FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2012 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 

APPROPRIATIONS 

JO ANN EMERSON, Missouri, Chair 

RODNEY ALEXANDER, Louisiana 

JO BONNER, Alabama 

MARIO DIAZ-BALART, Florida 

TOM GRAVES, Georgia 

KEVIN YODER, Kansas 

STEVE WOMACK, Arkansas 

JOSE ́ E. SERRANO, New York 

BARBARA LEE, California 

PETER J. VISCLOSKY, Indiana 

ED PASTOR, Arizona 

NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full Committee, and Mr. Dicks, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

JOHN MARTENS, WINNIE CHANG, KELLY SHEA, and ARIANA SARAR, 

Subcommittee Staff 

PART 5 

Page 

U.S. Postal Service Inspector General ......................................................... 1 

U.S. Election Assistance Commission ........................................................... 47 

Small Business Administration ...................................................................... 83 

Consumer Product Safety Commission ....................................................... 141 

Office of Personnel Management .................................................................. 267 

( 

Printed for the use of the Committee on Appropriations 


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FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2012 


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tjames on DSKG8SOYB1PROD with HEARING
FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2012 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 

APPROPRIATIONS 

JO ANN EMERSON, Missouri, Chair 

RODNEY ALEXANDER, Louisiana 

JO BONNER, Alabama 

MARIO DIAZ-BALART, Florida 

TOM GRAVES, Georgia 

KEVIN YODER, Kansas 

STEVE WOMACK, Arkansas 

JOSE ́ E. SERRANO, New York 

BARBARA LEE, California 

PETER J. VISCLOSKY, Indiana 

ED PASTOR, Arizona 

NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full Committee, and Mr. Dicks, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

JOHN MARTENS, WINNIE CHANG, KELLY SHEA, and ARIANA SARAR, 

Subcommittee Staff 

PART 5 

Page 

U.S. Postal Service Inspector General ......................................................... 1 

U.S. Election Assistance Commission ........................................................... 47 

Small Business Administration ...................................................................... 83 

Consumer Product Safety Commission ....................................................... 141 

Office of Personnel Management .................................................................. 267 

( 

U.S. GOVERNMENT PRINTING OFFICE 

66–791 WASHINGTON : 2011 


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COMMITTEE ON APPROPRIATIONS 

HAROLD ROGERS, Kentucky, Chairman 

C. W. BILL YOUNG, Florida 1

JERRY LEWIS, California 1

FRANK R. WOLF, Virginia 

JACK KINGSTON, Georgia 

RODNEY P. FRELINGHUYSEN, New Jersey 

TOM LATHAM, Iowa 

ROBERT B. ADERHOLT, Alabama 

JO ANN EMERSON, Missouri 

KAY GRANGER, Texas 

MICHAEL K. SIMPSON, Idaho 

JOHN ABNEY CULBERSON, Texas 

ANDER CRENSHAW, Florida 

DENNY REHBERG, Montana 

JOHN R. CARTER, Texas 

RODNEY ALEXANDER, Louisiana 

KEN CALVERT, California 

JO BONNER, Alabama 

STEVEN C. LATOURETTE, Ohio 

TOM COLE, Oklahoma 

JEFF FLAKE, Arizona 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

STEVE AUSTRIA, Ohio 

CYNTHIA M. LUMMIS, Wyoming 

TOM GRAVES, Georgia 

KEVIN YODER, Kansas 

STEVE WOMACK, Arkansas 

ALAN NUNNELEE, Mississippi 

————— 

1 Chairman Emeritus 

NORMAN D. DICKS, Washington 

MARCY KAPTUR, Ohio 

PETER J. VISCLOSKY, Indiana 

NITA M. LOWEY, New York 

JOSE ́ E. SERRANO, New York 

ROSA L. DELAURO, Connecticut 

JAMES P. MORAN, Virginia 

JOHN W. OLVER, Massachusetts 

ED PASTOR, Arizona 

DAVID E. PRICE, North Carolina 

MAURICE D. HINCHEY, New York 

LUCILLE ROYBAL-ALLARD, California 

SAM FARR, California 

JESSE L. JACKSON, JR., Illinois 

CHAKA FATTAH, Pennsylvania 

STEVEN R. ROTHMAN, New Jersey 

SANFORD D. BISHOP, JR., Georgia 

BARBARA LEE, California 

ADAM B. SCHIFF, California 

MICHAEL M. HONDA, California 

BETTY MCCOLLUM, Minnesota 

WILLIAM B. INGLEE, Clerk and Staff Director 

(II)


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FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2012 

FRIDAY, FEBRUARY 11, 2011. 

U.S. POSTAL SERVICE INSPECTOR GENERAL 

WITNESS 

DAVID C. WILLIAMS, INSPECTOR GENERAL 

Mrs. EMERSON. We will come to order. And I want to thank everybody for being here. Good morning. 

Good morning, Inspector General Williams. Thank you so much 

for being here today. We are happy to have you. 

And I want to welcome my colleagues, our ranking member, Joe 

Serrano, from the Bronx, New York. 

And you haven’t been here to hear our repartee about the Yankees and the Cardinals. We will refrain from that. We did a little 

bit yesterday. And, actually, I have a Kansas City Royals fan down 

here, but I do have another Cardinals fan, so that is pretty nice. 

Mr. SERRANO. The Cardinals are still in the league? 

Mrs. EMERSON. That is a good one, Joe. We are going to have to 

have running bets on Pujols, all right? 

And Mr. Diaz-Balart. 

So, anyway, thank you so much for being here. And you have a 

tough job, a really tough job. And I know that a lot of my colleagues are not familiar with the way that the Postal Service works 

and don’t know that it is the largest civilian Federal agency, with 

599,000 career employees and operating a total of about 37,000 facilities nationwide. 

The Postal Service has annual spending expenses of approxi- mately $75 billion and, in fiscal year 2010, had an $8.5 billion deficit. 

With few exceptions, the Postal Service operations are self-funded and not in our jurisdiction on the Appropriations Committee. 

We only provide $75 million for mail for the blind and people with 

disabilities and for overseas voting. An additional $29 million is 

provided in our bill for reimbursement of insufficient appropriations to the Postal Service for fiscal years 1991 through 1993. 

While the committee has limited jurisdiction over the Postal Service, it does provide $244 million for the Office of the Inspector 

General, of which $98 million is for audits to improve USPS operations and $147 million is for investigations into waste, fraud, and 

abuse. 

With one of the largest inspector general budgets in the Federal 

Government, we do want to understand how you all are using your 

resources. Additionally, with the Postal Service facing long-term fiVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00001 Fmt 6633 Sfmt 6633 E:\HR\OC\A791P2.XXX A791P2

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nancial challenges, we also want to know how you all are using the 

resources we give you to improve Postal Service operations and 

identify inefficiencies. 

I look forward to your testimony. 

And, with that, I would like to recognize the subcommittee’s 

ranking member, Mr. Serrano, for any opening statements you 

wish to make, Joe. 

Mr. SERRANO. Thank you so much. 

I would also like to welcome you, Inspector General David C. 

Williams, to this hearing of the Financial Services and General 

Government Subcommittee. I am looking forward to hearing your 

testimony and having the opportunity to ask questions about your 

ongoing investigations. 

The Postal Service plays, as we all know, a very important role 

in the lives of all of us who are dependent on timely mail delivery. 

I also understand that, because of declining mail volume, the Postal Service is now facing a significant budgetary shortfall. 

In 2010, the postal OIG published a report addressing questions 

of whether there were possible overpayments made by the Postal 

Service to the Civil Service Retirement System pension fund. I look 

forward to discussing the results of this study and other issues 

with you at today’s hearing. 

I also want to mention how pleased I was with the 2009 report 

entitled, ‘‘U.S. Postal Service Electrification of Delivery Vehicles,’’ 

which concluded that the use of electric vehicles would be operationally feasible, but requires a way to address the significant 

front-end cost issue. I will discuss this issue with you further during our question period. 

So we thank you for the testimony you are about to give us. We 

thank you for your service. We know that the Postal Service is one 

agency we all want to be supportive of; we just, in all honesty, 

don’t know how to deal with this major problem. But something 

will have to be done unless we just wrap it up, and I don’t see that 

happening. So it continues to be one of the most dramatic challenges that we have around here. 

So, once again, thank you for being before us today. 

Mrs. EMERSON. Thank you, Joe. 

I also want to recognize Ms. Barbara Lee from Oakland, California. 

Now I will recognize you, Inspector General Williams. If you 

wouldn’t mind keeping your statement to 5 minutes so that we 

have as much time as possible for questions and answers. Thank 

you. 

Mr. WILLIAMS. Thank you, Madam Chairman, Mr. Serrano, and 

members of the subcommittee. 

The Postal Service’s situation is serious. Its leadership anticipates running out of money in September. Mail volume has 

dropped by 20 percent since 2006. And the monopoly no longer finances universal mail service for the Nation. 

The situation is the product of an oversized postal networks, 

crippling payments for benefit funds, the lingering recession, and 

the disruption of the digital age. Lastly, the Postal Service’s mission to bind the Nation together through a common communication 

infrastructure is evolving faster than the Postal Service can adapt. 


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Burdensome and flawed benefit payments have contributed to almost 90 percent of the $20 billion loss in the past 4 years. This has 

raised the cost of the infrastructure, postage rates, and forced the 

Postal Service to incur debt. My office has produced a series of reports highlighting the exaggerated estimates, enormous overcharges, and excessive prefunding levels that plague the retiree 

pension and health-care systems. 

To continue contributing to funds that now appear to exceed the 

100-percent funding levels is even more egregious when compared 

against benchmarks in the public and private sector and OPM’s 

levels. I agree with Senator Susan Collins’s call in September 2010 

for OPM to change, under the current law, its calculation of Postal 

Service CSRS pension fund payments. 

In the near term, the Postal Service and Congress should consider halting further payments to benefit funds until the surplus 

is used, funds restructured, and mistakes corrected. The Postal 

Service can use this time to learn how to live below or within the 

Consumer Price Index, shed its debt, and find its role in the digital 

age. 

The Postal Accountability and Enhancement Act incentivizes the 

Postal Service to adopt a leaner, volume-driven infrastructure to 

assure readiness for the 21st century. This will require optimization of the network of post offices and plants; conversion to evaluated letter carrier routes to allow effective management; flexible 

work rules to match the ebb and flow of mail; a comprehensive delivery point strategy that maximizes curbside delivery and cluster 

boxes; simplification of mail acceptance and pricing; and evaluating 

the need for 74 districts, 7 areas, and 2 law enforcement agencies. 

I mentioned earlier the disruption of the digital age as contributing to the Postal Service’s instability. The digital age and 

globalization have put America on the cusp of a new age. Technological advances have given America low-cost instant communications, sophisticated data organization, search engines, hyperlinks, 

impressive mobility, and more. 

However, the twin forces of the digital age and globalization 

grew at an unbridled pace. And as they leave their infancy, we see 

insecure platforms for financial transactions, a lengthening trail of 

American digital refugees, lack of confidentiality for communication 

content, predatory practices in the conversion of digital cash to currency, patterns of invasive digital profiling by infrastructure operators, emerging issues associated with Net neutrality, and a shocking loss of privacy. 

These practices and others are unwelcome by many Americans. 

The Nation has not fully explored the respective roles of the private sector and governmental entities in addressing these issues. 

Additionally, substantial elements of the Nation’s communications infrastructure have passed from governmental to corporate 

hands. This transition has important positive aspects, but such 

sweeping change suggests the need for thoughtful examination to 

ensure that segments of society are not excluded and America’s 

leading edge continues to advance. 

Postal products and technological solutions are imperfect, but 

joining the two together might address some of the shortcomings 


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of each and provide a set of solutions and serve as a bridge to the 

21st century. 

I have outlined the need for substantial change to increase the 

readiness and recognize the Postal Service’s role in positioning 

America in the communications revolution. The engine for this 

transformation is innovation, and the Postal Service needs to 

strengthen its systems for innovation. Innovators collaborate with 

customers, take risks, make mistakes; stop failures quickly and 

replicate successes. The Postal Service’s success depends on embracing this environment. 

Federal financial raids on the Postal Service have to be halted; 

and the Postal Service should be taken back off-budget as originally designed, and the benefit funds restructured. We will need 

strong collaborative efforts to enable the Postal Service to serve 

Americans in the 21st century. 

Thank you, Madam Chairman. 

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Mrs. EMERSON. Thanks so much, Mr. Williams. 

There are lots of questions to ask and lots of different areas to 

cover, but let me start with an easy one, perhaps an easy one, at 

the beginning. 

As you are well aware, we are doing our very, very best to find 

ways to reduce Federal spending. And we have to, in our Financial 

Services and General Government Subcommittee, at least try to get 

our numbers back to 2008 fiscal year levels. 

Your Office of Inspector General is the largest civilian IG office and has the largest budget, at $244 million. So, have you all actually scrubbed your budget to identify savings and efficiencies that 

we will see in the next round, in the 2012 budget proposal? 

Mr. WILLIAMS. We have in the past, and I promise you that we 

will in the future. And if I may, I will give you a couple of highlights. 

Cuts to our office have not begun recently. It is something we 

have taken seriously from when I stepped on the property. We 

have never had a budget that matched inflation; it has always been 

lower than inflation. 

In 2006, we took over enormous new jurisdiction from the Inspection Service. Seven hundred people were supposed to travel with 

that. We left 387 on the table for savings to the Postal Service and 

tried it with a much smaller number, and it has succeeded so far. 

We have been able to pick up the slack on that. In 2008, we cut $5 million; in 2009, $10 million. And then last 

year, we cut 60 more positions, and that had $8 million associated 

with it. 

Probably the thing that is coming up next, and I alluded to in 

the testimony, was whether or not the two law enforcement agencies should come together. That would eclipse all of the savings 

that have occurred in the past. 

Mrs. EMERSON. Why don’t you describe for my colleagues, some 

of whom are new to this subcommittee, precisely what those two 

law enforcement agencies do. 

Mr. WILLIAMS. The postal IG is targeted toward internal kinds 

of problems at the Postal Service. Our largest areas of investigation, for instance, that takes the bulk of the resources, as you 

pointed out in your opening statement. Embezzlement and financial fraud and health-care fraud, both on the part of claimants but 

also on the part of providers, which is big business at the Postal 

Service. Mail theft, unfortunately, is something where we need to 

have a nationwide presence to combat. 

And contract fraud has been—we have delivered some of the 

largest cases in the Federal Government in the area of contract 

fraud because of the huge portfolio that the Postal Service has. We 

do about $13 billion of new business every year, and the ongoing 

portfolio is closer to $50 billion. 

The Inspection Service looks outward, and they look more at the 

victimization of people by fraudsters that are using the mail in 

order to complete the fraud. And they also look at mail theft not 

done by postal employees or postal contractors but by criminal 

groups in the neighborhoods. 

So they are more focused outward, we are more focused upon the 

Postal Service. 


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Mrs. EMERSON. So, do you think it is possible to merge these and 

perhaps do more with less? 

Mr. WILLIAMS. What I see in terms of—the early experiment, the 

one where we lost all those hundreds of people and still maintained 

a level of service, gives me hope. We are trying to migrate more 

toward automation and data-mining and the kinds of things that 

make the investigations shorter and richer. So I am hopeful that 

there is still more out there for that. 

I think that having two law enforcement agencies in a department whose mission is not law enforcement is, in my mind, a little 

unusual. I was also the inspector general at the Treasury Tax Administration. And there, the law enforcement agency, the Inspection Service there, became the IG. So that, I have to say, is in my 

mind, that it is a possibility for achieving economies and efficiencies. 

We do have two sets of offices and of the managers and of mission support functions that could be made more lean. And we could 

focus a bit more resources on postal-related matters. Some of the 

mail frauds tend to stray a bit from the mission of the Postal Service. We could curtail those. 

Mrs. EMERSON. Okay. I appreciate that. And this is a portfolio 

that most people wouldn’t anticipate that comes underneath you. 

So that is why I wanted you to explain it. And I really do appreciate it. 

So then, as part of your mission, how are you using your resources, to identify waste and fraud and abuse in the Postal Service? And you were very general about the types of crimes and fraud 

that you all are encountering, but give us a few more examples of 

that. 

So, two separate questions. 

Mr. WILLIAMS. Thanks. 

One large area for the auditors is the preparation of the financial 

statement. We work with Ernst & Young to do that. We provide 

most of the fieldwork, and then they examine that and come up 

with an opinion. So we end up doing the lion’s share of the hours 

that are expended, which is a good deal for them, the government. 

We are far less expensive. 

It is an unusual financial statement, too. For most departments, 

it is just the execution of the budget, but we are watching the 

money come in as well as go out. So it is a large effort. 

We have aligned the rest of the audit resources to each of the 

major enterprises of the Postal Service, whether it is the delivery 

of the mission and the plants and post offices and delivery, or mission support, such as engineering the new automated tools that are 

coming in. 

So we have those aligned—we have fairly small audit teams 

aligned to each of those that are normally headed by a postal vice 

president. And that has been very useful. They undergo the learning curve. And they have it when they walk into the audit; they 

can begin quickly. 

On the investigative side, we have to have a nationwide presence. You mentioned the 37,000 locations. So the auditors can be 

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cally aligned to where the crimes are occurring, the space in which 

the crimes are occurring. 

In the contract area, which has been very large, we have done 

a number of investigations that have focused on—a particularly 

vulnerable area is a multitude of transportation contracts with 

small firms. There has been a lot of dishonesty that we have discerned. 

Mrs. EMERSON. These are third-party contractors instead of Postal Service employees who deliver mail from point to point to point? 

Mr. WILLIAMS. Yes, ma’am. They move the mail across the country, and then the postal workers largely take over once it arrives 

for local distribution. 

Mrs. EMERSON. And that would either be—well, I guess it could 

be by rail, by plane, by truck? 

Mr. WILLIAMS. Increasingly, it has been migrating more and 

more to truck. And I think there are some concerns on the homeland-security side with regard to air cargo, including mail. So there 

has been a fairly substantial migration to trucks. 

Also, trains tend not to go to where we have the mail distribution 

places. So trucking is a very attractive alternative. 

Mrs. EMERSON. Don’t you share resources with Federal Express, 

though, in a lot of the delivery? I mean, as a matter of fact, in my 

district, I have a person who owns, a regional air carrier, I guess 

you would call it, who works for FedEx, but they actually carry 

USPS mail. 

Mr. WILLIAMS. Much of what remains in the air, we have worked 

with FedEx and others to transport that. They are in the air cargo 

business as opposed to passenger, which is much less of a concern 

for the area of terrorism. 

Mrs. EMERSON. Okay. Thanks. 

Mr. Serrano. 

Mr. SERRANO. Thank you. 

Can you take a moment to explain to us in some detail how you reached the conclusion that there was $75 billion of overpayment 

by the Postal Service to the Civil Service Retirement System pension fund and your thoughts on how this can best be resolved? 

And, secondly, this is clearly a complicated issue with huge budgetary impacts on both sides. In the current economic environment, 

what is your advice for getting this matter resolved? 

Mr. WILLIAMS. Thank you, sir. 

We began studying the funds early on after my arrival, and we 

began to see things that didn’t make sense. One of them was the 

moment in which the Postal Service received its own health funds 

and own pension funds. 

They were shifted over in 1970 and 1971. At that point, the Office of Personnel Management said that, ‘‘In the future, you ought 

to collect these fees. We will pay for everything in the past; you pay 

for everything in the future.’’ 

What we discovered had happened is that, in 1971, when that 

began, the exact same contribution began to be made. But OPM decided that they would pay—your final pension is a product of the 

number of years you work and your final salary. They decided that 

they were going to cut off that salary at the 1970 levels instead of 

the retirement levels. 


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Now, they were collecting fees in order to pay at the final salary, 

so there was a huge windfall from them when they stopped. We 

began looking at that and realized, for example, if someone worked 

15 years for the Postal Service and 15 years for the Federal Government, the Postal Service would pay 70 percent of the retirement 

and the Federal Government only 30 percent. Obviously, that 

ought to have been 50-50 given the provisions of the plan. 

So we looked at that and issued that report. And we worked with 

actuarial firms for that expertise. 

The Postal Regulatory Commission came in and looked at it a 

second time, working closely with the committees on the Hill. They 

came up with a very similar conclusion, that that ought not to have 

occurred. OPM collected a full contribution and only paid a partial 

benefit. That, over those years, resulted in a $75 billion overpayment. 

I think it is going to be difficult to know how best to return those 

funds where they ought to have been. It is commingled Postal 

money and people’s private money. But what I would recommend 

is that the money be used—until the surplus is gone—and there is 

a large surplus—they be used to make our annual payments until 

they are gone. That would result in relief to the Postal Service—— 

Mr. SERRANO. And the annual payments are how much? 

Mr. WILLIAMS. The annual payments, all together, are over $10 

billion. So that would pay that entire amount for some years. 

That $75 billion is the largest of the segments, but there are 

other segments of overpayments that have occurred. And they—— 

Mr. SERRANO. By the Postal Service or by other agencies? 

Mr. WILLIAMS. By the Postal Service. For instance, our FERS is 

overpaid by $6.8 billion. And we really need to stop doing that. It 

is causing the infrastructure that is intended for businesses and 

people to be clogged up with extra expenses. 

Mr. SERRANO. Mr. Williams, to your knowledge—and I know that 

you are here to answer questions about the Postal Service, but, to 

your knowledge, have other agencies overpaid, other departments 

in the Federal Government? 

Mr. WILLIAMS. We took a look in the FERS area, which is the 

one I mentioned, the new retirement system that we have overpaid 

in, and it appears as though they collected exactly the right 

amount of money. And we have been unable to solve the mystery 

of how it is that we overpaid and others paid about the right 

amount. 

Mr. SERRANO. And yet, if we were to, say, arrange the fair thing, 

which is return that $75 billion, or use it at this rate to pay dues, 

if you will, the premiums for the next 10 years, it would probably 

then break the system, because other people are living on that, I 

mean, so to speak. 

Mr. WILLIAMS. Both systems were intended to ride separately, 

primarily because, at the moment that they did it, the administration was fearful that the Postal Service would be using Federal employees’ money. 

Mr. SERRANO. Right. 

Mr. WILLIAMS. It turns out that that is not the case. Actually, 

the reverse is more the danger today. 


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They are not supposed to be commingled. They are both supposed 

to stand alone and be collecting and expending responsible 

amounts. The Federal side, something is going on there, and I 

think the IG over there is studying it now. But it ought not to be 

commingled with this other fund. It was set up so that it not be 

commingled. 

Mr. SERRANO. Right. 

I have one more question, Madam Chair, in this round. 

Without significant intervention, the Postal Service will hit its statutory borrowing ceiling of $15 billion and will not be able to 

borrow or pay this year’s contributions to the Retiree Health Benefit Fund. 

What is the impact this September 30th of this impending insolvency? I mean, we keep talking about doomsday, but what will 

doomsday really look like? Do they have to close shop? 

Mr. WILLIAMS. We are anxious to see what that looks like ourselves. No one has ever experienced it before. 

But come September, when we make those payments to funds 

that appear to be overfunded, we won’t just be at zero, we will be 

in the hole by $2.7 billion. And all of the money will have been borrowed. So it becomes very serious at that point. 

I think discussions have occurred and probably need to occur 

with regard to whether to make those payments or not. If they are 

not made, it will allow time to resolve the issue. If they are made, 

it gets very serious. 

I am sure that the Postal Service will try to pay its people for 

as long as possible, but payments to vendors—and, predictably, if 

you look at other companies, payments to vendors begin to get 

stretched out and all sorts of measures begin to occur once that 

level of catastrophe occurs. 

Mr. SERRANO. Thank you. 

Mr. WILLIAMS. Yes, sir. 

Mrs. EMERSON. I am sure we are going to have lots more questions about this, Mr. Williams. 

I am going to call on Mr. Womack to start the next round. 

Mr. WOMACK. Thank you, Madam Chairwoman. 

And thank you, Mr. Inspector General, not only for your service 

to the Postal Service, but the litany of other high-ranking, highachieving positions that you have held, including service to our 

country through the United States Army. So thank you very much 

for your service to our country. 

Mr. WILLIAMS. Thank you. 

Mr. WOMACK. And I may have some other questions later, but 

there are a number of things that rush through my mind when we 

are talking about the fiscal condition that you articulate. And I 

suppose that, at that 30,000-foot level, I think of the impact of this 

new technological age on, say, the use of landline telephone service 

and how it is diminishing over time with cell phone usage. And I 

look at the impact of the media, the new technology on a lot of 

other issues. And, certainly, I believe that this technological impact 

is showing up in your business, as well. 

Maybe this question is more appropriate for Mr. Donahoe or another person in the administrative chain of command, but what are 

we doing to get ahead of change so that—it is almost like we are 


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fighting old age. You can fight it and you can fight it and you can 

fight it, but at end of the day it is going to happen. 

So what are we doing to get out ahead of change so that we can 

reverse the trend that not only plagues the U.S. Postal Service but 

also plagues every other agency in the United States Government? 

Mr. WILLIAMS. That is probably the area that I care most about 

and I am most excited about. 

There has been a hesitancy, and it has been a good bias on the 

part of the government, not to interfere with the technological advance, the march of advance through things. And it has been tremendously disruptive but also tremendously promising and exciting. 

I can’t answer for all those other enterprises. I know a lot of industries have been devastated and changed and evolved. With regard to the Postal Service, though, as I said, I think there are— 

we need to understand this. And we need to become part of that. 

It is not the enemy. The future is not our enemy. But it is misunderstood. And it has been disruptive to date. 

I think there are a lot of things we can do to develop a symbiotic 

relationship between digital technology and physical networks and 

infrastructure of the Postal Service and of others. We need to explore that, though. And we have been standing back for fear of inflicting harm on—and that is a good bias to have. But, at this 

point, somebody needs to begin to study, what is the role of the 

Federal Government in looking out for Americans? We can sort of 

figure out where it is headed now, and we need to do something 

about it. 

At the Postal Service, we haven’t been very good with innovation. 

Our customers have some great ideas, and people that are in the 

digital business have some great ideas. We need to sit with them, 

and we need to make space for innovation. It has been very difficult for someone with an idea to come to the Postal Service. They 

have been rejected. And if they can somehow get in the system, it 

has been lost. We need to make space for innovation. 

And we need to imagine how best—I can give you a couple of examples—how best to work with the digital age to make—this really 

isn’t about whether the Postal Service survives. It only matters 

what America needs. And I think they have some needs in the digital age. I mentioned a few of the problems. We can address some 

of those at the Postal Service, if we will engage with them. 

Debt collection would be an easy one. Debt collection is very 

time-sensitive. If you don’t collect it in the first 100 days, you may 

not collect that debt. Bills are being sent out digitally. It would be 

a good strategy if someone would understand that the best combination, the most effective, is to send out a bill digitally, and if 

there was a delay in the payment, to send it out by letter. Because 

we know that is much, much more effective than digital billing, in 

terms of causing debt to be paid. 

Hybrid mail, where you send it digitally to the point of delivery 

rather than transport it, with all of the problems associated with 

that, and have it printed and delivered locally would save so much 

and be so good for the United States. 

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road tracks in the United States. There would be a set of railroad 

tracks, and it would do so much good. We probably should consider 

last-mile delivery as a decision like that, where all of the deliveries 

go on a single truck. We shouldn’t be taking huge trucks into every 

neighborhood of the United States every day. It is dangerous, it is 

wasteful, and it serves no end. 

So there is a lot that can be done. There is nothing more exciting 

than what is coming at us. But we haven’t been ready for it, and 

we need to suddenly become ready for it. Our entire organization 

is set up for physical mail. We need to make some space for the 

arrival of the digital age. It is late, but it isn’t serious if we will 

do it. 

Mr. WOMACK. My other question is related to the people nature 

of your business. Obviously, with—I think the number is 590,000, 

almost 600,000 employees, it is an extremely expensive enterprise, 

from a people perspective. 

And this question may, indeed, show my ignorance on the subject, and if that is the case, then so be it. But my experience has 

been, when an organization that has a lot of people, particularly 

those that are represented in collective bargaining agreements, begins to hemorrhage, that there are renegotiations or discussions 

about benefits. 

And I have always held the position that, boy, it is best to have 

a job, as opposed to trying to maintain some level of benefit that 

you are used to having, and to run the risk on losing that job as 

a result of some kind of default or fiscal peril. 

Are we renegotiating some of our benefit programs, and are we 

appealing to the people in your organization to help us achieve 

some of the solutions that go right to the heart of our fiscal gap, 

if you will? 

Mr. WILLIAMS. Currently and next year, the labor contracts are 

being negotiated. It would be a very unusual role for me to enter 

into that picture, and I have not done so. But I know that there 

are some exciting ideas being brought to the table by the unions 

and by management. 

With regard to making the infrastructure smaller, that has been 

a huge part of the recent past. We have 112,000 fewer employees 

than we did a couple of years ago. Eleven billion dollars has been 

cut out of the budget. 

And I would say much more of that—we are poised to engage in 

a lot more of that, where we make sure that the plants are carefully aligned to volume and the post offices are carefully aligned to 

demand within the post offices. We know that if you do that, we 

are too large. And I know that there is aggressive planning under 

way to right-size that, to make that a lighter, leaner infrastructure. 

And I know that that is probably going to be the most dramatic, 

visible sign of Postal Service action on that front. But I know the 

labor leaders. One of the gentlemen is here today. And I know that 

they care a lot about this, and they are committed to giving the 

Postal Service and the American public the very best they can. 

Mr. WOMACK. Well, later this month, I will attend a hearing in 

Fort Smith, Arkansas, regarding the consolidation of mail-sorting 

operations to another area. And it becomes a major turf battle. And 

that concerns me, that we should applaud an organization that 


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looks for efficient ways of doing the same amount of work with perhaps fewer people so long as you do not disrupt the timeliness of 

delivery or some of the guarantees. And I know the Postal Service 

has certain guarantees for overnight delivery, this sort of thing. 

So I truly appreciate and respect those. But I do worry about the 

turf battles that we seem to want to fight every time we try to consolidate and become a more efficient organization, which I believe 

gives government the bad name. 

Mr. WILLIAMS. Thanks. 

That has been difficult. And that is a very human instinct. This 

isn’t about good people and bad people. I think that those interests 

need to be expressed and put on the table. But we do need to go 

forward, and we haven’t always done that, with the action that is 

best for the American people. 

I know that people locally feel very strongly, but you are absolutely right, that, to some degree, we have to be resistant to anything other than serving the Americans. And that is going to call 

for some tough decisions with regard to consolidations and creating 

the proper structure and the right-sized structure. 

Mr. WOMACK. Thank you for your response. 

And, Madam Chairwoman, I may have additional questions, but 

I yield back. Thank you. 

Mrs. EMERSON. Thanks, Mr. Womack. 

Ms. Lee. 

Ms. LEE. Thank you very much, Madam Chair. 

Good morning. 

Mr. WILLIAMS. Good morning. 

Ms. LEE. First, let me just say, my grandfather was the first African American letter carrier in El Paso, Texas. This, of course— 

I saw pictures of him—this was before my time, I mean, when he 

was carrying mail by horseback. And he was—— 

Mrs. EMERSON. The Pony Express days. 

Ms. LEE. Pony Express, yeah. And he spoke fluent Spanish. 

And I remember—of course, when I was born, he was retired. 

But I remember his retirement checks coming. And I remember 

how happy we were, I think it was the first of the month, once a 

month—I don’t know how often they come now—because that retirement check helped take care of our family. And so, I shudder 

to think of what would happen or what could happen if the health 

and pension benefits somehow get stuck in this mess, the budget 

mess. 

And so I hope that at the top of your priorities, the top of all of 

our priorities is to make sure that pensions are preserved, health 

benefits are preserved, and that people get their due when they retire. 

Having said that, let me say a couple of things. One is, tough decisions are going to have to be made, but I certainly hope we don’t 

talk about cutting back hours and cutting back staff. Given the economic crisis and the job crisis we have, we need to keep that really, 

I think, off of the table. 

You know, and as we move into—and I know we are behind in 

terms of the digital age, but—and I think about grocery stores now. 

As we move into this new age of technology, you know, they have 

now the computerized checkouts. 


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Mr. WILLIAMS. Right. 

Ms. LEE. Well, I refuse to do that, because I know that is a job 

or two or three that is gone. And so, as we talk about computerizing and coming up into the 21st century, I think we have to 

make sure there is that balance and that we don’t get to the point 

where we are wiping out all of our postal workers and employees 

because we have so embraced technology that people don’t matter 

anymore. 

And so, I know that is a delicate balance, and I know we have 

to get to where we need to get in terms of technology. But I hope 

there are other ways to do that than to shortchange, you know, our 

postal workers and our letter carriers and our employees. 

I wanted to ask you about—well, first of all, stamps keep going 

up, the cost of stamps. I mean, I still go to the post office and I 

buy stamps, because I want to make sure I support the Postal 

Service. But I think the public wonders and I am wondering every 

time I am in the post office, how in the world are we—— 

Mrs. EMERSON. Would the gentlewoman yield? 

You should buy Forever Stamps. Then they stay forever at 44 

cents. 

Ms. LEE. But I am trying to support the Postal Service, though, 

so a few more pennies I am willing to pay. 

But I think the public is going to get to that point, where they 

are going to say, we keep paying more and more and more for 

stamps, and we keep hearing all of these stories about the budget 

deficit and the budget crisis at the Postal Service. So, somehow you 

all are going to have to figure out how to let the public know what 

is really going on as the price of stamps continues to rise. 

And so let me ask you about how you see preserving, though, as 

we move forward, postal services for the most vulnerable populations. There is still a huge digital divide in our country. And we 

can’t forget about these people, because these people who don’t 

have computers, many senior citizens, you know, many low-income 

individuals, many people in communities of color, they just haven’t 

had the resources yet—schools haven’t been able to catch up. 

Mr. WILLIAMS. Right. 

Ms. LEE. So how does the Postal Service intend to preserve the 

valuable services for communities based on what we now are witnessing in terms of the digital divide? 

And then my second question is, in terms of minority vendors 

and minority contractors, how are you doing? Do you have a plan? 

I know Congressman Fattah had requested a diversity plan, in 

terms of the advertising contracts as it relates to minority subcontracting opportunities. I know you do a lot of that. And I would like 

to get some information on how you are doing in terms of contracting with companies—African American, Latino, and Asian Pacific American companies. 

Mr. WILLIAMS. I am sorry, I just had a senior moment, I think. 

Can you give me the first question again? 

Ms. LEE. Regarding the digital divide. 

Mr. WILLIAMS. Thanks. 

Ms. LEE. How are you going to preserve services for the most 

vulnerable populations, who are still stuck with the problems 

around the digital divide? 


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Mr. WILLIAMS. Thanks. 

I think the Postal Service might be best situated. Today, I do 

worry about people in small towns and rural areas and also in 

large cities, in neighborhoods that are underserved by banks and 

by digital kinds of services. I think the Postal Service might be the 

best hope for making—well, I am sorry, I worry about them today. 

Tomorrow I worry about a much larger group of people. We are not 

sure where this is all headed. 

But the Postal Service’s primary mission of binding the Nation 

together and remaining inclusive and making sure nobody is left 

behind is going to become very, very important. It has always been 

important, but I think it is going to be crucially important. 

Increasingly, I think people in service jobs and at the lower end 

of the income spectrum are going to be paid with value-stored 

cards. There is not capacity, particularly in those areas, rural and 

urban areas, for turning those into cash. I would love to see the 

Postal Service expand its current money-order enterprise in order 

to make banking available to people that have no banking. 

I also think that it is important that we remain—— 

Ms. LEE. As long as we don’t charge 20 or 30 percent like payday 

loan scam artists do. 

Mr. WILLIAMS. In my statement, I alluded to predatory practices 

that are seen now. I think those are going to seriously expand if 

something is not being done. If there was an alternative and we 

were that alternative, that would serve—efficient market forces 

would cause that kind of predatory practice to disappear. 

With regard to multichannel communications, I think, as the digital age begins to shut down and darken the possibility of receiving 

your bills in the mail and so forth, it becomes important for the 

Postal Service to be there to make sure that people have choice, 

and also, particularly where their choices are limited, that we are 

there for them. 

And so I think we are about—I hope we have always been important, but I think we are about to serve a very important role with 

that lengthening trail of digital refugees. It is just in its infancy. 

We don’t know where it is going. And I love the leading edge, but 

I care about the people that are left behind. And that could be 

something that we are important in helping. 

Ms. LEE. And minority contracting? 

Mr. WILLIAMS. Minority contracting, I know that the Postal Service is not subject to either small business or minority contracting. 

I know that voluntarily they have turned to that, they have adopted some of the practices that the departments have with regard to 

attention on that. 

I know that they have a fairly good record, certainly with regard 

to the other departments, with regard to our hiring and promotion 

practices. We focus mostly on that. The—— 

Ms. LEE. But you spend a lot of money in advertising. 

Mr. WILLIAMS. Yes, there is. There is a tremendous amount. And 

it hasn’t always been a competitive process. So there is progress 

that ought to be done there. 

If we may, so that we understand better, we would like to come 

and meet with your staff, and we will engage in a body of work 

that focuses on your question. I have to admit that it hasn’t been 


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an area where I have gained a lot of knowledge. It is also possible 

someone in my office knows more about it than I do, and we will 

send you a note. But I have a feeling that what we really ought 

to do is a body of work for you. And, if we may, we will contact 

your staff. 

Ms. LEE. Okay. I would love to work with you on that. And thank 

you very much. Good to meet you. 

Mr. WILLIAMS. Yes, ma’am. Good to meet you, too. 

Mrs. EMERSON. Thanks. 

Mr. Yoder. 

Mr. YODER. Thank you, Madam Chairman. I appreciate the opportunity to have a chance to have this conversation with the inspector general. 

I do want to note, Madam Chair, that I was just sitting here for 

a second reminding myself of 1985 and the World Series. If you will 

recall, the Kansas City Royals and the St. Louis Cardinals played 

a seven-game series. And I don’t quite remember the outcome—— 

Mrs. EMERSON. I was going to say, how old were you? 

Mr. YODER. I don’t quite remember the outcome, but I wondered 

if the chair could remind the committee what the result was. 

Mrs. EMERSON. I know. I do have a husband who is from Kansas 

City, so I hear it all the time. Yes, the Cardinals lost, and barely 

lost, but that is beside the point. 

Mr. YODER. Thanks for reminding us of that, Madam Chair. 

Mr. SERRANO. That is one way of making money, if you do a 

stamp for the Kansas City Royals. 

Mr. YODER. There you go. We will do it. 

Sir, I appreciate your comments and your testimony today. And 

I have been listening to the dialogue from the members of the committee. And I take particular note of the debt that the Postal Service is under. And it appears, in 2010, there is a deficit of $8.5 billion. 

I guess I would like a little bit more information on how this deficit—how it works, what the process is, what the accumulation is, 

is there an overall debt that is accumulated over time, what the 

procedure is for having that paid back, and who is ultimately liable 

for that debt—— 

Mr. WILLIAMS. Yes, sir. 

Mr. YODER [continuing]. As we go forward. 

Mr. WILLIAMS. In a word, the entire debt was accumulated because of the mischarges made against the Postal Service to its benefit funds. I believe 90 percent of the $20 billion came directly from 

having to pay those funds, which were not owed. 

Here is how the debt accumulated. It began in earnest in 2008, 

where we went $2.8 billion; in 2009, $3.7 billion under; 2010 was 

the worst, $8.5 billion. And we are looking at a shortfall of $6.4 billion this year. Our payments into that fund are $10 billion, so I 

think you can see how I got there. 

It is important to try to maintain some sort of a liquidity, as 

well. The Postal Service’s aim is to try to have 30-day liquidity, 

which is $7 billion. The leading experts—and J.P. Morgan did a 

great study on this—is about 50 days. So it is quite modest. We 

haven’t had that for a while, and it is going to get very serious. 


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We have a lending limit of $15 billion. We are going to hit that. 

We are over $13 billion now, and during the year we are going to 

hit the max. We can legally borrow no more money. 

If somehow you closed your eyes and opened them on a Postal 

Service that was gone, we would easily be able to pay that back. 

In fully depreciated property, we have $20 billion. So the money is 

not at risk, but it is very, very serious with regard to continuing 

the operation as a going concern. 

Mr. YODER. Well, how does it get paid back going forward? We 

are not going to liquidate all the property of the Postal Service. 

Mr. WILLIAMS. No, no. 

Mr. YODER. So, clearly, it is secured by those assets. But how do 

those last few years actually get paid back? Are you looking for 

congressional legislation that would fix the overpayment of benefits? Is that what we need to do here? 

Mr. WILLIAMS. There are a number of pieces of legislation, some 

from your committee, that are aiming at correcting this. 

The Postal Service needs to be saved from the Federal Government. And I can’t imagine anybody except you that is going to do 

that. We are being victimized. We have to get out from under it. 

It has now caused the price of stamps to go up, it has caused the 

system to break down. We can’t borrow any more money. And it 

is all about that. 

Mr. YODER. Well, and that is interesting, because we had some 

dialogue here about the innovation and the efficiencies that need 

to be gained. And it sounds like, regardless of the $8.5 billion deficit, there are going to be moments in the future where, regardless 

of the pension situation, that the Postal Service is going to have 

to change how it operates. Is that correct? 

Mr. WILLIAMS. Yes, I strongly believe that. I talked about some 

of the measures that need to occur in my testimony. Optimization, 

right-sizing the organization for the amount of mail coming 

through and the number of people coming into our Post Offices are 

important also. 

Mr. YODER. But is there a projection, unrelated to if the pension 

overpayment was fixed, are there projected deficits moving forward? 

Mr. WILLIAMS. The new Postmaster General is working on a plan 

now that will allow the cuts to zero out the losses that are occurring. It can’t occur tomorrow, though. I think his efforts are directed at a further horizon. It is very timely, it is very strong action. The early actions he has taken are very decisive. So that is 

all going to help. 

But, really, what we need is for that infrastructure to be as lean 

as possible. Regardless of whether we are making money or losing 

money, we need to get that down as lean as possible for the sake 

of the businesses and the citizens. 

Mr. YODER. I guess that is what I am trying to understand. We 

have the pension deficit, or the deficit that is created by the pension overpayment. But if that matter were to be fixed, what are the 

projected deficits that require the post office to innovate? 

Because my assumption is, if their books are balanced, that there 

is not going to be a necessity that would create the need or the deVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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sire to change how business is done. So is there a projected deficit 

after this retirement concern was fixed? 

Mr. WILLIAMS. If the retirement issue was fixed, there would be 

no deficit. As a matter of fact, for some time there would be additional funds available to address the debt. And then, beyond that, 

I think you need to combine it with some other actions, just because we want to be the best that we could possibly be. But correcting the benefit fund overcharges and raids would remove the 

problem in the near term and allow us to pay back the debt. 

We do need to optimize. We need the right number of post offices 

and plants. We need a delivery point strategy in the United States 

where, instead of all these historic accidents with regard to how 

your mail is delivered, if there was a strategy for either delivering 

mail to the curb or in collected housing areas to a cluster, that 

would be several billion dollars. There are all kinds of levers we 

could pull, and are in the process of beginning to pull, that would 

make this much better. 

But we also need that last digital piece. We need to come into 

the 21st century. 

Mr. YODER. Well, as the Postal Service looks to reduce expenditures, you know, there have been closures in our community of 

postal offices. The chairwoman noted the 37,000 facilities nationwide and the 590,000 employees. What do you see as the optimal 

amount of facilities and the amount of employees? 

And is that 590,000 and are those 37,000 facilities, where do 

those rank in terms of—you know, how has this gone over time? 

Are we at a high point, or have we eliminated facilities over time 

and that is a lower point? 

And the same thing with the postal employees. Is 590,000 a high 

point, or have we been higher than that? And what does the future 

hold for the amount of Federal employees we need to disseminate 

the mail service in this country? 

Mr. WILLIAMS. It was much higher than that. There was a time 

in which I believe I am right in saying there were 800,000 employees. So it has come down. I would say, by the time we arrive at 

the proper number, it will come down further, almost certainly. 

With regard to the reduction of the plants for sorting, there has 

been a fairly vigorous removal of the small facilities that surround 

our large sorting facilities, which are called P&DCs. There hasn’t 

been much progress in closing P&DCs, but I would say that that 

is coming. We have done many studies of the throughput of the 

mail. We know how many that is going to require. And I would say 

that there is plenty of room for further reduction of those plants, 

while assuring that the service to the public remains the same or 

better. 

With regard to the post offices, we think probably about a third 

of those need to be validated with regard to whether they ought to 

continue or not. Generally, in the smaller areas, it appears that we 

have too many in certain places. They are stacked a mile away 

from one another. In the cities, there appears to be about the right 

number, but they need a few more windows. 

So we need to make some adjustments, but, at the end of the 

day, it is going to be smaller. It ought to be. If you look at other 


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people in the business—drug stores, grocery stores—it is very instructive, and it is a much more compact infrastructure. 

Mr. YODER. And lastly—and I appreciate you, sort of, helping us 

understand this—there has been some concern or there has been 

discussion about 6-day delivery. People ask me about this issue a 

lot, or it comes up from time to time, I guess. 

Is that being actively discussed in the Postal Service, moving to 

a 5-day delivery? What is the prognosis on that? And what would 

be your recommendation? 

Mr. WILLIAMS. They are looking at it right now at the Postal 

Service, but we stood back from looking at it because it has gone 

to the Postal Regulatory Commission for examination. The kind of 

examination that we would normally do is by legislation given to 

the Postal Regulatory Commission. 

They are very close to issuing their report on the issue of 5 days, 

whether to allow it or recommend against it. 

