor statistics and the Census Bureau for a year—that was

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after all an economic census year—there is a rather sizable discrepancy of—I don’t quite remember the number, but between 10 and

15 percent.

So these are the kind of anomalies that hopefully the agencies

can start investigating. They can try to figure out why is it that

BLS has more workers in this industry. So I think what we are

going to have will be data that are much more consistent across

our three agencies and hopefully, as I said before, a better reflection of the truth.

Mr. HORN. As a user of Government data, what suggestions

would you give to the Federal statistical agencies as they implement the provisions of this bill?

Ms. HAVER. Well, I would say, first of all, they should focus their

energies where they are going to have the greatest payoff, and one

clear example is the business list. I would like to see one business

list, but I do know that Census perhaps has its way of using its

list and BLS has yet another way of using its own. So at a minimum I hope we can get to the discrepancies. But what I would like

to see would be simply one list.

I think also, and it may be very difficult for our agencies right

now given their budget constraints, at least the first markups on

the appropriations do not look very good for these agencies. But I

would like to see them investigate ways of reducing duplicate surveys so that we can really go to companies and say we are not

going to ask this of you more than once, that efforts are really

being undertaken in the statistical system to reduce the burden.

I think that would be a big selling point to companies when a

survey arrives to be filled out or when they receive a letter asking

them to participate in a survey.

Mr. HORN. Thank you, and I think that completes the presentation, unless there is something any of you want to put on.

And Mrs. Maloney, who has been an excellent ranking person,

she would like to submit a statement for the record. And without

objection, that will be in at this point.

And now I want to thank the staff of the subcommittee, Bonnie

Heald, the staff director back there against the wall. And the gentleman doing all of the work here in many ways is the senior counsel, Henry Wray, to my left, your right, and counsel Dan Daly.

Where is Dan Daly? Come on, don’t be shy. Put your hand up

there, fellows. And Chris Barkley, majority clerk, he is over there.

You know, when you get next to a wall, why, there is a problem

there. And then minority staff member, David McMillen, professional staff, back here. He gives us a lot of advice. And Jean Gosa,

minority clerk, and she is with the staff of the minority. And our

court reporters, and we are delighted to have them, and that is,

Desirae Jura, and Mark Stuart. Thank you very much. We appreciate all of the work you have done over the years.

So, with that, we thank you all and wish you well.

[Whereupon, at 3:10 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Carolyn B. Maloney follows:]

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