[House Hearing, 105 Congress] [From the U.S. Government Publishing Office]DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 1998 ========================================================================= HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS FIRST SESSION ________ SUBCOMMITTEE ON VA, HUD, AND INDEPENDENT AGENCIES JERRY LEWIS, California, Chairman TOM DeLAY, Texas LOUIS STOKES, Ohio JAMES T. WALSH, New York ALAN B. MOLLOHAN, West Virginia DAVID L. HOBSON, Ohio MARCY KAPTUR, Ohio JOE KNOLLENBERG, Michigan CARRIE P. MEEK, Florida RODNEY P. FRELINGHUYSEN, New Jersey DAVID E. PRICE, North Carolina MARK W. NEUMANN, Wisconsin ROGER F. WICKER, Mississippi NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full Committee, and Mr. Obey, as Ranking Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. Frank M. Cushing, Paul E. Thomson, Timothy L. Peterson, and Valerie L. Baldwin, Staff Assistants ________ PART 2 Page Selective Service System......................................... 1 Neighborhood Reinvestment Corporation............................ 41 Council on Environmental Quality................................. 205 American Battle Monuments Commission............................. 391 Cemeterial Expenses, Army........................................ 415 National Credit Union Administration............................. 177 Community Development Financial Institutions..................... 93 Consumer Information Center...................................... 449 Consumer Product Safety Commission............................... 503 United States Office of Consumer Affairs......................... 625 ________ Printed for the use of the Committee on Appropriations ________ U.S. GOVERNMENT PRINTING OFFICE 40-256 O WASHINGTON : 1997 ------------------------------------------------------------------------ For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON APPROPRIATIONS BOB LIVINGSTON, Louisiana, Chairman JOSEPH M. McDADE, Pennsylvania DAVID R. OBEY, Wisconsin C. W. BILL YOUNG, Florida SIDNEY R. YATES, Illinois RALPH REGULA, Ohio LOUIS STOKES, Ohio JERRY LEWIS, California JOHN P. MURTHA, Pennsylvania JOHN EDWARD PORTER, Illinois NORMAN D. DICKS, Washington HAROLD ROGERS, Kentucky MARTIN OLAV SABO, Minnesota JOE SKEEN, New Mexico JULIAN C. DIXON, California FRANK R. WOLF, Virginia VIC FAZIO, California TOM DeLAY, Texas W. G. (BILL) HEFNER, North Carolina JIM KOLBE, Arizona STENY H. HOYER, Maryland RON PACKARD, California ALAN B. MOLLOHAN, West Virginia SONNY CALLAHAN, Alabama MARCY KAPTUR, Ohio JAMES T. WALSH, New York DAVID E. SKAGGS, Colorado CHARLES H. TAYLOR, North Carolina NANCY PELOSI, California DAVID L. HOBSON, Ohio PETER J. VISCLOSKY, Indiana ERNEST J. ISTOOK, Jr., Oklahoma THOMAS M. FOGLIETTA, Pennsylvania HENRY BONILLA, Texas ESTEBAN EDWARD TORRES, California JOE KNOLLENBERG, Michigan NITA M. LOWEY, New York DAN MILLER, Florida JOSE E. SERRANO, New York JAY DICKEY, Arkansas ROSA L. DeLAURO, Connecticut JACK KINGSTON, Georgia JAMES P. MORAN, Virginia MIKE PARKER, Mississippi JOHN W. OLVER, Massachusetts RODNEY P. FRELINGHUYSEN, New Jersey ED PASTOR, Arizona ROGER F. WICKER, Mississippi CARRIE P. MEEK, Florida MICHAEL P. FORBES, New York DAVID E. PRICE, North Carolina GEORGE R. NETHERCUTT, Jr., Washington CHET EDWARDS, Texas MARK W. NEUMANN, Wisconsin RANDY ``DUKE'' CUNNINGHAM, California TODD TIAHRT, Kansas ZACH WAMP, Tennessee TOM LATHAM, Iowa ANNE M. NORTHUP, Kentucky ROBERT B. ADERHOLT, Alabama James W. Dyer, Clerk and Staff Director DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 1998 ---------- Tuesday, March 4, 1997. SELECTIVE SERVICE SYSTEM WITNESSES GIL CORONADO, DIRECTOR WILLIE L. BLANDING, JR., EXECUTIVE DIRECTOR LEWIS C. BRODSKY, DIRECTOR FOR PUBLIC AND CONGRESSIONAL AFFAIRS Opening Remarks Mr. Lewis. Today we will take testimony on the fiscal year 1998 budget request with the Selective Service System as well as Neighborhood Reinvestment Corporation. Our schedule originally called for the NRC to be up first. However, because the Selective Service in some way managed to get themselves scheduled at the same time in the other body, there is a conflict and so we readjusted that schedule. But we are pleased to accommodate Mr. Coronado and appreciate your being here. As we begin with the Selective Service System, I would like to note that their 1998 budget request of $23,919,000 was an increase of some $989,000 over their 1997 funding level. This increase is spread throughout their budget, although more than half was in Service to America. We will discuss this plan in greater detail in just a few moments. Testifying before the subcommittee this year is the Selective Service's distinguished Director, Mr. Gil Coronado. Welcome to you and your colleagues. Please introduce those with you this morning, including your new associate, Mr. Blanding, and then proceed with your oral testimony. Your written statement will be in the record in its entirety, and, to accommodate Mr. Stokes' problem, certainly I yield to Mr. Stokes. Mr. Stokes. Thank you, Mr. Chairman. Let me just personally extend to Mr. Coronado and staff a personal welcome for your appearance here today. As the chairman has already indicated, I have got a very conflicted schedule this morning, so if I slip out on you here, I hope you don't take it personally. I am just trying to be at three places at the same time. But I did want to say to you that I will submit, Mr. Chairman, some questions for the record. Mr. Lewis. All right. Thank you, Mr. Stokes. Mr. Coronado. As one grandfather to another, I fully understand. Mr. Stokes. We do share that. Thank you. Mr. Lewis. The grandfather business is especially a delight for all of us. Mr. Coronado. It certainly is a blessing from God. Mr. Lewis. With that, let us hear your testimony, and, as I indicated. It will be in the record in its entirety, then we will move on. Mr. Coronado. Thank you, Mr. Chairman. And I do have seated with me at the table two key members of the Selective Service team. On my right is Mr. Willie L. Blanding, the new Executive Director who just joined our agency last July; and to my left is Lew Brodsky, Director of Public Congressional Affairs. greetings from the lewises Mr. Chairman I convey warm greetings from those other Jerry Lewises of Rankin, Texas, whom you met last year. Young Jerry, Jr., the 35-millionth young man to register with Selective Service, is doing well back home. He continues to support the Selective Service System. Exhibits we recently constructed show Jerry, his high school friends, and his registration card. Yes, Jerry's image is now on display around America to remind young men to register. Mr. Chairman, we are grateful to this Subcommittee and the Congress for continuing to provide us with the funds necessary to serve as America's defense manpower insurance policy. mobilization timetable As you know, in November 1994, the Defense Department revised its mobilization timetables to reflect post-Cold War scenarios and told us that first inductees would hereafter be required 193 days after mobilization for a national emergency. We had anticipated the new timetables and began downsizing a few years ago. We reduced several programs and streamlined the organization. On the other hand, the shift to new mobilization timetables for inductees increased our operational work load by adding new planning and training requirements. We must revise our procedures, regulations, and documentation to reflect a new, graduated, or ``time-phased response'' to deliver pre-examined draftees for induction 193 days after Mobilization Day. automation modernization At the same time, we are moving forward with modernization of our automation capabilities, making hardware and software improvements to increase efficiency and enhance service. As you consider our fiscal year 1998 appropriation, I know that to function in an era of Government downsizing, the Selective Service System cannot merely dwell on its proud past nor depend exclusively on the threat of a future crisis; the Agency must demonstrate that America benefits from its work each and every day. So in the spirit of the National Performance Review, we are broadening this Agency's direction. service to america initiative We have enthusiastically embarked on a new initiative which we call Service to America, while continuing to meet our statutory responsibilities. President Clinton recently acknowledged it as--and I quote--a noble and worthwhile effort sure to increase civic- mindedness and opportunities in our country. End quote. The idea is simple. With your support, our registration process will serve dual functions in American society. In our routine communication with all new registrants in America, we encourage them to serve America today. In close cooperation with the Department of Defense and the Corporation for National Service, we are informing young men about service opportunities today in the U.S. Armed Forces and in the Nation's communities. With Service to America, this Agency proudly continues to fulfill its time-honored purpose in a new way. We historically focused the attention of America's young men on meeting society's wartime needs, and now we also remind them about civic opportunities in peacetime. We want to fully implement the Service to America initiative. Our FY 1998 budget submission requests $23.9 million, a slight increase for the first time in 4 years. About half of the increase would fund the increased costs of printing, mailing, processing, and staffing associated with the Service to America initiative. The balance of the funding increase would offset pay raise costs. The Service to America initiative is a solid example of Federal agencies working together to achieve common goals and provide better, more efficient service to the public. It is also relevant to our Nation's new bipartisan emphasis on volunteerism. We have been in touch with General Colin Powell as he spearheads, with former President Bush, the ``President's Summit for America's Future.'' We suggested ways this Agency's capabilities can be adapted to support programs and initiatives sparked by the upcoming Philadelphia summit. The General responded recently. He was happy to receive our suggestions, and his staff is now considering our proposals. I strongly urge that you fully fund this innovative and modest adjustment to our acknowledgment program. With your support for this 4 percent increase in the Agency's budget, we can move forward with an endeavor that has great benefits for America and coincides with our Nation's new, bipartisan emphasis on volunteerism. Mr. Chairman, I am proud of what Selective Service does for America. I hope you share in this pride, as I answer your questions about our FY 1998 budget request. Thank you. [The prepared statement of Mr. Coronado follows:] [Pages 4 - 29--The official Committee record contains additional material here.] subcommittee position Mr. Lewis. Thank you, Mr. Coronado. As I indicated, the statement will be included in its entirety and questions may be submitted by Mr. Stokes, and initially I will have some budget-related questions, but we may or may not get to them this morning in view of the schedule. So I will be submitting questions as well, for the record, as my other colleagues will as well. It seems to me that in light of the limitation on time that we are dealing with, it might be most worthwhile to explore in more detail your new initiative, Service to America. By way of background, Mr. Coronado, while such matters as budget limitations, forced readiness requirements, available training space, and the like cause me to have continued misgivings as to the need for a Selective Service System at this time, I am nevertheless quite capable of reading the political tea leaves. We have had that discussion on the Floor more than once, as you know. I expect your agency to be around well into the foreseeable future, and I should note by all accounts, Mr. Director, you and your crew had performed admirably in carrying out your mission while heeding this budget line. You are to be sincerely congratulated for the good work that you do. In this context, I notice with utmost sincerity and integrity that you proposed your Service to America initiative. There is no question that your system makes it relatively easy for you to put together lists of young men specifically interested in military service, the AmeriCorps's program, or any other in-service type activity you could squeeze on a return postcard that your program would suggest. The real question is whether, from a policy standpoint, it makes any sense to provide lists of names to a military establishment which is now and will continue for at least 2 more fiscal years going through a manpower downsizing exercise. Similarly, from a policy standpoint, does it make any sense to recruit more paid volunteers on an AmeriCorps program which costs not only more than what many in Congress think we can afford in the first place but has yet to be adequately reviewed to determine if it is indeed successful in performing the mission for which it was established? There are a number of Members that have very serious questions in connection with AmeriCorps and some of its work. Mr. Coronado, would you like to comment on the first of those policy questions, and we will go on from there. service to america initiative Mr. Coronado. Absolutely, Mr. Chairman, and thank you for the opportunity to do so. Service to America is basically an opportunity, using the established infrastructure, for Selective Service to serve the youth of America, pure and simple. I have, in my visits across the country, determined that there is one common problem with American youth, and that is that there is a disconnect between society and our youth. Here is an example of how we can touch them and reach them and communicate with them and offer them an opportunity to serve America today. The volunteer force needs support. Even though it is shrinking in size, the Army is failing to meet its quotas. The all-volunteer force is delighted we have such an initiative where we ask the young person of today, the males we communicate with, the question about serving America today. The all-volunteer force is working very hard at meeting its quotas. I was recently told that, in fiscal year 1996, as an example, they had high standards for the military. They have a screening process by which they talk to and test would-be recruits, even after all that, when they reach what is called the MEPS, the Military Entrance and Processing Stations, 22 percent of them never reach day one of training. That equates to about 150,000 individuals in fiscal year 1996. Here is an opportunity to be able to tell the youth of America, you can serve your country even if you fail to serve in one area, perhaps you may be used in another. agency's technical ability Mr. Lewis. Well, Mr. Coronado, acknowledging that you have the technical ability to provide lists of registered men to any agency of Government, it is frankly rather interesting to me that, according to your comments made to me last week, neither the military nor the AmeriCorps leadership have contacted you to let you know how much your service is worth to them. Federal agencies are more than capable of acting much as any individual citizen would. If you offer them something for free, they will take it. On the other hand, it is often a much different level of interest expressed when the service is offered but only at a price. Put rather bluntly, why should Congress be asked to provide funds for something which the Federal beneficiary itself apparently is not willing to pay for? If these Federal agencies are not willing to pay for this service now, when would we expect that they will? Further, given the way this town operates, you know when you create something for an opportunity in Washington, D.C., it never disappears. Is it fair to assume that once you start providing this, quote, recruitment service, it not only would be very difficult to quit but also would it be difficult to stop paying for? Mr. Coronado. Mr. Chairman, it would not be a recruiting service, it would simply be a service to the youth of America, to ask them to participate in the future of our country to serve America today. Whether their feeling is for the military, or service in some other capacity, we have no way of knowing. I can assure you that the Department of Defense is elated with this initiative. They helped us design this little card. We cleared that through them. They are the reason we went into an expanded proposal for the three-part registration card, with a business reply. It was all really at the direction of the Department of Defense. They felt, and feel today, that this would be a very effective way of gauging responses. The cards come back to us, then Defense communicates with the men. It is an adjunct to everything they do. They do have a very high budget. We feel this would really serve the youth of America by having someone else ask them if they want to participate in today's opportunities. recruitment service Mr. Lewis. Let's go back to the fundamental part of my question, if you would. Mr. Brodsky. I was going to ask you, sir, this was never designed to be a replacement for ongoing recruiting initiatives at the Department of Defense. It was always meant and presented to be an adjunct to ongoing initiatives. We don't know what the eventual scope of a program like this might encompass, especially if things work out. There may be other agencies that can benefit from our ability to communicate with young people telling them to serve America today. Right now, you are only seeing two agencies listed on our form. Down the road, there could be other agencies that we include, especially on a broader, larger three-part card. This initiative has such popularity that we are a victim of our own success. In fact, what has happened here is that the Administration feels so strongly about this, they feel it merits a