Mr. YODER. And do we know what their report is going to be? 

Mr. WILLIAMS. We do not. 

Mr. YODER. And who ultimately makes that decision? Is that a 

decision that Congress has oversight over, or is that a decision that 

the Postal Service makes? 

Mr. WILLIAMS. I am going to have to refresh my memory with 

regard to whether there is a final congressional approval required. 

But I know that the Postal Rate Commission—a lot of deferral is 

being made to the Postal Rate Commission’s decision on this. And 

I would say that a lot of the action is going to surround that. 

After that decision—I have a great staff here—after that decision, it will require congressional action. 

Mr. YODER. It will require congressional action to change from a 

6-day to a 5-day delivery? 

Mr. WILLIAMS. And if I may, I will send you kind of a detailed 

note concerning that and exactly what would be required. 

Mr. YODER. I would appreciate that. Thank you, sir. 

Thank you, Madam Chair. 

Mrs. EMERSON. I might inform our colleague from Kansas that, 

traditionally, our bill contains a rider preventing the Postal Service 

from going to a 5-day from a 6-day. And your chairperson is in 

favor of keeping it 6-day for the moment. 

And I am going to interrupt, because I know it is Mr. Bonner’s 

turn. But here is a problem. There are so many ways, in looking 

at the organizational chart of the Postal Service—and I want to go 

over this with you—there is so much room for efficiency. Too many 

high salaries, too many layers of management, that does not impact your customers and should be addressed before any kind of reduction in service, particularly when you think about the fact that 

there is so much mail-order pharmacy, for example, that if there 

is a 3-day holiday and you all aren’t delivering mail on the Monday 

for that holiday, and I am a senior citizen and I am waiting to get 

my 90-day supply of medicine, we got big trouble here because I 

can’t get it if I am going to run out on that Monday. 

And so, how do you deal with those types of issues? And, unfortunately, there is no other way other than through the Postal Service. 


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But, anyway, I want to ask you about those, and I will let Mr. 

Bonner go. Thanks. 

Mr. BONNER. Thank you, Madam Chair. 

Mr. Williams, I think we all associate with Mr. Womack’s earlier 

comments, in reading your bio, not only for your distinguished 

service, Bronze Star in Vietnam, but I think, by my staff’s unofficial count, some 10 different Federal agencies and departments 

that you have worked in, many in senior positions, as you are in 

today. Thank you. It was incredibly impressive. 

Mr. WILLIAMS. Thank you, sir. That is kind of you. 

Mr. BONNER. I am going to try to focus on three quick questions 

that I would just like your experience on. 

Having been at these different departments and agencies, and 

now in the senior position that you are in with the Postal Service, 

how do the problems and the challenges of the Postal Service differ 

from some of the other government agencies and departments that 

you have served in? And are these differences of kind or differences 

of degree, or are they both? 

Mr. WILLIAMS. There were two departments that are very like 

the Postal Service, in my mind: the Social Security and the Internal Revenue Service. 

They both have ranks of senior people that have been with them 

their entire careers. I think all of them could probably benefit from 

the introduction of new people into their ranks. Now, true, there 

is a very difficult learning curve also, particularly at the IRS and 

at the Postal Service, for newcomers. But the infusion of new ideas, 

I think, would be something that would help all three of those departments very much. 

There is a surrogate for that. You can begin active dialogue with 

the stakeholders and bring them in and get ideas from the entire 

world. It has never been easier. And the digital age is part of the 

reason. You can have blogs and forums; you can have people come 

in. You can have a very strong, clear way of inviting outsiders in 

to bring in new ideas and the best ideas. 

And I think that probably the Postal Service is in that category 

of depending too much on ‘‘if it is not invented here, it can’t be 

worth anything,’’ and of throwing their arms open to other people 

in the digital business and among our own customers, in looking 

at new product lines. It would make things a lot better. 

We are not in the business of protecting and defending the existence of the Postal Service. We are in the business of taking care 

of Americans. And if we forget for even a second, we have missed 

the entire point of our existence. 

Mr. BONNER. Well, that is a great lead-in to my second question. 

How receptive has the Postal Service been to your and your staff’s 

suggestions and recommendations over the years? 

Mr. WILLIAMS. They have been more receptive than any place I 

have ever been. Usually, there is sort of an arm’s length; here I am 

sort of being dragged behind the rapidly moving vehicle. 

When we complete studies of the plants and we look at closures 

and consolidations on the part of Congress, the Postal Service takes 

it to the bottom line before we can put it in writing. And they are 

constantly demanding that we look at important issues. I have 

never been so close to the heartbeat of an organization. 


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And I think it is probably because of the crisis. I don’t think 

those other people were bad and these people are angelic or anything, but they do business here. They can’t spend any money if 

they don’t make that money. And so, there is a very different feel 

here with regard to its auditor. They want to cut costs; they want 

to look for new opportunities. 

And I have enjoyed it here, I obviously have. I have stayed for 

a while, and I never do that. 

Mr. BONNER. Well—and I don’t mean to cast a blanket critique. 

That is not fair when people do that of Congress; it is not fair to 

do it of the Postal Service. I would love, though, for the tone upon 

which you have responded just to this panel’s questions, the assurance you gave Ms. Lee about getting back in touch with her, and 

other Members, I would love to think that that customer service, 

that we exist but for the taxpayers of this country, were more readily noticeable. 

I will give you a quick example. And, again, this isn’t fair. It certainly doesn’t fall under your purview. But my wife and I were 

going to take our children on a trip overseas. I am from Mobile, 

Alabama, the greatest city in the world, other than the great cities 

that are also represented at this table. 

And so my wife took the passport applications to the Postal Service window at the downtown post office in Mobile. And after waiting in line for 45 minutes, there was only one other person in front 

of her. The clerk took a break, came back, and said, ‘‘Well, where 

is the father of these children?’’ And she said, ‘‘Well, the father is 

not here today.’’ And she got into about a 20-minute argument 

about the fact that I needed to physically be there to sign a piece 

of paper or to vouch that the children were there. Well, guess 

what? I was here. I wasn’t there. 

So the answer that the postal clerk gave to my wife was, ‘‘You 

know what, ma’am, you just need to call the congressman.’’ And 

she said, ‘‘Well, actually, I sleep with him, so I will be happy to.’’ 

I am not trying to embarrass anyone back in Mobile, I am not trying to embarrass my wife on Valentine’s weekend. 

But the point is this. I spent a day with one of the other package 

delivery firms—I won’t call their name. As unpopular as Congress 

is, they might not want us saying that we spent a day with them. 

But it was fascinating, unloading that cargo, those packages, off 

the plane at 5:00 in the morning, getting in that truck, putting on 

the uniform with shorts and brown socks—— 

Mrs. EMERSON. I did that, too. It was fun. 

Mr. BONNER [continuing]. And driving all over. But down to the 

point of knowing how many right turns they are going to make so 

that they can more efficiently manage their gas and make sure 

that their timing is right and that they get back in. 

I would love to think that, both from a customer service spirit 

and also an efficiency, when you have the kind of deep hole that 

the Postal Service is in financially, that there would be a new esprit de corps that would be coming from the top down and from the 

bottom up that would say, this is a really—as you noted in your 

testimony and in answers to the questions, the challenges of the 

digital age and coming into it, the Postal Service can either embrace it and lead on it and become a vibrant part of the fabric of 


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this country for the next 100 years, or it can go the way of the dinosaurs down at the Smithsonian Institute. I think we all hope 

that it is the former, not the latter. 

But I really do salute you for the example that you have shown 

today. And I hope that others in this room and others around the 

country see that this is not an individual, but this is a reflection 

of an attitude that needs to be adopted at all levels of government, 

not just the Postal Service—certainly here in Congress, as well. 

I promise you one thing. If my staff told a constituent who called, 

‘‘Well, you need to call the Senator’s office; we can’t help you,’’ then 

these 2-year terms would end much sooner for us than they do 

for—anyway, thank you very much. 

Mr. WILLIAMS. Yes, sir. 

If I might very quickly, that is a very disturbing story. The new 

Postmaster General has set out the customer experience—he set 

out as a goal to substantially improve the customer experience. 

And it is problematic in places. 

And there are many other instances where the opposite is the 

case. During Katrina, postal workers from their own funds fed and 

made sure water was supplied to elderly customers and things. It 

is all over the board. 

But he is committed to make that steadfast and much improved. 

The other thing is, we have too many post offices. As those come 

together, we want them to be more full-service. We don’t want postmasters to go to lunch together and close the place down for 2 

hours. So that is a goal, too. 

With regard to the trucks that—Pat Donahoe has just asked that 

we begin looking at smart trucks, ones that can be part of the digital age and can operate with unparalleled efficiency. Someday, we 

hope our competitors come and compare themselves to us in that 

area. 

Mrs. EMERSON. Thank you all. You did do a great job, I must 

say, on the Christmas commercials with the flat-rate boxes, I must 

say. 

Mr. WILLIAMS. Thanks, I liked those, too. 

Mrs. EMERSON. Hopefully the advertising agency did not charge 

too much, but it really was quite good. 

Let me ask you one question and then I want to get back to the 

whole management structure within the Postal Service. So, on the 

retirement fund issue, your office says that it is a $75 billion problem. And the Postal Regulatory Commission says it is a $50 billion 

to $55 billion problem, and that is a fairly significant difference. 

Are you all basing those on different actuarial bases? Why is there 

such a discrepancy? 

Mr. WILLIAMS. The regulatory commission acknowledged that the 

way we computed it, they could see how we would get there. I 

think they were trying to adopt a middle ground and one of moderation. That is—I think that the Postal Service is trying to do that 

as well. And so a lot of the savings are revolving around the Postal 

Rate Commission’s more moderate figure of the 55. 

I do want to point out, though, that that is not the only problem that exists. FERS, as I mentioned, is overfunded by some $6 billion. And then the rate of inflation we believe that OPM has set 

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ment entities. The delta is 5 versus 7 percent, which is another $6 

billion. There are a lot of corrections that need to be made. 

What I would most like to see is that the Postal Service make 

a proposal to Congress with regard to its pension and health funds, 

rather than have it imposed by OPM. When we benchmarked pensions, we discovered that the gold standard was 80 percent, not 100 

percent prefunding. And for health, it was 30 percent, not 100 percent. And if you look at OPM’s own prefunding, it is only 40 percent. It is far below the gold standard for pension and it is zero for 

health. I am always suspicious of someone saying I have a fabulous 

idea for you, but I don’t want any part of it. That is basically what 

we are suffering under. 

Mrs. EMERSON. I am going to play the devil’s advocate and ask 

you this question. That is, I believe, that the Congress has passed 

legislation twice within the last decade—2003 and 2008—to address obligations, health benefits funding and the like, but yet here 

we are back again. So what promises could be made that hypothetically if we were to—okay, arrive at some figure of overfunding 

and it was fixed, how can you assure us that is not going to happen 

again, since we have already dealt with this twice in the last 10 

years? 

Mr. WILLIAMS. Actually, what we are seeing are a series of errors 

on the part of OPM that are quite serious and congressional action 

earlier addressed those errors. We hope they were errors. We hope 

they were not intentional. But we were seriously overcharged earlier. When I arrived, those had already occurred. But we saw that 

things still weren’t right. 

I don’t know if there is more there or there is not more there, 

but no one is asking for—no one is asking for relief or a bailout 

or a penny to be given to us. The Postal Service is trying to look 

for a competent way to run its benefit plans, which we care very 

much about, as does Congresswoman Lee. That has not been the 

case. I am wondering if it is time for OPM to step away from the 

plate and let someone come in here that is able to construct a 

model of a world-class pension and health care fund, because I 

know it would be much more reasonable than it is today. 

Mrs. EMERSON. Do you believe that OPM actually has the authority to recalculate? Because OPM does not think they do. But 

you all believe that they can do this without legislative action? 

Mr. WILLIAMS. I do. I don’t know if they ever said they didn’t 

have the authority. They said they didn’t want to; that there are 

lots of ways to do those things and they are doing it one way, and 

if someone wants them to do it differently, then they should be 

told. Not to try to do it on their own. They are awaiting instructions from legislation. I believe they do have the authority. 

Congress has now, based on this bad information that they had 

received, the Postal Accountability and Enhancement Act did structure payments, and that would require congressional action to stop 

those once we realize that an error has been made. 

With regard to correcting the error, I think all of us feel that 

OPM can—I believe OPM does, too. The difference is whether they 

will and should. They are telling us they would rather be told to 

do it rather than do it on their own. 


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Mrs. EMERSON. Okay. That is something we need to explore more 

fully with the authorizing committee. 

Back on the whole management structure, I was pleased to hear 

in your testimony that the Postal Service was going to reduce the 

number of regional offices from 74—I don’t know how many they 

plan to have, but I still don’t understand why we don’t have one 

per State and one for each of the territories. I just want you to notice that I have begun to use ‘‘the territories’’ every time I mention 

the States for the last 2 years. 

Mr. SERRANO. And I appreciate that, really. 

Mrs. EMERSON. You really do get used to it and that, I think, is 

a very important distinction that we all should make, Joe. 

Mr. SERRANO. Yes. And let me say publicly that you were very 

supportive the last 4 years when it really started. We started pushing that in the last 4 years. We have all of these folks, and when 

I look at—— 

Mr. WOMACK. I didn’t know the Bronx was a territory. 

Mr. SERRANO. And here I was going to praise you. I was going 

to say that no one more than those who have been in the military 

understand and respect the folks in the territories, because they 

served side by side with folks from the territories. So that is one 

thing, you know, that we always ask around here: How are you 

treating the territories? Because they seem to be an afterthought. 

But I am still praising you. The Bronx is a State all by itself. 

Mrs. EMERSON. So anyway, the idea of having 74 offices to me 

is ridiculous. And somehow I think that there are much more efficient models. For example, we have two in Missouri. I have one in 

Kansas City and one in St. Louis, and even though my district is 

closer to St. Louis, Kansas City has jurisdiction over all but one of 

my counties. It is ridiculous, it is stupid, and it is inefficient. 

And just the management structure at the local level, it is crazy 

as far as too many different people trying to tell people what to do, 

instead of having just much more defined reporting assignments. I 

spent a lot of years in the private sector so I am sensitive to that 

sort of thing. 

And then at the D.C. headquarters, I am aware that a lot of the 

senior management folks who are out in the field have been 

brought back to management so that senior management at the 

D.C. headquarters will say, yes, we have reduced the number of 

people out in the field. And so it just seems to me—I wanted to 

ask, have you all actually looked at organizational structure? 

Mr. WILLIAMS. We did a study of the areas and districts. And 

also if you looked at this structure, it is going to remind you of the 

government. And it did go back to a time when we were part of 

the government, particularly with the area structures. 

We did a study and we said that the number of districts ought 

to be—the districts are the lower level, the areas are the higher 

level—that the number of districts needed to be looked at, and we 

recommend that we have sort of a modest and increasingly aggressive reduction in those numbers. 

With regard to the areas, those are a bit of a historic artifact, 

and we recommended that some thought be given to whether those 

could all be brought back to Washington and joined together for 

messaging. For one thing, it invites fiefdoms, and everybody does 


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it in a different way, which is as expensive as it can be. And it is 

personality based, where based on somebody’s code of ethics, they 

are treated differently than they ought to be. 

So the reason for them has been, of course, command and control. It is a huge organization. It is still 600,000. But we see that 

a lot of the messaging that goes down and that goes up could be 

automated, and we think that if the data, the performance data 

were automated, many of the physical things that occur, and the 

meetings that occur, and the time that it takes from postmasters 

and from plant managers would be reduced if it was an automated 

environment. 

Mrs. EMERSON. Well, and certainly with the digital age, if you 

will, and the sophisticated machinery that you use for sorting and 

the like, certainly I believe those area offices are probably obsolete. 

Do you happen to know how many people work in the Government Affairs Department of the Postal Service headquarters here 

in Washington, D.C.? 

Mr. WILLIAMS. I am going to look to the staff and ask them. It 

is about 50 people. 

Mrs. EMERSON. And how many—and what do those 50 people do? 

Mr. WILLIAMS. The job of the office is to manage correspondence 

and then visits to the—— 

Mrs. EMERSON. And how many pieces of correspondence does the 

Government Affairs Department average a year? 

Mr. WILLIAMS. I don’t have that information. 

Mrs. EMERSON. Can anybody tell me? 

Mr. WILLIAMS. We can’t tell you today, but we will do—if we 

may, we will come and sit with you and look at that. We have not 

looked at it and we would be happy—— 

Mrs. EMERSON. I would appreciate it, given the fact, just to give 

you an example, I think we are pretty lean and mean in our offices 

and we average 1,500 e-mails or letters a week. And I have three 

people and a quarter to do that, to answer them within a turnaround time of, I don’t know, 3 to 4 weeks, because sometimes we 

get backed up. And all of those people attend all of my committee 

meetings. 

I guess my point is 50 is outrageous, because I bet you you all 

don’t have as much mail as I have in my office on a monthly base— 

on a yearly basis. I would bet that. So I would really appreciate 

you getting back to me on that. It is a little thing, but it is annoying, because to me your face is out there, out in the public in our 

communities. And I love my post offices, and I love most all of the 

people who work at them, and the people who deliver the mail, et 

cetera. But that is where you really need to be. Obviously, you 

have got—but I think you are real heavy here, and I would certainly like to see much more management efficiency here to start 

helping to reduce costs there. And go ahead. 

Mr. WILLIAMS. We will be happy to undertake and will meet with 

your staff right away to do that. To be fair, I should say in the 

early hours of the new postmaster general’s time after coming on 

board, he reduced the number of direct reports that he had. He reduced the layering of Senior Vice Presidents overseeing Vice Presidents. He did away with that. And he also tried to, in addition to 

making the place more lean, he did try to align the place more to 


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the mission and to the customers, to make it clear that that alignment was strong. So it has been started. 

Mrs. EMERSON. That is good. And he is a very nice man and I 

know he has got a tough job to do. But there was a job I think advertised—you have a head of Government Affairs, and suddenly 

somebody was going to get hired above her at $250,000 a year. 

Mr. WILLIAMS. That is true. That is—— 

Mrs. EMERSON. She was perfectly good at what she did. 

Mr. WILLIAMS. That clearly is a piece of the solution to this. 

Mrs. EMERSON. That is why a very, very detailed and close examination. And I know at one time PriceWaterhouse or somebody 

came in and tried to do something to make it more lean and mean, 

and I thought it was still excessively bulky. But that is from personal experience. 

I also recommend, and I know that Steve will be happy if I say 

that, if you look at the way that Wal-Mart does its distribution system and it moves things around this country. They do it in a very 

cost-effective way, but a lot of what they do is what you do. And 

so there are some lessons to be learned that to me would make 

good sense just for purposes of trying to save money. 

Because the easy things are, yeah, we will go to 6-day delivery. 

Okay. We will close all of these rural post offices that are the heart 

and soul of a community, when, quite frankly, if it cost $100,000 

a year to run, you got people making 800,000 bucks a year at the 

Postal Service, and so let them take a pay cut and leave a post office open. I just don’t think the decisions—you are picking easy— 

not you specifically, but easy things are being picked; but the hard 

decisions are it is way too top-heavy with management, just from 

what I have seen of your organizational charts. 

Mr. WOMACK. If the gentlelady would yield for just a minute. 

Good point, Ms. Emerson. 

A few years ago, while serving as a mayor of a city of about 

50,000 people, we had a catastrophic failure on an automation platform system involving our courts. It was a serious issue. And rather than being tempted to throw a lot of money at the problem from 

my job as a mayor into a major IT fact-finding mission and potential solution, I turned, as the gentlewoman has just recommended, 

I turned to the private sector. And in this case it was J.B. Hunt 

Trucking, not because of the heavy computer assets involved in a 

logistical perspective, but I turned to the J.B. Hunt Corporation, to 

people in that entity, and asked them if that was their problem, 

how would they solve it. And I was able to fix a problem a lot faster because the private sector knows how to do this stuff in a much 

more efficient way than we in government ever hope to be able to 

do that. 

And that is why I think that she is on to something here. That 

when we are looking for solutions, are we indeed looking into the 

private sector to people who have these logistical frameworks already established that do some of the same things you do? And are 

we, shall we say, plagiarizing some of that effort? 

Mrs. EMERSON. No need to reinvent the wheel. Stealing good 

ideas is smart business in my opinion. You know, not intellectual 

property, but rather if somebody has a good idea, it saves me from 

having to think about the idea. 


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I want to ask you one more question. And—oh, I want to know 

if it is true. Is it true that the Postal Service actually has vehicles 

made specifically for it, as opposed to buying platforms from General Motors or Chrysler or Ford? Does it actually design and have 

trucks and/or other vehicles made for it, as opposed to—not anymore? Okay. 

Mr. WILLIAMS. The idea is to build the box on top of an—— 

Mrs. EMERSON. Of an existing platform? 

Mr. WILLIAMS. Ford or General Motors. 

Mrs. EMERSON. When did they stop actually having them made? 

Do you all know? 

Mr. WILLIAMS. About 20—I arrived after that occurred. As long 

as I have been there they have used—— 

Mrs. EMERSON. They have actually used the existing platform. 

All right. That is good. Mr. Serrano. 

Mr. WILLIAMS. If I may, I would like to say that my office—and 

a lot of it has been at the request of Pat Donohoe, having engaged 

in benchmarking, and UPS and FedEx have both been great about 

joining in that. Target department stores have some fabulous inventory techniques along with Wal-Mart. There is a lot to be 

learned, and they have done great stuff and we are trying to understand it. 

Mrs. EMERSON. That is good to know. Seriously, it really is easier, because they will give you advice for free and you don’t have 

to pay an expensive consultant to do it. 

Mr. WILLIAMS. They have, and sometimes they are more real 

world than the consultants are. 

Mrs. EMERSON. Consultants just want your money. 

Mr. WILLIAMS. Yes, I think you might be on to something there 

as well. 

Mrs. EMERSON. Mr. Serrano. 

Mr. SERRANO. The good news is that President Mubarak has 

stepped down. I don’t know whether to believe that or not. He steps 

down more times than Jack Benny celebrated his 39th birthday. 

Mr. WOMACK. He is probably scuba diving in Sharm el-Sheikh. 

Mr. SERRANO. Yes, probably. Every so often in these hearings, we 

say something which brings about another discussion. And so after 

hearing you and after hearing Mr. Womack comment on the private sector, I guess it is my duty to say, yes, I think we have to 

always consult with the private sector. I mean, be supportive of it 

so it grows. And we have to consult with academia and make sure 

that they are included. 

But I think what we have to be careful about, especially in the 

next couple of years as we get more and more folks who say that 

the private sector is the way is that while the private sector has 

played a major role in building the country that we have today, it 

wasn’t the private sector that said that children should not work; 

it was government who said that there should be a child labor law. 

It won’t be the private sector that will care at times too much 

about whether the rivers are clean or who is dumping into them. 

It was government that stepped in. It was not the private sector, 

for the most part, who said you shouldn’t work more than 40 hours 

a week and you should have certain pay. It certainly wasn’t the 


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private sector who, on their own, volunteered to treat minorities 

and women better; it was government. 

So I think it is important, perhaps more than ever, to say the 

private sector and our universities have to play a role. But you 

know, there is something for government to do. And which invites 

me to say something I have been rehearsing recently, I want to try 

it on you. I am sick and tired of hearing TV reporters saying, Go 

up to a businessman and say if you ran your business the way the 

government runs theirs, what would you have? And then they 

would say, We would be bankrupt. 

Well, if they ran their business the way we run ours, they would 

have a business that has been around since 1776, that has been 

the envy of the world, that played a major role in stopping Hitler 

and the Nazis from taking over the world, that every so often 

checks on itself, looks back and corrects past injustices, and whose 

doors are still being knocked on a daily basis by people who want 

to come into this place. 

So government has problems. But you know, for a couple of hundred years now, we have created a pretty good place that a lot of 

people want to be a part of. In the process of making it better, let’s 

not throw out government. Because if you let the other guys do it 

alone, it could be a mess. 

Mrs. EMERSON. Will the gentleman yield? 

Mr. SERRANO. Sure. 

Mrs. EMERSON. Please note that I was not at all talking about 

changing the governmental function of the Postal Service. I was 

suggesting that they get free advice from a distribution system that 

actually works as to how to make themselves more efficient. So it 

was not replacing the government with the private sector. 

Mr. SERRANO. I understand that. And I understand Steve 

Womack’s statement, which I take very seriously, that he had the 

ability and the vision to say it doesn’t have to be government; let 

me go see how they do it. And he accomplished it. I just know that 

there is a sense in this country right now, by a small group but 

a very vocal group, that we don’t need a government. 

Mrs. EMERSON. Well, I disagree. I agree that there is a group 

that are—— 

Mr. SERRANO. There are people that are asking a President to 

step down because they want a government that looks like ours. 

Trust me. 

Mrs. EMERSON. Joe, I don’t disagree with your statement. You 

did a nice job on that statement. I liked that. You practiced it well. 

Mr. SERRANO. I did. I have a Spanish version of it, too. 

Mrs. EMERSON. Let’s see, we are willing to listen to that too. 

Mr. SERRANO. Before I ask my last round of questions here, in 

defense of the Postal Service, my understanding is as to Mr. 

Bonner’s statement, my understanding is that the Postal Service 

basically carries out the instructions given out by the State Department on how to handle it. That is my understanding. They set the 

rules for how you get a passport, and then the Postal Service just 

does what they are told. That is my understanding. 

Anyway let’s get to one of my favorite issues. This report that 

came out about electric trucks. I know again it is a small thing, 

small in the sense that it may take a while to go to that point of 


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having a full fleet. And not everybody in this country is sold yet 

on the idea of moving in that direction. Lastly, that they are not 

$10,000 trucks. They are quite expensive. 

So what can you tell us about that report? And what can you tell 

us about the possibility and the feasibility of the Postal Service 

moving in that direction? 

Mr. WILLIAMS. We were very—actually, you asked us to do that. 

We were very excited at the results though. I am not sure we 

would have thought of it on our own, which is not good. We should 

have thought of it. Today—the technology is getting better all the 

time, but today an electric truck that could carry our load could go 

40 miles very, very reliably. That covers all but 3 percent of our 

routes. Only 3 percent would begin to test the outer limits of that. 

So it would seem that we would be a very good candidate for 

that, in addition to, of course, there not being fuel consumption and 

there being exhaust in all the neighborhoods of the United States. 

It seemed to be a very forward-looking, great initiative to undertake. 

The Nation is also about to go, as you told us and we verified, 

to taking the electric grid and reducing it—or expanding it, rather, 

to allow vehicles to be plugged into it, the batteries of vehicles to 

be plugged into it. There is a requirement that electric utilities 

maintain a certain margin of excess in order to assure that we will 

all receive electricity when we need it. 

With vehicle-to-grid, V-to-G, it allows, rather than us to manufacture more of that by burning coal or oil or nuclear solution, it 

allows them to rely on the dormant batteries of vehicles. We are 

really well positioned for that because we don’t drive our vehicles 

at night. That could be a huge fleet of vehicles that would take care 

of a national issue and allow for a national economy. It would also 

jump-start a new technology and create new jobs and it would 

allow those—the price of those vehicles to come down, as all technologies do when they are finally embraced. 

We were tremendously excited about what you did and what we 

found. 

Mr. SERRANO. Thank you. And just for the record, to remind the 

chairwoman that this was something that we asked for in the committee, and this report came back. And I understand that part of 

the problem is you have 146,000 delivery vehicles which average 10 

miles per gallon; am I right? 

Mr. WILLIAMS. That is correct. 

Mr. SERRANO. Is that a huge problem? And we always talk about 

our dependency on foreign oil and we seem to do little. Although 

I see more happening, certainly in the last 5 to 10 years. Where 

is this at? You did your report. Is there any desire on the part of 

the Postal Service to move in that direction? 

Mr. WILLIAMS. It is also a fleet at the end of its life. So to introduce this, whether it is in our trucks now or whether we would do 

new vehicles—I ought to have added that at the end—I think there 

was concern on the part of postal management, but I never had a 

clear statement of how they received this. But there was some concern that the technology was new and they wanted to select a vendor that they were confident would be around, because the vehicles 


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last a very long time. I think that was the things that concerned 

them. And I think there was also interest in this. 

I think with each year that passes, as you said, sometimes 

progress is slow. But the arc of the progress seems to suggest that 

this is a very promising direction and route that you have embarked the Postal Service on. We have a new postmaster general. 

I will be glad to express to him—remind him of what we have done, 

and express your desire and interest in the area. 

Mr. SERRANO. I have, Madam Chair, just one more question and 

then we can submit some for the record. Under the heading of innovation, is there anything you think or that has been suggested 

that the Postal Service could be doing to sort of help themselves 

acquire more revenue? I am not suggesting that they sell T-shirts 

in the lobbies of the Postal Service. But you wonder if e-mail—and 

we are all guilty of it—if e-mail has taken away from the Postal 

Service—I am not trying to be funny, but should the Postal Service 

get into the business of being another AOL where it provides email service to the public? I know that sounds crazy, but you 

know—no, nothing that I say sounds crazy. 

Mr. WILLIAMS. No, it does not. 

Mr. SERRANO. What could they be doing? Is there, you know, are 

there five people sitting in a room somewhere at the Postal Service 

trying to figure out where we could go? 

Mr. WILLIAMS. At this point I would say all the near-term efforts 

are the ones that I outlined. And I think there is an openness to 

this idea, but we need there to be an excitement about it and we 

need to run to it. 

I think some of the time was lost dreading it and fighting, and 

some in the past were chagrined over its arrival. There are some 

wonderful opportunities. There could be a symbiotic relationship 

between the various communication vehicles, whether they are 

physical or digital, that could be combined, that would place American businesses and American people in a much stronger position 

than they have ever been. 

And there are all of those difficulties I said that need to be addressed with regard to the digital age, too. The Postal Service could 

be part of that solution. We need to aggressively engage with the 

other players in the digital area and our own customers, and also 

the people who are not our customers but they ought to be. And 

we begin to need a very vigorous dialogue with regard to that. And 

we need a very disciplined process with regard to inviting innovation, triaging the ideas and designing them, and then implementation. 

I have seen some really great ideas that we stumbled on on implementation of them in the field. But there are wonderful ideas for 

products out there. I think people would love to see an integration 

of their digital mail and their physical mail on the same list, for 

instance. Sort of a reverse hybrid. Hybrid mail is clean, fast, and 

it is the future. I would love to see us be a part of that. 

I think we need to guard against giving middlemen money for 

nothing. It isn’t just hard to the Postal Service. It is picking winners and losers. And that is not something that is a very American 

idea for an infrastructure. There is a ton to do. We need to create 


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processes for that. We need to clear out some space to meet the future and to embrace it. 

Mr. SERRANO. One quick question. Do we make money, does the 

Postal Service make money on those commemorative stamps every 

time we honor someone? And please understand that I am not 

knocking it. I attended the Frank Sinatra stamp ceremony in New 

York and it was wonderful and what a great ceremony that was. 

And there were people from all over the city, stamp collectors and 

fans. Does it make money? I know that a lot of these things just 

kind of tap a little bit into the problem. 

Mr. WILLIAMS. I think the idea behind the commemorative 

stamp—there have hardly been any. Of course, the breast cancer 

stamp was certainly the most dynamic and important of those initiatives. The Postal Service makes the usual amount of money, and 

the charity receives anything above and beyond the Postal Service’s 

normal income. So it is split. 

Mr. SERRANO. It is split? 

Mr. WILLIAMS. It is, sir. Yes. 

Mr. SERRANO. Okay. All right. Just in closing, let me thank the 

chairwoman for reiterating our position. And it was our position before, and I am glad it is still going to be our position this year that 

sometimes it is easy when you look at the Postal Service to take 

the easy shot. And the easy shot is 5-day delivery, without thinking 

of what that does for service and, in all honesty, what it does for 

jobs, even part-time jobs. And this is not the time to be cutting jobs 

anywhere. 

So I think the message that she is sending is the message that 

I try to send. Let’s focus on the hard decisions and not go after the 

easy one, which is 5-day delivery. I thank you for that. And I thank 

you for your testimony and your service, and that concludes my 

questions. 

Mrs. EMERSON. Thank you. Mr. Womack? 

Mr. WOMACK. I have nothing further, Madam Chair. 

Mrs. EMERSON. Are you certain? 

Mr. Williams, thank you. I do want to ask you one more question 

and that has to do with closing and consolidating post offices. I 

know as part of the Postal Service’s action plan, they want to close 

or consolidate I think about 2,000 retail facilities. You alluded to 

that in your opening statement. 

I understand that the Postal Regulatory Commission is actually 

investigating whether the Postal Service has been improperly using 

reasons such as lease expirations to suspend service. And obviously 

this impacts us, and it would be more in Mr. Womack’s and my districts rather than Joe’s, just because we have very rural populations. So have you all examined this issue as well? 

And then my follow-up question would be, do you think the Postal Service is taking responsible steps in its efforts to restructure 

those operations? 

Mr. WILLIAMS. Actually, early on—I am unfamiliar with the 

PRC’s work in the area. It is actually early on. There haven’t been 

many that, of course, closed that I am aware of. But we are obviously right at the edge of an aggressive initiative in the area of the 

2,000. And there are also about 400 that are in process, so it is actually a bit larger than that. I am unaware of those, but I talk and 


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interact with the PRC all the time. I would be glad to find out 

what concerns they have. And I will also keep an eye out for it with 

regard to that. 

The process around this is new. They recently developed a way 

that is far more expedited than in the past. We are about to review 

on that and the moment we are done with it, we forward it—if we 

find something disturbing—— 

Mrs. EMERSON. I would be appreciative. I am sure all of us 

would. 

Mr. WILLIAMS. It is a new process. We will be glad to watch that 

and report back to you. 

Mrs. EMERSON. ‘‘New’’ meaning it just started or ‘‘new’’ meaning 

it is a different type of process than what you have done? 

Mr. WILLIAMS. It is going to be an aggressive effort. I am certainly not against that effort. As I indicated, I think probably the 

network is too large. But 2,000 is more than we have ever done. 

And there is also a new process with regard to expediting and putting it in a more automated environment. That is the one that we 

have embarked on studying, now that it is complete. 

Mrs. EMERSON. Any information that you can get to us as soon 

as possible would be great. 

Mr. WILLIAMS. We will. 

Mrs. EMERSON. Especially any in conversations with the PRC as 

well. 

Mr. WILLIAMS. I will meet with them before they are out of the 

room. 

Mrs. EMERSON. Terrific. Thank you so very much for being here 

today and for your patience. You did a great job answering questions and we will look forward to working with you in the future. 

Mr. WILLIAMS. I do as well. And thank you so much for having 

me. 


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WEDNESDAY, MARCH 2, 2011. 

U.S. ELECTION ASSISTANCE COMMISSION 

WITNESS 

CURTIS W. CRIDER, INSPECTOR GENERAL, U.S. ELECTION ASSISTANCE COMMISSION 

Mrs. EMERSON. Thank you so much for being here, Inspector 

General Crider. We look forward to hearing your testimony. As you 

may know, this committee is committed to reducing nonsecurity 

discretionary spending to fiscal year 2008 levels, and so we have 

asked several Inspectors General to meet with us so that you all 

can help us identify savings where we can, in fact, achieve it. 

Your oversight is valuable, not only to ensure that taxpayer dollars are used in the most cost-effective manner possible, but also 

to determine whether the Commission is contributing to the integrity of our Federal elections. While the Election Assistance Commission has taken on a number of roles, it was specifically established to help States meet new voting standards and the overall enhancement of election administration called for under the Help 

America Vote Act. 

In order for our democracy to thrive, people must be able to place 

complete confidence in the integrity of our Federal voting system. 

In general, I am interested in hearing your perspective on the 

Commission’s operating expenses, the necessity of having so many 

high-level administrative staff, as well as the Commission’s overall 

management practices. While it appears that the Commission has 

matured since it was first set up, my observation of some of its decisions and activities suggests that the EAC still has a lot of work 

to do. 

In addition, I continue to find it interesting that so many of the 

States that received grant funding under HAVA have yet to spend 

significant amounts of the funding provided to them in spite of the 

fact that it has been available for a number of years. I would like 

to hear your views on the Commission’s management of those 

funds. 

I look forward to your testimony and to gaining a better understanding of your efforts to hold the Election Assistance Commission 

accountable. 

I would now like to recognize my good friend, Ranking Member 

Jose Serrano. 

Mr. SERRANO. Thank you so much. 

I would also like to welcome Inspector General Crider to this 

hearing today. The Inspector General’s Office has the important job 

of reducing waste, fraud, and abuse not just at the Election Assistance Commission but also among the States and territories that 

have received and used Help America Vote Act funds. 


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As you know the Help America Vote Act was passed in the wake 

of the 2000 elections. The goal of the act was to help States to upgrade their voting equipment and election administration, to help 

develop an ongoing series of testing standards and best practices 

in these areas, and to create a clearinghouse of information for 

States to use. I am looking forward to hearing more about how well 

the EAC has done this job and what they can do to improve their 

efforts. In addition, I am interested in learning more about how 

States have used their Help America Vote Act funds to improve 

their voting systems and election administration. 

From your testimony, I understand that you are concerned about 

the amount of money the Election Assistance Commission spends 

on management activities. While I think this should be an area of 

concern, I would like to point out that many of these activities, in 

particular, the public meetings and advisory board activities, are 

mandated by law. These are activities that improve the EAC’s 

transparency and accountability to the States it provides assistance 

to and to the public as a whole. As we move forward with the fiscal 

year 2012 budget request and as we continue to work on the continuing resolution for 2011, I would hope that we remember that. 

I always like to say that the Election Assistance Commission is 

a small agency with a big job: to help ensure that our elections are 

open, accessible, and secure. The IG’s Office plays an important 

role in ensuring that the EAC performs its work to the best of its 

ability. I look forward to your testimony. 

Thank you. 

Mrs. EMERSON. Thank you, Joe. 

Mrs. EMERSON. Mr. Crider, we will now recognize you for your 

opening statement. If you would be so kind as to try to keep it to 

5 minutes, that will give us more time to ask questions. Thank you. 

Mr. CRIDER. Good morning, Chairwoman Emerson, Ranking 

Member Serrano, and members of the subcommittee. Thank you for 

inviting me to come today to talk to you about the U.S. Election 

Assistance Commission and our operations in the Office of Inspector General. 

My office is an independent office in the EAC. Our role is to review EAC programs and operations with an eye toward helping the 

agency be more efficient and more effective. We also audit the 

funds distributed by the EAC to ensure the money is spent for the 

right purposes and in keeping with Federal rules. 

A large portion of our resources have been dedicated to auditing 

the Help America Vote Act grants that have been given to the 

States. The EAC has distributed $3.3 billion in funding to the 

States for election equipment and procedures. To date, we have 

completed 31 audits of 28 States covering $1.3 billion. We examined State expenditures to determine if they were made for appropriate purposes, were properly charged to HAVA grants, and were 

supported by appropriate and sufficient records. 

Our audits have shown that, by and large, States use HAVA 

funds for appropriate purposes and that they have the needed documentation to support those charges. We have identified $31.3 million in questioned costs and additional program income in our 31 

audits. 


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The EAC has also distributed $50.9 million in discretionary 

grants in the six smaller programs. We have only audited a few of 

these smaller grants. However, those audits have raised some concerns about these funds and the manner in which they were used. 

In 2009, we received a congressional request to audit two small 

grants under the Help America Vote College Program. We began 

what we believed would be a very simple, straightforward audit of 

$33,000. What we found was that the grantee did not have records 

to support his charges to the grant. We questioned all of the costs 

charged to the grant, and the grantee is in the process of repaying 

those funds now. 

The second major focus of our work was on EAC operations. We 

oversee the annual audit of the EAC’s financial statements and fiscal compliance reviews which is done by outside contractors. In addition, we have issued seven reports covering six reviews and one 

investigation of EAC operations. 

Our reports have revealed the good and the bad about EAC operations. Not all of our reports are negative. We conducted reviews 

of the EAC’s Internet usage and the use of appropriate funds for 

settlement. We determined the EAC had proper controls to prevent 

access to adult content, gambling, and shopping sites. That is what 

our report says. We also found that the EAC followed the laws in 

using its funds to settle a prohibited personnel practices claim. 

Our reports have also identified areas where EAC can improve 

its operations. For example, in 2008, we issued a major report on 

the assessment of EAC’s financial and program operations. We 

found that the EAC did not have internal controls or policies and 

procedures in place to guide its programs and operations. We made 

29 recommendations related to needed policies and procedures. The 

EAC has implemented the vast majority of these recommendations 

and adopted policies and procedures in most of its programs. 

We also found a situation where EAC did not violate law or regulation, but where better choices could have been made in the use 

of Federal funds. One such example was our review of the EAC 

purchase of T-shirts. While this was only a $7,000 purchase, the 

EAC bought 5 shirts for each of its employees as an employee incentive award, and they still had about 200 shirts in inventory. 

While this purchase was not illegal, it was just not a good use of 

taxpayers’ funds. 

Our investigation in the EAC’s operating environment also 

showed no violation of Federal antidiscrimination laws or whistleblower laws but did reveal employees fear retaliation for making 

complaints or identifying wrongdoing. It also showed that employees believe that it was an ‘‘us versus them’’ atmosphere at the 

EAC. 

In the failure of the EAC’s employee service in 2007, 2008, and 

2009, they showed that an information divide exists between management and staff. The 2010 survey results are now in, and the 

EAC is in the process of evaluating those. Those results should be 

available the middle of March, and we are hoping that there is significant improvement in the results of the survey. 

The EAC’s fiscal year 2012 budget request seeks $13.7 million, 

with $3.25 million being transferred to the National Institute of 

Standards and Technology. The EAC proposes the operating budget 


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of $10.45 million. This is a 27.7 percent reduction from its operating budget in 2010. The OIG takes its fair share of that cut. Our 

portion of the EAC budget will be $1.56 million. While this is a 

sizeable reduction from our previous budgets, we will continue to 

conduct audits and investigations, albeit just a few less than we 

have done in previous years. 

We know that members of this committee have previously raised 

concerns about EAC’s overhead and management costs. This budget would appear to verify those concerns. More than 51 percent of 

the EAC’s fiscal year 2012 budget is dedicated to overhead and 

management charges. The EAC should take a hard look at its management and overhead costs to determine if savings could be 

achieved to bring management costs more in line with program 

costs. 

The EAC has committed to doing this analysis. In their transmittal with the budget justification that was provided to Congress, 

they have indicated they are willing to do a study and make the 

necessary changes to bring the costs in line. We think this committee should hold the EAC accountable to its word, make sure this 

analysis is conducted and whatever changes that need to be made 

are made by the EAC. 

Our role is to make recommendations that improve the EAC and 

to protect the taxpayers’ investment in our Nation’s election process. We will continue to work with the EAC and this committee to 

make the EAC’s programs and operations economical, effective, and 

efficient. 

It is my pleasure to be here today, and I will be more than happy 

to answer any questions you have. 

Mrs. EMERSON. Thank you so much, Mr. Crider. 

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Mrs. EMERSON. As you are well aware, our country’s debt is about $14 trillion, and we in Congress are soon going to have to 

face the hard decision of whether or not to raise the debt limit. Our 

committee has a responsibility to address the unsustainable debt 

by reducing spending, and certainly I intend to do my best to make 

sure that the reductions we make in our budget are reasonable and 

sustainable. We are looking for any cost savings we possibly can 

find. 

While I am pleased to note that the EAC requested $4 million 

less for fiscal year 2012, which is a 24 percent reduction—and it 

would be good if all agencies could reduce their request by that 

much—I wonder if you believe that they could reduce costs by operating more efficiently; and, if so, what specific areas of their operations would you highlight? 

Mr. CRIDER. The management administrative costs in particular 

are something that need to be looked at. It is that they have a very 

large management staff at EAC, and that is an area where I think 

that some savings could be generated. As I stated earlier, the EAC 

is committed to doing that type of an analysis, but I would think 

this committee should hold them accountable for that, to make sure 

that it does in fact get done. 

There are opportunities to contract certain activities out to other 

Federal agencies such as human resources, accounting; procurement to other Federal agencies, such as the Bureau of Public Debt. 

Now, there will need to be resources on the EAC side to manage 

those functions or to make sure those functions are performed 

properly. But there are agencies that do this for other Federal 

agencies; like I said, the Bureau of Public Debt. That might be an 

area where we could take a look at in terms of okay, what do we 

need to do in-house and what can we let somebody else do for us? 

When we have a contract in the IG’s Office that needs to be let, 

we use the National Business Center to do our contracting because 

I don’t have a contracting officer. We used the EAC to do one contract for us, but for all intents and purposes, we contract that function out to another Federal agency. 

When we need an investigation done—I don’t have an investigator on staff, and for a small agency like EAC, that may not be 

practical—I contract with another Federal agency to perform those 

services for us. So there may be areas like that that they could 

take a look at in terms how we can conserve some funds there. 

Mrs. EMERSON. I appreciate that. The Bowles-Simpson Commission Report—I don’t know whether you have read the whole thing 

or not—recommended significant reductions in government travel, 

printing, and other administrative costs. I believe the EAC should 

be able to achieve reductions or savings in those areas. 

There have been some reports that the EAC has sent numerous 

representatives to conferences around the country, where simply a 

few staffers or perhaps one might have sufficed. Do you believe 

that the EAC could further reduce its costs in areas recommended 

by Bowles-Simpson? 

