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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                      WORK OPPORTUNITY TAX CREDIT

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 1, 1999

                               __________

                             Serial 106-55

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
65-845 CC                   WASHINGTON : 2000

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel
                                 ------                                

                       Subcommittee on Oversight

                    AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio                    WILLIAM J. COYNE, Pennsylvania
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
WES WATKINS, Oklahoma                JIM McDERMOTT, Washington
JERRY WELLER, Illinois               JOHN LEWIS, Georgia
KENNY HULSHOF, Missouri              RICHARD E. NEAL, Massachusetts
J.D. HAYWORTH, Arizona
SCOTT McINNIS, Colorado

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                              ----------                              

                                                                   Page

Advisories announcing the hearing................................     2

                               WITNESSES

U.S. Department of the Treasury, Leonard Burman, Deputy Assistant 
  Secretary of Tax Analysis......................................    11
U.S. Department of Labor, John R. Beverly, III, Director, U.S. 
  Employment Service.............................................    16
                                 ------                                
Bilirakis, Hon. Michael, a Representative in Congress from the 
  State of Florida...............................................     8
Center for Community Change, Carlos Espinosa.....................    46
Goodwill Industries International, Inc., Hon. Fred Grandy........    24
Job Opportunities Business Symposium, and Marriott International, 
  Fred Kramer....................................................    61
Johnson, Hon. Nancy L., a Representative in Congress from the 
  State of Connecticut...........................................    33
National Council of Chain Restaurants, and Waffle House Inc., 
  Hon. Donald Balfour............................................    40
National Employment Opportunities Network, and Chambers 
  Associates Inc., William A. Signer.............................    49
PenOp, Inc., Howard Schechter....................................    43
Rangel, Hon. Charles B., a Representative in Congress from the 
  State of New York..............................................     5
TJX Companies, Mark Jacobson.....................................    18

                       SUBMISSIONS FOR THE RECORD

Food Marketing Institute, John J. Motley III, letter.............    70
International Mass Retail Association, Arlington, VA statement...    71

                    THE WORK OPPORTUNITY TAX CREDIT

                              ----------                              

                         THURSDAY, JULY 1, 1999

                  House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m., in 
room B-318, Rayburn House Office Building, Hon. Amo Houghton 
(Chairman of the Subcommittee) presiding.
    [The advisories announcing the hearing follow:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE

June 24, 1999

No. OV-9

                     Houghton Announces Hearing on

                    the Work Opportunity Tax Credit

    Congressman Amo Houghton (R-NY), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the work opportunity tax credit 
(WOTC). The hearing will take place on Thursday, July 1, 1999, in the 
main Committee hearing room, 1100 Longworth House Office Building, 
beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives from the U.S. Department of the 
Treasury, U.S. Department of Labor, and spokespersons for organizations 
knowledgeable about the operation of the WOTC. However, any individual 
or organization not scheduled for an oral appearance may submit a 
written statement for consideration by the Committee and for inclusion 
in the printed record of the hearing.
      

BACKGROUND:

      
    The Small Business Job Protection Act of 1996 (P.L. 104-188) 
established the work opportunity tax credit, section 51 of the Internal 
Revenue Code. The objective of the WOTC is to provide employers an 
incentive to hire persons from certain disadvantaged groups. (The WOTC 
is a successor to the targeted jobs tax credit which served a similar 
function before 1996.) The WOTC is scheduled to expire after June 30, 
1999. The WOTC is available on an elective basis for employers who hire 
persons from one of eight targeted groups. The credit equals 40 percent 
of the first $6,000 of qualified first-year wages for a person who 
works more than 400 hours. The credit is 25 percent of the first $6,000 
in qualified wages for a person who works 400 hours or less.
      
    The eight targeted groups are: (1) families eligible to receive 
benefits under the Temporary Assistance for Needy Families Program, (2) 
qualified veterans, (3) qualified ex-felons, (4) high-risk youths, (5) 
vocational rehabilitation referrals, (6) qualified summer youth 
employees, (7) families receiving food stamps, and (8) persons 
receiving certain Supplemental Security Income benefits. The process 
for claiming the credit generally requires an appropriate State agency 
to certify that the prospective employee meets the eligibility 
standards for one of the targeted groups.
      
    The current WOTC is applied as a credit against the employer's 
Federal income tax liability. Therefore, a non-profit or charitable 
employer, such as a university or hospital, receives no benefit from 
the credit because such employers generally are exempt from Federal 
income tax. However, non-profit employers may have a payroll tax 
liability for the employer's portion of the Social Security tax as do 
for-profit firms. The WOTC only applies against the regular income tax. 
It does not offset the alternative minimum tax (AMT), to the extent 
that the AMT exceeds the regular income tax.
    In announcing the hearing, Chairman Houghton stated: ``The work 
opportunity tax credit is one more way we're helping millions of 
families move from welfare rolls to payrolls. This tax incentive to 
encourage work is a key part of our plan to help even more low-income 
Americans escape poverty and enjoy the independence of employment and a 
career. I'm hopeful that the bipartisan support for this initiative 
will continue.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the operation and effectiveness of the 
WOTC. The Subcommittee will review the desirability of extending the 
existence of the credit and ways in which it might be improved.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect 5.1 format, with their name, address, and 
hearing date noted on a label, by the close of business, Thursday, July 
15, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Oversight office, room 1136 Longworth 
House Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 
format, typed in single space and may not exceed a total of 10 pages 
including attachments. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                

                       NOTICE--CHANGE IN LOCATION

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE

June 30, 1999

No. OV-9-Revised

             Change in Location for Subcommittee Hearing on

                        Thursday, July 1, 1999,

                   on the Work Opportunity Tax Credit

    Congressman Amo Houghton (R-NY), Chairman of the Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on the work opportunity tax credit scheduled for 
Thursday, July 1, 1999, at 10:00 a.m., in the main Committee hearing 
room, 1100 Longworth House Office Building, will now be held in room B-
318 of the Rayburn House Office Building.
      
    All other details for the hearing remain the same. (See 
Subcommittee press release OV-9, dated June 24, 1999.)

                                

    Chairman Houghton. Good morning, ladies and gentlemen. This 
is a small room; therefore, I have a small gavel. The hearing 
will come to order.
    Welcome to the hearing on the Work Opportunity Tax Credit. 
We are delighted to have our two distinguished associates here 
with us this morning.
    Ladies and gentlemen, a person with a meaningful job earns 
more than just a paycheck every week. A job helps a person 
develop a sense of self esteem, accomplishment, and 
independence. These qualities not only help people when they 
are at work, but also help them in leading their lives off the 
job as well. These qualities also help people at home with 
their families.
    The sad truth is that a few disadvantaged people have a 
difficult time in obtaining the type of job that can help them 
develop this sense of self-esteem, accomplishment, and 
independence. The difficulty may stem from the employers, who 
perceive such people as lacking a good work ethic or costing 
more to train. Thus, some people may face a higher hurdle in 
finding a meaningful job.
    The tax law seeks to address this challenge by providing 
employers a tax credit for hiring from eight targeted groups of 
disadvantaged people. The groups include welfare families, food 
stamp families, high-risk youth, qualified ex-felons, et 
cetera. For over 20 years, the tax credit has provided some 
type of hiring incentive for employers.
    Originally, there was a general jobs tax credit, which was 
refined to become the targeted jobs tax credit. Today we have 
the Work Opportunity Tax Credit. These credit programs were 
marked by the fact that they were not permanent features of the 
tax law. Rather, they would expire and need to be extended 
periodically. We are at that point again. The Work Opportunity 
Tax Credit expired yesterday, on June 30.
    So the need to extend this credit periodically may be 
annoying, but it also gives us an opportunity to focus on the 
details of how it is operating, and to examine proposals on how 
to improve it. This is the purpose of today's hearing. The 
Subcommittee would like to learn the best way to extend the 
Work Opportunity Tax Credit, and how to improve its 
effectiveness. I look forward to hearing the testimony of our 
witnesses.
    Chairman Houghton. When Mr. Coyne comes, I would love to 
have him make a statement. In the meantime, what I would like 
to do is call on our first witness, Mr. Charles Rangel. 
Charlie, great to have you here; it is an honor.

   STATEMENT OF HON. CHARLES B. RANGEL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Rangel. Mr. Chairman, it is good to call you ``Mr. 
Chairman,'' no matter how brief this tenure will be. 
[Laughter.]
    Chairman Houghton. I hope you will be brief. [Laughter.]
    Mr. Rangel. I probably should. Let me thank you for your 
friendship over the years, Mr. Chairman, and your sensitivity 
to so many problems outside the scope of our Subcommittee. More 
specifically, it has been a great honor and pleasure to work 
with you on pieces of legislation that effect the lives of 
people.
    The legislation that we have before us today, even though 
it is a tax credit and deals with accountants and lawyers; it 
really deals with the lives of people. At this point I ask 
unanimous consent to have my written statement to be made part 
of the record.
    Chairman Houghton. So approved.
    Mr. Rangel. Thank you. I would just like to say that the 
best lobbyists for this legislation are the young people that 
for whatever reason have impediments that cause them to be 
reluctant even to get involved in applying for a job.
    We, as Americans, just take for granted the work 
experience. We don't know the fears that people have, or the 
fact that employers refuse to take the risk. Therefore, we find 
a job market out there untouched, and employers out there not 
being able to really find those people that, once they break 
in, become very, very loyal employees.
    The Work Opportunity Tax Credit gives someone an 
opportunity to develop skills; to become loyal employees; to 
gain promotions, and to go on to higher learning. Once you have 
broken the ice and find out that you have the pride of having a 
job, the other disadvantages that these particular eight 
categories have no longer exist. You are in the market. You are 
competitive.
    What is important, however, is that employers have 
something to rely on. In the legislation that you and I have 
co-sponsored, what we do is make it permanent so that we know 
from year to year that employers and businesses can depend on 
it. We enlarge those things that are taken in account so that 
training and health care could become a part. You are a co-
sponsor of those things.
    We also would ask you to consider enlarging the groups that 
will be eligible for this type of thing, as we find more and 
more employees being dislocated because of a lot of progress 
that we are making in technology. The most important thing is 
for you to take testimony here to see how well this program has 
worked; how it has been able to function without bureaucracy, 
and the fact that it has brought so many people that had no 
idea that they could so easily integrate into a work force. 
This program has allowed it to happen.
    You have played a very, very important role in creating the 
climate for employers to stick with the program, 
notwithstanding the fact that it has expired. I hope that you 
and I will be successful in making it permanent, so that they 
don't have to worry from year-to-year whether the program will 
be there for them. I want to thank you for my testimony.
    [The prepared statement follows:]

Statement of Hon. Charles B. Rangel, a Representative in Congress from 
the State of New York

    I am pleased to be here today to testify before the 
Subcommittee on Oversight concerning the work opportunity tax 
credit (WOTC.) The WOTC continues to be an extremely important 
incentive for employers to hire workers from disadvantaged 
groups.
    Time and time again, I hear from workers in my 
Congressional District and throughout the country about how the 
WOTC provided them with the opportunity to learn marketable job 
skills. These individuals have moved from the first rung of the 
employment ladder to positions of experience and success.
    Employees hired under the WOTC are proud of what they have 
accomplished and the skills they have achieved. These 
individuals are providing for their families and, importantly, 
serving as role models for others in difficult situations and 
trying to enter the workforce.
    The key to the WOTC is not the first weeks of employment 
but rather the long-term benefits that come from promotions, 
job training, and self-confidence in success. While some of the 
targeted teenagers would obtain jobs without the WOTC, many 
would not. Either way, the WOTC keeps employers focused on the 
``targeted'' groups. It is the high-risk youth, the low-income 
family, and others that have traditionally had difficulty in 
the private sector workforce. The WOTC keeps them in the 
forefront of many employers' minds.
    The WOTC continues to be a meaningful hiring incentive for 
large and mid-sized companies. For example, in fiscal year 
1998, more than 285,000 individuals were certified by state 
agencies as WOTC-eligible employees. This is more than double 
the number of certified individuals in 1997. Why have these 
numbers increased so dramatically? Because the WOTC is a proven 
and effective worker training program for much of our entry 
level workforce. Worker growth, training, and long-term 
employment potential are what the targeted employee groups need 
and, proudly I must say, the WOTC provides these opportunities.
    The continued success of the WOTC depends on a strong 
public-private sector partnership. Helping those most in need 
to find and retain jobs--and, more importantly, to gain on-the-
job experience and acquire enhanced job skills--benefits our 
society as a whole. Without question, the WOTC has the effect 
of increasing America's economic growth and productivity.
    The WOTC expired on June 30, 1999. I suggest that the 
Subcommittee consider favorably H.R. 2101 as you debate 
extension of the credit. I am pleased to have cosponsored this 
bill with Subcommittee Chairman Houghton (along with many 
Members of the Ways and Means Committee on a bi-partisan 
basis.)
    Extension of the WOTC--ideally on a permanent basis--is 
critical to continuing the message we have been sending 
employers and future WOTC workers. Hundreds of thousands of 
individuals have been certified under the WOTC program to date, 
and many more are ready to begin the process this year. We must 
pay attention to their needs and give them the chance to get 
valuable training, experience, and wages for which they can be 
proud.
    The legislation I have cosponsored would make the WOTC a 
permanent tax credit; expand the wage base eligible for the 
WOTC to include employer costs for employee benefits such as 
health insurance, educational assistance, and dependent care 
assistance for purpose of measuring compensation; merge the 
welfare-to-work tax credit into the WOTC with minor 
modifications; and, extend the WOTC to tax-exempt charitable 
organizations.
    Under the bill, eight targeted groups would be eligible for 
the WOTC. They are certain/qualified (1) families eligible to 
receive benefits under the Temporary Assistance for Needy 
Families (``TANF'') Program; (2) families receiving food 
stamps; (3) ex-felons; (4) high-risk EZ/EC youths; (5) summer 
EZ/EC youth employees; (6) vocational rehabilitation referrals; 
(7) veterans; (8) and persons receiving certain Supplemental 
Security Income (``SSI'') benefits.
    Currently, a significant percentage of WOTC employees are 
coming from the families who have been on welfare or receive 
food stamps. For example, about \3/4\ of New York's WOTC 
participants are from these groups. Workers who have 
experienced life on welfare or food stamps are searching out 
opportunities to join the workforce in a productive and long-
term way. The WOTC is designed to bring these potential 
employees into the private sector job market and give them a 
change to succeed. These are fathers, mothers, and kids who 
want to learn useful job skills, have untapped abilities, and 
again will prove the WOTC is a success.
    The Subcommittee's hearing today will serve several very 
important purposes. First, the hearing will provide an 
opportunity for the Subcommittee to focus on the operation and 
effectiveness of the WOTC. The Department of Labor should be 
uniquely prepared to discuss why the WOTC has been critical to 
providing job and training opportunities to hundreds of 
thousands of Americans.
    Second, in addition to considering H.R. 2101, the 
Subcommittee will be able to discuss other proposals for 
expanding and improving the WOTC. For example, legislation 
pending before the 106th Congress would add targeted categories 
for displaced homemakers, children aging out of foster care, 
high-risk youth living in renewal communities, and rural area 
residents.
    In closing, today's hearing is a good time to hear the 
views of the federal government and the private sector about 
the benefits of the WOTC, and whether any program reforms are 
needed. With this in mind, I welcome representatives from the 
Department of the Treasury and the Department of Labor who I 
know strongly support the WOTC and will work for permanent (or 
at least multi-year) extension of the program. Also, I welcome 
representatives from the fast food, discount-retail clothing, 
tax-exempt, and low-income/minority communities to participate 
in this discussion.

                                

    Chairman Houghton. Thanks very much. Charlie, if you want 
to stay, fine. If not, that is all right, too.
    Mr. Coyne, would you like to make a comment?
    Mr. Coyne. Yes. Mr. Chairman, I would just like to welcome 
Congressman Rangel, Congressman Bilirakis, and will submit my 
statement for the record.
    [The opening statement follows:]

Opening Statement of Hon. William J. Coyne, a Representative in 
Congress from the State of Pennsylvania

    The Work Opportunity Tax Credit (WOTC) technically expired 
yesterday and, as a result, needs to be extended. I have joined 
Chairman Houghton, as have other Subcommittee Members, as a 
strong supporter of H.R. 2101. Enactment of this bipartisan 
bill would permanently extend the WOTC and make other 
improvements to the program.
    The WOTC has provided employers with meaningful incentives 
to hire workers from targeted groups. To increase its 
effectiveness, the bill would apply the WOTC to costs employers 
incur in providing employee accident and health benefits, 
educational assistance, and dependent care assistance. Also, 
the Welfare-to-Work Tax Credit would be merged into the WOTC.
    The WOTC has proven to be an effective worker training 
program for much of our hard-to-employ workforce with the 
promise of long-term employment opportunities. Beneficiaries of 
the new WOTC include certain families receiving food stamps or 
temporary assistance, veterans, ex-felons, high-risk youths and 
summer youth employees, vocational rehabilitation referrals, 
and supplemental security income recipients.
    The provisions of H.R. 2101 would expand the WOTC beyond 
current law to encourage tax-exempt charitable organizations to 
employ workers from the eight targeted groups. Tax-exempt 
organizations continue to be an untapped source of employment 
and training opportunities for which the WOTC should be 
available.
    I want to thank Subcommittee Chairman Houghton for holding 
this hearing in advance of the full Committee's mark-up of 
expiring tax provisions.

                                

    Chairman Houghton. Good. Are you going to have any 
questions for Charlie? I don't either. [Laughter.]
    Thanks very much, Charlie, for agreeing to come.
    Now, Mr. Bilirakis, thank you so much for being with us.

   STATEMENT OF HON. MICHAEL BILIRAKIS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Bilirakis. Mr. Chairman, it is I who thank you. At the 
last moment I requested this appearance. You and your staff 
obliged me. I very much appreciate it.
    I very much appreciate the work that you, Mr. Coyne, the 
Subcommittee, and Mr. Rangel and others are doing on this Work 
Opportunity Tax Credit. We have so many tough issues to deal 
with up here. Most of them are the things that really make 
headlines, and whatnot. But issues such as WOTC are just as 
significant, because, as Charles said, it touches the public 
out there. I have a 2-page statement that I would ask unanimous 
consent be made part of record.
    Just very briefly--there is a group that is not covered, a 
part of the target group of the Work Opportunity Tax Credit, 
and that is the displaced homemakers of our society. A 
displaced homemaker can be a man, but ordinarily it is a woman. 
It is ordinarily a woman who has not been in the work force 
because she has been at home taking care of the children and 
doing things that are so very, very important. Then, for 
whatever reason--divorce, separation, abandonment, death or 
disability of a spouse--all of a sudden has to get out into the 
work force; no work background, if you will; no work 
experience; in many cases, no education. So how many employers 
are going to really take a chance on that type of a person?
    You know, we go through life--I know you have experienced 
it, too--taking so many things for granted, and are not aware 
of this kind of problem. In 1982, when I ran for this office, 
during the forums that we go through, I was faced with this, 
studied it, and decided to introduce legislation in my first 
term. We have been trying ever since. It just seems to be very 
natural that they be added to the targeted group. We have 
checked with the Joint Committee on Taxation, and have received 
a response in writing from them. They agree that this group of 
individuals does not really qualify under the WOTC as it now 
stands.
    There are a lot of details and statistics: They are women, 
principally, who make up this group; the cost that Taxation 
Committee has applied to it; the definition, and things of that 
nature. I know you can pick this up, and maybe already have 
picked this up from the documentation that we have submitted. 
That is basically our request on behalf a group of people that 
is falling through the cracks out there. They have no 
unemployment insurance. They have no health insurance. They 
really need this help.
    [The prepared statement follows:]

Statement of Hon. Michael Bilirakis, a Representative in Congress from 
the State of Florida

    Mr. Chairman and distinguished Members of the Subcommittee, 
I appreciate the opportunity to appear before you this morning 
to discuss the Work Opportunity Tax Credit (WOTC) program.
    First, let me start out by saying that I support the 
reauthorization of this program. Most people want to work if 
given the opportunity. It adds to their dignity and self-
esteem. Programs such as the Work Opportunity Tax Credit should 
be applauded, encouraged, and continued. The Work Opportunity 
Tax Credit (WOTC) is intended to combat and lessen the problem 
of structural unemployment among certain ``hard-to-employ'' 
individuals. The working experience provided to presently 
targeted groups gives them the opportunity to participate in 
the American economy.
    However, Mr. Chairman, there is a group of individuals who 
are as needy as those presently covered under the WOTC 
program--the displaced homemakers of our society. Displaced 
homemakers are primarily women who have been full-time 
homemakers for a number of years, but who have lost their 
source of economic support due to divorce, separation, 
abandonment, or the death or disability of a spouse.
    I am not talking about women whose husbands have died and 
left them well off, or about women who receive substantial 
alimony or child support payments. We're talking about poor 
women who have been out of the workforce and cannot find decent 
jobs, either because of a lack of job skills or an employer's 
unwillingness to hire them because they haven't worked in years 
or perhaps have never worked outside the home.
    Mr. Chairman, these women are struggling to make ends meet 
without unemployment insurance, without health insurance, and 
without jobs.
    Displaced homemakers are not only elderly women, even 
though prime working years are usually considered to be up to 
age 64. Displaced homemakers can be in their late 20s, 30s, or 
40s. They may have a number of children or they may have none. 
However, the basic fact is that they need housing, medical 
care, and food to eat, all of which they would pay for if they 
had a job.
    The statistics on displaced homemakers are shocking. The 
Women Work Network here in Washington, which represents local 
programs serving displaced homemakers nationwide, indicates 
that although economic recovery has improved the lives of many 
Americans in the last few years, displaced homemakers continue 
to be left behind. Studies reveal that in 1997, there were 17 
million displaced homemakers in the United States. This is 
virtually unchanged from the 1990 figure of 17.8 million. Of 
these 17 million displaced homemakers, 43 percent are age 64 or 
younger and 57 percent are age 65 or older. In my own state of 
Florida, there were over half a million displaced homemakers 
over the age of 65 in 1997--an 11.4 percent increase since 
1992.
    Sadly, the studies also indicate that in 1997, 3.3 million 
displaced homemakers lived below the poverty threshold. In 
fact, approximately 83 percent of displaced homemakers earned 
less than $20,000 in 1997. Of that 83 percent, 59 percent 
earned less than $10,000.
    Mr. Chairman, any woman who has succeeded in running a 
home, budgeting, and possibly caring for children certainly has 
skills that will fit very nicely into a working environment 
outside of the home. Displaced homemakers should be given a 
chance to work. That is why I believe that displaced homemakers 
should be included among the groups served by the WOTC program.
    As you may know, for over ten years I have sponsored 
legislation to assist displaced homemakers by extending the 
WOTC program to provide a tax credit to employers who hire and 
train these individuals. I have reintroduced this legislation 
in the 106th Congress.
    My bill, H.R. 81, would give employers a tax credit for 
hiring displaced homemakers by establishing them as a targeted 
group under the Work Opportunity Tax Credit (WOTC) program.
    I see this approach as cost-effective. By providing 
prospective employers with the incentive to hire displaced 
homemakers, we avoid the much more costly alternative of 
publicly supporting these homemakers and their families.
    In addition, Mr. Chairman, we enable these homemakers to 
maintain the pride and self-esteem that comes with holding a 
job and being self-sufficient. The Work Opportunity Tax Credit 
program needs to be expanded to create employment opportunities 
for our displaced homemakers. This, Mr. Chairman, is nothing 
less than an issue of compassion, good fiscal sense, and 
progressive thinking.
    Mr. Chairman, I hope that the Ways and Means Committee will 
move forward on H.R. 81 and expand the WOTC program to include 
displaced homemakers as a targeted group. We have all heard the 
old saying, ``If you give a person a fish, you feed him for a 
day; if you teach a person to fish, you feed him for a 
lifetime.'' I believe that targeting displaced homemakers under 
the WOTC program is the equivalent of teaching these women ``to 
fish'' and earn a skill that will last them a lifetime.
    Thank you, Mr. Chairman, for providing me with this 
opportunity to testify on the Work Opportunity Tax Credit and 
the need for my legislation.

