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S. Hrg. 107–508

VITAL ASSETS: HUMAN CAPITAL IN FEDERAL

ECONOMIC REGULATORY AGENCIES

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT,

RESTRUCTURING, AND THE DISTRICT OF COLUMBIA

SUBCOMMITTEE

OF THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

APRIL 23, 2002

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

PETER G. FITZGERALD, Illinois

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

RICHARD A. HERTLING, Minority Staff Director

DARLA D. CASSELL, Chief Clerk

OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND

THE DISTRICT OF COLUMBIA SUBCOMMITTEE

RICHARD J. DURBIN, Illinois, Chairman

DANIEL K. AKAKA, Hawaii

ROBERT G. TORRICELLI, New Jersey

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

GEORGE V. VOINOVICH, Ohio

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

THAD COCHRAN, Mississippi

PETER G. FITZGERALD, Illinois

MARIANNE CLIFFORD UPTON, Staff Director and Chief Counsel

JAMES F.M. WILLIAMS, Professional Staff Member

ANDREW RICHARDSON, Minority Staff Director

JOHN SALAMONE, Minority Professional Staff Member

JULIE L. VINCENT, Chief Clerk

(III)

C O N T E N T S

Opening statements: Page

Senator Durbin ................................................................................................. 1

Senator Voinovich ............................................................................................. 2

WITNESSES

TUESDAY, APRIL 23, 2002

Loren Yager, Director of International Affairs and Trade, U.S. General Accounting Office ...................................................................................................... 7

Richard Hillman, Director of Financial Markets and Community Investment,

U.S. General Accounting Office .......................................................................... 8

Grant Aldonas, Under Secretary for International Trade, Head, International

Trade Administration, U.S. Department of Commerce ..................................... 10

James M. McConnell, Executive Director, U.S. Securities and Exchange Commission .................................................................................................................. 12

Edward L. Blansitt, Deputy Inspector General, U.S. Department of Commerce ..................................................................................................................... 14

Troy Cribb, Trade Counsel, Steptoe and Johnson, L.L.P. .................................... 29

Lynn Turner, Professor of Accounting, Center for Quality Financial Reporting, Colorado State University ............................................................................ 31

ALPHABETICAL LIST OF WITNESSES

Aldonas, Grant:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 61

Blansitt, Edward L.:

Testimony .......................................................................................................... 14

Prepared statement .......................................................................................... 80

Cribb, Troy:

Testimony .......................................................................................................... 29

Prepared statement .......................................................................................... 87

Hillman, Richard:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 43

McConnell, James M.:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 69

Turner, Lynn:

Testimony .......................................................................................................... 31

Prepared statement .......................................................................................... 89

Yager, Loren:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 43

APPENDIX

Questions and responses for:

Mr. McCOnnell ................................................................................................. 106

(1)

VITAL ASSETS: HUMAN CAPITAL IN FEDERAL

ECONOMIC REGULATORY AGENCIES

TUESDAY, APRIL 23, 2002

U.S. SENATE,

OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING,

AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Committee met, pursuant to notice, at 10:03 a.m., in room

SD–342, Dirksen Senate Office Building, Hon. Richard J. Durbin,

Chairman of the Subcommittee, presiding.

Present: Senators Durbin and Voinovich.

OPENING STATEMENT OF SENATOR DURBIN

Senator DURBIN. Good morning. This hearing will come to order.

I am pleased to welcome you to this hearing before the Senate Subcommittee on Oversight of Government Management. We will focus

on ‘‘Vital Assets: Human Capital in Federal Economic Regulatory

Agencies.’’

Since his arrival in the Senate, my colleague and friend, George

Voinovich, has really championed and tackled the critical issue of

the human capital crisis facing our Federal workforce. Despite the

change in party leadership on this Subcommittee, we have maintained our focus on this important part of our agenda and I have

given Senator Voinovich my assurance that we will continue to. I

share his belief that this is an essential part of our responsibility

and I am welcoming not only his participation, but his leadership

here.

Today’s hearing is devoted to examining the problem in the context of our country’s economic regulatory agencies, particularly if

the SEC and the Department of Commerce are equipped to accomplish their missions. Do they have the right staff in the right places

with the right skills doing the right things to meet their responsibilities? Can the SEC protect and maintain the fiduciary trust of

the investing public? With the continuing expansion of world

globalization, can the Commerce Department fulfill its duty to represent our inventors and sustainers of commerce in what I see as

an increasingly hostile and challenging trade environment?

These two agencies are vital to my home State of Illinois, as I

am sure they are to Ohio. Many have referred to the Chicago financial institutions as the ‘‘other Wall Street.’’ The Board of Options

Exchange and the Chicago Stock Exchange, both regulated by the

SEC, play a vital role in the economy of my State.

2

Similarly, where would this country be without its domestic steel

industry? The Department of Commerce and the U.S. Trade Representative’s Office are on the front lines of the battle to save this

industry that is really vital to our economy and our national security.

In 1990, the GAO issued its high risk list, identifying particular

vulnerabilities across the government susceptible to waste, fraud,

abuse, and mismanagement. The GAO has regularly reported on

agencies’ progress in correcting the deficiencies that led to the high

risk designation. In March 2000, the GAO reported that the ability

of the Commerce Department and two other trade agencies to monitor and enforce trade agreements is limited. The GAO attributed

the problems to the agency’s lack of sufficient numbers of experienced staff.

According to GAO, agencies have not identified at this point the

full scope of their workload and the number of types of resources

they need to perform their task, the availability of resources, the

role of individual agencies, and such. As a result, the government

is not reaping the full benefits of its trade agreements to increase

U.S. market access abroad. The GAO recommended the Secretary

of Commerce work with other agencies to develop a workable management strategy to address this situation.

GAO also recently noted the security markets have undergone

tremendous change over the last decade and the SEC faces growing

regulatory and oversight challenges to stay abreast of these advances. The most recent highly publicized collapse of Enron has increased the pressure on the SEC to ensure that investors receive

accurate, meaningful financial disclosure, an important part of the

SEC’s mission. According to the Investment Company Institute, in

1980, fewer than 10 percent of U.S. households owned mutual

funds. Today, at least 50 percent invest in markets. This raises the

question, is the SEC ready and able to handle this massive increase in its workload?

I look forward to hearing from the GAO, the SEC, and the Department of Commerce this morning about the progress that has

been made toward resolving this, and now I would like to recognize

my colleague, Senator Voinovich, for an opening statement.

OPENING STATEMENT OF SENATOR VOINOVICH

Senator VOINOVICH. Thank you, Senator Durbin. I thank all of

you for coming. This is the tenth hearing that the Subcommittee

has held over the past 3 years on the human capital challenges

confronting the Federal Government and the second one since Senator Durbin became the Chairman. Mr. Chairman, I want to thank

you for holding this hearing and for your continuing interest in this

subject that is very important, I think, to the future of our country.

I happen to believe that human capital management is the most

important issue facing our government today. The issues that will

be examined today are a microcosm of a larger systemic human

capital challenge facing the Federal Government. Even though half

of the workforce will be eligible for retirement within the next 5

years, I am confident that our human capital crisis can be alleviated with the right combination of legislation, sound leadership

3

and guidance from the administration, and improved management

within each agency, but we need action now.

On the legislative front, the goal of my proposed human capital

legislation, S. 1603 and S. 1639, which I introduced on behalf of the

administration, is to give the agencies the management flexibilities, the tools that they need to improve performance and accountability. I am glad that the President has taken an active role in

this. I told him that the chickens were going to come home to roost

during his administration and if he did not get on this, he would

have more embarrassing moments like he had recently with the

INS.

I am also pleased, Mr. Chairman, that the President nominated

Mark Everson to be Deputy Director for Management at OMB.

This is the first time OMB will have someone in this particular position, although Sean O’Keefe did have a great deal of management

oversight responsibility. Nonetheless, this nomination is long overdue.

In order to address the human capital crisis at the agency level,

senior executives must find creative ways to link human capital

planning into the budget and strategic planning process. This linkage will enable agencies to identify staffing shortages at mission

critical positions so they can conduct a more targeted recruitment

effort. It will also help agencies better to train employees that need

skills that need to be improved.

However, reliable evidence suggests that most agencies still have

a long way to go. For instance, in January, the General Accounting

Office released its high risk series, as the Chairman has mentioned. Over the past several years, the roles and responsibilities

of our trade agencies have increased in scope and technical complexity. The Department of Commerce maintains a database of

nearly 300 international trade agreements to which the United

States is a participant. These include NAFTA, 26 WTO agreements, 238 bilateral agreements with individual countries, and the

number of agreements continues to grow. In fact, the Senate recently ratified an agreement with Jordan and agreements with

Chile and Singapore are now in negotiation.

Unfortunately, the staffing levels and work years have not kept

pace with this workload. This combination raises doubts about our

ability to monitor our trade relations and indicate that human capital management should be a top priority for our trade agencies,

and I have mentioned this to Don Evans on several occasions and

indicated, Mr. Chairman, that we were going to have him in here

to talk about it.

I believe there is a direct relationship between the human capital

challenges at the Federal agencies that regulate and monitor trade

and the ad hoc legislation that has been introduced to supercede

our existing trade laws. For example, the quota bills designed to

limit foreign steel imports that have been proposed in recent years,

in my opinion, are a reflection of the frustration with the perceived

lack of enforcement of existing trade laws.

While I am sympathetic with the steelworkers’ sense of frustration about the industry and its plight, I think those quota bills

were an inappropriate response, but I can certainly understand

why they felt the way that they did. That is one of the reasons why

4

I urged the Secretary of Commerce to move forward with the Section 201 investigation in the steel industry. One of the things that

really bothers me about the Section 201 investigation is how it is

sometimes characterized as purely political. The fact is, that the

Section 201 investigation is a safeguard action that is authorized

under GATT, NAFTA, and out into agreements under their laws,

we have the authority to look and respond to surges that occur that

significantly threathen our industries. So they finally went ahead

and did it and then put some tariffs down.

But a lot of this goes back to the sense of frustration, I think,

of people throughout this country that we are not enforcing those

laws. Mr. Aldonas, I am interested to see what you are doing about

that.

As equally important an issue is the Federal Government’s ability to oversee the financial markets. The Securities and Exchange

Commission plays an absolutely vital role in protecting investors

and maintaining the integrity of those markets. Without consumer

confidence provided by the SEC, the U.S. capital markets would

not be the envy of the world. Similarly, the workforce challenges

at Commerce, the SEC workload began to outgrow its resources

some time ago.

I commend Mr. McConnell and the SEC for recognizing their pay

problems. Furthermore, the agency recommended a new pay scale

that unfortunately was not fully funded. As a result, a lot of SEC

staff have left for jobs in other Federal financial regulatory agencies because the pay was better in those agencies. I am interested

in knowing what impact a new pay system will have on SEC staff

turnover, and I understand there is some disagreement between

the NTEU about where those pay scales ought to be adjusted.

I am anxious to hear from our witnesses today. It is funny. I recently met with the local official that runs the INS office in Cleveland and I was really impressed with him. He has about 174 people

working for him. This office runs a special hiring program, Mr.

Chairman, that allows them to expedite the hiring process for applicants who have graduated with a 3.5 average or better.

During the course of our conversation, I asked him, ‘‘How do the

applicants know if they have a job?’’ He said, ‘‘Well, we tell them

that they are qualified.’’ ‘‘But,’’ I said, ‘‘when can you officially hire

them and give them a start date?’’ He replied, ‘‘Well, about 9

months later.’’ That is how long it takes them to do the background

checks and everything. I said, ‘‘Well, how many of the applicants

do you hire?’’ He said, ‘‘Not very many.’’ Mr. Chairman, I find it

utterly ridiculous that it takes 9 months to hire a highly qualified

applicant for a Federal job.

Thank you, Mr. Chairman.

[The opening prepared statement of Senator Voinovich follows:]

PREPARED OPENING STATEMENT OF SENATOR VOINOVICH

Good morning, thank you all for coming. Today the Subcommittee on Oversight

of Government Management is meeting to examine how the human capital crisis is

affecting our Federal economic regulatory agencies and their ability to monitor and

enforce our trade agreements and oversee our complex financial markets.

This is the 10th hearing that this Subcommittee has held over the past 3 years

on the human capital challenges confronting the Federal Government, and the second one since Senator Durbin became the Chairman. Mr. Chairman, I want to

5

thank you for holding this hearing and for your continued partnership in examining

this critical issue.

Human capital management is the most important issue facing the Federal Government. The issues that will be examined today are a microcosm of larger systemic

human capital challenges. Even though half the Federal workforce will be eligible

for retirement within the next 5 years, I am confident that our human capital crisis

can be alleviated with the right combination of legislation, sound leadership and

guidance from the administration, and improved management within each agency.

But, let there be no doubt, the time for action is upon us.

On the legislative front, the goal of my proposed human capital legislation S.

1603, and S. 1639, which I introduced on behalf of the Bush Administration, is to

give agencies the management flexibility, tools and training necessary to improve

performance and accountability.

Thankfully, the President has taken an active role in human capital as well.