Mr. CRIDER. It is my understanding the EAC is taking a very 

hard look at that. In terms of the printing costs, there was a proposal put forward in terms of not printing the State plans in the 

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money in terms of the EAC. And it is my understanding from talking to staff at the EAC, that they are taking a very hard look at 

the number of people that are going on this travel and trying to 

see whether they can reduce it. But I do think those are areas that 

need to be looked at. Like we don’t travel. We do everything by conference call that we possibly can in order to cut our travel costs, 

and I think that is something the EAC should be looking at also, 

and I believe that they are looking at that. 

Mrs. EMERSON. I appreciate that, and I also appreciate the fact 

that you are finding significant savings within your own office by 

using other parts of the government who have expertise in those 

areas. 

It is my understanding that the EAC actually determines how 

much funding your office should request in the annual budget process, and I find that troubling given the fact that you are an independent office, given your oversight of the Commission. Do you find 

that that arrangement limits your ability to seek the level of resources you all need to accomplish your mission? 

Mr. CRIDER. I put my budget in separately in terms—I submit 

a separate budget package to the EAC detailing how much money 

that we need. The cut that we are taking this year is at the direction of OMB. The cash drawer is empty, and we all have to conserve money. We all have to understand that there is not near as 

much money as we would like to have necessary for operations. 

We are not a line item in the budget. The budget is then allocated back by the EAC, back to my office. We have not had any 

major problems in the past in terms of getting those funds back, 

but it is an area that could—it is just a matter of time before I irritate the agency again because that is just the nature of my work. 

They could take that out and say, okay, we are not going to give 

you any finding, or we are going to cut your funding. And my only 

recourse at that point in time would be to go to OMB and then to 

appeal to our oversight committee saying, they are doing this to us. 

But if nobody stepped up and said, okay, you can’t do this, then 

they could, in fact, do that. 

So we are concerned about it. We would like to be a line item 

in the budget to protect that funding, and I think that would give 

us—that would help our independence. It is just something we 

would like. 

Mrs. EMERSON. Are there any other agencies whose IG budget is 

not a separate line item? 

Mr. CRIDER. Yes, there are a number of them, okay. We are 

small. We are considered a DFE, a Designated Federal Entity IG, 

and a number of us are very small. And like I said, we are not necessarily line items. We would like to be a line item. 

Mrs. EMERSON. Okay. I appreciate that. Mr. Serrano. 

Mr. SERRANO. Thank you. 

Before I ask you a couple of questions, something comes to mind 

that I just think we need to remember. You know, if we are thinking only about cutting budgets—and that is what we are doing 

now—this statement could be true for every agency that we face on 

any subcommittee, which is that we have to try to balance what 

we do with the services that are rendered by those agencies. 


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One of the characteristics of human beings is that we tend to forget—and we are looking now at the EAC—it is a small agency that 

may have problems and that a lot of people are not ready to stand 

up and support during difficult budget times, and it may disappear 

in the future. The law may be one of those that also doesn’t get 

fully implemented, unfortunately. 

We forget HAVA came about because in 2000 we had a very, 

very, very difficult election result; and when I say difficult, that 

count that went on and the uncertainty and the pain, and the gentleman’s State went through a very difficult time, and it doesn’t 

matter what side of the equation you are on, Bush or Gore. It was 

painful for our country, and HAVA came about because of that, to 

try to remedy that. 

And I think as we move forward we have to remember that. We 

shouldn’t forget that that was the reason the EAC was created, to 

hope that in the future we never have a situation like the one we 

had. Because when you see folks all over the world clamoring for 

systems that look a lot like ours, then you have to make sure you 

keep reinforcing ours and give everyone a chance. It is not enough 

to say we have the greatest system on Earth of any kind. The question is, is everyone participating equally? Is everyone getting the 

opportunity to participate? And that is what HAVA is supposed to 

accomplish. 

Inspector General, the last page of your testimony sums up what 

I believe is one of the biggest challenges facing the EAC today. 

Only two of the four commissioner positions are filled. Without a 

full Commission, the EAC cannot vote or act to make policy and 

strategic changes. Understanding that these vacancies are not the 

most pressing issue before Congress right now, what can the EAC 

do to address your concerns right now? Without the other two commissioners, what is realistic? 

Mr. CRIDER. The agency can function, according to the General 

Counsel’s Office. They can perform a lot of their duties and responsibilities. While they cannot set policy, they can undertake some of 

the other actions that might be warranted at this point. We agree 

we would like to see the commissioners appointed. I think that 

would be a very beneficial thing for EAC to stabilize the organization, get the new commissioners in, and let the agency move forward if it is to continue to exist. 

But we do agree with you, we would like to see the two commissioners appointed, but they can still do a lot of stuff. They can 

award grants. They can conduct oversight. They can continue with 

their testing and certification programs. Their research projects can 

continue. So the EAC can continue to function on an operational 

level. 

Mr. SERRANO. And you don’t feel that not having the commissioners fully in place may leave open challenges where people say, 

well, the Commission was not fully put together when it made that 

decision? 

Mr. CRIDER. I would—there is that possibility. Like I said, we 

would like to see the two commissioners appointed, because I think 

that would be best for the organization, and it would forestall anything like that. There was another small commission that had only 

2 commissioners. They continued to operate, and the Supreme 


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Court basically set aside a lot of the work that they had done because they did not have a quorum. And like I said, we obviously 

want to make sure that doesn’t happen at the EAC. 

Mr. SERRANO. Okay. We all want our tax dollars to be used efficiently and effectively. That is not an issue of disagreement, and 

we all want open, fair, and accessible elections. With that established, what are the most important steps that you believe the EAC 

should take to increase efficiency? 

Mr. CRIDER. We would like to see them not only to take a look 

at the administrative and management side to see, okay, can we 

streamline this, can we move some of the money back into the program side to help the programs perform their mission and objective? That is the issue in the human capital management at the 

EAC, or areas where we would like to see aggressive—things being 

addressed aggressively so that the EAC can move forward. 

The EAC is a very good organization. I think it has a mission to 

perform, but it needs to be managing itself efficiently and effectively. 

Mr. SERRANO. Now, how does that balance with my comments in 

my opening statement that some of these decisions, if not all, are 

mandated by law? 

Mr. CRIDER. There are only a few positions mandated by law. 

Mr. SERRANO. Okay. And the rest you think are just fat that 

could be removed in some cases? 

Mr. CRIDER. I don’t want to use the term ‘‘fat’’. This is where 

they need to do their analysis to determine what resources level 

they need and what skill-sets they need. We are not necessarily 

talking here about numbers of bodies, we are talking about skillsets. What skill-sets are needed by the agency and do we have 

those skill-sets, and can we then trim in terms of anything that we 

don’t feel is a success at this point? 

I realize we are talking about human beings and their jobs, but 

in the tight budgetary times that we have, we have to be efficient 

and effective. 

Mr. SERRANO. But your suggestion is, trim it and then use it for 

programmatic—— 

Mr. CRIDER. If there are ways we can trim it, and can we move 

the funds now to the program side? 

Mr. SERRANO. One last question for this round. The President’s 

budget for the EAC for fiscal year 2012 is $13.7 million, of which 

3.25 million will be transferred to the National Institute of Standards and Technology. This leaves EAC with $10.5 million for fiscal 

year 2012, which is $4.2 million below the fiscal year 2010 level in 

terms of operating expenses. Isn’t the reduction in budget for the 

EAC proof that this agency has, in fact, found efficiencies already? 

Are you advocating for further reductions in the budget? 

Mr. CRIDER. The budget reductions have not—are just now starting to occur, and the EAC has got to look at its operations in terms 

of how much money we are going to have and how we are then 

going to get the work done. And this is where we think they need 

to look at the administrative side, because they are still operating 

at $17.9 million in terms of the continuing resolution. So this is 

going to be a very drastic reduction in 2012, and we think that 


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they need to start planning for that now, looking at their administrative side and determining what resources they do need. 

Mr. SERRANO. Thank you. 

Mrs. EMERSON. Mr. Diaz-Balart. 

Mr. DIAZ-BALART. Thank you very much, Madam Chairwoman. 

How are you, sir? Thanks for being here. 

Do you know approximately how many States that have HAVA 

grants, how many of them are yet to be audited? 

Mr. CRIDER. There are 55 jurisdictions, and we have completed 

audits of 28 States. 

Mr. DIAZ-BALART. Any idea what the timetable is of the completion of those that have not been completed? 

Mr. CRIDER. There is still a fairly significant amount of money out in the States that has not been spent; in excess of $800 million. 

So a lot will depend upon, in terms of how fast the States spend 

those funds. I mean, they control how fast they spend it. So a lot 

will depend on how fast they spend it. 

We are able to do—this year, we have 10 audits underway right now and covering another $800 million in costs, which will bring 

our total audit up to about $2 billion, and that will leave about 1.3, 

$1.4 billion still out there to be audited at that point. 

Mr. DIAZ-BALART. Eight hundred million dollars that still has not 

been spent. That is quite a substantial amount of money. Do we 

know why is it—— 

Mr. CRIDER. I don’t know the answer to that, sir. The EAC may 

have a better understanding of that. When we go out, we just look 

at how much they have spent. 

Mr. DIAZ-BALART. Great. It is my understanding that your office 

did an audit of two EAC project vote grants—— 

Mr. CRIDER. Yes, we did. 

Mr. DIAZ-BALART [continuing]. Which funds subsequently went to 

ACORN? 

Mr. CRIDER. Yes, sir. 

Mr. DIAZ-BALART. And it is also my understanding they provided 

no records of where the money went. Is that correct? Is my understanding correct? 

Mr. CRIDER. Yes. Yes, it is. 

Mr. DIAZ-BALART. Any ideas of how to prevent similar situations 

like that one from happening in the future? 

Mr. CRIDER. Well, audit is one. By going out and doing audits is 

how we find this stuff, so I think audits are very important. But 

I also think oversight—is that when we looked at the records at the 

EAC, is that we found they should have had some additional 

records that they did not have, and I think that would have helped 

them. But you know, when you go out and grantees do what they 

do, and usually you find out after the fact in terms of whether or 

not the records are adequate or not. Like I said, that is where audit 

comes into play. 

Mr. DIAZ-BALART. Absolutely. That is why it is crucial you are 

there to do your job. Is that an unusual situation, where no records 

are found to follow the money? 

Mr. CRIDER. Unusual. Like I said, we thought we would be in 

and out in a couple of weeks. It is not that much money involved. 

So we were a little bit dismayed when we found that they had no 


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records. I hope I don’t find we are in that situation again. Now, we 

run into problems with States periodically where their records are 

inadequate, but usually we work through the issue with the State. 

But in this particular case, like I said, there were just no records. 

Mr. DIAZ-BALART. Who is responsible so that that doesn’t happen? You know, are the States the ones who are responsible for 

that? Who is supposed to be tracking that at the time? Obviously 

you go back and you do audits afterwards, but at the time, who is 

responsible? And the reason for my question is: Is there any accountability for those who are responsible; or is there a clear, you 

know, chain of responsibility in a case like that? 

Mr. CRIDER. The grantees are required to maintain their records. 

So that is where that responsibility lies. As the grantor, the agency 

has limited ability at times to go—because that is what audit is all 

about. 

Mr. DIAZ-BALART. True. I think I know the answer to the next 

one, but I have to ask it. In the fiscal year 2012 budget request for 

your office, I believe it shows 50 percent of your proposed funding 

will go to management expenses compared to 10.9 for research and 

12.5 for testing and certification. You know, in a vacuum, one 

would say, wow, that is a lot of money for management. I think you 

have kind of addressed that, but I think it is important that we 

hear it from you as to why those numbers look like that, because 

obviously if you looked at it in a vacuum, it wouldn’t look that 

good. 

Mr. CRIDER. There is no doubt we are concerned about the 

amount of overhead at the EAC, and as Ranking Minority Member 

Serrano indicated, it is a small agency and there are certain functions the EAC has to perform. They need to look at ways to be 

more efficient and more effective, and that is what we are asking 

them to do. Like I said, as a part of their budget package, they 

have indicated their willingness to do that. I talked to the person 

doing the analysis this morning. They are doing the analysis, and 

hopefully we will have some results here shortly in terms of what 

the analysis shows. 

But I think it is important for this committee to also monitor 

that to make sure, in fact, it does get done; and if reductions are 

identified, that those reductions, in fact, do occur. 

Mr. DIAZ-BALART. Right. Because, again, in a vacuum, if you 

looked at an agency where it is 50 percent management and then, 

what, 12.5 and 11 for testing and certification and research, it gets 

to the point where you think, again, they are small—I understand 

that—but it gets to the point if they are that small and they are 

spending this little on research and testing, and then are they really even doing what they are charged to do? It may not be their 

fault because they don’t have enough budget, but the fact may be 

the same that they are basically spending all their money, in essence, on management and not doing much else. 

Mr. CRIDER. And that is what our concern is, okay, and that is 

why we think it needs to be looked at. 

Mr. DIAZ-BALART. Thank you, Madam Chairman. 

Mrs. EMERSON. This is interesting because when we had the 

Commission members, or at least the Chair, before us last year, 

and we brought up the management issue, we were told that they 


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needed all the management staff. Of course, now we know that 

other agencies, whether it is GSA or the Debt Commission or 

whomever, can perform those functions for the smaller agencies, 

and it is an interesting contrast. 

Mr. CRIDER. What happened was they were over here and then 

they got over here. The answer is somewhere in the spectrum here 

in terms of where they need to be, and I think they are starting 

to recognize that themselves and they are willing to look at it. And 

I think it is a very positive step on their part that they are willing 

to look at it. We just need to make sure they do it. 

Mrs. EMERSON. I appreciate that. Ms. Lee. 

Ms. LEE. Thank you, Madam Chair. Good morning. Thank you 

for being here. 

Let me ask you how the EAC carries out its core mission of ensuring the voting systems are in place and are accessible for everyone; also, to count both quickly and accurately and to ensure that 

any contested elections can be resolved so that we don’t face the 

uncertainty of the 2000 elections again. 

I don’t believe, and correct me if I am wrong, that you asked detailed questions about the specific failure of electronic machines. 

And so if you don’t do that, how do you measure the performance 

of voting systems that you certify if you don’t ask States how the 

voting systems are performing or failing to perform in actual elections? I think all of us know the difficulties and some of the problems with voting machines in the past, and so we thought that 

probably the EAC would be able now to assess their performance 

and know what the States are doing as it relates to these machines. 

Mr. CRIDER. Congresswoman, I am going to have to punt back 

to the agency. The EAC is the best one to be able to answer that 

question for you. I am not in a position to provide that information. 

So I think you need to go to the EAC for that. 

We have put an audit in our work plan for 2011 to go out and 

try to do an operational review of the testing and certification program. We will have to contract that audit out because we do not 

have the wherewithal internally to do it. The IG’s Office is only 

three people, and it is a fairly technical review. We have actually 

had some conversations with GAO about the review and actually 

tried to get GAO to do it because they have already done—they did 

two policy reviews of the EAC testing and certification program. 

We are not going to be able to do that audit in 2011. Due to budgetary situations, we can’t award a contract. Like I say, we have to 

contract the review out. We won’t get it done this year, but we do 

agree that the program should be looked at. So if you guys would 

like to request GAO do that, we would be more than happy to help 

GAO on that. 

Ms. LEE. So you think it should be looked at? 

Mr. CRIDER. It should be looked at, okay. The program is moving 

now into actually testing equipment, certifying equipment. Now is 

the time to do operational review and say, okay, is it working properly? In order for us to get the voting public confidence in this 

equipment, we have to make sure the certification program is 

working properly, and I think that will help people get some confidence in our voting process, and like I said, we just don’t have 


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the wherewithal to do it right now, but we do think it needs to be 

done. 

Ms. LEE. Well, have you requested that it be done or requested 

us to ask for it to be done? 

Mr. CRIDER. Well, this is our first opportunity to testify before 

this committee. So, like I said, you know, we have talked to GAO 

and they have indicated that they don’t have—they have got a lot 

of requests, too, and we did talk to House Admin last year about 

maybe trying to get them to get it done, but it hasn’t been done 

yet. Like I said, it is something that needs to be done, and if you 

would like to get a letter from us indicating—— 

Ms. LEE. I would like to do that because we have been asking 

for quite a while. There seem to be roadblocks and we would like 

to get a letter. 

Mr. CRIDER. Okay. 

Ms. LEE. And then I would definitely pursue how we can get that 

done. 

Mr. CRIDER. Okay. Thank you very much. We appreciate the 

help. 

Ms. LEE. Thank you again. Can I ask one more question? When 

you do these audits, do you do them—when you contract out with 

minority women-owned audit companies and accounting companies—or how do you make sure that the audit functions are inclusive of diversity in the industry? 

Mr. CRIDER. The first contract we awarded for our grant audits 

was a straight competitive procurement, and we tried to make sure 

that the solicitation was sent to some minority firms. The firm that 

was selected to do the financial audit is a minority firm. We targeted small businesses, minority firms for that particular award, 

because it is perfect. And so like I say, we had it split. 

But we are very cognizant of those goals and we try to make sure 

that we do make sure that when we do have a solicitation it goes 

to all appropriate problems. 

Ms. LEE. Do you use the 8A program through SBA? 

Mr. CRIDER. No, we do not. We have not used it in the past. We 

use the GSA schedules, and like I said, we did target this one for 

a—— 

Ms. LEE. Well, if you have a breakdown of the money that you 

use, the money that is spent on audit services and the breakdown 

of the contracts or the companies, I would like to see that. 

Mr. CRIDER. Sure. We can provide that to you. 

Ms. LEE. Thank you very much. Thank you, Madam Chair. 

[The information follows:] 


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Mrs. EMERSON. Mr. Womack. 

Mr. WOMACK. Thank you, Madam Chairwoman, and I apologize 

for my late arrival. 

You are a CPA? 

Mr. CRIDER. Yes, sir. 

Mr. WOMACK. So numbers mean something to you. When I look 

on the management side—and I know in response to Mr. Balart’s 

question a minute ago, you talked about that—I want to drill down 

just a little bit further on it—$5.4 million to manage programs totaling $3.4 million; is that correct? 

Mr. CRIDER. Yes, sir. 

Mr. WOMACK. How do you justify that? 

Mr. CRIDER. That is something you need to talk to the EAC 

about, okay, in terms of what their justification for that is. We 

share your concerns. 

Mr. WOMACK. Now, I heard you use the ‘‘hope’’ word just a 

minute ago in response. I think it was to some audits or accountability. I was taught a long time ago in my military service that 

‘‘hope’’ is not a method. And I think from hearing colleagues here 

talk about these very problems, that we are looking for solutions, 

real solutions, and more importantly than that, we are looking for 

some benchmarks and for some timelines, suspense dates, when 

certain things are going to be fixed or this can gets kicked down 

the road. And so I am hopeful, hopeful, that the words actually 

mean something and they are not just an appeasement to us at the 

committee level. So, your response. 

Mr. CRIDER. I agree with you. That is why I would think this 

committee’s oversight in terms of making sure the EAC does what 

it needs to do is very, very important. One of the reasons is that— 

we got the recommendations implemented from our assessment report that we issued in 2008—was that Congresswoman Zoe Lofgren, when she was the chair of the Subcommittee on Elections as 

part of House Admin, required that the EAC report to her on a 

monthly basis in terms of where they were at in implementing 

those recommendations. That congressional oversight I think was 

extraordinarily valuable and critical in terms of getting those recommendations implemented. And I think that is a very valid approach for this subcommittee is to request that type of information 

from the EAC to make sure they do what they are supposed to do. 

Mr. WOMACK. What would happen if there is a bill pending that 

you reference in your testimony from Representative Harper about 

abolishment of the EAC. And I realize, you know, you can’t speak 

to do that, but what would be the net effect in America if the EAC 

and its programs went away? 

Mr. CRIDER. I can’t speak necessarily to the EAC side of the 

house in terms of their programs and operations. But I can speak 

to my operation in terms of what it would mean for us, or what 

it would mean, is that those funds would not be audited that are 

sitting out there unless the audit function was to move to another 

Federal entity, which is possible. That is doable, okay. It happens. 

So we would like to make sure that those type things and make 

sure that there is an opportunity for States to draw down their 

money. The States need to know where to file their financial reports. And the audit function, whether or not that should continue, 


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whether or not it is moved to another Federal agency or stays in 

the EAC is somebody else’s decision. 

But in terms of the implication on the rest of the Nation, they 

are talking about moving the testing and certification program to 

another Federal entity. I think the EAC would be in the best position to address your concerns, sir, in terms of what impact that 

would have. 

Mr. WOMACK. That is fair. Thank you for your testimony. 

Mrs. EMERSON. I want to go back to the grants just a little bit, 

if you don’t mind. While I understand the funding has left the Federal Government coffers and is being held by the States, is there 

any realistic way that you can see for us to return some of that 

money to the U.S. Treasury since the States aren’t using it? 

Mr. CRIDER. No, ma’am. I don’t think so. Chairwoman Emerson, 

GAO issued an opinion on this matter last year or the year before. 

These are considered formula grants, and that the money is obligated based on law, and that the States have a legal right to those 

funds at that particular point. So getting the money back does not 

seem to be a legal, viable option, in my view. 

Mrs. EMERSON. Okay. So, in light of that, what is your assessment of the EAC’s management of that funding? 

Mr. CRIDER. They really don’t—they send the funds out. The 

funds go out up front. The States have to put up their match and 

they have to file their certifications, and then the States are able 

to draw down their funds. They then file annual financial reports 

to the agency in terms of what they spent the money on. The 

States then are allowed to—the States do come in and request periodic guidance and things of that nature, but we have never really 

looked at their management and administration of those funds. 

Like I said, we have been focusing on the States at this point. 

The EAC has just now developed policies and procedures for 

most of its operations as of September 2010. So we have somewhat 

held off on issuing the same report over and over again until they 

got their structure in place. And we couldn’t see making the same 

recommendation multiple times: You need policies and procedures. 

Mrs. EMERSON. Okay. So to what degree have you examined the 

manner in which the States are spending this funding? Have you 

uncovered any instances where the funding has been spent in a 

manner inconsistent with the intent under HAVA? 

Mr. CRIDER. We have questioned $31 million in costs that we 

have audited, which is not a huge percentage of the amount of 

money we audited. 

Now, we have had a situation down in New Mexico where the Attorney General’s Office of the State of New Mexico is actually prosecuting four individuals related to a contract that was awarded by 

the State for educational training and advertisements of the public 

media campaign, and the Attorney General’s Office is prosecuting, 

like I said, four individuals, and two of the individuals have been 

indicted for Federal income tax evasion charges. 

So, I mean, we do have situations, like I said, and we have had 

two inquiries from the FBI on two grants in two localities. With the 

FBI, they get information from you and they don’t always tell you 

what they do. But like I said, we have a couple cases where things 

have happened. 


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Mrs. EMERSON. Have you actually found fraud in looking at the 

grants yourself, or has the FBI found out separately. How has that 

worked? 

Mr. CRIDER. The New Mexico situation came out of one of our audits, okay. We had been requested by the new Secretary of State 

to come down several years ago and take a look at that program. 

And based on the results of the audit is that the State then picked 

it up from where we finished and followed the money all the way 

through. We went to the contractor. They took the money from the 

contractor after that point, and that is where it seems to be most 

of the activity occurred according to the indictment. That could 

have come out of one of our audits. 

We have actually been very impressed with the States. I mean, 

they want to do the job right. They want to make sure the money 

is spent properly. They want to make sure they have adequate documentation. So, I mean, we are very impressed with the States. 

They have a very—they are very dedicated to the program. Like I 

say, they want to make sure they do it right, and we have had I 

think a fairly good working relationship with most of the States. 

Now, one of the things they do do is sort of an interesting—is 

that when we publish a report, they all read that report and say, 

okay, do we have this problem? So a lot of times when we go out 

there, they have already fixed things that they had done that 

might have been questioned, and we welcome that. We think that 

is a wonderful mechanism in terms of trying to make sure the program is run properly. 

We also publish a semiannual newsletter where we try to put out 

results so people are aware of what is going on. So, you know, if 

they have a problem in their program, they can fix it. 

Mrs. EMERSON. That is good. Let me shift gears for just a minute 

to some contracting issues. 

Chairman Lungren of the House Administration Committee and 

I have both raised concerns in the past with regard to the Commission’s contracting practices and, specifically, we raised some questions concerning the EAC’s practice of awarding contracts noncompetitively or in instances where they received only one bid. Additionally, we questioned the degree to which EAC contracted out 

positions that contain inherently governmental roles. Have you 

looked into their contracting practices; and if so, what recommendations have you issued in response? 

Mr. CRIDER. We have had that particular view in our work plan 

for 2 years running now, but because of resource limitations, we 

have not been able to get to it. But we do think it is a review that 

needs to be done, but we just haven’t had an opportunity to get to 

it. We looked at, well, should we contract the review out in order 

to get it done? That is something we are looking at this year in 

terms of possibly contracting it out, but due to budgetary situations 

we have not been able to get there yet. 

Mrs. EMERSON. I guess that begs the bigger question, then: do 

you think it is more cost effective for EAC to hire contractors for 

many of the missions it is responsible for, including you? 

Mr. CRIDER. You have to look at each situation specifically in 

terms of what is being done and what is inherently governmental 

and what the results—what their accomplishments are. There is no 


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blanket answer to that one because there are certain things that 

are inherently governmental that you can’t contract out. 

Mrs. EMERSON. All right. I appreciate that. Mr. Serrano. 

Mr. SERRANO. Thank you so much. You know, we talk about 

budget cuts and budget cuts, but I see from the proposed budget 

that you are asked to take an 11.7 decrease, your own office, from 

fiscal year 2010 to 2012. How will this affect you? What are you 

planning to do? Will you reduce the number of contractors that you 

use? 

Mr. CRIDER. Yes, that is exactly it. We won’t do a couple of audits, possibly. That is how we will do it. We will absorb it through 

our contracting. 

Mr. SERRANO. You still feel confident that you can do the job, accomplish your mission? 

Mr. CRIDER. Well, we contract our grant audits out, and that is 

where we will take the cut. We just won’t do a couple grant audits. 

Will it extend the audit cycle? Yes, it will, but I have to live within 

the parameters of the budget that we are given because, like I said, 

the money is tight. 

Mr. SERRANO. Now, in your testimony, you point to the fact that 

the EAC has made strides in several areas. They showed improvement in financial management processes and in compliance with 

the Federal Information Security Management Act. Can you tell us 

about these improvements? 

Mr. CRIDER. Yes, sir. Whenever we did the first financial in 2008, 

the EAC received a disclaimer which is not unusual for a first-year 

audit, but they were not able to produce the records that the auditors needed to conduct their audit. There were a lot of internal control issues identified. There were a lot of problems in terms of their 

financial reports. They actually had to hire somebody, a contractor, 

to come in and help them figure out how much money they had left 

to spend. So there were a lot of issues involved. 

They have subsequently gotten an unqualified opinion. They received an unqualified opinion on their financial statements last 

year, which is extremely good. So they made a tremendous amount 

of steps and improvements in that area, and I do want to give them 

compliments for that. They went from being in total disarray to 

having an auditable financial system. 

In terms of the FISMA, they actually had no FISMA—they had 

no IT security program at all when I first got there, and we were 

issuing reports on an annual basis: You have no IT security program. They now have an IT security program. They are starting to 

address the PII data in terms of security. So they have made a lot 

of steps in that area, also. Like I say, they should be very pleased 

and very proud of what they have accomplished. 

Mr. SERRANO. Let me ask you a quick question. Our chairwoman 

was asking you whether those dollars that went to the States and 

are not being used, can they be returned, and you said no. 

Mr. CRIDER. Right. 

Mr. SERRANO. I don’t know if you answered this part or if she 

asked. Why would the States not be using the money or what is 

the problem locally? 

Mr. CRIDER. I don’t know the answer—— 


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Mr. SERRANO. And you are hearing this from a person who represents a State that we almost had to drag into submission at one 

point. Probably will not go well back home that I said that. But you 

know, folks, there is money here, can we get it going, you know; 

and I think we were the last ones to use the scanning machine and 

so on, which I thought was kind of cool because you could see the 

whole ballot. 

You know, I don’t know how it is in your State, but in New York, 

you are placed on the ballot based on the size of your district. So 

if you represent the whole borough of the Bronx at a local level, 

you will appear on top of a Member of Congress because that is a 

smaller district. So on election day when you look at our numbers 

and you see lower numbers than the other parts of the country, 

some of the reasons are I have one of the youngest districts in the 

Nation, I have a lot of, as you know, a lot of immigrants, poor folks 

at times, but it is line number 24 to find Serrano. I mean, it is 

very—— 

Mrs. EMERSON. So, small physically. Is that what they are talking about? 

Mr. SERRANO. Yes. So, for instance, we have a position called 

Bronx borough president—I am not mocking that. It is like county 

executive, except it really isn’t. So that person represents the whole 

county of the Bronx. If we got on the ballot the same year, that 

person would be higher than the Member of Congress. Yet the Senator goes on top. So you see Schumer and Gillibrand, and then you 

have to go through a thousand judges and everybody else to get to 

your local Congressman. You know, very painful and very difficult 

for your ego, you know. Don’t you know I am a Federal official, 

Federales, you know? 

I don’t know, I don’t know what the question was, but if you can 

answer it. 

Mr. CRIDER. Well, Ranking Member Serrano, I think you have a 

valid question, but I don’t have an answer for you in terms of why 

the States are not spending their money. Maybe the EAC would be 

able to give you some perspective on that, but I don’t know. But 

it is a good question, and I wish I had an answer for you. 

Mr. SERRANO. Thank you. Incidentally, nothing—a great sense of 

pride in the Balart family who would understand this, but my son 

is a State senator. So, in addition, try in a primary Jose Serrano 

for Congress and then you have underneath Jose M. Serrano for 

State senate. You have a heart attack until they count the votes. 

Mrs. EMERSON. You ought to try running twice in the same election like I did the first time in two different parties. That was even 

more interesting. 

Mr. SERRANO. Thank you. 

Mrs. EMERSON. Mario. 

Mr. DIAZ-BALART. I am fine. 

Ms. LEE. Well, I do have to follow up on this whole issue of unexpended funds in the States. I am just looking at my State, for example. What is it, $181 million California has not—— 

Mr. CRIDER. Right. 

Ms. LEE. What precludes States with budget deficits from using 

this money? And I know there are Federal strings attached that 


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have to do with, you know, HAVA; but what precludes them from 

back-filling, using this to backfill budget deficits? 

And then, secondly, if they are not using the money, why don’t 

we give them a waiver to use it for other efforts? If they don’t use 

it for—if everything has been completed as it relates to HAVA, 

then what is the problem? 

Mr. CRIDER. Well, what prevents them from using the money for 

other purposes is me. 

Ms. LEE. Is what? 

Mr. CRIDER. Is me. When I go out and do the audits, that is what 

we look for: Are you using the money for its designated purposes; 

are you using it for HAVA purposes, and of course with the law? 

That is what we do, and so that is where the benefit of audit comes 

into play. 

Now, there are always activities related to some improvement of 

Federal elections in terms of there are always things that probably 

can be done. Now, if the Congress wanted to give them waivers to 

allow them to use the money for other purposes, that would would 

be up to the Congress. That is a legislative thing but that is a congressional initiative. 

Ms. LEE. But if they are not using it for HAVA, are they given 

suggestions on—maybe they haven’t completed the work. Is that a 

possibility why these funds haven’t been expended? Are they holding it for the next election, or what could be some of the reasons? 

I know you haven’t had—goodness, if we cut your budget, how are 

you ever going to find out? 

Mr. CRIDER. Like I said, that is something you try to direct to 

the EAC and see if they have any knowledge as to why these 

States are not expending their funds, but they are facing, as you 

pointed out, tough budgetary times, too, and some of this equipment at some point in time will have to be replaced. This is electronic equipment, and we are seeing some States are now having 

to replace some of the equipment. 

I think Florida did it, and they were allowed to use the Federal 

funds for that. So, I mean, there will be a point in time where this 

equipment has to be replaced. It is electronic. So there are future 

expenditures that may be required. 

Ms. LEE. So they could be holding them for future kinds of efforts? 

Mr. CRIDER. The money is in an interest-bearing account, and 

the interest can be used by the State for program purposes. Now, 

that is a unique aspect of the HAVA law is that most States, when 

we have Federal funds in an interest-bearing account, the interest 

goes back to the Federal Government. HAVA was unique. It allowed the States to use those funds. 

Ms. LEE. Only for program purposes relating to HAVA, though. 

Mr. CRIDER. Yes. 

Ms. LEE. That is good. So the States that haven’t expended their 

funds, we don’t need to assume they are using it for other purposes. 

Mr. CRIDER. Right. 

Ms. LEE. Also that they don’t need it; they probably do need it 

for future expenditures. 


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Mr. CRIDER. Like I say, maybe the EAC will have a better perspective on that than I do. Okay, I am sorry I am not really able 

to address that for you. 

Ms. LEE. Well, is there a way we can find out? 

Mrs. EMERSON. We can have a meeting with the EAC commissioners if you would like. We could do a hearing, but we might get 

more out of a meeting. 

Ms. LEE. I think that would be a good idea. 

Mrs. EMERSON. Okay. I am happy to do that. 

Let me ask you, Mr. Crider, you have investigated a number of 

questionable management practices within the EAC. Would you do 

me a favor and elaborate on some of the issues and the recommendations that you have offered to address them? 

Mr. CRIDER. When you go back and read our assessment report 

in 2008, like I say, it contained 29 recommendations about policies 

and procedures and changes and strengthening internal controls. 

And that was a very significant report. 

In the financial audit in 2008, we issued a number of recommendations there in terms of how to tighten the financial management system, how to improve the internal controls over the financial management. 

The investigative report, we did not make any recommendations 

in the investigative report that was done by the Department of the 

Interior for us on the hostile work environment, because that was 

something that I think I should be held responsible for. We should 

have made recommendations in that report, and I did not. There 

are a number of issues in that report I think the EAC needed to 

address in terms of how its employees felt about managers, the employee appraisal system, things of that nature, that we should have 

made recommendations to them that we did not. 

We just did a little review on an incident that happened at the 

Christmas party. We made recommendations in that report for additional EEO training for all of its employees, make sure supervisors were aware of their responsibilities regarding EEO, and if 

they see something that happens, how they needed to address it. 

Mrs. EMERSON. Have you seen any cultural or management 

changes in the past several months that have been made there at 

the EAC? 

Mr. CRIDER. They have a new general counsel on staff, and I 

think that he brings a perspective to the organization that will be 

very beneficial to the organization. He is the one that is doing the 

analysis of the administrative workload at the EAC, and I think 

that he recognizes that certain things need to be done at the EAC 

in terms of EEO training and EEO processes. And I am very hopeful that his leadership will be very beneficial to the EAC in helping 

them move forward in some of these areas. 

Mrs. EMERSON. Will you be able to report back to us in about 3 

months and let us know how that is going? 

Mr. CRIDER. We will do that, yes, ma’am. 

Mrs. EMERSON. All right. I would appreciate that very much. Mr. 

Serrano. 

Mr. SERRANO. See, here is the concern that I have. Again, I think 

the EAC is an easy target for people who want to cut budgets, and 

when I say ‘‘people,’’ everybody wants to cut budgets, some people 


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want to cut more than others. And at what point do we know if 

the States are set up to conduct elections with less or perhaps none 

of the concerns that we had in 2000 that brought us to create the 

EAC to begin with? 

Mr. SERRANO. As I said before, these discussions go across the 

government. You know, I just came from a hearing of the Interior 

Subcommittee with the EPA. And you know, the discussion by one 

side, or 11⁄2 sides of both aisles, will be when you cut, you know, 

how much do you cut EPA’s ability to look after our water and our 

air and so on? What is the future going to be? 

So, what is within your mechanism, within your setup, to tell 

Congress, you or someone else in the future, you know, States are 

doing what you wanted them to do or what you hoped would be accomplished by these grants and by this kind of oversight and this 

involvement? Because, you know, we—and again, this is just a 

statement for the record; everyone in this room can make the same 

statement. 

We speak about the budget. We speak about the system. We 

speak about the future of the country. But at the center of all of 

that is this great ability we have to go to the polls in November 

and pick the people who will lead us at the local level or at the 

Federal level. So, to me, this agency is small but extremely important. Is there a setup, an ability to tell the Congress, to tell the 

American people we have reached a point where things are going 

well at the local level? 

Mr. CRIDER. It is a changing target. A lot of these officials at the 

local level are elected. Most secretaries of state are elected. So 

there is turnover there. There is change. So I am not sure how you 

will ever get to that point where you are saying, yeah, everything 

is going to work perfectly, because it probably won’t. Elections are 

a very complicated, very difficult process. There are going to be 

problems periodically. And whether or not those problems rise to 

the level of a national crisis, I don’t know the answer to that. I 

don’t have a good answer for you, Ranking Member Serrano. I 

don’t. 

Part of it is a political decision on the part of the United States 

Congress: Do they feel like we have gone far enough or not gone 

far enough or whatever they think needs to be done? I don’t have 

a good answer for you. 

Mr. SERRANO. Just for the record, the reason I asked you, because I don’t have an answer at all. So don’t feel bad. 

Madam Chair, I have a couple more questions that I would like 

to submit for the record. 

Mrs. EMERSON. Absolutely. 

Mrs. EMERSON. Mr. Diaz-Balart, do you have any questions? 

Mr. DIAZ-BALART. No, Madam Chairman. I am looking forward, 

though, to getting some answers on the other issue of the unspent 

funds. 

Mrs. EMERSON. I think it is a great idea for us to have a meeting 

with the Commission members. 

Mr. Crider, just to follow up with what Joe asked you, are you 

in a position to tell us whether or not the EAC actually provides 

States with useful information on voting technology and on administration? 


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Mr. CRIDER. Not at this point. We have not looked at those particular programmatic areas. And like I said, we would like to take 

a look at the testing and certification program because I think that 

is the linchpin program of EAC. That is their flagship. 

Mrs. EMERSON. Well, I certainly think this does warrant us to 

have a meeting. 

You touched on this in your testimony and this is my last question, and I have a couple to submit for the record as well. We didn’t 

pursue it, but you said the secretaries of state and State election 

officials are, they are calling for the dissolution of the EAC, and it 

confounds me. Do you have some thoughts on this? 

Mr. CRIDER. We have talked about it. We don’t have an answer 

as to why they want to have EAC abolished. You know, it would 

be nice to know if there was an inherent problem or an issue that 

we need to address internally at the EAC or whether or not it is 

just a political decision or what it is. I don’t have an answer for 

you. EAC may have a better feel for that than I do. 

Mrs. EMERSON. All right. Well, certainly we have given the Commission these funds, and perhaps it is just ‘‘you have given us the 

money and now let us do our job’’ attitude. Who knows? But it certainly is something that we need to pursue. It is just puzzling to 

me, if nothing else. 

With that, we will submit the rest of our questions for the record. 

Mrs. EMERSON. And we thank you so very much for being here 

today. 

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TUESDAY, MARCH 8, 2011. 

SMALL BUSINESS ADMINISTRATION 

WITNESS 

KAREN G. MILLS, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION 

Mrs. EMERSON. The subcommittee will come to order. Good afternoon to my colleagues, especially good afternoon to you, Administrator Mills, and welcome to our subcommittee. We appreciate your 

being here and greatly appreciate all the work you do on behalf of 

our small businesses around the country. We all know because of 

our districts—whether Joe’s or Rodney’s or mine—that small businesses are critical to improving the health of our economy. And 

with unemployment a wee bit better but still almost at 9 percent, 

job creation is the most important goal that we have. 

America’s small businesses account for half of the country’s 

Gross Domestic Product, and we are responsible for creating 65 

percent of net new jobs between 1993 and 2009. And I believe very 

strongly that the Federal government must find innovative ways to 

assist small business development and expansion. And I think you 

all are doing a good job. 

And because of the critical role you play in assisting small businesses through capital—giving them opportunities to compete for 

government contracts and for all the work that you do with regard 

to technical assistance, I know that without SBA, an awful lot of 

businesses in my district would probably not even be there, so we 

are grateful to you. 

The President’s fiscal year 2012 budget request for the Small 

Business Administration totals $985 million, $161 million, or an 

approximately 20 percent increase over fiscal year 2010. This includes a $132 million increase in the 7(a) lending subsidy, and a 

$90 million increase in administration for the disaster loans account. And I am worried about flooding. Heaven knows we are 

going to have some real challenges with regard to the whole disaster loan account. 

I do understand that carryover from prior year supplementals 

previously supported costs associated with administering the disaster loan account and that this funding has run out. 

I would like to see the administration find better ways to use the 

SBA to provide small business assistance instead of burdening entrepreneurs with additional tax and regulatory hurdles. And I am 

also concerned that in implementing massive new regulations on 

the health care and financial industry, the administration is overregulating our small businesses and slowing their ability to expand 

operations and create new jobs. 


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With that being said, I am very interested and I know my colleagues are too in really listening to your ideas on how to stimulate 

job growth. I look forward to your testimony. I know you all are 

working tirelessly to help all American small businesses and we 

are grateful for your efforts. 

Let me recognize our ranking member, Mr. Serrano, for his remarks and then we will go to you. Joe. 

Mr. SERRANO. Could you do me a favor? Could you bang that 

gavel once? 

No, no, no. Bang it. Elections have consequences for the chairwoman, and I want you to use that gavel with all your strength. 

Mrs. EMERSON. I have been using it on the House floor quite a 

bit. 

Mr. SERRANO. Yes, you have. If you have analyzed what I just 

said, in some weird way, it is a compliment. 

Mrs. EMERSON. Well, I appreciate that. And it helps get rid of my 

frustrations, because I actually was thinking about who I was 

smashing. 

Mr. SERRANO. Once I got the gavel I used it well. 

Mrs. EMERSON. You did indeed, I agree. 

Mr. SERRANO. If it comes back again, I will use it very hard. 

Mrs. EMERSON. We will do our best to make sure that doesn’t 

happen. 

Mr. SERRANO. I am sure. 

Mrs. EMERSON. As much as I love you. 

Mr. SERRANO. You and a lot of other folks. Thank you and we 

welcome you, Ms. Mills, to this hearing today. Because of the crucial part that small businesses play in job creation in our continued 

economic recovery, the SBA has a very important role in promoting 

job growth. SBA facilitates small business development, training, 

technical assistance and company programs, government contracting programs and advocacy. The agency also helps businesses 

and homeowners affected by disasters through its disaster loan programs. 

The agency’s budget request for fiscal year 2012 is $985 million 

in new budget authority. And I look forward to discussing this request with you during our questions. I am disappointed, however, 

that once again, this budget request underfunds some small business assistance programs that specifically help low income populations. 

For example, Microloan Technical Assistance, a program that assists our smallest business owners, would be cut by $9.2 million 

from fiscal year 2010. 

Zero funding was requested for the Program for Investment on 

Micro Entrepreneurs, or PRIME. This program provides grants to 

help with training and technical assistance for disadvantaged business owners, particularly those in very low income areas. Particularly during difficult economic times these are not the programs we 

should be targeting for cuts. 

I look forward to talking to you today about these programs and 

learning more about the progress you are making in some of your 

newer efforts. Again, we welcome you and we thank you for your 

service to this agency and to our country, thank you. 

Mrs. EMERSON. Administrator Mills, please go ahead. 


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Ms. MILLS. Well, thank you very much, Chairwoman Emerson 

and Ranking Member Serrano and members of the committee. I am 

pleased to testify before you. Small businesses, as the chairwoman 

said, are the backbone of the economy, they create two out of every 

three jobs. And more than half of working Americans own or work 

for a small business. The SBA is a small agency, but we have a 

big mission. We put the maximum possible resources directly into 

the hands of small businesses, focusing on the 3 Cs, capital, counseling, contracting. 

Last year we helped over 50,000 small businesses get the capital 

to grow and hire. We helped put about $100 billion in Federal contracts in the hands of small businesses, and we counseled more 

than a million small businesses across your districts and throughout the country. 

We put these resources in their hands while providing taxpayers 

a big bang for their buck. For example after credit froze in 2008, 

the Recovery Act and the Small Business Jobs Act supported more 

than $42 billion in SBA loans at a subsidy cost of $1.2 billion. 

Many small businesses suffered greatly from the recession. Our job 

is to support them as they grow and create jobs, and this job is not 

done. 

The President’s proposed fiscal year 2012 budget for the SBA of 

$985 million, will support up to $27 billion in loan guarantees, as 

well as many other tools and resources to help our small businesses 

across the country. 

At the same time, this budget reflects a commitment to tighten 

our belts, to streamline our processes, and to eliminate duplication. 

This includes some of your ideas. For example, we looked hard at 

our technical assistance programs, and as a result, we do propose 

eliminating the PRIME program that the ranking member referenced. 

With the work of our microlenders and some new efforts to recruit community-based lenders, we can continue to provide technical assistance just in a more cost effective way. In addition to the 

process reengineering, our disaster loan operations are now much 

more efficient. We can preserve our level of preparedness, with 

steady state core staff levels of 850, instead of 1,000, along with 

our 2,000 reservists. 

The largest increase in our budget reflects the fact that we have 

reached the statutory limit of fees that we can assess. We request 

additional subsidy because losses, including those from loans approved when collateral such as real estate was inflated, have 

pushed up subsidy costs. We also request a legislative fix to return 

to near zero subsidy. We also request incremental increases for our 

new women’s contracting program, and continued efforts to remove 

fraud, waste and abuse in contracting. 

Overall, our priorities are twofold. We placed a focus on SBA programs that put money and support directly into the hands of small 

business owners in the places where they live. And we will continue to invest in oversight, to preserve the integrity of these programs, and to protect the interests of taxpayers. 


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I look forward to working with all of you, to continue to insure 

that small businesses are succeeding, because as you know, when 

they succeed, America succeeds. 