very slight increase in budget so we can do this for the benefit of other agencies throughout the Government, if that is the direction this takes. There was no additional cost in Phase I, which is what we are doing now. What we are talking about is an expansion of this program to allow it to be of even more service in fiscal year 1998. And, to answer your question specifically, the $500,000 requested for fiscal year 1998 includes the start-up costs of going to a broader program. We would expect that in the out-years--future years--there would be no additional costs. After start-up, continuing costs would be mainly postage, so we are looking at more or less $350,000 to $400,000, per year after FY 1998. department of defense help Mr. Lewis. If I didn't have the serious reservations I have about this start-up in the first place, I would be tempted to go forward just to really see if you would come in next year with a reduced budget. I have never seen that in any agency that has come before me. But having said that, if the Department of Defense is so excited about this and helped design this card, they do have a very, very sizable budget. This is just a fraction, a drop in an ocean, relative to--I would think they would absolutely be willing to pay for this service if it is so desirable. And it strikes me that it creates a very unusual circumstance when we are asking, out of some 22 agencies commissioned before our committee, we are asking them all to tighten their belt. We have one admittedly relatively small budget item, your agency, but the increase requested here is very significant, especially when you are talking social programs that affect people's housing needs, et cetera, et cetera, and asking them to be serious about reducing that. So the precedent is of serious concern to me. Mr. Coronado. We do not feel that it is unrealistic to follow what was originally suggested in 1993 by the Congress. It is evident to the general public that we must get our youth involved in the future of our country, to offer them opportunities from another source, not just somebody in uniform knocking at the doors or visiting their high schools. Our program is an adjunct to everything that is going on. The Department of Defense is truly excited about this. But they have their own programs. They have no flexibility to add money or take money away from their current programs and be able to provide extra resources to us. We are hopeful that in the future we would be able to measure the success or the failure of this effort with DoD, who is our primary customer, and any other agency that may benefit from America's rejuvenated spirit of volunteerism. Mr. Lewis. Have you gotten some indication that if, indeed, it is successful, then they would be willing to pay their share of the cost? Mr. Brodsky. Yes, there is an indication in the future we might be able to go on a cost-sharing basis, if the pilot is successful. What we are looking for here is seed money, obviously, because we don't know for certain how successful this initiative is going to be. But, we feel it is a good idea and it will work. However, as was pointed out, the Department of Defense is fully committing its own monies to its recruiting efforts. The Department itself does not have control over the whole budget that we think of as the ``Defense recruiting budget.'' The individual services have the lion's share of the money. We are not working with the individual services on this. We are working with the Department of Defense's Accessions Policy office. That office does not have a large budget, and all of its funding is dedicated to their direct mail campaigns. There is no extra money in that portion of the DoD budget to pick up the costs of this initiative. What we are saying here is that this initiative is an adjunct program to what DoD is doing. It is not meant to replace anything that they are doing. They cannot free up money at this point. proposed expenses Mr. Lewis. I think you may know that in another area of responsibility in the Appropriations Committee, I serve on the subcommittee that deals with defense funding. We had the Secretary before us the other day. I must admit, I didn't ask him this question. In the meantime, in the interest of time this morning, I would ask you to provide for the record a detailed and specific accounting of all proposed expenses for this program, which I noted earlier amounts to some $506,000 for fiscal year 1998. And it would be unfair for me not to say, for the record, that we are very concerned about the precedent here and the impact it has upon other agencies whose budgets we will be discussing in the weeks ahead. mobilization timetable Mr. Director, as we have discussed in some detail over the past couple of years, the Selective Service operates under a Department of Defense mobilization timetable which suggests that conscripts brought into the military through your systems would not be needed earlier than 193 days after the start of a conflict. It is my understanding that your operations are thus geared to make names available to the military on the 194th day after a conflict begins. Please correct me if I am incorrect in this understanding. Mr. Coronado. With the ongoing registration program, the system will kick in initially as soon as the word is given that we need to mobilize. The first selectees, or draftees, would report on day 76 for a physical, mental, and moral examination, then be sent back home. In this two-phase process, men would know if they were selected for active duty or not and could make proper arrangements in their personal lives. Day 193---- Mr. Lewis. I understand that---- Mr. Coronado [continuing]. Is when the first men are actually inducted. Mr. Lewis. That was my point. The defense mobilization timetable suggests that those conscripts would be on the 194th day---- Mr. Brodsky. They would report to the Military Entrance Processing Stations on day 194. Mr. Lewis. Correct. Although I recognize this is more or less a ``what if'' kind of question, I am interested as to your assessment of what would be necessary for your agency if this delivery date is ever changed. Specifically, what would be the appropriate role for the Selective Service System if the delivery date was changed to, let's say, 250 days, or let's say 400 days or even 600 days? Mr. Coronado. The delivery date dictates the composition of the work force, and the timetable for implementation of our plans, and the further out it is, the better we can execute it with less resources. We are adequately resourced to meet the M+193 requirement of DoD. Our structure, as it is right now, is just suited to respond to the M+193 scenario. If we were to increase the time---- Mr. Lewis. Say 250 days or 400 days. Mr. Coronado. Yes, sir, that would be to our benefit. Also, this Agency maintains the capability of going into emergency mode, provided we are given additional resources. Mr. Lewis. In terms of your requirement for delivery at which point the Department of Defense has determined that the Selective Service should move to, say, another delivery mode such as deep standby or even termination. Mr. Brodsky. They have not, sir. There has been no such determination. Their policy is, M+193. That is what is required, and what this Agency must meet. At this time, there has been no discussion we are aware of at DoD or elsewhere of a change to that requirement. public service announcement Mr. Lewis. Mr. Director, what are the costs associated with the development and distribution of your English and Spanish public service announcement? Mr. Coronado. I will ask the Director for Public and Congressional Affairs to respond. Mr. Brodsky. We have historically done a radio campaign each year. Last year we did a radio campaign which included spots in Spanish aimed specifically at the influencers of young Spanish males--namely, their parents--and distributed them to Spanish language stations around the country. We can provide a detailed breakout of that for the record. Mr. Lewis. In connection with that, do you have any accurate way of determining how often those are broadcast? Mr. Brodsky. We have a more accurate way of determining TV broadcasts because our TV spots, like many PSA's that are distributed these days, are encoded with an inaudible and invisible code. That technology is not available in radio campaigns. For radio, we depend on business response cards coming back from the stations, indicating to us in writing if they elected to play the spots, and when they played the spots. Mr. Lewis. In connection with all of that, do you have any accurate way of measuring what the results are in terms of actually having young men registering as required by law as a result of those spots? Mr. Brodsky. There is never a definitive connection in any advertising that is done to actual registrations; in our case, to the play of radio spots. However, we often see increases in the registration rates over a period of time, after those spots have been released. obtaining celebrity support Mr. Coronado. Mr. Chairman, can I add one more thing? Because of limited funding we have not really done all the things we wanted to do in public awareness. We have used our own resources and depended on personal friendships. I have stuck a mike in the face of Jimmy Smits from ``NYPD Blue''. I have stuck one in front of comedian Paul Rodriguez, actress Jennifer Lopez, a lot of other celebrities and asked them for a favor: Read this script, and do it for America. I have done that because that is the only way we can actually to get the job done. So we are using a lot of friendships to get good public service announcements, and it is good for America, and we need your help. Mr. Lewis. You remind me of a time when I was a youngster in my own business. It was a week and a half ago, but really not so long ago. I remember the physicians in my county were insulted at the thought there might be some reimbursement for the work they did at the county hospital. They believed in this volunteer service, and the people who needed that service at the county hospital received volunteer assistance, and, I might add, very fine care. I sometimes wonder whether they--such people receive any better care today. Clearly, the American taxpayer is not receiving better care as a result of it. I congratulate you for seeking out that volunteer effort. I wish we could spread the disease around. outsourcing You have reported that one of the ways you have reduced costs and streamlined your agency is through the use of outsourcing some accounting, employee assistance, finance, health, and payroll support programs. Can you discuss in more detail what you are doing in this regard and give us an idea of the kinds of savings you have achieved by those efforts? Mr. Coronado. We can provide a detailed listing of all the cooperation we have with other agencies that handle the things that you just mentioned and specifically address each one of those. Mr. Lewis. Do you want to give me a little flavor at this moment? Mr. Brodsky. We might call upon our financial--manager at Selective Service--but I think we use the Department of the Interior?--Yes, we use the Department of the Interior to handle all of our payroll and finance services. Mr. Lewis. It is reaching out to, in this case, other agencies. Mr. Brodsky. In most cases, that is what we are doing. We are getting help, because of our small size and funding, we are incapable of handling some administrative chores ourselves. Mr. Lewis. So you are reaching out to other Federal agencies as opposed to private assistance? Mr. Brodsky. Yes. We contract as well certainly, for a lot of the services that are provided. Our TV and radio, for example. Distribution is done under contract. We are, of course, too small to do many things in-house. Mail-back Postcard Mr. Lewis. One of the improvements you have made to the registration process is the use of this mail-back postcard. You have noted that the use of this system has resulted in the cost avoidance of approximately 70 cents per register. First, what is the approximate cost for registering projected to be for the Fiscal Years 1997 and 1998? Mr. Coronado. For registration? Mr. Lewis. Yes. What is the actual cost for registration? Mr. Coronado. 7.4 million is the figure that we have. Mr. Lewis. You are telling me you are saving 70 cents per registrant? What is the cost---- Mr. Coronado. $1.06 at the post office. Mr. Lewis. And what---- Mr. Brodsky. We save approximately 70 cents from that $1.06, if the registration comes into us by mail-back card rather than through the post office. I think what you are asking is, what is the average cost per registration, all things considered. We would have to do the math on that. Mr. Coronado. Everything we do is reimbursable. We ask the folks at the post office to take a card, look at the ID, process it, and send it to us. With post office involvement, it is $1.06. With the reply card sent directly from the registrants, that saves us 70 cents. Mr. Lewis. Part of what I am getting at is whether or not you considered the cost avoidance that is involved here a direct savings, or have the overall costs per registrant in fact increased over time? And if you would help us with that for the record. Mr. Brodsky. I am fairly certain what they have decreased over time. We have found innovative ways to maintain high compliance with the registration program and yet do it more efficiently at less cost, because the budget has been decreasing---- Mr. Lewis. I know that you have got to go across the Capitol building, and while I do have other questions I was going to ask here, I think we will submit the balance of these for the record and let you make sure you make that schedule. Okay. So with that, we appreciate your being here and appreciate your testimony as well and look forward to working with you. Mr. Knight, let me indicate to you for the record that Mr. Stokes was with us earlier, and, as you know, we have all kinds of conflicts with our schedule, and he had two different previous commitments, and so he was here briefly and he will submit questions for the record. And we will move forward from there. [Additional subcommittee questions follow; see budget justification at end of volume.] [Pages 38 - 40--The official Committee record contains additional material here.] Tuesday, March 4, 1997. NEIGHBORHOOD REINVESTMENT CORPORATION WITNESSES GEORGE KNIGHT, EXECUTIVE DIRECTOR HUBERT E. GUEST, DEPUTY EXECUTIVE DIRECTOR/TREASURER ROY T. DAVIS, CPA, DIRECTOR, FINANCE, ADMINISTRATION, TRAINING, HUMAN RESOURCES AND RESEARCH MARGARET H. KELLY, DIRECTOR, FIELD OPERATIONS JULIA HUNTER GALDO, DIRECTOR, COMMUNICATIONS AND INFORMATION SERVICES JEFFREY T. BRYSON, GENERAL COUNSEL/SECRETARY CARLOS B. PORRATA, DIRECTOR, INFORMATION TECHNOLOGY, PROGRAM REVIEW AND INTERNAL CONSULTING MARY LEE WIDENER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NEIGHBORHOOD HOUSING SERVICES OF AMERICA, INC. Opening Remarks Mr. Lewis. The announcement over the weekend that we are not going to have any votes today kind of radically impacted the Members' schedules across the country. If you bear with me we will now turn to the Neighborhood Reinvestment Corporation, whose fiscal year 1998 budget request of $50,000,000 represents an increase of $100,000 above the 1997 appropriated level. Representing the NRC again this year is its very able executive director, Mr. George Knight. Mr. Knight, welcome back to the subcommittee for I expect this to be both an informative but also a relatively brief affair. Please introduce your colleagues who have joined you this morning, then proceed with your oral statement as you see fit. The entire statement will be included in the record. Mr. Knight. Thank you very much. It is indeed good to be here. To my far right is Margo Kelly, who is our director of field operations; and to my right is Roy Davis, who is our director of finance and training. He picked up that responsibility this year. To my left is Hugh Guest, who is Deputy Executive Director; and further over is Julia Galdo, who is our Director of Communications; and to her left is Jeff Bryson, our General Counsel. And he is not sitting at table, Carlos Porrada, who is the Director of Program Review and our Technology Chief. Mary Lee Widener will be here. She hadthe hearing scheduled at 11:00, and so she will be a few minutes late. results of fy 1996 appropriation Well, I want to thank you for your appropriation in 1996 of $38 million. We were able to parlay that to $420 million. That helped 16,000 families; 4,400 of those families were new homeowners, and it gave them a stake not only in their home but in the neighborhood. As you know, we believe that is the best and soundest way to change a neighborhood from distress to one of pride. examples of tax base increases We have been concerned to see what the impact would be of the kinds of investments we do beyond the homeowner and lender and insurer. By strengthening real estate markets, the revitalization of the tax base also changes, and the result, of course, is a positive one for the city, for the taxpayer. We looked in Savannah at an intensive intervention that had occurred there: 7 of the 23 properties on the block were totally dilapidated and vacant. By purchasing them, renovating them, and selling them to lower-income families, within a year the tax assessment on that block rose over 100 percent. More importantly, the surrounding area had significantly begun to improve. We think that the immediate buildup of these family assets helps the next generation. I have put a couple of children through college and understand the generational asset transfer mechanism of a home equity loan to pay for tuition. We think that these kinds of things will stabilize families and their educational obtainment, and that is probably the promise for the long run. what has been learned What have we learned that could be replicated and passed on? I think first at the national level, the