President Bush’s comprehensive management agenda has the right blend of proposals to help improve government performance. I was extremely pleased to learn

that the President nominated Mark Everson to be Deputy Director of Management

at OMB. Mr. Everson will be a strong addition to the President’s management team,

which includes OMB Director Mitch Daniels and OPM Director Kay James. With

the appointment of Mr. Everson, I am increasingly optimistic that human capital

reform can be enacted this year.

In order to address the human capital crisis at the agency level, senior executives

must find creative ways to link human capital planning into the budget and strategic planning processes. This important linkage will enable agencies to identify

staffing shortages in mission critical positions so that they can conduct a more targeted recruitment effort. This process will also allow agencies to design better training programs for employees in need of updating their skill sets, thus helping the

agency meet its strategic objectives.

However, reliable evidence suggests that most agencies still have a long way to

go. For instance, in January 2001, the General Accounting Office released its report

High Risk Series: An Update, which states that, ‘‘A lack of sufficient numbers of experienced staff with the right expertise limits the ability of the Department of Commerce, U.S. Trade Representative, and the Department of Agriculture to monitor

and enforce trade agreements.’’ Over the past several years, the roles and responsibilities of our trade agencies

have increased in scope an technical complexity. The Department of Commerce

maintains a database of nearly 300 international trade agreements to which the

United States is a participant. These include NAFTA, 26 WTO agreements and 238

bilateral agreements with individual countries, and the number of agreements continues to grow. The Senate recently ratified an agreement with Jordan, and agreements with Chile and Singapore are in negotiation.

Unfortunately, the staffing levels and work years have not kept pace with this increased workload. This combination raises doubts about our ability to monitor our

trade relations, and indicate that human capital management should be a top priority for our trade agencies. To me, it is clear that we simply do not have enough

people to enforce our trade laws.

I believe that there is a direct relationship between the human capital challenges

at the Federal agencies that regulate and monitor trade and the ad hoc legislation

that has been introduced to supercede our existing trade laws. For example, the

quota bills designed to limit foreign steel imports that have been proposed in recent

years are a reflection of frustration with the perceived lax-enforcement of existing

trade laws. While I am sympathetic with the steelworkers sense of frustration with

what is happening to their industry, I think that quota bills were and are an inappropriate response because they would violate our trade agreement.

In order to maintain the benefits of free trade and prevent a breakdown of international trade, it is critical that we address our trade concerns within the existing

trade law framework. This is exactly what President Bush did when he initiated an

investigation regarding the damage being done by the recent surge in steel imports.

Acting under Section 201 of the Trade Act of 1974, the President initiated a series

of actions that culminated in the implementation of certain safeguards to help the

steel industry weather a flood of foreign steel. The key here is that the President

acted within the parameters of our trade agreement when he initiated this safeguard action.

I am concerned that the widespread perception that we are not enforcing our

trade laws is going to led to more efforts to restrict trade outside the framework

of our trade agreements. If we can’t convince and assure Americans that we are enforcing the rules, we will end up with legislation that violates our trade agreements

and prompts retaliation and trade wars and that would certainly diminish the fruits

6

of free trade. If we want free trade, we must have fair trade, and in order to do

so, we must have the right people with the right skills at our trade agencies to enforce those laws.

Mr. Chairman, as you well know, my Ohio constituents working in every industry

have a vested interest in the human capital challenges facing our trade agencies.

Nowhere is this more true than in the automotive and steel industries which both

face strong foreign competition. Therefore, I am very interested in learning from Mr.

Aldonas how the Department of Commerce is addressing these challenges.

An equally important issue is the Federal Government’s ability to oversee the financial markets, which form the foundation of our economy. The Securities and Exchange Commission plays an absolutely vital role of protecting investors and maintaining the integrity of the financial markets. Without the consumer confidence provided by the SEC, the U.S. Capital markets would not be the envy of the world.

Similar to the workforce challenges at the Department of Commerce, in the 1990’s,

the SEC workload began to outgrow its resources.

This trend was based on several factors including growing stock market trading

and mutual fund transactions, financial innovations, emerging technologies that allowed for an explosion of Internet trading, and the globalization of our markets.

Furthermore, the collapse of Enron begs the question of whether or not our government has the adequate staff to ensure transparency and regulatory compliance.

Combining these factors with staff turnover that reached twice the rate of the rest

of government, it became evident that the SEC needed to make dramatic improvements in their workforce planning process.

On January 16, 2002, the President signed The Investor and Capital Markets Fee

Relief Act. This law includes provisions that permit the SEC to raise salaries for

certain employees to the levels of other Federal financial regulators such as the Federal Deposit Insurance Corporation and the Federal Reserve, whose pay exceeds

their SEC counterparts. I am interested in sharing the SEC’s opinion on the funding

issues surrounding their new salary schedule, their methods and timelines for implementation, and how they plan to recruit and retain more staff to help them accomplish their mission.

In addition to this legislation, the SEC has initiated a special study to evaluate

the Commission’s operations, efficiency, productivity, and resources. I commend

Chairman Pitt for recognizing the human capital challenges facing the SEC and for

taking a proactive stance to solve them. I hope that the findings of the SEC study

will provide the Commission with long-term solutions to their workforce challenges.

With over 11 years of experience at the SEC, I am sure that Mr. McConnell, will

make a valuable contribution to our discussion.

Thank you, Mr. Chairman. I look forward to a lively and informative discussion

with our witnesses.

Senator DURBIN. Thank you, Senator Voinovich.

I want to welcome our first panel. Loren Yager is the Director

of International Affairs and Trade with the U.S. General Accounting Office. Thank you, Mr. Yager.

Richard Hillman is the Director of Financial Markets and Community Investment with GAO.

Grant Aldonas is the Under Secretary for International Trade,

Head of the International Trade Administration at the U.S. Department of Commerce. I want to thank Mr. Aldonas for working

closely with my staff during his former tenure as majority trade

counsel to the Senate Finance Committee Chairman, Senator Roth.

I welcome you back to these familiar halls and appreciate your

coming here today.

Mr. ALDONAS. Thank you.

Senator DURBIN. Jim McConnell is the Executive Director of the

Securities and Exchange Commission.

Edward Blansitt is the Deputy Inspector General for the U.S. Department of Commerce.

Thank you for coming. It is customary in this Subcommittee to

swear in all witnesses, so if you would please stand and raise your

right hand. Do you swear the testimony you are about to give is

7

1The prepared statement of Mr. Hillman and Mr. Yager with attached charts appears in the

Appendix on page 43.

the truth, the whole truth, and nothing but the truth, so help you,

God?

Mr. YAGER. I do.

Mr. HILLMAN. I do.

Mr. ALDONAS. I do.

Mr. MCCONNELL. I do.

Mr. BLANSITT. I do.

Senator DURBIN. Thank you. Let the record note that the witnesses answered in the affirmative. Your written statement will be

made part of the record in its entirety, and if you would be kind

enough now to summarize your statement in about 5 minutes, we

would appreciate it.

Mr. Yager, if you would start.

TESTIMONY OF LOREN YAGER,1 DIRECTOR OF INTERNATIONAL AFFAIRS AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

Mr. YAGER. Thank you. Good morning, Mr. Chairman, Senator

Voinovich. I am pleased to have another opportunity to appear before this Subcommittee, particularly on the topic of human capital,

where the Subcommittee has taken such a leadership role.

For the past 3 decades international trade has grown at more

than twice the rate of U.S. GDP and this trade is governed by a

wide variety of trade agreements. U.S. Government efforts to monitor and enforce these trade agreements involve at least 17 Federal

agencies, with three key agencies, the Office of the U.S. Trade Representative and the Departments of Commerce and Agriculture,

having significant roles.

The primary message of my testimony this morning is that despite the recent efforts of agency officials, there will continue to be

significant human capital challenges at these three trade agencies

in the coming years. Specifically this morning, I will discuss three

things: The workload issues facing the key trade agencies, the

changes that these agencies have made in the last few years, and

finally, a few specific challenges for these particular agencies.

First, let me provide a few illustrations of why the workload continues to increase. One is that the United States is now a party to

at least 300 USTR negotiated agreements and many of these agreements have been negotiated in only the last 10 years.

A second aspect of the workload is that there is a rapidly growing number of nations that are party to the trade agreements. Including countries such as China in the WTO significantly increases

the requirements for monitoring and enforcement.

The third illustration of the increasing workload is that the agencies’ dispute settlement caseload continues to grow. While these

far-reaching agreements have substantially increased rights for

U.S. exporters, they have also increased U.S. obligations to other

nations.

The second major topic that I will cover is the changes that the

trade agencies have made since our March 2000 report. At that

time, we reported that the three key trade agencies’ human capital

8

1The prepared statement of Mr. Hillman and Mr. Yager with attached charts appears in the

Appendix on page 43.

capabilities had not kept pace with their increasing monitoring and

enforcement workload. This work requires a mixture of economic,

technical, and legal analysis, and staff levels at the three key agencies had been flat or declining in the years before our report. As

a result, we found at that time that the United States was unable

to maximize the benefits from the trade agreements.

I am pleased to report that the trade agencies have made significant efforts in the last 2 years to address these challenges. For example, the three agencies have additional funded positions and

have had some significant success in filling those positions. In addition, the agencies have made other efforts, such as investing in

people and increasing the attention to recruitment, which indicates

a greater understanding of the role of the human capital function.

The final issue that I will cover is the remaining challenges for

these agencies. One is the issue of recruitment. This is difficult for

the trade agencies because they need to hire trade experts and specialists for many of the positions, again, including economists, attorneys with litigation experience, and individuals with industry

and regional expertise. This is particularly true at USTR, where

they place a premium on staff with highly specialized skills.

Retention also continues to be a problem at the trade agencies.

For example, attrition at USTR is 17 percent annually, which is

more than three times the governmentwide rate, and the rate at

Commerce’s Import Administration is more than double the governmentwide rate.

A final challenge is the demand for staff expertise generated by

the huge increase in volume and intensity of ongoing negotiations,

including the Doha Development Round of the WTO, the Free

Trade Area of the Americas, and a number of bilateral and other

agreements.

Mr. Chairman, I believe this is a particularly important time to

focus on the human capital challenges at the trade agencies. On

the one hand, the leadership of these agencies has made significant

efforts to address some of these problems. On the other hand, the

enormous volume of ongoing negotiations demonstrate one of the

themes that is frequently brought before this Subcommittee, that

the human capital challenges in the Federal Government have

been developing for a long time and will not be quickly or easily

addressed.

Mr. Chairman, this concludes my testimony and I would be

happy to answer any questions that you or Senator Voinovich have.

Senator DURBIN. Thank you, Mr. Yager. Mr. Hillman.

TESTIMONY OF RICHARD HILLMAN,1 DIRECTOR OF FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GENERAL ACCOUNTING OFFICE

Mr. HILLMAN. Thank you. The leadership provided by this Subcommittee and the Senate Committee on Governmental Affairs has

been especially important in focusing attention on the Federal Government’s human capital challenges and I appreciate the opporVerDate 11-MAY-2000 09:52 Jan 14, 2003 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 80297.TXT SAFFAIRS PsN: SAFFAIRS
9

tunity to appear here today to discuss the serious human capital

challenges facing the SEC.

My statement today will address three specific human capital

challenges. Specifically, I will discuss SEC’s workload and staffing

challenges, the effects of the workload and staffing imbalances on

SEC’s ability to fulfill its mission, and finally, describe other factors that affect the fulfillment of the SEC’s mission.

Regarding my first point on SEC’s workload and staffing challenges, we documented in a recently-issued report on SEC’s operations that over the last decade, securities markets have experienced unprecedented growth and change. Technology has fundamentally changed the way markets operate and how investors

access the markets. In addition, the markets have become more

international and legislative changes have resulted in a regulatory

framework that requires increased coordination amongst financial

regulators and requires that SEC regulate a greater range of products and participants.

Moreover, the recent sudden collapse of Enron and other corporate failures have stimulated an intense debate on the need for

broad-based reform in such areas as financial reporting and accounting standards, oversight of the accounting profession, and the

corporate governance, all of which could have significant repercussions on SEC’s role and oversight challenges.

Further, as stated in our March 2000 report, we found that

SEC’s ability to fulfill its mission has become increasingly strained

due in part to imbalances between workload and staff resources. As

I have illustrated in this middle chart before you, the larger and

more active and more complex markets just discussed have resulted in an increased aggregate workload at the SEC, including

more filings, complaints, inquiries, investigations, examinations,

and inspections.

The dotted line indicates SEC’s combined workload—the increasing line indicates SEC’s combined workload in these areas and it

has continued to grow at a rapid rate throughout the decade while

staff resources, represented by the more flat line, has grown little.

As a result, SEC has been challenged to keep up with this increasing workload since about 1996.

When we reviewed this workload on an activity basis, as this

third chart shows, we found that over the last decade, staffing

within the various areas of SEC’s regulatory oversight grew from

between 9 percent to 166 percent, while workload in those same

areas grew from 60 to 264 percent. As the figure illustrates, these

disparities exist across all key SEC activities, as the increase in

SEC’s workload has substantially outpaced the increases in SEC’s

staff.