Thank you very much, I would be happy to take your questions. 

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Mrs. EMERSON. Thank you, very, very, much. I will go ahead and 

start the questions, and welcome to Mr. Womack too. 

As you have heard, as you have seen, at least with the continuing resolution that was passed a couple of weeks ago, the 

House majority is committed to reducing non-security discretionary 

spending to fiscal year 2008 levels. And for this subcommittee, that 

represents a 17 percent reduction. Though I will readily admit I am 

not sure that a reduction to 2008 levels is good for the SBA with 

employment at 8.9 percent, we are still asking agencies to tell us 

what it would look like to live at that 2008 level. So hypothetically, 

hopefully hypothetically, what is the impact of a 17 percent reduction to your agency’s operations? 

Ms. MILLS. Well, that would be a tremendous impact if we went 

back to 2008 levels. As you know, we are a small agency, and as 

I described, we have a big mission, and it is a most difficult time 

to this day because small businesses have not recovered completely 

from the recession. 

So it would have an enormous impact. For instance, we would 

run out of money in our loan program. Because of the subsidy 

issues that I described, we would not be able to make loans after 

the money ran out, and that would curtail what has been a very, 

very effective program to provide access and opportunity to small 

businesses as the capital markets froze. 

In addition, we would curtail the tremendous progress that we 

have been making, or reduce the level of the progress we have been 

making in curtailing fraud, waste and abuse. And finally, of great 

concern, is our preparedness would go back to Hurricane Katrina 

levels which is unacceptable for the level of preparedness that we 

need to support our small businesses and homeowners in times of 

distress and disaster. 

Mrs. EMERSON. So—— 

Ms. MILLS. From the point of view of small business, it would be 

a real setback. 

Mrs. EMERSON. And if you couldn’t reduce the budget or we 

didn’t feel that it was appropriate to reduce the budget by the 17 

percent to go back to 2008 levels, the cuts that you all have self 

directed, do you think that you have gotten to the bare bones at 

this point in time, in order to fulfill your mission? We talk about 

the subsidy levels and that is why you have asked for an increase, 

et cetera. I mean, because if we can actually come up with a figure 

that works, I mean, we can sell it on our sides of the aisle. Joe has 

the luxury of—isn’t that the luxury of supporting increases from 

2011 levels? 

Mr. SERRANO. I have the responsibility of not destroying government. 

Mrs. EMERSON. Well, in this case we are leveraging for the private sector so this is kind of one of those in between agencies as 

far as I am concerned. I think 17 percent impacts your mission, I 

will readily admit that. My other colleagues may not agree, I think 

it does. 

You know, I was at—on Friday, at a small business that is 

owned by a 23-year-old woman who started this clothing store in 

a place where there were no sort of fashions for the 25- to 40-year 

olds. She had this dream, 21 years old, she saved a lot of money, 


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then she was able to get some help through an SBA loan and cosigning. I think the grandparents may have cosigned. 

However, she is making a lot of money, she is 23 years old, and 

a half, I think. And were it not for that SBA loan—I mean, it is 

remarkable, and I can’t imagine being and being willing to take the 

risk, especially because she kind of started in a down economy, but 

by God, she has got it figured out. So I am obviously a huge fan. 

Nonetheless, we really have to be realistic. I am not going to make 

you answer that question. 

But Bowles Simpson recommended lots of reductions for things 

like travel, and vehicles, and printing. Do you all think that you 

can make savings, at least in those types of categories? Does that 

impact your mission very much? 

Ms. MILLS. Well, as you know we are a small agency and much 

of our activity happens on the ground helping small businesses one 

by one. You have described, I think, the great joy of this job, which 

is supporting entrepreneurs because it is the entrepreneurs and the 

small businesses that actually create the jobs. 

When we have looked through our budget, we have submitted a 

budget that has difficult cuts in it for us, that streamlines operations, that eliminates duplication and that really tightens our 

belts. And we are trying to do that while preserving the two priorities. The priority is to get the money into the hands of the small 

businesses, through our system out where it is helping them, either 

as a loan or counseling or a government contract or disaster assistance. When we do spend money, we want to make sure that it is 

to oversee taxpayers interest in terms of oversight and eliminating 

fraud, waste and abuse. 

Mrs. EMERSON. When your staff travels to visit with small businesses around, people who are trying to either expand their business and perhaps need an SBA loan guaranteed, for example, or 

something to just make the bank feel a little bit more comfortable 

and others. I mean, I have to believe that your staff gets faced with 

the same questions that we get faced with with regard to regulations and more and more government, not necessarily regulations 

through the SBA, but rather other types of policies, whether it is 

greenhouse gas emissions, financial regulatory reform, health care. 

And how does your Office of Advocacy help them, or does it, because I think that is what their mission is to navigate through endless regulations. How exactly does it work? 

Ms. MILLS. Well, we share a goal, I think, that is very much a 

bipartisan goal, which is to reduce the regulatory burdens on small 

businesses. And that is part of the agency’s goals and activities 

across the board and through our ombudsman activity, and also 

part of the Office of Advocacy which is our independent operation 

that is highly focused on that. 

As you know, the President has issued a memorandum in January on regulatory flexibility, small business and job creation where 

he says that reinforcing the need for Federal agencies to consider 

ways to reduce, to reduce regulatory burdens on small business. 

And talks about requiring agencies to provide justifications when 

those flexibilities are not included in the proposed regulations. 

So across the administration, the President has led the charge 

that we have long been fully committed to, which is to reduce the 


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unintended consequences of regulation on small business. We are 

active in a day-to-day manner, both through advocacy and our own 

internal ombudsman on that front. 

Mrs. EMERSON. So how does that information get fed into like the 

Domestic Policy Council or people at the White House? Do you feed 

through OMB, for example? You have your SBA regional person for 

region 7, which I think is me. Anyway, that person is out among 

lots of different businesses, and they are talking and they are hearing, 75 percent of the people say this isn’t going to work and this 

isn’t going to work, or this really is going to make doing business 

far too expensive. So they feed that into you, somehow I am sure. 

But then how does that get fed into the White House decisionmakers? Is it through OMB? I mean, I am just curious more than 

anything. 

Ms. MILLS. Yes, it is through the OIRA function of OMB, and we 

have a series of ongoing roundtables conducted by our ombudsman 

and our regional network where we invite small businesses and 

talk about these regulatory issues on an ongoing basis. And we 

have just announced, an eight-city tour, I believe it is, on regulatory issues and barriers to entrepreneurs and high-growth businesses. And we kicked off the first one of those in Durham last 

week on Thursday. 

Mrs. EMERSON. Well, hopefully I think you all have the appropriate sensitivity to all of this. I hope that it is appreciated and/ 

or understood by the folks at the top who are making decisions like 

at OMB. I mean, because even when we were in charge of the 

White House, we were driven crazy by OMB. 

Ms. MILLS. There is a top-level commitment behind this. 

Mrs. EMERSON. Okay. I appreciate that. Joe. 

Mr. SERRANO. Thank you so much. And you are right the minority party gives you—the status gives you the ability to say let’s do 

this and let’s do that, and you have to come up with the final decisions. But it is a joint thing, joint decision. 

My concern is exactly as you said that there’s a contradiction 

when you set out to cut, cut, cut, cut without analyzing. Maybe 

there isn’t enough time to analyze as much as I want. Two things 

come to mind, when you say to the Small Business Administration, 

we are going to cut you 17 percent perhaps, if we do everything 

across the board, you devastate an agency which is then a contradiction to the majority party’s and the minority party’s claims 

that we want to help small business. 

If they are overregulating, that is one issue. But to cut them 

where they can’t help people help set up a small business and create jobs, that is a contradiction. There is something else that is 

happening in this Congress and has been happening for the last 10, 

12 years, which is a dangerous thing for me to say. I hope it doesn’t 

affect anybody on this panel, but there seems to be a movement in 

the country of electing people, and you take great pride in electing 

Members of Congress who have never held public office before, that 

is a great thing. I think that is a terrible thing. 

I believe you were a mayor, right? We may not agree, Mr. 

Womack, on cuts exactly where they go. But when you tell me the 

Federal Government treats mayors this way or the Federal Government treats localities this way, I have to listen because you were 


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there. I was in the State legislature for 16 years, you were a 

mayor. We understand each other before we got here. Some folks 

who got here, with all due respect to them, in the last couple of 

months, have never served before and that is why we are different, 

and we are going to cut everything. Well, you just can’t cut everything, you have to think, stop for a second. We are not going to cut 

everything. There are some places that we are just never going to 

touch. 

I want to say something, I speak for myself, I don’t speak for my 

party. I am a believer that if you get into a little debt because you 

are saving the people after Katrina and trying to put them back 

on their feet, so be it. If you have to get into a little debt to build 

the best school system in the world again, so be it. Do you have 

to get into debt looking for weapons of mass destruction that never 

existed? I am not sure. But certainly in supporting the troops, you 

get into debt, and so what? Some things you have to do. 

So the word ‘‘debt’’ sounds horrible, but not all debt is bad. After 

all, we have to behave like the American people who balance their 

checkbook every month. Not true. They all have a mortgage or they 

have a car payment that they are going to pay for a long time. 

They are borrowing too. I am not suggesting that we continue to 

get into debt the way we have been, but I am suggesting that we 

can’t just cut, cut, cut. And we certainly can’t contradict ourselves. 

If we are going to create jobs, then you have to be supportive, your 

agency has to be supportive. 

If it is about overregulating, I am open for discussion, but just 

cutting across the board and enjoying this statement that I never 

served in public office before, therefore I am the greatest. No, he 

is a better Congressman because he was a mayor, you know. And 

when you used to come here without public service before, you 

didn’t brag about it, you just kind of kept that to yourself. Now it 

seems to be like a badge of honor. Well, I did 16 years of budgets 

in New York State and I think that helps me on this committee. 

That is my speech for the day. Now a question. 

What are you seeing in terms of lending to small businesses? 

Has the Recovery Act and the extensions of its funding been effective in unfreezing the credit market for small businesses? And 

what do you think has been more helpful, the fee reductions or the 

guarantee increases? 

Ms. MILLS. Well, thank you to this Congress and to this committee for its support in the timeframe where really all credit had 

frozen, October 2008. We were able to step up, thanks to the Recovery Act and the multiple extensions that you granted with $42 billion in money that went into the hands of small business. The subsidy cost on that was $1.2 billion. So a pretty good, as I said earlier, bang for the taxpayer’s buck. 

We were able to raise our guarantee to 90 percent and reduce or 

eliminate our fees. I spent a lot of time traveling all over the country and I asked that question many times, and I got both answers. 

To some, it was a 90-percent guarantee that allowed the bank to 

step up and take the risk because they only had to put up 10 percent of the capital and this was a business they wanted to fund. 

And other times it really was that people saw, well, there is an incentive here, and maybe I will invest in that next piece of equipVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00097 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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ment and hire that next person, and maybe this is enough incentive to get that economy rolling. So both were very, very critical. 

We had the largest quarter in SBA lending in the quarter ending in December. We did $11 billion in loans, and those were just critical in filling the capital gap. We now know that there is some recovery, but that there are still holes, there are still gaps that exist. 

One is in underserved areas, and the other is in smaller loans, and 

that is why we introduced our Small Loan Advantage program and 

our Community Advantage program, two things that operate within, without incremental funding, but they are targeted to fill the 

continued gaps, particularly in underserved markets where the access and opportunity is the last to return. 

Mr. SERRANO. Now you said this was your largest quarter ever, 

or in the last year or so? 

Ms. MILLS. Largest quarter ever. 

Mr. SERRANO. Now we get unemployment numbers, we get economic recovery numbers, we get all those numbers. What do those 

numbers tell you if it was the best quarter that people feel free to 

set up a business to invest? What does it mean? 

Ms. MILLS. We are seeing the rate of business formation and entrepreneurship go up. We know that some of the best businesses 

were actually started in recessions looking back. We see encouraging signs from our small businesses in that they are taking advantage of things like accelerated depreciation to buy that piece of 

equipment and hire someone, but they are not out of the woods yet. 

The economy is still fragile. Small businesses took a tremendous 

hit, and they still very much need to be supported with access to 

capital, which the capital markets are not fully functioning and not 

fully back beyond the SBA, the traditional capital banking markets. 

And they need the opportunities to provide access to government 

contracting, and they very much need our counseling and advice 

because that shows that there are greater success rates when you 

have a long-term counselor and you hire more people. 

Mr. SERRANO. May I ask one more question? 

Mrs. EMERSON. Sure. 

Mr. SERRANO. You are requesting a $161 million increase over the fiscal year 2010 level for the SBA and of this amount, $131.6 

million, to a 7(a) loan program to cover subsidies which has not 

been the case in the past. Now in the past, as you know, it was 

zeroed out and then we would kind of force you guys to take the 

money in a way. What does this funding cover and why is it needed 

now? What is the difference this time? And how much of the regular 7(a) appropriation for fiscal year 2010, which was $80 million 

has been spent thus far? 

Ms. MILLS. The request, the largest increases as I said in our 

budget, go to subsidy. And the reason is that we have fully used 

our fees and brought them to the fee caps. The subsidy rates are 

up because of losses that we are seeing from the 2005 to 2008 cohorts. In that time period, as you know, small business owners 

used their real estate as collateral, and their house or their building had inflated values in that time period, 2005 to 2008. 

So as we look now, we see that those values are not there, and 

they are creating loss rates that have gone up as have rates for traVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00098 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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ditional lenders, our subsidy rates and our loss rates have gone up. 

Those subsidy rates calculations, when applied to the 2012 budget, 

require incremental funding that we cannot cover with our fees because we have maxed out to our statutory fee limits. We have 

asked for the ability to adjust fees and have flexibility in 2013, because we believe that if we can, we should move our loans to zero 

subsidy. 

Mr. SERRANO. Thank you. 

Mrs. EMERSON. Thank you, Joe. Mr. Alexander. 

Mr. ALEXANDER. Thank you, Madam Chairman. Ms. Mills, it is 

good to see you. You mentioned something about preparedness program, and you mentioned something about Hurricane Katrina. Can 

you tell us what that means? 

Ms. MILLS. I am sorry, I didn’t quite hear the last part. 

Mr. ALEXANDER. Preparedness program, you said something 

about it in relation to Hurricane Katrina, and you were hoping to 

do better than we were prepared during Hurricane Katrina. 

Ms. MILLS. As you know, we have completely revamped our disaster loan program in the post-Katrina era to significantly elevate 

our state of readiness, and our commitment has been significant. 

In Hurricane Katrina era, we had 366 seats at our processing centers. And it took us 70 days to process loans. 

Right now, we have 1,750 seats, and it takes us 7 to 10 days to 

process loans. We operate a new technology system that allows us 

to have 10,000 concurrent users on it versus 800 in the Katrina 

level. And we have 2,000 ready reservists, they are not on payroll, 

but they are on call. So actually, when we call them up, following 

a disaster, they will go from the ice storms in Maine, and then they 

will travel to the wildfires in California, and then the flooding in 

the Midwest, and then the tornados, and then the hurricane, and 

then they do it again. So our staffing levels fluctuate up and down 

depending on the need. 

Our commitment is to maintain that level of preparedness. And 

what we have done is look for cost savings. In this budget, we deliver to you $8 million of cost savings by taking our steady state 

of readiness down to 850 permanent staffing or steady state staffing versus 1,000. And we have done that by process engineering 

and streamlining our centers, not by reducing our level of readiness. 

Mr. ALEXANDER. Okay. In your opening statement, you said over 

the past 2 years we have provided taxpayers with a big bang for 

their buck. The Transportation Department argues that for every 

dollar spent, we benefit by $3. Can you compare what you mean 

by big bangs for their bucks compared to the Transportation Department? 

Ms. MILLS. In the one example I gave there, the subsidy costs of 

our SBA loans was $1.2 billion, and the amount of money that actually went into people’s hands, because we provide guarantees, 

was $42 billion. But this is true across our various programs. We 

have partnered with the private sector and others in our Small 

Business Development Centers, in our SBIC programs, so that we 

really try to give a lot of activity off of a smaller budget number. 

Mr. ALEXANDER. Okay, out there in the public when some of the 

banks that we hear about who are denying loans, there is an apVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00099 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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peals process that one can go through. Do you all have a similar 

process? If a loan is denied, is there an appeals process? 

Ms. MILLS. Yes, and we do review loans, multiple times. We have 

lots of ways that small businesses can get help. I will give you one 

statistic which is in our North Carolina center. We were able to 

take those who were denied loans, and we got 60 percent of them 

funding by working with them in counseling and on their business 

plan and then bringing them back and introducing them to banks 

who, you know, were interested in making loans in their particular 

area. 

Mr. ALEXANDER. Thank you, Madam Chairman. 

Mrs. EMERSON. Are you finished for this round? 

Mr. ALEXANDER. I am. 

Mrs. EMERSON. Mr. Womack. 

Mr. WOMACK. Thank you, Madam Chairwoman. It is good to see 

you, Ms. Mills. I appreciate the work that your agency does and 

continues to do for small business and job creation. I just have a 

couple of questions, and then I have to step out; I have got to go 

to the floor here in just a minute. 

But one of the things that the gentleman from across the way, 

Mr. Serrano, has indicated that I am a former mayor and a former 

small business man. So I think my background is pretty unique in 

terms that I have seen it from virtually every side. 

I think I would look at it this way; one of the things that I have 

always been in favor of is the capacity to leverage public dollars, 

that too often we get caught up in the notion that we are going use 

someone else’s money in total, and to try to accomplish some desired outcomes in small business or whatever the case is. I am 

huge on the leveraging piece of it. 

In other words, I like to see more than one person, i.e. Our Federal Government, have skin in the game when we are talking about 

making major investments in small business. I certainly agree the 

facts speak for themselves, that our way out of this economic mess 

is through the creation of jobs in the private sector. 

So what are you doing to encourage the leveraging of the support 

that comes through your agency in the public-private arena to ensure that the Federal Government’s not absorbing all of its cost? 

Instead, that we have our stakeholders in the game? That is a big 

question, that is a broad subject area, so you can probably go a lot 

of different directions with it, but I am curious about your response. 

Ms. MILLS. We share your objective of using public-private partnerships to get more leverage for the small businesses that are out 

there. And let me just give you a couple of examples. In our SBIC 

program, small business investment companies, they actually run 

at a zero subsidy level because we provide the debenture guarantees for other partners, and we are able to put billions of dollars 

out into small and growing businesses, all across the country and 

with zero subsidy cost. 

We also have a program we call SCORE, and there we use private sector individuals, 12,000 of them, who are volunteer small 

business people who have had the experience of growing their own 

business. And they counsel, for free, small businesses that we put 

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A third quick example, we have just announced something called 

Startup America, which is going to be led in the public-private 

partnership by Steve Case, a fabulous entrepreneur who started 

AOL. And a number of companies have joined this public-private 

partnership to help in Entrepreneurial Mentor Corps and other activities which are going to grow our small high-growth businesses 

that are really one of the most important job creators for the country. 

Mr. WOMACK. How active is your agency, say, in some of the 

business-directed institutions on campuses of higher education? 

How do you interact with different schools of business? 

Ms. MILLS. We have multiple interactions with different schools 

of businesses. I was just informed this morning that we have a 

joint partnership with one of the top, top-tier business schools who 

is helping us establish an entrepreneurial center in partnership 

with our small business development center. So we do everything 

from work with them in our emerging leaders, entrepreneurship 

education program to our local guidance and counseling and advice. 

Mr. WOMACK. It goes back to my question of leveraging, because 

I really think that all the major stakeholders—health care, education, higher education, government, business industry, I think, 

there are unlimited opportunities for us to work through a lot of 

those stakeholders in bringing formations of capital and expertise, 

counseling, et cetera, to the table. And I would like to see a lot 

more of that. 

The last thing I want to ask, and this is as close to editorializing 

as the gentleman a few minutes ago was doing and issuing some 

opinions. You have an impressive background in consulting and 

management and helping small business. What are you hearing 

right now about what I believe is one of the single biggest barriers 

to the growth of jobs, particularly in the private sector, the overreach of our government into areas that just cause the potential entrepreneur to throw his hands up and say, it is just not worth it, 

it is just not cost effective. 

It will cost me a lot more to do this than it is worth. What wonderful opportunities are we throwing away because we just live in 

such a terrible and inefficient, burdensome regulatory environment? 

Ms. MILLS. Well, I thank you for the question and the kind comments. I did grow up in the world of small business, and we travel 

around the country and listen to small businesses all the time, talk 

about this issue of the unintended consequences of regulation. I 

will say I am very, very happy that across the administration in 

OMB and OIRA, and the President himself have made very strong 

statements in support of small business and making sure that they 

don’t have unintended consequences from this excess regulation. 

We have been proactive. We have our day-to-day operations and 

our ombudsmen and our advocacy. But we have been even more 

proactive in recent months by initiating an effort to go around the 

country and listening to small businesses in the high-growth entrepreneur area, talk about specific barriers that they have. 

And it might be regulatory barriers, it might be can they get paid 

on time. But whatever those barriers are, this forum, which is 

under the Startup America Initiative, is explicitly designed to lisVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00101 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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ten and then take action on those kinds of barriers and concerns. 

The goal is to help entrepreneurs, put some wind at their back, and 

let them do what they do best, which is grow their companies and 

create jobs. 

Mr. WOMACK. I represent the third district of Arkansas, and once 

upon time back in the 1960s, there was a very small business, it 

started ironically enough, the first—and you know where I am 

going with this probably—the first store happened to be, Mr. 

Serrano, in Rogers, Arkansas. That is where the very first WalMart store happened to be located. I can take you to the site just 

around the block from my city hall. 

Mr. Walton is not here to confirm or deny this opinion that I will 

give, but it is in my strong opinion that that small business, which 

later would become one of America’s most famous companies and 

certainly one the largest in the world, may not have ever survived 

a regulatory environment quite like we have right now. And if 

small business people are ever going to be able to live that American dream, I don’t know how they survive. A lot of the things that 

the unfunded mandates and the demands that we are placing on 

small businesses. 

And so with that said, my question for you would be when you 

make your travels and when you hear back from these organizations—these entrepreneurs—that your agency tries to help. And 

you hear, I am sure, of many horror stories about the problems associated with developing small business, up-start businesses undercapitalized in a regulatory environment like we are, do you have 

direct access to the President’s ear? Do you—I know you have 

quoted the President as saying he wants to solve this regulatory 

burden that we have right now—but do you have direct access? Do 

you have his ear on these important matters? 

Ms. MILLS. Well, first, I have to say that I appreciate your comments about the small businesses born in Arkansas. And I actually 

have traveled there quite a bit. I have been in Arkadelphia recently 

with all the loggers, I have been in Bald Knob, I have been in 

Heber Springs, and I have been in Searay, and really appreciate 

that we have fabulous small businesses throughout the State. 

Mr. WOMACK. Well, if the gentlelady would yield, let me just say, 

since I mentioned Wal-Mart, let me just throw Tyson and J.B. 

Hunt Trucking, there are three major ones in my district, three big 

ones that I don’t think would have survived the regulatory environment we are in today. 

Ms. MILLS. But the answer to your question about the President 

is yes, I have had discussions about this with the President. I know 

he is committed. The memorandum that he issued on small business and regulation is a very strong statement to all agencies on 

exactly the issue that you described in support of making sure that 

they produce more flexibility for the smaller business who doesn’t 

have the staff and the time and the money to really deal with those 

regulatory burdens. And while preserving the health and safety 

issues to make sure small businesses can also operate. 

Mr. WOMACK. Did the Health Care Patient Protection Affordable 

Care—I never get that right. 

Mrs. EMERSON. Patient Protection and Affordable Care Act. 


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Mr. WOMACK. Patient Protection, yes, thank you. Has that come 

up in your discussions with small business entrepreneurs? 

Ms. MILLS. Yes, and I will say we have supported a very important amendment that I know is under discussion. We are very 

much in support of the repeal of the 1099 provision which does 

place an undue burden on small business. 

Mr. WOMACK. But stop there? 

Ms. MILLS. The other aspects actually provide great benefit to 

small businesses particularly in the tax credits that are available 

as we speak. The 2010 tax credits are available to potentially 4 

million of the 6 million small businesses. And as I travel, I am seeing small businesses coming to us now for information because they 

are getting dollars back in their pocket and there is nothing a 

small business likes better than dollars in their pocket. 

Mr. WOMACK. Thank you for your testimony. Madam Chairwoman, I yield back. 

Mrs. EMERSON. Mr. Yoder. 

Mr. YODER. Thank you, Madam Chair. I appreciate the opportunity to be here. And I, too, have to head to the floor shortly. So 

I will ask just a couple brief questions. I appreciate your service 

and appreciate your work here today. And I want to maybe follow 

up on the questions from my colleague from Arkansas. 

Everyone, including yourself, spent a lot of time talking to small 

business owners. Our focus, I think, my focus and many of my colleagues, is to try to figure out how we get innovators and entrepreneurs back home, creating jobs and expending and growing. I 

mean, that is the key. We know that no matter how many dollars 

and trillions of stimulus dollars are spent in Washington or how 

many rules and regulations or how many new bureaucrats we hire, 

it is not going to help that American somewhere that has a dream 

to start a small business if they can’t get off the ground and get 

moving. 

So I hear a lot of same things probably my colleagues do. And 

I guess wanted to trail backward. 

Mr. Womack was going here, and related to a word I didn’t see, 

at least in your report, you might kind of discuss your feelings on 

this, and that is related to uncertainty. Almost every meeting I 

have been in with the small business, they have brought up the uncertainty in Federal policy uncertainty in tax policy, uncertainty in 

rules and regulations, inability to borrow money. So many things 

that are related to, what I believe are poor government policies 

that the instability and uncertainty that many of them either can’t 

expand, or feel they shouldn’t expand because of the risks that are 

involved. 

And so I have been heading down the pathway, along with many 

others, trying to figure out how we create that stability and certainty for small business owners. And I note the discussion about 

regulations, and I note that your comments regarding the President’s positions of trying to review some of those, but there is a 

mountain of rules and regulations heading to small business owners. I meet with community banks, and I meet with small business 

owners; they feel inundated. 

And I don’t know if this is what you are hearing when you go 

out and talk to them, but the third district of Kansas they feel 


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overwhelmed and inundated with so many new things coming their 

way. They are completely overwhelmed by what the health care bill 

may mean to their bottom line. I can’t tell you the amount of small 

business owners I have talked to that have said, because of that 

bill, I am not going to hire anybody until I see what the impact is 

on our bottom line. 

So I see a real bottle neck coming, not from a statement the 

President might make that we should go review these rules and 

regulations, but from all the rules and regulations coming from the 

health care bill, all the rules and regulations coming from the 

Dodd-Frank Act, all the rules and regulations that are still coming 

from EPA and OSHA and so many different organizations, that I 

can’t tell you the amount of times I talked to a small business that 

feels overwhelmed. And they don’t say, well, if you could give a little bit more money to the SBA, we would be back at it. They say 

stop, change the rules of the game. Stop sending so many rules and 

regulations our way. Let us create jobs. 

And so I guess I really want to get at what the SBA is doing or 

how you are advocating, what is your position on that? Do you 

agree or do you think the rules and regulations are helpful to those 

innovators and entrepreneurs who are trying to get their businesses moving? 

Ms. MILLS. Well, as you know, we do a tremendous amount of 

traveling around the country listening to small businesses as well 

in these roundtables. And explicitly in the roundtables that we 

have just announced, we are going to be asking entrepreneurs to 

come and talk about those specific regulations on which they have 

concerns. So when they talk about specific regulations, they mention 1099, which we have come out to ask for repeal. And when 

they talk about specific regulations, we have the ability with our 

ombudsman to go back to those issuing agencies and help work 

with those small business through them. 

Overall, when small businesses talk about uncertainty, which 

they don’t do in a generalized sense, they are referring to the uncertainty they see in the economic environment. Small businesses 

do feel that the recession is not over. They do feel that they want 

now to fulfill that next order. They do come to us for counseling 

and advice on what is available to them. And one of the things I 

would hope that we might be able to do to help your small businesses is to bring them into our counseling operations. 

We have 900 small business development centers, we have 

12,000 SCORE volunteers, and they have access to bring a small 

business owner to those things that will benefit them, whether it 

is a tax credit. We have 17 tax credits that have been enacted for 

small business. Now it is tax time, we need to make sure that 

those small businesses know what is possible for them. And then, 

I just wanted to mention that those services are free. 

Mr. YODER. I appreciate you highlighting that. How many small 

businesses are there in the United States, do you have an idea? 

Ms. MILLS. Yes, just under 30 million small businesses in the 

United States, of which 6 million have employees. 

Mr. YODER. And how many small businesses have received services from the SBA in the last year? 


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Ms. MILLS. We have many, many ways that we deliver services, 

but some of the highlights are that we had 50,000 businesses that 

we gave capital to, and loan guarantees. There are about $100 billion of contracts that we put into their hands. I don’t have the 

exact number of small businesses, and we counseled more than a 

million. 

Mr. YODER. So 30 million small businesses, and you have counseled a million. How many do you think you could reasonably 

touch? So of all of our districts and all the small businesses that 

we have talked to who share with us maybe a little different perspective that you are sharing today, that the health care bill is 

making it difficult for them to feel like they should risk capital 

right now until they see how that all plays out. 

The impact of the Dodd-Frank bill and its regulation of the small 

community banks and their impact and their ability to borrow 

money, that those things from the EPA and other organizations or 

other entities in Washington that are unpredictable that don’t go 

through the democratic process, that are coming through the executive branch, those things, how many small businesses can you sit 

down with to allay those concerns so that all those things that are 

coming their way, and all that uncertainty that they talk to me 

about, how many of those folks can the SBA effectively resolve so 

they don’t have the uncertainty anymore? And what do we do 

about the other 29 million? 

Ms. MILLS. Well, we hope more and more of them will be able 

to. But I think if you want to help them with some of these issues, 

we can. And I would just put in a small plug for our redesigned 

Web site, sba.gov. And we have millions and millions of visitors to 

that Web site. We are helping everyday provide access and opportunity to things that small businesses need, and what we call the 

3 Cs, capital, counseling, contracts, those we help in our disaster 

operations as well. 

Mr. YODER. And then one small question and I have got to move 

here. But regarding trade, what do you do to help a small business 

owner in my district that might want to figure out if there are 

international partners they could trade with? Anything the SBA 

does or where would I direct a business that brings a question like 

that to me? 

Ms. MILLS. I am sorry you have to go, because this could be a 

very long answer. We have an intensive program. One of the most 

important things we can do now is achieve the mission of the National Export Initiative, which is to double our exports over the 

next 5 years. Small businesses are 30 percent of exports, but they 

are the fastest growing element. And there are only 250,000 of 

those millions of small businesses that I described that actually export. And most of them, 60 percent of them, only export to 1 country. 

So we are working on two things: We are working on bringing 

more into the funnel, and this is where there are lots of rules and 

learning curves on exports. So we have a whole set of how can you 

become an exporter tools on our Web site and in our district offices. 

And if you bring them into us, have them registered at export.gov, and we will send them what the available online and inperson contact possibilities are, because it is our mission to help 


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them find a way to connect them to all the resources that might 

be available because that is how we are going to create jobs here 

at home. 

Mr. YODER. Great. Thank you, Madam Chair. I yield back. 

Mrs. EMERSON. Thank you, Mr. Yoder. Mr. Diaz-Balart. 

Mr. DIAZ-BALART. Thank you, Madam Chairwoman. Madam Administrator, it is good to see you. By the way, I think of some those 

small business that export probably a lot of them are in south Florida I would imagine. A big chunk of those have to be in south Florida, because I run into them all the time. And I also must tell you 

that I have been involved a couple of times when people from your 

outfit have been out there, and you have got some good people that 

do a good job explaining some of the programs. 

The questions that I have are a little bit more limited. And that 

is that a recent investigation by the GAO identified 14 companies 

that received, I believe it was $324 million in set-aside contracts 

through the 8(a) program for small and disadvantaged businesses. 

The GAO director of Forensic Audit Investigative Services testified that officials of 13 of those firms, ‘‘Misrepresented their eligibility for the program to finally acquire or maintain set-aside status and obtain Federal contracts awarded with limited or no competition.’’ 

Now, GAO’s investigation showed that the SBA staff allegedly responsible for assessing annually the firm eligibility allegedly allowed three firms to remain in the 8(a) program and receive contracts despite evidence—and they say clear evidence—provided by 

the company officials during that review period that show that they 

were no longer qualified. Here are the questions, if that is the case, 

why were those three firms allowed to remain in the program, first 

question? 

Ms. MILLS. So I am glad that you brought up this issue, because 

we have a very terrific program. Probably the largest program for 

small business across government, is our government contracting 

program. And our goal is to make the goal, which is over $100 billion into the hands of small business. But in order to do that, the 

program must have integrity. And therefore, we went after fraud, 

waste and abuse in these programs. This is an issue that the GAO 

report and other reports had brought up. I believe the report you 

were referring was issued approximately a year ago. 

We took this issue face on and we instituted a three-pronged 

strategy for getting rid of fraud, waste and abuse in these programs, making sure they had integrity. The first part of it is effective certification, making sure that the program benefits are getting to the intended recipients. And this, I think, was one of the 

issues, flagged in that report. We have done a whole series of 

things across all programs, not just 8(a), to tighten certifications 

and to ensure that we are screening those potential program entrants. 

The second is continued surveillance and monitoring, which is 

conducting increased exams. And the third is robust and timely enforcement. 

To your question on enforcement, we have now quite a substantial record on prompt and proactive enforcement. Every single case 


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that has been in an IG report or a GAO report we can show you 

the follow-on activity and documentation. 

We will respect due process. There is a due process activity that 

happens for each of these small businesses. But we will go after the 

bad actors, and we have now a very strong track record in this 

front. 

Mr. DIAZ-BALART. Good. Now, let me ask you, obviously you have 

got the bad actors who, you know, who did a fraudulent application. Now, the GAO, I guess claimed that some on staff knew that 

there were some bad actors potentially that didn’t qualify. Is there 

any disciplinary action to those, the people inside your organization 

who may have—I am not saying, you know, obviously willingly, 

that missed seeing this? I mean, you know, because disciplinary actions have to not only be for those that apply, which is a problem, 

but if there were those who saw it and either missed it or whatever. I mean, what action can be taken or has been taken internally about those individuals? 

Ms. MILLS. I am not aware of any staff issues to this regard. In 

each of those cases, in every GAO report, there were follow-on activities. In addition, there is a new suspension and debarment task 

force throughout our agency, which has made even more robust activities around the suspensions. We have had over 100 suspensions, 

debarments and activities throughout our programs, and this is a 

great acceleration. We are serious about this. All of the staff has 

come forward and put tremendous effort into the more intensified 

certification activities, the continued surveillance activities and 

monitoring and the enforcement. 

Mr. DIAZ-BALART. And I understand that. And I appreciate that. 

And I think it is important. And I commend you for, obviously, 

your passion on that, which is important, because as you said, 

without that integrity, obviously we are in serious deep trouble. 

However, I just want to make sure that my point is clear, that 

obviously there is always two sides of this issue. There are two culprits. There is the one who applied and then there are those who 

may have not caught it when maybe they should have. And I am 

not saying that is the case. My understanding is that the GAO— 

and I may be wrong, talked about staff allowed three firms to remain in the program and received contract, despite, I guess, what 

they claim are clear evidence provided by company officials during 

the review that show they were not eligible. So I just want to make 

sure that it is—I commend you for your efforts, I do. And I just 

want to make sure though that one of the things that people get 

frustrated about, whether it is true or not by the way, is a lot of 

people claim or think, well, there are no consequences for those in 

government who may have either made the wrong choice or just 

didn’t do an adequate job and that is really what I am going to as 

well, because you clearly answered one very well, but—— 

Ms. MILLS. Well, in this particular circumstance I would look to, 

also, the due process activity. And in terms of our personnel, our 

performance management standards have been augmented to be 

very clear about what is expected. 

Mr. DIAZ-BALART. Good. And if you can keep us informed on just 

what those actions are and how you are doing that, because I understand that, I guess, are you asking for increased funding for 8(a) 


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program? I believe you were, or you are. And again, as you were 

stating before, and I agree with that, we have got to make sure 

that that integrity is there, particularly if you are going to be asking for any more money. 

Ms. MILLS. Yes, we are asking for 24 more positions, largely 

around, 18 of them, around fraud, waste and abuse and enforcement in our contracting area; 10 for the implementation of the 

women’s business rule. 

Mr. DIAZ-BALART. What is that? I am sorry, the last one? 

Ms. MILLS. The women business rule. 

Mr. DIAZ-BALART. Okay. 

Ms. MILLS. Which we just brought forth on February 4. 

Mr. DIAZ-BALART. Okay. And lastly, I guess there was a little bit 

of conversation about the health care bill a little while ago, about, 

I am not going to ask you to—I am not going to put you on the 

spot on this. But you must have heard from some small businesses 

that have some concerns, right, about the health care bill and how 

it affects them. I mean, because you mentioned that obviously if 

you hear about specific regulations, and commend you for your support of the 1099 changes. But have you not heard any concerns 

about the health care bill, about particularly, for example, businesses because I get it all the time from a number of businesses. 

I am just wondering if we just live in totally different worlds. 

Particularly those that are maybe 46 employees, about what happens when they reach 50. And have you, do you not get a lot of 

concerns about—you explained the positive things. But do you not 

get concerns from small businesses about the effect of the health 

care bill on their bottom line or on their future availability to grow, 

particularly if they are not at 50? 

Ms. MILLS. Here is what I hear from small businesses. The number one concern of small business is access to affordable health 

care. It has been that in the NFIB survey since 1986, number one 

concern. And small businesses want to provide health care. The 

first thing that I have heard from them is that they are benefiting 

from this tax credit. Probably there are 6 million small businesses 

that have employees. We estimate that up to 4 million may potentially be eligible for this tax credit, which kicked in in the 2010 

year. 

So that is the first thing that they want to know is, can I get 

some, you know, money back on my health care, or might this 

make it affordable, because small businesses want to provide 

health care. They just can’t get a quote. And that is where the second piece comes in. The second piece they ask about are the exchanges. Right now when small businesses want to get a rate 

quote, they have to call two or three or four brokers before they can 

get even someone to bid on their business. Small businesses pay 18 

percent more for health care, just because they are small and they 

have a smaller pool. And if somebody gets sick their rates go up. 

These exchanges will pool those risks and they know that. And the 

next thing they said is when are they coming? How do I get more 

access to an affordable quote? 

There is no mandate for small businesses who are over 50 to provide health care. There is no mandate in this. So they have not— 

when they look at the facts of what is in there and what their conVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00108 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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cerns would be, they have not expressed concerns about those because there is no mandate. 

Mr. DIAZ-BALART. So you are not hearing a lot of concern. I just 

want to make sure that I get this right. You are not hearing—I am 

sure you are hearing a lot of concerns about a lot of different 

things. You are not hearing a lot of concerns about the health care 

bill. 

Ms. MILLS. I am hearing—and this is from, you know, small 

businesses that we go out to talk to about other things, credit. One 

of them said, you know, when I was able to now provide health 

care for my employees, that was the day that I considered my business a success. 

Mr. DIAZ-BALART. I appreciate that and thank you for being here. 

Again, I am just wondering, because I do also meet with small 

businesses, maybe not as many as you meet with, but there seems 

to be a lot of concern about, as one of my colleagues said, about 

the uncertainty, if nothing else about the health care. But I am just 

surprised because I hear it all the time, unsolicited. I recently had 

meetings with, about, I don’t know, 25 manufacturers, Madam 

Chairman, in my district, by the way, which I was even surprised 

existed that many in South Florida. And one of the issues that always comes up is concerns about that bill. 

So I am just interested that I guess you haven’t heard that. But 

that is interesting. Maybe it is just that they are talking to you and 

they are talking to me and they will say different things. But I 

clearly hear it a lot. Thank you so much for being here. Thank you, 

Madam Chairman. 

Mrs. EMERSON. Of course, Mr. Diaz-Balart, she is the lender and 

they don’t want to tell them too much, I mean, I am convinced of 

that because I hear it all the time too. It is just absolutely nonstop, 

nonstop. 

Let me ask you a question. How does the SBA define a small 

business? Because we are always having all these arguments about 

what is a small business. And so, define a small business for me, 

number of employees. 

Ms. MILLS. In the numbers that I quote when I say there are you 

know, so many small businesses, the general break-off is 500 employees or more. And that is done in the Office of Advocacy data. 

We actually have different definitions for every industry category 

because a manufacturer who has 100 people may be small, but an 

accounting firm that has 100 people might be big. 

Mrs. EMERSON. And so, but it is generally employee-driven, number of employees driven as opposed to profit margin or anything 

like that? 

Ms. MILLS. There are actually a number of complicated pieces to 

it. It can be also some things to do with revenues and net worth 

as well. 

Mrs. EMERSON. It just occurs to me that since we are always 

fighting among ourselves, whether it is the House, the Senate, the 

executive branch, whomever, or even the private sector, and I used 

to work in small businesses myself and larger business, so I have 

kind of been all the way around. There was never a definite example. The number, you could pick any number to suit your purposes. 

And to me, that is kind of duplicitous. 


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I wish we could just arrive at a number, you know, whether it 

is more specific as you go down through categories or not. But that 

way, it is not always gotcha. But that is just a pet peeve of mine. 

Just a second on the business loans because we talked about why 

are the subsidy costs increasing, should fees be increased, et cetera. 

Tell me, what is the process that you use to monitor risk to make 

sure that your loans are going to creditworthy businesses? 

Ms. MILLS. Well, we have a complicated and robust, you know, 

credit process driven largely through our private sector partners, 

the banks. And banks use their credit processes, and then we provide credit guarantee over them. But the first screen is the banks 

credit process. There are a number of factors that occur in that underwriting, and it is different by loan product. But I do know that 

we pay quite a bit of attention to loans and that the loans at issue, 

as I described earlier, are really coming from the 2005, 2006, 2007, 

even 2008 cohort where the market was very hot and banks were 

making lots and lots of loans. And now we see that our credit 

scores on our new loans since 2009 are actually higher. They are 

actually higher. 

Mrs. EMERSON. Interesting. I am just really curious about that. 

But then again, the whole drop in real estate prices just had a 

huge impact on everything. All right. Now that I am very, very concerned about floods, and I live, my whole eastern border is the Mississippi River, so everything that flows from North Dakota, Minnesota on down goes right by our area. And I know that you have 

asked for $167 million for administrative costs, which is $90 million more than 2010. But you haven’t requested a subsidy appropriation for fiscal year 2012. So I know that the administrative increase looks very large, but this is because—if I understand correctly, it is because the fiscal year 2010 appropriation was partially 

offset by carry-over funds appropriated for prior disasters. 

And now there is no more carryover. We are done. So for fiscal 

year 2011, most of your disaster administration funds, or expenses 

rather, were funded through reprogramming of $126 million in disaster subsidy. So, what assumptions do you all use to arrive at the 

requested level of disaster loan administrative expenses? I mean, 

how do you determine what those are going to be? 

Ms. MILLS. In 2012, our request reflects an $8 million savings in 

disaster loan administration, and this is the result of the re-engineering in our disaster loan centers that I described. So instead of 

operating at a steady state level, remember, our disasters staffing 

actually goes up and down, up and down. But on average, the 

steady state funding that we have been using is 1,000 people. And 

we are able to provide, by 2012, the same at this time of readiness 

with a steady state staffing of 850 people. And that is, you know, 

some efforts that we have done to streamline and re-engineer and 

improve our processing operation, that is a continuous process that 

we feel is our responsibility to pursue aggressively and to provide 

those savings in these tough fiscal times. We believe that we need 

to be at that level of readiness. We also have 2,000 ready reserve 

on top of that. So if something happens, we do have those staff that 

we can bring into the system. But the cost level that we are asking 

for is that. For subsidy level, we have no year money reserves that 

we are using. 


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Mrs. EMERSON. So what do the ready reserve people do on a dayto-day basis? Do they work in banks, or are they small business 

people, or who are these people? 

Ms. MILLS. Well, they are all kinds of people actually. And I have 

met a number of them. I have been out in our disaster centers 

when we had the flooding in Nashville. I met a number of them. 

And when we went to the Gulf in the BP oil spill, a number of 

them came in. And they are from all walks of life, from all kinds 

of operations. And we have a system by which, you know, we ping 

them and say, are you ready, are you available. And they come 

back. So we try to keep a full complement available. 

Mrs. EMERSON. That is interesting, and very nice to have those 

people who want to help. So what happens if we have a large disaster, say, another Nashville or heaven forbid, a Katrina-like episode? Do you have enough subsidy carryover to support the program level that you need to be able to respond to such a thing? 

Ms. MILLS. We have built a substantial capability in the post 

Katrina era, in our physical activity. So as I said before, we went 

from 366 seats in the processing center. We have the people. We 

need someplace to put them. Now we can seat 1,750. We couldn’t 

put them all on the computer system. We could only get 800 concurrent users. Now we can put 10,000 concurrent users in so we 

could even staff up more aggressively. And we maintain our ready 

reserve. 

We have made an electronic loan application now so that 30 percent of our loans actually come in electronically. We were able, last 

year, to operate in over 40 regions concurrently because we stay for 

a bit of time so as we’re finishing up, you know, the flooding, we 

are deploying down in the Gulf. And we can stay for up to 9 

months. So we can service numbers of locations concurrently and/ 

or a large location. 

The other thing that we have done to prepare for a very, very 

serious disaster, besides simulating it, is we have engaged our fulltime district staff members who do not operate on the disaster operations to be linked on the ground in cases such as Nashville or 

BP oil spill or any other large-scale disaster so that we have not 

only our disaster operating people, but we have our core SBA district office people coming to the assistance and lending their support, our SBDCs, our SCORE people, everybody is on the ground. 