secondary market mechanism that has been invented and worked for 20 years works. Raising the 20 to 40 million dollars a year is certainly a challenge, one that Mary Lee enjoys and her Board has taken up and done a commendable job. Second, the lower-income families can and want to be homeowners. A little more than 4 years ago, I mentioned that a small group--at that time 20 programs--wanted to create 10,000 new homeowners in 5 years. At the end of the 4-year mark, just past the turn of this year, more than 10,000 families already had been made homeowners. We had aimed at $650 million in investment, and it looks like it will be about $625 million, which is basically good news, because that means the homes came in a little less expensive than we had thought. Third, I think what we learn and continue to demonstrate is, beyond these extensions of credit and creating homeowners, the local organization has to be engaged in other kinds of social service activities, if you will--cleanups, fix-up campaigns, working with voluntary groups, Christmas in April, Habitat for Humanity, focuses on crime, graffiti, or youth. Those kinds of locally set agendas joined with the credit extension activities, really make a difference. Fourth, training is in demand. Three years ago, I told the subcommittee that we had 1,300 participants in our four training institutes. This last year, we had 2,600. Two weeks ago in Atlanta we had 750 at a week-long training institute. Training is tremendously effective and in tremendous demand. measures of impact Finally, I included a few pages from our report that we sent to our board. They asked me if we had been efficient with the increased resources that you were kind enough to give us? We looked at three major tests. The first was a mission test: Are we able to reach the same kinds of families? You can sometimes be more efficient by changing your mission. And the answer to that was, yes, we are still serving families around 60 to 62 percent of median income. Second, were we able to use the money more impactfully? And the answer again was yes. The appropriation has stretched further than just counting the units of investment. We have stretched it further on training and other things. And third, they asked about the secondary market. Were we able to manage more resources, more assets, or more loan for each dollar of our administrative grant? Since 1990 to 1995, the years for which we have data, we were able to double the loans handled for each dollar that we gave them. So with that, I look forward to your questions. [The statement of Mr. Knight follows:] [Pages 44 - 52--The official Committee record contains additional material here.] Mr. Lewis. Thank you, Mr. Knight. As I indicated, your entire statement will be included in the record. But to begin with, Mr. Knight, I am going to be asking questions this morning that are designed just slightly to put you and maybe some of your staff somewhat on a hot seat. defining critical mass As you might recall, one of the questions I asked for the record at last year's hearing had to do with what you believed the, quote, critical mass was for the NRC. That is, at what level of funding can you essentially optimize growth of your various organizations and avoid the dysfunction that so often comes from putting more money into an organization than that organization can responsibly control? Your response suggested that the NeighborWorks network could sustain growth of about 10 percent a year or 12 to 18 new organizations and that the Neighborhood Housing Services of America, NHSA, activities have and can continue to grow by about 65 percent per year. You further concluded that Neighborhood Reinvestment could grow to a maximum of about $100 million, or twice what you have requested this year, before the odds of dysfunction threaten the effectiveness of your organization. Mr. Knight, would I be correct in assuming that these figures are still reasonably accurate? Mr. Knight. I would say reasonably accurate. Yes. Mr. Lewis. That is--frankly, a short answer that I think is probably appropriate, and I think we both understand that. Presuming that, I would then like to bring to your attention the short line found in the second full paragraph of page 10 of your budget justification. By the way, we appreciate receiving your budget justification. Not all of our agencies even send them up. At any rate, it says in part--and I quote--the $50 million appropriations recommended for the corporation by the Office of Management and Budget will enable the network to continue-- continue its work. You will note that I have added emphasis in connection with that statement. And then it provides a brief synopsis of what you do. My question, Mr. Knight: Is this your budget or is this OMB's budget? EXPLAINING BUDGET REQUEST FIGURE Mr. Knight. The budget is ours. The amount is OMB's. Mr. Lewis. Please explain the difference. Mr. Knight. We prepare and submit to OMB every year several budget levels at which we feel we can operate. One is a level that I would describe as a challenge level, a level that we think we can responsibly operate at, that is above what we currently receive. We submit a level that is at our current level, and then they usually ask us for some other levels. They then pass back to us a number that they want to include in the President's submission. And that sentence probably should have said the President's budget. And we then---- Mr. Lewis. If I really thought the President knew about and understood your program, I would sincerely question whether that would have been the budget amount, so I would suggest that it is OMB's budget. Mr. Knight. We then construct a budget that we feel is responsible in the use of the funds. As you know from prior years, we put a great deal of emphasis on putting funds into the local revolving loan funds and the local operations. We think that is the first and best use of those funds, and then we put funds into our operations and technical assistance staff. Mr. Lewis. Because this subcommittee generally, and I think you know I personally, support the work of the NRC and the way you go about performing that work, let me be a bit more direct. What was the specific appropriations amount for fiscal year 1998 you requested in your original budget to OMB? Mr. Knight. I believe the maximum level we requested was $71 million, most of that increment would have been used for the local revolving loan funds. As you undoubtedly are aware, even in the Campaign for Home Ownership, even with the standard bank product, the availability of second mortgages was critical to getting many of those families into the homes. The revolving loan fund's ability to work with a family for that extra 3, 5, 10, 15 thousand dollars makes the first mortgage possible. Without it, in many cases, you don't get the first mortgage, so the revolving loan funds are critical. QUESTIONING OMB'S RECOMMENDATION Mr. Lewis. Presuming that is the $71 million that was submitted, could you give me a clear understanding of what OMB had to say or what they suggested were the reasons for not approaching the budget as submitted and instead coming back with a $50 million amount? In fact, it is a net loss if you take any reasonable expectation of an increase in cost of doing business. Mr. Knight. They haven't let me know that. Mr. Lewis. Training hasn't gotten cheaper, has it? Mr. Davis. No, it hasn't. Mr. Knight. We haven't had an extensive conversation. I think it related to the tightness of the budget overall. Mr. Lewis. I should note for the understanding of all the members on my committee and otherwise, I am pursuing this line of questioning not because I want to pick a fight with OMB or because somehow we are flush with money to allow these agencies like NRC or otherwise, but, rather, I am trying to make the point that we have in the Neighborhood Reinvestment Corporation a Federal agency with one of the best track records of any that I am aware of. The NRC represents in every respect what government can and should be doing for people: Providing first- rate service at rock-bottom prices. ACKNOWLEDGING THE IMPORTANCE AND SUCCESS OF NRC Mr. Knight, I just returned from a weekend in New Orleans examining housing programs in New Orleans, and I can tell you that there is great emphasis upon that statement, especially since my experience over the weekend. Every dime we provide NRC gets many times over. Yet Mr. Knight has managed to do this without loading up his staff or bloating his administrative budget. NRC's total administrative cost runs to just 10 percent as opposed to 50 percent or higher in EPA's Superfund program, for example. And this year's budget request, if approved as is, in fact will result in a reduction of five full-time equivalent NRC employees. Yet while we are asked by the President to accept a level budget for a success story like NRC, he demands huge increases for unproved programs like the Corporation for National Community Service and Community--and the Community Development Financial Institution, CDFI, and for marginal performers like EPA's Superfund program. The Director in that instance continually tells us, you know, Superfund is broke, yet we have yet to see any significant plan for fixing it. This President's 1998 budget clearly represents too much of business as usual or pure politics rather than an honest attempt to make available to the citizens of this country programs such as NRC which have been proven to work and which we can, in the final analysis, afford. Perhaps my biggest frustration is that this lack of vision could very possibly result in the members of this subcommittee being divided by inevitable partisan battles, that battles like this can cost, even when they all know there is a meaningful middle ground that could be reached. For now I am going to step down from that soap box, and I am not sure, Mr. Knight, if you want to enter into the fray at this point or not. I would certainly entertain my colleagues by discussion with them individually. They expressed their views as well for the record, so that you will see it and the record will be complete. Mr. Knight. I certainly thank you for your vote of confidence that you have in us, and we will work very hard to earn it. THE CHAIRMAN'S TRIP TO NEW ORLEANS Mr. Lewis. I think I really should say for the record that my trip to New Orleans, among other things, was a part of an ongoing concern. In urban American city after city, while sizable dollars flows, that we purport to want to deliver to the poorest of the poor in terms of housingassistance places that are decent, in which people can live. All too seldom it seems to get real results. And a little bit more of that kind of government, I would suggest, will eventually cause that revolution out there. Very disconcerting circumstances experienced by this weekend but evidenced elsewhere as well. Mr. Knight. You probably didn't have time to be in the neighborhood where the Neighborhood Housing Services is working. But Lauren Anderson and Richard Ainsworth, who is vice-president of Whitney National Bank, have done a marvelous job providing home ownership counseling. They have helped hundreds of families into new homes. They operate a revolving loan fund. As you know from your trip, the housing stock in New Orleans is one of the most challenging ones--below sea level and wood. The NHS continues to provide a marvelous service in New Orleans. They in the last year have worked hard with the major property casualty insurance companies as partners. It is very challenging. Mr. Lewis. During what was a very brief trip, we spent time talking with people who are residents of existing facilities, community kinds of meetings where you could feel, as well as have communicated to you, the frustration and anger that is there. We met with other community groups such as the banks. I spent a good deal of time with one of the representatives of Whitney, for example. I knew of your work with them only as a result of that, but, to say the least, this tour which was outlined by the local authority didn't include your work. We wouldn't want to eschew a success story there, I say in jest. the network's focus on diversity Mr. Knight, as you have noted in the past, the strength of the NeighborWorks network system serving the revitalization needs of America's lower-income communities lies in its ability to serve all of those diverse communities. A good example of what you are doing in communities can be seen through the various revolving loan fund programs, where 74 percent of the clients served in 1995 were very low or low income, 61 percent were of an ethnic or racial minority, 47 percent were female, and 23 percent were older than 55. When the NeighborWorks organizations go into a community, are they always looking for this type of diversity? Mr. Knight. I think they are always looking for the neighborhood under stress. The neighborhood is being disinvested, if you will, and, sadly, too often sadly, that is also a neighborhood that contains a high percentage of racial or ethnic minorities. So if you will, we arrived at it secondhand. We seek to work in the neighborhoods that are distressed, and when those neighborhoods turn out to be largely minority, then you see the kind of pattern that we have. We think that Americans of all backgrounds deserve the opportunity to live in a neighborhood in which they can raise their children as a place of choice. When we work in a neighborhood, we don't seek to change the racial or ethnic or income characteristics of the neighborhood but to reengage the private sector mechanisms in that neighborhood so people have access to credit on a day-to-day basis. Mr. Lewis. So to answer a variety of questions relative to whether your program works, if you don't have this kind of diversity, etcetera, etcetera, your answer is very likely no, but, rather, we look to a distressed neighborhood and what the population mix is; that is what it is. Mr. Knight. That is what it is. engaging the private sector Mr. Lewis. One of the reasons NRC has been a success is, of course, because of its unique relationship with the private sector in this regard. During fiscal year 1995, contributions made directly to the NeighborWorks organizations from banks, businesses, foundations, insurance companies, thrifts, utilities, and other supporters totaled more than $72 million. This is up from just over $44 million in 1990. Mr. Knight, what is the equivalent number for fiscal year 1996, and what do you anticipate for 1997, 1998? Mr. Knight. It will be above the 72, growing, and certainly we will know as time tells. Last year we signed the single largest investment with State Farm Insurance Company, a $25 million investment in the secondary market, which brings their total investment close to $50 million--a very exciting moment. With USAA, a large regional, increasingly national, insurance company, we recently signed a very interesting $7 million commitment to the secondary market coupled with a commitment to nine cities where they would invest in, if you will, staff on the local board level and operating dollars so that the local program had the ability to hire that extra loan counselor. This is a very exciting partnership with them. We shortly will sign an agreement with a large regional bank in New England, with Fleet, that will involve 20-plus local programs and a significant investment in both NHSA and at the local level. So, again, a very exciting partnership. I am confident we will be over the $72 million in 1996 and 1997. the campaign for home ownership Mr. Lewis. Recognizing home ownership as a critical component of the neighborhood revitalization, you began in 1993 a program called Campaign for Home Ownership. Now in the fourth of its 5-year plan, this program has assisted over 8,000 new homeowners to purchase over 9,500 units of housing with a total $547 million. The cost per unit is less than $68,000 compared with the national average of about $139,000 per unit. Is it safe to assume you will more than meet your 5-year goal of creating 10,000 new homeowners and stimulating $650 million in reinvestment in communities? First, Mr. Knight, please give us an update as to where we are today with this program, then please speculate as to where we will be at the end of the 5-year campaign. Mr. Knight. I believe when the final numbers are in--and I hope that will be another couple of weeks; as of December 31-- we will exceed our goal. Now we are well over 10,000 new homeowners at the end of 4 years; we have achieved the goal. The homes are coming in a little less costly than we anticipated, so the investment goal will be met at the end of this year but not met at the end of last year (1996). The delinquency rates on these mortgages are well withinnormal bounds, a little bit higher than conventional, but then we are lending to a distinctly lower income population and about a percent or 2 below FHA rates, and, hopefully on the delinquency side, this will be a sustained home ownership. All my staff knows I hate to speculate on numbers, but I think we will easily be over 12,000 to 12,500 homeowners by the end of the year. And let me be the first to invite you to join us on September 22 to celebrate and wrap up this campaign. We will be holding a training institute in Alexandria. That is the closest we could get to Washington and afford it. And we would very much appreciate it if you were available on September 22 to speak to the campaign leadership. Mr. Lewis. Let's look closely at my calendar and see what we can do about that. Well, congratulations on the record to date. And just one more time, there is no reason to repeat those lines of adulation that were expressed for the record earlier, but, in the meantime, success is very important here. Comparison with Bangladesh Program I was in a session yesterday with a cross-section of people who call themselves housers, both public and private individuals, and I asked in the middle of that