Although industry officials complimented SEC’s regulatory regulations of the industry, given its staff size and budget, both SEC

and industry officials identified several challenges that SEC faces.

Let me just mention one.

SEC’s staff which review corporate filings are now reviewing

those filings less frequently and less completely as their workload

increases. The number of corporate filings has grown at an unprecedented rate of 60 percent, while staff responsible for reviewing

those filings has grown at a rate of 29 percent. As a result, SEC

10

1The prepared statement of Mr. Aldonas appears in the Appendix on page 61.

reviewed only 8 percent of all filings submitted in 2000 and reviewed about 16 percent, or only half of its annual goal of reviewing 30 to 35 percent of annual reports.

Regarding my third point on challenges facing the SEC, we found

that in addition to the staff and workload imbalances, other factors

also contribute to the challenges SEC is currently facing. SEC officials said that although additional resources could help to do more,

additional resources alone would not help SEC address its high

turnover, which continues to be a challenge for the agency.

As discussed in our 2001 report on SEC’s human capital practices, about one-third of SEC’s staff left the agency between 1998

and 2000. By 2001, this number has increased to 40 percent. SEC’s

turnover rate for attorneys, accountants, and examiners averaged

15 percent in 2000, more than twice the rate for comparable positions governmentwide. Although the rate had decreased to 9 percent in 2001, turnover at SEC was still higher than the rate governmentwide.

Further, because of its high turnover and its inability to hire new

staff quickly, about 250 positions remained unfilled in September

2001, which represents about 8.5 percent of SEC’s authorized positions.

In summary, although SEC’s workload and staffing imbalances

have challenged SEC’s ability to protect investors and maintain the

integrity of the securities markets, SEC has generally managed the

gap between workload and staff by determining what basic statutorily mandated duties it could accomplish with existing resource

levels. This approach, while practical, has forced SEC’s activities to

be largely reactive rather than proactive.

For instance, SEC has not put mechanisms in place to identify

what it must do to address emerging and evolving issues. Although

SEC has a strategic plan and has periodically adjusted staffing or

program priorities to fulfill its basic obligations, it has not engaged

in a much-needed systematic reevaluation of its programs and activities in light of current and emerging challenges.

Given the regulatory pressures facing SEC and its human capital

challenges, it is clear that SEC could benefit from some additional

funding. However, a comprehensive agency-wide planning effort,

including planning for use of technology to leverage available resources, could help SEC better determine the optimum human capital and funding needed to fulfill its mission.

Thank you, Mr. Chairman.

Senator DURBIN. Thanks, Mr. Hillman. Mr. Aldonas.

TESTIMONY OF GRANT ALDONAS,1 UNDER SECRETARY FOR

INTERNATIONAL TRADE, HEAD, INTERNATIONAL TRADE ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

Mr. ALDONAS. Thank you, Mr. Chairman and Senator Voinovich.

First of all, I appreciate the Subcommittee’s interest and oversight.

One of the lessons I drew from my experience on the Finance Committee was how critical it was for Congress and the executive to be

engaged in an active dialogue about the management of our resources downtown, where I am now. Particularly, it helps us set

11

priorities that are consistent with what Congress has authorized as

well as ensure that we focus our efforts, and so I welcome the interest, particularly with respect to ITA.

The other thing I want to say to begin with is I have spent about

22 years in Washington, in a past incarnation in the Foreign Service and as a trade negotiator at USTR and then in private practice

for many years and then with the Senate. Now I have the opportunity to work with dedicated professionals in the International

Trade Administration, and I have to say I am enormously proud to

serve with this group of people.

Loren’s comments about the challenges we face are real. There

is no doubt that we have one heck of a challenge ahead of us. I

think that is particularly true given what we have seen in terms

of the increase of trade agreements, but also the challenges we

have in trying to level the playing field, as both you and the Ranking Member Voinovich referred to, particularly with respect to

steel.

Most of that comes home to roost in the International Trade Administration. Our friends at USTR are the lead negotiators. Generally, a lot of the compliance work and a lot of the analytical work

comes to ITA, and certainly enforcement of our trade laws is

squarely within the province of the International Trade Administration.

My point simply is, Mr. Chairman, that I work with a group of

people that are dedicated to serving America’s interest and are

doing their best. We have made what I think are significant efforts

to try to cope with the resource issues at the International Trade

Administration, and I want to divide my comments two ways.

The first thing is, and this really started in the last administration, as well, there was a real effort at the time of the passage of

Permanent Normal Trade Relations with China to ramp up the

ability of the Commerce Department to deal not only with trade

agreements, but also to deal with the potential enforcement issues

we face under our own trade remedy laws. That started the ball

rolling. We are benefitting from that now.

At this juncture, we have, in fact, virtually all of the personnel

that were authorized in fiscal year 2001. The fiscal year 2003 budget has again asked for an increase in these areas, recognizing that

the President has introduced a very aggressive trade agenda. That

starts with trade promotion authority and the ability to negotiate

new trade agreements. We are going to be in a position, hopefully,

to conclude within the next 3 years a new multilateral round of

trade negotiations within the framework of the WTO as well as the

long-awaited Free Trade Agreement of the Americas. That will certainly raise the onus on the International Trade Administration to

step up to the plate.

Now, both of you have had the opportunity to talk with Secretary

Evans. Both he and the President believe that promises made are

promises that have to be kept, and accountability on compliance

definitely starts with the President and the Secretary. What they

have asked us to do is make sure that not only are we instituting

the sorts of administrative and management measures that will

help us ensure compliance, but that we are trying to solve problems, and here I want to come to the point about steel.

12

1The prepared statement of Mr. McConnell appears in the Appendix on page 69.

Unfortunately, as you suggested, Mr. Chairman, too often in the

past, I think the principal means of addressing steel was simply

through the antidumping and countervailing duty laws, and we

had fallen into the habit of what I would view as simply prosecuting the cases. What the President and Secretary Evans asked

us to do was actually try and solve the underlying problems.

Again, that raises the ante in terms of what the folks in ITA

have to do, particularly in Import Administration in this instance.

But it is essential to renewing the bargain on trade with the American public. Both the President and the Secretary understand unless we show up every day with compliance on our mind, with leveling the playing field on our mind, we are not going to have the

support of the American public for trade promotion authority which

is before the Senate or for the trade liberalizing agenda that is important to our economic future.

Beyond that, I am happy to respond to any questions you have,

Mr. Chairman and Senator Voinovich, and certainly pleased to be

here. I do welcome the opportunity and certainly welcome the interest in ITA’s functions. Thank you.

Senator DURBIN. Thanks a lot. Mr. McConnell.

TESTIMONY OF JAMES M. McCONNELL,1 EXECUTIVE

DIRECTOR, U.S. SECURITIES AND EXCHANGE COMMISSION

Mr. MCCONNELL. Thank you, Chairman Durbin and Senator

Voinovich. I appreciate the opportunity to testify before you today

on behalf of the Securities and Exchange Commission to discuss

critical resource and staffing issues that the Commission faces in

its oversight of our financial markets. At the outset, I want to

thank this Subcommittee and its staff for the tremendous support

it has given the Commission.

The events of September 11, the bankruptcy of Enron, and the

indictment of Arthur Andersen have all tested the strength and

spirit of our economy, our capital markets, and, indeed, our country. In light of these events and explosive industry growth, the

Commission must have the resources it needs to fulfill its multiple

missions and maintain the public’s confidence in our capital markets.

The Commission currently oversees an estimated 8,000 brokerage firms employing nearly 700,000 brokers; 7,500 investment

advisors with approximately $20 trillion in assets under management; 34,000 investment company portfolios; and over 17,000

reporting companies. The Commission also has oversight responsibilities for 9 registered securities exchanges, the National Association of Securities Dealers, the National Futures Association, 13

registered clearing agencies, and the Municipal Securities Rulemaking Board.

The Commission today faces some of the most complex and difficult issues it has ever considered. New technologies, new participants, and new financial products are reshaping our markets. Our

markets also are becoming increasingly global and they are taking

steps to shed their long-held membership status and are moving to

becoming publicly held entities.

13

We are a Nation of investors. In 1980, only 5.7 percent of Americans owned mutual funds. Today, some 93 million shareholders

representing 52 percent of U.S. households hold mutual funds. Our

Nation’s investors have an unprecedented stake in our markets.

Whether through college savings plans or retirement accounts, our

collective stake in U.S. markets continues to grow and we are increasingly dependent on those markets. It is now more important

than ever that the SEC remain vigilant in policing and maintaining the integrity and transparency of the securities markets.

Unfortunately, at the very time the challenges facing the Commission have grown, the Commission has been subject to extremely

high attrition. Perhaps the single largest barrier to the Commission’s effective recruitment and retention efforts was eliminated

with the recent enactment of pay parity. This critical legislation

does not mean, nor should it, that SEC employees will be paid at

the level of the private sector. It does, however, redress the obvious

disparity that previously existed between SEC employees and employees of the Federal bank regulatory agencies. Pay parity, when

fully funded on a permanent basis, will help the Commission retain

its talented and experienced staff.

The legislation had the added benefit of establishing a stable,

long-term funding source for the Commission, even after the meaningful fee relief it provided. In fiscal year 2003, the Commission

will collect approximately $1.3 billion in securities-related fees.

After fully funding pay parity and the additional positions we have

requested for fiscal year 2003, the Commission will still collect over

$750 million more than our budget.

The Subcommittee has raised the issue of whether or not our

government has adequate staff to monitor publicly traded companies. I commend the Subcommittee for tackling such a critical

issue. In fact, the Commission itself is engaged in a comprehensive

review of the SEC’s resource needs and operations. When Chairman Pitt came to the SEC last fall, he expressed his intention to

perform an in-depth review of the Commission’s operations, effectiveness, and resource needs in time for the fiscal year 2003 budget

process. The extraordinary events of the past 8 months, including

the destruction of our Northeast Regional Office, made any contemplative review of our resource needs impossible until recently.

Last month, Chairman Pitt announced the commencement of the

special study he committed to with the results to be part of the fiscal year 2004 budget process. The study is also a direct result of

the findings of the General Accounting Office as set forth in two

of its recent reports on certain aspects of the SEC’s operations.

For more than a decade, the Commission’s human capital agenda

has been dominated by compensation issues, including aggressive

use of the authorities available under Title V. Pay parity, the GAO

reports, our internal special study, and these hearings will move us

to a more comprehensive approach to the human capital issues that

are this Subcommittee’s topic of concern.

Thank you for this opportunity and I ask that my formal testimony be included in the record. I will be pleased to answer any

questions.

Senator DURBIN. Thanks, Mr. McConnell. Mr. Blansitt.

14

1The prepared statement of Mr. Blansitt appears in the Appendix on page 80.

TESTIMONY OF EDWARD L. BLANSITT,1 DEPUTY INSPECTOR

GENERAL, U.S. DEPARTMENT OF COMMERCE

Mr. BLANSITT. Thank you, Mr. Chairman and Senator Voinovich.

I appreciate the opportunity to appear before you to discuss the Department of Commerce Office of Inspector General’s work related

to the Department’s International Trade Administration.

As part of a comprehensive planning process performed during

the summer of 2001, the Office of Inspector General sought to identify those areas and activities of the Department of Commerce that

we believe are most in need of our attention. As we reported in our

September 2001 ‘‘Semiannual Report to the Congress,’’ we identified the need to increase international compliance with trade agreements and expand market access for American exporters as one of

the top 10 management challenges facing the Department of Commerce. We made this determination based on the fact that trade

compliance was, among other factors, a critical component of the

Nation’s overall trade agenda and a priority of the Secretary.

In March 2002, we issued our initial report dealing with the

International Trade Administration’s trade compliance efforts.

Within ITA, compliance is handled by three units, Market Access

and Compliance, Trade Development, and the U.S. and Foreign

Commercial Service.

The Commerce Department reorganized its international economic policy and market access staff in July 1996 to give greater

focus to market access and trade compliance issues and at that

time created the Market Access and Compliance Unit within ITA

that houses the Trade Compliance Center. Our review focused on

the activities of the center in an effort to determine whether its

management of the trade agreement compliance process was efficient, effective, and responsive to client needs.

The Trade Compliance Center is the Department’s focal point for

trade compliance, provides information about trade agreements,

and helps U.S. businesses understand their rights and gain market

opportunities. The center’s budget and staffing levels remained relatively constant from the date of its creation in fiscal year 1996

until fiscal year 2001. In fiscal year 2001, ITA received a $12.8 million increase to fund a compliance initiative for Market Access and

Compliance and Import Administration.

We conducted our review of the Trade Compliance Center just as

it was expanding and found that the trade agreement and compliance work needed to be better coordinated within ITA and that collaboration between ITA’s operating units should improve.

We recommended a number of actions that ITA management

should take to address these problems, including development of

guidance that clearly delineates the role of the Trade Compliance

Center. After we completed our field work, the center developed

and distributed a trade compliance manual to all ITA staff. That

manual explains how the compliance program works and outlined

the roles of the various ITA components, but it should be strengthened to provide more definitive guidance to staff in determining

when to coordinate with the center.