Mrs. EMERSON. So from the money standpoint, how much in disaster subsidy do you have in reserve? 

Ms. MILLS. We can get you an answer to that. But we have a 

number of years of disaster subsidy in reserve. 

Mrs. EMERSON. So presumably then, if, let’s just say, you can get 

us the numbers and it amounts to 5 years or so, then could we possibly look to disaster loan subsidy funds to pay for the 2012 disaster administrative expenses if necessary? 

Ms. MILLS. Well, the issue there is the level of preparedness and 

the level of risk that we want to take on. Our commitment has 

been to be prepared for intensive disasters, and that was the commitment we made after Hurricane Katrina. Nobody really knows 

what the future will bring in terms of hurricanes and earthquakes 

and other issues. And we have seen around the world that they do 

come. So we have a level of preparedness now that we think we 


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can handle it, and we want to make sure when we go into the field, 

that we also have the loan subsidy so that we can execute the 

loans. 

Mrs. EMERSON. I would thank you and appreciate and thank you 

in advance for getting us those numbers if you could. One quick 

question, then I will turn it over to Mr. Serrano. Our current continuing resolution is set to expire, I guess, week after this. What 

day is today, the 8th? Okay. So 10 days. I don’t think a shut down 

will occur, in spite of the hype. 

I mean, hopefully we will be able to work out our differences and 

keep the government running. But do you all have a plan for operating during any kind of government shutdown? And if so, then, 

can you tell us just generally speaking what kind of activities and 

which personnel would be considered essential? 

Ms. MILLS. Well, everyone is working very hard, I know, on 

averting a shutdown. The President has said, and we agree, that 

a shutdown would hurt the economy and would hurt small businesses. Since 1980, every agency has been required to have a plan 

that would go into effect in case of a shutdown. We are on an ongoing basis updating that plan. We are committed, I know across the 

bipartisan effort, to work on making sure there is funding for 2011. 

The activities that would or would not be shut down are actually 

governed by law. There are rules around it. There is one thing I 

can tell you, which is that our disaster operation will not be shut 

down. That is considered an essential operation and it would not 

be part of an appropriation. 

Mrs. EMERSON. I appreciate that. I don’t know that it is presumptuous for me to ask, but would it be possible to get a copy of 

your plan? 

Ms. MILLS. Well, we are updating the plans on an ongoing basis, 

and at this moment, I know that things are so fluid that, you 

know, we are sort of in the continuous update mode. 

Mrs. EMERSON. So would it be possible to get last week’s plan? 

Ms. MILLS. Well, we know—— 

Mrs. EMERSON. Just to give us a sense. I mean, it is not to give 

to the press. It is really for our own, for our own sense. All right. 

We can have further discussion on this. I will pass it to Mr. 

Serrano. 

Mr. SERRANO. Thank you. Boy, you really want that plan, don’t 

you? 

Mrs. EMERSON. Yeah. I do. 

Mr. SERRANO. So do I. Wouldn’t it be nice if a government shutdown meant a real government shutdown like the war ended, like 

the troops would have to come home immediately. 

Mrs. EMERSON. But you would be stuck here in Washington. 

Mr. SERRANO. No. No. I could go for that. I could be supportive 

of a shutdown if all the troops just had to pack up and leave, the 

war is over. But something tells me that would continue. We would 

find money. 

Let me ask you a question. The fiscal year 2012 budget calls for a reduction in the small business development centers, $10 million, 

and proposes to eliminate the prime technical assistance program. 

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ting technical assistance to small businesses, both through micro 

loans, the prime program and the small business development centers, and how do you intend to serve small disadvantaged businesses without these resources? 

Ms. MILLS. Well, as you know—— 

Mr. SERRANO. I mean, I must tell you that, anticipating what I 

think you knew, the cuts that would be proposed, why any agency 

is on their own cutting is beyond me. I know that sounds irresponsible, but if you knew what was coming, why would you propose 

any cuts? 

Ms. MILLS. Well, as a part of being part of this fiscally responsible process, we all are tightening our belts. We are all streamlining our operations. And that really makes us make some really 

difficult choices, as you just pointed out. We have a program, as 

you described, prime, which gives technical assistance in communities that are involved with our micro loans. What we have done 

is try to look at places where we can streamline without losing the 

value of that technical assistance. So we have initiated a very 

strong overall activity around underserved markets. In it, we have 

made some changes to our loan programs and opened our 7(a) program to our micro lenders and CDFIs, (Community Development 

Financial Institutions that meet certain qualifications that will be 

responsible to our program). They provide technical assistance for 

those loans at their own cost. 

What they want from us really is the availability of the loan subsidy, the loan guarantees. So we are looking at ways we can do 

what we do best, open more access and opportunity to the loan 

guarantees, and encourage our partners to provide the technical assistance which they do best. That set of activities, I think, will give 

a robust set of help to the small business because technical assistance is a critical part. And we are looking forward to working with 

our partners to boost their capability to give loans and then also 

to give that technical assistance from their capability. 

The SBDCs you asked about are also very important partners to 

us. I just wanted to point out one piece, which is that half of the 

reduction in the SBDC funding does not relate to their base level. 

We have been able to reduce prior special purpose counseling 

grants, which takes account of about just over half of the proposed 

reduction. 

Mr. SERRANO. Well, let me just, for the record, tell you that you 

mentioned the CDFIs. That is part of this subcommittee, and they 

are being devastated too, so you may not have the partner you 

think. But the part that confuses me, even after your explanation, 

is in answer to one of the early questions, you said that if there 

were a couple of shortcomings in the Agency, it was the inability 

to do more in low income communities. 

So why would you voluntarily cut those programs that affect 

those communities? I know that I mix my questioning with an attempt at humor at times. I really think that Members of Congress 

sound too serious. We should be serious, but we don’t have to 

sound serious all the time. But I am very serious when I tell you 

that all agencies should be aware that the plan here is to cut to 

the bone. So yes, it is important to be fiscally responsible, but don’t 

give up the house before half the house is taken away from you. 


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Ms. MILLS. If I might clarify, I think what I was referring to is 

that the gaps in the market are in the area of underserved communities. The market has not come back to provide access and opportunity to those underserved communities. At the SBA we have actually intensified our efforts around the underserved market. We 

just actually announced a council that is going to be led by Cathy 

Hughes, a fabulous entrepreneur who founded Radio One. And we 

are working, across all of our programs to increase access and opportunity in the underserved markets because that is a really important role that we play and that the markets don’t. So as we go 

forward, we have developed this program called community advantage. And this is going to bring the CDFIs into our activity as lenders in our traditional 7(a) product. This is something that they 

have been eager to do and asking for for quite a bit of time, and 

I think will help us get what we want, which is more points of access in these underserved communities with lenders who understand those small businesses. 

I don’t need to tell you that these are the people who hire in 

these communities. Across the board, our government contracting 

programs, our 8(a), our Hub Zone and other programs, our counseling operations also are going to be part of this underserved 

council and underserved effort that we have. Because the role of 

government, I think, is to provide access and opportunity. We at 

the SBA are three to five times more likely to make a loan to a 

minority-owned business or a woman-owned business than a conventional lender. So this is the place where we see our participation to be critical. 

Mr. SERRANO. As an extension of that, how are we doing at meeting the contracting targets for women-owned businesses? 

Ms. MILLS. Well, as I say to everybody, the goal is to make the 

goal. And we had a very good experience in the Recovery Act where 

we were able to exceed not only our 23 percent goal, we were over 

30, but we made every single sub goal. In the past, we have not 

made our women’s contracting goal and we have fallen short. And 

every percentage point you fall short in government contract is $4 

billion that is not in the hands of that constituency. We have been 

able to implement, this year, the women’s contracting rule. This 

was a rule that was passed in the year 2000, but was never implemented until we came on board and made it a priority. 

And finally, through the efforts, fabulous efforts, of a whole set 

of committed people across the agency and outside and across government, that rule went live on February 4. There are, I can get 

you the number. It is more than 1,000 small businesses that have 

uploaded their data, certification data into our certification data 

bank, and we are hopeful and determined to make sure that this 

new tool allows us to make the goal. 

Mr. SERRANO. Let me ask you something about these regional 

clusters. I know you received 173 applications and you funded 10. 

Can you tell us a little about the winning proposals and how you 

see this program evolving in the years ahead, especially this year? 

Ms. MILLS. Well, as you said, this was a very highly competitive 

process. We had very high demand, huge demand from the small 

business community. And we were able to fund some really extraordinary initiatives. The closest example to where you are is the 


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Connecticut Hydrogen Fuel Cell Coalition, which includes New 

York, Connecticut, Massachusetts, Maine and others. In the Gulf 

Coast, for instance, a geospatial solutions innovation cluster. I was 

just in Northwest Ohio, in Cleveland, where Nortech won, which 

does flexible electronics. That is electronics that you can put on a 

piece of flexible material, so it has circuits, but it bends and you 

can put it anywhere, on a helmet, on anything. 

We have a Carolina nuclear cluster. We have an agricultural 

cluster in California for agricultural innovation. We have a defense 

cluster. What these clusters do is they allow small businesses, who 

don’t have the power individually, to access the resources that big 

business do. When they cluster together they can access university 

research, community college curriculum and that gives small businesses in these high growth sectors the ability to transform the region. They are what I call the link, to leverage and align money 

on a regional basis that create new economies, and therefore transform those economies, create jobs at a pretty good bang for the taxpayer buck. 

Mr. SERRANO. I have one last question and then I will submit a 

couple for the record. How has the emerging leaders program been 

implemented so far? And again, sounding like a big spender, with 

$3 million requested, what is it that you do that would have an impact? 

Ms. MILLS. Well, this program has an extraordinary impact. This 

is specialized training for entrepreneurs, largely in the inner city 

and underserved communities. We have expanded it to the Native 

American community with great success. And just a couple of statistics. We track and measure the metrics very heavily on this. 

Half of the participating businesses, after they went through this 

program, had an increase in revenues. They secured nearly $10 

million in financing. They also secured nearly 500 Federal state 

and local contracts, which were over $100 million. And 60 percent 

of them have hired new workers. 

So we know that this program creates the intended effect, which 

is to help entrepreneurs learn how to grow their businesses. And 

that we have an expanded list of cities where we are able to bring 

this program; it is proven, we have actually been running it for 

quite a bit of time. And we know that in each of these communities 

we can really build a new core of successful entrepreneurs. 

Mr. SERRANO. Thank you. And actually, I stand corrected here. 

Myself. There is only one question I am submitting for the record. 

Mrs. EMERSON. Perfect. So how would I become an emerging 

leader if I had a small business? How would I become part of that 

program? Just because it is fascinating to me so I would like to 

know how. 

Ms. MILLS. Yes. I believe it is a competitive process. We run a 

curriculum-based program, so you come into a class with a cohort 

and that cohort is designed to work so there is thought placed on 

the different kinds of businesses to have together in that cohort. 

And the trainings are pretty intensive. I will say that we have had 

some good success also expanding this in the Native American community where there has been significant unemployment and we are 

doing it in Albuquerque. We are doing it in Phoenix, we are doing 


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it in Portland, Oregon, in California and Seattle and Oklahoma and 

Ohio and St. Louis actually. 

Mrs. EMERSON. So if you are a small business person, or you own 

a small business, then you would actually make application. 

Ms. MILLS. You would make application in one of the cities. We 

put out a call for applications. 

Mrs. EMERSON. I see. Okay. So would that be advertised in the 

newspaper or does it go to local Chambers of Commerce? How do 

you put out a call? I mean, I am just curious since I don’t have a 

small business myself. 

Ms. MILLS. I will find out for you, but I would imagine it is all 

of those, yes. 

Mrs. EMERSON. I would love to know because I certainly know a 

few people who could take advantage of that. But that is why I 

want you to come to the district so we can tell people about these 

good programs that you have. 

So I recently read a rather scary report, and I am sure that Joe, 

if you read it too, you would think it was pretty scary, that the 

GAO did duplicative government programs. As a matter of fact, I 

was anticipating being, at least having several people yell at me 

about those sorts of things over the weekend, which surprisingly 

they didn’t. So I was pleased about that on the one hand. But I did 

know that in economic development, in the economic development 

category, there are about 80 different programs at four agencies 

being investigated, with y’all included, I guess, to assess the potential overlap and to the extent to which agencies collaborate to 

achieve a common goal. And so since you mentioned in your testimony about your efforts to streamline processes and eliminate duplication, tell us how you actually coordinate the SBA’s efforts with 

other economic development agencies to make sure that, number 

one, everybody knows the opportunities available from the SBA 

and perhaps other areas or other programs in the government to 

do economic development. And then, after you tell us that, tell me 

how do you actually ensure that Federal agencies aren’t duplicating 

one another? 

Ms. MILLS. As you know, we operate on the ground. And I will 

say, I think we have done a really extensive job at collaborating 

across agencies. The President said, no silos, and we have worked, 

particularly at the SBA, across numerous agencies to make sure 

that we are linked, leveraged and aligned and not duplicating effort. Let me just give you two examples, and I could actually give 

you many. But one is the Veterans Administration. 

Early on, we did a collaboration with the Veterans Administration to make sure that every veteran service operation was also 

telling the veterans about our loan programs. We have special veterans loan programs and counseling operations and we wanted to 

make sure that they knew about the access to our programs. And 

we, on the other hand, became more educated as to what was available to veterans through traditional, avenues or at least how to integrate them back, and we have worked to make sure our Web 

sites are linked, that we have cross links. If you come on our Web 

site as a veteran you can get back to other VA programs. A second 

place that we have actually formalized an MOU, as well, is with 

Tom Vilsack and the Department of Agriculture. 


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We operate in rural areas and we operate in very close collaboration at our district office levels with the USDA operations, so that 

we can find out which loan program is right for a particular borrower. And we are always referring back and forth between our 

programs and their programs to make sure that we guide the small 

business to that which is right for them. We collaborate extensively 

across multiple agencies on exports. We coordinate with the Export 

Import bank. We have joint programs with them. We coordinate 

with Commerce on a daily basis, on all of these activities. And we 

coordinate as well in an interagency effort in clusters. 

And as I said, I could go on. We are fortunate to represent small 

businesses and to be, I think, a powerful force now in making sure 

that those small businesses find their way to the resources that 

they need. 

Mrs. EMERSON. So you had a very successful professional career 

in small businesses and sort of bringing innovation and the like. 

So taking off your SBA hat just for a second, and thinking about 

it from the perspective of an entrepreneur or someone who is helping entrepreneurs, what recommendation do you have to us as 

Members of Congress, how do we sort of figure out what is duplicative and what is not, and how do we best streamline it? I mean, 

obviously, y’all should be doing that at SBA, or SBA, you are not 

working there anymore, just temporarily here, while we’re talking 

about this, so SBA, you know, has the expertise to do small business, anything with regard to small business. And you know, I 

don’t know what other agency, if there are any, who do it. But I 

do know there are about, at least eight agencies that do renewable 

energy, including the USDA, I might add. How do we take this program and leverage off each other and streamline it, as opposed to 

having eight different sets of rules and regulations and therefore, 

we get nothing done. 

So what do you recommend, how can you help us do our job better, having been in the arena yourself? 

Ms. MILLS. Well, as you know, there are lots of different kinds 

of small businesses. And they have different kinds of needs. So 

Main Street small businesses, they need capital, contracting, counseling, but it is a different kind of capital perhaps than a high impact small business. So I think the first thing that we have thought 

about, I think quite effectively now, across the Federal Government 

is what are the needs for the high-growth, high-impact small business. And that is Startup America, the interagency effort around 

both removing barriers and providing the tools that a small business needs. 

So I think the best place to see strong examples of effective elimination of duplication and even more than that, coordination of all 

the assets that are available, are in some of these interagency efforts, and in some of the electronic information one stops that we 

have been able to do. If you look on SBA.gov and business.gov, you 

will see that we leverage other agencies’ activities in order to make 

sure that the small business gets an opportunity to navigate to 

what is right for them. And we can continue, we plan to continue 

to do that to make those pathways even more easy to find for small 

businesses. 


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Mrs. EMERSON. Are there other agencies that horn in on any of 

the work that you are doing? 

Ms. MILLS. Well, we invite them in. 

Mrs. EMERSON. That is different. That is not what I asked. I 

said, are their agencies who somehow try to get in and do your, do 

what do you? Because if there is, that is what we need to know because obviously, y’all have the expertise and perhaps other agencies, well, rural development may well actually be one that would 

horn in, or as you were saying, you should work actually more collaboratively I would think. 

Ms. MILLS. We do not find extensive duplication in the respect 

that we operate on the ground and we tend to be the agency that 

lives on the ground, helping small businesses one by one by one by 

one. And I think we are able to bring a tremendous set of assets 

in the interagency activity, and our role is generally that we do a 

lot of the groundwork. We do the heavy lift in direct contact with 

the small business day by day, one by one. And I really have to 

just take the moment to commend our staff that does that on the 

ground. They have a real love of small business and that is how 

we help them. 

Mrs. EMERSON. And I would attest to that, working, you know, 

my staff works extensively with your folks on the ground. But 

hopefully the other agencies with whom you collaborate will jump 

as fast as you do so that if there is a whole package and you are 

only doing part of it, they are doing their piece simultaneous to 

yours. And that would be my frustration. 

Actually having worked in an administration many, many years 

ago, that was my frustration. It was because there was a lot of 

interagency work that had to be done and we did our part and the 

others didn’t. I am not asking you to make a comment. But that 

is a very frustrating reality sometimes of unwieldy government. I 

have got a bunch of questions that I want to actually, and I also 

have one from Mr. Walden of Oregon who has asked me to submit 

a question for him, which I am happy to do. There are things that 

I want to, questions about 504 loan refinancing, particularly since 

you all are not actually asking for any subsidy costs, but is there 

something that we ought to know about in case something happens? 

Might there be a cost associated with those 504 loan 

refinancings? These are the types of questions that we are going to 

submit. And if we could get an answer back. Some of these are 

pretty critical. If we could get an answer back within 10 days I 

would be very grateful. We will rank them many. And Joe, you 

want an answer back quickly too? 

Mr. SERRANO. Yes, to my one solitary question. I do have a question for you. Do you think the Senate is a duplication of the House? 

Because that would solve a lot of our problems. 

Mrs. EMERSON. Well, on the one hand it could solve some problems. On the other hand, sometimes the Senate is able to act—well, 

they frustrate me a great deal because it takes so long to do things. 

Sometimes they can, perhaps, bring a little balance. 

Mr. SERRANO. Madam Chair. I am joking. I expect them to save 

us from H.R. 1. 


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Mrs. EMERSON. I guess that is what I was trying to say in a more 

diplomatic way, given the fact that this is all on record. 

Mr. SERRANO. Listen we have been doing stand up here at times 

and it is all on TV too. 

Mrs. EMERSON. All right. We won’t keep you any longer. Thank 

you. Thanks so very much for all you do. 

Mr. SERRANO. Thank you for your service. 

Mrs. EMERSON. Thank you for all you do and all that your staff 

does. You all really are the front lines and we need to keep you in 

the business of doing just that. 

Mr. SERRANO. And you know my mantra, don’t forget the territories. 

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(141) 

THURSDAY, MARCH 31, 2011. 

CONSUMER PRODUCT SAFETY COMMISSION 

WITNESSES 

INEZ MOORE TENENBAUM, CHAIRMAN, CONSUMER PRODUCT SAFETY 

COMMISSION 

ANNE NORTHUP, COMMISSIONER, CONSUMER PRODUCT SAFETY 

COMMISSION 

Mrs. EMERSON. This hearing will come to order. I want to wish 

everybody happy opening day of baseball. Go Cards. Joe. 

Mr. SERRANO. It is opening day because the Yankees are playing. 

Mrs. EMERSON. And who are the Yankees playing today? 

Mr. SERRANO. The Yankees are playing the Tigers. And we are 

going for number 28. That is arrogance, is it not? If I was not a 

Yankee fan I would be upset that they can buy every player in the 

world. 

Ms. EMERSON. So now we are trying to find out if I have a Cardinals cap here, and we are going to decorate the dais, do you have 

one in your office, Steve? Not yet. 

Mr. WOMACK. All my Cardinals caps are soiled with sweat and 

grease. 

Mr. SERRANO. You realize the Tea Party is outside listening to 

all of this, right? 

Mrs. EMERSON. All right, anyway, I guess we will get serious. I 

am hoping that the Yankees and the Cardinals win today, in fairness. And I want to welcome our witnesses, Chairman Tenenbaum 

and Commissioner Northup. Thanks for being here and testifying 

on the Consumer Product Safety Commission’s fiscal 2012 budget 

request. You all at the CPSC have the daunting task of overseeing 

tens of thousands of consumer products. These products are used 

by all of us daily. It is important that the CPSC lives up to its mission of protecting consumers from unsafe products while at the 

same time not promulgating rules that are unnecessarily onerous 

for American businesses and manufacturers. 

Of particular interest to me is the Commission’s effective and efficient use of its resources. As you know very well, the current 

spending levels are unsustainable. There has been much interest, 

and there has been concern expressed to me by many people, about 

your product complaint database, so I am interested in hearing 

both of our witnesses’ thoughts on that, and particularly because 

I tried using it myself yesterday, just to see how easy it was to 

work. But then I realized I did not have a complaint, and I could 

not submit things that were not true. I have concerns with its tangible impact on dangerous products, and perhaps some of the unintended consequences. I do want to get into that because I did go 

on it and saw how it worked, and I looked through and saw some 


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of the complaints that had been made, most of which seemed quite 

legitimate to me. 

But on the other hand I do want to explore further problems that 

could arise. It just worries me about over-regulating business in a 

very fragile economy. Certainly we do not want higher prices for 

consumers, but nor do we want American businesses to close or not 

even try to grow due to regulations that make it too hard for them 

to comply. In addition, I do have concerns about the amount of taxpayer money that is going into this database. Hopefully we will discuss this, because as you remember, during the debate on HR–1, 

there was an overwhelming vote to not fund the consumer complaint database. I suspect that this is not going to be the last we 

hear about it from colleagues, and perhaps we can work together 

on trying to figure out how to best make people feel comfortable 

about it, or changes that need to be made. I want to thank you all 

so very much, and look forward to your testimony. I want to recognize my very good friend and Yankees patron, Mr. Serrano. 

Mr. SERRANO. I wish I was a Yankees patron. I cannot even afford the tickets now. 

Ms. EMERSON. How much are the tickets? 

Mr. SERRANO. Top ticket to Yankees Stadium is $1,250. 

Mrs. EMERSON. To go to a game? Who would spend that kind of 

money? 

Mr. SERRANO. It was built with Wall Street in mind, but that is 

another story. That was before the crash. Do not get me going. 

Thank you, Madam Chair, I too would like to welcome Inez 

Tenenbaum, the Chairwoman of the Consumer Product Safety 

Commission, and Commissioner Anne Northup, a colleague is always a colleague, to this hearing of the Financial Services and 

General Government Subcommittee. This agency has a vital role to 

play in all of our lives, as it is responsible for making sure that the 

products we use every day are safe. For fiscal year 2012, the budget request for the Consumer Product Safety Commission is $122 

million. Your agency has important and ongoing responsibilities in 

making sure that hazardous products are recalled, imported products are safe, and that our children are protected from dangerous 

toys and other baby products. 

I am particularly interested in learning more about your ongoing 

efforts to implement the Consumer Product Safety Improvement 

Act of 2008. I am also pleased that you have launched your new 

Consumer Products Safety Information Database, which will give 

consumers an important tool as they use or purchase new products. 

Finally, I look forward to discussing your efforts to address safety 

issues with respect to imported products. We must make sure that 

we continue to provide for a strong Consumer Products Safety 

Commission, and I am hopeful that today’s hearing will give us an 

opportunity to learn more about your ongoing programs and the 

progress that you are making in some of your newer initiatives. 

Again, we welcome you. And we have a delicate balance, here. 

And that is that it is obvious that there will be some serious cuts 

across the board in this year’s budget, and in future budgets. That 

is the mood in many places, and that is certainly the mood in the 

House. Our challenge is to make sure that as we apply these cuts, 

especially in this agency, that they are done in a way where we do 


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not hurt the effort that we should be making on behalf of the 

American people. Our Chairwoman said we have to be careful that 

we do not over-regulate. I agree with that. But my statement is we 

have to be careful that we do not under-protect the American consumer. And there is the balance. Do not over-regulate, do not 

under-protect. If we can strike that balance, the American people 

will be well-served. Thank you. 

Mrs. EMERSON. Thanks, Mr. Serrano. Chairman Tenenbaum, we 

will recognize you for your opening statement. If you would not 

mind keeping it to five minutes, it gives us more time for questions. Thanks. 

Ms. TENENBAUM. Good morning, Chairwoman Emerson, Ranking 

Member Serrano, and members of the committee. I am pleased to 

be here today to update the subcommittee on the positive changes 

we have made at the agency. Since my last appearance before the 

subcommittee a year ago, I have focused on three key objectives. 

First, I have worked diligently to implement the Consumer Product 

Safety Improvement Act, the CPSIA, and used that Act’s new authorities in a manner that is both highly protective of consumers, 

and fair to industry stakeholders. On March 11, we officially 

launched our new publicly available Consumer Product Safety Information Database. The database, now available at 

saferproducts.gov, will empower consumers with information, allowing them to quickly determine which products they already 

own, or are considering purchasing, are associated with safety hazards or recalls. Second, I have focused on changing the CPSC’s internal processes, so that the agency is more proactive and more capable of addressing safety challenges presented by thousands of 

types of consumer products imported from around the world. 

In the last year, the Commission has unanimously adopted a 

five-year strategic plan that establishes a plan to move CPSC closer to becoming the global leader in consumer products safety. We 

have established a new office of education, global outreach, and 

small business ombudsman that has already begun to provide outreach to small businesses and crafters. And we have embarked on 

a substantial upgrade of our information-technology system, which 

has formed the backbone of our database, and our new cpsc.gov 

homepage. Third, I have focused on proactive prevention of consumer harms, identifying emerging hazards and keeping those 

products out of the stream of commerce. We have taken a number 

of steps to increase our surveillance of potentially harmful consumer goods by signing several information-sharing agreements 

with customs and border protection, and increasing our physical 

presence at the ports-of-entry. The Commission’s Safe Sleep team 

has also made great strides to rid the marketplace of dangerous 

cribs, usher in a new generation of safer cribs, and educate parents 

about the importance of maintaining a safe sleep environment for 

infants and toddlers. A key component of this was the mandatory 

crib safety standards, which was unanimously adopted by the Commission. In addition, the Commission’s staff has already worked 

very hard to address new hazards, such as the potential use of 

toxic metals in children’s products, and the Commission’s continuing efforts to provide information and outreach to homeowners 

impacted by problem-drywall. 


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Overall, I am extremely proud of the Commission’s talented staff, 

and the work they do every day to create a safer consumer product 

marketplace for all Americans. Our proposed fiscal year 2012 budget reflects these priorities, and will give the Commission the staffing and resources it needs to respond to new hazards and keep consumers safe. In fiscal year 1980, the commission had about 100 

full-time employees, and an inflation-adjusted budget of over 150 

million. By 2007, the commission had fallen to 385 full-time employees and was barely able to fulfill its core mission. Full-time 

staff now stands at approximately 550 employees. As noted earlier, 

these resources allow us to staff several ports-of-entry, and leverage cooperation and information sharing with CBP to keep dangerous products out of the country, staff our new lab facility, scheduled to open in May, and test potentially dangerous products, and 

allow us to respond more rapidly to emerging hazards like toxic 

metals and problem-drywall. I am highly cognizant of the desire for 

fiscal restraint that has been expressed by the administration, the 

Congress, and the American people. Yet I believe that CPSC is, dollar-for-dollar, a great investment to the taxpaying public. There 

are, however, several areas of critical need that the Commission 

must address in fiscal year 2012 to maintain our forward progress. 

Accordingly, the fiscal year 2012 CPSC budget requests $122 million; a slight increase from the $118.2 million funding level the 

Commission is currently operating under the continuing resolution, 

and the $118.6 million request for fiscal year 2011. 

If enacted, this level would allow the agency to hire an additional 

34 full-time employees to fill areas of critical need, such as rapid 

review of incident reports, and increased defect investigations. 

These resources will allow us to continue our rebuilding efforts, improve outreach to consumers, and most importantly, prevent injuries and save lives. Madam Chairman, Ranking Member Serrano, 

Mr. Womack, thank you for inviting me today to provide testimony 

before the Subcommittee, and for your support of the CPSC. And 

I would like to share with you a reflection of the statement, a chart 

that reflects the CPSC resource history from 1974 to 2012. 

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As you can see, in the 80s, we were almost to 1,000 employees, 

and adjusting our budget to inflation, we had about 150 million. 

And as the cuts were made in the Clinton Administration and the 

Reagan Administration, we went down, and this right here is when 

the year of the recall occurred, when Congress directed us to hire 

500 people by October 1, 2010. That was in the CPSIA. And that 

is when we started climbing, when we got that direction from Congress in the CPSIA. It said, The Commission shall increase the 

number of full-time professionals employed by the Commission to 

at least 500 by October 1, 2010, subject to the availability of appropriations. So, thank you, Thank you for letting us use the charts. 

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Mrs. EMERSON. Thank you so much, Chairman Tenenbaum. I 

would now like to recognize Commissioner Northup. Try to keep it 

please to five minutes. 

Ms. NORTHUP. Yes, thank you. Is it on? Yes. I am delighted to 

be here. Congratulations, Madam Chair, for your position as Chairman of this committee, and Mr. Serrano, I am delighted to see you 

again as you said, Once a colleague, always a colleague. This is an 

opportunity to come before you and share some of the perspectives 

that I have since being a Commissioner at the Consumer Products 

Safety Commission since August of 2009. I appreciate the challenge 

of this committee to fund essential services, and the trade-offs that 

occur even in the best of years there were trade-offs that always 

had be made. And it is with that in mind that I come before you 

today. As our Chair said, we have grown from 80 million to 118 

million since 2008. We have gone from 385 employees to 549. And 

if we complete our hiring for this year, our targets, and we get the 

increase that we are requesting, we will be at 600 by the end of 

the 2012 fiscal year. 

With that in mind, I wish I could tell you that all of this money 

that has been spent has been a good investment. Certainly, our 

Chair has done a wonderful job at reaching out and looking for better ways, and new ways, to accomplish what the CPSC is required 

to do. However, the overwhelming amount of time, energy, and 

money, is being spent on implementing the CPSIA. And while the 

CPSIA had important, new, good safety requirements that it put in 

place, some of what we spend our time on, and much of what businesses have been required to do, have absolutely nothing to do with 

risk. There was never an assessment made that what we were preventing was risky to children in the first place, nor is a lot of the 

requirements in order to comply with the law based on risk. 

However, we get weekly, sometimes daily, information from associations, from individual businesses, from people all across this 

country that tell us about the fact that they have closed their business, or they have left the child products area of their business. 

The number of small businesses that we put out of business has 

to be in the 100s. It was estimated by our agency back in 2009 that 

the cost to businesses is in the billions of dollars. And when you 

hear these stories individually, people that come and talk about 

businesses that they have grown, where they have hired people, 

the ideas they had, and they are simply unable to comply with this 

law, and so they are leaving, many of them, trying to sell to a larger company because they just simply cannot absorb the cost and 

the overhead that it has added. It has really been very sad. 

I hope we will have a chance to talk about some of the challenges 

that they have, but I can tell you on the market that besides the 

loss of jobs, the loss of businesses, particularly in this country, because small businesses are the ones that have the biggest problems, the biggest companies that make toys do not make any of 

them here in this country. They make them in China. They make 

such a large number that they are at least more able to spread the 

cost of complying with this law over many more products. But it 

is also the cost in the marketplace, the number of toys and products that are no longer being sold in this country. We used to have 

the most vibrant market. Now there are Websites to which you can 


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go, where they say, Not sold in the United States. Whole companies, a Swedish company, a German company that are no longer 

selling any of their toys in our market; ones that were very popular 

with parents. There are also people that sell to small markets, to 

our schools, small number of products that say they simply cannot 

abide by all the responsibilities of this Act. If it were related to 

risk, of course, I would strongly endorse these regulations. But in 

many cases, risk is not even something that we are allowed to consider. 

I am here to ask you to do two things as the Appropriations 

Committee where I think you can make a big difference. The first 

is simply do not let third party testing and certification go into effect. To the Chairman’s credit, she endorsed delaying the implementation of that until December. But businesses tell us that that 

is a staggering cost to them. Not only the cost to do third-party 

testing, but also to certify and to track every single component of 

every single good and the certification number, and label every single product, so that that cohort of information is available is a staggering price. And it is unnecessary. 

The Chairman, in my opinion, has been so creative in establishing much better border procedures that ways to intercept violative products, ways to test in a more efficient way. We have companies it is not the same world as 2007. The companies that were violative have all come in and told us about the new production oversight companies that have responded to us, have all talked about 

their ISO labs that are inside their production facilities all over the 

world today. And so, they themselves because of the cost of the 

penalties that increase, the chance of a class-action lawsuit, Mattel 

settled the class-action lawsuit because of their toys for $14 million, and so the need to avoid those sort of costs, the ability to 

intercept violative products here, we do not need the old-style command and control formula that was in that bill that is going to 

stagger the products that fall into under this regime. 

And finally, I know we will talk about this more, I beg you to 

stop the funding of our database. It is a database right now. There 

are 12 of our top people in our agency. Everybody from the General 

Counsel, her top assistant, the person in charge of compliance, 

their top people meet every day Tuesday, Wednesday, and Thursday at 8 a.m. in the morning to incident by incident go over every 

single one of these, and it is those multi-group teams that you will 

be funding in the additional request that is just counterproductive, 

both in terms of fairness to our businesses, fairness to the public, 

and giving accurate information to the public, which is the only 

reason Congress stated for the database. So those two things 

defunding would, I think, not only create a better agency but also 

be a better expenditure for money. Thank you. 

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Mrs. EMERSON. Thank you so much, Commissioner Northup. I 

want to welcome Mr. Diaz-Balart, the Vice-Chair of our committee 

today. Chairman Tenenbaum, can you do me a favor and have 

somebody pull that chart up again that you just showed us before. 

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Ms. TENENBAUM. These are full-time equivalents. 

Mrs. EMERSON. Okay. Do you have budget numbers? 

Ms. TENENBAUM. It was 150, but that is what the equivalent 

was. I can give you that budget number. We had 978 FTEs. And 

then, in 2007, when we had the year of the recall which prompted 

the CPSIA, we had 393 workers. And that is why, in the CPSIA, 

the language was put in that we had to hire 500 by October 1, 

2010. 

Mrs. EMERSON. Right. Here is what is interesting to me, and now 

that I think about it, how is it that we ever arrived at having you 

all having to hire 500 people? How would we have known how 

many people have had to hire? Do you recall? 

Ms. TENENBAUM. I was not here during that. 

Mrs. EMERSON. I know you were not. 

Ms. TENENBAUM. I think that they looked at the agency, and the 

second part of that law said, Ports of entry, overseas inspections, 

as part of the 500 full-time employees required by Paragraph one, 

the commission shall hire personnel to be assigned to duty stations 

at United States ports of entry, or to inspect overseas manufacturing facilities. They envision that we go to China, subject to the 

availability of appropriations. And one of the things that is so interesting, and it affirms what Commissioner Northup just said, is 

here are our imports. 

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As you can see, the red line represents China and Hong Kong. 

So it starts off in 2000 at roughly just under 100 million. And now 

before the recession it peaks in 2000. 

But look at that, 80 percent of all the toys that are imported in 

the United States come out of China, just like she said, and 42 percent of all consumer products come out of China. Our second largest importer has flat lined, that is Mexico. Canada is the green, 

and then you have Japan and Korea. We both made visits to 

China, and we are I am glad to tell you that we opened up our first 

overseas office in China, and Ambassador Huntsman allowed us to 

be in the building right next to his residence. In fact, every time 

I go to China, he has always met with me personally at the residence, because it is so important for him to keep up with our 

issues. And if you want me to show you these other charts, I can. 

They have to do with FTE’s. 

Mrs. EMERSON. All right. Tell me what the impact would be, because I know you all have had to plan for it, or at least noodle 

ideas around, about what a return to Fiscal 2008 finance levels 

would mean for the CPSC? 

Ms. TENENBAUM. I have that right here. If we go back to 2008, 

which would put us back at 80 million, and it would be a 32 percent reduction, we would have to furlough staff for 92 days, or four 

out of the last six months of the year, effectively shutting down the 

agency. We would have only available 340 FTEs versus the 576 

that was planned for 2011. A strict hiring freeze would prevent filling critical vacancies. We would also have to not do our nanotechnology project. We would be stopped from implementing the CPSIA 

in terms of the durable nursery equipment rules that we are supposed to write. We would have to close the Beijing office, and we 

would have to stop our hotline where consumers can call and tell 

us about their experiences. The Virginia Graham Baker Pool and 

Spa Safety Act, which is about swimming and drowning prevention, would be cut. And we would have to slow down our modernization of our technology overhaul at our agency. 

Mrs. EMERSON. Okay, thanks. Mrs. Northup. How would you address those two questions? First, the FTE question, and, secondly, 

going back to 2008 budget levels? 

Ms. NORTHUP. First of all, Madam Chair, I have to ask for a clarification. I thought that the law said we were to go to 500 by 2013, 

not by 2010. 

Ms. TENENBAUM. It was 2010. 

Ms. NORTHUP. Was it 2010? If somebody could just clarify that. 

Ms. TENENBAUM. It was 2010. 

Ms. NORTHUP. In any event, we are of course approaching 600 

employees, and I would just say that I think you see what happens 

when you have a very complex bill, and you have to implement it, 

and it has a lot of regulations. The regulations are horrendous. Any 

business, just about any small business, when we talk about the 

ombudsman, the ombudsman is primarily dealing with micro-businesses, with crafters with people that are one-person businesses. If 

you are a small business, you are going to have to hire a lawyer 

to make sure you comply with all the new regulations that we have 

written. 


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I would just point out that, when we were at the low point, that 

is when the recalls happened, and that in a sense you could make 

the argument the system worked. They caught the toys coming in, 

the agency was able to do a sweep of all toys, and while it is true 

that there were somewhere, I think in the area of 78 toys that were 

recalled, it means that there were thousands upon thousands that 

complied with all the paint specifications. And so we were able to 

do that, and to implement a system. We assessed very serious penalties for those companies that broke the law, Mattel was the leading one. They paid about a $1 million, $1.5 million I think, maybe 

$1.8 million but they also settled the class-action lawsuit for $14 

million. And there is no evidence that any child was hurt by those 

products. Obviously, lead in paint is dangerous, unlike lead in handlebars, I might point out, of a bike, or a peddle or the other things 

where the law went way beyond what was risky. But the law 

worked, and we did catch those toys, and they were removed from 

the market. And the companies were penalized and that is what 

set into motion these companies establishing far more oversight 

over their plants in other countries, putting in in-plant labs. So, 

you could make the argument that the CPS, being out of compliance in 2007 with 380 employees, that the system did work. 

Ms. TENENBAUM. I have a correction to make. Commissioner 

Northup was right, it was 2013. 

Mrs. EMERSON. The 500? 

Ms. TENENBAUM. Yes, my notes say 2010, but it is 2013. 

Ms. NORTHUP. Okay, thank you, so we are already 100 over that. 

We are going to be 100 over that if you fully fund us, and we are 

still a year out from 2013. So the bureaucracy that is growing, it 

is staggering. 

Mrs. EMERSON. Okay, I am going to turn it over to you Mr. 

Serrano, we have lots of questions and I have to let my colleagues 

have their shot too, thanks. 

Mr. SERRANO. So far, Chairman Tenenbaum on the implementation of the Consumer Product Safety Improvement Act, we are talking about numbers. How are you working to educate manufacturers 

about their new responsibilities under the law, and also with regard to the improvement act, since the commission has delayed 

until 2011, its enforcement of testing and certification requirements for many children’s products, how can consumers be assured 

that the law is being followed and that children’s products are safe? 

What are you telling the business community about this, and what 

are you doing about the children’s products? 

Ms. TENENBAUM. Okay, thank you Mr. Serrano. We have held 

workshops for the business community as early as 2008, before I 

came to the commission. The staff pulled together all stakeholders 

to teach them about the CPSIA and what the requirements are. We 

also have made a new Office of Education, Global Outreach, and 

Small Business Ombudsmen. For almost 20 years we have had a 

small business ombudsman at the CPSC, but it was only part time. 

And Commissioner Nord and I talked, and she argued that we really need to go fulltime again to a small business ombudsman. We 

have had a wonderful time young attorney who is working with 

small businesses, taking the Plain English Act and writing summaries of our regulations of frequently asked questions for the 


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business community. We frequently go to trade shows, we work 

with the major manufacturers to tour-businesses. 

I think that what we really need to celebrate is the number of 

American manufacturers that have extremely high-quality quality 

assurance programs, that they are state of the art. That they are 

keeping risk away from people. That they have been testing using 

third party testing for ten years. Many of the people, once they 

have gone into China, determine that since it was a global market, 

it was a supply chain they could not keep control of, they needed 

to test, even before they left China, the raw materials that went 

into the product before it was sent to the United States. And once 

it gets to the United States, the manufacturers retest. 

I have been to manufacturers who tell me what they do to make 

their product safe, and it is extraordinary. So, many of the larger 

manufacturers have been complying with third party testing and 

testing for chemicals and lead. Recently, I went to the toy fair in 

China and met with the top five Chinese companies that manufacture probably most of the toys made in the world. And they have 

worked with their industry to develop a chemical database, so that 

every chemical that you use in a toy is listed in that database. And 

you can keep up with every chemical that is in that toy, so that 

if you have a recall, the batch and the lot number, and you can pull 

that toy even before it is sent. 

In terms of what we have done, we have implemented the Consumer Product Safety Improvement Act. Although we stayed enforcement for some of the products until December of this year, we 

did not stay compliance. So you still had to comply with the lead 

limits, the small parts, the phthalates, and F963. We did not stay 

compliance. And that is why so many people have already complied, because you have to comply with the lead paint limits, 90 

parts per million, total lead content, 300 parts per million, limits 

on phthalates, small parts, and ASTM, which is the major toy 

standard. We only stayed testing and certification. 

Mr. SERRANO. Right. 

Ms. TENENBAUM. And most people already do that already. 

Mr. SERRANO. Right. Yes? 

Ms. NORTHUP. Third party testing and certification is just a giant 

step different from what is currently being done. When we proposed the rule, we have hundreds of pages of comments coming in 

from small and large businesses alike, telling us that when we actually go, when they actually have to comply with the paperwork 

requirements of that, when they have to comply. Third party testing, some businesses use it, many businesses have brought in ISO 

labs inside their companies. That is my point. They are very eager 

to make sure that they comply with all of our regulations. 

But the command and control requirements of the law in the 

CPSIA, and the tracking of that information, and the way it is 

being implemented at the CPSC is a gigantic step in a different direction than what they are asking for. And if it were true that they 

were all doing it, you would not get, universally, and it is universal, from small and large businesses, saying this is going to be 

horrific. It is going to be costly and impossible in many cases. 

Let me also say that I am glad we have a Small Business Ombudsman. Unfortunately, this office is going now from one to—now 


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we are requesting two more, which was a reason I did not support 

it. Small businesses are not asking us for more information. They 

are asking for changes in the law. They are telling us it is killing 

them. And they are saying, it is not more information they are asking for, yes, crafters are, but small businesses that have 10, and 

15, and 20, and 30 employees? They are hiring their own lawyers 

en mass. And even people like Mattel told us that they had to hire 

a huge cohort of new lawyers, internally and externally, because 

what they had was simply not enough for them to comply with the 

law. They said in a public statement that was printed, they did not 

know how a small business could comply with this law. 

Mr. SERRANO. Well, when you two speak to us here today, we see 

what the problem is. And I am in, it must be because it is opening 

day, I am in a, baseball opening day. 

Ms. NORTHUP. You are in a good mood. 

Mr. SERRANO. I am in a, let us find common ground and the middle ground here. Now, you walk into, and I hate to mention names. 

You walk into Toys R Us, staying on the issue of children. Sure, 

it is a business. And they want to make money. But I do not think 

they are irresponsible people, the people who own Toys R Us. They 

know what impact they have on children. So there has to be testing. There has to be some government oversight of those products 

coming into the country. 

But at the same time, since I am in this great mood today, there 

should not be something that strangulates the economy and the 

business community. So what is it, to both of you, that the business 

community is willing to comply with? And what is it that bothers 

them? Because if you tell me, I mean, let us be honest. You served 

with us. You know that there are some colleagues of ours who want 

no oversight of anything, no regulation; they are all good people, 

and they will take care of the American people. That is not how 

it works. 

Ms. NORTHUP. No. 

Mr. SERRANO. Right? 

Ms. NORTHUP. And you see that every day when you are at the 

Commission. 

Mr. SERRANO. Exactly. So what is it that is squeezing them too 

much, and what are they willing to do on their own? Because one 

of our big complaints, besides, China owns all our economy, or 

whatever, all our debt, is, all these products come from China. And 

we cannot just accept them as they are. So just briefly, can you tell 

me, where is the middle ground here? 

Ms. TENENBAUM. Well, last year, we sent a report to Congress 

saying that we needed four things changed in the Consumer Product Safety Improvement Act. First of all, we needed greater flexibility in granting exclusions for the lead limits. For the lead limit, 

CPSC only allows three exemptions: one if it is an inaccessible 

part, two, if it is certain electronic parts, and the third thing is, by 

use and abuse of the product, any lead is not absorbed into the 

human body. So we wanted greater flexibility, because we had 

ATVs and bicycles where the child is not going to mouth the handlebars, and we wanted to be able to give them an exception. 