whether anyone had read ``The Price of a Dream'' by a fellow named Bernstein. And you are shaking your head. I assume you know about the Grameen Bank. Your story is a fascinating extension almost in this country of what they began in Bangladesh. And I must say that as I have an opportunity to visit these projects at various places in the country, and more and more I become convinced, when you see that bright shiny look in the eyes of a new homeowner given some chance of a new opportunity, it is a very, very exciting result that we potentially have for government's work. I think I will say it for the record, it is a very, very healthy development that your organization, one way or another, stayed out of HUD rather than on the side of HUD. Mr. Knight. Thank you. One of the things I don't talk about here because it is a fairly minor but important activity is the economic development loans made from the revolving loans. Economic Development As you know, each board has the authority to decide to whom they are going to lend. As it turned out, about $3 million was lent last year for what might be called economic development loans. Among these was Pasadena, California, where the NeighborWorks organization is working with a group of low- income families, very much a Grameen Bank peer-lending process. They have also begun what they are calling now the African market. Once a month in Pasadena, there is a marketplace for small entrepreneurs to display their wares. It has been enormously successful. In Anchorage, Alaska, the very large NHS in Anchorage, Alaska, when a local business was failing that has supplied a large number of jobs, Neighborhood Housing Services of Anchorage stepped up and said, ``We have enough confidence that you can manage this business to lend to you. It turned out to be the Harley-Davidson dealership, and they are now the second largest Harley dealership west of the Mississippi. So when you start with this---- Mr. Lewis. The largest is probably in my district. Mr. Knight. So many revolving loan funds don't see economic development loans as a primary activity, but it is a critical piece to their neighborhood. When they do lend it can be very important. It is the principles of flexibility, local decision making, and the access to that flexible capital. Developing a New Campaign Mr. Lewis. Your latest testimony here is kind of a reflection of where I was going to go next. I would like to have you give the subcommittee a little broader look at NRC's plans, if any, to begin a new or similar campaign in years ahead beyond the campaign we talked about a moment ago. Mr. Knight. Okay, I will. I certainly will. Mr. Lewis. Do you have any plans? Mr. Knight. Not in the economic development area. We are thinking of beyond the next campaign, and we--that we definitely will be doing. Mr. Lewis. If we reach the goal of 12,000 homes. Goals are important. Mr. Knight. Goals are very important; what you measure counts. On the economic and development side, we---- Mr. Lewis. Excuse me. Let me go back just a moment. You said, what you measure counts? Mr. Knight. Yes. Mr. Lewis. I wonder if we can repeat that for the record again. What you measure counts. If we say that in every one of our hearings, we might be pleased. Mr. Knight. On the economic development side, as important as the microlending is, in this country except for one group we are aware of Axxion groups in Texas, most do not charge the Grameen bank's high interest charges. They tend to have a modest interest charge. As you know, Grameen charges very high interest, 15 to 30 percent. That is not often done here, and, as a result, peer lending programs here are very expensive to do. They are very valuable but very expensive because the transaction cost has to be raised separately from lending and capital. That is one of the reasons many of our local affiliates have not done more than experiment with it. They do continue to use the revolving loan fund as needed. Reduction in Grant Request Mr. Lewis. For 1998, your budget plan calls for the distribution of grants of all types totalling $27,952,000. This funding level is, in fact, a reduction of over $3 million from the 1997 level of $31,159,000. Even though your total budget request is virtually identical to last year, this proposed reduction is the first you have proposed since at least fiscal year 1993. Mr. Knight. I am hoisted on my unwillingness to speculate forward. You will notice that our total sources of revenue are also down by about $3 million. The detail I think it is on page 82. We work very aggressively to raise grant funds from other sources and become, in effect, a pass-through organization. I have not speculated on those for the 1998 budget, and so what you see is, what I am quite confident we have in hand already. As we raise additional funds, they will flow through to the grant budget. So you will see a corresponding drop in both revenue and expenses of about $3 million. It is one I am very sensitive about, obviously defensive about, because I feel very strongly that that is a critical component of our work. Mr. Lewis. Following up on that explanation then of that reduced level relative to what the market provides inleveraged dollars, what would the optimal level of funding be for your grant activity? Mr. Knight. I would go back to your earlier line of questions and say that of what we submitted to OMB, we could probably handle on the grant side another $15 million-plus in terms of revolving loan funds. Mr. Lewis. I am tempted to dwell on this a bit, but your 1998 budget request similarly will allow the development of two NeighborWorks organizations and affiliation with 10 existing nonprofit entities. This plan is identical to what you spoke about doing in fiscal year 1997. Again, is the optimal amount of growth--or could you successfully do more with more communities with a different level of funding? What is the optimal level? Mr. Knight. We could probably do a little bit more. This is where the 1-year plan gets relatively difficult. Most of those 12 programs for 1998 have already begun with initial visits. So even with an enormous--which isn't going to happen and I wouldn't urge to happen--funding, we couldn't increase the 12 very much this year, because it takes time to get an organization built and it takes time to get an existing organization--to meet the standards that we set. So, yes, we could increase it. If the committee is interested in increasing it, I would propose a small increase in 1998 and a larger increase in 1999. Mr. Lewis. Thank you. preserving affordable housing In reviewing the program activities, I could not help but be impressed by what you accomplished in the area of preserving affordable housing. For an investment of approximately $13 million in Federal appropriations, you have been able to generate nearly $450 million in investment to rehabilitate, repair, and build new homes, nearly 18,000 total housing units in 1997. Can you take a moment to explain how this program works, including the use of revolving loans and other direct investments--how many units and at what average cost you expect such preservation efforts will cost in 1998? And, finally, how you believe the program--your program specifically differs from the preservation program operated by the Department of Housing and Urban Development. Mr. Knight. I will respond to that last one. The $13 million are the funds that specifically are going into those capital revolving loan funds. They are, of course, supplemented by the training assistance and the funds that are building capacity so it is closer to, say--25 or 30 million to 420 million. The preservation program that is managed by the Department, which I am not an expert on by any means, relates to, I believe, large multifamily properties that were financed through a combination of grant, tax and insurance incentives over the last 15 to 20 years and are really quite different kinds of properties than the properties that our folks are focused on. The NeighborWorks organization focuses on owning multifamily in a market-based manner. They do assume there is a steady flow of public funds coming in. Because their sources of financing are largely private sources, and private lenders look principally to see what your reasonable cash flow is over time; I really couldn't answer you too much on the Department's preservation program because I am not really an expert on it. Mr. Lewis. That is a fair response, and we may discuss this further with you for some elaboration or evaluation on the record. mutual housing Mr. Knight. The mutual housing, of which there are about 4,000 units, is a mixed-income approach, and we feel that is a very sound approach. About 40 percent of the occupants are below 50 percent of the median, and about 40 percent are between 50 and 80, and the rest are above 80. In almost every case they also have a social service activity, whether it is a day-care center or, in the case of Denver, helping people move into home ownership, conducting home-ownership classes. In the case of Sacramento, they are working extensively with children in after-school kinds of activities. In almost every case, the mutual housing association has been able to stabilize families. One piece of it that hasn't worked as expected is that, frankly, the turnover rate is much lower than we anticipated. People want to stay there. In Stamford, Connecticut, a very high-cost area, the units have very, very little turnover. Drug dealers have been driven out of the neighborhood because the families want to stay there. They also run an after-school program. So we think mixed income, long-term financing promotes long-term social stability, and financial stability. Mr. Lewis. Strengthening neighborhoods, strengthening communities. Mr. Knight. Yes, and it allows the organization to own the property for a long period of time. I mentioned Anchorage. They own almost a thousand units and added their first SRO--single room occupancy property--to the mix, principally because they have strong cash flow from some of their other family units. program reviews and audit Mr. Lewis. Mr. Knight, for 1998, NRC plans to spend just over $2 million to conduct 92 program reviews and review 165 audits. These numbers are comparable to what was accomplished in fiscal years 1996 and 1997. What criteria are used to determine which activities will be either reviewed or audited, and who specifically takes part in these reviews? Mr. Knight. The criteria are twofold. We have an internal committee that is chaired by Roy, on which Carlos and Margo and I sit, along with a representative from the secondary market. Quarterly risk analyses rank the programs. We have a Board of financial regulators. We risk rank each program for its performance and any kind of activity that may be endangering its financial and programmatic health. That is one criterion for targeting our reviews. Second is what I would say is longevity. We would like to get around at least every 2 years to a program. Even though a program may be operating on a very sound basis, we schedule them for a review. Nevertheless, our biggest challenge has been, as the complexity of programs has grown now, to do a more tailored or focused review without having to review everything. We are working very hard this year to see what--if we can we go in and just look at certain critical aspects of the program and satisfy ourselves that, yes, they [the oganizations] are on a sound basis. The nonprofit community has no monitoring or regulatory agency similar to the banking world. Mr. Lewis. Who typically does the audits? Mr. Knight. The audits, by our grant agreement, must be an external auditor. Mr. Lewis. It is on a contract basis. Mr. Knight. It is on a contract basis. We receive the audits. Frankly, our quarterly reviews, the risk ranking, is probably more sensitive to the issues than the audits, because audits come in months and months afterwards. If we catch the trouble in the audit, we are not doing our job; we have missed something. Ms. Kelly. The audit already confirms what we already knew. training institutes Mr. Lewis. During fiscal year 1998, you had plans to conduct four major training institutes provided to the subcommittee. Each institute was attended by more than 600 individuals. Who typically attends these events? Mr. Knight. About 38 percent come from the nonprofit community development industry, and the other 15 percent from local government and the private sector. The courses range from how to manage multifamily property to creating a neighborhood plan to how to originate a mortgage, how to service mortgages. It is a wide range. This is what is coming in Chicago, and these are the courses this institute will have a special emphasis on: property casualty insurance, which is an important issue in neighborhoods. Many of these are taught in conjunction with other industry leaders. The Institute for Real Estate Management runs the property management classes; Habitat for Humanity has taught. We work with a number of organizations that have expertise in these areas. Obviously, members of the insurance industry will teach about property casualty insurance. Mr. Lewis. Have you done an analysis to determine what percentage of the attendees are new and what percentage may be repeats? Mr. Knight. We have not done that specific analysis, and I would be delighted to do one. Mr. Lewis. It might be interesting to know. Mr. Knight. We know that the organizations repeat, that they send their new staff people. And we know that in the property management area we get repeats, because the Institute for Real Estate Management has a sequence of certifications, and since we offer the two levels of that sequence, we are seeing in our second level now many people who came through our first level. Question. Have you done an analysis to determine what percentage of these attendees are new and what percentage are returning? Answer. From October 1, 1994, to March 1, 1997, we conducted 10 training institutes, attended by 6,002 participants from network and non-network organizations. During this period, repeat participation was 24.9 percent. Additionally, a breakdown of the non- NeighborWorks' participants showed that 19 percent were from the private sector, 26 percent from the public sector and 55 percent from the nonprofit community development sector. Mr. Lewis. Give us a feel for what it costs to attend the institute and what is offset by appropriate fees. Mr. Knight. I will provide that. It is $135 a day to attend, and that offsets our marginal costs. We have not put in more appropriated money. In the last several years, we have, by expanding the participants and seeking scholarship funds, offset costs. I would have to say that hats are off to Roy and the training staff and to many, many individual trainers, individuals who come from their institutions to train for free. One gentleman, Warren Smith, who is an officer with Fleet is one of the nation's leading commercial neighborhood lenders--he has come time and time again to teach. And we do not reimburse him for his costs. Jim Carr, who is the Director of Research for Fannie Mae, has come time and time again to teach at the institute, and, again, we don't offset the cost. The private sector has been enormously supportive of this effort. training institute courses Mr. Lewis. Would you provide for the record similar information regarding some 300 other training courses that you have offered? Mr. Knight. Yes. [The information follows:] [Pages 64 - 90--The official Committee record contains additional material here.] nhsa's secondary market Mr. Lewis. For fiscal year 1996, NHSA secondary market activity included $17.7 million in loan purchases and $12.9 million in loans committed. These actual figures were lower than what was accomplished in 1995 and are nearly half of what is expected to occur in 1997 and 1998. First, what factors came into play which resulted in this reduced 1996 program? Mr. Knight. In 1995, we experienced runaway and unsustainable submissions, Mary Lee, I see has just joined us. The nightmare we were faced with, accepting the overwhelming demand as it came and not turning people away because we didn't want to discourage it. It was a new experience for us to slow demand down and eventually stop it in 1995 because it was unsustainable, given the reserve level that the NHSA board had set. So 1995 was a record year, $52 million, but we ran our reserve levels down to what we consider dangerously low; 1996 was a rebuilding year. We have rebuilt the reserve levels. I believe it is now safe to say you are at 8 percent? Ms. Widener. Yes. Mr. Knight. Which makes their board comfortable and me comfortable, and so it was a case of restrained demand. We had to control it to get back up. We, as you know, cover administrative costs. We don't have another way because we don't charge the local programs. We want the program to lend on a sound basis. We don't want them making loans at some magic interest rate or some magic set of terms that puts the family in trouble. Our only way to meet demand was to raise reserve funds. Part of our grant and part of Mary Lee's fundraising is to raise the reserves. Mr. Lewis. Would you make projections for us for 1997 and 1998? I would be interested in your commentary. Mr. Knight. Yes. Mr. Lewis. Would you like to comment on that? Ms. Widener. Yes. I think another factor is, it will turn on the degree to which we can sell loans to Fannie Mae or Freddie Mac, which is another strategy to reduce the balance sheet, keep activity up and therefore relieve pressure on the reserves. And we have entered into a contract with Freddie Mac for the first round of sales and have completed a pilot sale with them, so we think that approach is going to help. But we need to be sure of what we can do is based on reserves and being able to control the balance sheet before we can know how far we can go. Mr. Knight. I had previously mentioned the closing of the $25 million agreement with State Farm and USAA. Ms. Widener. I actually got here before 11:00, so I actually heard all of your testimony. Mr. Lewis. You were intent. I watched her come in. If you would provide answers to these questions for the record, we want to know a bit about personnel, the number of employees, etcetera, etcetera. But with that, I think we have spent more time on your agency than I planned to largely because this is one of the more delightful experiences that we have during the year. And, Mary Lee, before you leave, if I can mention something to you privately. Thank you, Mr. Knight. Thank you all for terrific work. [See budget justification at end of volume.] Wednesday, March 12, 1997. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND WITNESSES KIRSTEN S. MOY, DIRECTOR HON. ROBERT E. RUBIN, SECRETARY OF THE TREASURY Introductory Remarks Mr. Lewis. The meeting will come to order. This morning it's a pleasure to welcome Secretary Robert Rubin and Ms. Kirsten Moy. Ms. Moy is Director of the Community Development Financial Institutions Fund, CDFI. Secretary Rubin, as you indicated earlier, this is not the normal venue for the Secretary of the Treasury, but, on the other hand, this committee covers almost the gamut in terms of needs and interests, and the future potential of CDFI is very important to us. Because of that, it is really very significant that you would come and join Ms. Moy in our discussions this morning. The budget for CDFI for fiscal 1998 is $125 million in their request, an increase of $75 million from fiscal year 1997--that which came out of the conference process at any rate. We're interested in hearing from you how such a large increase in resources would be put to productive use. Frankly, we will dwell a good deal upon how you have used the $50 million and what you see as the long-range potential here. I might mention to both of you that within this subcommittee are such Federal responsibilities as all the veterans' programs. In an appropriations sense, veterans' medical care is an almost untouchable area, so it is the big competitor on the block. Then, from there, we have the multiple mix of public housing programs, NASA, EPA, the National Science Foundation, and almost all want more money, and yet, all of us are committed to the impact that an imbalanced budget might have upon our country long term. So that's the struggle that we have. I look at CDFI as an agency with a good deal of potential. I'm interested in kind of positive views. I don't know what the prospect will be as we go forward, but nonetheless, it is an agency that falls within that whole group of Federal activities that I like to point to. While we move towards a balanced budget, that means we're going to have to reduce the rate of growth in government overall. That doesn't necessarily mean a machete. It also involves a serious responsibility to try to measure those commissions and agencies that have potential. Where good work has been done, and where we can demonstrate that excellent work has been done, maybe those deserve some special attention and assistance, while others, goodness, we might even close down an agency sometimes. But all that's a problem of Washington and the mix of our responsibility. You should know further that, of all of the 13 subcommittees, separate from Defense, this has the largest pool of discretionary dollars. Both Defense and our subcommittee on Labor HSS are under great pressure to reduce those spending patterns, because that's where the discretionary money is, before you discuss a question such as entitlements, which is also not in this committee's responsibility--and I'm not sure the Secretary wants to discuss that today. This is a subcommittee where the action is if, indeed, we're going to stay on that pathway that leads towards making sense out of the implications of ongoing imbalanced budgets and our national economy. So you are very welcome. We will be looking forward to your testimony. Let me call on my friend and colleague, Louis Stokes, for any comments he might have. Mr. Stokes. Thank you very much, Mr. Chairman. Let me join with the Chairman in welcoming Secretary Rubin and Ms. Moy before our subcommittee this morning. As one who has sat on this Appropriations Committee for many, many years, I am accustomed to having the Secretary of the Treasury appear before the full Appropriations Committee. But this is historic this morning, to have the Secretary of the Treasury before our VA, HUD Subcommittee. It is, indeed, a pleasure. I think it points to the significance and the importance of the matter which you will be testifying to here this morning. As one who is actively involved in urban problems, I see CDFI as being another one of the tools that we can utilize to try and solve some of the major urban problems, while we utilize other tools such as empowerment zones and neighborhood reinvestment, things of that sort. So I will anxiously await your testimony. Let me also say, Secretary Rubin, as we have watched your tenure in office at Treasury, it has been a real pleasure to see the manner in which you have conducted the business of our government and the manner in which you have acquired the kind of respect you have in this office. I am sincere when I say to you it's a real honor to have you here this morning. Secretary Rubin. Thank you very much, Mr Stokes. And thank you, Mr. Chairman. Mr. Lewis. As we begin this meeting, before we have some questions, I would like both of you to know that you're welcome to present your statement, and your entire statement will be included in the record. So you can use the time available as you see fit. I know the Secretary may not be able to stay through the entire process. So we will call upon Secretary Rubin first and, at your leave, Ms. Moy, and then we'll go from there. Mr. Secretary, welcome. We're pleased to have you with us. Opening Remarks of Secretary Rubin Secretary Rubin. Thank you. Let me start by saying I appreciate being here. I am going to make a few comments and, if I may, I do have to leave. We have an 9:30 appointment here on the Hill. The reason I wanted to be here is that this is a program I have cared enormously about from the very beginning. And, much more importantly, it's a program that the President has cared enormously about. When he campaigned in 1992, he had a vision of a nationwide network of community development banks around the country. From the day he walked in the Oval Office, and I was in the White House at the time, he was talking about things that he most wanted to get done of the things he had talked about. The CDFI Fund was very much on the top of that list of priorities. The reason was that he had the view, which I very much identified with for a long time, that if our country is going to realize its full potential for all of us. We're going to have to find ways to effectively bring the residents of the inner cities into the economic mainstream. It was his view that we have to do that through work, not through transfer payments, and that we have to involve the private sector as much as possible. The CDFI Fund, that's really what it's all about. It is designed to help create opportunities for people in the inner cities and other depressed areas to find work, and it is designed to leverage Federal dollars with private sector dollars and to bring the private sector to focus on the issues of the inner city. I think we made enormous progress, Mr. Chairman. We were fortunate in getting an enormously effective person to head our CDFI Fund. As I mentioned inside to you earlier, we knew who we wanted. Then the question was, how do we get her? We finally got the President to call and the President persuaded Kirsten to join us. She has done a remarkably good job. I don't think there's any question that we have a tremendous opportunity in this country, economically, and I think we're extraordinarily well positioned. I agree with what you said, that to get there, we have got to continue on the road of fiscal responsibility and get in balance, but within that, we have got to make the right choices. When we meet with the finance ministers of other countries, it's very interesting, because they talk about the same problems that we do. One is fiscal responsibility and the other thing is what Mr. Stokes briefly mentioned, which is they all have problems and all have groups of people in their countries who are economically disenfranchised. That has created enormous social problems and economic problems. They all focus on the question of how they move those people into the economic mainstream. For us, we think basically of three categories or programs. One I call investment in human capital, Head Start and various other education programs, which I think is probably the single most important. Second is public safety. capital access and economic activity Third is the whole question of capital access and creating economic activity in the inner cities and other depressed areas. While there are many aspects of that program that I think are very important, in many ways I think the one that is the most promising over the long term, once it's brought to scale, is CDFI. Kirsten will tell you about the specifics of some of the programs that are underway. But the reception it has received, I think there has been ten times as many applicants in the first round as we had money to give out. It gives you a sense of the receptivity for this program in the private sector and the community generally. Secondly, the President and, even more, the First Lady, had a vision of microenterprise and the potential that had for dealing with people in depressed areas. As you may know, in many developing countries these microenterprise lending programs of very small amounts--$500, $1,000, whatever it may be, to buy a piece of machinery, to buy something that will enable somebody to become economically self-sufficient--have been remarkably effective, sort of a ``people's capitalism'', if you will. The First Lady particularly has energized our effort in that respect. Our notion is to provide sources of capital for these very small loans, with a combination of technical assistance, so that the people know how to use the capital and be able to function effectively in the economy. While little pieces of this are being done around the administration, the President directed that this be centered in the CDFI Fund. In our CDFI Fund now, we are making loans that will promote microenterprise activity, and then also out of Treasury, through Kirsten, coordinating the microenterprise activity around the administration. I think it has the potential--one can never tell what's going to happen, but I really think the combination of CDFI generally--that is to say, community development, a financial institution of one sort or another--plus microenterprise lending, has the potential of having a really significant impact in an area where an awful lot of programs have been tried in the inner cities and so many have been found wanting, although some are successful and I give them credit for that. I think we have something here that is very promising. As you say, Mr. Chairman, we're going to have to allocate scarce resources very carefully, and it was our view that this is a program that is very much worth the allocation of those resources. It is also something that we can judge as we go along. We're asking for $125 million this year, and our hope over a five-year period is to scale up over that time to a billion dollars. You can tell as we go along, you and this committee, you can watch and see what's happening to see if this thing is working the way we think it has the opportunity to work. So, with that, let me just say I am very pleased to be here. As Mr. Stokes said, I suspect you haven't had a Treasury Secretary here before, and I appreciate the opportunity to come in. The reason I wanted to be here is because we believe very deeply in this program. Mr. Lewis. I will ask similar questions of Ms. Moy, but let me extend a few questions to you, Mr. Secretary, if I may. I'm not sure whether either of you had the opportunity to read ``The Price of a Dream'', which is a book that was written and focused around the Grameen Bank, the Bangladesh experience. In fact, I gave a copy of that book to each of my children, but also to Secretary Kemp. Indeed, it tells a very interesting story. I was reminded, though, in thinking about the fact that President Reagan was once heard to say, ``You know, these Latin countries, they're all different.'' Washington kind of laughed at that, you know, as though it was obvious, as though we, in this isolated United States, really do understand that there are differences between people. And Bangladesh, of course, was much, much different than our country. But the impact of that experiment, of essentially stimulating enterprise, was rather phenomenal. The results have been rather phenomenal in that country, not as clear as in other countries. But there are people across the country, and now the First Lady indeed paying attention to the potential of that sort of stimulus for enterprise in communities where credit not normally available. The experience in Bangladesh, largely because of enterprising women, the percentages are way, way up there towards the 90 percentile, maybe above that, with women. The return rates are very much commercial rates, a reflection in terms of the percentage of actual loans repaid, but also the rates of interest are market rates, which is not something our government normally wants to do in these social programs. ``Market rates? Goodness sakes. We'll have to do something about that.'' I would commend, first, the book to you, but we want to be in the real world here. It is an experiment that has worked elsewhere. It is one of the reasons I'm willing to look at-- Last year you asked for $125 million as well, but in the conference the amount was $50 million. So it's a question of competition and also being willing to look again. That's kind of where I'm coming from on this. I would commend not only that book to you, but also a measurement of what we have seen in this country already, in terms of some of these mutual efforts. microenterprise activity Secretary Rubin. Kirsten, I'm sure, will comment on the microenterprise activity, but let me give you a view, for whatever it's worth, Mr. Chairman. As you say, every country is different and every culture is different, and you can never tell whether something that works in one place will work in another. When I was in New York, before I came to the White House, I had something in excess of ten years experience with respect to the inner city issues. Something that caught me rather early on, it seemed to me it was everybody's problem, not just the problem of the people who live there. So I have a little bit of background in it, although I don't profess expertise. I think it's a very promising idea, if we can combine it with technical and practical education assistance. That's very much what we're trying to do. Very often you're dealing with people--One thing that struck me when I was back in New York, when I was part of a community organization in central Harlem, was how many people who really wanted to work and wanted to be a part of the economy. Here we can give them the opportunity. Now the question is, can we also give them the training and the technical assistance they need to be successful. I think that it's something that is enormously worth trying, because if it works, it could be tremendously powerful. Mr. Lewis. One of the keys of that initial experiment, as I understand it, was that eventually much of the authority and responsibility was passed on to small committees at the village level, and indeed, those committees were very tough on people. If people didn't make their loans, not only did they not get loans in the future, but they essentially lost the opportunity. That became a message. But we don't have a pattern in history of being that tough in the government. Secretary Rubin. Kirsten can tell you--she knows the specifics. I can only recollect what Kirsten told me. But there are organizations around the country now that are sort of the analog, in a way---- Ms. Moy. The legacy of toughness is very much in our lending institutions. Mr. Lewis. We'll be interested in getting that. Secretary Rubin. Her point is correct--and Kirsten can address herself to this--that you're starting to see the analog. I have met with some of these organizations that Kirsten developed around the country. Mr. Lewis. I commend you for--the Secretary is, to say the least, busy, but I commend you for getting him interested enough to raise it to this level. It's helpful to all of us. Mr. Stokes, do you have some questions? I'm not sure how long Secretary Rubin can stay, but I thought maybe---- Secretary Rubin. I have to leave in about two or three minutes. Mr. Lewis. Let's go through that now, then. self-sufficiency Mr. Stokes. Some of the things I am sure Ms. Moy can answer, but I know the commitment that the President has for this particular initiative. I have heard him speak of it often. As I said in my remarks, I see it tying into some of the other things that the administration is trying to do in our cities-- the empowerment zones and neighborhood reinvestment and that type of thing. I guess in that sense what we're talking about is an institution that has a social mission, in the sense that you're trying to help us bring back our cities, particularly our inner cities, and you're trying to help some of the disadvantaged be able to get into the mainstream of life. I think we have to get away from this concept of handouts and welfare. We have to enable people to become self-sufficient. This appears to be one of the means of doing that. In terms of the $50 million that was granted last year, have you seen that type of mission coming out of it, Mr. Secretary? Secretary Rubin. Well, Kirsten can comment on it with much greater specificity, but