15

Our review also identified the need for a central ITA-wide database of trade compliance work. ITA management has advised us

that it moved to a consolidated database of compliance and market

access cases in February 2002 and that the monthly compliance reports to the Secretary received clearance from all four of its operating units. However, because the consolidated database did not

address all of our concerns, we have asked ITA to look at further

consolidation of its database.

Our report also examined performance measures proposed by

ITA for assessing the effectiveness of its trade compliance activities

and noted that although some adjustments are still needed, the

compliance complaint process has improved since the Trade Compliance Center began handling such matters in 1997. The staff’s

knowledge and experience have grown and the results achieved by

the compliance teams have enhanced ITA’s effort to increase access

to foreign markets in compliance with trade agreements.

Because of the importance of trade compliance and market access

to the success of U.S. exporters, we as an office intend that our recently completed report be only the first in a series of reviews to

be conducted in this area.

This concludes my prepared statement, Mr. Chairman, and I will

be happy to answer any questions.

Senator DURBIN. Thanks, Mr. Blansitt.

Mr. McConnell, I was born in the town of East St. Louis, Illinois.

It was a great place to grow up in, but it is a town that has had

more than its share of problems. One of the national news stories

that came out about 10 or 15 years ago was that the police department in East St. Louis had reached the point where all of the police cars had broken down. None of them were on the street. Incidentally, someone ended up suing the city and ended up with the

deed to city hall. So things were not going well in my old hometown.

But, as I reflected on this hearing, I recalled the sad situation

of a police department in a little town in downstate Illinois when

you could not even put cars on the street, and the challenges that

you face now at the SEC. Certainly, you have not reached that

level, but——

Mr. MCCONNELL. Thank you. [Laughter.]

Senator DURBIN. You have given us clear warning signs here

about what is happening at your agency. If we had this hearing

and Enron had never occurred, it would be worrisome. But after

Enron occurred and we saw the damage done, not just to the employees, the pensioners, and the investors in that company, but to

the overall economy and our confidence in our economy, as I read

and listen to your testimony, it is a wake-up call.

For example, let us talk about the attrition rate that you face

now at the SEC. Clearly, you are losing good people to better paying jobs. Can you give me some kind of idea of what you are up

against, what you are competing with in terms of the skills of good

people, what they can be paid at the SEC and what they make in

the private sector?

Mr. MCCONNELL. Yes, I can. We need to hire, to conduct our mission, highly skilled attorneys, accountants, and examiners that,

ideally, and we seek out most frequently people with experience in

16

the industry. That industry routinely pays multiples of the salaries

that are associated with government service.

Senator DURBIN. Give me an idea. You have got a bright young

lawyer coming out of law school. You want that lawyer on the SEC

staff. What do you typically offer to pay that lawyer?

Mr. MCCONNELL. That bright young lawyer is a little bit easier

to deal with. We pay them typically the GS–11, high steps, which is $50,000, $60,000—something like that. That bright young lawyer

could perhaps make at a firm twice that, right out of school. But

that lawyer still wants to come to the SEC for a period of time. It

is like graduate school.

Senator DURBIN. Sure.

Mr. MCCONNELL. So we still can attract those people. They do

not stay. We used to try and hope that they stayed 3 years. It has

gotten to the point where it is down to 2 years or less. Our cases

can routinely take longer than that. A financial fraud case is enormously complex, time consuming, and can take a lot of time, and

we might have multiple people working on the same case over

time. It is very inefficient.

Senator DURBIN. How about accountants?

Mr. MCCONNELL. Accountants, typically, we will only hire seasoned accountants that have been in the industry, have actually

been in the public accounting profession for some time. We have

just found that bringing in entry-level accountants has not worked

well for us, so we try to bring them in at the higher levels and that

is very difficult.

Senator DURBIN. What do you offer the typical accountant with

some experience?

Mr. MCCONNELL. Typically, we offer a GS–14 salary, $70,000,

$80,000 range.

Senator DURBIN. Is that competitive with the private sector?

Mr. MCCONNELL. It is not competitive. We have probably had

more difficulty hiring accountants than any other single segment of

our workforce. In the accounting profession, certainly you can add

to your resume by coming to the SEC if you are in public accounting. It is not the same sort of experience that you get if you are

a young attorney and learning the securities laws at the SEC.

Senator DURBIN. What is the turnover on accountants? You

talked about the young attorneys staying around for 2 years or

less. What about accountants?

Mr. MCCONNELL. Accountants, we have had similar turnover

problems. It has been double the governmentwide average. We

have had in the past accountants, 10 or 12 percent turnover. Right

now, we are actually experiencing, and this is maybe not part of

your question, but we are experiencing a pretty good situation right

now. The combination of pay parity having passed, behavior has

changed somewhat, and in the market conditions. We are able to

attract and retain people a little bit better right now. I say that,

one extent, because this is a very good opportunity for us to take

care of a lot of the problems that we have had in recent years with

respect to bringing in the best people to regulate the securities

markets.

Senator DURBIN. Do you use student loan forgiveness as an incentive for retention or recruiting?

17

Mr. MCCONNELL. We have not employed that to date.

Senator DURBIN. I might just add, parenthetically, that I believe

in that, but I have come to realize since we have applied it to the

U.S. Senate agencies that it is a difficult thing to set up standards

for. It makes sense, but who receives it and who does not can be

an issue.

Mr. MCCONNELL. Right.

Senator DURBIN. What does that say about morale at the agency?

As we are in our first year now on some of these Senate agencies,

the managers of these different agencies are addressing it in many

different ways, and at the end of the year, we are going to take a

look at it and see if it has had any value to us.

Mr. MCCONNELL. You are absolutely right. We encounter that

same experience in dealing with a lot of the Title V authorities, the

recruitment bonuses, retention allowances, relocation costs. We are

aggressive users of those authorities now, but they have a cost. The

people who do not receive it are not very happy, and I do not blame

them necessarily, but you just cannot give it to everybody. You

have to make very tough choices and you have to use criteria that

people understand are fair and that is not an easy thing to do.

Senator DURBIN. I would just conclude, and certainly there are

a lot of questions that could be asked here, but when we think

about what we now expect of your agency after Enron, you are our

last chance, the last hope for the average investor that there is

going to be an honest cop on the beat who is going to take a look

at all those filings and blow the whistle if some company is up to

the tricks of Enron or something else that endangers the corporation as well as its investors and pensioners. And yet, as much as

we are counting on you as cops on the beat, we are not giving you

the squad cars that you need to cover the territory, just using that

analogy.

Mr. Aldonas, I guess the same thing could be said when it comes

to the trade agreements. I am a person who votes for trade agreements. I believe in them. But Senator Voinovich and I were standing at the same rallies and at the same meetings bemoaning what

happened to the steel industry here. When we believe several countries turned on the United States, dumping their product, we voted

for trade agreements saying, well, if that ever happens, we are

going to come roaring back at you. There is a law here, and you

have to follow it.

Well, if you look what happened over the course of several years,

the law was not followed very carefully or closely and the losers

turned out to be a lot of steel companies and a lot of steelworkers

and a lot of local economies that were devastated by it. You are

seeing a dramatic increase in trade agreements and questions

being raised.

I notice this morning’s BNA reports that the WTO has seen a

huge jump in the number of new dumping investigations in the second half of 2001. From July 1 to December 31, over 180 cases were

initiated by WTO members. The United States was only second behind India. We filed 35 cases, mostly against China, South Africa,

Brazil, Japan, and Venezuela. It is no surprise that, with the exclusion of South Africa, these other countries were all major steel producers, incidentally.

18

Mr. ALDONAS. Right.

Senator DURBIN. Of the 180 cases filed, China seems to be the

most targeted, with 25 complaints filed against it. Now, I voted for

the Permanent Normal Trade Relations with China. I believe there

is a great opportunity here. But clearly, we are going to have to

prove our mettle here in dealing with China that we are going to

stand for fair trade and fight for it. Do you have the troops to engage in that fight?

Mr. ALDONAS. Yes, I think we do. Let me divide it into two sides,

Mr. Chairman. One, on the market access side, we have doubled

the size of the China office and we have improved the scope of the

activities in-country, as well. We are going to pay an awful lot of

attention to it. One of the things the Secretary has asked me to do

is ensure that both our export promotion and our compliance activities focus on those areas where we have opened up new markets

so that we are not losing in the implementation what we have tried

to gain at the negotiating table.

That is why over the course of the last 3 weeks I spent a lot of

time in China, starting with Beijing, Shanghai, Guangzhou,

Shenzhen, and Hong Kong, really preaching the message of WTO

implementation. I took a Congressional staff delegation with me to

underscore the oversight responsibilities of Congress and that there

was no daylight between Congress and the executive on this. Secretary Evans is there repeating that message at a much higher

level, meeting with the leadership of China to underscore for them

that this is, without a doubt, how Congress is going to measure our

trade relationship with China.

Senator DURBIN. But do you have the resources to make that

promise stick, to say to the Chinese, we are ready to go toe-to-toe

when we feel that American companies and workers are the losers?

Do you have the men and women you need to make that work?

Mr. ALDONAS. I believe, particularly with the request we have

made for fiscal year 2003, that we will get there. With the compliance initiative that started in 2001, I think we are staffed up to

start to grapple with these issues. But we recognize that we are

going to need more in light of the ongoing negotiations and then

still maintain a focus on China. That is why we have asked for

more both in market access and compliance as well as Import Administration.

Mr. Chairman, if you do not mind, I want to come back to the

second part of this, which is not just the challenge of securing market access in China but ensuring that we are also grappling with

those instances when China and other countries undermine the

international trading system by dumping their products in the U.S.

market, and as far as I am concerned, exporting their unemployment here to the devastation of an awful lot of steel companies as

well as a lot of other companies in the United States.

On that front, again, we have had a fairly significant increase in

the amount of personnel. The real issue in Import Administration,

more often than not, is retention. We have problems with our retention rate there that parallel what you see at the SEC or a number of the other agencies. They are very high.

Part of that is the nature of the work, which is very difficult. It

is challenging. You spend a lot of time away from home. There is

19

also the fact that once you have learned the skills inside Import

Administration, there is a real attraction in the private sector to

go out and join a law firm or work as a paralegal and you can earn

an awful lot more than you can at the Commerce Department. So

there are issues that we have to grapple with on the retention side.

But at this moment, I think we are fairly well staffed up. And,

in fact, as a result of the steel decision, what we did was accelerate

the hiring process in Import Administration because they are now

doing double duty. We are not only handling the regular workload

in terms of the countervailing duty and antidumping actions, we

are actually handling the implementation of the Section 201 action,

as well.

So we have tried to accelerate all that and I feel comfortable we

are up to staff now. I think time will tell over the course of this

year whether we can sustain that. I look forward to the support for

the fiscal year 2003 initiative to make sure that we do keep topping

up here and are capable of grappling with the issues in front of us.

Senator DURBIN. Thank you. My time has expired, but I want to

ask Mr. Yager, just in conclusion to this round of questions, you

have heard these responses from Mr. McConnell and Mr. Aldonas

about the challenges they face in their staffing. Is this what the

GAO also concluded from your study?

Mr. YAGER. Yes, Mr. Chairman. We looked back, and I think particularly with the International Trade Administration, there were

a couple of initiatives in the year 2001 which do seem to be exactly

targeted at the kind of expertise that you would need. I think there

was one, the overseas compliance program, where they added a significant number of staff. And in addition to that, there was the import surge monitoring group that was plussed up in 2001. I am not

sure whether they did anticipate the kind of demand for those personnel, but certainly that would pay off at this point with the kind

of safeguard actions and things like that that are now underway.

With regard to the SEC, I would have to say Mr. Hillman is responsible for that area.

Senator DURBIN. Mr. Hillman.

Mr. HILLMAN. And at the SEC, there continue to be serious turnover problems, although Mr. McConnell says things are getting better as the economy gets better. At the time of our study, there were

250 vacant positions at the SEC, or about 8.5 percent of their staff

resources. That is a serious shortfall that needs to be corrected.

They need to also explore innovative ways to attract senior level

staff and bring in information technology expertise to better position itself to oversee the evolving securities markets. Each of these

areas, I believe that the SEC is challenged and SEC is attempting

to meet that challenge.

Senator DURBIN. It would seem to me, though, that the luck or

good experience at the governmental level is countercyclical, that

if we are dealing with a recession, if we have a business downturn,

there are going to be more lawyers, and accountants, and skilled

people available to consider public service, working for the government. Now, as the economy turns around, there is more business

activity, there is more need for the SEC to be watching more closely. These same people are going to be lured away because the new

companies and new business opportunities pay them a lot more.

20

That seems to put us in a terrible bind in terms of maintaining

continuity here.

Senator Voinovich.

Senator VOINOVICH. I think that I agree with what you just said.

I am glad to know that you are concentrating on China because I

have been meeting on an ongoing basis with businesses in Ohio

and the biggest complaint I am hearing now is from China. So the

very people that were for Normal Trade Relations with China are

the ones that are most bitterly complaining about it.