                                

    Chairman Houghton. Well, thank you very much.
    Do you have a question? Mike, I have a couple of questions.
    First of all, how many people do you think would fall into 
this displaced category.
    Mr. Bilirakis. Well, the information that we have received 
from studies in 1997 is that there were 17 million displaced 
homemakers falling within the definition of a displaced 
homemaker. This is really a figure that is virtually unchanged 
from the 1990 figure of 17.8 million. So approximately, it is 
the same over the period of 7 years.
    Of these 17 million, 43 percent are aged 64, or younger, 
and 57 percent are aged 65, or older. Many of them that live 
near the poverty level are younger than 35 and have children. 
Those are the people that really need help, even more so, I 
think, than someone much older.
    Chairman Houghton. The second question, really, is in terms 
of the money. Do you have any idea what this will cost?
    Mr. Bilirakis. Yes, we do. We do from the standpoint of 
what we received from the Joint Committee on Taxation. They 
have estimated a first-year cost of $22 million. Over 5 years 
it would be $264 million.
    Again, we have that old situation that we are faced with 
with CBO where they have the statistical figure, and don't take 
into consideration the money that would come into the coffer as 
a result of these people working, and, of course, the money 
that they would not have to use in terms of welfare--if you 
will--and all of the other costs. The gross costs are $22 
million in the first year and $264 million over 5 years.
    Chairman Houghton. OK. Mike, when we were talking, you 
mentioned the fact that you wanted to revive this concept. What 
happened to it along the way?
    Mr. Bilirakis. Well, we just kept hitting our heads against 
a stone wall. When it was the Republican administration, they 
would testify against it because of the cost. Frankly, we just 
sort of got off onto other things. We continued to introduce 
the legislation. When found out about this hearing, the red 
flag went up. We decided that maybe it is a good opportunity to 
reinstate it.
    Chairman Houghton. I don't have any other questions. Thank 
you very much for coming. I am delighted that we could fit you 
in here.
    Mr. Bilirakis. Thank you, Mr. Chairman. Again, I appreciate 
your consideration.
    Chairman Houghton. OK, great. Thank you.
    Now, we will have the first panel: Mr. Burman, who is the 
Deputy Assistant Secretary for Tax Analysis in the Treasury; 
John Beverly, who is the Director of U.S. Employment and 
Service, Employment and Training, in the Department of Labor. 
If you two gentlemen will come up, I would appreciate it.
    Good morning. Glad to have you here.
    Mr. Burman, would you like to give your testimony?

STATEMENT OF LEONARD BURMAN, DEPUTY ASSISTANT SECRETARY OF TAX 
             ANALYSIS, U.S. DEPARTMENT OF TREASURY

    Mr. Burman. Yes, thank you. Mr. Chairman and Distinguished 
Ranking Member, I am pleased to present the views of the 
Treasury Department today on the Work Opportunity Tax Credit.
    Mr. Chairman, we appreciate your leadership in enacting 
this credit, and your efforts to extend the credit and 
strengthen its operation and effectiveness. The Work 
Opportunity and Welfare-to-Work tax credits provide an 
incentive for employers to hire workers who would otherwise 
have a hard time finding work and attaining self-sufficiency, 
including those who are trying to make the difficult transition 
from welfare to work.
    Employers are using these new incentives. The Labor 
Department reports that between Fiscal Year 1997 and Fiscal 
Year 1998, the number of certifications for Work Opportunity 
Tax Credits has more than doubled. The Administration strongly 
supports efforts to extend and improve these credits. Our 
Fiscal Year 2000 budget would extend, for 1 year, both the Work 
Opportunity Tax Credit and the Welfare-to-Work tax credit. We 
would generally support a longer-term extension of both 
credits, if done in a fiscally responsible way, because it 
would allow businesses to make future hiring plans knowing that 
the tax incentives would be available. We look forward to 
working with the Subcommittee on the simplification of the Work 
Opportunity Tax Credit and the Welfare-to-Work tax credit in 
the context of a multi-year extension.
    The employment of economically disadvantaged and disabled 
workers is one of the Administration's most pressing concerns. 
The Work Opportunity Tax Credit provides an incentive for 
employers to hire individuals who have traditionally had 
difficulty obtaining employment and remaining in the work 
force. The Welfare-to-Work credit provides targeted employment 
incentives that will support the goals of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996, 
and the Welfare-to-Work Program created in the 1997 Balanced 
Budget Act, by helping long-term welfare recipients make the 
difficult transition to work and succeed in the work force. The 
experience encouraged by those credits is intended to promote 
job skills.
    Both tax credits, as you know, expired yesterday. The 
Administration's budget would extend them for 1 year so that 
they would apply to employees who began work before July 1, 
2000. Extension of both provisions is a very high priority of 
the Administration.
    It is important to ensure that the provisions work as they 
were intended. Under current law, one problem is that the 
benefits under the Work Opportunity Tax Credit and the Welfare-
to-Work credit are not properly coordinated with respect to an 
individual if his first year of employment does not coincide 
with the employer's taxable year. The fiscal year 2000 budget 
proposed a technical modification that would rectify this 
problem.
    We are also taking steps to clarify the operation of the 
Work Opportunity Tax Credit and the Welfare-to-Work credit 
where an individual in the process of moving from welfare to 
work is employed by more than one employer. The typical case is 
where a non-profit organization hires a former welfare 
recipient to participate in a transition to work training 
program to prepare the individual for employment with a for-
profit business. The Treasury and the IRS are about to issue a 
notice that will clarify that the for-profit employer who hires 
the former welfare recipient from the transition to work 
program is eligible for the full Work Opportunity Tax Credit or 
Welfare-to-Work credit, if the individual satisfies the 
statutory requirements for qualification, even though the 
individual is not hired by the for-profit employer directly 
from the welfare rolls. We believe that the forthcoming notice 
will preserve the important role that non-profit organizations 
play as a bridge between welfare and employment by for-profit 
businesses.
    H.R. 2101 would make the Work Opportunity Tax Credit 
permanent, consolidate the Work Opportunity Tax Credit and 
Welfare-to-Work credit, and allow the credits to be claimed by 
tax-exempt organizations. We share the goals underlying these 
proposals, but have concerns about some of the specific 
details. Because we are concerned about the efficient use of 
Government revenues, and the need to find a revenue offset, we 
believe that priority should be given to an extension of the 
credits and the Administration's proposed clarification, and 
the coordination between the two credits. However, we recognize 
the need for a continuing employment incentive, and more 
certainty for businesses when making hiring plans. Therefore, 
the Administration would support an extension of the credits 
that is longer than 1 year, provided that appropriate revenue 
offsets could be found.
    We also want tax-exempt employers to continue to serve as a 
bridge between welfare and productive employment in the for-
profit sector. For example, the forthcoming notice will help by 
ensuring that an individual who participates in a transition-
to-work program with a tax-exempt entity will not lose 
eligibility under the Work Opportunity Tax Credit or Welfare-
to-Work credit. We recognize and support the vital role that 
tax-exempt organizations play in providing employment 
opportunities. But we don't believe that tax incentives are the 
appropriate subsidy mechanism for those who are tax-exempt, for 
several reasons.
    H.R. 2101 would allow tax-exempt entities to claim work 
opportunity and Welfare-to-Work tax credits against their FICA 
tax liability. This would be an unprecedented new role for the 
payroll tax system. The payroll tax system must remain devoted 
to its vital core mission of financing Social Security and 
Medicare.
    Moreover, we have serious concerns about allowing an income 
tax credit for entities that have been exempted by statute from 
income tax. That result would surely seem unfair to an 
ordinarily taxable business that cannot use tax credits because 
they are unprofitable, and thus have insufficient tax liability 
against which to claim the credits. Moreover, administering the 
proposal would be difficult because the payroll tax system and 
the income tax system are administered separately.
    We would be pleased to work with you on simplification of 
the two credits. In doing that, we want to ensure that 
consolidation of the credits to streamline their operation does 
not sacrifice the special features aimed at helping long-term 
welfare recipients to successfully re-enter the work force.
    In conclusion, Mr. Chairman, the Administration strongly 
supports an extension of the Work Opportunity Tax Credit and 
the Welfare-to-Work tax credit. We believe these credits 
improve job opportunities for economically disadvantaged and 
disabled individuals and help the ease the difficult transition 
from welfare to work. Although extension of the credits and 
technical modifications to improve their coordination is our 
highest priority, we would be happy to work with you and other 
Members of this Subcommittee on modifications that will 
simplify the credits in the context of a fiscally responsible, 
multiyear extension.
    I would be happy to answer any questions.
    [The prepared statement follows:]

Statement of Leonard Burman, Deputy Assistant Secretary of Tax 
Analysis, U.S. Department of the Treasury

    Mr. Chairman and distinguished Members of the Subcommittee, 
I am pleased to present the views of the Treasury Department 
today on the work opportunity tax credit. Mr. Chairman, we 
appreciate your leadership in enacting this credit and your 
efforts to extend the credit and strengthen its operation and 
effectiveness. The work opportunity and the welfare-to-work tax 
credits provide an incentive for employers to hire workers who 
would otherwise have a hard time finding work and attaining 
economic self sufficiency, including those who are trying to 
make the difficult transition from welfare to work. Employers 
are using these new incentives, as the Labor Department will 
report. Between FY 1997 and 1998, the number of certifications 
for work opportunity tax credits has more than doubled.
    The Administration is strongly supportive of efforts to 
extend and improve these credits. Our FY 2000 budget would 
extend for one year both the work opportunity tax credit and 
the welfare-to-work tax credit. We would generally support a 
longer-term extension of the work opportunity tax credit and 
welfare-to-work tax credit, if done in a fiscally responsible 
way, because it would allow businesses to make future hiring 
plans knowing that the tax incentives would be available.
    We look forward to working with the Subcommittee on the 
simplification of the work opportunity tax credit and the 
welfare-to-work tax credit in the context of a multi-year 
extension.
                               Background
    The work opportunity tax credit was enacted by the Small 
Business Job Protection Act of 1996 as a replacement for the 
targeted jobs tax credit, which had expired on December 31, 
1994. The work opportunity tax credit is intended to provide an 
incentive for employers to hire certain economically 
disadvantaged and disabled individuals, many of whom lack job 
skills. As originally enacted, the work opportunity tax credit 
was effective for wages paid or incurred to a qualified 
employee who began work for the employer after September 30, 
1996 and before October 1, 1997. The credit was subsequently 
extended nine months (to July 1, 1998) by the Taxpayer Relief 
Act of 1997, and one year (to July 1, 1999) by the Tax and 
Trade Relief Extension Act of 1998.
    The welfare-to-work tax credit was enacted by the Taxpayer 
Relief Act of 1997 in order to help move individuals from 
welfare to work. This credit is intended to encourage employers 
to hire long-term welfare recipients who may face the greatest 
challenges making the transition to employment, and to promote 
retention by providing a larger credit for the second year of 
employment. It also is intended to encourage employers to offer 
benefits, such as educational assistance, health plan coverage 
and dependent care that will help these workers succeed on the 
job. The originally enacted welfare-to-work tax credit was 
effective for wages paid or incurred to a qualified individual 
who began work for an employer on or after January 1, 1998, and 
before May 1, 1999. The Tax and Trade Relief Extension Act of 
1998 extended the credit for two months (to July 1, 1999).
    The work opportunity tax credit and the welfare-to-work tax 
credit are jointly administered by the Treasury Department 
through the Internal Revenue Service (IRS) and the Department 
of Labor through its Employment Service. The IRS is responsible 
for tax-related aspects of the program and the Employment 
Service, through the network of State Employment Security 
Agencies, is responsible for documenting worker eligibility.
                              Current Law
Work Opportunity Tax Credit

    The work opportunity tax credit encourages employers to 
hire individuals who are members of certain targeted groups. 
The credit equals a percentage of qualified wages paid during 
the first year of the individual's employment with the 
employer. The credit rate depends on the length of employment. 
An employer can claim a 25 percent credit for employment of at 
least 120 hours but less than 400 hours; the credit rate is 40 
percent for employment of 400 or more hours. Up to $6,000 of 
wages may qualify for the credit. Thus, the maximum credit is 
$2,400 per eligible employee. The credit is scheduled to expire 
with respect to employees who begin work after June 30, 1999.
    Eligible employees must be a member of one of the following 
targeted groups: (1) families receiving assistance under Title 
IV-A of the Social Security Act (The Temporary Assistance for 
Needy Families Program (TANF)); (2) qualified veterans; (3) 
qualified ex-felons; (4) high-risk youth; (5) vocational 
rehabilitation referrals; (6) qualified summer youth employees; 
(7) certain families receiving food stamps; and (8) qualified 
supplemental security income (SSI) recipients. Qualified wages 
generally include cash wages paid to an eligible employee.
    To claim a credit for an employee, an employer must receive 
a written certification that the employee is a member of a 
targeted group. State employment security agencies are 
generally responsible for providing those certifications. The 
employer must have received the certification on or before the 
day on which the individual begins work for the employer, or 
must have completed a ``pre-screening'' notice with respect to 
the employee (containing the information that led the employer 
to believe the individual is a member of a targeted group) on 
or before the day the individual is offered employment with the 
employer and submitted such notice as part of a written request 
for certification not later than 21 days after the individual 
begins work for the employer.

Welfare-to-Work Tax Credit

    The welfare-to-work tax credit enables employers to claim a 
tax credit for eligible wages paid to certain long-term family 
assistance recipients. The credit is 35 percent of the first 
$10,000 of qualified wages in the first year of employment and 
50 percent of the first $10,000 of qualified wages in the 
second year of employment. Thus, the maximum credit for two 
years is $8,500 per eligible employee. The employee must work 
for the employer for at least 180 days or 400 hours. The credit 
is scheduled to expire with respect to individuals who begin 
work after June 30, 1999.
    Qualified wages include cash wages paid to the employee 
plus amounts paid by the employer for the following: (1) 
educational assistance excludable under a section 127 program; 
(2) health plan coverage for an employee (subject to certain 
limits), and (3) dependent care assistance excludable under 
section 129.
                               Discussion
    The employment of economically disadvantaged and disabled 
workers is one of the Administration's most pressing concerns. 
The work opportunity tax credit provides an incentive for 
employers to hire individuals who have traditionally had 
difficulty obtaining employment and remaining in the work 
force. The welfare-to-work credit provides targeted employment 
incentives that will support the goals of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 
and the Welfare-to-Work program created in the 1997 Balanced 
Budget Act by helping long-term welfare recipients make the 
transition to work and succeed in the workforce. The work 
experience encouraged by those credits is intended to promote 
job skills. Extension of both provisions is a high priority of 
this Administration.
    In the FY 2000 budget, the Administration proposed a one-
year extension of the work opportunity tax credit, so that the 
credit would apply with respect to employees who begin work 
before July 1, 2000. An extended credit would continue to serve 
as an inducement for employers to hire these hard-to-employ 
individuals and to help them develop valuable job skills. The 
revenue cost of a one-year extension of the work opportunity 
tax credit is estimated to be $415 million for FY 2000-2004.
    The Administration also proposed a one-year extension of 
the welfare-to-work credit, so that the credit would be 
effective for individuals who begin work before July 1, 2000. 
Extending this credit would continue to encourage employers to 
hire long-term welfare recipients, and to invest in training, 
health care and dependent care benefits, and to encourage long-
term employment. The revenue cost of a one-year extension of 
the welfare-to-work tax credit is estimated to be $87 million 
for FY 2000-2004.
    It is important to ensure that the provisions work as they 
were intended. Under current law, one problem is that the 
benefits under the work opportunity tax credit and the welfare-
to-work tax credit are not properly coordinated with respect to 
an individual whose first year of employment does not coincide 
with the employer's taxable year. To rectify this problem, we 
proposed a technical modification in the FY 2000 budget that 
would eliminate any unintended effects.
    We are also taking steps to clarify the operation of the 
work opportunity tax credit and the welfare-to-work tax credit 
where an individual, in the process of moving from welfare to 
work, is employed by more than one employer. The typical case 
is where a nonprofit organization hires a former welfare 
recipient to participate in a transition-to-work training 
program to prepare the individual for employment with a for-
profit business. Treasury and the IRS are about to issue a 
notice that will clarify that the for-profit employer who hires 
the former welfare recipient from the transition-to-work 
program is eligible for the full work opportunity tax credit or 
welfare-to-work tax credit if the individual satisfies the 
statutory requirements for qualification, even though the 
individual was not hired by the for-profit employer directly 
from the welfare rolls. We believe that the forthcoming notice 
will preserve the important role that nonprofit organizations 
play as a bridge between welfare and employment by for-profit 
businesses.
    H.R. 2101 would (1) make the work opportunity tax credit 
permanent; (2) consolidate the work opportunity credit and the 
welfare-to-work credit; and (3) allow the credits to be claimed 
by tax-exempt organizations. We share the goals underlying many 
of these proposals, but have concerns about some of the 
specific proposals.
    Because we are concerned about the efficient use of 
government revenues and the need to find revenue offsets, we 
believe that priority should be given to an extension of the 
credits and to the Administration's proposed clarification in 
the coordination of the work opportunity tax credit and the 
welfare-to-work tax credit. However, we recognize the need for 
a continuing employment incentive and more certainty for 
businesses when making hiring plans. Therefore, the 
Administration would support an extension of these credits that 
is longer than one year, provided that appropriate revenue 
offsets could be found.
    We also want tax-exempt employers to continue to serve as a 
bridge between welfare and productive employment in the for-
profit sector. For example, our proposed notice will clarify 
that an individual who is participating in a transition-to-work 
program with a tax-exempt entity will not lose eligibility 
under the work opportunity tax credit and welfare-to-work tax 
credit.
    We would oppose, however, allowing a tax-exempt entity to 
claim these credits against its FICA tax liability. This 
unprecedented new role for the payroll tax system would allow 
it to be used as a backdoor mechanism for providing income tax 
credits. The payroll tax system must remain devoted to its 
vital core mission of financing Social Security and Medicare. 
Moreover, we object to allowing an income tax credit to 
entities that have been exempted by statute from income tax 
liability. Such a policy would mean that certain tax-exempt 
entities would effectively have a negative tax liability under 
the income tax--that is, the income tax system would serve 
solely as a means of providing subsidies. That result would 
surely seem unfair to ordinarily taxable businesses that cannot 
use tax credits because they are unprofitable and thus have 
insufficient tax liability against which to claim the credits. 
Moreover, administering the proposal would be difficult because 
the payroll tax system and the income tax system are 
administered separately.
    We would be pleased to work with you on simplification of 
the work opportunity tax credit and the welfare-to-work tax 
credit. In doing that, we would want to ensure that 
consolidation of the credits to streamline their operation does 
not sacrifice the special features aimed at helping long-term 
welfare recipients successfully re-enter the work force.
                               Conclusion
    In conclusion, Mr. Chairman, the Administration strongly 
supports an extension of the work opportunity tax credit and 
the welfare-to-work tax credit. We believe that these credits 
improve job opportunities for economically disadvantaged and 
disabled individuals, and help to ease the transition from 
welfare to work for long-term welfare recipients. Although 
extension of the credits and technical modifications to improve 
their coordination is our highest priority, we would be happy 
to work with you and other Members of this Subcommittee on 
modifications that will simplify the credits in the context of 
a fiscally responsible multi-year extension.
    This concludes my prepared remarks. I would be pleased to 
respond to your questions.

                                

    Chairman Houghton. Thank you very much.
    Mr. Beverly.

 STATEMENT OF JOHN R. BEVERLY, III, DIRECTOR, U.S. EMPLOYMENT 
               SERVICE, U.S. DEPARTMENT OF LABOR

    Mr. Beverly. Thank you, Mr. Chairman. Good morning to you 
and the distinguished Members of the Subcommittee. I am pleased 
to have the opportunity to testify before you today on the Work 
Opportunity Tax Credit and Welfare-to-Work credit. I would like 
to summarize the key points of my prepared statement, if I may.
    Employment tax credits are an important element of the 
Administration's Welfare-to-Work strategy and efforts to assist 
the hard-to-employ. Employment tax credits benefit 
disadvantaged job seekers by making them more attractive job 
candidates. They benefit employers by compensating them for 
some of the risk and additional costs associated with employing 
persons who may not have extensive job histories, and who may 
need some assistance in becoming fully productive once 
employed.
    Tax credits can be a win-win situation, therefore, for all 
concerned, if they operate in a way that is consistent with 
policies that guard against abuse. In this regard, both tax 
credits seem to address many of the concerns associated with 
the targeted jobs tax credit.
    As you may know, part of the problem the tax credit was 
concerned about is when the determination of eligibility was 
made. With the Welfare-to-Work and Work Opportunity Tax Credit, 
an employer's judgment about the eligibility of the hire is 
made on or before the date of hire. Compared to the TJTC these 
tax credit programs have stringent eligibility standards which, 
I believe, focus them on the right benefits for job seekers.
    Thus, the change from the TJTC to the current employment 
tax credits generally appears to be positive. We expect that 
our policy framework for these programs continues to provide 
the protection against the re-emergence of past problems.
    The number of Work Opportunity Tax Credit and Welfare-to-
Work credit certifications has been significant, and provides 
an indication of the number of job seekers whose employment may 
have been influenced by these tax credits. For the most recent 
full year for which data is available, the total number of 
Welfare-to-Work and work opportunity certifications issued was 
336,000; 290,000 for WOTC and 46,000 for Welfare-to-Work. Two-
hundred-sixteen-thousand WOTC and WTW certifications were 
issued during the first half of fiscal year 1999--again, 
166,000 for WOTC and 50,000 for WTW.
    On an annual basis, if the current certification filings 
and the certification rate remains constant, we will approach 
certification levels that were similar to those during the 
early- to mid-1990's, when between 400,000 and 500,000 targeted 
job tax credit certifications were issued each year.
    Employers and employees find value in the tax credits. One 
large national employer who has used these tax credits, has 
used them to develop a jobs-plus training program for 
individuals that were hired using these tax credits. They have 
made a special effort in this connection to use the program as 
a resource in hiring persons with disabilities. Another large 
employer hires about 300 individuals per year as a result of 
these tax credits, and uses the tax credits to hire individuals 
who otherwise would not have been hired. One such individual's 
performance was so outstanding, he has been promoted and is 
training to become a manager.
    The WOTC is benefiting many other individuals seeking to 
move from Welfare-to-Work. Of the total certifications issued 
in the first half of fiscal year 1999, 55 percent were issued 
based on the employee being an eligible TANF recipient.
    The second most common target group is food stamp 
recipient, who comprise 21 percent of the certifications in the 
first half of fiscal year 1999. The Welfare-to-Work credit 
complements the Welfare-to-Work Program enacted by the Balanced 
Budget Act, which is administered by the Department of Labor. 
It provides a targeted incentive to employers to hire, retain, 
and invest in long-term recipients, many of whom face great 
challenges in getting and holding a job.
    Current certification activity reflects a significant work 
load, whose administration, we believe, has been improving over 
time. Most States currently provide certification decisions 
within the timeframes anticipated by our guidelines. States 
that do not respond in a reasonable time to certification 
requests are in the minority. A major cause of these delays 
concerns difficultly in some States in developing and 
maintaining mechanisms that are effective in providing job 
service agencies with eligibility information in a timely way. 
We hope to work with these agencies in making sure that 
information moves from those who have eligibility information 
to the certifying agency in a timely way. We hope to make 
progress in this connection by executing Memoranda of 
Understanding with HHS, Agriculture and Treasury to assure that 
this information moves in a timely way.
    We also want to make sure that greater efforts are made to 
mine the information that is available in these agencies that 
is relevant to certification. We also want to make broader use 
of conditional certification as means of expediting 
certification. We also intend to step up our efforts to assure 
that small employers participate in the program. We want to 
make sure that youth, especially, have an opportunity to 
benefit from the credit. As you may know, getting eligible 
youth into employment and on the right track to producing 
careers is a high priority for Secretary Herman.
    Employer participation can translate into jobs for targeted 
job seekers. We believe that this participation is, in fact, 
influenced by employers' perception of the program's 
continuity. When a hiatus in authorization occurs, employer 
confidence in the program erodes. Some employers may not 
continue to use the program. This may be especially true for 
small employers.
    The WOTC and WTW tax credits, as you know, expired 
yesterday. In the Administration's fiscal year 2000 budget we 
have suggested an extension for 1 year. However, in light of 
the problems created by these retroactive extensions of 
credits, an extension of the credits for a longer period of 
time may be desirable.
    We are committed to continually improving the certification 
process, and plan to conduct a process study to help us examine 
where the strengths and weaknesses are, and improve the current 
process.
    Mr. Chairman, this concludes my summary of my prepared 
statement. I would be pleased to answer any questions that you 
or Members of the Subcommittee may have.
    [The prepared statement follows:]

Statement of John R. Beverly, III, Director, U.S. Employment Service, 
U.S. Department of Labor