again, I have had an opportunity, through Kirsten, to meet some of the people and be at some of these meetings with the people who have been getting this money. It's very impressive. What you see is a group of highly energized people around the country who come to these meetings. They seem to care enormously about what they're doing, and they very much share our vision, which is the one you just mentioned, which is not transfer payments but work. That's really what this is about. I have been very impressed by the people I've met. I just don't remember what the group was that we had that roundtable of--I have forgotten. I think they were micro-enterprise organizations from around the country. It was the one where I was supposed to speak, and I said I'm not going to speak and I'll just talk with these people, wherever it was. It was a very impressive---- Ms. Moy. Oh, yes. It was our advisory board. Secretary Rubin. Yes, the advisory board. It was very impressive. These people were remarkably knowledgeable and cared about what they were doing. They were committed to the idea of work and not transfer payments. It gave me a very hopeful feeling that this thing is rooted in the communities and really has a good potential for working. Mr. Stokes. Thank you. Mr. Chairman, I know the Secretary has other engagements, so I won't pose any further questions to him. I will reserve them for Ms. Moy. Mr. Lewis. Mr. Secretary, in appropriations time there are all kinds of conflicts with committees. Because of the mix of our agencies, our members have lots of interest here but they are forced to be elsewhere. Roger Wicker is a new member of our committee but is a member who has a great interest in the subject before us, and I appreciate him being here. I would yield to you. Mr. Wicker. Thank you very much. I do appreciate you coming before our subcommittee. I look forward to questioning Ms. Moy more about the specifics. Let me just say and, I guess, echo what Mr. Stokes said. This is the type of program that really interests me. It is for that reason, maybe for the same reason, that I support the Appalachian Regional Commission, the Economic Development Administration, all of those programs that some people criticize. But I would much rather spend a small amount of money creating jobs in the private sector than to continue with writing a check from the government to an individual. I would much rather that check come from the private sector. So I am very, very interested in hearing the specifics later on. As the Chairman said, I'm a new member of this subcommittee. This is a program that I know very little about. But to the extent that I can work with the administration to move people off of the transfer payment into a private sector job, I am all for that. You mentioned that you didn't much want to talk about entitlements this morning. I'll just say that, boy, we need to talk about entitlements. Secretary Rubin. I don't disagree with that. I spend so much of my time talking about it, it's such a relief not to---- [Laughter.] entitlement programs Mr. Wicker. If we can somehow find a way to keep those huge growing entitlement programs from squeezing out the small amount of discretionary dollars that we do have, that we will have like another $75 million to create jobs that last. Secretary Rubin. You're right. The answer to the discretionary side of the budget, one of the answers is to certainly get the entitlements under control. I absolutely agree with that. If I could make a suggestion, you might find it interesting, sometime when these people come around, to meet with some of the people who are the recipients of these grants. Really, if you're interested in the program, it really gives you a much better sense of the potential, at least, that exists here. Mr. Wicker. Wonderful. I notice that Mr. Stokes' ears perk up when he hears ``urban'', and when I see the word ``rural'', it catches my imagination. Secretary Rubin. We're in favor of both. So I think that pretty well captures it. Mr. Stokes. If the gentleman would yield, I think it is very important for us to consider both rural and urban needs and concerns simultaneously, not to the exclusion of one over the other. national credit union administration Mr. Lewis. Mr. Secretary, I know you have to leave us. But in just the short time you have with us, the National Credit Union Administration--and you know there is some controversy going on now about their community of interest, where they can seek their membership and so on. That is now before the courts. Some members are suggesting that we ought to consider legislation to push that and maybe define what their community constituency can be, their field of membership. Secretary Rubin. Credit unions. We have a study on that, I believe. Mr. Lewis. I would be interested in input regarding what your Department would say relative to legislative activity at this point. While they're in the courts, the tendency is to say ``Oh, no'', especially those with a legal background, there is a tendency to say ``Oh, no.'' Secretary Rubin. We would be happy to get back to you on that, Mr. Chairman. I actually have not kept up with this probably as well as I should have. But I know we have recommended a study underway. I understand the question you're raising. Mr. Lewis. Yes. The question really involves, you know, if you're going to compete in the marketplace, do you want to compete equally, should you maintain your protections, all those questions. Secretary Rubin. Yes. I guess you're saying, while it's pending in the courts, should there be legislation. Mr. Lewis. That's right. Secretary Rubin. Let us get back to you on that. Mr. Lewis. Okay. I appreciate your being here. Secretary Rubin. Mr. Chairman, Mr. Stokes and Mr. Wicker, thank you very much. [The statement of Secretary Rubin follows:] [Pages 102 - 105--The official Committee record contains additional material here.] Mr. Lewis. It is our pleasure to welcome one more time Ms. Kirsten Moy, who is the Director of CDFI. As we have already indicated, there is a good deal of interest in our subcommittee regarding the potential of this agency, but you're here not at a time when almost every budget operates with a style that says ``what did you get last year and how much more can you get next year.'' Rather, it is perhaps competing to be one of those agencies that will get some special attention, in contrast to those who will be reducing the rate of growth, of necessity, if we're going to meet those targets that all of us have committed to. With that, Ms. Moy, your entire statement will be included in the record, as I have indicated, and if you would proceed from there, we will have questions. And Mr. Stokes is tough. Opening Remarks of Director Moy Ms. Moy. I am very gratified by the level of questions that have arisen already. I think what I will do, since you have the statement and can read it, I would like to depart from the formal statement and try to address some of the questions you may have. Mr. Lewis. Ofttimes that's very helpful. Ms. Moy. I assume you will ask me other questions as you think of them. First of all, let me remind the subcommittee that we run two programs, and I will be talking about both of them. One is the Community Development Financial Institutions Program, where the bulk of our money goes, and that provides loans, grants and equity investments and some measure of technical assistance to these CDFIs, Community Development Financial Institutions, all around the country. In the first round of funding--and again, this is in your materials--let me remind the subcommittee that we made $37.2 million in awards to Community Development Financial Institutions, to 32 organizations around the country, and about $20 million of that amount was in grants. But about $16 million was in the forms of loans and equity investments upon which we expect to realize some financial return. We achieved tremendous diversity in that first round. Our CDFIs are based in 20 States and the District of Columbia, but they're actually serving communities in 46 States and the District, so we got excellent geographic coverage. About half serve predominantly urban areas, 25 percent serve predominantly rural areas, and the other 25 percent actually serve a combination of both. So I believe that means we might be slightly overrepresented in the rural category because I think the rural population is approximately 25 percent. So I think we did well in that category. We believe in working with other programs. At least 24 of our CDFIs also serve Empowerment Zones and enterprise communities, so there the activities are really reinforcing each other. In terms of type, you will see we funded everything from community development banks to community development credit unions, loan funds, some microlending organizations, one Native American housing organization, and three community development venture capital groups. So institution type alone doesn't determine whether you are a CDFI. It's that you have a primary mission of community development among other things. The second program we run, which works in concert with the CDFI program, is the Bank Enterprise Award Program. That is the program to which, by statute, we must allocate one-third of our program monies. Last year, we awarded $13.1 million to 38 banks and thrifts for doing more, increasing the level of their lending and investing in distressed communities, and for supporting CDFIs. So the programs are viewed as working hand in glove. We have some good diversity in that program as well. We had banks ranging in total asset size from $21 million, which is quite small, to over $320 billion. In the case of the CDFI and BEA Programs--both--I'm going to be talking about leverage in a moment, we achieved tremendous leverage on those monies. One thing we are repeatedly asked is how are our programs different from those of other Federal agencies. You know, is this duplicative? Are we doing things that other organizations would do? I would argue, as the Secretary does, that what we're really about is not a giveaway program. It's about a program to incentivize the private sector to do more. All our award winners are private institutions. The idea is to use a small amount of public money to leverage much larger amounts of private money. We are here to help make the financial services industry work better, in those distressed communities and low-income populations, that perhaps traditional financial institutions have not always been so good in serving. We do this partly by helping with the creation of new institutions specifically targeted to serving those communities, and by making traditional financial institutions work harder and better. I would say that the hallmarks of our programs are tremendous leverage, forging linkages with banks and thrifts and other entities in the financial services industry, and creating viable, self-sustaining institutions. Our institutions all have to make it on their own at some point. We're not here to be providing the money forever. We're about expanding access to the economic mainstream and trying to restore healthy market activity in these communities so that the Federal Government doesn't need to be there forever. We're also about catalyzing new activity and jump starting it, as opposed to subsidizing it on a permanent level, and we're a lot about promoting performance. That's sort of clear from the way we did the selection and the way we will continue to make awards. I would like to just give a few examples which will possibly help make it real. In terms of leveraging of private resources, you may recall that every dollar we give out has to be matched one-to-one by non-Federal money. That's just for starters, so we don't even give anybody money unless they bring another dollar to the table from a non-Federal source. We did a calculation of the various amounts of fund-raising that those 32 organizations are doing in the next two to three years as a result of getting money from us. Mr. Wicker. Ms. Moy, is that one-to-one in both programs? Ms. Moy. No, the CDFI program. Actually, we got a lot more than that in the bank program, in terms of the way the program works. The two programs work differently. leveraging other money In the next two to three years, we think that the $37.2 million that we are awarding will provide three to four times that amount in terms of leveraging other money. That's in the short term. In the long term, which one might define to be ten years or so, we think that these groups will be able to do lending and investing of 10 to 20 times the amount of money that we are awarding them. Now, these are real numbers, and that's because financial institutions are all about leverage. I mean, people get a certain amount of capital and they are able with that capital base to do a lot more lending and investing. That's the idea. In a regulated financial institution, for instance, if a bank has capital of, say, eight to ten percent--we're talking about leverage there of ten to one or twelve to one. So this is not unusual in this type of institution. We are actually getting more than that in some cases because of the particular way these institutions are working. One very real example is self-help of North Carolina. It's a national leader in community development finance. It's probably one of the oldest CDFIs around. We recently disbursed a $3 million grant to self-help. Over the next five years, they and we conservatively estimate that our grant and matching funds will enable them to provide more than $100 million to finance affordable housing and small business loans over and above what they could have done without our assistance. In fact, they have already closed a $22 million transaction based on the award that we made to them. We have a really good story to tell in terms of forging linkages with the financial services industry. The $13.1 million that we put out in bank enterprise awards generated nearly $66 million in equity investments and other financial support, to Community Development Financial Institutions. In addition, the program leveraged about $60 million in direct lending and financial services in some of the Nation's most distressed neighborhoods. So that's the leverage we think of: $126 million of activity relative to our $13.1 million in awards. As one example, Republic National Bank in New York got a sizeable award, just over $500,000. But that catalyzed nearly ten times that amount, $5.2 million, in financial support they're providing to 20 CDFIs in the greater New York metropolitan area. In that case, it was actually a 10 to 1 ratio. Among the organization supported in New York is a CDFI, the Non-Profit Facilities Fund, which we are actually making an award to. That institution serves low-income people by financing among other things health care facilities, child care facilities, community service facilities and so forth. To date, this CDFI has made about $11 million in loans and has attracted investors from the banking, insurance, foundation, and local government sectors. Of course, they made a lot of those loans before they had our money, but they have plans to do a whole lot more with it. self-sustaining institutions The third thing that I mentioned that we're very focused on creating viable, self-sustaining institutions. This is critically important. These institutions have to be able to operate in the private marketplace while serving these very needy communities. The Delaware Valley Community Reinvestment Fund, which serves some of the most distressed communities of Philadelphia and Chester, PA and Camden, NJ, has a very strong track record in terms of financing affordable housing and assisting small businesses. Over time, they have attracted 700 investors from the private and not-for-profit public sectors. Now, some of these are very small investors; some are individual investors and some are religious organizations. But still, it's 700 investors. And their asset base has grown 25 percent within the past year, partly as a result of our award. We're providing a $2 million grant, which represents a 10 percent increase in their asset base. With that, they should be able to expand their lending and investment activities many times over in those communities. rural areas We talked about rural areas earlier. Expanding access to the economic mainstream is especially challenging in rural areas. Appalbanc is a multi-faceted community development financial institution that serves 85 really distressed communities in West Virginia, Kentucky, Tennessee and Virginia. They are focused right now on a strategy to promote housing development and home ownership in very distressed rural areas. This, of course, will expand access to the economic mainstream by providing low income people, that otherwise could not afford a home, with a means of owning their own homes. To date (they're a longstanding CDFI). They have actually developed or rehabed more than 20,000 homes, so we know they can do this. The $1.33 million we are providing in assistance will greatly expand their ability to continue this activity in a very needy region. Congressman, I know you're familiar with ShoreBridge Capital in Cleveland, and---- Mr. Stokes. They were in to see me yesterday, yes. shorebridge strategy Ms. Moy. Charlie Rial happened to be in Washington. But what they're a lot about is restoring healthy market activity by forging linkages between labor force development initiatives and actual business development and expansion. Sometimes, unfortunately, even when there's new economic activity in a community, the jobs don't necessarily go to the people who need them most. That takes a lot of extra work, commitment and planning. That is the ShoreBridge strategy. You probably know far more about them than I do. But we're providing them with an investment of $1.5 million, which will be used, along with capital from many other private investors, to retain and expand manufacturing companies that employ low- income residents of the Cleveland Supplemental Empowerment Zone. santa cruz community credit union Finally, let me mention in terms of jump starting new activity, we are providing a $1 million grant to the Santa Cruz Community Credit Union, which provides access to credit for small and start-up businesses and basic financial services to low-income residents in Santa Cruz, CA. Our $1 million grant is actually going to be used to expand the credit union's operations to enable them to open a new branch in Watsonville, CA, which was devastated by an earthquake some years ago. They don't yet have our money. They probably will in the next couple of weeks. But they have already raised $2.5 million of additional deposits for the credit union based on the proposed $1 million award. Mr. Wicker. What kind of businesses do they lend to? Ms. Moy. They're an interesting credit union. They provide financial services, as all credit unions do, but they are primarily small business lenders. They have a sensational track record in lending to small business, which is not something that actually many credit unions do. In fact, several of their companies have actually gone public (to Chairman Lewis) I know you're familiar with them. It's an incredible story. They're at an asset size of $20 million, one of the largest community development credit unions around. These are examples of the sort of initiatives that the Fund can support. performance agreements Let me conclude by mentioning something that I think we all care about dearly, which is performance. When people come to apply for your money, they always tell you a lot of stories about all the wonderful things they're going to do. And I'm in that same position with you here right now. I think what is very important is that, over time, we demonstrate there actually is performance. The Fund's statute requires that we execute an assistance agreement, a formal agreement with each award recipient, that details performance goals and provides sanctions to the Fund if the organizations do not perform. We are in the process right now of actually negotiating performance agreements with all 32 organizations. Not quite, but almost half of these organizations have now largely developed their performance goals, have raised their matching money, and are in position to close, so that we will actually have monies disbursed to them in the next four to five weeks. The other half are still working on it. It is taking some time because, frankly, this is a new experience for many of them. Aside from the fact that this is the first time many of them are receiving Federal money, very few funders have ever asked them about what they plan to do with the money and for goals at the level of detail that we are. This is taking a lot of time. We think it's absolutely critical that we do it. It is important to the Fund that, over the long term, these organizations actually show the community development impact that they propose, and that we would like to see, based on the use of scarce Federal dollars. We are also at the present time putting in place systems and procedures to make sure that we can effectively monitor and evaluate all these awards going forward. I would be happy to answer any questions that you have. [The information follows:] [Pages 112 - 120--The official Committee record contains additional material here.] Mr. Lewis. Thank you very much, Ms. Moy. Before we start the questioning, it was refreshing to have one speak with both enthusiasm and knowledge from off the top. In the meantime, some of us--I'm an exception--some of us learn to read in high school and so you're recognizing that is a helpful item. It is, as you suggest, one thing to leverage dollars, and it's another thing to actually measure the results, to insist upon goals and measure the results. Some have suggested that you get very little for that which you cannot measure. That emphasis is very important, at least to me. Ms. Moy. It is critical. one-to-one ratio Mr. Lewis. The one-to-one ratio that you mentioned of dollars, beyond five dollars, those are dollars that come from other government programs, like State and local government, and/or the private sector? Ms. Moy. They come, I think, most largely from the private sector, but local government is also a contributor in some cases. Actually, certain States have started CDFI programs--though not many. Delaware Valley, I believe, received a sizeable grant from the State of New Jersey, Governor Whitman's office, as matching money. Actually, through the Bank Enterprise Program, it seems that one of the larger and most frequent sources of match are the banks. There are wonderful partnerships between the CDFIs and the banks. public housing programs Mr. Lewis. One of the responsibilities of this subcommittee involves public housing programs. Frankly, I have learned much more about those programs since taking on this responsibility than I learned before. An area that is of great concern to me is what appears to be a growing body of information that would suggest that there's a factual foundation for suggesting that in many an urban center in America we have been delivering money for many, many a year, and because we have failed to very seriously measure results, an awful lot of that money doesn't lead to results. A recent trip to New Orleans is perhaps an extreme illustration of that. I won't dwell upon the negative, for we've been sending $50-$70 million a year to that local authority for some time now, and when you look at the condition in which most of those we purport to want to serve are asked to live, you just have to shake your head. It certainly shakes my faith in government's ability to follow through on the results side. There were exceptions to that experience. On both sides of the main drag, the main street, the one that all the tourists visit--I think it's St. Charles Street in New Orleans, if I'm remembering right--within two blocks there are projects that involve largely the work of neighborhood reinvestment, which is not a housing program but, rather, it provides housing assistance in a fashion that seems to work. It involves a combination of Federal money investment, banks making investments locally, a partnership of public/private and otherwise, where there actually are products being developed that provide subsidized housing that is in direct contrast to places like Desire Homes. Habitat for Humanity is a story that's worth looking at. It's strange, isn't it, that we've been spending $50-$70 million there, and yet this relatively new idea outside of housing seems to be having an impact. Above and beyond that, there's a CAP program that is attempting to put together an effective coalition between Xavier College, New Orleans, as well as Tulane. Within that, there was a session, a presentation, in which they were discussing a program that is designed to go out into the communities that surround the projects, find people of enterprise, and see if they are willing to make the kind of commitments to goals, et cetera, et cetera, the kind of thing that you were discussing. We haven't measured that yet, but at least there is a great spark of interest in creating jobs within the community that involves the projects. The solution to these community problems involves education, jobs, and living conditions, housing that is livable. There are at least some elements there that are encouraging to me. But the vast reflection is very, very discouraging. The Nation's capital reflects much of the same. Let me ask a few specific questions. We have a number of questions we would ask you to respond to for the record as well, and then I will turn to Mr. Stokes. cdfi fund staffing plan Last July, your office provided the committee with a staffing plan for CDFI. Out of 33 positions in the office, two positions are designated for portfolio/program monitors within the Office of Policy and Programs. Will these two individuals be responsible for ensuring all aspects of the programs, that all of them are executed according to plan? Ms. Moy. I'm glad you asked that question, because we're in the process of revising our staffing plan. I made, I hope not an overly facetious, remark last year that it was my first job in the Federal Government and everything seemed to take more time and people than it did in the private sector. We need far more than two people to do this. In fact, we brought in Ernst & Young, a reputable accounting firm, early on to help us, to advise us on appropriate ways to set up our systems and procedures, especially for the monitoring function. We are going to be hiring substantially more than two people, and at higher levels. I don't need to bore you with it, and we can certainly provide you with a revised staffing plan. But we will have a high-level grants manager. There will be a comptroller and an accountant that will be working on all these issues. But yes, those people will be there to ensure that our loans and grants are in compliance, that if there are loans and investments, people are repaying the loans. But we're evaluating and monitoring not only the financial impact, but the programmatic impact, the program side. Did they, indeed, meet their performance requirement, their performance goals? I think that's very important. We're getting quarterly reports on a number of financial and other issues and a full annual report from these folks about what they have actually accomplished. default rates and performance goals Mr. Lewis. Can you give us an indication of what you see-- you have been doing this measuring and CDFI has been making these grants and there are preliminary indications. What's happening out there in terms of default rates and other thing, performance goals? Ms. Moy. First of all, we're still in the process of disbursing money now, and so---- Mr. Lewis. I understand. When did you make your first disbursement? Ms. Moy. When did self-help close, do you recall? Okay, the 24th of February. Mr. Lewis. The first disbursement? Ms. Moy. Well, in Bank Enterprise, three-quarters of the money is out. On the CDFI program, the first one was on the 24th. We have---- Mr. Lewis. What I'm really asking is in the early stages of this. Maybe these are questions for next year and the year after. Ms. Moy. What we can tell you is that, in selecting the award winners, we took a detailed look at the defaults and delinquencies. Many people actually said we were too tough. But I would venture to say that the performance record of those that received funding on the first round are excellent and they would compare favorably with any mainstream financial institutions out there. Santa Cruz, for instance, has I think a loss rate less than one percent on small business loans, maybe less than half a percent. It's phenomenal, given the people that they're lending to. The industry, in the area of housing, it is less than half a percent. I mean, there were organizations that have actually gotten Federal money, who came in with substantially higher default rates, they were unbelievable, well over 10 or 20 percent. We just didn't feel, given what they were doing, that that was acceptable. We expect such good performance going forward. There is no way that our money can continue to work in these organizations if there is such a level of losses that the money dissipates. Mr. Lewis. That's correct. There is a presumption, of course, in the standard financial institution circuit, that unless there is significant equity, there is bound to be a pattern of default and an irresponsible use that is much higher than the traditional. What you're suggesting in many ways is that maybe that original premise needs to be reexamined and it may be full of holes for---- repayment capacity Ms. Moy. I think it's true in certain cases. I think it's modified in others. Bankers used to talk about the importance of character and capacity in repayment. I think what some of our CDFIs do is pick the right people to lend to, because they know the communities imtimately. You also never structure a loan for someone that they can't repay. You know, some of these loans may bear lower interest rates, but they represent realistic repayment schedules. Mr. Lewis. You indicated you need more than two. Will other organizations, such as the Department of Treasury, their IG, be called upon to help monitor the program execution? Ms. Moy. Actually, the IG has been assisting us. I sought from the beginning to make sure we were--This is a new program within Treasury. Treasury doesn't run many programs and it is important to be in sync with the IG. They have actually been providing us with technical assistance since we started, with recommendations regarding our award selection and award monitoring process, and they have done two reports for us. So we're working very closely with them. It has actually been a very rewarding experience. Mr. Lewis. I understand the Treasury Inspector General, in May of 1996, issued a report outlining CDFI award monitoring procedures. Included was a suggestion for quarterly status reports which are to be thoroughly reviewed for accuracy and completeness. Do you plan to have these people who will be working within your office to---- Ms. Moy. Absolutely, absolutely. They will be looking at the financials and the programmatic performance, absolutely. training initiative Mr. Lewis. Ms. Moy, in your statement there is mention of your intention to launch an important training initiative to provide the full range of training and technical assistance to CDFI institutions, those to whom you provide grants. What areas of training deficiency have been identified and were they identified through detailed surveys, or are they based upon, I suppose, anecdotal information? Ms. Moy. Well, actually, one of our best sources of information was the 268 applications. We have a tremendous reservoir of information. The training and technical assistance needs were very clear upon review of those 268 applications. We have all kinds of CDFIs, from start-up organizations to groups that are growing rapidly, sort of in midstream, to seasoned, 20 year old organizations. They have very different technical assistance needs. Some of the young ones just need help about how do I start up, how do I put together a good board, how do I start raising money, how do I organize, how do I underwrite loans? We have organizations that are rapidly expanding that need to get much more sophisticated about the type of lending they do. They may have some simple bookkeeping or simple computer systems in terms of monitoring their loans. They now need full- fledged portfolio monitoring systems. That's a totally different type of technical assistance. Mr. Lewis. I have to go make a phone call. Mr. Stokes, I will yield the time to you, and then Mr. Wicker. performance agreements Mr. Stokes. Thank you, Mr. Chairman. Ms. Moy, let me start with a question about your performance agreements that you require to be signed. Tell us what sort of things you require to be put into that performance agreement. Ms. Moy. Let me divide that into two pieces. There is what we call the boilerplate. It's a standard agreement and has a lot of the usual Federal compliance and other requirements in it, the whole body of Federal law that applies to grants, which we have had to adapt for the variety of institutions that we're funding. Some of them are regulated and some are unregulated. So we had to do seven versions of these boilerplates. But the most interesting part, I think, are the performance goals themselves. So, depending upon what type of institution they are, they look very different. For instance, for a community development credit union--and Faith community was one of our winners--it may have to do with expanding membership so they can serve more individuals. It may have to do with providing additional services. Many credit unions, for example, haven't been able to offer checking to their individuals, and people have had to go to local pawn shops or other places to cash checks. In an institution that is primarily, for instance, a housing lender, the goals have to do with how many housing loans you want to make, are they going to expand from single family to multifamily, one way or another, how many units are they going to be creating over time, which income level of population are they going to be serving? For a small business lender, again, it's different. It's perhaps how many businesses are you going to help start out; what is the volume of small business loans you're going to be putting out there. How long are some of those businesses going to be in operation and what type of job potential do they have over time. So it varies from entity to entity. matching fund Mr. Stokes. Let's talk about the matching fund situation a little bit. What do you require in terms of the amount of commitments or cash in hand with reference to an application for a grant? Ms. Moy. Well, when they come in, they don't actually have to have matching money in hand, but they have to have fairly good prospects for getting money. You know, there is some ``pie in the sky'' about raising money, but we would like to see, either the money in hand or a credible plan for fundraising from some realistic sources. For instance, in the first round, most of the people that came in, while not having money in hand, had submitted applications to leading foundations, for instance, had already gotten indications that they were likely to be funded. Mr. Stokes. What's the general source of their funding, the matching funds? Ms. Moy. It's actually very interesting. In the first round, there was some major funding from a variety of foundations, like the Ford Foundation, for instance, the MacArthur Foundation and so forth. Much of the money is from banks, because the Bank Enterprise Award Program is clearly incentivizing that activity. There is matching from religious organizations. Many of the Catholic religious orders, some of the Protestant organizations, are putting