I really think that it is important that you notify the citizens of

this country of your actions so that people know that something is

happening in this area. Because I sense growing frustration with

my consituency in Ohio. For instance, I met a gentleman in the

foundry business, who produces a casting for $3,000 in O’Leary,

Ohio. Now, that same casting is being imported from China at

$1,500. This gentleman has been in business for about 35 years

and he is panicked, and I sympathize with him because this is his

whole business. I asked him to get back to me with some specific

examples, stating how other Ohio businesses have similar experiences which I will share with you because I think it is important

for you to know the issues that hard working American businesses

are faced with.

Mr. ALDONAS. I would appreciate it if you would.

Senator VOINOVICH. There is a lot of anecdotal evidence out

there. However, I would like to get at the real things that make

a difference.

I am asking all of our witnesses to explore our options to improve

the system to deliver better results. I have introduced legislation

and the administration has legislation to try and deal with some

of the problems that your agencies experience. I am interested in

knowing what additional tools you need to get the job done. David

Walker has said that if agencies used the incentive package properly that most of our problems could be taken care of. Agencies

must use the incentives that are actually available, and in order

to do so, they must devise a strategic workforce plan stating when

the flexibilities should be used.

Which leads to my first question, do you feel that your respective

agencies have the budget to get the job done? And then the next

thing, it would be what other additional tools would you need in

order to accomplish your missing, and I would also like you to comment on the retention issues facing your agency.

I am interested in learning how agencies can overcome the retention problems especially since employees often leave the Federal

Government after 4 or 5 years for more lucrative positions in the

private sector.

In your testimony Mr. McConnell, you stated that 52 percent of

the American public invests in the market today, and after Enron,

a lot of them are skeptical about it. So I would just like to have

you all comment on your agencies budget and the use of human resource tools needed to help accomplish your agency’s mission.

Mr. ALDONAS. If I could start, Senator Voinovich, in terms of the

tools that are needed, one thing I think would be helpful is to follow closely the implementation of the President’s management

agenda, in part because it really does focus on the human capital

21

concerns that are foremost in the minds of both the Chairman and

Senator Voinovich. What we are doing in response to the President’s directive is trying to identify the issues within the agency

that would allow us to focus our resources on the hottest issues.

I think for a long time, it is fair to say that at least in ITA, we

have not really traced whether or not our resources are dedicated

to the growing sectors of the economy and the hottest issues of

time and what we have put together as a restructuring plan that

we submitted to OMB really does reflect that. But I think it is

going to require interest and oversight from Congress to ensure

that these changes get made over time as a practical matter and

I would invite your help with our authorizing Subcommittee as well

as the appropriators to ensure that they understand the importance of what we are trying to achieve, to get the resources to the

right place within our own framework at the Department of Commerce.

Mr. YAGER. Senator Voinovich, I think that I would like to add

a little bit to that. There are also additional improvements that can

be made within the context of the current flexibilities and I think

that there has been a guide that was just produced by GAO in

March, a model of strategic human capital management, and there

are a number of critical success factors listed in that guide which

would provide guidance to Commerce as well as USTR and the Department of Agriculture’s group that handles international issues.

So, for example, things like investments in people, data-driven

human capital approaches, integration and alignment, I think a lot

of those critical success factors, we could use those and take a look

at these agencies and they could make some progress with the current flexibilities.

I think they are moving in the right direction from the levels at

which they originally were, where they did not understand and did

not fully take advantage of the human capital function. They are

moving the right way, but there is more that they can do in these

critical success factors. Whether it is the GAO report or whether

it is OPM’s or others, there is a lot of information out there that

could help them.

Senator VOINOVICH. When the budgets are presented and the Office of Management and Budget submits them, are you aware of

any earmarking that would specify funding for human resource incentives to help the agencies deal with the human capital crisis?

From what I understand, a lot of this is just kind of hidden. It is

a line item and you have no idea what it is going to be used for.

It seems to me that if you came up with a different format that

tracked where the money was being spent, that it might give the

Members of Congress a better understanding of how important this

is.

Mr. ALDONAS. That is a good point. I know even from my perspective internally, looking at the roll-up of the numbers, it never,

in my mind, accurately reflects what we are trying to do with the

money. So I imagine from the consumer’s point of view here in

Congress, it is that much more difficult.

For example, we put the priority on our people in this first budget at the Commerce Department under Secretary Evans and asked

for another $1.2 million in training to address some of the retenVerDate 11-MAY-2000 09:52 Jan 14, 2003 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 80297.TXT SAFFAIRS PsN: SAFFAIRS
22

tion issues that we faced. I know what the money is for. I am not

sure that the roll-up actually reflects that is the goal that we are

trying to achieve, and so I like the idea of trying to provide greater

focus because it would give, I think, the folks who have to make

the decision up here a better sense of how we plan to spend the

money and whether it is really addressing the issues that we are

facing down at the Commerce Department.

Senator VOINOVICH. One of the things that I observe around here

is that there really is not anybody that is lobbying for human capital. If there is a program that brings money into a community

then it is easy to lobby for the funding. It is hardware. You have

got the manufacturers that are lobbying very hard to buy the

goods, Congressmen, Senators wanting it because it provides jobs.

However, no one really lobbies for the people doing the work. It

seems to me that agencies have to make the human capital case

themselves. It is important and agencies have to let us know how

Congress can help.

Mr. McConnell, there is a lot of speculation that had SEC had

the right number of people, that Enron might not have occurred.

What is your reaction to that statement?

Mr. MCCONNELL. Well, we have tried to deal with that by—we

do not really know. I mean, had we had more people, had we been

doing our job differently, it is possible that we would have caught

an Enron. But I am not saying that just by adding more people we

could have precluded that or that there is not another Enron out

there.

We need to examine very closely how our disclosure system is

working and that is what we are doing as part of our special study.

Do we have the right people? Are we looking at the right things?

Is the disclosure we are receiving from companies the right sort of

disclosures that would help us with Enrons? The answers to those

questions will help us then focus our resource needs, our resources

requests, on doing just exactly that, trying to make sure that we

are doing the best we can to preclude that from happening in the

future.

Senator VOINOVICH. I am interested in your opinion on how we

can entice employees to stay in the government. Should we look at

the pay schedule for the Senior Executive Service? One of the

things that we have observed is that 70 to 75 percent of the people

in the Senior Executive Service get the same pay.

There is a lot of discussion centering on recruitment and retention incentives but should we also be exploring pay comparability

and SES pay compression also? How importnat, in your opinion, is

it for us to deal with certain human resource incentives in addition

to pay comparability and pay compression?

Sometimes, there is a tendency to support a flower-of-the-month

proposal, but it seems to me, that if you do not have a competitive

pay schedule and you do not deal with the compression problem,

then you can not effectively deal with the other issues either. Except perhaps to say that people in mission critical positions are

going to get a higher salary. However, this often leaves a feeling

of inequality throughout the organization. Can you comment on

that?

23

Mr. MCCONNELL. I think there is no doubt that both compression

and the failure of the Federal Government to keep up with the private sector have caused us serious problems with recruitment and

retention. The SEC is perhaps in an enviable position right now of

being able to implement a whole new pay system. While it is not

going to be quite private sector-like, we will have substantial increases. We will be able to stretch out the pay scale to a much

higher level—we will not be facing the same cap that current Fed- eral employees face. Our cap will be in the $200,000 range because

it will be capped at the Vice President’s salary.

So we will be able to put together a system that might, in fact,

form some sort of a test of what could be done within the Federal

Government. We are doing this under Title V. We are working

closely with OPM. They are actually being quite helpful and are

quite eager to see what we are doing, to see what sorts of things

we come up with will be useful going forward for a problem that

everybody recognizes is a very serious one.

Senator VOINOVICH. It is interesting, you mentioned that, even with the new pay schedule, the SEC will collect $700 million more

than what the fees are. So the $700 million is going to go into the

general fund, is that right?

Mr. MCCONNELL. Well, the $700 million actually is available to offset other appropriations. That total amount of $1.3 billion that

we will collect next fiscal year is available to our Appropriations

Committees as an offset. So it is used during that fiscal year for

whatever other Commerce-Justice-State activities they choose.

Senator VOINOVICH. But the point is that fees collected by the

SEC, also subsidize a portion of the other part of the agency’s

budget.

Mr. MCCONNELL. Yes, sir, that is correct.

Senator VOINOVICH. And your customers could say, we are giving

you all this money and you say you cannot get the job done, but

you are not spending all the money we are giving you. You are giving it to somebody else. Why are you not spending all that money

to do the work you are supposed to be doing?

Mr. MCCONNELL. They have made that note to us, actually.

[Laughter.]

Senator VOINOVICH. I think it is something we ought to be looking at.

Mr. ALDONAS. Senator Voinovich, if I could just add, it is more

of a personal reflection. I spent a good share of my time when I

was in private practice as the hiring partner at a major law firm

here in Washington, DC, and I was a bidder for services that both

Mr. McConnell and I now buy at the SEC and the Commerce Department. We liked to talk a lot in our firm about the quality of

life and a variety of other things, but you know, at the end of the

day, when you are trying to attract that top graduate out of law

school or a seasoned accountant or even paralegals and clerical

staff, it boils down to the money.

I think we do need to take a hard look at pay scales because you

are trying to not only attract people and retain them, there is a lot

of value from public service that people derive. There is a real attraction to working at the Commerce Department in the International Trade Administration because of the experience that they

24

get and because of the nature of the work and the sense that you

are wearing a white hat, frankly, because you are working for the

U.S. Government on issues that are important to our economy. But

that does not compensate for everything.

Senator VOINOVICH. Thank you.

Senator DURBIN. Thank you, Senator Voinovich.

I have a question or two to ask and then I am going to ask my

colleague here if I can turn over the gavel to him because I have

to run downstairs for a meeting and I will try to return for the second panel, too. But let me just try to address a couple points, if I

can, before I leave here.

Mr. Aldonas, one of the things that the GAO told us was that

they had learned in your agency from people working there that

you may have to shift resources away from trade compliance to

meet the increased workload in conducting negotiations. Let me

tell you why that troubles me and why it is topical in the Senate.

We are being asked to give the President trade promotion authority to enter into new trade agreements. I have been reluctant

to do that in the past because I think Congress has an important

role to play here. But let us assume for a minute that it is going

to pass and discuss what it means. We are now reaching the point

where we are moving forward, or can move forward if this passes,

at a faster pace to negotiate more trade agreements around the

world. Many of us believe that expanded trade of the right circumstances is good for the United States and for the other country,

as well.

But if what we are hearing from you and the GAO is that as we

are putting more time and resources into negotiations and more

trade agreements, we are taking resources away from trade compliance, then the conclusion that I reach is we ought to slow down our

pace, because if we cannot enforce the law, in other words, pass

treaties that protect American businesses and workers, why in the

world are we in such a headlong race to increase the number of

trading opportunities for countries who can come into the United

States unfettered by any legal requirements because we do not

have any cops on the beat?

Mr. ALDONAS. Mr. Chairman, actually, we agree with you. That

is why, in taking a look at our staffing, we felt it was going to be

inadequate based on the structure we had when the Bush Administration came into office, and that is why as a part of the first budget request we could make, fiscal year 2003, we did ask for an additional 33 people in market access and compliance and an additional

40 in Import Administration, precisely because we knew we were

going into a fairly aggressive year of trade negotiations, both in the

WTO and the FTAA.

What is not commonly understood is that while USTR leads the

negotiations, frequently on issues that are peculiarly within our

province, like things like antidumping, countervailing duties and

safeguards, the Commerce Department is the lead negotiator, and

as a consequence, we felt we had to get staffed up quickly, not only

to deal with the WTO but the FTAA and the possibility of other

bilateral agreements.

But I agree with you fundamentally. We cannot be in a position

where we are shifting resources away from compliance to engage

25

in further negotiations. Those compliance jobs are part of the infrastructure of what makes the system run and keeps the playing

field level.

Senator DURBIN. So if we are making a commitment to a trade

agreement, we have to say to the American people, the workers

and the businesses, we are also making a commitment to putting

people in place to enforce it.

Mr. ALDONAS. Absolutely. Fundamentally, you cannot keep a bargain with the American public about trade if you are not doing

that, as far as I am concerned.

Senator DURBIN. Mr. McConnell, let me ask you about a similar

situation. We are being asked now to consider what we are going

to do to avoid future Enrons and some people have said, well,

strengthen the law, which basically means strengthen your agency

so it can apply the law and enforce it with the Department of Justice.

But there are others who say government is never going to keep

up with the growth of business and the complexity of business for

a lot of the reasons we have talked about. Maybe we ought to look

to that other safeguard, the courts. As long as we have an opportunity for securities litigation, if these companies know that they

could face civil penalties for their wrongdoing, that is going to be

a greater disincentive than whether or not from year to year SEC

has an appropriate workforce. What is your reaction to that?

Mr. MCCONNELL. The regulatory scheme that we employ does

rely upon enforcement as a very strong tool to ensure compliance

with our other oversight responsibilities. So we have that working

hand-in-hand now and it needs to continue and be strengthened,

even, as we go forward.