    Good morning, Mr. Chairman and Members of the Subcommittee. 
I am pleased to have the opportunity to testify before you on 
the Work Opportunity and Welfare-to-Work Tax Credit (WOTC and 
WtW) programs.
    Employment tax credits are an important element of the 
Administration's welfare-to-work strategy and efforts to assist 
the hard-to-employ. Employment tax credits benefit 
disadvantaged job-seekers by making them more attractive job 
candidates, and they benefit employers by compensating them for 
some of the risk and additional costs involved in employing 
job-seekers who may not have extensive work histories, or who 
may require some assistance on the job to become fully 
productive. Employment tax credits can be a ``win-win'' 
situation for all concerned if they operate consistent with 
policies that guard against abuses.
    The WOTC and the WtW tax credits address many of the 
concerns about abuse that were associated with the Targeted 
Jobs Tax Credit (TJTC) program. For both the WOTC and the WtW 
tax credits, the requirement that the employer submit a pre-
screening notification on or before the date of hire, 
indicating that the employer believes an individual is 
eligible, appears to appropriately focus employers' efforts to 
determine eligibility before the hiring decision is made. Under 
TJTC, a significant concern was that the employers would 
conduct a post-hire examination of the workforce to determine 
eligibility for the credit, thus undermining the effectiveness 
of the credit as a hiring incentive. Compared to the TJTC, the 
reduction in the number of eligible target groups and tighter 
eligibility standards has also focused the WOTC on job-seekers 
who are most likely to benefit from an additional job-finding 
advantage.
    Thus, the change from the TJTC to the current employment 
tax credit programs generally appears to be positive. We expect 
that our policy framework for these programs continues to 
provide protection against a re-emergence of past problems.
    The number of WOTC and WtW certifications has been 
significant, and provides some indication of the number of job-
seekers whose employment may have been influenced by these tax 
credit programs. From October 1, 1997 through September 1998, 
the total number of WOTC and WtW certifications issued by the 
Department of Labor was 336,000--290,000 and 46,000 for WOTC 
and WtW, respectively. This shows considerable growth in the 
use of WOTC, compared to WOTC's first year (FY 1997, beginning 
October 1, 1996), when about 126,000 WOTC certifications were 
issued. The WtW tax credit was implemented January 1998, and 
the 46,000 certifications issued represent only 9 months usage.
    The total number of employer WOTC and WtW certifications 
issued for the first half of Fiscal Year 1999 (through March 
1999) was 216,000--166,000 for WOTC and 50,000 for WtW. On an 
annual basis, if current certification filings and the 
certification rate remain constant, we will approach 
certification levels similar to those during the early- to mid-
1990s when between 400,000-500,000 TJTC certifications were 
issued each year .
    In summary, since these tax credits programs were enacted, 
they have been a factor in the employment of more than 600,000 
job seekers. We anticipate that the cumulative total 
certifications issued will reach 1 million by the end of this 
fiscal year.
    Employers and employees find value in these tax credits. 
For example, one national company has used these tax credits to 
develop a ``Jobs Plus'' training program for individuals hired 
through the tax credits. The company has hired approximately 
1,000 individuals per year for the last three years utilizing 
the WOTC tax credit program. It has made a special effort to 
use the program as a resource in hiring persons with 
disabilities. One such person was hired in the adminstrative 
office, received the highest rating possible during his annual 
employee review, and was recently promoted.
    Another national chain hires approximately 300 individuals 
per year as a result of the WOTC & WtW tax credits and 
indicates that it uses the tax credit to hire individuals that 
it would not otherwise consider for employment. One such 
individual's performance was so outstanding that he has been 
promoted and is training to become a manager.
    The WOTC is benefiting individuals seeking to move from 
welfare-to-work. Of the total certifications issued in the 
first half of FY 1999, 92,741, or 55 percent, were issued based 
on the employee being an eligible TANF recipient. The second 
most common target group is Food Stamp recipients, which 
comprised 34,473, or 21 percent of FY 1999 certifications.
    The Welfare-to-Work tax credit complements the Welfare-to-
Work program enacted in the Balanced Budget Act and 
administered by the Department of Labor. It provides a targeted 
incentive to employers to hire, retain, and invest in long-term 
welfare recipients who may face the greatest challenges in both 
getting and keeping a job. It also allows employer-provided 
benefits to count towards wages for purposes of the credit, and 
provides higher credit amounts than the WOTC, including a 
credit for the second year of employment, in recognition of the 
special challenges faced by this target group.
    The certification data reflect a significant workload whose 
administration, we believe, has been improving over time. Most 
States currently provide certification decisions within the 
time-frames anticipated by our processing guidelines. States 
that do not respond in a reasonable time to certification 
requests are in the minority.
    A major cause of processing delays concerns the difficulty 
some States have in developing and maintaining mechanisms that 
are effective in providing Job Service agencies with 
eligibility information in a timely way. Some information 
required to establish eligibility is sensitive, and state 
agencies rightfully impose safeguards to protect the security 
of this information. Sometimes this can impede the kind of high 
volume exchange of information needed to produce timely 
certification results.
    We hope to make significant progress in correcting this 
problem through a Memorandum of Understanding among the 
Departments of Health and Human Services, Agriculture and 
Treasury that encourages a timely and efficient exchange of 
certification information, greater efforts to locate 
information that establishes eligibility in connection with a 
given information request, and which also encourages broader 
use of conditional certifications as a means of expediting 
certification. Also, the Employment and Training Administration 
will step up its technical assistance to States that are having 
certification delays. We hope to apply the experience of other 
states and may provide additional funds on a one-time basis, if 
required, to resolve specific problems.
    We also intend to step up our efforts to increase the 
participation of small employers in these tax credit programs. 
A significant expansion in the number of job-seekers who 
benefit from these programs may depend, in large part, on 
increasing small business participation. In this connection we 
continue to look for ways to streamline the certification 
process without compromising its integrity.
    Similarly, we hope to find ways to increase the number of 
certifications issued in connection with the employment of 
eligible youth. Getting eligible youth into employment and on 
the right track to productive careers is a high priority of 
Secretary Herman. We believe that the tax credit programs are 
underutilized resources in this regard.
    We also believe that employer participation is also 
influenced by their perception of the program's continuity. 
When a hiatus in authorization occurs, employer confidence in 
the program erodes, and some employers may not continue to use 
the program following reauthorization. This is likely to be 
true especially for small employers.
    The WOTC and WtW tax credits expired yesterday, June 30. In 
its FY 2000 Budget Request, the Administration proposed that 
the WOTC and WtW tax credits be extended for one year. However, 
in light of the problems created by short-term, retroactive 
extensions of the credits, an extension of the credits for a 
longer period may be desirable to promote stability and 
continuity, provided appropriate revenue offsets could be 
found.
    The Employment and Training Administration plans to conduct 
a process study to examine the strengths and weaknesses of the 
current certification process. However, a rigorous program 
evaluation sufficient to answer important questions about the 
impacts of the program would require a substantial investment 
of resources and also poses significant evaluation design 
challenges.
    Mr. Chairman, this concludes my prepared statement. I would 
be pleased to answer any questions that you or other Members of 
the Subcommittee may have.

                                

    Chairman Houghton. Well, thanks, Mr. Beverly, very much.
    We have a vote here. I think we ought to be able to ask the 
questions and finish up with this panel. Then, if the rest of 
you would not object, we are going to go vote and then come 
right back. It should not be more than 10 minutes.
    Mr. Coyne, do you have any questions?
    Mr. Coyne. Thank you, Mr. Chairman.
    Do each of your departments support merging WOTC and WTW 
tax credits?
    Mr. Burman. We definitely support simplifying the program.
    Mr. Coyne. Do you support merging them?
    Mr. Burman. We have concerns about that particular 
proposal. I think we would like to work with you to see if 
there is a way to merge the two credits and still preserve the 
special characteristics of the Welfare-to-Work tax credit.
    We have two concerns. One is that the credit rate for 
Welfare-to-Work would be reduced. We would also like the 
Welfare-to-Work credit to be confined to employees who have 
long-term jobs, not jobs between 120 hours and 400 hours. One-
hundred-twenty hours is just 3 weeks of full-time employment. 
We are also concerned about keeping Welfare-to-Work credit 
particularly targeted at long-term welfare recipients.
    But we like the idea of combining these together and making 
it simpler for employers.
    Mr. Beverly. I share Mr. Burman's view that streamlining 
the program is something we want to focus on and achieve. As 
you may know, currently the certification process for both 
programs is the same. We would like to examine further 
streamlining proposals.
    Mr. Coyne. Relative to expanding the Work Opportunity Tax 
Credit to tax-exempt organizations, if the problem is with 
allowing the Work Opportunity Tax Credit as payroll tax offset, 
what hiring incentive does Treasury suggest be used for 
charities?
    Mr. Burman. We recognize that tax-exempt organizations play 
a vital role. We would like to support that role. There is, 
currently, authority under the TANF Program to provide 
assistance to non-profit organizations to assist in Welfare-to-
Work transitions. There are other examples of direct-spending 
programs that provide assistance. The Work-Study Program 
provides hiring incentives for college students. They could be 
hired by Government agencies, non-profits, and so on. The real 
concern we have is about using the tax system as a way of 
subsidizing tax-exempt entities.
    Mr. Coyne. A number of employers have indicated that while 
the program is working well in most States, there are 
significant processing backlogs in about 8 to 10 States. What 
are those problems?
    Mr. Beverly. Perhaps I can answer that question, since the 
Department of Labor is responsible for the certification 
process. As I have indicated, those problems, by and large, 
stem from the need to get information that is relevant to 
eligibility from those agencies that have them, such as welfare 
offices in the HHS network, and offices that are issuing food 
stamps, to the employment service that is certifying agency for 
both tax credits. That movement of information, sometimes, has 
been slow. States have been trying to work out arrangements for 
computerized exchange of information. Sometimes while those 
arrangements are being worked out, backlogs develop. It does 
seem to be the information flow issue that is responsible, by 
and large, for the problems that we have in those States you 
referred to.
    Mr. Coyne. Would you support the idea of allowing employers 
to pursue eligibility information independently from State job 
services if the job services have failed to make an eligibility 
determination after a reasonable period of time?
    Mr. Beverly. Currently employers--at least some employers--
do cooperate with the job service in getting together 
information that is relevant to certification. We certainly 
support that cooperation and hope it continues and grows. 
However, we would like to see that support of the job service 
develop in such a way that we ensure that the job service's 
responsibility to be accountable for certification decisions is 
maintained.
    Mr. Coyne. Thank you.
    Chairman Houghton. OK, good. Mr. Hulshof.
    Mr. Hulshof. Very quickly, Mr. Burman, in your written 
testimony you say the Administration would support an extension 
of the credits for longer than a year. But I take it that you 
would not agree with a permanent extension, is that true?
    Mr. Burman. The concern we have about permanent extension 
right now is that the program is relatively new. It might be 
premature to make a permanent commitment. We think a longer-
term extension is a good idea.
    Mr. Hulshof. Following up on Mr. Coyne's questions, I 
recognize the policy perspective regarding allowing tax-exempt 
entities to claim credits. As you have indicated on page 4 of 
your testimony, the Administration believes this would be a 
back-door mechanism providing income tax credits. Is that 
right?
    Mr. Burman. Yes.
    Mr. Hulshof. But the question Mr. Coyne asked you was, does 
the Administration have any ideas or new incentives? I think 
what I heard from your answer was there is sufficient 
incentives that are already in law with TANF. Is that the 
position of the Administration: no new incentives are needed 
for the tax-exempts?
    Mr. Burman. I am focusing on the tax policy issues. We 
would be willing to talk to the committee about other 
alternatives. But our view from a tax policy perspective is 
that they should be along the lines of the TANF Block Grant 
Program, which already exists--a direct program to target the 
special needs of tax-exempt entities.
    Mr. Hulshof. So the Administration would respond to 
whatever suggestions that the committee would have, but the 
Administration does not have any suggestions at this time. Is 
that a fair assessment of the statement you just made?
    Mr. Burman. That is my view. It is possible there are 
programs in other agencies I don't know about.
    Mr. Hulshof. Fair enough. Thank you, sir.
    Chairman Houghton. Do have a question? OK, go ahead.
    Mr. Weller. Thank you, Mr. Chairman. I realize we are a 
little short on time.
    I am proud to say Illinois is one of the States where the 
program is working well. The information that I have is that 
while it is working well in a number of States, several States 
have significant processing of backlogs. What do you see as the 
problems? Have we identified the problems as to why there are 
these processing backlogs?
    Mr. Beverly. Again, we believe these processing backlogs 
are attributable to the need to find more efficient ways to 
exchange information between those agencies that have that 
information relevant to certification and the job service.
    As you may know, some States, including Illinois, I 
believe, have used computer processing as a mechanism to do 
that. We hope to reinforce those efforts through appropriate 
Memoranda of Understanding with the Department of Health and 
Human Services, Agriculture and Treasury to reinforce the 
message that it is very important.
    Chairman Houghton. I need to cut this thing off. Why don't 
we come back and finish this? Is that all right?
    The Committee will be in recess. We only have about 3\1/2\ 
minutes to vote. We will be right back.
    [Recess.]
    Chairman Houghton. OK, can we begin? Thanks very much.
    Mr. Weller.
    Mr. Weller. Thanks, Mr. Chairman. Mr. Beverly, you were 
responding to my question regarding the processing of backlogs 
that appear to exist in 8 to 10 States. You were sharing with 
us what you saw as the specific problems that are causing those 
backlogs.
    Mr. Beverly. Yes. Again, we believe the primary cause is 
the need to be more efficient in moving information from those 
agencies that have information that is critical to the 
eligibility determination process to the job service that is, 
in fact, the certifying agency.
    The use of computer technology has, in a number States, 
shown a significant efficiency impact. As you know, Illinois is 
one of the States that has moved in that direction and seen the 
benefits of using that technology. We hope to reinforce and 
underscore the importance of information sharing through 
continuing our work to execute Memoranda of Understanding 
between the agencies involved here in Washington, sending the 
message out to State systems that the importance of this 
information exchange is very much on our minds, and can, in 
fact, significantly improve the timeliness of certification 
decisions.
    Mr. Weller. What else needs to be done to fix the problem 
besides the memoranda?
    Mr. Beverly. Again, I think we need to be out there working 
with the States, providing technical assistance, letting them 
know about the experience in States that have solved the 
problem, and how States have done that. I think we can be 
instrumental in transporting to States that are working on the 
problem solutions that have been found in other States.
    Mr. Weller. Which States do you see as really demonstrating 
the ability to very efficiently process it? What do you feel 
are the leading States?
    Mr. Beverly. I am impressed by Illinois. [Laughter.]
    Mr. Weller. That will be struck from the record.
    Mr. Beverly. And New York, as well. I think North Carolina, 
in fact, has been able to use technology in such a way, and has 
worked out working relationships with welfare agencies, food 
stamp agencies, and other agencies that has proven to be a good 
approach to all of this. We hope to be able to enlist their aid 
in our technical assistance effort, and, again, bring this 
learning to other places.
    Mr. Weller. I will certainly pass on your compliment to 
Linda Renee Backer, the director of the program in Illinois.
    Mr. Burman, your conversation with Mr. Hulshof earlier 
touched on this. In the Administration's budget this year, you 
only propose a 1-year extension of the Work Opportunity Tax 
Credit and Welfare-to-Work. What do you believe is the minimum 
to make the program more attractive for employers to 
participate in this program? What do you feel is the minimum 
extension necessary to attract more participation?
    Mr. Burman. We think the 1-year extension is very 
important. As I said, a longer extension would be worthwhile in 
a paid-for package. I cannot really say if 3 years is the right 
answer, or 4 years. Basically we support the idea of providing 
more certainty for employers, not having them worry each year 
as the program expires.
    Mr. Weller. You know, Mr. Chairman, as we look in 2 weeks 
moving the tax revision for the third Balanced Budget in 30 
years, my hope is that we have a multi-year extension of the 
Work Opportunity Tax Credit. One of the successes of the low-
income housing tax credit is its permanency. It has been 
successful.
    I know in previous hearings when we discuss the difference 
between permanency in low-income housing tax credit and making 
it temporary, from 1993 to this point interest by the private 
sector has gone up sevenfold as a result of that. It is that 
permanency that attracts more people to participate and invest 
for the long term. I certainly hope that we are able as a 
fairness issue--fairness to the employer where they can have 
the confidence to participate--that we can extend the Work 
Opportunity Tax Credit for a number of years, at a minimum, 
rather than just 1 year at a time. Thank you, Mr. Chairman.
    Chairman Houghton. Well, thanks very much. You know it is 
not want you want. The question is: Is there any money there? 
That has been the holdup. Obviously, for planning purposes, you 
ought to have more than a 1-year throw-off here. We hope 
somehow, as the surpluses come along, we can get our budget in 
balance and be able to do that. Thanks very much.
    I just have one quick question for you, Mr. Burman. I think 
that the Treasury is hung up on non-profits because the concept 
is that you offset an employer's income tax liability, rather 
than tax liability. I think our feeling, in terms of generating 
this bill, was that it is the overall tax implication, rather 
than an income tax implication--meaning, really, a payroll tax. 
You can say this hasn't been done. It is probably difficult to 
enact. You know, that is the status quo. You never get anything 
done if you don't take some chances. What is the matter with 
that approach?
    Mr. Burman. I believe that it is inappropriate to try to 
target tax incentives to entities that are completely out of 
the income tax system. They are tax exempt, which is already as 
far as we can go in the income tax system.
    Chairman Houghton. No argument there. Income taxes are out. 
They don't pay them, but they do pay a tax--some of them, 
anyway.
    Mr. Burman. I think we are just concerned that this would 
be a very dangerous precedent. It would be difficult to 
administer, because the payroll tax system and the income tax 
system are separate from each other. It would require transfers 
from the general fund to the Social Security and Medicare Trust 
Funds to make up the money that was diverted from the payroll 
tax system. I think there is a concern about fraud, as well. It 
would be hard for the IRS to monitor.
    We would certainly be willing to look at any proposal that 
you, or other members, of this Committee put together, and to 
work with you to think about ways to help the tax-exempts.
    Chairman Houghton. I would just hope that we wouldn't draw 
a line in the sand--you take one position; we take another. We 
are going to go ahead with this thing. We would love to talk to 
you. We would love to do anything, but we feel very strongly 
about it. If there are any specific questions on this thing 
that we could talk about, other than the basic concept, I would 
love to.
    Mr. Burman. We will be happy to work with you and your 
staff.
    Chairman Houghton. Good. Thanks very much. Thank you very 
much, gentlemen, for being here.
    Now I would like to call the next witness. The next witness 
is Mr. Fred Grandy. Great to have you back, Fred. Fred, as 
everyone knows, is president and chief executive officer of 
Goodwill Industries International, a former Member of Congress, 
a former Member of the Ways and Means Committee. Are you a 
Member of the ``Former Club''?

 STATEMENT OF HON. FRED GRANDY, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, GOODWILL INDUSTRIES INTERNATIONAL, INC., BETHESDA, 
            MARYLAND, AND FORMER MEMBER OF CONGRESS