The second thing is we wanted an exclusion for children’s books. 

In August, the lead limits go to 100 parts per million. And we also 


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said, Do not make this retroactive like CPSC did for the 600 parts 

per million. Only make it prospective, so people will not have to get 

rid of their inventory. And we also wanted relief for small manufacturers and crafters. In fact, we are working on a rule called Periodic Testing. We are looking at carving out an exception, that, if 

you make 10,000 units or less, you do not have to periodically test. 

You have to initially test, but you do not have to periodically test. 

We also came up with a component part rule. So if you made 

children’s dresses, you did not have to test the whole dress, you 

could just buy buttons that were already tested, from the button 

maker, and you were compliant. We made rules that say, if you 

had cotton, untreated wood, if you were a handcrafter and made 

things out of untreated wood, you never had to test. So those are 

the things we have done to be creative, to exempt people from testing and certification. 

The common ground is that we need flexibility. But to do away 

with third party testing really goes against what I have seen in the 

marketplace. And I think that it is to whom you speak. I went to 

see a major children’s clothing manufacturer, and they told me, 

just two weeks ago, that when they started manufacturing in 

China 10 years ago, they started doing third party testing because 

they wanted to make sure they met the flammability standard and 

that the fabric did not contain toxic metals. 

Mr. SERRANO. Madam Chair, I do not want to go over my time, 

but I would like the commissioner to comment because she did say, 

she did. 

Mrs. EMERSON. Yes. 

Mr. SERRANO. I was pleased to hear that you say you see it every 

day at the Commission. So you are not one of those who says get 

rid of the Commission. 

Ms. NORTHUP. Let me just say that every day we get the overnight incident reports. And there are children that have died, there 

are cases. We see products that catch fire; we see products that are 

harmful. There is no question that there is a very important responsibility at this agency. However, what has been a tidal wave 

of focus of this agency has sort of swamped everything, is the implementation of the CPSIA. I have to tell you, Mr. Serrano, had I 

been here, and I was not in 2008, I feel sure I would have voted 

for that bill. 

And because in reading it, it seems as though it is logical. But 

of the three exceptions to the lead limit, the question of inaccessible electronic components, the third one is absorbability. The majority of the commissioners have determined that this is in conflict. 

But they have interpreted that to not apply to one single thing: not 

a button, not a snap, not a zipper, not a handlebars, not any part 

of a toy, not the screw in your crib. None of those things can have 

300 parts per million of lead. Now, you could absorb lead in paint. 

We know what you can absorb lead in. We know if you can swallow 

a charm that has lead in it, that your body will absorb it. 

But we also know that if you lick the handlebars all day or the 

screw in your crib, that has slightly more than that but has more 

strength, it has machineability. I mean, lead also contributes certain things that you are not going to—there are just going to be 

an unregisterable amount in a child’s blood lead level. 


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Europe has had lead levels for years. They are based on the 

absorbability. They call it bioavailability, whether or not that lead 

can be extracted out and into a child’s body. We should make that 

absorbability mean something. And then finally, the testing, I 

would just say that I do not believe that I have heard from one 

plant that said, I am sure I have not, that said, Oh, yes. We think 

third party testing, outside of our plant, the way it is written in 

this law, is going to be good. 

Do they use third-party labs? Of course they do, because they 

care about it. But they do it for their own check and recheck, not 

so that they then have to change the label every time they have 

the red paint runs out one day. Now, you have a new set of red 

paint. It has a new certification level. Now, the final certificate has 

to change the number on that. Now, the label has to be batch #107 

instead of 106. An hour later, the yellow paint runs out. You have 

to stop the presses. You have to change every single thing all the 

way through. The next minute, the snaps run out and you have a 

new batch of snaps. You have a new lot number, so you have a new 

certificate number. All of that has to be reflected in the label. 

This is chaotic and Ashley Furniture came in and told us they had spent $14 million on third-party testing and setting up a system by which they could track all the layers on a piece of furniture 

and everything. Not one single component of this furniture violated 

the lead limit. They were in compliance. They still did not know 

how, once we applied this, once we put in testing, third-party testing, and that they were going to be able to comply. So you got no 

benefit in safety and 13 or $14 million and cost. 

Mr. SERRANO. Thank you. Thank you, Madame Chair, for allowing me to go over my time but it has been quite a while since I 

have heard this kind of very direct testimony. 

Mrs. EMERSON. Oh, and it is excellent. 

Mr. SERRANO. So informative. Thank you. 

Mrs. EMERSON. And it is very helpful, very helpful for us. Mr. 

Womack. 

Mr. WOMACK. Wow. Where do I begin? I was a mayor for 12 

years and I spent a great deal of my time fighting my own bureaucracy. And it has been my experience that when you hire a lot more 

people, those people start trying to justify their existence. And so, 

my first question is, when the law was passed, that pegged 500 as 

the number of people, where did we get that number? How did we, 

all of the sudden, decide 500 employees was the magic number? 

Ms. TENENBAUM. Well, I will show you two things that probably 

prompted Congress to do that. 

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The blue line are the full time equivalents. As you can see, in 

2004 we were a little over 500. And then, in 2005, we were at 500, 

and then we dipped. And this right in here was the year of the recall. If you look here at the number of recalls, they spiked. They 

spiked a little around 2007. 

So what Congress, in looking at this data, determined, is that 

with the less people you have doing port surveillance, working in 

China to make sure manufacturers understand our regulations, the 

more recalls you are going to have. Recalling costs money for manufacturers. 

Mr. WOMACK. Do you have a chart that shows the competency 

level of those employees? 

Ms. TENENBAUM. We hire people who are competent. And we hire 

really good people. 

Mr. WOMACK. I will give you that. I am sure you do on paper. 

The point I am making is, can we just simply conclude, based on 

a numerical chart, that the spike in recalls was directly related to 

the fact that we had a fewer number of people. 

Ms. TENENBAUM. Yes, we only had 393 people and we did not 

have enough people. We had five people at the ports. Now we have 

19 people at the ports. We are working with Customs, and have 19 

people at 15 ports. We work with Customs and Border Patrol. We 

were the first agency to sign a memorandum of agreement with 

them and, we get all the pre-arrival manifest data. We go through 

all of that data, and we target now shipments before they are even 

unloaded. Products like fireworks and electrical products, we pull 

them so they do not get on the store shelves. 

Mr. WOMACK. Well, Madame Chairman, everywhere I go in my 

district and look, I have got a major retailer that is in my backyard. A small five-and-dime named Walmart. And they sell a lot of 

toys. 

Everywhere I go in my district, I hear people telling me about 

pushing jobs overseas, moving jobs overseas. Is it possible that 

maybe part of our problems is that we continue, the reason we 

have so many imports of toys, is our tax policy and our government 

bureaucracy is so big, so reaching, so much into the private sector 

that there might be some other quantifiable data that might yield 

a different conclusion about pegging the number at 500. I am just 

using that as a thought process because it always bothers me when 

somebody says, Golly! We are in trouble. We need more people. 

Ms. TENENBAUM. I have been in plants in China. And people in 

China make $1.50 an hour. They live in dormitories and they may 

or may not get food in those dormitories, and they also do not have 

air-conditioning in some of the dormitories. So, if you look at textiles, my state, South Carolina, was a major textile state. And now, 

textiles and toys have moved. And the chart I showed you, 80 percent of all the toys coming into the United States come from China. 

Forty-two percent of all the consumer products come from China. 

And they make $1.50 an hour. 

Here is another thing that Congress looked at when they passed 

the CPSIA. Here are the number of investigations. And you can 

see, in 2003, we were over 50,000 investigations. And we had 

dropped to below 30,000 by 2009. Here were the number of proVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00196 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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jected incidents, and this is before we even implemented the database—the public database that people have been talking about. 

So, we are able to only investigate about 10 percent of all the 

claims of injury that consumers send us. Ten percent. And one reason that we are asking for 24 more people this year is because we 

have so much data and so many reports from emergency rooms, 

coroner reports, the newspaper, and we have our public database, 

that we cannot even investigate because we do not have the people. 

This is where the majority of the new people were going, is to investigation. And our new employees have gone into our laboratory 

as well as in Compliance and Enforcement. 

Mr. WOMACK. I would like for Ms. Northup to comment. 

Ms. NORTHUP. Well, I think your question is, Can we do more 

with less? And I think I would like to say, first of all, that I have 

been exceedingly impressed by the people that work at the CPSC. 

They work hard. They are talented and they are well-trained. They 

know what they are doing. But they have been given a responsibility to implement a law, and all these rules and regulations are 

very involved. They are very complicated. 

But I would tell you this, all of the new ways of screening things 

coming in work with the Border Patrol Customs and Border Patrol. 

That is a new way of doing more with less. And so that is why I 

have asked, please, do away with the requirement of third-party 

testing and tracking and certification, because both within businesses and the huge investment they have made and our investments at the port, this is an emerging world where new technologies are available that were not available or were not used previously, and we could do a lot more with less. 

And finally, I would just like to say that the rules that we have 

implemented, the ones that affect businesses the most have been 

written and there has been division between the majority and the 

minority. Where we could have made it apply to fewer items, we 

made it apply to more items. Where we could have allowed fewer 

tests, we have interpreted it in the most severe manner. And now, 

yes, much of the regulations and investigations is going to be investigating whether or not people complied with the certifications, 

whether they complied with the third-party testing, as opposed to 

whether or not the item is compliant. 

And finally, just the very fact that every single lab that uses a 

third-party test, we have to certify the lab. We have to take in that 

information. These businesses know what third-party labs they can 

trust, but you create a bureaucracy that stretches back. It is not 

just any third-party lab, it is a third-party lab that is ISO certified? 

No, it also has to be certified by us. And so, even though that 

seems like it is not a lot of time, everything is incremental. When 

every single child’s product, every component of it has to be thirdparty tested in a lab that we have certified, you are talking about 

an enormous process of just doing that. 

Mr. WOMACK. That raises costs. And I just want to make this 

comment for the record, that my question about competency was 

not related or not in any means directed at the quality of your 

staff. I realize you have a quality staff. What I am simply asking 

is, are there other measurable criteria that could point to other factors that may contribute to the incidents, or the investigations, or 


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the complaints. And that is merely the line of direct thinking I had 

at that stage. 

Finally, let me just ask this. Are we sure that we are doing everything we can to mitigate the impact on small business? As my 

colleague from the Bronx said just a moment ago, we do not want 

to under regulate, but we really do not want to over regulate. And 

I would like to know where that line is in an ideological sense, as 

to when this organization is going too far, trying to do much, and 

exponentially raising the price of goods in an attempt to try to remove all risk from the public. 

Ms. TENENBAUM. Well, thank you, Mr. Womack. And one thing 

I want to clarify is we will only have one small business ombudsman. I created this office of Education, Global Outreach, and Small 

Business Ombudsman, and we put three offices in there together. 

We put the International office, the Inter-governmental office, and 

the Small Business Ombudsman. And so, the two new positions in 

that would be to hire an Executive Director for that office. But let 

me go back to what we have done for small businesses. We want 

the full-time Small Business Ombudsman because we are working 

so that people do not have to hire a lawyer. We are doing seminars, 

we are going to trade shows. Our Small Business Ombudsman 

gives his card out to people at seminars, and they call him personally. He answers questions for them. But we also have done other 

things. When we were debating tracking labels, we decided that 

one size did not fit all, that the small businesses did not have to 

have the same compliance as the large companies. We developed 

component part testing guidance and that is so that the small business, we were hopeful, could buy component parts already tested 

and would not have to re-test their products. 

The third thing we did was determinations, that if you were a 

small business and you were making children’s clothing or handmade toys, that there were certain materials that never had to be 

tested, like untreated wood, textiles, and gem stones. So those are 

the kinds of things we look at. We also have the Regulatory Flex 

Act. We look at how it is going to impact small businesses before 

we come up with a rule. And so, Reg Flex Act is something we look 

at and point out the impact. But we are very mindful of small businesses. But, under the Consumer Product Safety Improvement Act, 

everyone had to test third-party testing, regardless of the size. 

That is why we were hopeful that component parts would be developed so that people could buy those, could go in a hobby store, or 

buy them from the manufacturer already tested, and they would 

not have to re-test. 

We also hope that this year, that the House and the Senate will 

give us more flexibility so we can allow companies, if we do not 

think there is a likelihood of mouthing the product, or swallowing 

the product, that we can give them flexibility and they will not 

have to test. 

Mr. WOMACK. I yield back. 

Mrs. EMERSON. It seems to me that you are the perfect agency 

to make sure that the President’s call for cost-benefit analyses of 

regulations actually comes to be, because obviously some things are 

so onorous. There is no way that you can say they are not. It appears that if we do not understand the impact at the end of the 


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day in a very fragile economy, we may be cutting our nose off to 

spite our faces, in which case there is no businesses to have to regulate anyway. I do want to come back and talk about cost-benefit 

analysis of regulations. So far, I have not seen any federal agency 

in this government who is capable of doing that. 

Mr. SERRANO. Would you yield for a second? 

Mrs. EMERSON. Yes. 

Mr. SERRANO. I am sorry. I usually do not interrupt. In listening 

to our new colleague, Mr. Womack, I think the balance here is that 

we are appropriators. We are not authorizers, although on many 

occasions we behave as authorizers. 

Mrs. EMERSON. And we have. 

Mr. SERRANO. We appropriate. And we have to. We keep them 

in check. This is a law that is in place already. The question is, 

Do we fund it and to what extent do we fund it? And that is the 

balance, because if we get back to 2007, and you see people, kids 

actually being hurt because maybe for insufficient funding, or funded to a point where they function. And that is not how they authorized it. They passed that law. It is on us. That is the delicate balance that we have to reach. So we do not over regulate, but as I 

said, do not under protect. And that is the challenge. 

Mr. WOMACK. Which I think feeds it directly into Madame Chairwoman’s request, that a cost-benefit analysis probably fits this 

agency as well as any in government. 

Mr. SERRANO. Absolutely. 

Mrs. EMERSON. And thank you all. So with that, it is time for 

Mr. Diaz-Balart. 

Mr. SERRANO. Of the Florida Marlins. 

Mr. DIAZ-BALART. Who did beat the Yankees, if I recall, a few 

years ago in the World Series? My memory is not very good, but 

did not that happen recently? 

Mr. SERRANO. I think that was your moment of glory. 

Mr. DIAZ-BALART. Madam Chairman, you see how he cannot 

admit it. It just hurts him to admit it. It hurts him. 

Mr. SERRANO. All right, it hurts me. It hurts me. 

Mr. DIAZ-BALART. Thank you, Madam Chairwoman. It is good to 

see you the both of you. You know, if I may, I have some questions 

on Chinese drywall. But Mr. Womack really peaked my curiosity. 

So if that is all right, I would like to submit the ones on Chinese 

drywall in writing later on, because I do want to go back to what 

our colleague was asking. 

One of the things that we have to be careful in government not 

to do is get stuck with that kind of weird logic of, Since cheese is 

round and the moon is round, so therefore the moon must be made 

of cheese. And I think sometimes, when you look at these charts, 

it is not always the case, but sometimes we get stuck in that syndrome about, Oh well, if we had a spike and we only had 300 people. So if we have 500 people, we would not have a spike. Is it just 

because of the products that all of a sudden are manufactured differently, because of technology, because of whatever. And again we 

just need to be very careful about that. If I may, kind of, follow up 

on my colleague’s line of questioning. By the way, before I do that, 

when was the hotline created? 


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Ms. TENENBAUM. We have had the hotline for years. It is the 

publicly searchable database that was mandated that we created 

under the CPSIA in 2008. So we just launched it in March. 

Mr. DIAZ-BALART. Madame Chairwoman, when you mention 

about the things that you would have to get rid of or cut if we went 

back to 2008, you mentioned the hotline. But it was there before. 

It was there in 2008. So why, all of a sudden, if you could do it 

in 2008, and it was there before 2008, when we had less money, 

more money; I am not quite sure. 

Ms. TENENBAUM. Because what we are trying to do is increase 

the number of investigations and increase our rate of compliance 

in investigations that we are able to do. When we are asked to 

make cuts, we look at what are some items that are discrete that 

we can cut. And so that was one of the things that would have to 

be cut. The fact that we had more money also allowed us to spend 

the $5 million that we have done on the drywall investigation, 

which is the most expensive inquiry and investigation we have ever 

done in the history of the Commission. 

Mr. DIAZ-BALART. Okay. Let me go back to what Mr. Womack 

started talking about. We have heard a lot about some of the issues 

that may be onerous to business owners. Specifically what are the 

things that you are doing that are actually helping business be 

more competitive? Because, obviously, with technology and everything else, there have got to be areas where you look at ways to 

be less onerous, less expensive to business, and you can go to them 

and say, Hey, look, right now you are required to do A, B, and C. 

Let me show you a way that you can do that and you can reach 

the same level of safety without having to go through the expenses. 

Are there specific recommendations like that, that you all are going 

to the private sector on and saying, Here is where we can help you 

streamline, that you do not have to do certain things that you were 

doing before because technology has changed. What are some of the 

specifics that you are doing in order to help business be more competitive? 

When I looked at that chart of the number of Chinese toys, and 

again, now I am going back to the same analysis that really kind 

of frightened me, was the fact that there was at one time in our 

history when we manufactured a lot of those toys. There were a lot 

of reasons why; clearly labor costs is one of them. But if labor cost 

was the only issue, we would not be doing anything in this country 

because labor costs are a lot less expensive in a lot of places, and 

yet we are still competitive in a number of different areas; obviously, toy manufacturing is not one of them, unfortunately. 

But what are the areas, specifically, that you all are looking at 

to be more competitive where you can cut cost for business? Some 

specific areas like that that you are bringing forward? 

Ms. TENENBAUM. Well, education is a service that we can provide, and businesses tell me that helps them tremendously. If we 

educate them on what our requirements are, then they do not 

make mistakes. They can build safety into the product. And that 

is why when I came here I wanted to create the Office of Education 

Global Outreach and Small Business Ombudsman and put three offices together so that we could have a targeted, standardized approach. We could work with colleges and universities, trade assoVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00200 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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ciations, other government agencies, so that we can help people understand what the requirements are, thereby saving them money 

so they do not have their products recalled. Recalls are not the best 

way; it hurts industry; it hurts their brand. We want to get ahead 

of that. 

Another thing is counterfeiting. We get complaints on counterfeiting. The largest problem on counterfeiting in China that we find 

is electrical products. And so the good people want us to catch the 

counterfeiters. And we are constantly working with AQSIQ, letting 

them know when we find counterfeiters. 

Another thing we have is called the 15J Rule, which means if it 

is a standard that the industry is complying with, and it is visible 

to the eye, we can then stop products that are not compliant, so 

that the good people and the compliant people get to sell their 

products. We have done this on drawstrings, hair dryers—the bob 

on the end of the hair dryer that is the circuit breaker—if we see 

one coming in the country that does not have that, we stop that 

at the port. So one way that we help industry is by helping the 

compliant have their share of the market and remove the people 

who do not comply. 

And the other day, Diane Sawyer did a piece where she went 

into a home and took out all the furniture that was made in China 

and replaced it with furniture made in the United States. And the 

cost of the furniture was essentially the same. I am going down 

next week for two days in North Carolina to go to the furniture 

market. A lot of furniture is still an industry that the United 

States has a large market share in. Next year we need to go and 

create an upholstered fabric standard; the industry has asked us 

for it. We worked on the standard for 16 years. 

We also work with standards-making bodies, such as the UL, 

which are the electrical products bodies, as well as ANSI, and 

ASTM. We work with them when we see a product that is not 

working. And with the staff working with industry on these committees, we come up with a standard that improves the product 

and reduces everyone else’s risk. And those are voluntary standards. 

Mr. DIAZ-BALART. Let me see if I can give the Commissioner a 

shot at that, too. 

Ms. NORTHUP. Well, first of all, let me just say that there is nobody that wants recalls less than every business. And that is why 

they are more efficient and better at putting in prevention ways: 

ways to test their own things, internally; ways to make sure that 

they are in compliance. For us trying, without manufacturing experience, being in the plant, and knowing what is going on, it is impossible that we could ever provide the sort of expertise that businesses are able to hire and provide for their own businesses. 

In the rule-making, first of all, the rule itself, the law itself, said 

that absorbability would be one of the exclusions. If you could not 

absorb lead. If that had actually meant something, and I presume 

when you passed it in Congress you meant for it to mean something, much of our problems would not exist today. But the majority of the commissioners decided that if you rub the handlebars and 

a fraction of a fraction of a fraction of a molecule comes off, of that, 

and one percent of it is lead, the fact you could put your hand in 


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your mouth, that meant that nothing could comply with the 

absorbability standard. Even though in the world, and in Europe, 

it is an absorbability standard, if you suck on the handlebars and 

you cannot get the lead out, it is not what they call bio-available, 

they exempt all of those things. 

So when the Chair talks about, we exempted materials like cotton, it is the smallest, it is a list of about eight things and they 

are mostly materials. 

Mr. DIAZ-BALART. Is there an issue in Europe with lead? 

Ms. NORTHUP. No. And more importantly, let’s look at our own. 

We have CDC, NIH, EPA, that all talk about lead issues. First of 

all, one percent of the children tested in this country reach what 

we call the tipping point of lead. They are about one and a half 

years old. They are crawling around on the floor; they are picking 

up dust that has lead in it; it is either from chipping paint, or it 

is tracked in from outside because lead was in gasoline, it was in 

the dirt; it gets tracked in, it gets on the floor. 

We do not have to research that; they tell us where children are 

impacted by lead, and how they get impacted by it. And none of 

them say, Take away your child’s toys; take away their bicycle. 

None of them say, Change the screws in the cribs. And yes, there 

are some groups: the American Academy of Pediatric wants us to 

make it 60 parts per million. But when you look at their website, 

about what they recommend for children that start to have an increase in blood lead level, and maybe are approaching the tipping 

point, they do not say one word about it being in their toys, in the 

furniture. And why would they? Think about it. We are requiring, 

much to my dismay, and something I think the law would have allowed us to do differently, we are going to say that a lamp in a 

child’s room that has a child’s, say a fairy for a little girl’s room, 

every single component of that is going to have to be third party 

tested: the brass; none of that is going to comply, because it all has 

lead in it. 

But that child is going to walk around the rest of the house and 

turn on the lights. And no one would say, Do not let your child 

touch a lamp. There is a ludicrousness in this. And a lack of reasonableness that we could have not required it in carpets. We have 

a requirement on flammability and testing of rugs and carpets. But 

we decided that we still had to apply this third party testing requirement to rugs in a child’s room. If they have a child’s rug, say 

a star in the middle of it, that would be bought at Pottery Barn, 

you can go to Pottery Barn and buy the exact same thing with solid 

color with a yellow outline, and do not have to third party test it. 

If it has a star in the middle of it, then you have to third party 

test it. And so, do you think there will be that right? And what is 

the difference? And in the meantime, the child is going to crawl out 

of the bedroom, into the living room, into the mother’s bedroom, 

none of which is tested. It does not make common sense to me. In 

places where I think we could have written the rule so we could 

have exempted out products where we already have protocols and 

they are in general use; we did not. 

Mr. DIAZ-BALART. Yes, well, that does not pass this. 

Ms. TENENBAUM. First of all, when Congress was considering the 

CPSIA, they heard testimony from scientists, from physicians, who 


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told them there is no safe level of lead. That is why Congress put 

it in the statute that you could not let a product be used, or that 

we could not get an exemption if any lead could be absorbed. So 

it was not the majority that came up with this ruling, it was the 

plain language of the statute. 

Mr. DIAZ-BALART. Are you going to come back with recommendations to change the statute, then? 

Ms. TENENBAUM. We did last year. 

Ms. NORTHUP. But not that. 

Ms. TENENBAUM. And we also wanted more flexibility in letting 

out certain products where we knew the exposure was very low. 

But in August we will go down to one hundred parts per million. 

Canada already set its lead limit for content in children’s articles 

to 90. So Canada is already below us. We are seeing remarkable 

progress where industry is getting the lead out. You see lead coming out of zippers for children’s clothing, for buttons, for toys, out 

of vinyl, you see it out of rhinestones and bling. The market is getting the lead out of children’s products. And we do not want an 

amendment to this that will take us back so we have to test every 

article, because the CPSC does not have the capability. 

You are talking about more staff, Mr. Womack? If we had to test 

everything for solubility, when solubility depends on the child. A 

child that is deficient in calcium will absorb more lead. Lead is a 

powerful neurotoxin. There is no safe level. It reduces the brain 

functions and it interferes with the brain functions and the IQ of 

children. It is well-documented. So it is something that Congress 

did hear plenty of testimony about, when they said, we want the 

lead out of children’s products. 

Mr. DIAZ-BALART. Let me just, in the interest of time, thank you, 

Madame Chairman, you are being very generous. Allow me to say 

that this is, frankly, one of the most informative hearings that I 

have been in, in my years here because we are actually beginning 

to talk about the issues. 

There always seems to be, and the legislation is part of that, an 

increase in regulation. Could you tell me what decreases in regulations you are either doing or you are proposing, again, because of 

changes in technology, because the need is not there, because the 

cost is too much, or the cost is too much for the gain? Are there 

any areas where you are looking at decreasing regulation, decreasing activism or activity, in the private sector? 

[The information follows:] 


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Ms. TENENBAUM. I want to go back and talk to our laboratory 

and our scientists to give you a complete answer. We regularly 

meet with standards-making bodies. In fact, the law is plain that 

we cannot write a mandatory rule unless the voluntary rule is 

shown to be inadequate to protect the consumer. So the great majority of our rules are voluntary standards. The UL writes standards for electrical products, for example, and most of the rules that 

the industry uses to make products are voluntary. We only make 

a rule if it is not adequate. So we will get back to you. 

Going back to the President’s executive order. The order asked 

all agencies to look at significant rules. Significant is defined as 

having a certain financial, I want to say, $100 million; is that correct? $100 million? 

Mr. DIAZ-BALART. I think it is $100 million. 

Ms. TENENBAUM. So it has to have the impact of a $100 million. 

The only rule that we have implemented that rises to that level, 

since I have been the Chair, has been our new crib rule. And we 

worked together to give the industry time to manufacture those, 

and also public accommodations to purchase those. But I will send 

you a list of those. But I just want to clarify, the rule-making, 

mostly, are voluntary rules that industry uses. 

Ms. NORTHUP. If I could just correct, Canada left many of their 

things at 600 parts per million lead. It was the things that were 

swallowable that they lowered to 90 parts per million. And, again, 

I think that anything that is risky, we can ban. We have that authority. 

Ms. TENENBAUM. Well, and the AAP really wanted 40 parts per 

million, not 60; so the American Academy of Pediatrics wanted us 

to set our limits not at 100, but at 40. And the compromise was 

100 when they passed the CPSIA. 

Mrs. EMERSON. Thank you all. 

Mr. Serrano. 

Mr. SERRANO. Thank you. Before I start, I will preface my comment. You spoke, Madame Chair, about the cost benefit analysis. 

And I think it is fine, in some cases, when we talk about paperwork or regulations. But cost benefit analysis can never be acceptable in terms of a child’s life or safety. And I think that is where 

we have to be careful. When we study how much we are spending, 

it can never be at the risk of having a child, or any person, but 

certainly children, who were the most affected in 2007, so that is 

important. 

Which brings me to the question of the new product testing lab 

that is slated to open very soon, compared to the CPSC’s current 

laboratory. How will the new one enhance the work, and how will 

consumers ultimately benefit? 

Ms. TENENBAUM. Thank you, Mr. Serrano. Our lab opens in May, 

and we would like for all of you to visit the lab with your staff, if 

you so choose. The lab is going from 37,000 square feet to 63,000 

square feet, and we can now perform, in the lab, many more tests 

than we were able to perform. We have a new testing laboratory 

for fireworks, for example; we have our own chemical laboratory, 

toy testing laboratory, and it will be a huge improvement over the 

laboratory that we have been operating in for so many years. So 

we appreciate the funding that Congress has provided to us. It is 


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a $19 million project. We purchased a used building that was already built for a lab, and remodeled it to fit our needs, and we hope 

that you will come out and see it. It is in Rockville, Maryland. 

Mr. SERRANO. Thank you. And that will launch when? In May, 

you said? 

Ms. TENENBAUM. May of this year. And we would love for you all 

to come out. 

Mrs. EMERSON. That would be a good field trip, I think we 

should do that. 

Ms. TENENBAUM. Yes, please do. 

Mr. SERRANO. We can bring some Republicans’ items, some 

Democrats’ items, have them tested. 

Ms. TENENBAUM. You are right. 

Mrs. EMERSON. Great idea. 

Mr. SERRANO. We could bring the Federal Budget, test and see 

how much harm the cuts will cost. 

Ms. TENENBAUM. Very clever. 

Mr. SERRANO. I could not help that. Every so often, you see a 

perfect example of the differences around here. It seems there are 

a significant number of Members of Congress who would like to get 

rid of the searchable database. But the public likes it. What do we 

need to know about how it is working? What is, in your opinion, 

the strength? What is, in your opinion, the weakness? Only to be 

fair, I think there are no weaknesses. But if someone wants to say 

there is a weakness, we certainly will hear that. But it seems to 

me that the ability for someone to get on a website and know that 

there are items they should be looking out for, cannot hurt anyone. 

We put all our legislation up on the Internet and people comment 

on it; and some love it, and some hate it; and some love us, and 

some hate us; and that is fine; that is public information. 

First of all, who is complaining about the database, other than 

Members of Congress? And what is the strength? And to be fair, 

if you want to comment on its weaknesses. 

Ms. TENENBAUM. Well, we had a spirited debate when we were 

debating the rule on the public database. But I want you to know, 

even though we televise our debates and we have open and transparent meetings, 86 percent of all of our decisions are unanimous. 

Mr. SERRANO. Eighty-six percent? 

Ms. TENENBAUM. Eighty-six percent. But this is one where we 

had different views, and we argue our views passionately; and I 

think that is a good way to be. And once it is over, a lot of times 

we go to lunch, and we remain cordial to each other and friendly. 

But that was a very tough decision. And it was a spirited debate. 

Let me give you a little background on the database. First of all, 

the CPSC has had a website where people report data to us for a 

number of years. In fact, we receive over 17,000 a year. However, 

that Website is not searchable by the public, nor do we have a portal so that manufacturers can go on and side-by-side and give us 

their comment on what someone said about their product. In fact, 

we are the only federal agency that has a manufacturers’ portal. 

NHTSA does not have one, and the other agencies like Agriculture, 

who may have a website, do not allow manufacturers or people to 

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But let me give you some numbers, too. The database is a part 

of a risk-assessment system that Congress mandated that we create under the CPSIA. We have spent $23 million so far to create 

the risk-management system, and $3 million for the database. All 

the money that has been given to us has been spent because we 

launched the database in March. 

We receive each year 458,664 reports from consumers. The majority of these come from emergency-room data. We purchase emergency-room data on injuries people sustained from products. That 

is 397,000 out of the emergency room. Like I said, the website 

yields about 17,000. We collect mortality data. We get 8,000 death 

certificates, 550 medical examiners reports or coroner’s reports. We 

look at the newspaper every day. Commissioner Northup spoke 

about the daily reports; we find out through the newspaper who 

has drowned or who died because of a product, and that is 6,554 

reports. 

We also get a little over 163,000 reports on the hotline, but only 

5,531 are actually reports of harm from a product. A lot of people 

just call and ask us questions. Retailers such as Wal-Mart, Target, 

Sears, Home Depot, Amazon: we get about 23,000 reports from 

them, because we have got a retailers’ reporting program. If they 

have a problem, they call us and let us know immediately. 

We also have a substantial product-entry hazard under Section 

15 of our statute. If the manufacturer knows, or the importer 

knows, that their product has a defect, they have to call us. So we 

get thousands of reports, about 20,000 reports from them each 

year. So anyway, to make a long story short, you add all those up 

together, we get about a half a million reports every year on consumer products. 

Now let’s go to the publicly searchable database. Remember, I 

said we get about 17,000 each year from our website anyway, but 

it is not searchable and it does not have the manufacturers’ portal. 

Since we started in March 11, we have 436 reports of harm in the 

database. Of those, we have notified 306 manufacturers. Of those, 

we only had 17 reports that the report was materially inaccurate, 

and most of the time, 13 of the 17, the manufacturer has said, We 

are not the manufacturer. We are the private labeler. And we keep 

a database on labels, so we are working very hard to track down 

who is the actual manufacturer. 

And one thing that Commissioner Northup said was every three 

days a week our attorneys and everyone sit down to go over this 

data. The reason they scrub it so hard is they are making decisions 

now that will be our policy in terms of will we allow it on the database or will we not? We have 2,368 manufacturers who have registered: 2,368. Now, 2,115 have been processed so that we have notified them. 

Mrs. EMERSON. Let me interrupt you just for a second. All right, 

let’s just say I am John Q. Smith, and I have a complaint to make 

because my baby’s zipper on their jacket caused a rash on the 

baby’s neck; and so that might be something that I would think 

that the zipper could have caused. And so I can go on the database 

and I can fill all of that in. I went on there; I know exactly what 

you can put in, and all the things that you require because you 

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Anyway, it seemed to me, unless I just felt horribly guilty about 

sending a fake report in because I could not do that just because 

there was that little signature thing at the end, but there are people who could do that. If I made my complaint, does that immediately get popped onto the database? Because obviously, you could 

only search the recalls on the database, as of yesterday. I guess tomorrow is the launch date for all of the consumer types of reports. 

So if I put in that complaint about the zipper causing the rash on 

my baby’s neck, would that automatically show up, or does it get 

sifted through by you all first? 

Ms. TENENBAUM. First of all, we would look at that and make 

sure you filled out all the data points. 

Mrs. EMERSON. But it would have kicked it back to me if I had 

not filled it out, right? 

Ms. TENENBAUM. Right, and we would not put it on the database 

if you did not give complete information, and if you did not check 

that you verified that the information is accurate and to the best 

of your knowledge. 

And then have five days after you put that in there to send that 

to the manufacturer. And the manufacturer could say, First of all, 

it is materially inaccurate because we are not the manufacturer, 

and here is who has manufactured it. It might be a private labeler, 

but anyway that is confusing it. You could say that you are not the 

manufacturer, and then we would not post the report if you were 

not the manufacturer. We would find out who was, and notify the 

manufacturer. But we would send it to the manufacturer, and the 

manufacturer said, You know, the zipper does not touch a child’s 

neck if you wear it appropriately, and why do you have the zipper 

around the child’s neck anyway? 

Mrs. EMERSON. Well if it comes up and it is one of those types. 

Ms. TENENBAUM. Okay, all right; you are right. Then they would 

say, We will take a look at it and see, or they could say, We tested 

it before we put it on the market. We tested it on 2,000 children, 

and no one had a rash. Maybe your child has a sensitivity. 

Mrs. EMERSON. But my point is, or my question really is, if I 

make that complaint and I just made it up to cause harm to a competitor, would that get posted on the website? 

Ms. TENENBAUM. Well, if it is a competitor, then it would not be 

a true. 

Mrs. EMERSON. In other words, is it possible that false data could 

be put on the website? 

Ms. TENENBAUM. If we find out that it is false data, we will turn 

it over to the Justice Department. 

Mrs. EMERSON. Well I understand that. Is it possible that false 

data could be put on? Because I went through the whole thing; I 

could have made up anything on there last night and at least sent 

it, but that is what worries me. After I pushed the Send button, 

does it pop up on the database? 

Ms. TENENBAUM. No, we have to send it to the manufacturer 

first. 

Mrs. EMERSON. Right, but it is possible, though? 

Mr. SERRANO. But the manufacturer would have a right, prior to 

posting it to say, This is not true. 

Ms. TENENBAUM. Right, they would. 


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Mr. SERRANO. You know, we go through that. We have a meeting 

and people get up and say, You did this and you did that, and we 

say No we did not. 

Ms. TENENBAUM. And anyway, if we find out that it is false, it 

is against a federal statute to give false information to an government agency. 

Mrs. EMERSON. Well of course I know that, but there are some 

people who do not care. 

Ms. NORTHUP. Well first of all, of course the manufacturer can 

say, We tested it, it did not happen. They would not say that they 

tested it on 2,000 people. I mean, you think they tested a 

sweatshirt on 2,000 people? So they would probably say it complies 

with all the norms, and that comment could go up if it wanted. But 

the point is, yes, it would go up on the database. 

The problem with the database is a number of things. First of 

all, you do not have to have firsthand information about an incident in order to put information in. Now let me just say, as a mother of six children, I can tell you that many, many products over the 

course of my children’s lives got altered. You know, somebody 

bumped into one of the kids bikes, and Oh, it bent it when we were 

trying to fix it, the screw broke, so we got another screw. I mean, 

you put things back together. So let’s say the bike broke and my 

child broke their arm. I go to the hospital and the hospital reports 

it, and it goes in and it says the child broke their arm. I mean, I 

know that the bike was altered. I would be willing to tell the manufacturer that the bike was altered. But the incident on the database is not going to show that. 

Mr. SERRANO. But are we not, in a way, Commissioner, being 

picky, perhaps? I mean, there is always that danger. There is a 

contradiction going around this country now. We have got to return 

government back to the people. We have got to give information to 

the people. The people, the people, the people. I am all on board 

with that. But yet in this particular case where the people have an 

opportunity to say something is wrong and then you have an opportunity to see if indeed that is correct, and yes you run the risk that 

some information is incorrect, I would think that this should fall 

right in line with this new belief, or this renewed belief to give 

more power to the people. I mean, here the people can go online 

and say, I was affected by this. Will you check it out? 

Ms. NORTHUP. Well, Mr. Serrano, let me just say that as a matter of fact, I use that information all the time. 

Mr. SERRANO. And one last point. Since it is one of those few 

agencies that allow the manufacturer to say, Not true, which I 

think is pretty fair, well, what is really the problem? 

Ms. NORTHUP. Well, the problem, first of all, is that it does not 

require enough information that comes in. Right now, American 

people have all of that at their fingertips. If you go on Amazon.com 

and you say you want to order a Graco highchair, you will get a 

choice of over a hundred products. They will be from $55 to $148. 

And you can also check that you want to see what consumers say 

about it, and they will tell you whether it was hard to put together, 

whether they sent the wrong item, whether they thought it was 

overpriced, and yes, much of it is safety information. So there is 

already in the market, without us spending this enormous amount 


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of money, and we can talk about the amount of money later, there 

is all that information available to the American people. What is 

important about what comes into the Consumer Product Safety 

Commission is that we are expected to take action about products, 

and so it is important that we have accurate information. 

Now, if you go on, let’s say I buy that highchair, and then Amazon.com sends me an e-mail and says, Why do you not comment 

about this highchair? And if I click on that link, it takes me right 

back to the highchair I bought, so we know exactly what the product is. What comes into us, you say who the manufacturer is, 

Graco. You say it is a highchair. You do not have to say which one 

of the 120 items it is. Maybe you have not even thought about that, 

and you say the leg broke. Well, how does Graco know which one? 

Is it the $55 highchair, or is it the $148 highchair? How do we 

know which one it is? 

The person putting in the incident has to give their name and 

address. That is fine. But we already have third-party groups putting in data. What if it is Consumer Reports? What if it is a trial 

lawyer trying to make a class-action suit? This is what is terrifying 

the manufacturing community, the fact that without enough information, how do they comment on it if they do not even know which 

highchair? And if it comes in through a third-party organization 

that does not know who the consumer is, they got the report, then 

we cannot even verify it ourselves if we want to do safety information. So the first problem with this is is that it does not require 

enough information. 

Let’s say a highchair broke at my Thanksgiving dinner. Is it the 

highchair I lugged up from the basement that is 30 years old? Or 

is it the one I bought last year when my first grandchild was born? 

Or is it the antique I have sitting next to the fireplace? None of 

that has to be given. 

Mr. SERRANO. I understand. At the beginning, if I recall correctly, you said, Do not fund the database. Right? Now you are saying, Make the database better. I mean, I am not putting words in 

your mouth. 

Ms. NORTHUP. Well, let me just say, I would say do not fund it 

until you can make it better. But having been on appropriations 

and knowing that you cannot legislate on appropriations, that is 

one of the problems. There are other problems with it too, but I 

think you can improve it. I actually wrote a rule that I thought 

would have made the database something really good for consumers, and really good for us. 

Ms. TENENBAUM. And we used a lot of the points made in it. 

Ms. NORTHUP. Not the big ones. 

Ms. TENENBAUM. Well, here is another thing too. We do not require the model as a required field, as you saw yesterday. But we 

do have it as a field that we want people to provide. 

Mr. SERRANO. Why did you not require the model? 

Ms. TENENBAUM. The product might have burned up, it might 

have been destroyed. But 90 percent of the people are putting the 

model in, so we do have a lot of information on the model. It could 

have been a cause of a fire in a home. I turned on my microwave 

the other day and flames shot out. Had I turned it on and walked 

outside, it could have caught the kitchen on fire. 


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Mr. SERRANO. This happened to you, you are saying? 

Ms. TENENBAUM. Yes, it did. 

Mr. SERRANO. Sue. No, I am only kidding. 

Ms. TENENBAUM. No, I threw it away because I said, This thing 

is old, and I did not report it. So I just took it to the recycle place 

and did not let anybody use it. 

Mr. SERRANO. Right, I understand. I was only kidding. 

Mrs. EMERSON. My husband did it by putting silver foil or aluminum foil in the thing, and blew up a brand new, never used 

microwave. And it was time to get a new one. 

Ms. NORTHUP. He did not want to cook, did he? Clever. 

Mr. SERRANO. On behalf of men all over America. 

So what are you hearing from manufacturers that are close with 

that? Because I know that there is a concern, but let me preface 

my comments by saying that I think this is one of the better items 

that we have in the federal government, the ability of the public, 

the consumers, to come and state their case, and the idea of having 

the manufacturer’s side-by-side comment. Can it be fixed, can it be 

made better, can it be more efficient? Absolutely. But I am worried 

about your initial statement, Do not fund it. I like your later statement, Do not fund it until you make it better. I do not like the Do 

not fund it at any level, but this is a good thing and if it can be 

made better, of course. But this is one power we have given to the 

people that we should not take away. 

Ms. TENENBAUM. Well, what I am hearing from manufacturers is 

that manufacturers are signing up for the business portal, 2,368, 

and they are taking this very seriously. Another thing is we had 

a workshop for manufacturers and all of our stakeholders before we 

even wrote the rule on the database, and that was extremely helpful. After the databases rule, we had a separate workshop for the 

manufacturers. We want manufacturers to feel confident that we 

are going to do everything to find the actual manufacturer, and 

that we are going to work with them to ensure that only truthful 

information is on the database. And as Commissioner Northup 

said, we are meeting every Monday morning for a few hours because the decisions we make now set precedent. 

But if I could say about the entire IT modernization, that has 

been so important, because we had five different silos of data at the 

Consumer Product Safety Commission. The CPSIA required us to 

modernize our whole IT system so that all of the data can be 

tracked through the agency so that we can have case management, 

so everyone, whether you are in the legal department or in the laboratory or are in compliance, can look at the same cases at the 

same time. This will revolutionize and allow us to intervene early 

on emerging hazards. And so I wanted to please give that information, because our people have worked so hard to modernize our IT 

system. 

Mr. SERRANO. Thank you. 

Ms. NORTHUP. If I may, please do not interpret our meetings 

with manufacturers as saying that there is not universal angst 

over this. And I agree with you, information is powerful, but I 

would also tell you that if identifying, for example, let’s say the 

Graco highchair. If that is given information to consumers to go 

buy a different kind of highchair that may be less safe, because 


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maybe Graco swamps the market, there are five billion of those out 

there. If accurate information is helpful, inaccurate information is 

not only unhelpful, it could be dangerous, and the idea that requiring the model number, and also the approximate date it was purchased so that is it something still on the market or is it something 

that was made 30 years ago? These were amendments that were 

offered by those of us, is ways to make this a more useful database, 

and they were turned down by the majority. So there is great disagreement about this. 

And finally, if today, we get a comment from a manufacturer saying, We do not see how this could happen, this does not seem like 

a leg could have broken off the highchair, whatever they say, in 

other words, a question about materially inaccurate. How much 

chance of one of the incidents going up tomorrow? They have no 

transparency and no confidence that we will be able to resolve that 

material inaccuracy before tomorrow. And what this rule said is if 

we have not resolved the material inaccuracy, it goes up. So if I am 

GE, and somebody puts in something and we cannot resolve the 

material inaccuracy, it goes up. That is wrong. That is wrong. 

Mr. SERRANO. All right, well my time has come up. Let me just 

make one comment. And we are not here knocking the business 

community, but I am still waiting for that day when the business 

community says, Why do you not regulate us on this? Why do you 

not supervise? Why do you not check into us? I suspect if tomorrow 

we said, Government will not issue one rule for the next year. You 

guys regulate yourselves on every subject, a year will pass, and 

probably not one rule will come out of the business community saying, We should not do this. And so we did not get to be the great 

country we are by just allowing everybody to do as they please. We 

set in place some things to protect people, and to protect workers, 

and to protect the consumer, and to protect the business community, and so on and so forth. Thank you. 

Mr. DIAZ-BALART. Thank you, Mr. Serrano. Mr. Womack. 

Mr. WOMACK. Are fewer recalls good or bad? 