I certainly have watched this as it has developed and I happen

to believe that—maybe this betrays my background, too—that the

courts play an important role in this, too, as an effort to try to stop

the excesses of those who abuse the law.

Senator DURBIN. Can I ask one very parochial question of you,

Mr. Aldonas, and I think that perhaps Senator Voinovich might be

interested in the answer, too. Exactly how many exclusions to the

Section 201 remedy relative to steel that the President announced

are now pending before this administration?

Mr. ALDONAS. Over 1,000.

Senator DURBIN. And how many have been granted?

Mr. ALDONAS. That, I have been away for 3 weeks and I have

not actually been able to follow that, so I cannot give you an answer, but I would be happy to get back to you on that, Mr. Chairman.

Senator DURBIN. Of course, many of us thought the President

was moving in the right direction with his Section 201 and his response on steel, but the exclusions make us nervous, because if we

are going to continue to exclude by the hundreds all sorts of steel

products to come into the United States, the net positive impact on

the American steel industry and its workers is not going to be

there.

Mr. ALDONAS. Understood, and what I want to assure you is the

basic rule that is being applied is whether or not the specific exclusion request would undercut the remedy and the protection that we

26

are trying to offer, the breathing space that we are trying to offer

the industry, and so generally what we are looking at under those

circumstances is whether the product is actually made in the

United States in any commercially available quantities. If it is not,

and generally, the industry will agree with us that it is not, then

we will go ahead and grant the exclusion request. Where we see

that it is being made, our view is that it is going to be undercutting

the remedy under those circumstances.

Senator DURBIN. Thank you very much. I am going to step away,

and as further indication of bipartisanship trust between parties,

I am going to turn over the gavel to my friend, Senator Voinovich,

and I will be returning shortly.

Senator VOINOVICH [presiding]. Thanks very much. Is it true that

there are currently 250 unfilled positions at the SEC?

Mr. MCCONNELL. Right now, we have done a better job of hiring

up and we have lost significantly fewer people just in the last several months. So I will have to give you an update of that figure

now, but it is less than that right now. But still, we have authority

to fill positions that we are not able to fill, there is no doubt about

that.

Senator VOINOVICH. How long does it take to hire a new employee at the SEC?

Mr. MCCONNELL. It depends. Attorneys, we can hire very quickly. We have delegated authority to do that and we do not have to

go through all the normal—— Senator VOINOVICH. Can you waive the Title V provisions and

bring people on?

Mr. MCCONNELL. We can waive those.

Senator VOINOVICH. Under what provision are you able to do

that?

Mr. MCCONNELL. We were delegated that by OPM because we

have a unique class of attorneys for which—that we need and are

available in the marketplace and so they delegated the authority

to us for that.

Senator VOINOVICH. That is from the Office of Personnel Management?

Mr. MCCONNELL. That is correct.

Senator VOINOVICH. Is this a new flexibility offered by Kay

James’s at the Office of Personnel Management?

Mr. MCCONNELL. No, that has been in existence for quite some

time, for about 15 years, as far as I can recall. Now, accountants

and other staff are much more difficult. We have to use traditional

hiring mechanisms for those and they can take quite a bit of time.

With respect to something you mentioned earlier, we use the 3.5

GPA program, as well, and that is very quick. Getting young people

right out of college, we can do that. If they have got the GPA, we

can hire them quickly. But typically, it takes months. It takes

months to hire accountants and economists, examiners.

Senator VOINOVICH. I would like you, if you would, to see if you

can give me a couple of examples and get it back to me.

Mr. MCCONNELL. Certainly.

Senator VOINOVICH. Take a couple of people that are, I would

say, the average person you employ and give me some idea of how

long it takes and why does it take as long as it does.

27

Mr. MCCONNELL. Absolutely.

Senator VOINOVICH. OK. Mr. Aldonas, how long does it take to

hire a new ITA employee?

Mr. ALDONAS. Well, it varies—— Senator VOINOVICH. Does the agency utilize the rule of three

where the best qualified are rated and ranked taking veterans performance into consideration?

Mr. ALDONAS. Generally, yes, and the way we approach recruiting varies a little bit by the different constituent parts of ITA. In

some respects, the Import Administration serves as a basic intake

mechanism because working on the dumping and countervailing

duty cases gives people a fairly good grounding in what the international trade rules are and things of that nature. So what we try

and do is keep the pipeline full with potential applicants so that

we can try and ease the process as much as possible, but it still

takes time.

When we have been going through this process to fill in behind

the fiscal year 2001 request, for example, it has taken us until, I

think, just at the tail end of last year, maybe even early this year,

before we really got the numbers up to where I thought they

should be. So we are at the staffing levels we need to be under the

fiscal year 2001 request, but it really took that sort of 18-month period to get fully up to speed.

Senator VOINOVICH. And how many more employees will you

bring on with the new budget?

Mr. ALDONAS. With the new budget, we will be looking at 33 fulltime equivalents in market access and compliance and 40 in Import

Administration, again, because Import Administration provides

something of an intake mechanism. Oftentimes, young folks will

join the Department, will come in through Import Administration

and they will spend about 2 years there getting a grounding and

then they will move into the other areas of trade development, the

Foreign Commercial Service, or market access compliance.

Mr. YAGER. Senator Voinovich, if I could add——

Senator VOINOVICH. Yes?

Mr. YAGER. The USTR has had, I think, a more difficult time

from our data collection with the hiring than ITA. It appears that

they place a premium, as I said in my statement, on personnel

with particular experiences in litigation or economists with significant experience rather than hiring at the entry level. So, for example, when they were trying to increase their staffing for the 2001

year, it took them nearly a year to get the staff on board that they

were trying to get, and I think that was significantly more time

than they had anticipated.

One thing I will mention also about USTR which is unique is

they have a very significant program of detailees. They apparently

at most times have about 30 to 40 detailees from other agencies in

order to get the kind of expertise—— Mr. ALDONAS. That is part of our retention problem. [Laughter.]

Mr. YAGER. Well, they do, as a matter of fact. They take detailees

from some of the other agencies and sometimes they do stay at

USTR.

Senator VOINOVICH. Can you explain the concept of detailing employees to other Federal agencies?

28

Mr. YAGER. A detailee would be a person, an employee of another

Federal agency who is working full-time at the U.S. Trade Representative’s Office for 1 to 2 years, and oftentimes they are asked

to do that because of specialized expertise they may have, for example, in food safety issues or in other—— Senator VOINOVICH. Are they in the budget of USTR, then,

or——

Mr. YAGER. No. They would be on the originating agency’s budget at that time.

Senator VOINOVICH. So they are still on the agency that is detailing them over to the U.S. Trade Representative?

Mr. YAGER. That is right.

Senator VOINOVICH. So it is difficult to capture the true operating cost of an agency with a lot of detailees.

Mr. YAGER. Right, but it has been very effective because USTR

is a small agency and sometimes they need the staff for a limited

amount of time. In other cases, it may be that they determine

through the course of the detail that they do need someone on staff

with that particular expertise. So in some ways, this is an innovative approach for an agency to get the expertise that they need and

also have some flexibility with the use of those slots that they do

have, the limited number of slots at USTR, which is only about

200.

Senator VOINOVICH. I am particularly interested in the impediments of hiring mid-level career employees from the private sector.

As you know, one of the items in my legislation provides more vacation time to mid-career employees who are hired from the private

sector. I know it sounds like a minor item, but I think it is a nice

incentive. Do you agree?

Mr. YAGER. I can imagine that would be quite an irritant, particularly if you were coming in at mid-level, for example, to USTR,

which is really quite a difficult agency in terms of the number of

hours worked and the travel schedule and things like that. So you

come in at a mid-level and you are asked immediately to take on

significant responsibilities and working long hours while at the

same time you are told that you get 4 hours of leave per pay period. I do not know that would be a major factor, but certainly that

would be an irritant in trying to understand just how they value

their employees.

And so I think the kind of changes that you have talked about,

such as making leave more liberal, I think would certainly send the

right signal to those kind of applicants that they recognize the

value that they provide to the agency and they also recognize the

kind of sacrifices that they are making when they take a job at

USTR or in the Import Administration.

Senator VOINOVICH. We are working with David Walker on this

legislation and I would like you to go back and talk to him a little

bit about maybe just zeroing in on those bills that we have introduced to see if there is anything else that, from your experience,

you think we might add that might make it more easy for the

agencies, the three that deal with trade. I am sure that if they

would be helpful there, they probably would be helpful for the SEC

and in many other places.

Mr. YAGER. I will do that, Mr. Voinovich.

29

1The prepared statement of Ms. Cribb appears in the Appendix on page 87.

Senator VOINOVICH. Does anyone want to make any other comments before we go to the next panel?

[No response.]

Senator VOINOVICH. Thank you very much for coming here, and

again, I would like you to go back to your respective shops and talk

to Evans and see if there is a possibility that he is in the administration and maybe get the word to Mitch Daniels. In fact, I am

going to try to mention it to Mitch, that somehow in the next budget they clarify where these dollars are going so that Congress can

understand this is money that is going in to deal with the human

capital crisis.

Mr. Blansitt, I would like to hear from you in about 3 months

about how Mr. McConnell is doing on filling the hole.

Mr. BLANSITT. Actually we are responsible for Mr. Aldonas’s programs.

Senator VOINOVICH. Oh, I am sorry——

Mr. ALDONAS. But we would be happy to have him look at Mr.

McConnell for the next 3 months. [Laughter.]

Senator VOINOVICH. Well, you can do that, too. [Laughter.]

Mr. BLANSITT. But we will definitely get back to you in about 3

months.

Senator VOINOVICH. Thanks very much.

Our next two panelists, Lynn Turner is Professor of Accounting

at the Center for Quality Financial Reporting at Colorado State

University and former chief accountant at the Securities and Exchange Commission, and Ms. Troy Cribb is Trade Counsel at

Steptoe and Johnson and former Assistant Secretary for International Trade, U.S. Department of Commerce.

You have heard the testimony and I would be interested in

knowing, how do we keep some of the good people in the agencies,

since both of you have left. [Laughter.]

If you would stand up, I would like to swear you in. Do you

swear to give the testimony as the whole truth and nothing but the

truth, so help you, God?

Ms. CRIBB. I do.

Mr. TURNER. I do.

Senator VOINOVICH. Let the record show that they answered in

the affirmative.

Ms. Cribb, we will start with your testimony this morning.

TESTIMONY OF TROY CRIBB,1 TRADE COUNSEL, STEPTOE AND

JOHNSON, L.L.P.

Ms. CRIBB. Thank you, Senator Voinovich. It really is a pleasure

for me to be here this morning to appear before your Subcommittee

on a topic that I feel very strongly about. I have been following the

fiscal and human capital needs of the Commerce Department since

my days I spent up here as staff to the Senate Commerce Committee, and, of course, then while I was at the Department serving

first in Trade Development and then as Assistant Secretary for the

Import Administration, and now in the private sector practicing

international trade law.

30

I think much of what is in my statement mirrors what Under

Secretary Aldonas was saying. I think it is important for the Subcommittee to hear that message from someone like me, who is now

in the private sector, because I do not have to say these things. Of

course, Grant does not really have to, either, but I feel very strongly, even though it is a Republican administration that has taken

over now and I was very sad to have to walk out the door when

I had to leave the Commerce Department, I cannot think of anyone

I would rather have in there than Grant Aldonas. He is really

doing just a fantastic job.

One of the pleasures about working at the Commerce Department was that the mission of ITA is truly bipartisan. Now that I

am on the other side, I do want to do my part to help make sure

that remains the case.

I do want to second what the Under Secretary was saying about

the extraordinary staff at ITA. It is a very talented, hard working

group of people and I think that the business community has largely recognized that and has lent good support to the Department.

As you know, the array of trade issues these days is extraordinarily complex and growing day by day. Often, trade issues get

into very complicated issues involving, for example, health or safety

standards or transportation or telecommunications, and I think

ITA really deserves credit for evolving over the years to develop the

expertise to handle these new issues as they come along.

I also want to second Under Secretary Aldonas’s comments about

the really critical role that ITA plays in supporting USTR, from the

negotiating stage to implementation to dispute settlement. ITA is

really fundamental to what USTR does, and as you know, USTR

is deliberately a small agency within the Executive Office of the

President and it has to rely on other agencies to help fulfill its mission. Certainly, ITA every day is working hand-in-hand with USTR

on a number of fronts. Of course, once the ink is dry on an agreement, it is ITA’s primary responsibility to enforce those agreements.

Furthermore, I think that one role obviously very important for

ITA is trying to help resolve these often difficult market access

issues before they get into a lengthy and costly dispute settlement

proceedings. As you know, these WTO cases can go on for a long,

long time and that is also true under some of the other dispute settlement proceedings under other agreements. Furthermore, we

have to be careful about overloading the WTO with a large number

of disputes. So, certainly, a large part of what ITA does is to try

to get in early, identify the problem, and work with the U.S. businesses and the foreign governments to see if we can reach a resolution of these before kicking off official disputes.