    Mr. Grandy. I think I just joined the ``Former Club,'' Mr. 
Chairman. I get so many invitations; I don't keep track of all 
of them.
    Chairman Houghton. Wonderful to have you here, Fred. Thanks 
very much. Would love to hear your testimony.
    Mr. Grandy. Thank you, Mr. Chairman, and Members of the 
Subcommittee. I am delighted, on behalf of Goodwill Industries 
International, to provide testimony in support of H.R. 2101, 
legislation to extend and improve the Work Opportunity Tax 
Credit.
    I would point out at the outset that we are pleased that 
you have 24 Members of the full Ways and Means Committee 
already supporting this bill upon introduction, and want to 
highlight that we think it is critical it is enacted this year, 
and with the extension provided for in the legislation.
    I would like to submit my written testimony for the record 
in its entirety and I will try to summarize it for the 
Committee.
    I would like to begin, Mr. Chairman, by talking a little 
about what Goodwill Industries International is, as opposed to 
what a lot of people think it is. We are, essentially, a 
network of 175 community-based organizations situated across 
the United States. All of them are tax-exempt under section 
501(c)(3) of the Internal Revenue Code. They are designed and 
chartered with the charitable mission of providing a broad 
variety of employment and job training services to individuals 
who are vocationally disadvantaged. These days, that spans the 
spectrum all the way from people with specific physical and 
cognitive disabilities, traumatic brain injury and various 
kinds of vision impairments, through and including single moms 
coming off welfare, non-custodial fathers, and everybody in 
between.
    Because we are a community-based network all Goodwills, 
although they are connected through the charitable mission and 
the commitment to break down barriers to employment, deliver 
these services in unique and innovative ways designed to serve 
their communities. I would tell Mr. Coyne, if he were here, 
that the Pittsburgh Goodwill, in addition to providing the 
normal vocational rehabilitation services, has moved 
aggressively into Welfare-to-Work, and is using some of the 
dollars generated by our retail stores to invest in things like 
transportation for single moms who find that if they get a job 
and can't get to it, there is no distinction in finding 
employment.
    To Mr. Lewis from Atlanta, if he were here, I would point 
out that one of our good partners in the central business 
district of Atlanta is Marriott Corporation, which will testify 
later today on behalf of the credit. In Atlanta alone, they 
have provided--I think--60 individuals, with some form of 
physical or cognitive disability, an opportunity to work in the 
Marriott Marquee, downtown.
    Again, we have opportunities in Oklahoma City, Seattle--all 
of them tailored to serve various needs of those communities. 
Altogether, Goodwill last year served 320,000 individuals with 
some form of barrier to employment. What this basically breaks 
down to is about 75,000 people coming through our various doors 
looking specifically for job placement services. Of that 
number, 58,000 were placed in competitive employment. What that 
means in this field, Mr. Chairman, is that they found a job in 
their community and kept it. In terms of what that return of 
charitable investment means to the country and to the 
communities that they serve, it is roughly about $641 million 
in salary and wages, or $96 million in Federal, State, and 
local tax revenues. The point being, of course, that many of 
these folks were tax consumers and not tax payers before they 
found vocational opportunities through our organization.
    So the nature of our operation in all of the communities we 
serve through the sale of donated goods, coupled with various 
contracts and services we provide, make us an employer of first 
resort, employing people who have little or no job experience, 
usually in our retail and contract service operations, and, 
importantly, giving them the skills necessary to obtain work 
and to advance in a very competitive labor market. Mr. 
Chairman, I want to stress that this is always paid training.
    We now find that we can also be the employer of last 
resort, too, for individuals who have been unable to succeed in 
the competitive labor market, and who need a more structured 
work environment or longer term vocational related services. 
Again, as we dig down deeper into the ranks of hard-core 
unemployed with the Welfare-to-Work legislation that was 
enacted in 1995, States like California are finding themselves 
now servicing, through organizations like Goodwill, people who 
were formerly deemed unemployable by the Gain Program in 
California. This was their Welfare-to-Work program before they 
incorporated their new strategy into the Federal program.
    So because we deal with individuals with several severe and 
multiple barriers, job placement specialists within Goodwill 
Industries regularly report that the utilization of the Work 
Opportunity Tax Credit can frequently mean a difference between 
a person finding a job, or simply remaining dependent on 
Government support payments.
    There are two very critically important changes in this 
reauthorization of the WOTC that I would like to highlight. The 
first, of course, is to permanently extend the credit. 
Originally known as the target jobs tax credit, and now, the 
WOTC, Congress has traditionally reauthorized this employment 
incentive for 1 year, or 18-month periods, often allowing the 
credit to expire, and then retroactively extending it. This 
created an on-again, off-again approach that is considerably 
confusing to employers, personnel in State employment service 
offices who administer the program, and to placement 
specialists in organizations, such as Goodwill, who strive to 
match employers with individuals. That is essentially our core 
business, Mr. Chairman: matching employers and potential 
employees.
    As of about 11 hours ago, the WOTC is again in limbo, 
because Congress now has the responsibility of reauthorizing 
this program, hopefully with a longer stay. We strongly 
advocate this committee to add stability to the program. 
Today's robust economy has produced labor shortages in many 
markets around the country, forcing employers to look for 
workers who previously have been deemed unsuitable for work. 
While the WOTC itself does not make an unsuitable individual 
work-ready, its use, combined with public and private resources 
for preemployment training, can often make the difference. With 
that modest financial incentive provided through the tax code, 
basically a partial offset can be used for higher initial 
employment costs, and usually these days post-employment job 
training costs associated with the WOTC-eligible populations. I 
will cite an example of that later in my testimony.
    Let me talk, if I could for a moment, Mr. Chairman, about 
some of the criticism that have been leveled against the Work 
Opportunity Tax Credit, and formerly the targeted jobs tax 
credit, as being a form of ``corporate welfare.'' Goodwill, and 
our colleagues in the non-profit community believe that is a 
mistaken characterization, because it does not necessarily 
reward businesses for people they would hire anyway. That is 
not happening. It is important to remember that employers are 
now competing for what we call in the workforce development 
strategy, ``second-and third-tier levels of unemployed.'' We 
are way past the work-first and rapidly-attached individuals 
that have profited from a buoyant economy, and now have been 
employed under the new welfare legislation.
    We are now dealing with a new a population and need new 
strategies to deal with that population. Countless studies and 
reports in the press point to the dramatic success of the 
Nation's welfare rolls with local economies at or near full 
employment. Let us get beneath those statistics and look at 
some of the things that face us as we look forward to 
reauthorizing the WOTC.
    For example, at the end of 1998, we still have 2.8 million 
families, most of them single-parent, receiving welfare 
benefits. These are, again, the hardest of the hard-to-serve, 
in many cases with more than one barrier to employment: 
poverty, learning disabilities, substance abuse problems. We 
have more than 3.6 million individuals, between the ages of 18 
and 64, on supplemental security income--another qualifying 
category under the WOTC. Many of these individuals have had no 
work experience. They are starting from absolute ground zero. 
They are a core constituency of Goodwill and its employment and 
training colleagues.
    And among individuals with disabilities of working age, 18 
to 64, 71 percent are still unemployed. This is 10 years after 
the enactment of the Americans with Disabilities Act (ADA). 
Last year the Harris study put out a definitive study on this. 
It said that regardless of whatever statutory changes that have 
happened in employment law, the relationship between the 
employer and employee for people with disabilities--most of 
whom want to work--still is keeping people out of the 
workplace.
    I can add a little bit more color to that. I serve on the 
President's Committee on Employment for People With 
Disabilities, which is the small Federal Agency that oversees 
the ADA. We have recently run some projected statistics. We 
have about 54 million people with disabilities in this country. 
If just one million more of them were employed--less than two 
percent of that population--we project that would mean an 
increase of about $21 billion in annual earned income. So we 
are losing productivity by not putting people with disabilities 
to work. That is a population that is and could be greater 
served by the WOTC.
    A permanent extension of the Work Opportunity Tax Credit 
will provide employers with a strong, consistent signal that 
the Federal Government supports their efforts to assist all 
citizens. Again, Mr. Chairman, I would like to cite one of the 
things that we are currently doing right now to help employers 
hire and retain individuals who are now having a harder time 
staying connected to the workplace.
    In Omaha, the Goodwill has begun a program with First 
National Bank of Omaha, the largest financial institution in 
the city, called ``Banking on Success.'' The Goodwill 
employment specialist there, among other things, helps 
participants with career planning, provides intensive 
assistance with logistical issues, such as back-up 
transportation, child-care planning, personal budgeting, 
financial planning, and money management. Most importantly, 
employment specialists will pool and coordinate community 
resources for more pressing issues, such as the need for 
counseling, housing, and education. This is a full-service 
business now, helping people back into the workplace and 
helping them stay there. The WOTC is an important tool.
    With that in mind, Goodwill and the agencies from the non-
profit community that are endorsing the extension of H.R. 2101 
are very much in support of the proposal first offered in the 
105th Congress by Representatives Nancy Johnson and Nita Lowey. 
It would permit charitable organizations exempt from income 
tax, under section 501(c)(3) of the Internal Revenue Code, to 
receive a credit against payroll taxes when they hire WOTC-
eligible individuals. In a letter that Mrs. Johnson and Ms. 
Lowey sent to the House last year, they pointed out, ``By not 
including non-profits, such as hospitals and community-based 
organizations, the current WOTC excludes some of the largest 
employers in our Nation's inner cities--areas where most of 
those eligible for WOTC reside.''
    That is truer today than it was last year. Inner-city 
hospitals, nursing homes, and large employment organizations 
like Goodwill are having the same problems attracting qualified 
labor, for our own business opportunities--as do many of the 
employers whom we serve. This provision would also allow 
entities such as colleges, universities, nursing homes, 
museums, and organizations that could hire significant numbers 
of entry-level workers to employ individuals from the WOTC-
eligible populations.
    Let me go to something that I know Mr. Hulshof and Mr. 
Coyne addressed, when they were talking to the representative 
from Treasury, as to whether or not the payroll tax forgiveness 
is an inappropriate extension of tax exemption for non-profits. 
First of all, let me say that non-profits--as you pointed out--
do pay payroll taxes. Anything that is unrelated to charitable 
mission, we obviously pay unrelated business income tax. What 
we are asking for here is an opportunity to basically provide 
more training opportunities within our organizations to provide 
employers looking to perhaps enfranchise people with 
disabilities, or ex-felons, or any of the targeted categories 
under WOTC more opportunities to take these people and keep 
them in work.
    But let us remember there is a significant difference 
between a for-profit and a non-profit, much of it having to do 
with our willingness, and in some cases mission-driven 
commitment, to tolerate inefficiencies in our workplace in the 
non-profit world. This is something that no for-profit business 
could afford to do, or should do.
    In a very tight labor market, such as we see and such as we 
predict will extend well into the next century, we are having 
the same problems finding and keeping people, and providing 
those post-employment training needs that I talked about 
earlier. That is why we strongly think that this is the right 
time and the right place to create what was called last year 
the ``Community Employment Partnership Act,'' but is now 
incorporated into the WOTC as an important opportunity for non-
profits to hire, train, and in some cases, retain workers, 
particularly those with disabilities.
    Under H.R. 2101, the 7.65 percent employer-paid Social 
Security and Medicare tax on wages paid to WOTC-eligible works 
would be offset, up to a maximum of $2,400 in the first year of 
employment. Those revenues could be used, for example, to 
provide the additional skills training to WOTC workers, or 
support an organization's charitable mission. It is also 
important to point out that this proposal would have no 
negative impact on the Social Security or Medicare trust funds. 
The amount of the tax-exempt employer's credit would be treated 
as payment toward the organization's payroll tax liability, 
with general revenues appropriated for payments to the trust 
funds.
    Similarly, the WOTC employee's Social Security earnings 
record would not be negatively affected. Mr. Chairman, an 
analysis provided last year by the Joint Committee on Taxation 
costed out what was the Johnson-Lowey proposal at $119 million 
over 5 years, $29 million in the first year. It is our 
understanding that your version has slightly increased that, 
but not substantially. That seems a fairly small price to pay 
for the opportunity to put more people who are, despite a 
buoyant economy, locked in an unemployment situation that is 
ongoing.
    A study published earlier this month by the National Center 
for the Study of Adult Learning and Literacy at Harvard 
University concluded that because welfare recipients remaining 
on the rolls have such low basic job skills, a vast majority of 
available jobs are not open to them. Similarly last year, 
McKinzie and Company published a report called, ``Help 
Wanted,'' that basically said that customer skills are the 
ability to make people feel welcome, understand and respond to 
requests, and solve problems that deal with service failures 
are essential to service companies. Yet, only to 20-30 percent 
of applicants appear to have these skills. To a large degree 
non-profits, like Goodwill and other employment training based 
organizations, basically off-load that responsibility from 
employers so that when they do hire our workers, they come 
ready to go to work.
    It is because of that, Goodwill Industries strongly 
supports the extension of the WOTC, and the incorporation of 
the Community Employment Partnership Act in it. Mr. Chairman, I 
would also point out that with my testimony is a list of the 
non-profit organizations, that are in support of H.R. 2101. 
They include, but are not limited to, the ARC, Easter Seals, 
National Association of Independent Colleges and Universities, 
National Industries for the Blind, National Mental Health 
Association, United Cerebral Palsy, as well as the National 
Assembly of Health and Human Service Organizations. I notice 
their executive director, Gordon Raley, is in the room today. 
That includes every major human service non-profit in the 
United States: American Red Cross, Girl Scouts, Catholic 
Charities, and Second Harvest.
    So there is uniform support in the non-profit community for 
this. We strongly believe the time has come. I thank the Chair.
    [The prepared statement follows:]

Statement of Hon. Fred Grandy, President and Chief Executive Officer, 
Goodwill Industries International, Inc., Bethesda, Maryland, and former 
Member of Congress

    Mr. Chairman and Members of the Subcommittee: On behalf of 
the Goodwill Industries network, this opportunity to present 
testimony in strong support of H.R. 2101, legislation to extend 
and improve the Work Opportunity Tax Credit (WOTC), is 
appreciated. With 24 bipartisan members of the full House Ways 
and Means Committee cosponsoring this bill upon introduction, 
the critical need for enactment of this legislation is 
underscored.
    Goodwill Industries International, Inc. is the corporate 
office of a network of 175 autonomous, community-based 
organizations operating throughout the United States. Each of 
these organizations, tax-exempt under Section 501(c)(3) of the 
Internal Revenue Code, provides a broad variety of employment 
and job-training services to individuals who are vocationally 
disadvantaged. Welfare recipients, individuals with physical 
and mental disabilities, dislocated workers, recovering 
substance abusers and ex-felons are among the populations 
typically served by a local Goodwill Industries.
    While Goodwill is perhaps best known for its more than 1700 
retail stores that provide consumers with quality clothing and 
household goods at reasonable prices, it is important to 
recognize how those revenues are used to support Goodwill 
Industries' charitable mission. In 1998, Goodwill Industries 
provided vocational services to more than 320,000 individuals, 
with nearly 75,000 people coming to Goodwill for assistance in 
finding employment. Of that number, 58,000 were placed into the 
nation's competitive work force as a direct result of 
Goodwill's efforts. We estimate that these newly-employed 
individuals earned $641 million in salaries and wages, 
generating an estimated $96 million in federal, state and local 
tax revenues. In effect, Goodwill Industries turns ``tax 
consumers'' into taxpayers. In addition, the nature of 
Goodwill's operations allows us to be the employer of ``first 
resort,'' employing people who have little or no job experience 
in our retail and contract operations, allowing them to gain 
the skills necessary to obtain work and advance in the 
competitive labor market. Goodwill can also be the employer of 
``last resort'' for those individuals who have been unable to 
succeed in the competitive labor market and who need a more 
structured work environment or longer-term vocational-related 
services.
    Because we often deal with individuals with severe or 
multiple barriers to employment, job placement specialists 
within Goodwill Industries regularly report that utilization of 
the Work Opportunity Tax Credit often means the difference 
between a person finding a job or remaining dependent on 
government support payments.
    H.R. 2101 calls for two critically important changes to the 
WOTC program. The first would permanently extend the credit. 
Originally as the Targeted Jobs Tax Credit and now as the Work 
Opportunity Tax Credit, Congress has typically authorized this 
employment incentive for 1-year or 18-month periods, often 
allowing the credit to expire and then retroactively extending 
it. This ``on again, off again'' approach has caused 
considerable confusion among employers, personnel in state 
employment service offices who administer the program and 
placement specialists in organizations such as Goodwill 
Industries who strive to match employers with individuals in 
need of a job. As of approximately 10 hours ago, the WOTC is 
again in limbo. Congress has consistently recognized the 
importance of the WOTC as evidenced by regular, albeit short-
term, reauthorizations. Now is the time to add stability to the 
program. Today's robust economy has produced labor market 
shortages in many areas of the country, forcing employers to 
look for workers who previously would have been deemed as 
unsuitable for work. While the WOTC will not make an 
``unsuitable'' individual work ready, its use combined with 
public and private resources for pre-employment training can 
often make the difference. The modest financial incentive for 
employers produced by the Work Opportunity Tax Credit allows 
for a partial offset of the higher post-employment job-training 
costs associated with WOTC-eligible populations.
    Critics of the WOTC mistakenly characterize the credit as 
an example of ``corporate welfare,'' rewarding businesses for 
hiring workers whom they would employ anyway. It is, however, 
important to recognize that employers are now competing for 
what we at Goodwill Industries call the second- and third-tier 
levels of the unemployed--individuals for whom ``work first'' 
or ``rapid attachment'' strategies have been unsuccessful 
because of the severity of their barriers to work. Countless 
studies and reports in the press point to the dramatic success 
in the reduction in the nation's welfare roles, with many local 
economies at or near ``full'' employment. Despite the strong 
economy, all is not well among the WOTC-eligible populations. 
For example:

     At the end of 1998, there was still an estimated 
2.8 million families, mostly single-parent, receiving welfare 
benefits.
     More than 3.6 million individuals between the ages 
of 18-64 are on the Supplemental Security Income (SSI) roles.
     Among individuals with disabilities of working age 
(18-64), 71 percent are unemployed.

    Given the above statistics, there is clearly a need for tax 
incentives for employers to hire from WOTC-eligible populations 
that experience chronic unemployment. A permanent extension of 
the Work Opportunity Tax Credit will provide employers with a 
strong, consistent signal that the federal government supports 
their efforts to assist all citizens to become productive 
members of the nation's work force.
    A second, critically important element of H.R. 2101 is a 
provision that would substantially increase the effectiveness 
of the Work Opportunity Tax Credit by allowing charitable 
organizations to participate in the WOTC program. This 
proposal, first offered in the 105th Congress by 
Representatives Nancy Johnson and Nita Lowey, would permit 
charitable organizations exempt from income tax under Section 
501(c)(3) of the Internal Revenue Code to receive a credit 
against payroll taxes when they hire WOTC-eligible individuals. 
In a ``Dear Colleague'' letter to the House last year, 
Representatives Johnson and Lowey said:

          By not including nonprofits, such as hospitals and community-
        based organizations, the current WOTC excludes some of the 
        largest employers in our Nation's inner cities--areas where 
        most of those eligible for WOTC reside.

    This provision would also encourage nonprofit entities such 
as colleges, universities, nursing homes and museums--
organizations that often hire significant numbers of entry-
level workers--to employ individuals from the WOTC-eligible 
populations.
    Although exempt from taxation on income (except for income 
substantially unrelated to an organization's exempt purpose), 
charitable entities do in fact pay federal taxes on gross wages 
paid to employees. Under H.R. 2101, the 7.65 percent employer-
paid Social Security and Medicare tax on wages paid to WOTC-
eligible workers would be offset, up to a maximum of $2,400 in 
the first year of employment. The legislation would also 
provide charitable organizations with a second year of payroll 
tax offsets when they hire welfare recipients. For a newly-
hired entry-level worker earning the current minimum wage, the 
payroll tax offset would come to nearly $800 for each WOTC-
eligible worker. These revenues could be used, for example, to 
provide additional skills training to WOTC workers or to 
support an organization's charitable mission.
    It is very important to recognize that this proposal would 
have no negative impact on the Social Security or Medicare 
trust funds. The amount of the tax-exempt employer's credit 
would be treated as payment towards the organization's payroll 
tax liability, with general revenues appropriated for payments 
to the trust funds. Similarly, the WOTC employee's Social 
Security earnings record would not be affected.
    The cost of this proposal is surprisingly modest, an 
important factor in this era of fiscal restraint. An analysis 
prepared last year by the Joint Committee on Taxation on the 
original Johnson-Lowey proposal projected first-year costs of 
$29 million, with the provision estimated to cost $119 over 
five years. Because of modifications to the original proposal 
made in the Houghton-Rangel legislation, we expect that the 
first-year cost of H.R. 2101 will be slightly higher. The 
legislation would authorize this provision as a demonstration 
for three years in order to give Congress an opportunity to 
assess its effectiveness in creating employment opportunities 
within the targeted populations.
    A study published earlier this month by the National Center 
for the Study of Adult Learning and Literacy at Harvard 
University concluded that because welfare recipients remaining 
on the roles have such low basic job skills, the vast majority 
of available jobs are not open to them. By expanding the Work 
Opportunity Tax Credit to include participation by charitable 
organizations, welfare recipients and other WOTC-eligible 
individuals will have a greater chance to take that first step 
into the nation's workforce. Accordingly, we urge favorable 
consideration of H.R. 2101 by the 106th Congress. A list of 
additional national organizations also supporting this measure 
is attached.
    Again, this opportunity to testify on behalf of the 
Goodwill Industries network in support of H.R. 2101 is 
appreciated. I would be pleased to respond to any questions you 
may have.

Organizations Supporting H.R. 2101 (As of June 28, 1999)

    In addition to Goodwill Industries International the 
following national organization support enactment of H.R. 2101:

    American Network of Community Options and Resources
    The Arc
    Consortiun For Citizens with Disabilities--Employment and 
Training Task Force
    Easter Seals
    Epilepsy Foundation
    Inter/National Association of Business, Industry and 
Rehabilitation
    National Alliance for the Mentally Ill
    National Assembly of Health and Human Service Organizations 
representing:

      Alliance for Children and Families
      American Association of Homes and Services for the Aging
      American Camping Association
      American Cancer Society
      American Foundation for the Blind
      American Humane Association
      American Red Cross
      Association for Volunteer Administration
      Association of Jewish Family and Children's Agencies
      Association of Junior Leagues International Inc.
      Big Brothers Big Sisters of America
      Boy Scouts of America Inc.
      Boys & Girls Clubs of America
      Camp Fire Boys and Girls
      Campaign for Tobacco-free Kids
      Catholic Charities USA
      Child Welfare League of America
      Citizens' Scholarship Foundation of America
      Civil Air Patrol
      Coalition for Juvenile Justice
      Council on Accreditation of Services for Families and 
Children
      Families, 4H, and Nutrition
      Girl Scouts of the USA
      Girls Incorporated
      Habitat for Humanity International
      Hostelling International--American Youth Hostels
      Joint Action in Community Service
      Lutheran Services in America
      National Benevolent Association
      The National Center for Missing and Exploited Children
      National Coalition of Hispanic Health and Human Services 
Organizations (Cossmho)
      The National Council on the Aging
      National Crime Prevention Council
      National 4-h Council
      National Mental Health Association
      The National Mentoring Partnership
      National Network for Youth
      National Urban League
      Neighborhood Reinvestment Corporation
      The Points of Light Foundation
      The Salvation Army
      Save the Children
      Second Harvest
      Sos Children's Villages--USA, Inc.
      Street Law, Inc.
      Travelers Aid International
      United Neighborhood Centers of America
      United Seamen's Service
      United Way of America
      Volunteers of America
      Wave Inc.
      Women in Community Service (Wics)
      YMCA of the USA
      Youth Service America
      YWCA of the USA

    National Association of Independent Colleges and 
Universities
    National Association of Protection and Advocacy Systems
    National Industries for the Blind
    National Mental Health Association
    National Rehabilitation Association
    National Rehabilitation Facilities Association
    NISH--National Industries for the Severely Handicapped
    Paralyzed Veterans of America
    United Cerebral Palsy Associations

                                

    Chairman Houghton. Thanks very much, Mr. Grandy.
    Well, we are honored to have Mrs. Johnson here, as a Member 
of the Ways and Means Committee. Would you like to make a 
statement?
    Mrs. Johnson of Connecticut. I would. Thank you very much 
for giving me this opportunity to testify before one of the 
really important Subcommittees of Ways and Means.
    Chairman Houghton. You know this.

    STATEMENT OF HON. NANCY L. JOHNSON, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CONNECTICUT

    Mrs. Johnson of Connecticut. I just came to make two 
points. I consider the Work Opportunity Tax Credit one of the 
most important sections of the Tax Code, particularly in this 
era, when we--I would have to say Republicans--are leading that 
effort to move away from a Government that supports non-work, 
to a Government that consciously, explicitly, and forcefully 
supports work. The WOTC is powerful in helping people who 
otherwise would be hard to employ to get into the work economy. 
It gives those very people a boost who most need it: people 
with no work records, no experience in coming to work, no 
references, and maybe a rather checkered history of one kind or 
another.
    But I want to speak to two provisions: first of all, your 
enlargement of the WOTC to the non-profits; and second, to ask 
you to consider a proposal that is coming out of my Human 
Resources Subcommittee we are getting costed out at Joint Tax 
to include children coming off foster care under the Work 
Opportunity Tax Credit.
    Kids aging out of foster care have a very, very tough time. 
They have often been from home to home. They often have had 
mighty little support. They weren't the kids that got into the 
work-study programs in high school. They normally don't have 
any employer recommendations to follow them. Often they are 
coming off rugged paths. We need badly for them to get 
established in decent jobs with a career pattern ahead of them. 
Those are the very kinds of jobs that the Work Opportunity Tax 
Credit can help them get into.
    As soon as we get the fiscal note on that we will get that 
to you. We expect it to be very small. There is only 20,000 
that age out of foster care every year. Many of those will go 
on to school or get jobs for which they don't need a credit. So 
it is going to be a very, very small cost. It is the principle 
of the thing. These are kids that need extra consideration as 
they go into the work force.
    On this issue of non-profits, you know, most of the people 
who need the Work Opportunity Tax Credit live in cities. In my 
hometown of 70,000, the biggest employer is the hospital. So, 
in the cities, the non-profits play a major role. We need to be 
able to encourage them and support them in hiring difficult-to-
hire employees.
    Second, the constructive workshops, primarily located in 
the urban areas, are the ones with the most experience in 
getting people with disabilities into the work force. As we get 
more successful in making a Welfare-to-Work program, we are 
going to get down to more and more of the women on welfare who 
are there because they have mental health problems, or because 
they have addiction problems. As they both conquer those 
personal problems and move into the workforce, frankly, they 
need the knowledge, the experience, the supportiveness of the 
kind of environment that Fred is talking about.
    During the great downturn of unemployment in Connecticut in 
1991, the constructive workshops were loaded with work. 
Everyone was afraid to hire anyone because they were afraid the 
contracts wouldn't be there in a couple of months. So the 
constructive workshops opened their doors to normal employees. 
By working side-by-side with normal employees, the 
disadvantaged employees increased their productivity 
dramatically. It is good for everyone. The constructive 
workshops, along with the Salvation Army and all of these 
different groups, provide work and psychological, emotional, 
and practical advice that people need when they are making big 
changes in their lives. I would just urge you to move forward 
with your inclusion of non-profits, as you have in your bill, 
and to consider foster care kids aging out of the system.
    Chairman Houghton. Two good points.
    Mr. Grandy. Mr. Chairman, if I could just follow-up on 
something Mrs. Johnson said. Of course, what she is talking 
about is true in every city in the United States, not just 
cities in Connecticut. It is truer now than it was probably a 
year ago.
    But there was reference made in terms of incentives already 
on the table for non-profits in the form of grants, TANF 
grants. I want to point out that organizations like Goodwill 
and the Y's do compete and win many of these grants. Like any 
grant process, it is complicated, time-consuming; the 
reimbursement is problematic, and they usually are the province 
of only large organizations like ours. Small, community-based 
organizations do not get in the game, unless they are able to 
stitch together a large partnership. Then they get only a small 
piece of the grant. That is why we advocate this change to 
extend the payroll tax to non-profits. That allows those 
community-based organizations that Mrs. Johnson is talking 
about to be on an equal playing field.
    Chairman Houghton. OK. You have any more? Thanks very much, 
Mrs. Johnson. We really appreciate it.
    Mr. Coyne, do you have any questions?
    Mr. Coyne. I just want to recognize Mr. Grandy's testimony 
and acknowledge the great work that Goodwill Industries is 
doing in the district that I represent. The 24-story office 
building where my office is manned by Goodwill handicapped 
workers who come in every day and do the maintenance work. They 
do an outstanding job in carrying that out. Thank you.
    Mr. Grandy. Thank you, Mr. Coyne.
    Chairman Houghton. Thanks. Ms. Dunn, do you have any?
    Ms. Dunn. I just want give a big welcome to Mr. Grandy. It 
is great to see you again. Your appearance here on behalf of 
the Work Opportunity Tax Credit for non-profits is really just 
the last in a series of efforts you have consistently made. 
During your time in Congress, I recall your efforts to come out 
with a really good family and medical leave bill that would 
have answered some problems above and beyond the problems that 
were answered by the bill that we finally passed. I 
congratulate you on that. I am glad you are back.
    Mr. Grandy. Well, I must tell you, Ms. Dunn, it is much 
more fun to be on the delivery side of human services than on 
the debate side.
    I would also point out--Mr. Coyne, I don't think you were 
in the room--that Goodwill Industries of Pittsburgh is one of 
the signature Goodwills in the country. It serves not only 
Allegheny County, but all the way down into rural West 
Virginia.
    In Seattle, the representative district you are in, Ms. 
Dunn, that Goodwill concentrates on adult education and 
literacy because the need is so great in that community. So 
again, two Goodwills flying the same banner, but offering 
customized services because their communities need it.
    Chairman Houghton. Any more?
    [No response.]
    Fred, a question: You know the unemployment rate is very, 
very low.
    Mr. Grandy. It is 4.2 percent, as of May.
    Chairman Houghton. Yes. Does expanding the Work Opportunity 
Tax Credit to the non-profits have an impact on for-profit 
institutions?
    Mr. Grandy. Would it have any kind of negative impact?
    Chairman Houghton. Negative impact.
    Mr. Grandy. Well, considering the people that we are trying 
to get into the workplace, we don't look at that 4 percent 
figure. We look at the 71 percent figure of people with 
disabilities that are still unemployed. I think, quite 
honestly, it would allow us to serve the for-profit community 
better. It would allow us more training opportunities through 
our stores, the kinds of employment opportunities that 
hospitals or large nursing homes would provide--as we all do--
that kind of transitional employment. When people come through 
Goodwill, they normally are working in our stores to get job 
skills they will need somewhere else in the workplace.
    The reason I brought out that number of 58,000 employed 
last year is that those are people that came through Goodwill 
and got a job somewhere else in their communities. That is our 
measure of success.
    We do hire a lot of folks, but it is usually with the 
understanding that they are using what they learn in a store, 
or a community facility of some sort, to get into the workplace 
and stay there at a time when the labor market is projected to 
be so tight, when customer skills are absent, when the need is 
for skills formerly thought of as things only managers would 
need. Technological aptitude, problem-solving skills, and good 
communication skills are now front-line worker skills, Mr. 
Chairman. Those are the kinds of things we teach, day in and 
day out.
    So if competent labor supply is important to the for-profit 
community, I don't see how giving this extension of payroll tax 
forgiveness through the WOTC does anything but help those 
businesses find the labor they need.
    Chairman Houghton. OK. Well, I don't have any questions. Do 
you have any more questions? Kenny Hulshof has a question.
    Can we recess for just a minute? I am going to go vote. I 
will be back. I think he will be back.
    Mr. Grandy. I will be glad to stay.
    Chairman Houghton. I think also Rob Portman will be back. 
If you could just hold on here a moment, Fred. Great. Thanks.
    [Recess.]
    Mr. Portman [presiding]. We are going to reconvene the 
hearing.
    Fred, thank you for staying. I know we have some questions 
for Mr. Grandy, however, Mrs. Johnson had to go vote.
    We will get into some questions, then we will move on to 
the next panel and keep the hearing going. I would like to call 
on Mr. Hulshof.
    Mr. Hulshof. Thank you, Mr. Chairman.
    Mr. Grandy, in the written testimony of Mr. Burman 
regarding the idea of letting tax-exempts claim credits against 
FICA tax liability, he says it is unprecedented. What that 
suggests to me is that this would be a new policy direction. Is 
that your understanding? Has this ever been allowed before, 
where other groups get to take tax credits against FICA tax 
liability?
    Mr. Grandy. Mr. Hulshof, I do not know of any Federal 
precedent where FICA taxes would be forgiven. That is not to 
say that they don't exist somewhere at the State level in some 
kind of provision that might be incorporated, either 
municipally or at a statewide level.
    Going back to the question that you addressed, I am not 
sure that you heard my response to that. The incentives that do 
exist in the Code, which Treasury would have you believe are 
plentiful, are really very limited in scope. If we are talking 
about grants, as I pointed out to Mr. Houghton, those TANF 
grants, which organizations like ours and other non-profits 
compete for and in some cases win, are large, cumbersome, and 
complicated like most Federal competitive grants. Sometimes 
they are based on prohibitive State formulas. But in almost all 
cases they are limited to large non-profits, not community-
based organizations that are small and doing the very important 
local work of getting people who would otherwise be totally 
disconnected from the workplace into meaningful employment.
    So I guess I would argue that, yes, it is unprecedented, 
but there has probably never been a better time to create that 
precedent. We are looking at labor shortages which produce on 
paper a full-employment economy, but still keep about 71 
percent of the disabled population out of the work force. The 
curve to get those folks ready and able to stay in the 
workplace takes more time.
    The other point that I made--I am not sure you were in the 
room--is that organizations like Goodwill, which use their 
stores as training facilities, and are like-minded vocational 
rehabilitation organizations that use work programs in a 
similar way, tolerate inefficiencies that for-profits would not 
and should not. We will spend more time with a worker, because 
that product is what we produce--not old clothes, not surplus 
goods--but workers who are able to get into the workplace and 
stay there. Because of that, we would invest more time in that 
product that a for-profit business simply could not afford to 
do. So that is the incentive for us behind the payroll tax 
forgiveness.
    Mr. Hulshof. Let me play devil's advocate, Mr. Grandy. 
First of all, you are aware that on instances like the Ticket-
to-Work, we are trying to remove some of the disincentives--the 
barriers--that are in the way for the disabled to return to the 
work force. This committee has been high-profile on that, not 
only in this Congress, but in the last Congress.
    From the policy perspective, since we are talking about a 
fairly significant shift, the devil's advocate position is 
this: if Goodwill or other tax-exempts were allowed to claim 
the WOTC, would that be in competition with the for-profit 
companies to attract workers--some sort of bidding up for wages 
at the entry level? I mean, is this something we should be 
concerned about, or not?
    Mr. Grandy. No. Again, as I pointed out, we are in business 
to provide a service between employers and employees. In many 
cases, the real barrier that we have to break is the public 
attitude toward people with disabilities. A lot of employers, 
particularly small employers, are not going to be inclined to 
hire somebody with a disability--ADA notwithstanding, WOTC 
notwithstanding--because they say, ``I would like to do 
something along these lines, but I have very narrow margins.''
    Right now with this tight labor market, you are seeing 
increased costs of hiring and retention. More and more 
companies are turning to us as intermediaries and saying, ``Can 
you help us probe these markets: people coming off welfare, ex-
felons, SSI recipients, people with a variety of disabilities? 
What is the cost of training them and keeping them in our 
workplace? What are the post-placement services that we will 
need?''
    This tax credit allows us more opportunity to do that. So I 
think the people that we would hire would continue to be those 
transitional employees that we would then perhaps turn over to 
a business--a Marriott Corporation, or a TJX. That would 
enhance their bottom line, because they would get competent 
workers that would not cost them the money that otherwise they 
would have to spend out of their HR budgets.
    So I think there is no argument to be made that we are 
somehow competing. We are trying to mine what we think is a 
potential source of workers that have been left out of the mix, 
even in the most buoyant economy. That is the sole reason we 
support H.R. 2101 at this time.
    Mr. Hulshof. Thanks for your answers.
    Mr. Grandy. Thank you, Mr. Hulshof.
    Mr. Portman. If you could stay for awhile, I have a couple 
of follow-up questions. I appreciate your being here. I know 
you were in the Congress when we had a big debate over the old 
targeted jobs tax credit. I was one of those who expressed a 
lot of concerns about that program. It came out of concerns 
raised locally, actually, from some of my businesses who, when 
I solicited their input on this, said, ``Rob, we would have 
hired them anyway.'' It was a windfall. These are companies in 
a relatively low--at that time--unemployment area of the 
country, the greater Cincinnati area.
    They said, ``Frankly, we would bring these people in just 
as we would have, anyway. Then we look around and see who can 
qualify for the tax credit.'' Therefore, I like the new WOTC. I 
think it is better. I think folks on preemployment 
certification is a good idea. I think targeting groups, such as 
the disabled, is a good idea. I have been more supportive of 
this program.
    We also now have a change of circumstance of an even 
tighter labor market, nationally. It may be more comparable to 
what we had in greater Cincinnati 4 or 5 years ago. I think the 
latest unemployment figures are near 4.2 percent. You mentioned 
earlier that is practically full employment. Many economists 
consider that a full employment situation.
    I guess my question is a general one. First, having 
experience on this side of the dias, and having been on the 
policy side--if you could put that hat on--What additional 
incentives do we need in that kind of a full employment 
marketplace? For the disabled workers, in particular, and these 
other targeted areas, isn't it enough to simply incentivize 
these companies to go to Goodwill, or to go to a for-profit 
intermediary, which I understand many of them do now?
    Mr. Grandy. Yes, they do now. As a matter of fact, we 
compete with companies like Lockheed and EDS, now, for 
employment and training dollars, because they are in that 
business.
    Mr. Portman. Is there not enough incentive in the system 
now, with this relatively full employment economy we have, to 
provide that downstream to you, as compared to establishing 
what you said is a precedent? You said it may be a good 
precedent to expand on. I am very concerned about that 
precedent.
    We have, in our Medicare and Social Security systems a 
crisis. We can argue about how serious the situation is, but we 
simply do not have the payroll taxes coming in to pay for the 
benefits starting in 13 years. That projection is relatively 
conservative because of baby-boomers, people living longer, and 
lower fatality rates.
    So to get into the payroll area and create that precedent, 
not just here, but maybe as an alternative to what some people 
have talked about with minimum wage. Forget minimum wage; just 
take it out of the payroll taxes. People have talked about it 
in terms of the EITC. Forget the EITC, which is a terrible 
program to administer. There are a lot of problems with EITC in 
terms of missed payments and fraud. Take it out of the payroll 
tax.
    If we go down this road of payroll taxes, which could start 
here, I think we are going to find ourselves in even more of a 
quandary. So I just ask you, is there a way to enrich this 
program, or simply depend on what we have now, which is a tight 
labor market, to make sure those benefits slow down to the 
Goodwills of the world?
    Mr. Grandy. Well, first of all, Mr. Chairman, what I would 
say is that there is every indication that this tight labor 
market that I reference in my testimony is going to be with us 
for some time. At the same time, there is a labor surplus and a 
growing skill deficit. The people that are being hired do not 
have the skills to perform the jobs. That does not necessarily 
just include the people that traditionally have been served by 
Goodwill.
    That is forcing organizations like ours to get much more 
into remedial education kinds of training, much of which 
continues after somebody has been placed. For example, the New 
York City Goodwill has created a program called ``Member for 
Life.'' You get a little plastic card with a toll-free number 
on it. That tells the employee and the employer that if this 
employment situation does not work out, we will go back, either 
retrain or replace the employee, and simultaneously find the 
employer somebody whose skill sets are more harmonious with his 
or her workplace.
    But just to give you an idea of the kinds of things we are 
seeing in our training facilities right now that we know will 
be ongoing and sustained, we do an enormous amount of computer 
skills training, because it is so much in demand. What we learn 
in almost every facility that is doing basic computer skills, 
word processing and things of that nature, is that our classes 
are being increasingly staffed with students that cannot read, 
let alone understand computer language. They don't understand 
English, or Spanish, or whatever their native tongue is. So we 
are finding, as every employer is finding, that the cost of 
training is significant.
    Goodwill essentially runs like a business. If our stores 
don't make money, we don't fall back on grants and loans. We 
are 95 percent capitalized by private sector dollars. It is 
very rare that we get Federal, or even State pass-throughs. 
What we find is that if we can't generate the revenues to 
increase our training portfolio, we will not be competitive in 
this business. We will not be able to supply that qualified 
labor force, whether they are disabled, ex-felons, or welfare 
moms--or all three.
    So, I would again say I can understand from a policy point 
of view piercing the veil of using a payroll tax in this very 
narrow instance. I would be the first one to say that I would 
not use this as a precedent to expand, for whatever laudable 
social purpose you would want to fund after this. I would say 
that based on what we have seen with the Welfare-To-Work law, 
with the Workforce Investment Act, and with Kennedy-Jeffords--
all of which are trying to make our organizations more outcome-
based and customer focused, and putting dollars into the 
consumers' hands, as opposed to just going to Government 
programs, we need to be more competitive. These kinds of tax 
credits are infinitely better for our organizations to flourish 
in this competitive environment than broad-based grant programs 
or some kind of pass-through to the State level.
    Mr. Portman. Thank you, Mr. Grandy. I appreciate, again, 
your testimony. Mr. Houghton, would you like to take the gavel 
and ask questions?
    Chairman Houghton [presiding]. OK, let us have our next 
panel.
    So I am going to introduce everybody. While everybody is 
getting arranged, I want to thank them very much for being 
here.
    We have the Honorable Don Balfour, a State Senator from 
Georgia, vice president of the Waffle House, Incorporated, and 
member of the Executive Committee of the National Council of 
Chain Restaurants. Thanks very much, Senator, for being here.
    Howard Schechter is chief executive officer of PenOp 
Corporation in New York. Mr. Schechter, I guess I see you over 
there. How are you? Nice to see you. You are going to have some 
visuals?
    Mr. Schechter. Yes.
    Chairman Houghton. Then we have Carlos Espinosa, policy 
specialist for the Center for Community Change. William 
Signer--where have I seen you, Mr. Signer? Mr. Signer from the 
National Employment Opportunities Network; Mark Jacobson, vice 
president, Corporate Human Service, TJX Companies, and Fred 
Kramer, director, Community Employment Training at Marriott 
International.
    So why don't we begin? Mr. Balfour, would you give us your 
testimony?

STATEMENT OF HON. DONALD BALFOUR, VICE PRESIDENT, WAFFLE HOUSE, 
   INC., ATLANTA, GEORGIA, AND MEMBER, EXECUTIVE COMMITTEE, 
             NATIONAL COUNCIL OF CHAIN RESTAURANTS

    Mr. Balfour. Thank you, Mr. Chairman. I have written 
remarks that I have brought to the Subcommittee. I ask that 
they be put into the record in their whole.
    I am Don Balfour, vice president with Waffle House. I am 
appearing today as a member of the executive committee of the 
National Council of Chain Restaurants.
    NCCR represents 40 of the Nation's largest multiunit and 
multichain restaurant companies. Collectively, these 40 
companies own, operate, or franchise more than 80,000 
restaurant establishments. NCCR companies, many of which you 
are familiar with: Waffle House, Pizza Hut, McDonald's, Ryan's, 
Applebee's, Taco Bell, Little Caesar's, Cracker Barrel, KFC, 
and Burger King, just to name a few.
    NCCR strongly supports and recommends a permanent extension 
of the WOTC program. Our industry is ideally suited to utilize 
these tax incentives to facilitate the employment of 
individuals. NCCR member companies offer convenient locations, 
entry-level positions with opportunities for advancement, and a 
steady need for workers.
    Since the WOTC was crafted in 1996, over 600,000 
individuals have been hired, 86 percent of whom were previously 
public assistance recipients. In the last 6 months, Waffle 
House has reached in the local community throughout the Nation 
and pre-screened over 15,000 individuals. Every one of the 
3,000 persons it found eligible were offered employment. Those 
accepting employment were given extra attention, training, and 
retention considerations from the unit manager, who in turn was 
given a bonus for his extra effort. The unit manager also gets 
a larger retention bonus the longer the employee stays with the 
company.
    In our opinion, the single best reform that can be made to 
improve the efficiency and effect of the program is to make it 
permanent, or at least make it a long-term extension. The 
shortness of the program--1 year, or 9 months--makes it very 
hard for companies to start the program and to continue it. 
Permanent renewal makes it easier for companies like ours to 
make it part of their business strategy. Permanent renewal 
makes it easier for employers to develop local community 
outreach programs, and so forth.
    Earlier I heard some of you voicing concerns over some of 
the States, and some of the things that were going wrong in 
some of the States. I can speak from experience. In Georgia we 
had some problems. Some of the problems occurred because of the 
fact that it expired. After it expired, the three or four 
employees that were doing WOTC the Governor put someplace else 
they were needed. Four or five months later when it was finally 
extended, there was a program, but no employees. There was no 
one who had any history of how the program worked. It was 
basically started all over again. I cannot over-emphasize the 
need to make this a permanent extension.
    Mr. Chairman, the National Council of Chain Restaurants has 
a long record of involvement on these programs. As an advocate 
of the WOTC program, NCCR would recommend that it is a valuable 
way to reach out and attract workers in an increasingly 
demanding labor market. Someone had mentioned earlier today 
about unemployment being close to zero. We may debate if that 
is the case. But I would suggest to you that those that are 
left on unemployment at this point in time are the hard-core 
unemployed. They are the hardest of the hard-core unemployed. 
If the program were needed, it is needed more now than ever.
    I encourage Congress to proceed with the passage of H.R. 
2101, and the permanent extension of the WOTC program. Thank 
you very much, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. Donald Balfour, Vice President, Waffle House, Inc., 
Atlanta, Georgia, and Member, Executive Committee, National Council of 
Chain Restaurants

    Mr. Chairman and Members of the Subcommittee, I am Donald 
Balfour, Vice President of Waffle House, Inc. I am appearing 
today as a member of the Executive Committee of the National 
Council of Chain Restaurants (NCCR). NCCR represents forty of 
the nation's largest multi-unit and multi-state chain 
restaurant companies. Collectively, these forty companies own, 
operate or franchise more than 80,000 restaurant 
establishments. Chain restaurants are busy in neighborhoods all 
over America, and you know us as Waffle House, Pizza Hut, 
McDonald's, Ryan's, Applebee's, Taco Bell, Little Caesar's, 
Cracker Barrel, KFC, Burger King, and a host of other well 
known food service brands.
    Last night at midnight, the law that brings us all together 
today--the Work Opportunity Tax Credit (WOTC)--expired again. 
That is unfortunate for the thousands of disadvantaged 
individuals who are, or could be, moving from welfare to work 
under this program. For at least one of the targeted groups 
eligible for WOTC, 16- to 17-year-old youths working during the 
summer that live in empowerment zones or enterprise 
communities, the timing of this expiration is particularly 
unfortunate. However, it is encouraging to know, Chairman 
Houghton and Representative Rangel, that you and 22 of your 
colleagues on the Ways and Means Committee are supporting H.R. 
2101, a bill that calls for a permanent adoption of the WOTC. 
None of the targeted groups should be left without the avenues 
to employment this statute is intended to provide at all times 
of the year. Today state employment service offices are taking 
their WOTC application materials off their desks because under 
the law WOTC wages ``. . . shall not include any amount paid or 
incurred to an individual who begins work after . . .'' 
midnight last night.
    You see, there is a real difference between reinstating the 
expiring research and experimentation (R&E) tax credit and the 
Work Opportunity Tax Credit. Corporate accountants can always 
come back without much difficulty and make the calculations 
necessary to account for a retroactive reinstatement of the R&E 
credit. However, business managers who will be making thousands 
of employment decisions during the period of WOTC expiration 
don't have that luxury. The real victims of this approach are 
welfare recipients who want to work but who lack basic skills 
to get that first job.
    NCCR strongly supports and recommends the permanent 
extension of the WOTC. Our industry is ideally suited to 
utilize these tax incentives to facilitate the employment of 
individuals that have extra supervisory costs associated with 
their initial hiring and training. NCCR member-companies offer 
convenient locations, entry level positions with opportunities 
for advancement, and a steady need for workers. Since the WOTC 
was crafted in 1996, over 600,000 individuals have been hired, 
86% of whom were previously public assistance recipients.
    Mr. Chairman, between January 1 and June 21, 1999, Waffle 
House reached out to local communities throughout the nation 
and pre-screened over 15,000 individuals. Every one of the 
3,000 persons eligible for WOTC was offered employment. Those 
accepting were given extra attention, training and retention 
consideration from their Unit Managers, who in turn, were given 
a bonus for their extra effort. The Unit Manager not only gets 
a bonus for hiring the eligible person, but also gets a larger 
bonus for retaining that person.
    The single greatest deterrent to the full utilization of 
WOTC is the on-again and off-again nature of the credit. That 
is true within our industry, and it must be true in others. By 
advocating a permanent extension, we are not suggesting we are 
opposed to oversight or changes in the program. We can only 
report to you that expirations and short-term extensions are 
counterproductive to those that manage, promote or depend on 
the WOTC to facilitate the transition to private sector 
employment.
    In our opinion the single best reform that can be made to 
improve the efficiency and effectiveness of the program is to 
make it permanent. Here are the reasons why:
     Permanent renewal makes it easier for any business 
to incorporate WOTC into their routine business strategies and 
operations.
     Permanent renewal will allow employers to develop 
local community outreach programs to locate and hire targeted 
individuals. Several NCCR member companies have such programs, 
and more companies would if it were not for the interruptions 
in WOTC itself.
     Permanent renewal would permit the state 
employment services offices to be more effective administrators 
of the program. Just as the on-again, off-again nature of the 
program keeps employers from committing resources to fully 
utilize WOTC, it keeps the state agencies from committing 
resources to properly administer the credit.
    Finally, Mr. Chairman, the Work Opportunity Tax Credit has 
been a valuable tool for the Governors in meeting their 
responsibilities under the welfare reforms enacted in 1996. 
Quick passage of H.R. 2101 is critical for the reasons I have 
mentioned. It would demonstrate the contribution of national 
and state governments in combination with the private sector to 
achieve the mutual goal of encouraging self-sufficiency in the 
workplace.
    Mr. Chairman, The National Association of Chain Restaurants 
has a long record of involvement with this program and its 
predecessors. I hope that our comments have helped the 
subcommittee today. As an advocate of the WOTC, the NCCR can 
recommend it as a valuable way to reach out and attract workers 
in an increasingly demanding labor market. Many of the 
additional improvements you are suggesting in this legislation 
seem worthy. These include expanding the definition of wages 
eligible for the WOTC to include accident and health plan 
benefits and employer contributions; educational assistance; 
and dependent care assistance.
    NCCR encourages Congress to proceed expeditiously with the 
passage of H.R. 2101 and the permanent extension of the WOTC.
    Thank you.

                                

    Chairman Houghton. Yes. OK, Mr. Schechter.

 STATEMENT OF HOWARD SCHECHTER, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, PENOP, INC., NEW YORK, NEW YORK, ACCOMPANIED BY 
  YOLANDA PARKER, MANAGING PARTNER, KMS CONSULTING, HOUSTON, 
                             TEXAS

    Mr. Schechter. Thank you, Mr. Chairman and the Committee. I 
appreciate the opportunity to speak here. I think our 
perspective is a little bit different today.
    I would also like to introduce Ms. Yolanda Parker, who is 
the Managing Partner of KMS Consulting, who has helped with 
designing the technology system infrastructure for Randalls 
Food Market in Texas in terms of meeting all of the HR 
requirements. That includes the submission of the WOTC 8850 
Forms, which is currently only able to be submitted today in 
paper. That is the issue that we would like to address and 
demonstrate to you.
    First, I would like to request that my full statement be 
put into the record.
    Chairman Houghton. Without objection.
    Mr. Schechter. I am going to be very brief and turn to the 
technology, eventually, when we can see it. Let us see if it 
will, in fact, work. This is always the tricky part. I don't 
know if you are going to be able to see the screen.
    Chairman Houghton. Somebody ought to turn the lights down.
    Mr. Schechter. I will get there in a second. Some very 
brief remarks. First, I applaud the committee in previously 
directing the IRS, in particular, to move to an all electronic 
submission process for all of us. I think we clearly see that 
trend taking place in businesses across the United States, and, 
in fact, around the world, where we are trying to remove paper 
from our daily processing environment.
    In fact in the Government itself in the regulatory bodies 
like FDA, EPA, and in the States have all used, or are enacting 
legislation to allow the ability to sign and execute documents 
electronically. In fact, the governor of Nebraska used our 
technology to sign into legislation their signature of law. 
This allows them to accept work today as if it were pen and 
paper.
    Chairman Houghton. You might pull that microphone a little 
closer to you.
    Mr. Schechter. I will surely do that. I think the one 
anomaly today in the WOTC is the 8850 Form, which is required 
to be submitted in paper. We think this is putting a burden on 
the employers who are making a concerted effort to streamline 
their business processes and be able to deliver an all-
electronic medium.
    The way we look at it is to simplify not only the work 
process, but to be able to ensure that it is legal, secure, and 
something cultural for both the employees and the employer. 
There seems to have been a question and concern of fraud. I 
would contend that paper has as much fraud in it today as any 
other methodology. In fact, I will contend that some of the 
electronic technology--and hopefully what we will show you 
today--will show that there is an ability to reduce the fraud 
process.
    With that, I would really like to show you the technology. 
I think it makes it very simple. In fact, we have gone to the 
IRS web site and pulled down the 8850 Form, which you can have 
electronically, but you need to be able to sign it. We have 
inserted several icons on this document for where signatures 
would be placed. This is the one of the job applicant.
    I would ask someone from the committee or one of the other 
panelists if they would like to volunteer and sign this 
document. In essence, what we are doing is asking for the name 
of the signatory. Do we have any particular volunteers that we 
might be able to induce to do this? Everyone is afraid that it 
will be binding. [Laughter.]
    Mr. Signer. I will sign, but you may not be able to read 
it.
    Mr. Schechter. That is OK. I am just going to type in your 
name.
    Mr. Signer. William Signer.
    Mr. Schechter. A-R?
    Mr. Signer. S-I-G-N-E-R.
    Mr. Schechter. S-I-G-N-E-R.
    Mr. Signer. Right.
    Mr. Schechter. OK. If you will read the intent statement. 
Just like any person who is walking into any employment office 
for any company that taking place in WOTC, they would have the 
name of the individual. They would have the reason they are 
signing a document to create that legally-binding environment. 
Once you have read that, we will say, ``Sign.'' We are 
encrypting this document to protect it from being altered. If 
you will just sign on the dotted line like you would anything 
else. We will hit ``Enter.''
    The document is signed, and it is almost ready to be 
submitted with the entire package for employment, including an 
I-9, which can be submitted electronically. I will now sign 
this document. I will tell who I am and why I am signing. I 
will effect a signature. By doing so, this form is now ready 
for sending off.
    I have done a couple of things here.
    Chairman Houghton. Is that your signature?
    Mr. Schechter. Well, I intentionally signed it poorly for a 
particular reason. I want to address the concern over fraud and 
alteration to the document.
    We are all familiar with what we do on a piece of paper. We 
make an assumption that once it is signed on a piece of paper, 
no one touches it or does anything with it. That may or may not 
be quite true.
    If I go into any one of these paragraphs and bring up the 
tool to eliminate some text, which I have just done, and tap on 
``a signature,'' I can check this document and verify whether 
anything has changed. It says it has changed since it was last 
signed. When it does that, it will come back and invalidate 
that signature. So it protects the document from being altered 
in any shape and form, ensuring that when it is sent 
electronically, it will stay in the permanent form.
    The other aspect is from an employer standpoint, given my 
policies and procedures inside my company, I can take my 
particular signature and enroll me so that I have signatures on 
file that I can compare--my signature dynamics. If you look at 
the laws in Texas, Nebraska, and soon to be New York, this is 
required. I can compare it against any other signature I have 
on file. Lo, and behold, it says that signature does not look 
like anything that I have ever signed before. My policies and 
procedures inside my company would not accept that, and 
therefore would not process this form. This would hopefully 
eliminate any of the potential fraud that could circulate 
around the filing of this document.
    With that, thank you.
    [The prepared statement follows:]