Ms. TENENBAUM. Well, for industry, fewer recalls are good, because it means that their brand is not called into question. And 

that is what we want to get ahead of. We want to make sure that 

we can work with industry to be proactive so that they understand 

what the requirements are, and they can build safety into the product so that they will have fewer recalls. For all products in fiscal 

year 2008, we had 564 recalls. In 2010 fiscal year, we had 428. For 

toys, 2008 was 172, and fiscal year 2010 was 44. So recalls are, we 

say, are declining. And most of our recalls are voluntary, the company calls us and says, We have a problem and we want to work 

with you to recall the product. Which we do. There is a fast-track. 

So, we work with industry when they have a problem to go ahead 

and get the product off the market. But we would like to see fewer 

recalls because it costs companies a lot of money. 

Mr. WOMACK. Well, in previous administrations, like during a 

Republican administration, fewer recalls might be looked at, and 

probably were looked at, as a sign that we were not doing our jobs. 

And yet, we are going to ask for more people so we can push for 

fewer recalls. So which is it? 


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Ms. TENENBAUM. Well, what it is, is that we have put the new 

people, a large number of the staff, in import surveillance. And we 

are working with CBP so that we look at that pre-arrival manifest 

data, and we can target products before they are unloaded. But 

now we have an office in Beijing, and with our Office of Education, 

Global Outreach, and Small Business Ombudsman, we will be able 

to form partnerships and train more people in China, in Vietnam, 

and in other areas. When I went to Vietnam, the government of 

Vietnam was so appreciative of us visiting. I think if we could have 

stayed longer, they would have extended our visa, because they 

wanted to ask all kinds of questions, because they had governmentoperated labs. And if I could have had our staff stay there to make 

sure that their laboratories were running the tests that we were 

requiring that they ran, they would have appreciated it. So we are 

looking for ways to educate governments as well as educate businesses. Every time we go to China and meet with the Chinese, we 

put on a seminar. We did one on training on ATVs, and what the 

requirements are for ATVs. We had 150 people attend that seminar. American manufacturers who manufacture their products in 

China welcome the idea that we will work with them to educate 

manufacturers and their workers. So, where I am headed, is in prevention. I want to help manufacturers. I want to help them have 

fewer recalls. 

Mr. WOMACK. Ms. Northup. 

Ms. NORTHUP. Well, measuring whether or not we are effective 

by the number of recalls is just spin. I mean, when we had a lot 

of recalls—like I said, it happened in 2007; it happened under the 

lowest budget, but it happened because when they thought there 

was a pattern, the agency sprung into action, and so did all the 

businesses spring into action. This is similar to what our Chair has 

done with regard to cribs, with regard to strollers. When we see 

that a stroller cuts off a finger, what she has done, and she has 

really initiated this as part of the proactive work she has done, she 

immediately requires that we look at strollers that have exactly the 

same hardware to make sure we are not going to have more fingers 

being amputated tomorrow. And they end up being recalled. And 

so yes, we would like to decrease the recalls, and companies want 

to decrease the recalls, too. They are putting in place their own 

safety, and prevention, and tracking, and so forth. But the agency, 

here, is good and, I believe, has gotten better at being proactive 

about looking at something that is a real critical issue and immediately stretching out beyond that. 

Mr. WOMACK. One of the concerns I have, as a new member of 

Congress and when I talked to people in advance of being elected, 

it was the concept of government underwriting risk. At some point 

in time, you just cannot eliminate all risk. It is just fundamental. 

It is part of life. You cannot write a code for every circumstance, 

and you cannot craft a law to prevent something bad from happening. And when you interject the human factor into our everyday 

lives, things happen. We had a case in northwest Arkansas this 

year involving a kid. It was a very unfortunate tragedy. A young 

man was crushed to death by a soccer goal that came over and hit 

him. It was very unfortunate; one of my constituents. But the answer on the state level was to change the law and require that all 


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soccer goals are made by a certain licensed company doing certain 

things, when we all know that the issue was not the construct, it 

was the anchoring. And so, fortunately, Arkansas got it right and 

changed the law to require anchoring. 

But the point I am making is we just cannot eliminate all risk. 

The balance I am looking for, as a legislator, is: At what point do 

we get into diminishing returns in our desire to want to protect the 

public? Diminishing returns meaning that we are going so far into 

the regulatory process that we are killing jobs, ruining our economy, but boy, look at the things that we are doing to protect humankind from some things that are nothing more than just bad 

judgment and misapplication, a poor build out of the product, because they did not go by the complicated diagram that came with 

it—and I am the master at that—so I am philosophically saying 

that I want us to be very careful that we do not get into a situation 

where we are throwing the baby out with the bathwater. Now, for 

the record, I would like for your agency to provide the breakdown 

of additional personnel in your ramping up, and where those personnel are going to be assigned; to which office they are going to 

be assigned. 

How many of them will go to the Chairman’s office? How many 

will go to the Office of the Executive Director? How many will be 

in Public Affairs? The point here is that I want to see if the 

ramping up of personnel is going direct to the operational functions 

of the organization, deployed out to the areas where they actually 

can make a difference, and not just serve to add a few more layers 

of administrative, bureaucratic red tape within the agency. That is 

one of my concerns. 

[The information follows;] 


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And then, finally, I want to ask this question: Madam Chairman, 

do you actually go to the toy manufacturers? Mattel has been mentioned already, and it has been a while since I have bought a lot 

of toys, but go to the shelf at Toys R Us. Do you go to those manufacturers as part of your outreach and sit down with the CEOs and 

the General Counsel of these organizations, and actually ask, What 

can we do better with our agency as it concerns your capacity to 

deliver goods to your consumers? What can we do better? And I am 

not talking about the Ombudsman’s program. I am just talking 

about: What have you done, as the Chairman, what has your Commission done to go out here and see how we can create jobs in this 

country, making these products for the benefit of the people that 

are consuming? 

Ms. TENENBAUM. Thank you for that question, Mr. Womack. And 

yes, I do sit down with CEOs. I recently went to China and met 

with the five CEOs of the largest Chinese toy manufacturers. And 

they are Chinese. I have met with them twice now since I have 

been Chair. And they were telling us, and told me personally, what 

their concerns were with certain rules. They were also very proud 

that they had created a chemical database so that they are going 

to track every chemical that goes into a child’s toy, and they would 

have software that recorded that. I have been, personally, up to 

New York to visit with the CEO and the leaders of Hasbro. I have 

worked with Mattel. And in fact, Kitty Pilarz, who is in senior 

leadership at Hasbro, Chairs the Toy Standards Making Committee for ASTM. So we meet with them and have interaction with 

them regularly. When we put rules out, we provide for a period of 

comment, and we write down every question, and we provide an 

answer to every question we receive, and we have comments on 

rules. So we work closely with the industry to develop voluntary 

standards, as well as mandatory. And I do make it a part of my 

job as Chairman to meet with people. 

Mr. WOMACK. Same for apparel and strollers? 

Ms. TENENBAUM. Yes. Last year, when the American Apparel 

and Footwear Association had their meeting, they asked me to 

come over and speak. And they said, You are coming into the lion’s 

den. And I said, That is fine. And I not only gave a speech, I answered questions. I have been to children’s apparel companies in 

China as well as the United States, to their distribution centers. 

I have gone to China and watched the testing that companies do 

on strollers and that is what I said earlier. We ought to be telling 

the great stories of what our American companies do to ensure the 

quality and the safety of their products. It is extraordinary. When 

you see that a stroller gets on a treadmill and for days is run over 

and over again through that treadmill so that it is durable and before its release, it is remarkable what our companies are doing to 

ensure the safety of people and that is the good story we ought to 

tell. 

And they are working hard to get the lead out. We had a hearing 

the other day on what would be the impact on industry when we, 

in August, go to 100 parts per million. We have asked that Congress change the law so it is only prospectively applied. We had one 

of the largest third-party testing laboratories testify that they had 

already tested 90,000 units of products and have found that over 


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90 percent, in fact, I think it was 94 to 95 percent already are of 

less than 100 parts per million. 

And so the industries have complied, they are moving forward. 

I am person whose glass is always half full. My husband and his 

family were in the steel business for a number of years, and I know 

that steel had to meet many requirements, and I never heard them 

complain about the requirements that steel had to have, the standards. But I am also positive when I see what American companies 

are doing to ensure the safety and remove the risk for customers. 

Mr. WOMACK. I just want to make sure when those conversations 

are taking place, it is not, I am from the government and I am the 

bad guy; or, I am perceived to be the bad guy, and there is a reason 

for that because we can be your worst enemy if you are not doing 

certain things. I want that to be a good open line of communication 

because I think that is the way back to get regulation out of the 

business of stopping this dilemma we have called lack of job creation. Mr. Chairman, I will give it back. 

Mr. DIAZ-BALART. Thank you, Mr. Womack, and again, I apologize, but we are all kind of going back and forth to other hearings. 

I hope that some of these issues that I am going to bring up, maybe 

if they have already been addressed, just let me know. The IT modernization issue, when the private sector does IT modernization, 

they usually then are able to shrink the size of the personnel. How 

many less people are you going to need if you do go forward with 

the IT modernization? 

Ms. TENENBAUM. Well, the IT modernization goes back to the 

fact that we had all of this data coming in. I do not know if you 

were here when I talked about the amount of data; it is almost half 

a million from various sources. And we had them in separate systems so that when we wanted to look across all these systems, our 

people had to manually go through system after system. And when 

Congress asked us to modernize our IT system, it wanted the 

CPSC to have one system that you would put all those systems in 

a data warehouse, and so that you could see emerging hazards. Everyone in the agency could pull up the same system and would 

have the data in there. IT modernization will go on into governance, case management, finances; our whole system will be modernized. 

Mr. DIAZ-BALART. So it will be more efficient? 

Ms. TENENBAUM. It will be more efficient. 

Mr. DIAZ-BALART. Right, but if you are going to be more efficient, 

and you just mentioned about how right now people have to do it 

manually, that hopefully will not be the case. 

Ms. TENENBAUM. Well, we do not want to just investigate 10 percent of all the claims we have. This is our investigation rate. These 

were projected even before the database, that these are the 

incidences that keep going up, the number of reports, and we are 

only able to investigate 10 percent. So we are asking for 24 new 

people this year to look at all this data that is coming in, to look 

at the incidents reports, and to do investigations. We are trying to 

keep people safer. This is a good return on our investment. If you look at our little agency, $118 million, 500 people, and we 

have 300 ports of entry, we have 19 people at those ports. We are 

trying to create as many partnerships as possible through our EduVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00218 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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cation, Global Outreach, and Small Business Ombudsman. We are 

working with other agencies, but it is a huge investment, $118 million, this little tiny agency, and we have over 15,000 products. We 

have 80 percent of the toys coming from China, and you know that 

this is a global complex supply chain. It is a good investment; it 

is a good return. 

Mr. DIAZ-BALART. I am not denying that, Madam Chairwoman, 

but again, just specifically about that issue. Usually when you get 

more efficient, you can then, since you are more efficient and you 

are investing in technology which costs money, you are able then 

be more efficient. 

Ms. TENENBAUM. Well, we were tiny to begin with. Just in 2008, 

we had 393 people when we used to have almost 1,000. 

Mr. DIAZ-BALART. So you are not going to then reduce that with 

IT technology? 

Ms. TENENBAUM. We are trying to be more effective in spotting 

dangers early. We are trying to be more effective in keeping consumers safe. 

Mr. DIAZ-BALART. Okay, let me ask you this, though, now. Mr. 

Serrano mentioned something which I think is accurate. He mentioned that obviously if whoever, right? You could tell people you 

regulate yourself. Unless you have a reason to regulate yourself, 

whether it is for business reasons, whatever, you are not going to 

do it. The flip side of that is that usually if government were allowed to say, Hey, what regulations would you get rid of? unless 

they are forced to, they do not voluntarily usually. I think on both 

counts, we could probably agree that that is the case. 

Mr. SERRANO. If I may, I do not know if you were here, but I 

think I may have coined a new phrase which is, Do not over-regulate, but do not under-protect. 

Mr. DIAZ-BALART. Sure. And I think that is the balance that we 

all try to reach, and there is disagreement on what that balance 

always is. But when, for example, CPSIA, the legislation that we 

have been talking about, when those regulations are taking place, 

is there an estimate as to, when you speak to the businesses that 

you are going to deal with either on the legislation or anything 

else, as to what those regulations are going to do as far as actual 

cost to the manufacturers, how much it is actually going to cost 

them dollars-wise, which then translates to jobs or not? 

Ms. TENENBAUM. Yes, well, prior to the CPSIA and before we implemented our proposed rule, we had to do a cost estimate. Now, 

under the CPSIA, Congress decided that we needed to promulgate 

rules on durable nursery equipment: toddler beds, bassinets, slings, 

baby bouncers, baby bath seats, baby walkers. And Congress said, 

Under these rules, you do not have to do a cost estimate. We are 

going to put CPSIA rule making under the Administrative Procedures Act because Congress had testimony that children were 

killed in defective cribs, play yards, and Congress wanted us to 

work with industry and first of all, look at the voluntary standard. 

And most of the rules for consumer products are voluntary. Very 

few are mandatory rules. 

So we work with industry on the voluntary standard and look to 

see if it is strong enough. And if it was not strong enough, we are 

to come back with our own rule. We have passed baby bath seats, 


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baby walkers, full size and non-full size cribs. And Congress required us to have two new rules every six months proposed. Two 

rules every six months of proposed rules. We will vote on next 

week, bed rails, portable bed rails on youth beds. We just had a 

briefing yesterday on toddler beds. We will also do bassinets this 

year. So we are keeping up with the schedule, but we do not have 

to do cost estimates on those. But, for example, if we do upholstered furniture, which we have been working on 16 years, we will 

have to do a cost estimate. 

Mr. DIAZ-BALART. Yes, Commissioner, do you want to comment? 

Ms. NORTHUP. Yes, we do these rules, but I should say the Regulatory Flexibility Act, just the one on youth beds and rails, showed 

that there would be substantial harm to businesses and that it 

would cause some of the small businesses, primarily small businesses, to get out of business. But that does not stop us from 

issuing the regulation; we go ahead and do it anyway. 

Mr. DIAZ-BALART. Right. So, okay, let me just see if I understood 

that. 

Ms. NORTHUP. We are required, as the chair said, we are required to take two durable goods every six months and issue a rule. 

And so if we look at youth beds and rails, there really is not a lot 

of injury on these. The injury data is very, very low. But we are 

required to consider how maybe these could be made so that even 

and so we issued new rules. And there is substantial product difference that we are making, that we are going to require. And so, 

businesses that have been in this business for years, that are 

small, that are not going to be able to cover these sort of changes, 

they, and our regulatory flex analysis said there will be substantial 

problems for some of them, some will go out of business. But it 

does not stop us from issuing the regulation. 

Mr. DIAZ-BALART. Let me put it this way. If it does not stop you, 

then. 

Ms. NORTHUP. Just to require that we do it. I mean, I know, it 

is, I mean—— 

Mr. DIAZ-BALART. However, that is not part of the decision making. 

Ms. NORTHUP. It is not part of the decision making. 

Mr. DIAZ-BALART. In other words, it is the consequences of the 

decisions? 

Ms. NORTHUP. We are required to do a regulatory analysis. Not 

only that, the law does not say. We still have to issue, what would 

we do? It is the law there that requires us to address every single 

child’s durable product on a certain pace, and to consider how we 

can make it safer. And every one of them comes with a regulatory 

analysis. Some of them, the changes are because they are a product 

that is more likely to cause injury, or there is more. The companies 

themselves have evolved over the years. But in some cases, the 

product, there is a low incident rate, but we still are required to 

consider how the product might be revamped, so that it would be 

safer, and to issue those as mandatory standards. We are required 

to do that. 

Mr. DIAZ-BALART. That is because of the new law? 

Ms. NORTHUP. Yes. 

Mr. DIAZ-BALART. And you do not have flexibility there? 


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Ms. NORTHUP. No. 

Mr. DIAZ-BALART. That is amazing, by the way. That is truly 

amazing. Particularly in this day and age. 

Ms. NORTHUP. Yesterday’s regulatory flexibility analysis was one 

that certainly caught my eye because of the number of companies 

that they thought it would impact negatively. If you are in multiple 

products, you will be able to spread your cost over more products, 

and so there will not be a problem. But, it said that, for businesses 

that only make youth beds, or that are smaller businesses, that it 

would have a negative effect, and may put them out of business. 

Mr. DIAZ-BALART. And the flipside, what would be the positive effect? Do we know what the positive effect would be, how many less 

deaths? How many less, do we know that? 

Ms. NORTHUP. You could say how many deaths there were over 

the last 20 years. Over the last 20 years, do you know that? 

Ms. TENENBAUM. On the toddler beds, there were two. 

Ms. NORTHUP. Over the last 20 years? 

Ms. TENENBAUM. I do not know if it was 20 years, but there were 

two because they got between the railing and the mattress and 

were suffocated. But the rule, the reg flex language in the toddler 

beds said that if you are a responsible manufacturer, and you are 

already following the voluntary standards, you would be impacted 

far less than the people who are manufacturing toddler beds, are 

not following the voluntary standard. It did not say that they 

would go out of business; it said it would have a substantial impact 

because then you will have to follow what was already the standard. But if you are a responsible manufacturer already following, 

you will have less impact. It did not say anyone would go out of 

business. It just said it would have a substantial impact. 

Mr. DIAZ-BALART. But, if you are doing it, two is a tragedy, I 

mean, one is a tragedy. 

Ms. NORTHUP. The problem with youth beds is that the majority 

of injuries occur because people, you are not supposed to use a 

youth bed for a child under the age of two, and it is primarily when 

people put a six-month-old or an eight-month-old in a youth bed, 

that they have an injury. But we are required to consider use and 

abuse. And so, if it is foreseeable that people are going to put eightmonths-old in there, we have no flexibility on this with the law, in 

terms of whether we decide to issue a mandatory standard. That 

is what the law requires us to do. And it has to include use and 

abuse. 

Mr. DIAZ-BALART. I think that is one of those things that does 

not quite pass the logic test. I mean, I do not know what the stats 

are. And again, one tragedy is a tragedy for that family, as a parent we all know that that is an incredible tragedy. But I do not 

know if we have stats about how many kids may die because they 

fall downstairs. I do not know if there is, I do not know what those 

are, but I guess you could put Nerf stairs so that they bounce. You 

could, I mean, obviously. 

Ms. TENENBAUM. Use a gate, you could use a gate. 

Mr. DIAZ-BALART. Right. But I mean even then. And then are we 

going to require a gate that closes by itself with a motion detector. 

The bottom line is that we could always go to the extreme. And we 

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viously. As a parent, that is what we would all like. But it seems 

to me that if you are dealing with two tragedies, and they are tragedies, some of those may be because there is misuse. And then, we 

can lose jobs for that, which is a huge tragedy. Because those are 

probably jobs that, those people might have children as well. It 

seems to me that that does not pass. 

Ms. TENENBAUM. Well, I do not know that anyone will lose their 

job. 

Mr. DIAZ-BALART. Well we do not know if—— 

Ms. TENENBAUM. Well, the top, on the durable nursery equipment, what we were seeing was a trend, in that the materials used 

were flimsy and the hardware was not as strong as it needed to 

be. Particularly cribs. We had over 30 deaths in drop-side cribs. 

And that is because the drop-side, if you looked at the wood, it was 

not the strong wood that was required for a crib. We did not require a racking test, which we are now, that we borrowed from 

Canada. And the hardware was plastic. 

Now, we had a baby bed in our family that everyone in the family passed around. But it was a stronger wood, and the hardware 

was made out of metal, so it slid up and down and did not come 

detached from the sides. So you are seeing a lot of products that 

are being made that are not as durable. And that is why, when 

Congress heard testimony about infants and children being killed, 

and hurt severely, they wanted the best product. 

Look at car seats. Look how strong car seats are now. Look at 

the strollers. When I visited the stroller factory, it was amazing to 

see all the tests that they put that stroller through so that a child 

is not harmed. And so it really is the safety of the child. It is based 

on the best science. It is based on the best engineering that we 

know. And we have worked with the Standards Committee. And I 

want to point out that there are probably 1,000 standards-making 

committees around the world. Think about that. And most of the 

standards for products that you use are voluntary. 

Mr. DIAZ-BALART. I understand. 

Ms. TENENBAUM. It pales in comparison to mandatory rules. But 

Congress heard testimony and they said, We want you to work 

with the Standards Committee, look at what the standards are for 

toddler beds, and if you think they can be made stronger, make 

them stronger. And that is what we are doing for all durable nursery products. 

Mr. DIAZ-BALART. But you could always make everything stronger. 

Ms. TENENBAUM. Well, this is based on the best science. 

Mr. DIAZ-BALART. How many people die in automobile accidents? 

Ms. TENENBAUM. Well, look at the automobiles. 

Mr. DIAZ-BALART. I know, but we can make them better. 

Ms. TENENBAUM. How much they have changed? 

Mr. DIAZ-BALART. But we can make them better. And we can 

make them stronger. We can make it so that nobody dies by literally wrapping people in bubble wrap, and putting in a nerf car. 

I mean, we could. 

Ms. TENENBAUM. But we do not feel like we are doing that. We 

feel like we are really using the best science. 


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Mr. DIAZ-BALART. I understand that. I understand that. But 

there gets to a point where, then, the cost benefit analysis shows 

you that you are going overboard. And I, again, I am not talking 

about this specific case, I am just saying that there is a time when 

you go overboard, and where are we not reaching that case, particularly in the case where, again, two tragedies, horrible tragedies, 

when you are dealing with two tragedies, some of those may be 

misuse. And then you have the potential of hurting people’s businesses who have kids, and that is a tragedy as well. Are we not 

potentially going overboard? 

Ms. TENENBAUM. We are very sensitive to that. But we also are 

sensitive that our mission is to keep children and families safe, and 

we believe that we need to be. 

Mr. DIAZ-BALART. I understand that, but every day we are losing 

more and more jobs overseas. 

Ms. TENENBAUM. Well, I think that there are a number of factors. 

Mr. DIAZ-BALART. There are. 

Ms. NORTHUP. If I could just say, if I had been asked what sort 

of changes you might make in the rule, I might make mandatory 

standards for durable infant goods where there is a trend towards 

injury related to the product and how it is made. We were not 

given that, nor have we sent up that, as a recommendation, but the 

fact is that when we change something, when we tell somebody 

they have to re-engineer their product, and there has been a low 

incident rate on dangers to them, but never mind, we do not care, 

do it. And they either go out of business, or lose product, or cannot, 

or it is prohibitively expensive to re-engineer this. That is a question that Congress will have to consider. But it would be a recommendation that I would make. 

Mr. DIAZ-BALART. And finally, and again, I will submit some 

questions on Chinese drywall. 

Ms. TENENBAUM. We have a lot to tell you on that. If you want 

us to meet with you personally, we certainly will. We will even 

come to your district and have a public hearing. 

Mr. DIAZ-BALART. Thank you. Just lastly, do consumers have any 

responsibility to check products for quality and safety, or really is 

it kind of government control to do that? In other words, should 

government be in a position to make sure that everything is safe, 

and so that consumers never have to worry about checking to see 

if one product is stronger? Because they are all going to be as 

strong, or checking that one product. Is there any responsibility 

that we as consumers should have, or really is it that frankly 

should government be taking care of those issues so that consumers should never have to worry about those things? 

Ms. TENENBAUM. Well, philosophically I believe that everyone 

has the responsibility to use products responsibly. But I also feel 

like the government plays a key role in working with manufacturers in coming up with the best standard possible for products. I remember when I read The Jungle, which was about the 

meatpacking industry, years ago when I was in high school and 

how the meat was contaminated because we had not regulated the 

meatpacking industry appropriately. And I remember that book 

from years and years ago, and what an impression that made on 


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me. My first job in state government in South Carolina was licensing childcare facilities and going in to old buildings that could barely pass fire safety standards, and worrying about children dying in 

those facilities. I have been a child advocate all my life, and my job 

is to protect children who cannot protect themselves. 

Every week, we see some product that is pretty incredible and 

we all say, Good gracious, why would anybody think that the use 

of that would be safe? We looked at one yesterday, and it is almost 

unanimously, Oh, that is so unsafe. So we have to balance that. 

You cannot over-regulate, but you also have to look at who your 

most vulnerable citizens are, and that is children and elderly people, and people who cannot take care of themselves. 

So I think it is good that we have a rule that says you have to 

have a voluntary standard first, and the industry has to govern 

itself. And if you find that that standard’s not effective in keeping 

people safe, then you can write a mandatory rule. I think that is 

the way it should be. And the great majority of rules are voluntary 

rules that industry makes themselves. And like I said, there are 

probably 1,000 standards-making bodies around the world, and 

they work very hard to make sure that the standards are the best 

that they know. It is our job if we have new scientific information 

to work with them to improve these standards. And that is basically my philosophy. 

Ms. NORTHUP. First of all, we do not oversee products because 

they are flimsy. I mean, because a product is flimsy, because it 

breaks, we do not have any oversight of that. It is only if it has 

the potential to injure somebody that we have a responsibility for 

it. So, yes, somebody going in. But remember, there are plenty of 

families that are of modest income, and they go in and they look 

at a crib, and they are judging, What can I afford? And they have 

to presume that every crib there on the floor is going to be safe. 

I remember as a mom myself thinking that was not what I was 

thinking. I was thinking would it last, sort of thing. And so if it 

is unsafe, that is where we have a responsibility. It is this law that 

required us to make mandatory standards that what the chair just 

said is exactly right. We should have voluntary standards, and 

when we see that there is a danger, and the voluntary standards 

are not sufficient to protect children, then we should make a mandatory standard. The law did not allow us to do that. 

Mr. DIAZ-BALART. Thank you. Mr. Serrano. I believe you Ms. 

Northop. 

Mr. SERRANO. Just a closing statement because I need to leave, 

myself. The database does exactly what you mentioned. It puts responsibility on the consumer to put forth information, and then it 

allows the manufacturer to say yes or no and defend themselves. 

Secondly, what role does the consumer play and should government 

play a role? Well, our colleague, Henry Waxman, I remember, I am 

old enough to remember this, asked the tobacco company over and 

over and over at public hearings for a series, for a number of years, 

How harmful are you? And each one said, Oh, we are not harmful 

at all. It is fine. And we now know differently. 

And lastly, one of the attacks these days is on labor unions. 

Labor unions have too much power. Well, how did they gain some 

power? Because there is an HBO special running around now, sad 


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special, about 146 women who died at the shirt factory in New 

York because there were no rules and no regulations whatsoever. 

And so yes, we do not want to over-regulate, but as I said, we need 

to protect. And there is the balance. 

But this knee-jerk reaction that we hear from some folks in this 

country, not necessarily Members of Congress, that everything is 

over-regulation, no. The commissioner is right. You go into the 

store to buy a crib, and the issue should not be because I cannot 

afford the more expensive crib, am I getting a bad crib unsafe for 

my child? That person should know that whether it is a $50 crib 

or a $500 crib it is safe for their child. And if their work is to make 

sure that happens, I do not think that is over-regulating. That is 

actually protecting the consumer. And I thank you for your testimony. It has been a wonderful hearing. But do not get up until the 

chairman. 

Mr. DIAZ-BALART. Thank you, Mr. Serrano. You and I here do not 

have a philosophical disagreement. We may have a disagreement 

as to how much over-regulation there may be or not, but I think 

we have heard it from both of you today that there are some issues 

where we may have gone overboard, where they do not have flexibility. 

Mr. SERRANO. Well, you are coming from a point that makes 

sense to me which is that you know that the big Yankees payroll 

was beaten by the Marlins team with a payroll of about $1.50, and 

so you say less is better. Well, maybe not. 

Mr. DIAZ-BALART. Mr. Serrano, I still detect a little bitterness 

there on that one. I do. I just do. And I know you cannot help it, 

and it is okay. Let me just thank both of you. This has been, I 

think, one of the most really illuminating hearings that I have had 

the privilege of being with in a long time. You both have put issues 

on the table, you have done so straightforwardly and have taken 

our questions and answered our questions. I just cannot thank you 

enough. And we hopefully will continue this conversation, because 

both of you have just been wonderful today. Thank you so much. 

Ms. TENENBAUM. Thank you so much. 


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FRIDAY, APRIL 1, 2011. 

OFFICE OF PERSONNEL MANAGEMENT 

WITNESS 

HON. JOHN BERRY, DIRECTOR, U.S. OFFICE OF PERSONNEL MANAGEMENT 

Mrs. EMERSON. The subcommittee will come to order. 

Happy April Fool’s Day. 

I want to welcome Director Berry from the Office of Personnel 

Management. I do appreciate your service. You have a tough job. 

And I know that while today usually is reserved for practical jokes 

and pranks, I think it is only opportune for us today to consider 

the serious challenges of OPM’s mission to recruit, retain, and 

honor our world-class Federal workforce to serve the American people. 

OPM leads Federal agencies on personnel management issues for 

the country’s 1.9 million Federal civilian employees. It designs, develops, and oversees compliance with workforce policies in areas of 

recruiting, selection, development and compensation. Also, OPM 

has the responsibility for managing tens of billions of dollars in retirement, health and life insurance trust funds for Federal employees. 

For fiscal year 2012, the President’s budget requests annual operating expenses of $258 million for the Office of Personnel Management, including the Inspector General, to carry out OPM’s mandated responsibilities. This is an $18 million, or 7 percent, increase 

over fiscal year 2010. 

As you know, our current spending levels are unsustainable and 

our committee is committed to fiscal responsibility. And Director 

Berry, I want to try to work as closely as we can to fund your highest priorities without adding anything additional to the Federal 

debt. 

As the Federal Government transforms itself to address the 

country’s most pressing needs, agencies must have the ability to recruit and retain talented and highly skilled employees. Over the 

next decade, the Federal Government is facing a huge retirement 

wave which will result in the loss of leadership and institutional 

knowledge across the government. So the Federal agencies really 

need your help to meet this challenge. 

You have significant responsibilities, Director Berry, and I look 

forward to working with you to accomplish your goals and make 

sure we have the best workforce to serve the American public. 

With that, I would like to recognize my friend, our subcommittee 

ranking member, Mr. Serrano, for any opening remarks he would 

like to make. 


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Mr. SERRANO. Thank you, Madam Chairman. And I did notice 

that Albert Pujols set a record—— 

Mrs. EMERSON. Zero for five. 

Mr. SERRANO. Zero for five and three double plays in one opening 

day. That has never happened in the history of sports. 

Mrs. EMERSON. So do you suppose that having a 10-year contract 

would have solved that? 

Mr. SERRANO. Yes, he would have relaxed more and paid more 

taxes and maybe kept the shutdown from taking place. 

Mrs. EMERSON. Well, there is that. 

Mr. SERRANO. I would also like to welcome Mr. John Berry, who 

we have a lot of respect for. 

OPM has a very challenging and important mission overseeing 

the employment and benefits for millions of Federal workers and 

millions of Federal retirees. We may disagree up here about the appropriate size of government, but we all agree that it is critical to 

have a personnel system that has the flexibility and resources to 

hire and retain a high-quality workforce to staff an efficient Federal Government. 

In addition to the current workforce, you are responsible for retirees, a number that is expected to increase substantially in the 

coming years. Recently, there have been many failed efforts to 

modernize the retirement system. Despite repeated investment, we 

still have a system that is outdated and inaccurate, and therefore 

unable to accomplish its mission. I understand that you are planning a more incremental modernization of the retirement process, 

and I look forward to hearing about these efforts. 

Finally, although we appear to be making progress, there is still 

an unfortunate possibility of a government shutdown. OPM will 

have an important role in making sure that the necessary parts of 

the Federal Government continue to function. I look forward to 

hearing how you are preparing agencies for this eventuality and 

making sure that Federal workers know their role in the event of 

a shutdown. I look forward to addressing these issues during the 

time for questions, and I would like to welcome you again, Director 

Berry. 

Thank you. 

Mrs. EMERSON. Thank you. 

Now I would like to recognize Director Berry. Please, if you 

would keep your remarks to 5 minutes, that way we can get some 

extra questions in. And let me also say that I believe we are going 

to have votes called somewhere between 10:45 and 11:00. I am 

hopeful that we are going to just have a couple, and so we will perhaps have to recess just for a couple minutes. So thank you, and 

welcome. 

OPENING STATEMENT

Mr. BERRY. Thank you, Madam Chair. It is an honor to be with 

you and Ranking Member Serrano. Thank you so much for having 

us today. It is great to be here and to discuss some of our priorities. 

I will try to keep it real short so we get to your questions right 

away. 

Government is increasingly a knowledge-based enterprise where 

our people are our most important asset. To have a government 


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that delivers the best services to the taxpayers in the most efficient, cost-effective way possible, we can’t avoid investing in our 

workforce. 

Over the past 2 years, as directed by President Obama, we have 

led a government-wide initiative to reform hiring by making the 

process quicker and easier so that good, qualified candidates can 

apply. Our goal: Bring the best and the brightest into the Federal 

civilian service by making government the model employer for the 

21st century. And we are trying to lead by example within the Office of Personnel Management. 

In 2010, under President Obama’s Veterans Employment Initiative, we hired 2,000 more veterans than in 2009, despite hiring 

fewer overall people across the government. I am very proud that 

at the Office of Personnel Management we hired the highest percentage of disabled vets in the government, more than DOD and 

VA. 

We met Congress’ 2004 goal to speed up security clearance investigations, eliminating a backlog that we inherited that was over a 

year in length. Now over 90 percent of investigations are done 

within 40 days. When we inherited it, it was 179 days. So you can 

see the improvement on that. And the GAO removed us from the 

high-risk list this year. A lot of things go on, very little comes off; 

this one came off. And our movement of this towards the 40 days 

was one of the primary reasons it was able to. 

We are supporting agencies as they work to improve employee 

engagement and facilitate greater partnership between agencies 

and employee groups. We are increasing the strategic use of 

telework. Thank you all for passing and adopting the Telework Enforcement Act of 2010. We are on point in getting that implemented. 

Our budget request for 2012 will build on these accomplishments. As part of the President’s budget, it is a responsible plan 

to ensure that we live within our means while still investing in key 

areas for our future. 

Our general funds request for basic operating expenses represents an overall decrease of almost $3 million from 2011 from the 

CR level. For the administration of civil service retirement and insurance programs, we are requesting a slight increase of $19 million from the annualized 2011 limitation on transfers, and it is to 

deal with some of the numbers that you all have reflected and 

talked about. 

We are facing an increase in retirement claims. Even in the first 

third of this year, there is a 15 percent increase in retirements. 

The Postal Service has announced an additional group of retirements that they are going to pursue, and we also have retirements 

coming from the Base Closure Realignment Act, in addition to our 

normal rate of about 100,000 retirements a year. So you can see 

the demand that is going to put on our services. 

To save money and to counteract some of the increases we are 

asking for, OPM has made the difficult decision to terminate the 

Retirement Systems Modernization Program. However, we can better achieve automation by now getting back to basics. We are conducting a full review, bottom up, of our systemic process and looking at what pieces make sense to automate that are the most comVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00269 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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monly used and the most easy to automate. It is going to be almost 

impossible to automate the entire process. It is just too complicated 

and too individual in basis. And so what we are looking at is automating the key pieces of it instead. By eliminating that as a formal 

program, we don’t have to provide the oversight, et cetera, that we 

would have to, which will produce a $2 million administrative cost 

savings for us by eliminating that program officially. 

Also, we are eliminating the second phase of our financial systems, looking at the earned benefit trust fund, our CBIS Phase 2 

approach. We have run into problems with CBIS Phase 1. We are 

working through those problems. We are working with the Comptroller General of the United States. We think we can work this 

out. Our problems aren’t unique. Every agency that is using this 

system is having similar problems. We are probably having the 

fewest problems of anybody across government, so I think we have 

the best chance of making this work. But we certainly don’t want 

to go any farther until we have worked the kinks out of Phase 1. 

So that will save $41 million from that project that would otherwise be spent. 

The Affordable Care Act directs OPM to approve and oversee the 

multi-state health plans that will be offered to Americans on state 

insurance exchanges, a major new responsibility. We stood up the 

preexisting condition plan in less than 45 days. Our overhead is .08 

percent, and we now provide primary coverage for that in over 23 

States of the Union. 

In addition, ACA opened the Federal Employees Health Benefits 

and Life Insurance Program to employees of tribes and tribal organizations. That is going to add another 1 million people to our 

workload. We have consolidated and reorganized our staff to better 

efficiently manage these responsibilities so that our request for increases is less than it would otherwise be. 

Our budget proposal also includes several other long-term saving 

initiatives: A wellness program that I believe is going to have a 

long-term impact, that we can demonstrate through our agency 

that if we take this government-wide, will produce millions and 

millions of dollars in savings; a health claims data warehouse that 

will allow us to achieve greater savings in FEHBP and for our retirements. And we can assure you that we will maintain tight oversight on patient privacy. 

Finally, we are seeking authority to streamline pharmacy benefit 

contracting within the FEHBP and to leverage enrollees’ purchasing power to reduce cost. We estimate that we can save $69 

million in the first year, and almost $2 billion in the ongoing years. 

Our 2012 budget helps ensure our ability to provide the best value 

to the American people by continuing to recruit, retain and honor 

our world-class workforce. 

Thank you, Madam Chair, and I am happy to answer any questions. 

[The statement of Mr. Berry follows:] 


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Mrs. EMERSON. Thank you very much, Director Berry. I appreciate very much your testimony. 

BUDGET REQUEST

Under the budget request, you list a few things that you needed 

extra people for—interspersing it with savings, I might add, so it 

was harder to add it all up at the same time. Anyway, tell me now, 

your budget request is for 7 percent more, or $18 million, than the 

2010 request. So the initiatives that OPM plans to spend they have 

proposed increase on are? 

Mr. BERRY. The increase is getting ready to handle the multi- state exchanges under the ACA. That is the bulk; $12 million of 

the increase is for that to really staff up. 

Mrs. EMERSON. And how many people is that, do you think? 

Mr. BERRY. It is approximately 20. Am I correct on that? Twentysix people. 

Also, the Employee Viewpoint Survey, which we have done every 

other year, is proposed in this budget to go to an annual survey, 

and then every other year to survey every employee in the Federal 

Government. We used to just survey a random sample. So that has 

an additional cost of $1 million. 

We have stood up a new Office of Diversity and Inclusion. That is a $1 million increase to allow us to continue forward progress 

there. And there is a request that is being made government-wide 

by the Office of Management and Budget that we would play a role 

in for improving our acquisition of $640,000. So those are the major 

increases in that. 

Mrs. EMERSON. Okay. So if you went back to 2008 fiscal year levels, or let’s say a 17 percent decrease, more or less, tell me how 

that would impact you all. 

Mr. BERRY. I think we could make that work, Madam Chair, if 

you would work with us on flexibility on the trust fund side of the 

house. What we could work with you and your staff on developing 

is if we had to go back to the 2008 level, we can’t avoid the additional burden, and I can’t pretend that we can just eat the entire 

cost of getting ready for these multi-state exchanges. It is going to 

be a significant new responsibility for us. But I believe we could 

work with you on—as I said, we managed this with less than 1 percent of overhead cost. And I think that if you were to give us—we 

are not talking about a wild increase here. You are allowed under 

the law to go up to 2 percent to authorize this. So with a slight 

increase of taking us to 1 percent, for example, would allow us potentially to go back to a 2008 level and still maintain getting ready 

for these important new responsibilities. 

MULTI-STATE EXCHANGE

Mrs. EMERSON. Let me ask you something; when you have to 

stand up the multi-state exchange, does that require more people 

at the outset, but then once you have it going then those people 

could be either shifted elsewhere or they could be temporary employees? I mean, is that how it works once you have things on a 

roll? 

Mr. BERRY. I think the 26 that we are asking for, Madam Chair, 

is I believe going to be sort of a stable baseline. It is one that we 


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will build into over the course of—if you give us the authority. I 

don’t see going much beyond that. In other words, I think that is 

a good, stable thing to be able to handle the millions of people that 

will have to come on in addition. 

Mrs. EMERSON. So the FEHBP people wouldn’t be able to perform a dual function? 

Mr. BERRY. Right. First, let me say what the law requires. The 

law requires us to keep these absolutely separate. How I have done 

this though, so that we have the efficiency of being able to share, 

obviously, good information and training—because you want both 

to inform the other—is we have one Office of Health and Insurance 

that has two deputies, one for FEHBP, one for the ACA. That way, 

their staffs, the statistical analysis, the data warehouse, the information that we can share back and forth, that will inform both, but 

the actual management and policy direction that is required under 

the law we can keep separate. So we will be able to do that. 

So clearly the FEHBP is going to continue to be the larger element of the staff. The numbers are larger and they will probably 

remain so. But there will be, we estimate, in the millions that will 

be an additional workload that we will have to manage through 

those exchanges that would be under the ACA section. 

Mrs. EMERSON. I really do have to commend you for being able 

to keep your administrative costs to manage the FEHBP at .08. I 

mean, it is remarkable. And it certainly sets the bar for any—in 

the private sector, we know that they could then perhaps reduce 

their administrative costs as well. 

FEDERAL HIRING

Let me ask you one other question during this round because 

this is a pet peeve of mine. If, for example, I found a job at the 

Department of the Interior in which I was interested, I was qualified, tell me what the process is for me to apply for the job, who 

reviews my application, and how that all works, if you would. 

Mr. BERRY. Each agency controls their own hiring. So, for example, we don’t hire for the Federal Government, we create the policies within which they work. 

Mrs. EMERSON. Right. So I want to talk about the policy piece 

just for a second. 

Mr. BERRY. So in that case, for example, Interior, we try to share 

to gain efficiencies in certain portions of the process, for example, 

advertising the positions. So all the agencies have come together 

with us and we have created USAJobs. So there is sort of a central, 

automated entry place for you to enter your resumes. But those resumes, in that case, would go to the Interior Department. They 

would screen and assess those resumes to create a pool of wellqualified candidates and then would select—and apply veterans 

preference. That is what we have set the policies to do all of that. 

The agency in Interior would then interview people from that wellqualified pool and make their selection to try to match the best 

skills with the position that they are hiring. 

Mrs. EMERSON. So are HR managers within each of those departments making those decisions, or are the people for whom the applicants would be working doing the screening? 


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Mr. BERRY. The ultimate decision is made—and what the President wants to see done in the Executive order on hiring reform, we 

want to make sure that responsibility is put with the hiring manager, the person who is actually going to have to be managing the 

job because they know what they need and can match the chemistry of that job with the right skills set. The HR people are supposed to make sure that the policies are being followed so that veterans’ rights are being protected, disabled vets are being protected, 

et cetera, and creating a legitimate, well-qualified pool that has 

open access for competition. They are making sure that box is 

checked, but the actual hiring decision is being made by the hiring 

manager who is going to be supervising the work. 

Mrs. EMERSON. But the hiring manager is only given a select 

number of people from the pool, even if all of them are equally 

qualified? 

Mr. BERRY. Now here is where we would love to work with you 

on improving this. One of the things the President’s Executive 

order—that we could do within the law and we are allowing—is, 

let’s say you were applying for an accountant position and you 

didn’t get the job for the accountant but you have gone through a 

very arduous process, you have competed, you are in the well-qualified pool. Right now you would have to start all over again. To alleviate that, what we have done to try to make it easier is within 

that department, if they are hiring other accountants, you don’t 

have to start over. They can interview and hire from the well-qualified pool of accountants anywhere in Interior. 

Now I asked the obvious question: If Transportation is hiring accountants, why can’t they hire from that pool? The law prevents us 

from sharing between departments now. We would obviously support changing that to allow us to share those positions governmentwide. Any company does this, we should do it too. Right now we 

have made it easier within departments; I would love to make it 

easier across the government. 

Mrs. EMERSON. So what in the statute actually prevents it? What 

line? What does it say? 

Mr. BERRY. We will get you the specifics, but it limits our authority to share those positions within the department, it says. And so 

we just essentially need to—we would have to change a word. 

[The information follows:] 

HIRING REFORM

We do not think there is a sufficient way to broadly interpret current statute to 

provide an authority for agencies to share competitive certificates across agencies 

with other appointing authorities. The authority to appoint employees lies with an 

agency head or with his or her designee. 

During the earlier years of Civil Service, OPM (formerly the Civil Service Commission) was responsible for competitive examining within the Executive branch. 

Based on 5 U.S.C. 3317 and 3318, OPM certified individuals out to agencies for appointments within those agencies. That OPM authority has since been delegated to 

agencies through 5 U.S.C. 1104. Agencies are responsible and accountable for the 

appointments they make within their agencies. These appointments must be made 

in accordance with the merit system principles, veterans’ preference and the statutory provisions regarding the proper order of making appointments. Executive 

Branch agencies have signed agreements with OPM that authorize them to appoint 

individuals to positions within their agencies using the rules, regulations, and processes that OPM would have used absent a delegation. 


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In September 2010, OPM transmitted to Congress a legislative proposal entitled 

the Federal Hiring Modernization Act of 2010, which, among other things, would 

have amended 5 U.S.C. 3317 to expressly permit agencies to share with each other 

the names and scores of candidates who have been assessed and found to be qualified. The other agencies could make selections from the same certificate for similar 

jobs for a period of 240 days, without having to post a new job announcement. This 

would reduce some of the time it takes agencies to fill jobs and would eliminate the 

need for applicants to submit multiple applications for the same types of jobs. 

Mrs. EMERSON. Well, certainly for a position that is an accountant, an accountant is for the Interior Department or DOT, or whatever. 

Mr. BERRY. I couldn’t agree more. It would be a great commonsense advance. It would certainly reduce the frustration level of applicants because now they would have an opportunity to be considered across the government for those pools of jobs. So I think it 

would be a great step forward in terms of efficiency. 

Mrs. EMERSON. Okay. I appreciate that. We may come back to 

that. Thanks. 