Furthermore, as I think Congress has fully recognized, ITA does

a really terrific job of reaching out to smaller and medium-sized

businesses and help them understand export opportunities. I ran

into so many businesses during my years at Commerce who would

not be in the business of exporting were it not for the help that

they got from ITA, and so there really are a large number of success stories there and those are crucial to help maintain and further the support of the American people for new trade agreements.

31

1The prepared statement of Mr. Turner appears in the Appendix on page 89.

With respect to the Import Administration, where I served, I

think I carry an important message today because my firm represents both respondents and petitioners, and for both sides it is

very important to have adequate staff and a very talented staff

there to process the cases and then make sure that there is a fair

outcome. I would be happy when we get to the question section to

try to elaborate on some of the comments people have already

made about trying to attract and maintain good staff.

Just a couple of other things I would throw out as suggestions,

having served in the Department. I think that the Department

benefits by having people rotate throughout the offices. Of course,

you want to maintain industry expertise and country expertise, but

I think especially with the younger staff that it benefits both the

Department and the staff if they have exposure to different offices

and different issues.

I also think that Congress could work with ITA on its recruiting

effort to make sure that it is an ITA-wide recruiting effort. I think

too often it has fallen to the different components to do their own

recruiting.

And finally, any support that you could give to the Department

for helping upgrade its technology would be greatly appreciated.

Often, the offices work on different computer systems. With respect

to the Import Administration, they need to move to the point where

parties can do electronic filings, as a lot of the courts are doing

now. I realize that is a costly issue, as well, but certainly one to

which I would like to lend my support.

Thank you very much and I would be happy to answer any questions.

Senator VOINOVICH. Thank you. Mr. Turner.

TESTIMONY OF LYNN TURNER,1 PROFESSOR OF ACCOUNTING,

CENTER FOR QUALITY FINANCIAL REPORTING, COLORADO

STATE UNIVERSITY

Mr. TURNER. Thank you, Senator Voinovich, for the opportunity

to be here and address some of these serious issues regarding the

human capital crisis.

I was listening to your questions to the first panel and it brought

back some memories, not all fond. In fact, the particular question

about how long it takes to hire someone brought back some real

memories, and so I commend you and Chairman Durbin for holding

these hearings on a very important issue. The human capital part

of the government is very important today. A very important asset

to the government walks out of the office every night.

Let me state that the SEC staff are some of the hardest working,

most dedicated employees I have ever had the privilege to work

with, including those that I worked with in private practice. However, as Enron and the growing trend in restated financial statements has demonstrated, one of the critical issues facing American

investors is the lack of adequate resources for the SEC. As you

heard earlier, resource shortages at the SEC have been highlighted

by the recent study of the GAO. This problem has occurred at a

time when U.S. capital markets have experienced explosive growth,

32

as highlighted in my testimony which I ask be included in the

record.

In fact, the recent history of the SEC tells the story of an agency

captured and held hostage by the chains of its budgetary constraints, budgetary constraints that take on more of a flavor of a

back-door attempt to stop regulation and oversight by ceasing to

fund the regulator in what I would consider to be an adequate

fashion. But let me take you inside the agency and discuss the implication for investors of some of the restraints placed on the SEC,

and as you noted, Senator, that is literally one out of every two

adult Americans today.

Investors do need to be sure that the SEC is on the beat after

the litany of financial fraud cases that have cost them approximately $200 billion in recent years. Time and time again, I saw

practical limitations placed on the staff’s ability to conduct timely,

effective investigations as a result of the staffing constraints. These

limitations were the direct result of an insufficient number of staff

to investigate the current financial fraud caseload, some 200 to 250

cases at the SEC.

Cases were understaffed and the staff faced insurmountable odds

against some of the finest defense attorneys in the country. The defense was often able to outgun the SEC due to sufficiently more resources, including staff and experts. Adding 25 to 50 accountants

to the accounting staff at the SEC Division of Enforcement is long

overdue. It will help ensure investors and those who break the law

receive timely justice.

The staffing needs of the Division of Corporation Finance has

also been shortchanged. Total filings with the SEC in 2000 were

over 98,000. That comes out to about 1,200 filings per accountant.

At the same time, below-market wages have almost singlehandedly increased the turnover levels of the staff well beyond

those of other governmental agencies. That has left the Commission with the task of hiring and training less experienced, albeit

dedicated, staff.

In order for the SEC to effectively review the filings it receives,

there needs to be a 50 to 100 percent increase in the number of

accounting staff in the Division of Corporation Finance. The staff

need to be fairly compensated at market rates for the work they

are performing rather than receiving wages well below what they

can earn elsewhere.

Based on my experience as a CFO, an audit partner, and the

chief accountant, I believe increasing the staffing levels will provide significant benefits to the markets and investors and these

benefits will greatly outweigh the costs. We need to remember that

the costs to investors and creditors in the case of Enron have been

estimated as high as $93 billion. The cost of adding these additional staff is but a drop in the bucket to that number.

Let me switch to my experience as chief accountant. In that office where I had the lead, we functioned much in the same role and

capacity as the national office of the Big Five accounting firms in

all respects but one. We had less than half of the staff. Those offices typically had 70, 75 people in them. We were working in the

neighborhood of 20 to 25 staff much of the time. Amazingly, in

light of Enron and a rise in the financial fraud restatements, the

33

original SEC budget estimate for 2000 stated an actual decrease in

the staffing of that office.

But the SEC, and I think you have pointed this out, needs more

than just people to allow it to do its job properly. It needs tools,

such as updated information, personnel management systems that

allow improved management of the agency, more effective utilization of personnel, greater information technology know-how, and a

quicker deliver of the product to the investing public in companies

they invest in. These needs must also include improved training.

In light of the various resource needs the SEC has to carry out

its duties, its original budget estimate for 2003 falls considerably

short of the target. The proposed budget represents a 6.6 percent

increase over the appropriated funding for fiscal year 2002 and

would actually reduce total budgeted positions from 2,716 to 2,670

positions. In light of the losses investors have suffered due to

abuses and fraud in our capital markets, it is hard and perhaps impossible to reconcile the budget request with good, responsible government.

The House of Representatives marked up a bill last week that

provides for little real reform. However, that legislation does, perhaps realizing its intended effect, greatly increase the budget of the

SEC to $776 million. I agree with the members of the House and

support this increase and hope the Senate will, too. At this time

of crisis in our capital markets, American investors and the employees and families of the SEC deserve no less.

Thank you, and I would be more than happy to answer any questions you have, as well.

Senator VOINOVICH. Thank you very much.

Ms. Cribb, how serious do you think the nations that we have

trade agreements with take our Department of Commerce’s efforts

to enforce the trade laws? How much respect do we have from our

partners around the world?

I am a free trader. As Governor of Ohio, we had wonderful experiences with the Foreign Commercial Service officers. They really

helped our businesses and I made trade one of my four goals in

terms of economic development for the State of Ohio.

But the impression that I received was that there was not a lot

of respect for what we are doing. In fact, I believe that we need

to have the right people with the right qualifications working in

our trade agencies. We need to hire employees who will wake up

early in the morning and go to bed late at night and stay energized

about their jobs. This will help spread the word out across the

world that we are serious about this, and if we do this, we might

see a different approach.

To be candid, if I were out there, and knew what was going on,

I would run against us every day I could, down the field as far as

I could go, and get away with as much as I could because I would

figure that the flag would not be thrown until I got pretty close to

the goal line. That is my attitude from what I have picked up as

I have traveled the world for 8 years on these trade missions. I

would like your reaction.

Ms. CRIBB. I actually think that there is a great deal of respect

around the world for both the Commerce Department and USTR.

In fact, a lot of governments will send delegations from their govVerDate 11-MAY-2000 09:52 Jan 14, 2003 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 80297.TXT SAFFAIRS PsN: SAFFAIRS
34

ernment to come visit the Department and have the Department

help teach them how to set up their own trade departments.

So I think you are right in that as a matter of negotiating posture with us, of course, a lot of other countries are going to try to

push the limits of what they can do. But at the same time, I think

that they largely look to our regulatory agencies as models for what

they can do in their own countries.

Certainly the dumping laws, provide a perfect example. Of

course, a lot of our trading partners have complaints about not only

the way we administer the law, but the very existence of the law.

Meanwhile, they are busy setting up their own departments at

home and making active use of the laws, as was referenced before.

Senator VOINOVICH. In your opinion the Chinese, Taiwanese,

South Koreans, Brazilians, and our European friends, respect the

way we have established our trade agencies and that they come

over here to learn from our lessons, but how serious do they take

our efforts to enforce the trade laws?

Ms. CRIBB. I think this goes back to the comments made from

the first panel that it is absolutely vital that we make sure that

we have the staff to do compliance in addition to negotiations. As

Senator Durbin was saying, you cannot just be racing ahead, constantly negotiating, without looking back and enforcing.

I think that, certainly over the last few years, that the Congress

has given more money to ITA to help beef up staff and do those

activities. The Compliance Center was set up several years ago to

be the focal point within ITA for initiating these compliance activities.

I think that it is going to be a constant struggle and that there

will be more resource needs within ITA to make sure that the staff

levels are what they need to be.

Senator VOINOVICH. Excuse me for interrupting you, but one of

the things we called for in our legislation, and I would like to send

you a copy of it, maybe you could look at it—have you seen it yet

at all?

Ms. CRIBB. I have not.

Senator VOINOVICH. I would like you to look at it, just from your

experience.

Ms. CRIBB. Yes.

Senator VOINOVICH. When you were at the Department, do you

really think that human capital was given the attention that it

really deserved and needed?

Ms. CRIBB. I think so, and as I say, it is hard for any administration, and even in the years of budget surpluses when we finally

turned the corner on that, it was still a very difficult budget environment, and it is even more so now when so much of everyone’s

attention is focused on security issues. It is hard to get attention

for international trade.

But certainly I think that in the years I was there, that the administration always tried to make international trade an important

part of both our U.S. economic agenda and our foreign agenda, and

as I said, it has been a very bipartisan effort on that score.

Senator VOINOVICH. Did you have somebody in the Department

whose soul responsibility was to focus on human capital? One of

the things we are requiring in this legislation is a designated perVerDate 11-MAY-2000 09:52 Jan 14, 2003 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 80297.TXT SAFFAIRS PsN: SAFFAIRS
35

son dealing with human capital that gets up early and works on

it constantly and looks at whether or not the workforce is where

it should be and shapes it and is on top of it. Do you think it was

given enough attention when you were there?

Ms. CRIBB. One of the things I think Under Secretary Aldonas

has done that has provided a continuity is to pick up on those efforts that we had started. As I mentioned in my remarks, I do

think that there is more that can be done ITA-wide to ensure that

there is a better recruiting effort, and that may be one thing that

the Congress should work with ITA on, to closely examine.

As I said, a lot of times with recruiting, it just falls to the various

offices to go out themselves and try to find people, whereas I think

that there could be a much more effective, coordinated effort to go

out and attract recruits—especially young people coming out of law

and graduate schools. ITA has a lot to offer that the private sector

can never offer. As Grant said, it is a perception of wearing the

white hat and it is a great feeling. I mean, there is really nothing

like going to work and knowing that your job is to be out there

looking out for the interests of the U.S. people. That is a feeling

that a law firm cannot offer, no matter how much they pay.

I think that the travel opportunities are exciting for young people. I think young people are very interested in all the international issues. So I think that even though it is tough not always

being able to offer competitive salaries, that these are certainly

things ITA can go out and sell itself on.

Senator VOINOVICH. Thank you. Mr. Turner, what is it going to

take for us to get your brightest and best accounting students to

come to work for the Securities and Exchange Commission? Once

they get there, how do we keep them?

Mr. TURNER. Without a doubt, I think during my entire time at

the SEC, the No. 1 issue as I watched people walk out the door was

the pay parity issue. The compensation, you have got to keep in

mind that the staff, they are, on average, I think, dedicating about

25 percent of their hours each year as contributed hours, so they

are not getting paid but they are putting in the hours and yet

maybe they are getting 70 percent of pay. So you have this where

they are working 25 percent more but getting 30 percent less in

terms of compensation.

Senator VOINOVICH. You are saying that your people are salaried

people—— Mr. TURNER. Right.

Senator VOINOVICH [continuing]. And they are putting in 25 percent—you are talking about overtime?

Mr. TURNER. Overtime.

Senator VOINOVICH. So you are going over 40, 25 percent, and

then they are not compensated for that, and then if they look at

the pay they are getting for the 40 hours, it is about 30 percent

less than what they would get in the private sector, is that—do I

get it?

Mr. TURNER. That is—you have got it. Instead of here, you are

going this way. When people have to put food on the table, you can

only do that for so long.

The people do not expect to be compensated at private sector

wages. They are not even asking for that. They are just asking to

36

be treated fairly, and they know that when, sooner or later, they

will have kids going to college and have to pay for college education

or schooling needs or something, they really do love the public service and do a great job at it. That is why they put in the 25 percent

donated hours. But at some point in time, the bills do mount up

and come home and the rooster comes home, so to speak, and they

can just not afford to do it any longer.