Statement of Howard Schechter, President and Chief Executive Officer, 
PenOp, Inc., New York, New York

    Chairman Houghton, Congressman Coyne and Members of the 
Subcommittee, my name is Howard Schechter, Chief Executive 
Officer of PenOp, Inc. I am pleased to testify before this 
subcommittee on the Work Opportunity and Tax Credit (WOTC). I 
am accompanied by Ms. Yolanda Parker of Randalls Food Markets 
Inc. of Texas.
    By way of background, PenOp is a New York-based developer 
of software for electronic signatures. As a Chief Executive 
Officer of an electronic commerce company, I congratulate both 
you Mr. Chairman and members of the Subcommittee in 
incentivizing the Internal Revenue Service (IRS) to achieve 80% 
electronic filing of income tax returns by 2007. As a business 
man I am also supportive of the IRS's efforts to develop a new 
model of account management to increase electronic filing.
    That is why I am puzzled by the IRS's reluctance to allow 
the electronic filing of IRS Form 8850. Mr. Chairman as you 
know, IRS Form 8850 is the form utilized by the IRS and the 
employer to establish a record that the job applicant is a 
member of the Work Opportunity Tax Credit (WOTC) target group 
and/or the Long Term Family Assistance group. Presently, under 
IRS rules, IRS Form 8850 must be prepared and signed by 
employers and employees in ink. It is my understanding that IRS 
regulations do not allow this form to be filed electronically 
because they might be subject to increased fraud.
    We at PenOp share the IRS's concern about fraud, however we 
also believe that the service's insistence on paper and ink is 
an unnecessary and costly burden to employers. A particular 
example of such an employer is Randalls Food Markets Inc. of 
Texas.
    Randalls Food Markets is one of the many companies 
participating in the WOTC program. As a corporation, Randalls 
is committed to welfare reform and has hired hundreds of 
individuals off the welfare rolls. Randalls believes that the 
WOTC program is an effective means of incentivizing private 
employers to hire individuals who, but for this program, might 
still be on welfare. However, this subcommittee must understand 
that there are certain costs, some unnecessary, which a private 
corporation must incur to participate in this worthwhile 
program.
    It is Randalls' belief that the Congress and the IRS have 
developed the WOTC application and certification process with 
the intent of safeguarding against fraud but also that it be 
efficient and easy for employers to use. By insisting on a pen 
and ink signature as the only acceptable means to guard against 
fraud, the IRS has increased the inefficiencies and cost in 
obtaining the credit. In my opinion, this creates a serious 
disincentive for willing companies to participate.
    Randalls Food Markets Inc. like many other companies, has 
invested significantly in the automation of their application 
and hiring processes. Currently all employment applications and 
other hiring paperwork with the exception of the WOTC 
applications are completed electronically. The anomaly in this 
process is Form 8850 and it's requirement that the form be 
completed and signed in ink. Processing of this single piece of 
paper, in an otherwise electronic process, therefore becomes 
quite expensive.
    Adding to the frustration, is a current backlog of WOTC 
certifications that exists in the state of Texas. Randalls has 
received certifications of less than half of their WOTC 
eligible new hires. Based on budgetary constraints and 
technological challenges, it is likely that this backlog will 
continue for some time.
    As I indicated previously, we at PenOp are concerned about 
possible fraud in the application process. While we believe 
that fraud is the exception rather than the rule, we in the 
private sector and you in the Congress must not underestimate 
the IRS's concern.
    However, we at PenOp believe that there are other and more 
cost efficient ways to safeguard against fraud while expediting 
the application and certification process. We believe that the 
fraud risk can be addressed by utilizing secure electronic 
signatures technology. In fact, we believe an electronic 
version of form 8850, bearing a secure electronic signature, is 
a greater deterrence to fraud than paper form.
    A secure electronic signature involves a person, whether 
employee or employer, picking up an electronic stylus or pen 
and using it to sign the person's autograph on a digital tablet 
attached to a computer. Software in the computer would measure 
the unique qualities of the person's signature and attach those 
measurements, together with an image of the signature, date and 
time and other auditing information, to an electronic version 
of Form 8850. The proper use of cryptography would prevent 
anyone from clipping the signature from one document and 
pasting it to another. The reliability of this process, and the 
quality of the evidence gathered, could be much greater than 
that provided by paper and ink.
    I recommend that this subcommittee consider legislation 
authorizing electronic signatures or a comparable 
authentication process as an acceptable method under the 
application and certification procedure.
    The secure signature method proposed here is regularly used 
in consumer sales transactions by insurance companies such as 
American General Life and Accident Insurance Co.. Before 
beginning to use the method in the 26 states where American 
General does business, the company received approval from the 
relevant state insurance commissioners.
    I further suggest that the following rules would apply:
    1. A ``secure handwritten signature'' would satisfy these 
standards:

      a. It would capture an image and forensic measurements of 
the signature.
      b. It would store the image and measurements, plus date/
time, name of signer, checksum of the Form and reason for 
signing, in an electronic envelope.
      c. The checksum would have to ensure that the envelope is 
reliably connected to the content of the Form.
      d. The envelope would be encrypted.

    2. Secure handwritten signatures would be captured at the 
employer's location on an electronic version of Form 8850.
    3. The employer or its agent would undertake to store the 
original electronic form and signature the required number of 
years.
    4. The employer or its agent would transmit to the relevant 
state employment security agency the type of image of the 
signed Form (including image of the signatures) desired by the 
agency. This could be either (a) the electronic version sent 
via electronic communication, (b) a fax of the Form, or (c) a 
paper printout delivered physically. With this transmission the 
employer would undertake to store the original electronic 
record and make it available for audit.
    Mr. Chairman, I once again thank you, the members of your 
subcommittee and the staff for allowing me to testify. Both Ms. 
Parker and I would be pleased to answer any questions.

                                

    Chairman Houghton. Thank you very much. That is 
fascinating.
    OK, now, Ms. Parker.
    Ms. Parker. I am here to answer questions.
    Chairman Houghton. You are here to answer questions. OK. We 
will move along to Carlos Espinosa.

  STATEMENT OF CARLOS ESPINOSA, POLICY SPECIALIST, CENTER FOR 
                        COMMUNITY CHANGE

    Mr. Espinosa. Good morning, Mr. Chairman and Members of the 
Subcommittee. My name is Carlos Espinosa, and I am a policy 
specialist with the Center for Community Change, a national 
non-profit organization that provides assistance to 
organizations in low-
income communities across the country.
    I appreciate this opportunity to testify before you today 
to discuss our concerns with the Work Opportunity Tax Credit. 
In my testimony today, I would like to summarize my extended 
comments by making the following points.
    We are concerned that the Work Opportunity Tax Credit is 
not generating new jobs. There is some evidence that suggests 
employers may be using WOTC in a manner that turns over low-
wage workers in order to maximize the value of the credit by 
replacing existing employees with new credit-bearing workers. 
The program's current design makes it impossible to assess 
whether WOTC is resulting in new job creation, or whether it is 
extensively promoting the churning and displacement of workers 
no longer eligible for the credit. In addition, we believe 
there is a correlation between the companies with the greatest 
turnover, and those receiving the largest windfalls.
    The first step in improving the program's effectiveness is 
to collect and disclose information that focuses on the worker, 
by tracking retention periods after the credit is exhausted. 
This would uncover whether the program is facing some 
underlying challenges.
    Also, the Labor Department's employment and training 
administration should, as part of WOTC's annual self-
evaluation, disclose the names of the companies receiving the 
credit in excess of $100,000. This accountability too will help 
expose companies who are abusing the program.
    We strongly believe the WOTC's effectiveness could be 
increased if more programmatic information were disclosed, and 
regulations written for the program. Specifically, the 
regulations should include, but not be limited to information 
that discloses the number of WOTC employees, and total number 
of employees in the same job categories that WOTC employees are 
being hired into, and disclose the number of WOTC employees who 
continue to work for the company 6 months after the credit is 
exhausted, as well as the number who are no longer so employed 
with the company.
    This information, which is vital to the program's 
management, will allow the ETA to better track individuals and 
employers participating in the program in order to determine 
whether a deliberate turnover of non-WOTC-eligible employees is 
occurring in the same periods employers are hiring WOTC-
eligible applicants. This collection of additional information 
that focuses on results-oriented assessments will provide 
administrators the ability to draft more extensive evaluations 
of the program, which, in turn, would allow Congress to make 
better policy recommendations.
    Moreover, we believe there is a strong correlation between 
the companies receiving the greatest windfalls and those with 
the highest turnover of non-WOTC-eligible workers. Therefore, 
in order to maintain accountability, and create a disincentive 
for abuse, an addendum ought to be included in the program's 
annual self-evaluation that lists the companies for the fiscal 
year receiving the credit in excess of $100,000.
    Clearly, whatever your perspectives on the merits of this 
program, the disclosure of information can only make for better 
public policy. Thank you, Mr. Chairman. That concludes my 
testimony.
    [The prepared statement follows:]

Statement of Carlos Espinosa, Policy Specialist, Center for 
Community Change

    Good morning Mr. Chairman and members of the committee, my 
name is Carlos Espinosa and I am a policy specialist with the 
Center for Community Change. I appreciate this opportunity to 
testify before you today to discuss our concerns with the Work 
Opportunity Tax Credit.
                    The Center for Community Change
    The Center for Community Change is a national non-profit 
organization that provides technical assistance to community-
based organizations in low-income and predominantly minority 
communities around the country. We work with a broad range of 
organizations, all of which are working to improve the quality 
of life in their neighborhoods through a range of strategies. 
These strategies include community organizing, housing and 
community economic development, service provision, and 
advocacy. The organizations we work with are governed and 
controlled by low-income people.

                              Introduction

    For over twenty-five years, many have raised concerns about the 
validity of employment tax credits. Theoretically, the credit is an 
inducement to cover the additional costs associated with hiring `hard-
to-employ' individuals from disenfranchised backgrounds. Over this time 
period, billions in forgone tax revenue were lost to companies 
participating in these employment programs. But to what result? Is this 
the best use of limited resources? In the end, we do not know because 
the program lacks access to data that would allow us to assess the 
program's merit.
    Similarly, the program has faced several programmatic challenges 
over its existence. These challenges have not been accurately addressed 
partly because vital performance information is not sought by 
administrators, nor reported to the public. These challenges compromise 
the program's effectiveness and intended goals -to provide 
disenfranchised populations the opportunity of entering the labor 
market.

                                Summary

    In my testimony today, I'd like to make the following two points:
    (1) We are concerned that the WOTC program is not generating new 
jobs, but rather replacing old `credit-less' workers with new `credit-
bearing' ones. There is some evidence that suggests some employers may 
be using WOTC in a manner that turns over low-wage workers in order to 
maximize the value of the credit. The program's current design makes it 
impossible to assess whether WOTC is resulting in extensive and 
pervasive churning and displacement. In addition, we believe there is a 
correlation between the companies with the greatest turnover and those 
receiving the largest windfalls.
    (2) The first step in improving the program's effectiveness is to 
collect and disclose information that focuses on the worker by tracking 
retention periods after the credit is exhausted. This would uncover 
whether the program is facing some underlying challenges. Also, the 
Labor Department's Employment and Training Administration should 
disclose the names of companies receiving the credit in excess of 
$100,000 in an addendum to the program's annual self-evaluation. This 
accountability tool will help expose companies who are abusing the 
program.

          Churning and Displacement: Is this Really Occurring?

    Critics have long been concerned that the WOTC program promotes the 
churning and displacement of employees whose credit was exhausted. 
Unfortunately, data is not collected in a manner that allows 
administrators to determine whether employers are intentionally turning 
over their non-WOTC eligible workforce. Program audits conducted by the 
Department of Labor's Office of Inspector General (OIG) on WOTC's 
predecessor--the Targeted Jobs Tax Credit (TJTC)--uncovered several 
concerns, but never openly addressed the issue of churning, nor 
displacement. Clearly, these issues should actively be pursued by DoL 
administrators.
    In 1991, a small scale OIG audit of Tennessee's TJTC program 
briefly highlighted the concern. The audit discovered that ``some 
employers were laying off employees in the same job classifications and 
in the same quarters in which they were hiring TJTC applicants'' (DoL 
OIG 1991).
    This statement was disputed by the Tennessee Department of 
Employment Security, citing that ``. . . it would be extremely 
difficult to draw any valid conclusions regarding employer exploitation 
of the TJTC program without performing on-site audits of employer 
personnel records and their employment practices'' (1991).
    In Baltimore, Maryland, a group of workers under a living wage 
contract at Patterson High School where laid off and replaced by a 
private for-profit company who hired low-wage welfare recipients. 
Without the disclosure of additional information and more detailed 
evaluations, we cannot know whether WOTC is generating net new jobs, or 
whether it is contributing to an already volatile low-wage labor 
market.

       The Windfall and its Effects on Churning and Displacement

    Audits by the Department of Labor's Office of Inspector General 
(OIG) indicate that employment tax credits provide no incentive for 
businesses to hire individuals from targeted populations, yet the 
public has no access to the names of these companies and amount of 
public subsidy they receive. In 1994, for example, the OIG found that 
``nationally, we project that employers, . . . would have hired 92 
percent of the individuals even if the credit had not been available'' 
(DoL IOG 1994). This finding, echoed in a 1993 audit of Alabama's 
program, discovered that employers would have hired 95 percent of 
participants regardless of the tax subsidy.
    Linda Levine of the Congressional Research Service (CRS) wrote in 
her review of TJTC from 1978 to 1994 that ``[p]erhaps somewhere between 
70 percent and 90 percent of the credits claimed under the TJTC program 
were for hiring that would have occurred without benefit of the credit. 
It appears, then, that amendments to the TJTC which Congress enacted to 
minimize windfalls did not often achieve their purpose'' (Levine 1995).
    Another CRS report on TJTC described the windfall from another 
angle. In their assessment of TJTC from 1978 to 1987, employers were 
increasingly using management assistance companies (MACs) to screen 
already hired workers for firms--that is they identify TJTC-eligibles 
after firms have made their hiring decision, but before the individuals 
started working. Consequently, the report discovered that ``most of the 
certifications generated by MACs represent windfalls to employers'' 
(LeGrande 1987).
    Clearly, the financial windfall generated by this program is a 
natural phenomenon that cannot be eliminated. However, given the 
program's current design and lack of disclosure, no one knows the 
extent to which taxpayer dollars are being wasted or whether companies 
receiving the greatest windfall are turning over workers in order to 
maximize the credit.

          The First Steps to Improving the Program: Disclosure

    We strongly believe that WOTC's effectiveness could be increased if 
more programmatic information was disclosed and regulations written for 
the program. The following information should be disclosed:
     An addendum to WOTC's self-evaluation that reports 
retention rates of participants by tracking individuals during and for 
a period of time after their credit has exhausted. This information, 
which is vital to the program's management, will allow them to better 
track individuals and employers participating in the program in order 
to determine whether the deliberate turnover of non-WOTC eligible 
employees is occurring during the same periods employers are hiring 
WOTC eligible applicants. The collection of additional information will 
also provide the Employment and Training Administration the ability to 
draft more extensive evaluations of the program, which in turn will 
allow Congress to make better policy recommendations.
     Another addendum to the evaluation should list the 
companies, for that fiscal year, receiving the credit in excess of 
$100,000. We believe there is a strong correlation between the 
companies receiving the greatest windfalls and those with high turnover 
of non-WOTC eligible workers. Therefore, in order to maintain 
accountability, provisions should be included to authorize the ETA to 
include this listing.
    Thank you, Mr. Chairman. That concludes my testimony.

                                

    Chairman Houghton. Thank you very much. We really 
appreciate that.
    OK, now we go to Mr. Signer.

 STATEMENT OF WILLIAM A. SIGNER, CHAMBERS ASSOCIATES INC., AND 
       COUNSEL, NATIONAL EMPLOYMENT OPPORTUNITIES NETWORK

    Mr. Signer. Good morning. My name is Bill Signer. I am here 
today in my capacity as counsel to the National Employment 
Opportunities Network, ``NEON,'' a group of management 
assistance companies who provide technical services to 
thousands of employers who have hiring tax incentive programs.
    I would like to begin by noting, and it has already been 
noted this morning, that this hearing is taking place on the 
first day of the Work Opportunity and Welfare-to-Work Tax 
Credits having expired. From past experience, we know these 
interruptions have a dramatic adverse impact in the programs' 
effectiveness.
    Employers must evaluate whether they want to continue 
assuming the extra costs and risks of hiring welfare 
recipients. Some decide not to. Others scale back their 
efforts. Perhaps most damaging, a program hiatus always results 
in dramatic increases in processing backlogs in the States. 
This inevitably leads to certification denials due to lost or 
misplaced paperwork. That is why NEON and the thousands of 
employers we work with are pleased to support Chairman Houghton 
and Mr. Rangel's bill, H.R. 2101, which calls for a permanent 
extension, and a merger of the two programs.
    Because DOL and IRS have done their jobs, most States have 
well-run programs. Employers are responding. They actively 
search for WOTC-eligible workers. For your review, I have 
attached to the back of my testimony an example of the type of 
outreach program that is going on. Outreach is conducted in 
various ways by a lot of employers.
    They pre-screen all job applicants. They have retrained 
hiring managers and made adjustments to integrate unskilled 
individuals into the workplace. These changes are disruptive, 
frustrating, sometimes rewarding, and always expensive. The 
bottom line: Employers have expanded their hiring pool to 
dramatically increase the number of public assistance 
recipients and others with limited job skills they interview 
and hire.
    Over 80 percent of those hired under WOTC came off the 
public assistance rolls. That is a record, Mr. Chairman, which 
you, Mr. Rangel, and this Committee should be proud of. The tax 
credits make this possible. Without them, most employers would 
drastically reduce or eliminate their welfare hiring programs.
    While generally the program is working well, there are two 
concerns the WOTC community hopes can be addressed this year. 
The first is the fact that few males are being certified in the 
program. Second, as you have heard earlier, in about 8 to 10 
States there are significant processing backlogs.
    We estimate that only 21 percent of the program 
participants are male. Most employers participating in the 
program would like to target more males. Despite their best 
efforts, young men coming from households dependent upon public 
assistance are not being certified. While better cooperation 
between the State job services and food stamp offices could 
help, we also recommend that you modify the definition of who 
is a member of a family on welfare to include the parents, the 
step-parents, the siblings, the step-siblings, and legal 
guardians living in the household of a child on welfare. Such 
individuals living in a welfare household share the same 
obstacles to finding work as those currently being certified.
    The problem of processing backlogs is also very 
frustrating. Most States process requests for certification 
within 30 days. Some States have significantly longer backlogs. 
In those States, employers question the value of the program. 
We have been working with both DOL and Treasury, and have made 
significant modifications in some of our proposals to reflect 
those concerns. We are currently working with the State job 
services to further refine our proposal. We hope to have 
something for you by the time of markup.
    At this point, our thinking is that we would like to 
propose that the committee, to help ensure a reasonably timely 
certification process, leave it up to the employers who are 
saying, ``Look, if we can't get something out of job services, 
we are willing to go over to the agencies that are responsible 
for verifying eligibility.'' The employer wuold go in and have 
the agency fill out a form, which we have talked to DOL about 
putting together.
    As John Beverly talked about earlier, DOL has conditional 
certifications. We would like that to be used for the purposes 
of the employers' gathering the information and providing it to 
the job services so that they have what they need to make a 
determination whether someone is eligible. At that point, we 
would ask that the job services, in a timely, expedited 
process, make a decision as to whether the person is or isn't 
eligible.
    There are number of other issues which we would like to 
bring to the Committee's attention. We strongly oppose the 
Administration's proposed processing fee that was in their 
budget. Employers already incur more costs than are offset by 
the credit.
    Because the pre-screening form is now part of the job 
application, any program modification necessitating a change in 
the form poses a real problem. We heard the discussion about 
adding foster care this morning. The problem for employers is 
that it will be difficult to retrieve the existing job 
applications. If they file the wrong form they will not get a 
certification. Employers would like some sort of grace period 
in which they could file the existing pre-screening form, as 
long they are hiring somebody from an existing category.
    Finally, I was very impressed by what I saw this morning. 
We are concerned that the integrity of the program is dependent 
upon making certain that the pre-screening notice is filled out 
and signed by the job applicant before he or she is offered a 
job. Thus, we would support allowing the faxing--which is not 
allowed now--of a signed pre-screening form. We have no 
objections to the electronic filing, as was shown here, of the 
pre-screening form so long as safeguards are put into place to 
ensure an original form is signed by the job applicant, and is 
maintained on file so that it can be verified at audit.
    Again, please let me thank you for the opportunity to 
present the views of NEON, and the thousands of employers we 
work with.
    [The prepared statement follows:]

Statement of William A. Signer, Chambers Associates Inc., and Counsel, 
National Employment Opportunities Network