Mr. Serrano. 

Mr. SERRANO. Thank you so much. 

INFORMATION TECHNOLOGY

Director Berry, you inherited several troubled IT systems when 

you came to OPM, including the Retirement Systems Modernization Program and the Consolidated Business Information System. 

In the fiscal year 2012 budget you propose to put both systems on 

hold to address and remediate issues with each system. We had a 

hearing 2 weeks ago about government IT, and OPM is now playing a bigger role in helping to get some of these systems back on 

track. 

Are you working with OMB to address the problems in these systems. 

Mr. BERRY. Absolutely, Mr. Serrano. It is one of our highest priorities. We also work very closely with OMB and Vivek Kundra 

there, who is the chief CIO, if you will, for the government. And 

I believe we are one of his cutting-edge practitioners in how to do 

IT acquisition. We have learned from the private sector here. We 

have met with CEOs who have advised us, avoid any RFP that is 

longer than 9 months; get away from the multi-year buys; go short; 

go for instant deliverables that you can turn on and bring it on in 

phases, as opposed to trying to do everything at once. And I think 

that is very wise counsel. And so we have been working in that direction, sir. 

We are going to be overhauling USAJobs this fall. And we have 

been designing it in pieces, we have been testing it in pieces, and 

we will be turning it on in pieces. And the ultimate goal is to deliver success. I don’t want to claim success before it happens, but 

we are on track, we are on schedule and on budget with that 

project. And so it is a good example of applying the new techniques 

to an IT acquisition. We are now taking that into retirement, into 

our accounting system, and the other IT acquisitions we will do, 

but that is sort of the approach we are taking, sir. 

Mr. SERRANO. And what are your goals? Do you have a time by 

which you want things to run a certain way? And which way would 

you want them to go? 


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Mr. BERRY. Well, the first and the most important I think we can 

do is, one of the things we are again trying to lead by example on 

is setting a very tough performance standard for our employees 

and then asking them to step forward to meet it, and working 

closely with them in partnership to develop those goals so that 

there is good buy-in on the front, everybody understands what is 

being expected, but then people know they have to deliver. 

RETIREMENT PROCESSING

So, for example, on the retirement processing, it is a very complicated, arduous process that is largely pen and paper right now 

and is going to be for many years to come. We can automate pieces 

of it, and that is what we are looking to do. So for example, where 

a calculation needs to be made, we can automate that calculation. 

And we are trying to electronically get all the data now. The good 

news is we have made some progress. Every applicant is now fully 

electronic. So all new hires, we won’t run into this problem. For existing hires, we have reached about 3 to 4 years back of getting 

people who are eligible to retire. Our goal is everyone eligible to retire within 5 years will have their file fully automated, because if 

it is fully automated, it again increases the speed with which people can review documents, adjudicate them, and make sure people 

are getting the right calculation. 

Mrs. EMERSON. Is it a matter of speed or is a matter of losing 

information? Was it that people who were around 20 years, 30 

years, all of a sudden we didn’t know they were around? 

Mr. BERRY. RSM was killed just before I came into the job, the 

official acquisition, the contract that we had with a carrier. The 

best thing I would describe as why it died was they tried to take 

an off-the-shelf system and apply it to the Federal system, which 

doesn’t have—each case is so unique. Let me just give you a hypothetical example. If you were a Federal employee and you worked 

at Commerce but you had military service and you were in the reserve and you served in Afghanistan, for the period of time that 

Congress will award a higher rate of pay for retirement, you get 

credit for those years that you were in a war zone in Afghanistan, 

in your case, but it doesn’t necessarily apply to every action. 

Mr. SERRANO. What do you mean to every action? 

Mr. BERRY. For example, the treatment and formula that Congress has passed for Afghanistan is different from Iraq. And so our 

people adjudicating this have to go back and say, okay—and the 

days are assigned. It gets really sort of into details that you would 

be amazed. So they have to go back and verify, were they in the 

war zone during those days, and if they are, then they get a higher 

credit and a higher calculation. Well, there was no way the off-theshelf system could go back in and say, okay, how do I handle this 

situation and that situation? And so how those cases are done now 

is we pull all that evidence together and we have a legal specialist 

who adjudicates those files and certifies that, yes, this employee 

worked at this period of time, they are eligible for this level of benefit, and then they apply the formula that applies to that unique 

person. But it is literally different for every employee, which is the 

problem. This is one, where together, if we could come up with— 

I know it would be too much to ask to expect Congress not to 


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award these unique benefits because I know that that political 

pressure is going to be there regardless of party, regardless of year. 

What I would love to do would be, wouldn’t it be great if we could 

agree together on, let’s agree on a basket of benefits and give you 

sort of a low, medium, high choice. You all could decide, okay, we 

want to award the high benefit to this one, or the low, but then 

we could get some sense of standardization. What happens is sort 

of with each event we end up with new rules, and that makes it 

really hard to administer. And so if maybe we could work together 

to sort of standardize this, we could have an easier life going forward. 

MILITARY SERVICE CREDIT

Mr. SERRANO. Now there is a limit, right, X amount of years, of 

how much military time you can purchase, if you will? 

Mr. BERRY. Yes. And I can get you that, sir, officially for the 

record. 

[The information follows:] 

MILITARY SERVICE CREDIT

In general, an individual cannot receive credit for any military service in his or 

her Civil Service Retirement System/Federal Employees Retirement System (CSRS/ 

FERS) computation if they are receiving military retired pay (except if the retired 

pay is awarded on account of a service-connected disability or if the retirement is 

from a reserve component of the Armed Forces). However, the individual can elect 

to waive the military retired pay and make a deposit into the civil retirement system in order to have the military service added to his or her civilian service in computing the CSRS/FERS annuity. An individual may only make payments to capture 

service credit for military service after 1957, and deposit must be made prior to retirement. 

Mr. SERRANO. Otherwise, Mr. Womack will purchase like 30 

years or something, right? 

Mr. WOMACK. Thirty years, 5 months and 19 days. 

Mr. SERRANO. Which means that immediately he would be in the 

Federal Government much longer than I. I understand that. 

RETIREMENT PROCESSING

So just finishing up on this issue, I mean, I even know of some 

folks who have considered retirement but won’t retire because their 

paperwork is not in order for them to retire, they would be missing 

out on many years. When can this be in order? Or are there some 

people that have been lost through the system and can never be 

recovered, or their information cannot be recovered? 

Mr. BERRY. Well, we definitely don’t want to lose anybody; I 

mean, that would be a failure of our fiduciary responsibility. We do 

encourage employees who are thinking about retirement, we try to 

work with employees and agencies long in advance of their actual 

retirement date—sometimes even a year ahead—to say let’s make 

sure we have copies of all of your file. Work with your HR professional in your agency—see, the files aren’t with us, they are with 

the agencies. And let’s take your Interior example. If you are at Interior, you would work with the Interior people to make sure you 

have gotten all your paperwork right. If you had military service, 

you would go back to DOD and you would get that paperwork in 

order. 


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When we have a full file, then we can adjudicate that file very 

quickly, where one of our problems, our biggest problems of delay 

is, we will receive a file from an agency and it will be missing the 

military piece or it will be missing—you had worked at FAA before 

you came to Interior and they won’t have the FAA piece of paper. 

Well then we have to work to get that, and that obviously takes 

time as we try to get that. 

So we encourage retirees—it is much easier for them, they know 

their record, they know where they were—to go back and get that 

all pulled together for us. And then the speed with which their file 

can be adjudicated is much, much faster. So we try to educate both 

employees who are coming into retirement as well as the agency 

HR officials to get those records complete because then we can adjudicate quickly. 

Mr. SERRANO. Okay. Well, thank you, Madam Chair. I certainly 

encourage you to continue to move on this, and certainly in the 

area of veterans benefits. We hear a lot about ‘‘support of our 

troops.’’ Well, I am a big believer that the support is not only when 

they are in uniform, it is later on as a national thank you for their 

service. 

Mr. BERRY. I couldn’t agree more, sir. Our strategic plan, one of 

its four goals, is honoring service. And I believe every day, when 

we are processing retirements, we are reflecting how the American 

taxpayers are thanking people for their service, both in uniform 

and in the civil service, for honoring their country. And so it is up 

to us to make sure we give them respectful treatment and fast, efficient treatment as well. 

Mr. SERRANO. Thank you. 

Mrs. EMERSON. Thank you. 

Mr. Diaz-Balart. 

Mr. DIAZ-BALART. Thank you, Madam Chair. 

Good to see you, sir. You have kind of touched on this, but I just 

want to make sure that I got it right. And you talked about some 

of the issues. So is it 46,000 Federal retirees who basically will receive only about 60 percent of their annuity payments through errors; is that correct? 

Mr. BERRY. No. I didn’t mean to imply that, sir. 

What we do, because we know it takes a while to get these files 

put together to make the correct adjudication, is if someone comes 

in, we pay what is called a partial payment. And now, because we 

know, because of the backlog, that we have a longer period of time 

to get these things adjudicated, we are paying 95 percent of what 

we estimate their payment would be. So I don’t want to give the 

impression to any of the members of the committee that you are 

sitting there not getting paid in your retirement while we are waiting to adjudicate the file or waiting to get the paperwork from the 

FAA. You are getting your monthly check right from the beginning, 

and that is what we try to do, and up to what we estimate to be 

95 percent of what you would get through the paperwork we have. 

The only people that are complicated in that are folks who have 

court orders. Let’s say, for example, a divorce, where a judge has 

said 50 percent of your retirement needs to go to your former 

spouse. In that case, you might be expecting X payment. We have 

to honor the court order and reduce—we can’t pay you 90 percent 


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of your whole payment, we have to factor the court order in. And 

oftentimes that leads to tension, as you can imagine, resolving 

those cases. Many of them end up on your desks and we work those 

out with you. But I do want to explain that because it is an important distinction. 

Mr. DIAZ-BALART. All right. Let me ask you then—so I got that; 

now how long does it usually take then to finalize the process so 

people can actually get their real number as opposed to the estimated 95 percent? In both cases, in the cases of the regular folks, 

and then how long does it usually take to adjudicate the cases 

where there are more complicated circumstances? And I am sure 

there can’t be a one set answer for that, but roughly. 

Mr. BERRY. We have 100,000 cases a year. Three to six months. 

Here it is. 100,000 cases a year. Right now we have a 45,000 case 

backlog, which is what we are wrestling with. And it takes, the average case—here, let me see. It might be better, if it would be okay 

for the record, to get you the details on the specifics of the average 

case. And we can break down sort of the entire case so you will be 

able to see the numbers of each one. 

[The information follows:] 

RETIREMENT PROCESSING

Currently, the average case will be processed fully in 117 days. If the case involves a disability, court order, service credit or survivor benefit, the longest it will 

take to fully process the case is 141 days. 

But we usually have sort of about a 10,000 to 20,000 case carryover; that is sort of an average backlog. The 45,000 one now is sort 

of a function of increased postal retirements, getting ready for the 

Defense Department retirements under base closure that are coming. And some of what we are seeing is an increased retirement 

rate. Just in the first third of the year we are seeing about a 15 

percent increase in retirements. And so that is what is driving this. 

Mr. DIAZ-BALART. Thank you, Madam Chair. 

Mrs. EMERSON. Ms. Lee. 

DIVERSITY

Ms. LEE. Thank you very much. Good afternoon. Thank you for 

being here. 

Let me reference your testimony where you indicated that, as directed by the President, you are spearheading the government-wide 

initiative to reform and recruit and hire the best and the brightest 

workforce. Of course we all want to see, as you said, OPM to become a model employer. 

In the President’s directive, in the memo, ‘‘Improving the Federal 

Recruitment and Hiring Process,’’ was diversity an issue? And in 

terms of diversity, if it was included as one of the best and the 

brightest and diverse workforce, how you are recruiting people of 

color into the workforce? Do you have a plan to do that? And if you 

have the information in terms of what the demographics look like 

or the characteristics of your workforce look like now, I would like 

to know what it looks like. 

Mr. BERRY. We definitely have a plan; it is one of my highest priorities. My Deputy Director, Christine Griffin, we recruited away 

from the EEOC. She is a lawyer, an attorney, one of the highest 


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ranking people with a disability in the Federal Government, along 

with Secretary Shinseki and others. She is a veteran of the United 

States and a phenomenal leader on this issue. She has been leading a working group across the government and agencies on this 

specifically. We have a working group on Hispanic employment, we 

have a working group on diversity throughout the government, and 

also people with disabilities. 

Ms. LEE. How about African American, Latino and Native American? 

Mr. BERRY. African American is included, and all of the groups 

are a part of this focus. 

The good news is—and it is not great news, but it is good news, 

at least we are pointing in the right direction, let me give you some 

of the numbers. The numbers of minorities in the Federal workforce increased by 5 percent in 2010, or essentially 31,000 more 

employees. The Federal workforce is 17.7 percent black, 8 percent 

Hispanic, 5.6 percent Asian Pacific Island, 1.8 percent American 

Indian, and 66 percent white. Minorities constituted 33.8 percent, 

if you will, of the workforce. 

Now we also are following and tracking senior pay in SES because I think it is important not just to look at overall hires. The 

number of minorities at senior pay levels increased 9.4 percent between 2009 and 2010; it went from 3,700 to over 4,000. Women 

represent 31.2 percent of senior-level positions. We can do better 

there. But again, we had an improvement. The proportion of 

women and minorities in GS Grades 13 through 15, the more senior-rank grades just before the SES, increased by 7.9 percent, and 

the SES by the 9.4. So you can see some good early starts, but now 

how do we keep that going? And we are looking at this from sort 

of a three-pronged approach. One is, we have stood up—and we are 

asking your support to keep funding to allow us to continue going— 

an Office of Diversity and Inclusion at OPM. We believe it ought 

to be not just assigned to EEO or HR, we have to merge and marry 

and break down those silos so that people see diversity as an asset. 

I will give you a good example. I was talking with a FEMA Administrator in their planning for Katrina, and he said had we had 

a more diverse workforce, our plans, quite frankly, for Katrina 

would have been better. We had not thought through the impact 

of, in an emergency situation, sending all white officers into African American communities, knocking on the door saying you must 

leave your homes. We did not have the right mix of employees to 

think that through nor to implement it effectively in the event of 

an emergency. And so diversity is powerful not just in—it needs to 

pervade everything we do because it will produce better results at 

the end of the day. 

So we are looking at this from student hiring, and our Office of 

Diversity is working with our Office of Student Outreach and Recruitment through minority institutions. And we are also looking at 

this from the SES. We have stood up an SES office at OPM that 

had been disbanded. And the three of them are carefully coordinating and tracking similar data. So this is one we are going to 

look at from every angle, recruitment, retention, training, and advancement. 


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So my commitment to you is we are not taking our eye off this 

ball just because we have had some good early progress in the first 

year. We are going to stay at this and hope it continues to get better. 

Ms. LEE. Thank you very much. I appreciate that response and 

what you are doing because I ask this question of all of the agency 

heads; and some of the answers are very vague, but it sounds like 

you know what you are doing. 

Mr. BERRY. Trying very hard. 

Ms. LEE. And on track. Maybe you need to train some of these 

other agencies. Thank you very much. 

Mr. BERRY. I did just speak this week to HR professionals and 

CHCOs and EEO. There was a convention up at the Wardman 

Park, and I was a keynote up there about doing that training, just 

what you talked about. 

Ms. LEE. Good, thank you. 

Mr. SERRANO. I want you to be aware that you got praise about 

what you are doing from Ms. Lee and you got praise from the 

chairwoman about the budget. That is pretty rare around here. 

Mrs. EMERSON. How did I praise on the budget? 

Mr. SERRANO. He said he had 1.8 percent in one of the areas— 

Mrs. EMERSON. No, how they administered the FEHBP. They did 

a fabulous job on administering that. 

Mr. SERRANO. Take it as praise. 

Mrs. EMERSON. Praise is praise. 

Mr. Womack. 

Mr. WOMACK. Thank you, Madam Chairwoman. I will try to do 

my part to contribute to the love affair going on here today. 

Mr. Berry, you have an impressive resume. I give you credit for 

your longtime service to our country. 

As I looked at your resume, or your bio, I noted that perhaps the 

most qualifying aspect of your background must have been when 

you were Director of the National Zoo because my experience as a 

Mayor for 12 years in dealing in the HR arena, that is precisely 

what that arena is, it looks a lot like a zoo. I want to congratulate 

you for the work that you have done to streamline your processes 

to make what appears to be your organization much more user 

friendly and for your work and having come from a military background and knowing the real difficulty in background investigations and its relevance to what we do here in Washington. You are 

to be commended for that. 

WELLNESS

The other thing that I noticed in your testimony was in regard 

to wellness programs, and I want to kind of drill down on that for 

just a moment because I am a huge believer that in this debate 

that we have—and have had now for quite a while—about health 

care and health care reform, that we have said some things and we 

have done some things, but we haven’t done enough to put some 

of that emphasis back on the people that work for us. And look, the 

private sector is doing this stuff and they are doing it with great 

results. And so I want to congratulate you for your wellness program, and I want to know a little bit more about it. 

Mr. BERRY. Well, Mr. Womack, thank you, I couldn’t agree more. 


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Every CEO I mentioned, when you ask them, what do you think 

is the low-hanging fruit where we can save taxpayers money on 

this, and every one of them, first on the agenda is what you just 

described, wellness. They say it has produced bigger savings over 

the long run than they even anticipated. Now the hard part for an 

annual budgeting process is people want to see results in 1 year. 

And all of them will say you are not going to see it in year one, 

you won’t see it in year two, but by four and five it starts to show 

up in a major way. 

We brought on, in our little campus—we sit next to Interior Department and the General Services Administration, so we thought, 

let’s work together and we hired a wellness company that has come 

in. We offer everything from—we have a Weight Watchers class 

that is fully subscribed; we have weight training, we have exercise 

classes. All of the screenings are free. 

I do a monthly town hall meeting. And everything is religiously 

private and only the employee knows, so I don’t get to see the data. 

But as a way to encourage the employees I have shared my data 

as saying you got to do this because it is free. And what I was so 

impressed with was the counselors. I wish my primary care doctor 

had spent as much time with me as this counselor did. They went 

through my results for 45 minutes. And I had been ignoring my 

triglycerides, I was 5 points above the goal. But the lady who was 

talking with me found out that my dad had had heart issues. And 

she said, because of your genetic predisposition, do you realize that 

those 5 points don’t sound like much—my doctor had always just 

said, oh, it is five points—it is a 20 percent higher risk rate for a 

heart attack in your category; you have to lose 10 more pounds. So 

I had taken off 10 pounds already. I said, another 10? And I am 

going to do it, I am on my way. 

And the interesting thing is this dialogue, what is so exciting to 

me, Mr. Womack, is people in the elevator—it is so invigorating to 

have people who are saying to me, Mr. Berry, I lost 14 pounds. 

Now people are talking about their weight efforts and commenting 

what they are carrying on the elevator, oh, shouldn’t be doing those 

wings, got to get to the salad bar more. That is the stuff that is 

going to produce the millions—and if you can imagine, transferred 

out, billions of dollars in savings. This will have a huge impact in 

early cancer diagnosis, earlier treatments, healthier employees, and 

it is going to translate into direct savings for FEHBP, which is big 

dollars, over $11 billion a year. So you can imagine, if we can 

produce just 5 to 10 percent, we are talking hundreds of millions 

of dollars. 

So it is one I am passionate about. I appreciate your interest and 

focus and experience on this and look forward to your counsel as 

to how we can do better. 

Mr. WOMACK. Well, I won’t use too much of my time to brag on 

the city where I came from, but we established a wellness center 

for our seniors because we recognized we had a growing senior population and we built a 55,000 square-foot facility with warm water 

therapy and light pools and those kinds of things. 

Mr. BERRY. Great. 

Mr. WOMACK. We charged a very nominal fee just so we could 

know who is there and have a little information on them. The first 


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year, Madam Chairwoman, we thought we would have 1,000 members in this organization, and we had 1,500 members in the first 

week, and now over 14,000 members, and average daily use of between 1,000 and 1,500 people in this facility in a small town in 

northwest Arkansas. 

What you said a moment ago is correct about the savings on the 

health care side of the house, but here is the lost information, and 

this is what I want everybody to be mindful of, particularly as it 

concerns our Federal workforce. It is also a productivity issue. 

Mr. BERRY. Absolutely. 

Mr. WOMACK. And so when we have a healthier person, they are 

not going to be on sick leave as much, they are not going to be hospitalized, and they are not going to have to be resorting to all these 

tests and everything, medical procedures, and what have you, that 

come with a bad lifestyle. So from a control of health care costs 

standpoint and also from a productivity standpoint, it has worked 

where I was and it will work here. 

Are you getting any pushback? In other words, are any of these 

programs mandatory, so to speak, or being forced on people? Are 

there any requirements? How are you going through that legal—— 

Mr. BERRY. Totally voluntary now, sir. And what we are finding 

very much tracks what we have heard from the private sector. It 

is interesting, when I met with the CEOs they said, well, there are 

two ways to do this, you can just make it totally voluntary or you 

can incentivize. They all encouraged us, there is enough data to 

show you you need to incentivize it because totally voluntary you 

are going to end up with about 20 to 30 percent participation rate. 

Well, now we are a year into this, guess what our participation 

rate is, without any incentive, just totally voluntary? It is like 24 

percent. So we are right between where they told us we would be. 

Where the private sector is making the big savings is their percentage rates run 80 to 90 percent participation in these programs. 

Well, how do they do it? They do it by incentivizing. So they will 

either lower a copayment, or you get a rebate or things like that. 

Each company will take an entirely different approach. I think the 

future of this—and it will be interesting to work, especially with 

your experience on this, and we would really welcome your ideas— 

how can we move from the 30 percent to the 80 percent? And I 

don’t have a specific proposal for you other than to know we would 

have a lot more savings if we had 80 percent participation. 

None of them recommended to make it mandatory. They all said 

you can reach the 80, 90 percent level if you do the right incentive 

structure. So maybe if we could work together, we could figure out 

how to do that. 

Mr. WOMACK. I think it is a way forward, and I would certainly 

recommend that to the agencies. I do appreciate your testimony 

this morning and your leadership in the OPM. 

I yield back, Madam Chairwoman. 

Mrs. EMERSON. Perhaps we should have a Biggest Loser contest 

or something. 

I am going to shift away from this discussion, given the fact that 

my doctor just told me to lose 10 pounds and I just can’t seem to 

stay away from good food. But it is impressive what you are doing. 

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one to participate is even, I think, more important, and it is wonderful. 

As far as what Mr. Womack was doing with the senior center, 

I find that sometimes it takes a little bit to get some of our seniors 

doing it, but once they do, then everybody wants to do it. 

Mr. BERRY. Well, and it is also making it easier. So like in our 

cafeteria, for example, I went down yesterday, it is so easy, they 

have a Weight Watchers option. And it is already calorie counted 

for you—salmon, vegetables—everything is proportioned and so you 

don’t have to do any of the thinking. And so you say, okay, give 

me the Weight Watcher option. What we have done, our salad bar 

used to be a pretty lame salad bar, now we have one of the best 

salad bars in the city, and it is a really good one. People are going 

to it because it is more interesting. So sometimes just making it 

more easily available is part of the solution. 

Mrs. EMERSON. And Weight Watchers is a good thing; we will 

talk to the Mayor of Capitol Hill about that. But in the meantime, 

if you can invite our subcommittee down for lunch, that might be 

a nice thing to do. 

PAY FOR PERFORMANCE

All right. I want to talk a little bit about Pay for Performance 

and step increases if we could. In 2009, only 737 out of more than 

1.2 million employees were denied a regularly scheduled step increase and accompanying raise because of poor performance. That 

equates to about a, what, .06 denial rate, or less than half of 1 percent, which, despite being low, is still the highest rate in recent 

years. So just a couple of questions with regard to that. 

In your opinion, under the current Federal pay system, are Federal pay and promotions correlated with performance? What does 

OPM do to monitor or give guidance to agencies on awarding performance pay increases? And do you think managers actually have 

the flexibility or the range of carrots and sticks to improve employee performance? And are there consequences at all for poor performance, not only for the employee, but for the manager? 

Mr. BERRY. Let me begin by saying, we can do a lot better. I 

would not sit here and tell any of you that we have nailed performance management in the Federal Government. We have not. Our 

managers are too timid. We do not have regular—a good performance system would be managers regularly sitting down at least 

quarterly and having a very straightforward conversation with employees about what is being expected and is it happening? Right 

now it is done more on an annual basis, and it is given short shift, 

it is not given the attention it deserves. We are going to be working 

very hard this year to change that. 

We have created a working group of the Chief Human Capital 

Officers Council on how we can do a better job on having managers 

and employees pay more attention, and use the authority—you give 

us broad authority in performance management, both to incentivize 

and to discipline. And quite frankly, the Federal Government has 

not done a good job in exercising the authority you have given us. 

I am going to try this year—that is one of my highest priorities this 

year—to move the needle on that. I am doing it with my own employees by example, but we are also going to do it across the govVerDate Mar 15 2010 23:42 Jun 22, 2011 Jkt 066791 PO 00000 Frm 00287 Fmt 6601 Sfmt 6602 E:\HR\OC\A791P2.XXX A791P2

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ernment. So this CHCO Council is working on that. We are having 

it chaired by two career senior executives so that it is not seen as 

a political gotcha game, so that it will be something that can be 

professionally applied. We are working with the Partnership Council, with the unions to get buy-in to this. 

Now more specifically to your question on the within grades. 

First, I agree we can do a much better job on performance, and we 

are going to try it, and I hope to have some really good results to 

bring back to you. This time next year I hope to be able to describe 

just what we are doing that is going to hold people more accountable. And quite frankly, if someone is not doing the job, we ought 

to fire them. I mean, we ought to give them a chance to correct— 

and obviously, if we are not giving them the right tools or training, 

then we ought to do that, but if after all of that they are still not 

doing the job, get rid of them. And we can get rid of them in the 

Federal Government; it is just that managers have not been doing 

that. And we are going to try to work to create a more rigorous system to apply that principle. 

WITHIN GRADE INCREASES

Within grades, now it is kind of interesting. Let’s discuss within 

grades for a second. Every company, private or public, has an approach of sort of a career advancement trajectory. What within 

grades do is there are 10 steps that take you 18 years to go 

through. And the principle that sort of both the private sector and 

the public sector use in terms of HR management is, you want to 

advance people to the midpoint of their range relatively quickly as 

a way to keep them because you are making a huge investment up 

front in training. And a lot of times what happens is if you train 

somebody, now another of your competitors will come in and steal 

them away, they save the money of not having to train them. So 

if you are not advancing people up front to sort of a midpoint of 

their career, then it is more slowly. 

And so how it works in the Federal Government, building on that 

model, is for the first third of your career you get a step increase, 

which is 3 percent of your pay annually. For the second third of 

your career you get it every other year. For the third, the last percentage of your career you get it every 3 years. And what that does 

is it creates a natural trajectory if—and you only can be awarded 

this if you have acceptable performance. So you can see where we 

can—that is broadly defined. So through the performance management—and I think our unions are going to work with us on this— 

there has to be a natural trajectory. 

So if you come in as a GS–12, step 1, it takes 18 years to get 

to step 10 just through a normal trajectory of that 1-year, 2-year, 

3-year approach, and it is in 3 percent, a step equals 3 percent. We 

can, I think, through performance management, better define what 

acceptable performance is to ensure that if you are not performing 

well, a big stick can be we can withhold your within grade. 

So we are going to be looking at that as part of this equation, 

but that gives you a little bit of an example. 

Within grades aren’t designed to really be performance pay, per 

se. They are designed to create a career trajectory that retains the 

training that you are making in that person over an 18-year period. 


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So there are performance elements—bonuses, awards and things 

like that—that are purely performance-based, but the within 

grades weren’t ever designed in the law to be a pure performance 

base. There is a performance element, but it is really to create a 

career trajectory. 

If that is a long answer, I apologize. 

PERFORMANCE MANAGEMENT

Mrs. EMERSON. No, I understand. I mean, we all get caught up. 

Having worked many years in the private sector myself, in many 

cases I saw people who should have been fired be given promotions 

just to shovel them out of specific departments and the like. And 

I dare say I have seen that, having worked in my very first job for 

the Federal Government, but that was more years ago than I want 

to say. 

Another thing that is frustrating to me is the process by which 

one would sever the relationship because I know that there are 

people, for example, who are involved with the Bernie Madoff scandal of the Securities and Exchange Commission who have not yet 

been terminated because of adjudication and all sorts of things. 

I mean, we are not talking about some minor screw-up, they are 

talking about major lives that were ruined by people not being able 

to perform their jobs. And I don’t understand why it takes so long 

for them to be terminated. 

Mr. BERRY. As I say, we have the ability in the Federal Government right now to do something called a performance improvement 

plan. So if a manager has an employee like that, you can as the 

manager put 30, 60, 90 days and say this is what you are doing, 

this is what I want, you have X days to get there, you don’t, you 

are fired. It can be that straightforward. And our managers don’t 

exercise that. 

Mrs. EMERSON. And they are not held accountable either; correct? 

Mr. BERRY. It is a historic problem that we are going to wrestle 

with. But I believe that if we go after that it will have a huge productivity increase for the government, as Mr. Womack was mentioning. And it will serve the taxpayer better. And quite frankly, 

our labor unions and our employees will be grateful, because as a 

Federal manager I have removed people, and the people who have 

come back to thank me when I removed somebody have been their 

co-workers because they said thank God somebody actually had the 

backbone to deal with the situation. We have been carrying this 

deadwood. We have been doing their job for them. You weren’t 

happy to come to work. Getting them out, I am happy to come to 

my job now. 

And it is for the credibility of our managers we have got to be 

serious about this, and our employees want it. It shows up in our 

employee surveys. One of the highest things that people feel is we 

do not discipline poor performers. And it is our workers are telling 

us that. They feel it is unfair, and they are right. And we need to 

fix it. So we are going to go after it full force. 

Mrs. EMERSON. And that hurts morale. 

Mr. Serrano. 


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WELLNESS

Mr. SERRANO. Before I get to a couple of questions let me just 

say I was really very pleased to hear Mr. Womack speak of 

wellness. For a while in government it has been seen as a perk. 

If you have any exercise facility within a Federal place, that is a 

perk, even if people pay to join it. 

But if you have a person come in and tell you about weight or 

about heart disease or whatever, it is a perk. And yet we have 

learned from many countries throughout the world, even some we 

don’t like very much, that if you put up front wellness as an issue, 

if you put up front preventive medicine as an issue, at the end of 

the day you don’t have the situation we have in this country. I was 

so pleased to hear that. 

Mr. WOMACK. If the gentleman would yield on the subject, it says 

a lot about the employers. The employer demonstrates a concern 

for his or her employees’ health. Because there is only one of those 

people, and if their health is in jeopardy, I think it is the employer’s responsibility, the leader’s responsibility to help that person 

look for success. So it is productivity. It is a sense of compassion 

for the well-being of the individual, and of course it is the cost of 

government. So it is all relative. And if you have been on our side 

of the table from the executive branch, you get that pretty quickly. 

The private sector get its completely. 

Mr. SERRANO. But my praise with your comments was the fact 

that you don’t hear that often enough, that you usually hear, that 

is a perk. Let these people go after work to their own place. Don’t 

do it at the work site. Don’t have any assistance. That is such a 

mistake. 

So I hope we hear more of this. And I think that there is something happening in Congress that could help with that area, is that 

more and more of the people coming to Congress for some reason 

in the last 10 years, I have noticed, are people who are physically 

active and exercise. And you will see it in a couple of weeks when 

we have our annual race for charity when more and more and more 

House teams get together and run and participate. So that is a 

good thing. 

VETERANS EMPLOYMENT INITIATIVE

Tell me about the Veterans Employment Initiative. You know, I 

have always felt there was a contradiction in this country in some 

areas, and that is you have people who are very gung-ho about our 

involvement in military actions, but are not supportive when the 

troops come home. And I have seen these bumper stickers that say 

‘‘support the troops’’ and I wish you could add to that, yes, for the 

next 20 years, for the next 30 years, for all the time it needs to 

help them. I am the kind of guy you see voting against the military 

action and then voting for whatever they need when they come 

home. Whatever they need when they come home. Of course, it is 

not the troops that I have a problem with, it is the people who decided to send them there or the action itself. 

So tell me about the initiative and tell me how closely you are 

working with the Veterans Administration. 


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Mr. BERRY. Well, Mr. Serrano, thank you for your leadership on 

so many veterans issues. You have been a stalwart over so many 

years. The President’s Executive order I have to say is the thing 

if you were to ask me for my 2-year term what am I most proud 

of, it would be having recommended that Executive order to the 

President. 

My father served in the 1st Division in Guadalcanal, and my 

name I earned from my uncle who was killed in the Pacific, my 

dad’s brother. And so this is a close personal issue for me and I 

look at it as a way to honor the memory of my father. 

The first thing I tackled was looking at veterans—the unemployment rate for returning vets right now from Iraq and Afghanistan 

is amongst the highest in the country. And knowing the difficult 

economic times they were coming back to and the competition they 

faced and we looked at it, and DOD and VA do a great job and so 

does OPM. Almost 30 percent of our new hires are vets. So we are 

in the highest category. But many civilian agencies I looked at 

weren’t really carrying their weight. They were not doing a good 

job. Two to 5 percent of their hires were vets. 

So we went to the President and made him aware of this and he 

said we have got to get everybody to row in the same direction. 

And he created an Executive order and a council that is chaired by 

Secretary Shinseki and Secretary Solis, so we have both Labor and 

VA as the heads and then I am the COO of the council. And we 

have met four times. What they do is we get every agency together, 

it is very high level, and people are tracked on their performance. 

For the first year we were just getting it set up and we just told 

everybody to do better. The good news is that every agency but two 

did better. 

This year, not wanting to just count on that, we set up an accountability model to hold everybody in place. So if you were in the 

level of DOD, VA and OPM, above 25 percent in your hires, stay 

there. You are doing great, keep it up. If you are in the middle category, sort of 10 to 20 percent, do an additional 2 to 3 percent. If 

you are below 10 percent, that is kind of like the Weight Watchers 

thing, you have to lose some more weight, you have got to run faster, you have got to do 3 to 5 percent. And so for the lower performers we are expecting them to hire more and to move up faster. 

And so every agency now has and knows exactly where they fall. 

I sit on the President’s management council with Jeff Zients at 

OMB; all of the deputy secretaries come in addition to this council. 

Monthly. I share the data with every agency, here is where you 

are. You are either on track or off. It is regular, religious attention. 

And we are not going to take our eye off of this. 

The first year results, like I said, 2,000 more vets hired across 

the government. Even though we hired less Federal employees it 

was an impressive step to get this out of the box. 

The other thing, lastly, is that we are working with the VSOs, 

the veteran service organizations, the Legion, the VFW, the Student Vets are in sync with us and we are developing some innovative approaches. What we are looking at is jobs in the military that 

ought to be easily transferable to the civilian side. 

Med techs. We have a desperate need for nurses. We can’t hire 

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antee them a job in the Federal Government when they come back. 

Now we are moving beyond from just tracking the data to looking 

how can we take jobs that are easily transferable and give them 

the training to do it. 

Mr. SERRANO. Well, again, I think that that is a great initiative 

and a great approach and you should be proud of that Executive 

order because it is a good one. 

Let me take you to a couple of places now where we would probably all like to go right now, to the American Territories. 

Mr. BERRY. I volunteer, sir. 

Mrs. EMERSON. Let’s all go to Puerto Rico. Sounds awesome 

today. 

RECRUITMENT IN THE TERRITORIES

Mr. SERRANO. So both in the area of hiring diversity, of hiring 

minorities, the Northern Mariana Islands, Guam, Samoa the Virgin Islands, Puerto Rico fit that category well. But also just in the 

area that I have always discussed with you and other agencies that 

they are members of our country. They live in Territories. They 

don’t live in States, but they should be included. 

And I call your attention to the fact that sometimes it works. For 

example, NASA has quite successfully recruited from the University of Puerto Rico at Mayaguez, my hometown, for many years 

now. In fact proudly we say that whenever a rocket goes up there 

are a lot of folks from Mayaguez on the ground that made it possible. It works for them. It should continue to work for the rest of 

the agencies. What are we doing to recruit? 

Mr. BERRY. Well, we are doing a lot but we have to stay with 

it. It is one of these things it is not going to be a one-shot effort. 

I was very pleased and thank you for your support and helping us 

get the word out in Puerto Rico. The hiring event we did in last 

October there it was very well subscribed. And we did get a number of jobs, at least 36 that I know of, but it may end up being 

more now. 

But the more important thing was in doing that event we also 

trained people on how to apply for other Federal jobs so they had 

a good learning that will I believe will increase their probability of 

success in future job searches. We need to do that regularly. We 

did that jointly with NASA, DOD and VA. And we are going to continue to look at how we can continue to outreach effectively 

through those. I think there are very powerful ways to do. 

The other thing we have done specifically I think will help the 

Territories. We have included them on this specific focus area. The 

diversity data I was talking with Ms. Lee about. The Hispanic community is underrepresented relative to its numbers in the civilian 

labor force. It is probably the largest gap, if you will, of our diversity categories right now, 8 percent versus about 14 to 15 in the 

civilian side. And so we are at 8 in the Feds. There might be a lot 

of reasons for that. So we have got to make sure that our access 

points are open and we are reaching out in the right places and 

including the Territories in this. 

We have created a Council on Federal Employment there that is 

chaired by my Chief of Staff, Liz Montoya and John Sepulveda, 

who is the H.R. Director at the VA, who understands this well, and 


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they have an agency group of 65 people across the government that 

are developing student outreach, training, mentorship, on boarding, 

the whole 9 yards on this on how to do better by outreaching to 

Latinos and Latinas and people from the Territories. And I think 

this is going to bear fruit. There is a lot of great brain power going 

on this and some very creative, initiative approaches to this that 

are going to build much more than the annual hiring fair. It is 

going to be an ongoing more consistent, religious approach that will 

get this into practice. 

Mr. SERRANO. Let me say this, even in that issue there is a disconnect. We send dollars to the colleges throughout this country 

and then we recruit. Well, we send dollars, not equal shares, to the 

Territories and then traditionally we don’t recruit in those universities. So even if you just are talking about, you know—I cannot 

believe I’m saying this—what the taxpayer deserves, if you invest, 

then go recruit some place. But I thank you for your efforts. 

Mr. BERRY. Mr. Serrano, if I could, one closing point, and it circles back to your first question. Our effort to hire vets is also going 

to help on each one of these categories. Every one of those categories in the diversity is well represented in the military. They 

know that through the voluntary workforce. 

We have already invested billions in training in these people. 

They are great leaders. They are great assets. I use the vet to be 

‘‘valued, experienced and trained.’’ We would be darn fools not to 

take advantage of this and by doing it not only we will get great 

skilled people but we will also increase our diversity numbers. 

Mrs. EMERSON. Thank you, Mr. Serrano. 

Mr. Diaz-Balart. 

Mr. DIAZ-BALART. I don’t know if I could read anything into 

when Mr. Serrano was talking about people being out of shape. He 

was looking in this direction. 

Mrs. EMERSON. I am the only one out of shape up here. 

Mr. DIAZ-BALART. Well, Madam Chairman, this is not all muscle, 

trust me. Years of working on that. 

Actually still talking a little about aerospace—— 

Mr. SERRANO. He is still a great baseball player. 

NASA WORKFORCE

Mr. DIAZ-BALART [continuing]. There are obviously going to be a 

lot of retirements because of NASA and the space shuttle. I know 

that you have been looking at that and you have been very 

proactive. Can you talk about how it is going and what you are 

looking at, please? 

Mr. BERRY. I am also very excited. I am finally going to get to 

see a shuttle launch. I am going to go down with Secretary LaHood 

and NASA Administrator Bolden next week to see the shuttle 

launch. Hopefully I should say, if the weather and everything cooperates. 

We are committed. Obviously there is going to be a major transition in this program and just like we did with Base Closure and 

Realignment and everything else, these are great employees. They 

have served their Nation, they are highly skilled, many of them engineers. 

Mr. DIAZ-BALART. Literally rocket scientists. 


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Mr. BERRY. Literally. And we need to take full advantage of 

them. I am working with Administrator Bolden and Lori Garver, 

the Deputy. We have issued guidance and encouraged agencies and 

we are going to be working to hire these folks and to provide them 

opportunity and to give them every tool in our book that we can 

do to help them. And so my commitment to you is that we look forward to continuing to work on this and provide priority focus until 

we have them in good jobs. And to do everything we can to help. 

And so I am very open to suggestions or other ideas of how we can 

help in that kind of transition. Because like you say they are the 

best and the brightest and we need to keep them. 

Mr. DIAZ-BALART. Thank you. 

Mrs. EMERSON. Ms. Lee. 

NURSING WORKFORCE

Ms. LEE. Thank you very much. You mentioned, Mr. Berry, the 

need for nurses, the nurse shortage, yet nurses are telling me they 

can’t find jobs. We had a hearing last year—— 

Mr. BERRY. Send them to me. I will hire them. Let me tell you, 

we are having such a hard time, Mrs. Lee, that I have issued—we 

only do this in categories that every one of our attempts to try to 

solicit hires have failed so badly and our need is so great that we 

do something called direct hire authority, that I have given that 

authority to any agency in the Federal Government, that if they 

can hire a nurse directly they don’t have to compete the position. 

So as long as they are certified, they can do the job, they can be 

hired immediately. 

Ms. LEE. There are several organizations who represent nurses 

who have testified and indicated that they cannot find jobs for 

nurses in those who have just graduated from nursing school. 

Mr. BERRY. It might require people to move obviously. In other 

words, in some areas they might not find it in the location they 

want, but we have got jobs for them. And they are well-paying jobs, 

they are in great places, they can work with our VA hospitals, our 

HHS hires. The nursing need is severe across the government. 

The other category in desperate trouble is veterinarians. We are 

not competitive in that field. So this is a tough area, and so like 

I say, that is another direct hire thing that I have given out: Find 

one, hire them. 

Ms. LEE. Okay, I am going to go back and have some more discussions on this. Appreciate that. 

HIRING AND THE DIGITAL DIVIDE

Let me just ask you in terms of in the process of streamlining 

and modernizing the processes at OPM, have you taken into account the whole issue of the digital divide and how when people— 

I know many of our communities still, people of color, seniors, don’t 

have access to computers. How do you apply for a job if you don’t 

have access to a computer or do you have a variety of ways that 

you can do it? 

Mr. BERRY. There definitely are a variety of ways and we do try 

to work, you know, not only with sort of traditional methods, we 

work with a lot of the retirement groups who help us get word out 

and work with that. But also sort of our libraries and other folks 


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who are great at making computers available so that people can 

come in and apply and get on to USAJobs and other things. 

But we also are trying to help in sort of a—good case in point 

is I opened at OPM this year an office aimed at veterans, veterans 

hiring, that had all the specialized disability equipment so that 

sometimes it is not only a question of the digital divide. Even if 

they have access to equipment, it does not accommodate a disability. And so working with DOD, we got all the specialized equipment. So now vets with disabilities can come in and use that equipment. We are making that available to any agency on a space 

available basis. So we try to help in every way we can to make it 

fully accessible, you know, to as many people as possible. 

Ms. LEE. It is not apply only through the web? I mean through 

the Internet? 

Mr. BERRY. That is clearly the primary mechanism now, but it 

is not the only way. You can come in other ways. 

Ms. LEE. If I wanted to apply for a job and did not have a computer, no library nearby, which is the case in many communities—— 

Mr. BERRY. You can use paper. 

Ms. LEE. Do it the old-fashioned way still. As long as that option 

is there. So many private employers now won’t even accept an application the old-fashioned way, and it is a barrier right there that 

excludes so many people. You still don’t have for whatever reason 

access. 

Mr. BERRY. My staff informs me that you can still do the old 

paper-pencil. 

Ms. LEE. Thank you. 

Mrs. EMERSON. We have such a slog of votes that there is no 

way—slog? We will be over on the floor for 2 hours almost. We will 

certainly not make you wait for us. And the only other question I 

just wanted to ask you briefly was with regard to the your request 

to hire an environmental manager. Don’t you have somebody who 

already does that now? 

Mr. BERRY. I’m sorry? 

Mrs. EMERSON. I think there is a request here, let me find it. $100,000 for an environmental manager who is going to be responsible for ensuring that OPM is in compliance with all major environmental laws and regulations. I am assuming you already have 

somebody who does that. 

Mr. BERRY. This is part of the Greening the Government Initiative that we are looking to make sure we can step up in a full way 

so that on everything we do, whether it be paper purchasing, our 

fleet management, our energy use, I believe it is an investment 

that will produce, just like the Wellness Initiative, significant savings. Because, for example, just on electricity alone, that person 

should hopefully pay for their job three times over if they help us 

to design and take advantage of all of the new technologies and energy monitoring and management systems that are out there. They 

have gotten very sophisticated. 

And the reason that this is a specific request is this has become 

a specialty profession. It used to be okay, we are going to buy recycled paper. Now they need to have an engineering understanding 

to look at energy flow and water flow and other things, and that 


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is where this is generated from. I believe it is a request that will 

produce the savings that will more than pay for itself in the years 

ahead. 

Mrs. EMERSON. It is with skepticism that I will close the hearing 

on that note. It was a wonderful hearing and you did a great job 

and your team does as well. And I think it is not always easy to 

be a Federal employee because they get bludgeoned by so many 

and it is hard work, and I thank you very much for your contribution. 

Mr. BERRY. Thank you, Madam Chair, I appreciate you and it is 

an honor to be with you today. 

[The information follows:] 


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