As you heard earlier, whereas in the past you could maybe keep

an accountant for 2, 3, or 4 years—I was at the Commission from

1989 to 1991 and it was not unusual to see the staff stay 3 or 4

years—this last go-around, 18 months is what they were spending.

So it just does not keep them there.

So pay is one thing, and when you have that turnover, then you

have problems with inexperienced people, as well. It takes additional supervision. You do not have the supervision because they

are not there, either. You talked about the SES turnover, so you

do not have that. That impacts the markets and the people trying

to come in because it makes it more difficult, since they are dealing

with less experienced people, just to communicate and talk about

what is going on and get over their filing issues. So it creates probably more struggles in the system, as well, both for people inside

the Commission and for people outside the Commission.

And I do think if we had had enough staff to review filings on

a timely basis on Enron, we would have seen it. Those financial

statements were restated for 1997, 1998, 1999, 2000, and now it

looks like 2001. It used to be the staff did try to get through filings

of every company at least once every 3 years. They did not do that

on Enron, and, in fact, in the fall of 1999, I remember a meeting

in the office of Chairman Levitt at the time where we all got together. We did not even have the staff at that point in time to review all the public offerings at the time. We would just run out of

staff, I mean, literally could not do it. We are all struggling—— Senator VOINOVICH. Is that because you did not have the budget

to hire them?

Mr. TURNER. Yes.

Senator VOINOVICH. While you were at the SEC, you did not

have the budget to hire more employees, and even if you did, the

levels of compensation were not as competitive as they should be,

is this correct?.

Mr. TURNER. Right, and you still saw then the 250 open slots, so

it was you did not have the money, you could not get them, and

so you did not have the slots, you did not have——

Senator VOINOVICH. And you also suffered, did you not, from the

fact that other financial regulatory agencies were able to change

their pay schedules. So some of the SEC employees float from one

Federal agency to another because they wanted equally challenging

work, but they wanted more money as well?

Mr. TURNER. Yes. I actually loved working with my counterparts

down at the Federal Reserve but I hated to go down to meetings

with them, because if I took my staff with them, they might decide

to stay. [Laughter.]

They could get these 30, 40 percent increases down there, and

out of our office, we did have people that made those type of jumps

and you cannot blame them for that, certainly, so——

37

Senator VOINOVICH. Is the new SEC pay schedule, from your observation, competitive now with other financial regulatory agencies?

Mr. TURNER. I have not seen where they are coming out with

their new pay schedules. I have seen what the discussions have

been and how they are redoing it, so I honestly do not know if they

are coming out. They did need to jump up quite a bit, and the people are good, talented people.

I remember one fellow in my office who left in the summer of

2000 and had been with the Commission 10 or 12 years. He was

very good, excellent. He had been in industry, been in with a Big

Five firm, done very well every place he had been, really wanted

to stay. I was able to pay him around $85,000, plus we could do

some things with bonuses, retention bonuses, and we did have to

actively use that. If we could not have been actively using retention

bonuses, we would have lost a lot more people, although there were

some restrictions. But I could pay him $85,000 plus maybe a

$15,000 bonus, max.

He left to go join one of the Big Five firms as a partner, that is

the type of caliber people we had in that office. He went out for

half-a-million dollars a year. So these people can jump. Now, in his

particular case, if we could have just bumped his pay, I would say

another—if we could have gotten him up in the $115,000 range,

there is no question in my mind he would have stayed. I mean, everyone knows they can jump for that type of compensation, but he

loved the work, but he had two daughters starting college and he

just could not afford to pay it. I know if I had had that—the guy

almost came in and pleaded, but you did not have it in the budget

and you did not have the flexibility to do that.

Senator VOINOVICH. I have seen that during my years in government, also, people that come in that do not want to leave, but they

have to, and you do not blame them for leaving because they have

got family responsibilities they have to take care of, particularly

those that have got children that are college age.

Let us go back to Colorado. What is it going to take to get some

of your bright people to come, in terms of the procedure? Have

starting salaries got to be up, or tell me what you think.

Mr. TURNER. Starting salaries have got to be up. I think you

have got to give the people the tools that they need to do their jobs

right, technology, information systems. When I walked out of private enterprise as a CFO and walked into the Commission, it was

like going into the dark ages with respect to technology.

Senator VOINOVICH. Now, do your students know that?

Mr. TURNER. Yes. I think—in fact, it is interesting. A couple of

weeks ago, we had a discussion. Some of the kids were talking

about where they might go in terms of employment. I was trying

to encourage them to think about public service and some government service for at least some period of time. I do think they have

a perception that if they go into the government, they are not going

to get the ability to work with some of the things like the new technologies that they might otherwise get in one of the accounting

firms. They will not get that level of training.

They certainly do not see the type of recruiting that emphasizes

that. In fact, when I first got into——

38

Senator VOINOVICH. Yes, how about the recruiting? I have heard

stories that Federal Government recruiting is not as good as it

should be, that agency websites leave a lot to be desired. How do

you feel about that?

Mr. TURNER. I would agree with that. I think that if you were

to benchmark the recruiting done, that I did when I was one of the

recruiting partners at one of the Big Five accounting firms versus

what I did as a CFO versus what was done at the government

agencies, they are just on different playing fields. The government

is going to lose out every time. We did not have the type of recruiting brochures. We did not have the type of outreach and contact.

People do not create the image in the students’ mind that you see

being created by private enterprise. It is a non-competitive recruiting effort.

So if you have a non-competitive recruiting effort in terms of

really saying what you can do, and I have got to tell you, the jobs

at the SEC are absolutely fabulous. There is a very compelling,

great story to tell to students that should make it very attractive

to them. If you tell that story in a competitive fashion and then get

to where salaries are competitive for those new accountants we

hired like into the compliance and inspection program at the SEC,

I think they will be able to get and attract people.

But you have got to do those two things and then you have got

to let them know that when they come into the Commission, they

are going to have the level of training that they should have to continue their education and the technology tools——

Senator VOINOVICH. That is the other thing. I have added a comprehensive training provision to my human capital legislation, because when I came in, I asked the 12 departments how much they

spent on training and they could not tell me. When you were at the

SEC, how much emphasis was placed on training and upgrading

the skills of individuals, because, again, you are pointing out, that

is important. If I am a new employee, I want to know if I will work

on exciting projects and what type of training opportunities are

available to help me grow professionally. While you were at the

SEC, how much attention was given to training the employees?

Mr. TURNER. Training, almost—initially, it was an afterthought,

and I will tell you why. They were so short of staff and people were

already working 25 percent overtime——

Senator VOINOVICH. Right.

Mr. TURNER [continuing]. That when you went and said, let us

have a training session, in people’s mind, it was, like, OK, now you

have put me up to about 30, 40 percent overtime. I would love to

do it. The problem is, that created a bad environment for training

that made it difficult to get it done, so the training was not there.

The coordinated training effort absolutely was not there, no question about it.

People did want training. We did go out periodically to the Big

Five accounting firms and they were very helpful. They would

bring in people. So you had the ability to do it. You had the ability

to get the resources. We just had no one to coordinate it, and quite

frankly, then again, there was not time allocated to go do it because everyone was already buried.

39

Senator VOINOVICH. I have co-sponsored legislation that in- creases the student loan repayment amount from $40,000 to

$80,000. If you work for the Federal Government and you pay off

the loan, I guess you have to add it to your income, and if you work

for somebody else in the private sector, you do not have to do that.

Do you think increasing the student loan repayment amount will

help recruit and retain qualified employees?

Mr. TURNER. Yes, I actually do think that would make a difference. I actually think that is a very fine program and I think

people realistically could work through any implementation. I do

not see the implementation issues being that big on that. So I

think that would actually be a fine program, and certainly for the

students in my classes that have just spent 4 or 5 years and they

are tired of being poor, the opportunity for them to walk out and

think, I am going to have that school loan, at least some piece of

that forgiven, I think that would be a big ticket item to them, so

I would commend you for moving in that direction.

Senator VOINOVICH. So it is higher starting wages that are more

comparable. They do not have to as well as in the private sector,

but somewhere in the ballpark.

Mr. TURNER. Yes.

Senator VOINOVICH. Potential employees must have an understanding of the type of technology, equipment and training available at the Federal agency they are applying to. We don’t want

them to feel like they are, as you said, going into the dark ages.

An opportunity to upgrade their skills with training, help get their

loans paid off. That would make a big difference, you think?

Mr. TURNER. Yes. I think there is one other thing I picked up on,

if I heard you right. You talked about each of the agencies really

having a dedicated human capital strategic plan, a human capital

resource officer—— Senator VOINOVICH. Right.

Mr. TURNER [continuing]. Where that is their focus, that is their

job and they are trying to stay on the front edge, not be so far behind where private enterprise and all is. I would commend you for

that, too. We do not manage that asset in the government nearly

as well as what I think is done in the private enterprise area. The

resources are not devoted to it. People do think about it in budget,

give me X-amount of budget, but they are not thinking about, how

do I turn those dollars into real good management of my people so

I get what I am paying for, because you have got good people there.

That needs to be part of any agency’s plan, and an important part

and then well managed.

I think we had a lot of opportunity and challenges in that area

at the SEC, but I think we had a lot of improvements that we could

have been making and I just do not think we fit within the notion

of what you were looking for. I just do not think we were there.

Senator VOINOVICH. My legislation will require that. Furthermore, it is important for agencies to add their human capital plans

in the Government Performance and Results Act process. This is a

main focus in my legislation. Unfortunately, agencies are not tying

their human capital plans into the goals of their agency. Would you

agree that this is a key management concept that needs to be addressed?

40

Mr. TURNER. Yes.

Senator VOINOVICH. So we need to emphasize that more.

Mr. TURNER. I definitely agree with you.

Senator VOINOVICH. Ms. Cribb, how about your experience in

terms of people coming into the agency? What is needed to really

make them competitive?

Ms. CRIBB. Again, more competitive salaries always would help.

I would also say that training is an area where I think ITA could

improve a good bit. The resources are stretched so thin that it is

hard to have money left over for the training opportunities, and I

think a lot of the staff are interested in expanding their skills, especially in language skills, which would be helpful to their performance in ITA.

We did run into a lot of the problems you were describing about

also finding the time for training. It is a long work day as it is and

it is hard to get people to stick around sometimes for after-hour

training.

But I also would add, I think that while across the whole GS

spectrum it would help to have higher salaries, I think that at

some of the highest levels, you have a group of people who have

made a decision to stay in the government as a career. They have

already made that decision. It is really at more of the mid-level

where you tend to lose people, who get frustrated that——

Senator VOINOVICH. But you do not——

Ms. CRIBB [continuing]. There are not as many people, and so I

think the compensation——

Senator VOINOVICH. But the compression problem, that is another thing. At the Senior Executive level, 70, 75 percent of the

people make the same amount of money is what we are hearing.

Again, it is anecdotal. If I am here and I have got an opportunity

to retire, I am kind of locked, and I get more of an increase in my

annuity every year than I do if I stay with the agency.

Ms. CRIBB. Right.

Senator VOINOVICH. So you finally sit down and figure the numbers out and say goodbye. Do you think that is something that

needs to be looked at?

Ms. CRIBB. Sure. I also think that as you move up the GS scale,

that often, getting the highest scale is dependent on managing a

team of people. I am not quite sure if that is a Commerce-specific

rule or if it is more OPM-wide. I think it is governmentwide.

Within ITA, often, you want to reward someone for their expertise, which is not always tied directly to how many people they are

managing. So I think something that the Department could look at,

too, is how to get higher grades for a lot of those people who are

bumping up against situations in which there are only so many

jobs within ITA that are going to be supervising a number of people, but there is plenty of need for the expertise. We need to make

sure we reward the expertise.

Senator VOINOVICH. So, salary levels are a problem. It is like in

the teaching profession. If you teach in a classroom, you get X and

the only way you can get it is to become assistant principal and

then become principal.

Ms. CRIBB. Right.

41

Senator VOINOVICH. Even though you may be a marvelous teacher, you move out of the classroom.

Ms. CRIBB. Right.

Senator VOINOVICH. So you are saying you have certain expertise

in the agency, but there is still a problem there. If you want more

money, then you have got to go into a supervisory—— Ms. CRIBB. Exactly.

Senator VOINOVICH [continuing]. So that should be looked at, too,

from a comparability point of view.

Ms. CRIBB. Exactly.

Senator VOINOVICH. I really appreciate your both being here

today. This is a subject that I am very interested in and I really

appreciate Senator Durbin’s continuing to work on it. I know it is

going to take a long time to get this across. I feel that my biggest

asset is my years of experience as an executive. I know that I have

to constantly educate my collegues on the importance of sound

management practices. I really want to break through the bureaucratic barriers that have been impeding change for so many years.

Mr. TURNER. Stick with it and you will get there, Senator.

Senator VOINOVICH. Thanks very much for being here.

Ms. CRIBB. Thank you.

Mr. TURNER. Thank you.

Senator VOINOVICH. The Subcommittee is adjourned.

[Whereupon, at 12:07 p.m., the Subcommittee was adjourned.]

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98

99

100

101

102

103

104

105

106

107

108

109

110

111

Æ