    Good morning, my name is Bill Signer, and I am pleased to 
have this opportunity to appear before the Subcommittee today 
in my capacity as Counsel to the National Employment 
Opportunities Network (NEON). NEON is comprised of management 
assistance companies who provide technical services to 
thousands of employers who have established hiring tax 
incentive programs. The services they provide include: 
designing a system for an employer to participate in welfare to 
work hiring tax incentives; training hiring managers in how to 
pre-screen those eligible; establishing sophisticated outreach 
programs designed to maximize the pool of Work Opportunity and 
Welfare to Work Tax Credit eligible job applicants interviewed; 
helping complete, file, and track the paperwork required to 
ensure that an employer receives the certification needed to 
claim the credit; and working directly with state employment 
services to assure that persons eligible for the tax credit are 
certified by the states.
    I would like to begin by noting that this hearing is 
occurring on the first day after the Work Opportunity and 
Welfare to Work Tax Credits expired. As you know, last year the 
program experienced a 3\1/2\-month hiatus. From past 
experience, we know these interruptions have a dramatic adverse 
impact on the programs' effectiveness.
    First of all, employers who are currently participating in 
the program must evaluate whether they want to continue 
assuming the extra costs and risks associated with 
participating. Some decide not to. Others scale back on their 
efforts. Employers not currently participating either defer 
their decision or lose interest all together. Perhaps most 
damaging, a program hiatus always results in dramatic increases 
in processing backlogs by the state job services. This 
inevitably leads to certification denials due to lost or 
misplaced paper work.
    That is why NEON and the thousands of employers we work 
with are pleased to support Chairman Houghton's and Mr. 
Rangel's bill, H.R. 2101, The Work Opportunity Tax Credit 
Reform and Improvement Act of 1999, which calls for a permanent 
extension and merging into one program both the Work 
Opportunity and Welfare to Work Tax Credits. I also want to 
commend the principal sponsors on the fact that their bill 
enjoys the support as co-sponsors of almost every member of 
this Subcommittee as well as a majority of both Republicans and 
Democrats on the full Committee.
    The disruptions that result from a hiatus are particularly 
unfortunate in light of the fact that in the vast majority of 
the states the WOTC/Welfare to Work community believes that the 
program is working extremely well. This is in large part due to 
the excellent job that has been done by the Department of 
Labor's United States Employment Service headed by John 
Beverly, and the IRS team headed by Robert Wheeler. Both have 
done an incredible job in setting up the program and in being 
responsive to the concerns of employers.
    But what is even more encouraging is that over the past two 
years and nine months since the inception of WOTC, employers 
have responded positively to what this Committee and the 
Congress wanted. Employers participating in the programs have 
embraced the idea that in order for the program to work 
correctly they had to dramatically change their hiring 
practices. They have willingly done that and, as a result, have 
expanded the breadth of their hiring pool to include public 
assistance recipients and others with limited job skills and 
minimal work experience. Over 80% of those hired under the two 
tax credit programs came off the public assistance rolls, that 
is a record, Mr. Chairman, of which the Congress should be 
proud.
    Since October of 1996, employers have responded in a number 
of ways to the enactment of the WOTC program. These include:
     Making sure that the mandated ``Pre-Screening Form'' is 
filled out as part of the job application provided each entry level 
applicant;
     Establishing extensive corporate wide training programs 
for hiring managers to inform them of the company's commitment to 
hiring those eligible as well as to instruct them in how to help a job 
applicant fill out a pre-screening form;
     Providing hiring and retention bonuses for store and 
hiring managers;
     Establishing extensive corporate outreach programs 
designed to maximize the number of WOTC/W-t-W hires; and
     Undertaking mentoring programs to insure a successful 
transition into the work place.
    Because of the added costs involved in setting up and operating 
those activities as well as the added training costs and relatively 
high drop out rate involved, few companies could afford to justify such 
extensive efforts without the partial financial offsets provided by the 
Work Opportunity and Welfare to Work tax credits. Certainly, the 
extensive efforts and costs involved should dispel any notion that 
hiring tax incentives are a windfall to the employer.
    While, generally the program is working well. There are two 
concerns that the WOTC/Welfare to Work community hope can be addressed 
this year. The first is the fact that few males are being certified in 
the program. Second, in about ten states there are significant 
processing backlogs.
    We estimate that only about 21% of program participants are male. 
This conclusion is based on a large sampling of about 90,000 hires in 
calendar year 1997 and another 96,000 in 1998. Most employers 
participating in the program would like to hire more males, but despite 
their best efforts, young men coming from households dependent upon 
public assistance are not being certified. There are two reasons for 
this. First, the vast majority of states are qualifying very few people 
through the food stamp program, the category under which young men and 
women were originally supposed to qualify. Second, the definition of a 
member of a family on welfare has been so narrowly interpreted that it 
only includes those on the welfare grant and not those living in the 
household once they turn 18 and are no longer eligible for welfare.
    While better cooperation between the state job services and food 
stamp offices could help to alleviate this problem, we also recommend 
that you modify the definition of who is a member of a family on 
welfare to include the parents, stepparents, siblings, step-siblings 
and legal guardians living in the household of a child on welfare. We 
believe that anyone who is living in a household with a child on 
welfare who meets this definition is the type of person who the 
Committee originally intended to assist through WOTC and Welfare to 
Work Tax Credits. Inevitably, such individuals living in a welfare 
household share the same obstacles to finding work as those currently 
qualifying under the program and so deserve assistance. We urge the 
Committee to make this change.
    The problem of processing backlogs is even more troubling. Most 
states process requests for certification within 30 days of receiving 
the paperwork from the employer. Yet some states are backlogged 
anywhere from 6 months to as much as 2 years. In those states, the 
employers involved have a great deal of difficulty in motivating their 
hiring managers to actively participate in the program and some 
employers have discontinued their WOTC programs in certain problem 
states. If employers are going to continue to participate in the 
national welfare to work initiative, they need the assurance that the 
program will work the way it was intended to.
    To address this problem, we recommend that the Committee proscribe 
a series of steps that will ensure a reasonable certification process. 
Employers have indicated that when there are unreasonable delays, they 
are willing to assist the job service to obtain the information needed 
to verify eligibility. Thus, we propose that if a state job service has 
not acted on a certification request within a specified period of time 
after an employer has filed the necessary paperwork, the employer would 
have the right to go to the agency responsible for verifying 
eligibility (welfare, Social Security, food stamps, parole officer, 
etc.) and ask it to fill out a DOL form that verifies eligibility. That 
form would then be filed with the job service which would either issue 
a certification or provide specific reasons as to why the applicant is 
not eligible. A 90-day processing standard is what DOL already expects 
from the states in the WOTC/Welfare to Work Handbook. We would propose 
that similar procedures also apply to employer appeals of denials of 
certifications.
    We have had extensive discussions with both DOL and Treasury about 
this proposal and have made significant modifications to reflect the 
concerns they raised with us. We are currently working with the state 
job services to further refine our proposal and hope to have the 
details worked out before you go to mark up.
    There are a number of other issues we would like to bring to the 
Committee's attention.
     Since the pre-screening form (IRS form 8850) is now part 
of the employer's job application, program modifications that 
necessitate a change in the 8850 are very costly for employers, 
especially if they must change over to the new form in a relatively 
short time frame. Employers would find it much less burdensome if they 
could have a grace period which would allow them to replace the pre-
screening form through their normal process of restocking job 
applications.
    Thus, we would propose that for at least one year after any change 
is adopted that requires a modification of the 8850, employers could 
use either the old or new 8850. This grace period would not apply if 
they hired someone from a newly added category. In that situation, they 
would be required to use the new form.
     We are opposed to the Administration's FY 2000 Budget 
proposal to charge employers a user fee in order to receive a 
certification. Many employers participating in WOTC and the Welfare to 
Work Tax incentives are doing so despite the added costs that are not 
fully being offset by the credits provided. To expect employers to make 
cash payments to the government on top of the extra costs already 
incurred when hiring welfare recipients, would in many cases result in 
their abandoning the programs.
    In addition, $20M a year has been appropriated out of Wagner-Peyser 
Trust Fund for the state job services to administer WOTC and W-t-W. The 
Unemployment Insurance Tax funds the Wagner-Peyser Trust Fund, which in 
turn funds the services provided to employers and workers from the 
state job services. Thus, in effect, if employers were required to pay 
for certification services, they would be asked to pay for something 
they have already paid for through the unemployment tax. Charging a 
user fee would almost certainly discourage many small businesses from 
participating in the program by adding a new up front cost to what many 
of them already believe is a program which presents too many 
administrative hurdles to be worth participating in.
     As a community, we are concerned about recent proposals to 
allow electronic filings of the pre-screening notice IRS form 8850. We 
believe that the integrity of the program is dependent upon making 
certain that the pre-screening notice is filled out and signed by the 
job applicant before he or she is offered a job. Therefore, if 
electronic filing is to be permitted, we recommend that employers be 
required to maintain an original pre-screening form for at least 5 
years after a certification has been granted. This would provide a 
legitimate control against undercutting the Committee's original intent 
in requiring that the pre-screening form be filled out and signed 
before the job offer is made.
    As an intermediate step, we would encourage the Committee to allow 
the faxing of pre-screening forms since that would result in a signed 
form being filed with the local job service.
     To reduce the paperwork burden on employers, we would 
encourage that the pre-screening form and the Individual 
Characteristics Form (ICF) be made into one form. The ICF is a DOL form 
which provides the backup information the job service needs to verify 
eligibility. While we have no problems with the form itself, employers 
would find it much easier to fill out and file a single comprehensive 
form.
     Finally, while the entire WOTC/Welfare to Work Tax Credit 
Community actively supports a permanent extension of the program, past 
experience indicates that this may be difficult. On this point, we urge 
the committee to reflect on three points:
    1. Hiring tax credits are no longer an experiment. The results are 
in. They work very well. Tax measures that do what they are supposed to 
should be made permanent.
    2. If revenue constraints prohibit a permanent extension, I urge 
you to grant a multi-year extension. The program suffers significantly 
with annual extensions, and fewer welfare recipients get jobs.
    3. If you are forced by circumstance to grant a multi-year 
extension, please move the expiration date from June 30. Based upon 
past experience Congress never completes a tax bill by June 30, and 
rarely finishes before the end of the fiscal year. Thus a June 30 
expiration virtually assumes a disruptive program hiatus. Since the 
money needed to administer the program is provided on a fiscal year 
basis we would urge that the Committee move any expiration date to 
September 30 or December 31.
    Again, please let me thank you for this opportunity to present the 
views of NEON and the thousands of employers they represent.
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    [An attachment is being retained in the Committee files.]

                                

    Chairman Houghton. Thanks, Mr. Signer, very much.
    Mr. Jacobson.

  STATEMENT OF MARK JACOBSON, VICE PRESIDENT, CORPORATE HUMAN 
       SERVICES, TJX COMPANIES, FRAMINGHAM, MASSACHUSETTS

    Mr. Jacobson. Good Morning. My name is Mark Jacobson.
    Chairman Houghton. Pull that just a little closer to you--
the mike--will you?
    Mr. Jacobson. How is that?
    Chairman Houghton. Fine.
    Mr. Jacobson. I am here today in my capacity as the vice 
president of corporate human services for the TJX Companies. We 
are in Framingham, Massachusetts.
    TJX is a leading national and worldwide off-price retailer 
of apparel and home fashions. I hope that you know us across 
the United States under the name of T.J. Maxx stores, Marshalls 
stores, regionally as HomeGoods, and our newest business that 
we are optimistic about, A.J. Wright. We are in 47 States. We 
have seven distributions centers scattered across the Nation. 
We have nine regional offices. We employ approximately 65,000 
associates.
    I am here today in support of H.R. 2101, the Work 
Opportunity Tax Credit Reform and Improvement Act of 1999, 
which the Chairman and Mr. Rangel have introduced. We are 
especially appreciative that H.R. 2101 would make the Work 
Opportunity and Welfare-to-Work Tax Credit programs permanent. 
This would bring a desperately needed continuity to the 
program, and allow us to dedicate additional resources for 
Welfare-to-Work efforts.
    Two years ago, our chief executive officer, Ben Cammarata, 
pledged to the President that TJX would hire 5,000 welfare 
recipients. As soon as we heard that number, we were terrified 
because we wondered how we were going to do that. We set our 
goal to do that by the end of the Year 2000.
    I am proud to announce that we have not only met our goal, 
but we have exceeded it. With the assistance of the hiring tax 
incentives, in just over 2 years' time we have hired more than 
9,700 individuals who were previously on public assistance. 
During these past 2 years, we at TJX have learned what everyone 
else in the country who has participated in this national 
Welfare-to-Work initiative has come to understand: most of the 
individuals coming off of welfare really want to work. Even 
more importantly, they do become productive and prized 
employees.
    Our experience tells us that those on welfare face numerous 
barriers to succeeding in the workplace. All of these 
challenges have real costs associated with them. In our 
corporate environment, we have to offset those costs. The way 
that we do that is partially through the Work Opportunity and 
Welfare-to-Work Tax Credits. This has made it economically 
feasible for us to devote the resources and the creativity to 
try to address some of the challenging problems that make it 
difficult for us to be successful.
    Early on in our efforts, we realized that if we were to 
achieve our goal of hiring 5,000 welfare recipients, even with 
the help of hiring tax incentives, we could not just sit back 
and wait for those eligible to come to us. Rather, we had to 
establish a corporate hiring policy, and impress on each of our 
store and hiring managers that this was not only something that 
we wanted them to do--that we thought was good for the company 
and good for the country, but that we expected them to do it. 
This required a significant corporate-wide effort to 
communicate our new hiring policy, to incorporate into every 
job application the pre-screening form, and, of course, to 
train our hiring managers on how to assist job applicants in 
filing out the pre-screening form.
    In addition, to help ensure that we have a sufficient 
number of qualified welfare job applicants, TJX utilizes an 
extensive outreach program. This entails the use of an 
employment hotline, through which local service providers are 
alerted to our job openings.
    There are several keys to TJX's success. We establish 
strong relationships with service providers across the country. 
We match new hires with experienced associates to help 
alleviate some of the pressure of entering, or reentering the 
work force. TJX reinforces the benefits of the program through 
conferences and newsletters with other employers and with our 
own associates. We have aggressively tried to spread the word 
to other employers, predominantly in Massachusetts, but also in 
other locations where we have a major presence. Finally, we 
continually work to improve our Welfare-to-Work involvement.
    I want to use this opportunity to compliment this Committee 
on one aspect of welfare reform that has, for the first time, 
made the types of outreach programs we engage in a real 
success. Up until welfare reform, community-based organizations 
were provided funds to train people, but never to place them. 
For the first time, TANF provided resources to actively place 
welfare recipients. As a result, community-based organizations 
have become active partners of the private sector, and now 
serve as excellent job application referral resources.
    I also want to take this opportunity to raise two problems 
with the program not addressed presently in H.R. 2101. First is 
that while the vast majority of States are doing a terrific job 
administering the program, in some of the States there are 
significant processing backlogs. The second issue is that the 
program is overwhelmingly slanted in favor of hiring women. In 
our job applicant pool we see many young men seeking to work 
who are over 18, that come from families who are on welfare or 
food stamps. Yet we rarely seem to be able to qualify them for 
the program. It is our hope that the committee will be able to 
address this problem.
    Let me conclude by saying we consider WOTC essential to 
helping offset the cost of hiring welfare recipients, and 
helping them advance in their jobs and in their careers. Thank 
you, Mr. Chairman and Committee Members, for addressing this 
issue today.
    [The prepared statement follows:]

Statement of Mark Jacobson, Vice President, Corporate Human Services, 
TJX Companies, Framingham, Massachusetts

    Good morning, my name is Mark Jacobson and I am here today 
in my capacity as Vice President of Corporate Human Services 
for The TJX Companies, Framingham, Massachusetts. TJX is the 
leading national and worldwide off-price retailer of apparel 
and home fashions. In the U.S., TJX operates T.J. Maxx, 
Marshalls, HomeGoods, and A.J. Wright with 60,000 employees and 
1120 stores in the United States.
    I am here today to support H.R. 2101, the Work Opportunity 
Tax Credit Reform and Improvement Act of 1999, which the 
Chairman and Mr. Rangel have introduced along with 22 of their 
Ways and Means colleagues. We are especially appreciative that 
H.R. 2101 would make the Work Opportunity and Welfare to Work 
Tax Credit programs permanent. This would help to bring 
continuity to the program and allow us to dedicate added 
resources to our welfare-to-work efforts.
    Two years ago, our CEO, Ben Cammarata pledged to President 
Clinton that TJX would hire 5,000 welfare recipients by the 
year 2000. Today, I am proud to announce that TJX has not only 
met that goal--we have exceeded it.
    In just two years time, we have hired more than 9,700 
individuals who were previously on welfare. During these past 
two years, we at TJX have learned what everyone else in the 
country who is participating in the national welfare-to-work 
initiative has come to understand--many of the individuals 
coming off of welfare want to work. And even more importantly, 
they can become productive and prized employees.
    Our experience tells us that those on welfare face numerous 
barriers to succeeding in the workplace. These barriers range 
from low self-esteem to the lack of basic work skills such as 
how to dress and how to appropriately interact with the public.
    There are many obstacles to success in the workplace. All 
of these challenges have real costs associated with them and, 
in the corporate world, these costs have to be offset. The way 
we do that is through the Work Opportunity and Welfare to Work 
Tax Credits which have made it economically feasible for us to 
devote the resources to our welfare to work effort.
    Early on in our efforts, we realized that if we were to 
achieve our goal of hiring 5,000 welfare recipients, even with 
the help of hiring tax incentives, we could not just sit back 
and wait for those eligible to come to us. Rather, we had to 
establish a corporate hiring policy AND impress on each of our 
store and hiring managers that this was not only something that 
we wanted them to do, but that we expected them to do.
    This required a significant corporate-wide effort to:
     communicate our new hiring policy;
     incorporate in every job application the pre-
screening form; and
     train our hiring managers on how to assist job 
applicants in filling out the pre-screening form.
    In addition, to help ensure that we have a sufficient 
number of qualified welfare job applicants, TJX utilizes an 
extensive outreach program. This entails the use of an 
employment hotline that store managers call when entry-level 
positions are available. Through this hotline, local service 
providers are alerted to job openings. These service providers 
then alert those eligible that a position exists; what special 
skills, if any, are required; and how much the job is paying.
    There are several keys to TJX's success:
     We establish strong relationships with service 
providers because these providers will ensure that individuals 
receive help with child care and other issues that arise as 
people make the transition from welfare to work.
     TJX matches new hires with experienced associates 
to help alleviate some of the pressure of entering or re-
entering the workforce. This ``buddy'' system helps to ensure 
that former welfare recipients are not intimidated by their new 
responsibilities.
     TJX reinforces the benefits of the program through 
conferences and newsletters with store managers.
     Finally, TJX is continually working to improve its 
welfare to work involvement. For example, we have conducted 
focus groups with associates formerly on welfare, to learn how 
to better ease the transition.
    I want to take this opportunity to compliment the Committee 
on one aspect of welfare reform that has for the first time 
made the types of outreach programs we engage in a real 
success. Up until welfare reform, community-based organizations 
were provided funds to train people, but never to place them. 
For the first time, TANF provided resources to actively place 
welfare recipients. As a result, community-based organizations 
have become active partners with the private sector and now 
serve as excellent job applicant referral resources.
    I also want to thank the Committee, especially Chairman 
Archer for his press release in which he stated that the 
extenders, including WOTC, would be extended retroactively this 
year. As a result, we at TJX will continue to participate in 
our Welfare-to-Work program. While this does provide us with a 
short-term reassurance, we are forced to continually reassess 
whether we can incur the added costs involved in actively 
participating in our extensive Welfare-to-Work initiative. This 
concern is only increased as the flow of certifications on new 
hires ceases during the program hiatus.
    I also wanted to take this opportunity to raise two 
problems with the program not addressed in H.R. 2101. The first 
is that while the vast majority of states are doing a terrific 
job administering the program, in some states there are 
significant processing backlogs. The second issue is that the 
program is overwhelmingly slanted in favor of hiring women. In 
our job applicant pool, we see many young men seeking work who 
are over 18 and come from families that are on welfare or food 
stamps. Yet, we rarely seem to be able to qualify them for the 
program. I hope the Committee will be able to address these 
problems.
    I want to thank the Committee for addressing this issue 
today. We consider WOTC to be essential to offsetting the costs 
of hiring welfare recipients and helping them advance in their 
jobs and careers.

                                

    Chairman Houghton. Thank you, Mr. Jacobson.
    Mr. Kramer.

 STATEMENT OF FRED KRAMER, DIRECTOR, COMMUNITY EMPLOYMENT AND 
      TRAINING, MARRIOTT INTERNATIONAL, ON BEHALF OF JOB 
            OPPORTUNITIES BUSINESS SYMPOSIUM (JOBS)

    Mr. Kramer. Thank you, Mr. Chairman and Members of the 
Subcommittee. My name is Fred Kramer. I am the director of 
Community Employment and Training Programs for Marriott 
International. I am also testifying on behalf of the Job 
Opportunities Business Symposium, a coalition of major 
employers who use the Work Opportunity and Welfare-to-Work Tax 
Credits.
    My company is in enthusiastic support of the WOTC and 
Welfare-to-Work Tax Credits for a very simple reason: they do 
what they are supposed to do; namely, to persuade employers 
like Marriott to find, hire, train, and retain public 
assistance recipients. My company has a proud history of 
corporate citizenship. With or without hiring tax credits, I 
think it is fair to say that we would do our part to help those 
less fortunate. We might even have a modest program to help 
welfare recipients. But WOTC changes the dynamics greatly. The 
tax credits allow us to be far more aggressive in reaching out 
to this population.
    Make no mistake about it, hiring from the world of public 
assistance recipients, and other socially at-risk persons is 
expensive. It requires enormous amounts of time and effort. 
People with poor job skills and no work experience have little 
to offer an employer. Such persons usually have low self-
esteem, and they expect to fail. It is a huge challenge to 
break that cycle.
    We have even provided new employees with alarm clocks, to 
teach them to use them and to explain why being on time is 
important. We have to give our supervisors special training for 
dealing with these workers. Our managers learn to cope with 
transportation, child care, creditor, and other matters that 
they normally would not have time for. They often must provide 
new workers special attention.
    As we teach job skills and the importance of dependability 
to these new workers, we may get help from community-based 
organizations which provide support services. We also have what 
we call ``associate resource lines,'' which gives employees 
access to trained professionals who can help them with the life 
problems that so often interfere with job performance.
    Mr. Chairman, we desperately want these persons to succeed, 
to become part of the Marriott family, and to climb our 
corporate ladder. We are proud of our success in developing 
some very loyal employees who are excellent performers, who 
will spend their careers at Marriott, or who will take the 
Marriott-learned job skills and apply them productively 
elsewhere. These successes are not just Marriott's; they are 
yours, as well. Our success would not have occurred without 
your tax credits, because success costs money.
    Besides, for all of our successes, there are also costly 
failures. Who pays these costs? Marriott does. That is why the 
tax credits are so important. They don't offset all of our 
costs, but they provide enough for us to continue what has 
become a successful private-public partnership. But please 
understand, without the credits our program would either shrink 
dramatically, or disappear altogether.
    As you decide how to best continue WOTC, let me make two 
other points. First, I urge you to make the program permanent. 
Every time there is a hiatus, the program suffers. Starting 
today, States stop certifying new workers. Some States will 
even stop certifying eligible workers who are already on the 
job. Think about the message that sends. We did our part, but 
we are being denied the tax credits we have earned. Even when 
the program is renewed retroactively, our credits will be 
delayed. In some cases, by 6 to 9 months, or even longer.
    Fairly or not, this looks like a lack of commitment by the 
Congress. It makes it that much harder for us to convince 
management to stick with the program. If a permanent extension 
is not possible, please give us at least 3 years. Let us show 
you what we can do when we are not constantly in the start-stop 
mode of operation.
    We also urge you to find a way to improve the performance 
of a handful of States who are not doing their job. Most States 
do a good job, but a few fall short. We employers are short-
changed in the near term. Over time, we end up hiring fewer 
welfare recipients. Poor performance by a few States is a 
fixable problem, but it will require your active involvement.
    Thank you for giving me the chance to share Marriott's 
experience and views.
    [The prepared statement follows:]

Statement of Fred G. Kramer, Director, Community Employment and 
Training, Marriott International, on behalf of Job Opportunities 
Business Symposium (JOBS)

    Mr. Chairman, Members of the Subcommittee, I am Fred 
Kramer, the Director of Community Employment and Training for 
Marriott International. I am also testifying on behalf of the 
Job Opportunities Business Symposium (JOBS), a coalition of 
major employers who use the Work Opportunity and Welfare-to-
Work tax credits. My company is an enthusiastic supporter of 
the WOTC and Welfare-to-Work tax credits for a very simple 
reason--they do what they are supposed to do--namely, to 
persuade employers like Marriott to find, hire, train and 
retain public assistance recipients.
    My company has a proud history of corporate citizenship. 
With or without hiring tax credits, I think it is fair to say 
that we would do our part to help those less fortunate. We 
might even have a modest program to help welfare recipients. 
But WOTC changes the dynamics greatly. The tax credits allow us 
to be far more aggressive in reaching out to this population.
    Make no mistake about it--hiring from the world of public 
assistance recipients and other socially at-risk persons is 
expensive. It requires enormous amounts of time and effort. 
People with poor job skills and no work experience have little 
to offer an employer. Such persons usually have low self-
esteem, and they expect to fail. It is a huge challenge to 
break the cycle.
    Often, we even provide the new employees alarm clocks, 
teach them to use them, and explain why being on time is 
important. We have to give our supervisors special training for 
dealing with these workers. Our managers learn to cope with 
transportation, child care, creditor, and other matters that 
they wouldn't normally have time for. They often must provide 
these new workers special attention.
    As we teach job skills and the importance of dependability 
to these new workers, we may get help from community-based 
organizations which provide support services. We also have what 
we call the ``Associate Resources Line,'' which gives employees 
access to trained professionals who can help them with the life 
problems that so often interfere with job performance.
    Mr. Chairman, we desperately want these persons to succeed, 
to become part of the Marriott family, and to climb our 
corporate ladder. We are proud of our success in developing 
some very loyal employees who are excellent performers, who 
will spend their careers at Marriott, or who will take their 
Marriott-learned job skills and apply them productively 
elsewhere.
    But these successes are not just Marriott's. They are yours 
as well. Our success would not have occurred without your tax 
credits, because success costs money. Besides, for all our 
successes, there are also costly failures. Who pays these 
costs? Marriott does. That is why the tax credits are so 
important. They don't offset all our costs, but they provide 
enough for us to continue what has become a successful public/
private partnership. But please understand--without the 
credits, our program would either shrink dramatically, or 
disappear altogether.
    As you decide how best to continue WOTC, let me make two 
other points: first, I urge you to make the program permanent. 
Every time there is a hiatus, the program suffers. Starting 
today, states stop certifying new workers. Some states will 
even stop certifying eligible workers already on the job. Think 
about the message that sends. We did our part, but we are being 
denied the tax credits we earned. Even when the program is 
renewed retroactively, our credits will be delayed--in some 
cases by six to nine months, or even longer. Fairly or not, 
this looks like a lack of commitment by the Congress, and it 
makes it that much harder for us to convince management to 
stick with the program. If a permanent extension is not 
possible, please give us at least three years. Let us show you 
what we can do when we are not constantly in this start/stop 
mode of operation.
    We also urge you to find a way to improve the performance 
of a handful of states who are not doing their job. Most states 
do a good job, but a few fall short. We employers are short-
changed in the near term, but over time, we end up hiring fewer 
welfare recipients. Poor performance by a few states is a 
fixable problem, but it will require your active involvement.
    Thank you for giving me the chance to share Marriott's 
experience and views.

                                

    Chairman Houghton. Thank you very much, Mr. Kramer.
    Mr. Coyne.
    Mr. Coyne. Thank you, Mr. Chairman.
    Mr. Kramer, how well is Marriott doing relative to 
retention periods after the credit is exhausted?
    Mr. Kramer. I haven't done a study on retention periods 
after credit, per se. We do have some localized Welfare-to-Work 
training programs that we do some special training with. We 
have a retention rate of 65 percent after 1 year of employment. 
For the industry, the average of folks coming in off the street 
and not getting extra training is about 50 percent. It is a 
higher retention rate.
    Mr. Coyne. But you don't have a records kept about the WOTC 
employees?
    Mr. Kramer. No.
    Mr. Coyne. Why is that?
    Mr. Kramer. I really haven't seen the need to do it, yet.
    Mr. Coyne. Well, wouldn't it be helpful to know how many of 
these employees continue on in the employment after the credit 
period?
    Mr. Kramer. As I have said, we do a kind of focus study on 
a group that goes through a specific training program above and 
beyond the WOTC program. That retention is 15 percent higher.
    Mr. Coyne. Does your company, Mr. Jacobson, have any 
retention records for employees?
    Mr. Jacobson. We do. I don't know if I have the specific 
answer that you are seeking. Let me tell you that we are very 
concerned about retention in general. We have a high turnover 
within our organization, and have had traditionally. Within the 
Welfare-to-Work population, we have a much stronger retention 
rate than we have with our normal statistic: 0.7 percent versus 
1.1 percent.
    We have hired someone to interview two thousand people who 
left us, out of a population of 20,000, in a 12-month period. 
Three-hundred-thirty-six of those were people that had come off 
of the welfare rolls. What I don't know is whether all of those 
qualified for the WOTC credit. I can't link it to that.
    Mr. Coyne. Mr. Espinosa.
    Mr. Espinosa. Yes, sir. In my written testimony that was 
submitted to the committee, we only have data from 1994, which 
was the last Office of Inspector General study that was done of 
WOTC predecessor, TJTC. Clearly, there is no new study to 
support whether or not churning or displacement is happening. 
Maybe one of the things that the committee could suggest you 
all do is perform an audit of the program. It is coming into 
its third year now. Perhaps it would be time for one to be 
done.
    Mr. Coyne. So your position is that you are not against the 
program. You would just like to have a little bit better record 
keeping relative to retention.
    Mr. Espinosa. Yes, sir. We are actually very much in 
support of the program, however there are a few holdups. Those 
happen to focus on the retention period after the individual 
has exhausted their credit. Is this just something that gets 
them a job for a short term, and then they are let off after 
their WOTC experience expires? Or is it something where they 
become loyal to the company, stay with the company, and 
actually have a career ladder opportunity associated with the 
employment opportunity?
    Mr. Coyne. Mr. Signer.
    Mr. Signer. Mr. Coyne, New York State has looked at this 
issue. The way they did that is they looked at the unemployment 
insurance rolls. What they found was that when people left the 
job--and people do leave the job, and in many cases, they 
leave, before they have earned the full $6,000--what is 
happening is there is no break in their UI payments. This means 
they are going on to another job.
    The study also said that when they are moving, they are 
going to a job that is paying at least a dollar more. So what 
is happening with this program is that people are deciding to 
get the entry-level training. They may work at a K-Mart or they 
may work at a Wal-Mart. They get that experience. They become a 
trained employee. They can take that experience and go 
someplace else. A lot of them are staying with the employers 
that they began with, at least the ones that are making it to 
400 hours. So from that perspective, we feel the program is a 
success, because they are staying within the job market and 
getting higher-paying jobs.
    Mr. Coyne. Thank you. Thank you.
    Chairman Houghton. OK. Mr. Weller.
    Mr. Weller. Thank you, Mr. Chairman. It is clear from the 
testimony that has been given here there are two issues I see 
emerging from the witnesses. No. 1, of course, is the 
processing backlog in the States. Also, the temporary nature of 
the tax credit and how it impacts the psychology of those who 
would like to participate.
    Mr. Signer, you seem to represent a group of employers that 
participate with the backlogs in certain States. The 
information I have is that there are 8 to 10 States where there 
is significant processing backlogs. In those States where we 
have that type of backlog, how does that impact the 
participation in the program?
    Mr. Signer. Well, the problem is that this program has to 
work on local level. It has to work in a local store. What we 
begin to see, and I think some of the other companies can talk 
about that, is that it is harder to keep the local hiring 
manager involved in the program. What he ends up saying is, 
``Well, I don't want to go through the whole process of helping 
the applicant fill out the job form if I am not going to get 
the tax credits I feel I am entitled to because they are not 
getting processed.''
    That really has a cooling-off effect on the local hiring 
managers. We are seeing that in those 8 to 10 States. In other 
States it is working great. The employers are participating. 
They are very happy with it.
    Mr. Weller. Mr. Balfour, what do you suggest be done in 
those States to correct backlog?
    Mr. Balfour. Well, in some of these States that I have been 
to, and talked to their Governor's offices and different people 
about the situation, the most important thing is to make the 
program more like a permanent program--a 2- or 3-year 
extension.
    I know personally, in Georgia the problem we had a number 
of years ago, we had an 18-month hiatus. The Governor did what 
was appropriate which was to take those employees and put them 
into a job that needed to be done in the State. When the 
program finally came back, there was no one with any history of 
what needed to be done. So they were starting from scratch.
    On our unit manager side, you are giving us an incentive to 
hire economically disadvantaged people. We, as a company, pass 
that credit right back down to the unit manager, because he is 
the one doing the hiring. When he goes through all this work 
process and the State doesn't do anything, he finally gives up 
on the program. He says, ``I am not going to do that anymore. I 
not going to reach out and try to do this, that, and the other, 
because I am not going to get any credit on my P&L, anyhow.''
    Back to your question. There are a couple of things that 
need to happen. One is the temporary nature needs to go away. 
When that happens, you will have more people that are there on 
a regular basis.
    Someone else mentioned in one of the other panels--and 
correctly so--it needs to be more automated. North Carolina has 
done a great job of automating. Georgia has done a great job of 
automating. When you get this automated to a point that they 
are not having to go to the different departments inside the 
State Government to get the information, they are pulling it 
right up on their computer screens. When they can do that, it 
is less people that have to run the program. It is more 
consistent.
    Mr. Weller. Mr. Kramer, Mr. Jacobson, do you have anything 
you would like to add?
    Mr. Kramer. We are in a similar situation where we really 
try to encourage our unit operation managers to take part in 
the program. In some cases we actually do directly incent them 
to follow through with the necessary paperwork, and the 
additional training for the WOTC-eligible individuals. We do 
promise them tax credits for their operation and they don't 
come through. That does cause some frustration, definitely.
    Mr. Weller. Mr. Jacobson.
    Mr. Jacobson. The only thing I would add is that the 
population that remains to be served--to be brought into the 
work force--is going to be even more difficult than what we 
have already accomplished. Anything we can do to overcome some 
of the impediments that discourage those who want to use the 
opportunity to step away from the program is a plus. Even 
though as committed as we are, we still have naysayers within 
the organization.
    Mr. Weller. Just to follow up on that on the impact whether 
an employer would want to participate--in the Administration's 
budget, they propose a user fee when a employer is applying to 
be certified to participate. If that user fee is adopted, what 
would be the impact on employers who may be considering 
participating? Mr. Signer?
    Mr. Signer. Mr. Weller, we have looked at this. One of the 
biggest concerns that has been expressed to us is that small 
businesses are not participating at a level that people would 
like to see. As a group, NEON has tried to work with the 
Welfare-to-Work partnership, offering free services to small 
businesses who are a member of the partnership.
    What we see is that small businesses clearly are not going 
to pay money up front. Probably, at least 50 percent of those 
people who you hire and think are eligible are not going to get 
certified. So whatever the charge is, the cost is doubled. A 
lot of those people will not even make it to the threshold of 
120 hours. A lot of them will move on to another job.
    Twenty million dollars is what is being appropriated now. 
If you calculate that out based upon the number of people who 
are using the program, which is about 320,000 at this point in 
WOTC, it could be anywhere from $40 per certification. This is 
going to be very costly. For a company like Marriott, they 
would have to pay money up front for thousands and thousands of 
workers. It is just going to discourage people from 
participating.
    Mr. Weller. Mr. Espinosa, do you have any comments on that?
    Mr. Espinosa. We have had studies in the past that have 
shown that the majority of the employers would have hired these 
individuals regardless of the credit. The additional costs that 
many of the employers are speaking to aren't necessarily the 
ones brought upon them. Really, it is the costs that are 
associated with the intermediaries, the management assistance 
companies, that are really playing the brokering role between 
the employer and the Department of Labor in this whole process. 
Clearly, those are the folks who are bearing the burden of the 
costs.
    Employers who are seeking to employ these populations would 
have incurred those costs naturally, without the credit, if 
they so wanted those employees. So in terms of additional 
costs, it is an issue that is underlying. But to what extent 
are those costs real? That is something that we just don't 
know. There is no information that is collected to let us 
determine whether or not the costs are excessive enough that 
the credit is no longer providing the benefit that it is 
intended to provide.
    Mr. Weller. Mr. Chairman, I see my time has expired. Thank 
you.
    Chairman Houghton. OK, thank you. Mr. Portman.
    Mr. Portman. Thank you, Mr. Chairman. I appreciate all the 
testimony. I feel very strongly that this ought to be a 
seamless program. I think it is unfortunate that we get into a 
situation as we are in today, where States around the country 
are being told that this is not being extended. They are 
slowing down. Businesses are slowing down. We end up with 
dislocation that is unnecessary. I think there is an 
understanding that we will extend the tax credit for another 
year.
    Mr. Chairman, there are a lot of ways to look at this. This 
is not an issue that is before the Subcommittee today, but we 
have to figure out a way to make it seamless so that the 
program can operate with certainty.
    I had some concerns about the targeted jobs tax credit. I 
was not a big fan of it. I didn't think it was working well. I 
thought it was corporate welfare to a certain extent. 
Businesses would have hired the folks anyway. It was a 
windfall.
    I think this program is a lot better. But it is just 
unfortunate for us not to have it continue year after year. 
Maybe it should be 2 years, and we should extend the year prior 
to its expiration.
    I also feel that we need to have better measurements of 
success. That is one of the arguments, as you know, for having 
the annual process we are going through now. The main reason 
for it is revenue--just so everybody understands that. This is 
not a policy reason. It is because we don't want to put as much 
revenue loss into our tax bills, because we have other needs 
out there for tax relief. But there is, I guess, some good that 
comes out of this, which is, annually we have to go through 
this process of taking a look at it.
    What I would ask the members of this panel is whether you 
disagree with what Mr. Espinosa said, which is, we ought to be 
devoting more time toward measuring our success, particularly 
looking at whether there is, indeed, the kind of retention--as 
compared to retention generally?
    In this job market, retention at companies represented here 
is not going to be something that anybody is particularly proud 
of. People are moving quickly. There is a lot more mobility. 
There will be even more in the next century, according to the 
Labor Department projections.
    But do you have any concerns about what Mr. Espinosa laid 
out in his testimony, or response to his questions?
    Mr. Balfour. From what I heard of his testimony, most of 
the data that was talked about was under the old TJTC program, 
not under the new WOTC program. It has a lot of restrictions 
and changes that were placed in the program by the chairman's 
wisdom, and others that were on the committee at the time.
    The theory that we are out churning employees is nuts. It 
is totally nuts. I am not going to keep an employee for a year 
if they are a terrible employee, just because of WOTC. If they 
are a terrible employee, I am going to fire them. The opposite 
is also true. When the year runs out, if I have employed them 
and they have been a good employee for that year, to say that 
my management would fire them and then go out and hire someone 
else and retrain to get the credit is nuts.
    Mr. Portman. As a result of the costs incurred in training 
somebody?
    Mr. Balfour. No. Forget about the costs. You have a good 
employee. If you have a good employee, you are going to keep 
that employee.
    The neat thing about the WOTC program is that it gives an 
incentive to my unit manager. He has to hire someone and there 
are five people sitting there. One person is WOTC-qualified. It 
gives him an incentive to say, ``Well, maybe I ought to give 
this guy a chance.'' Then once my management hires them, they 
give credits for longevity for keeping him, and so forth. The 
longer they stay, the more money that unit manager can make.
    But at the end of the year when there is no more WOTC 
credit, the idea that anyone in business is firing them to make 
another $3,000 by hiring someone else that they don't know is 
going to stay 120 days where they might get any money at all, 
or may stay 3 months, then quit--is nuts. I would like to see 
one example. If you give me one line of example at Waffle 
House, I will fire the unit manager. He is the most ridiculous 
unit manager that was ever in the world. You would never do 
this in the business.
    Mr. Portman. Let me follow up on that. We don't have the 
data. Are you saying that it isn't important to find out 
whether that is happening around the country? This is a 
significant tax expenditure. It is an incentive. We don't know 
the answer to that.
    Now churning is kind of a pejorative term. Let us just talk 
about retention.
    Mr. Balfour. OK. Well, you saw some numbers here. I can 
show you the numbers of Waffle House of how long they have 
stayed for that year. For that year, is how long we have the 
tax credit for.
    But the other question, I don't know how you would get to 
it. You would have to interview different people. It isn't 
whether they have stayed a year, or they stayed 5 years. If 
they left in a year, did they go to a better-paying job? Did 
they improve?
    Mr. Portman. The point that Mr. Signer made is that some of 
these folks are getting into the work force, maybe for the 
first time. They are coming in at an entry-level. They do well 
enough that they have other opportunities at another dollar or 
two an hour. They leave. There is nothing wrong with that. 
That, in fact, is one of the reasons we have this tax credit. 
It is to get people into the work force and into meaningful 
jobs. That should be taken into account, clearly.
    Mr. Balfour. I am not sure how you do it. You can look at 
the mathematics. I could probably run to my computer department 
and run the mathematics of how long someone qualified for WOTC 
stays, even for a longer period of time. But I can't tell you 
what they did afterwards.
    What I can tell you from the specifics I know that I don't 
like is the guy at T.J. Maxx that ends up hiring him for a 
dollar more than I paid him. I don't like that because he hired 
him. But he hired him because he had some job skills that I 
trained him with that you help incentivize me to give him that 
first job.
    Mr. Portman. You talked about the five people sitting on 
the bench. The unit manager goes out and makes a decision, 
partly based on WOTC.
    Mr. Signer, in his testimony, implied--at least I infer 
from what you said--that the costs associated with WOTC exceed 
those that are covered by the tax credit. In other words, of 
those five people, I think what you were saying--correct me if 
I am wrong--is that there really wasn't an incentive to pick 
the WOTC person, because the costs associated with that were 
greater than the tax credit. As compared to the other four, is 
that true as well? Do you see what I am getting at?
    Mr. Signer. I think the answer to that is that what this is 
designed to do and what it does do is not offset all the costs 
involved in hiring somebody. It is designed to level the 
playing field. Say that you have five people on the bench. The 
welfare person is probably not going to be picked without 
something to help level the playing field. They don't have the 
job skills. They don't have the experience. What this does is 
that it brings them up to the same level. All things being 
equal, you will pick the welfare recipient.
    Mr. Portman. Now Mr. Kramer and Mr. Jacobson, do you agree 
with that on a general level?
    Mr. Jacobson. I do.
    Mr. Kramer. Yes, I definitely agree with that. Depending on 
the individual, and how much extra training and extra support 
they need, if you count on mentoring, and managers and 
supervisors spending extra time as well, the cost in manhours 
often exceeds the amount of tax credit we will get.
    Mr. Portman. I have other questions, but I have already 
exceeded my time. Thanks for the indulgence, Mr. Chairman.
    Chairman Houghton. Well I just have one final question. 
Anybody can answer it. Obviously your businesses--the quick 
service and retail industries--absorb a great many of these 
people we have been talking about.
    There is a head of steam on a minimum wage increase. I 
would assume that nobody has any objection to coupling this, if 
the minimum wage comes along, with that. Anything we can do to 
help the small business people offset what that additional cost 
is. How do you feel about that?
    Mr. Balfour. Mr. Chairman, many of our industries that are 
getting the WOTC credit were probably the industries that are 
going to be hit hardest by a minimum wage increase. Coupling 
WOTC permanent extension with a permanent increase in minimum 
wage, I think, would be advisable. It would be something that 
we would hope would happen.
    Chairman Houghton. Right. Anybody else have a comment on 
that?
    Mr. Espinosa. Mr. Chairman, we would also support the 
marriage of those two programs. But given that we provide a 
little extra focus to the WOTC, particularly on the back end of 
the program that focuses on retention. Just so we can at least 
put to bed the notion that if there is churning going on, let 
us find out if it is actually going on. Let us find out if 
displacement is deliberately going on.
    Mr. Signer. Mr. Chairman, we have no position on the 
minimum wage issue. We just would like to point out that for 
every dollar you increase it, WOTC offsets 40 percent of it.
    Chairman Houghton. Anybody else?
    Mr. Jacobson. We don't have a corporate position on that.
    Chairman Houghton. Just one other comment. You know we talk 
about a seamless program. Clearly, I think all of us would like 
to see at least a 2-year, and at best a permanent extension. I 
think your point is right. If you have a permanent extension of 
minimum wage, you have to have a permanent extension on 
something like this. But there is a retroactivity clause in 
here, assuming this thing goes through--which I think it will.
    Thank you very much. I certainly appreciate your time and 
your patience. We will see you again soon.
    [Whereupon, at 12:40 p.m., the hearing was adjourned.]
    [Submissions for the record follows:]

                                   Food Marketing Institute
                                                      June 30, 1999
The Honorable Amo Houghton
Chairman, Subcommittee on Oversight
House Ways and Means Committee
Washington, D.C. 20515

    Dear Chairman Houghton:

    On behalf of the Food Marketing Institute, your neighborhood 
supermarkets, I submit this statement as part of the hearing record for 
the July 1 Subcommittee on Oversight hearing regarding extension of the 
Work Opportunities Tax Credit (WOTC) and the Welfare-to-Work (WWTC) tax 
credit.
    We strongly support legislation making the credits permanent and 
retroactive to July 1, 1999. For the labor-intensive food retailing 
industry, the WOTC has helped integrate economically disadvantaged 
Americans into the national work force and often in grocery stores 
within their own neighborhoods. Our industry believes these credits are 
an effective approach for encouraging private sector employers to hire 
individuals from groups that otherwise would have difficultv securing 
employment in either good or bad economic times.
    We also support the improvements to the programs proposed in H.R. 
2101, authored by you and Rep. Charles Rangel to consolidate the WOTC 
with the WWTC. With more individuals entering the workforce from 
welfare, our neighborhood supermarkets are increasingly training and 
hiring those who are less skilled and more costly to train.
    Supermarkets play an important role in creating and maintaining 
strong neighborhoods. Our members are significant employers in many 
inner city and rural communities across America. They provide basic 
products and services essential to life and health. They are places 
where neighbors gather and interact in productive ways. Many young 
people find their first job in a supermarket. They provide flexible 
work schedules, with many stores open 24 hours a day, 365 days a year. 
These characteristics provide supermarkets with the unique opportunity 
to play a leadership role in developing programs to address the social 
and economic challenges of the neighborhoods and communities they 
serve.
    The WOTC program has provided incentives for employers to take a 
risk they might not normally have taken. For employees, it has taught 
skills, helped to develop good work habits, established independence, 
created a positive job profile and helped with employment history. New 
hires have started as cashiers, baggers, deli, grocery or produce 
clerks and over time remain with the store, gaining experience and 
receiving important benefits, such as health care coverage.
    Since WOTC was first enacted in 1996 on an experimental basis, with 
WWTC following a year later, hundreds of thousands of welfare 
recipients have moved into the productive work force. The credits 
offset a portion of the higher costs of recruiting, hiring, training 
and supervising those with few job skills and little or no work 
experience. Unfortunately, the 1-year extensions granted in the past 2 
years have limited the program's effectiveness. Last year's 3\1/2\-
month hiatus prompted some companies to stop participating, while 
others reduced their hiring efforts. Also, if the minimum wage is 
increased, there will be less of an incentive to hire the hardest-core 
unemployed.
    By making these credits a permanent part of the tax code, companies 
will have a longer planning horizon, better outreach to eligible 
workers and the ability to develop more cost effective recruitment and 
training programs. Thank you for considering FMI's views.
            Sincerely,
                                 John J. Motley III
                                      Senior Vice President
                                      Government and Public Affairs

                                

Statement of International Mass Retail Association, Arlington, VA

    The International Mass Retail Association (``IMRA'') is an 
organization whose members include the fastest growing 
retailers in the world--discount department stores, home 
centers, category dominant specialty discounters, catalogue 
showrooms, dollar stores, warehouse clubs, deep discount 
drugstores and off-price stores--and the suppliers who supply 
them with merchandise and services. IMRA retail members operate 
more than 106,000 American stores and employ millions of 
workers. One in every ten Americans works in the mass retail 
industry, and IMRA retail members represent over $411 billion 
in annual sales.
    IMRA strongly supports Congressional efforts to extend the 
work opportunity tax credit (``WOTC''), which expired only 
yesterday. In particular, IMRA supports the bill introduced by 
House Ways and Means Oversight Subcommittee chairman Amo 
Houghton (H.R. 2101) that would modify and permanently extend 
the program.
    WOTC gives employers a tax incentive to hire and invest in 
the training of individuals who have traditionally had 
difficulty entering and remaining in the work force. WOTC does 
not provide a windfall to employers to hire employees that they 
would have hired anyway. Rather, WOTC provides employers with 
an incentive to bear the costs of training public assistance 
recipients and other hard-to-employ individuals and provides 
these individuals with job-related skills that give them a 
chance to gain a foothold in the job market. This is the goal 
of WOTC, and IMRA member companies have historically played a 
large and important role by employing and training these 
targeted individuals in achieving this, the goal of WOTC.
    In order to better achieve the full potential of WOTC, the 
program should be made permanent, or at least be given a 
longer-term extension. Short-term extensions of WOTC greatly 
limit the program's effectiveness.
    With the passage of the Small Business Job Protection Act 
of 1996 (P.L. 104-188), Congress designed a WOTC program with 
which employers can work. Unfortunately, since the inception of 
the program, employers have never been assured that WOTC would 
last for more than 1 year. The program was initially set up to 
last only 12 months, until September 30, 1997. The Taxpayer 
Relief Act of 1997 re-authorized the program for just 9 months, 
through June 30, 1998. The most recent extension expired only 
yesterday, June 30, 1999.
    Short extensions of WOTC underestimate the considerable 
time, effort, and resources that companies must expend to 
identify, recruit, and train targeted workers and provide 
outreach to communities or work-related assistance such as 
childcare and transportation for those individuals. If 
employers were assured that the credit would be available for 
more than just 1 year, they could better justify the costs of 
recruiting and training public assistance recipients and other 
hard-to-employ individuals.
    Too often in the past, when WOTC and its predecessor, the 
targeted jobs tax credit, have expired and have later been 
extended retroactively, administrative problems have arisen due 
to the lack of continuity in the program. For example, 
difficulties have taken place with getting some State 
employment security agencies to certify as members of a WOTC 
target group new employees hired during the interim period. 
Extending the program for a number of years or, better yet, 
making it permanent would eliminate such administrative and 
wholly unnecessary headaches.
    While it was certainly welcome, the statement by Ways and 
Means Committee Chairman Archer and Finance Committee Chairman 
Roth that expiring tax provisions will be extended with an 
effective date of July 1, 1999 in the reconciliation bill due 
to be reported by the tax-writing committees in July does not 
guarantee extension of WOTC and does not allow companies to 
operate as if WOTC had been extended.
    For WOTC to achieve its full potential and become an 
effective program for encouraging businesses to help move 
targeted individuals off of public assistance, businesses must 
have a greater degree of certainty that the program will 
continue, and will continue for a long enough time to make the 
administrative costs worthwhile.
    IMRA is grateful to Chairman Houghton for convening today's 
hearing on this important issue and for recognizing that the 
significant and laudable goals of WOTC can best be achieved by 
making the tax credit permanent.
  

                                
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