money into this. There is some matching from individuals. Actually, the sector we haven't really been able to tap much is the corporate sector. There have been a few instances of corporate donations from community to community, but we have not really been able to fully access that community. Actually, among the proposals in the President's budget is actually a proposal for tax credits to incentivize equity investments in CDFIs, something that would apply largely to corporations. Mr. Stokes. In your first round of grants, I'm assuming that you received a larger number of applications than you did in terms of the grants. Ms. Moy. Yes. Mr. Stokes. What percentage of your applications were you able to fund? Ms. Moy. We funded--We had 268 applications asking for over $300 million. We initially, if you remember, had only $31 million available. We were able to put in a little more money later on and were funding $37.2 million. We were funding about one in ten, a little over one in ten, when we started. We were way oversubscribed. Then we, in addition, had to cut people back about 40 percent on the funding, because there just wasn't enough money. Mr. Stokes. As I understand it, you are now in the process of actually disbursing the funds? Ms. Moy. Yes, on both programs. That's correct. For BEA, as I mentioned, about three-quarters of the money is out, based on what the banks have already accomplished, and for CDFI, in the last few weeks we have closed three transactions. We have another 29 to go. Mr. Stokes. Obviously, between July and March of this year, you've had a considerable lag time, right? Ms. Moy. Yes, that's correct. disbursing funds Mr. Stokes. Tell us why it has taken so long to get the funding out. Ms. Moy. Part of it speaks to the need to set up systems and procedures to monitor the money. Awarding is one thing, but once you put money out, it is a totally different story. Some of that has been spent in building the legal, financial and administrative infrastructure that we need. The problem with crafting these assistance agreements has also taken some period of time. I think only two or three of our organizations have ever received Federal money. I have to tell you, a number of them were in shock, when they first got our legal documents. There is a palpable difference between those who have previously seen Federal money, in terms of being familiar with the sort of issues raised, and those who have not. I think it will take some time to do some education. In articulating the performance goals, that is not something that an organization does overnight. It is frequently done in consultation with the board, who may have to pass on it. So that has taken some time. But I think we're in a position now where we have got a lot of the infrastructure in place, in terms of the infrastructure internally to monitor these, and we have basically all the boilerplate, if you will, all the model legal documents we need for all these varieties of institutions. I think we're in position now to close these things as organizations are ready to--about half of the organizations are ready to, and we think over the next four or five weeks, we should close a sizeable number of them. Staffing Mr. Stokes. Let me pursue a question posed to you by the Chairman relative to staff. I'm not quite sure I understood your answer. Ultimately, how much staffing do you plan to have? Ms. Moy. At the $125 million level, we were talking about a staff of approximately 35. When I came last year, I think I had seven or eight people on staff, and a large number of contractors. We now have 13 people on staff, and almost an equal number of contractors. They do things that come up from time to time, for instance, where our programs are cyclical, when we go out for a round and start taking applications, we need to bring extra contractors on board. We don't need them all year; we need them part of the time. So we have, for instance, two or three people that are helping us with the Bank Enterprise Awards Program, closing out the first round. We have someone who helps us with the microenterprise initiative. Also, since Ernst & Young are helping us with our systems and procedures, they are helping us with a revised staffing plan to handle the administrative monitoring side. Right now we have two or three slots that we have filled with contract employees, just to see whether what they're proposing works out or not before we make a commitment to hire these people on a permanent basis. Mr. Stokes. Do I have time for one further question, Mr. Chairman? Mr. Lewis. Certainly. administrative costs Mr. Stokes. With an agency of this sort, there is always the concern about the money getting to the recipients, the people for whom the program was designated. How much of your budget do you anticipate, or what percentage will be devoted to administrative costs? Ms. Moy. Well, we have an administrative cap of $5.5 million. In the last year, we spent, out of $50 million, about $2.7 or $2.8 million for administration. Mr. Stokes. You're under the cap. Ms. Moy. Yes, we're under the cap. We are proposing in the President's budget that if we get the $125 million, there will be slightly over $5 million for administrative, and the rest of it is $40 million for the Bank Enterprise Awards Program, which is what is required by statute, and $80 million, the bulk of it, for the CDFI program. Mr. Stokes. Thank you very much, Ms. Moy. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Stokes. Mr. Wicker. eligibility Mr. Wicker. Thank you, Mr. Chairman. Ms. Moy, let me just ask about eligibility. In the summary justification, the language mentions distressed urban and rural communities. How do you determine who is even eligible to apply in the first place? Ms. Moy. The CDFIs can serve either these distressed communities, or a targeted population, like a low income population. I just wanted to mention that we do have CDFIs serving low income populations, not necessarily a particular distressed community. If you go through our regs or statute, you will see that there are several criteria on which a CDFI can establish its basis for working in a distressed community. They parallel some of the CDBG criteria, but there is not just one criteria. For instance, poverty at a 20 percent level, or higher. For rural areas, a certain level of out-migration that has occurred over a period of time. Unemployment at least one and one-half times the national average. But there are several indicators, because we know the communities are all different. If you have only one criteria, it may be that you truly have a distressed area that doesn't happen to meet that particular criteria. Mr. Wicker. You've got two types of funding, one for the CDFIs, and then this Bank Enterprise. Those are traditional---- Ms. Moy. Those are traditional banks, correct. Mr. Wicker. Do you have a pot of money for one type of funding and another for the other, or do you just---- Ms. Moy. There are two pots. By statute, we are required to put one-third of our program moneys in Bank Enterprise. housing Mr. Wicker. And then I noticed that a lot of the specific examples that you gave--and I'm glad you gave specific examples--I notice a lot of them dealt with housing. How much of the $50 million from last year went to affordable housing? Can you quantify that? Ms. Moy. I can't tell you exactly, but let me try the question one other way, and I can also provide you with backup. Of the $37 million that went to the CDFIs, the 32 organizations, I would say the activity among those organizations was probably split fairly evenly between housing and small business lending and other forms of economic development. We funded four community development banks. They all do both housing and economic development, small business. The community credit unions usually do a mixture of both. Among the loan funds, the unregulated institutions, they are fairly evenly split between the two. I don't know that I will be able to tell you in dollar amounts. I can try. But I can tell you that, as an amount of activity, it is a fairly even break between the two. Mr. Wicker. Then within the housing area, how much is single family and how much is multifamily? Ms. Moy. It is much more multifamily. Now, rural areas are a little different. I would say much of our single family activity is probably in rural communities. I think it's whatever is appropriate for that community. In the case of self-help, the $22 million transaction that just closed was all for the purchase of nonconforming, single family mortgages for low income individuals. If you want more, we can certainly go back and I'll see what I can pull out from the examples. multifamily housing Ms. Wicker. In multifamily, who is going to own that? Ms. Moy. The multifamily ownership, some of them are private developers, private for-profit developers. Many of them represent---- Mr. Wicker. They would then rent the---- Ms. Moy. The predominant part are affordable, so they're low income, or in many cases, mixed income. There is mixed income housing in urban areas. But the bulk of the projects are affordable housing projects. But there is some attempt, in many distressed urban communities---- Mr. Wicker. Some of which is rental? Ms. Moy. The multifamily is all rental, it's all rental, correct. There are attempts in urban areas to not create ghettos, and therefore, mixed income housing is promoted in many of these cases. small businesses Mr. Wicker. Then I would be curious if you could just give me some examples of the types of small businesses. Ms. Moy. Oh, they're all over the place. They range from home-based businesses in some cases, to--we probably don't have as much manufacturing, but some small retail and service businesses, for example, delivery businesses. I can think of one organization that has financed a desktop publishing business, another one that financed a computer-related business. It's virtually every type of small business. I just visited some folks in Chicago. There is a woman making jewelry out of her house. In California, the Santa Cruz Community Credit Union has funded many agriculturally-related businesses. The Cascadia Revolving Fund in the Northwest finances wood products-related businesses among other types of businesses. The businesses reflect the local economy. All I can tell you is they are basically very small businesses, by and large, and sometimes they grow. Mr. Wicker. Very small. Ms. Moy. Yes. And when they grow, they often graduate to get regular bank financing, which is part of what it's all about. Mr. Wicker. But you said in a couple of instances these types of businesses have gone public? Did I hear you say that? Ms. Moy. Santa Cruz is a phenomenon. They are so good at doing this. The Chairman is well acquainted with one of these institutions. I would not say that's a common thing that happens. It's very rare anywhere. But in the case of Santa Cruz, I think they have financed at least one business that has gone public over time. And that was an organization that couldn't get financing from anywhere else originally. But I would not say that's a common thing. I believe Kentucky Highlands, which has been doing venture capital, has also had some companies go public. disbursing loans and grants Mr. Wicker. It seems that last year your awards were mostly grants rather than loans; is that correct? Ms. Moy. $20 million out of the $37 million was for grants. Mr. Wicker. How do you make that decision? Ms. Moy. Aside from what's appropriate for an institution, when people come to us with their matching money, what we give them and what they bring us has to be comparable in form and value. So if they raise grant money, we are able to give them grant money. If they raise loan money, all we can give them is actual loan money. That's in our statute. So I guess Congress, in its wisdom, wanted to be sure that this was something that other investors felt was worthwhile investing in, in the same way, before they put Federal dollars out. Mr. Wicker. I would appreciate it if you could--Is this your second year? You were created in 1994, so that's two years of history? Ms. Moy. No, we didn't go operational until October of '95, the rescissions bill. Mr. Wicker. If your staff could provide me with a list of the awardees, I would very much appreciate it. Ms. Moy. There actually is something in the--Let me make sure you have this. Mr. Lewis. I think we have some of that material, but we'll make sure it's in the record. Ms. Moy. Okay, awardees and the profiles. Mr. Wicker. Right. That would be most helpful. [The information follows:] [Pages 131 - 153--The official Committee record contains additional material here.] Mr. Wicker. I thank you, Mr. Chairman. Mr. Lewis. Thank you very much, Mr. Wicker. Ms. Moy, we have a number of questions for the record. We have covered a number of them, but the microenterprise questions that I had, I want to get more specific for the record relative to the way those local panels may be operating and the kind of review authority they have and so forth. I would once again commend that book to you that I mentioned earlier. Ms. Moy. Is this the David Bornstein book? Mr. Lewis. That's right. Ms. Moy. You know, he called us. application review Mr. Lewis. It's very, very interesting, in terms of the work that you're about, and your mentioning the Santa Cruz experience is something I am very much aware of. But how you select the participants, establish the goals, measure the results, is awfully, awfully important. But one more time, as Mr. Wicker is suggesting, we have an illustration of an avenue of funding flows that may very well produce results that are measurable in housing, when over here in another category we have 150 accounts that are housing accounts to which we appropriate money, and an awful lot of them have not ever been reviewed, the results are not required, and we just send money. If you're worried about poor people, it just seems to me there's a disconnect there that's unacceptable. The first round of applicants included 268 applicants for the CDFI program, and 50 applicants for the bank enterprise award program. Awards were made to 32 CDFIs and 38 to the BEAs. Were all of the applicants qualified, or did you review results in a number of applications being rejected for technical or substantive reasons? Ms. Moy. Of the 268? Mr. Lewis. Yes. Ms. Moy. Let me see. Some of those, almost 30 of those 268 applicants, were determined early on to have failed certain completeness tests on their applications. They didn't submit a full application, something like that. We reviewed the remaining close to 240 applications, going into great detail. It was a very competitive process because we were about 10 to 1, so the bar was set very high. But I would say there were organizations that were not nearly competitive, that had serious deficiencies in their applications. Part of it may have been the result of the organizations applying for the first time for this program, which requires a full business plan, which is very unusual for the Federal Government. And some of these simply weren't ready. Perhaps this is not a program for them at this time. We had other applicants, though, who I think we could have funded had we more money, and some that were very close. We debriefed virtually every applicant. Anyone that wanted a debriefing got a debriefing from us. Between that and certain amounts of technical assistance, many of them will be there. So I would say the applications were all the way along the spectrum. Mr. Lewis. Ms. Moy, in very difficult times, as we are trying to measure our own results, I am forced to talk about my staff around here being very, very tough people with scalpels, but with bleeding hearts. That's difficult for all of us. Nonetheless, if we're going to even consider expanding funding for existing programs, we have to look at results. This is the first hearing in the process that takes you through the other body, and come back to conference, et cetera. As much acceleration that you can establish as it relates to a demonstration of real results, that is clear-eyed, that isn't a ``wish list''--you know, the illustration that you and I have discussed that relates to Santa Cruz, CA was pre-CDFI, really-- -- Ms. Moy. Yes, that's right. Mr. Lewis [continuing]. But that credit union was showing some imagination and there are results out there that we need to be able to measure that justify. Frankly, I am not nearly so inclined in a direction of grants as I am inclined in the direction of loans that involve the marketplace, that involve commitment. If you read ``The Price of a Dream'', one of the things about those women who received those loans is they placed the loan repayment above feeding their family almost. Grants don't really reflect often--I'm not sure; I'm open to that. But, nonetheless---- Ms. Moy. Perhaps we could discuss it. Mr. Lewis. That's correct. But, nonetheless, there are sparks here that are of interest to us, and certainly your own leadership and experience is helpful. One of the things that is very helpful is that you're small. Ms. Moy. I agree. Mr. Lewis. I'm not sure if Mr. Stokes has additional questions, but we're going to have to move on. Ms. Moy. I thank you for the committee's time. Mr. Lewis. I appreciate your time very much. From there, both Lou and I have conflicting meetings that are waiting down the hall for us. Mr. Stokes will have some additional questions for the record, and others will as well. As you can tell, we are interested in a dialogue here that will take us through the conference process. So it's one step at a time. Ms. Moy. I am very grateful for the time. Mr. Lewis. We appreciate your being here, Ms. Moy. It was nice to be with you. For now the meeting is adjourned until 11:00 o'clock. [Pages 156 - 175--The official Committee record contains additional material here.] Wednesday, March 12, 1997. NATIONAL CREDIT UNION ADMINISTRATION WITNESSES NORMAN E. D'AMOURS, CHAIRMAN HERBERT S. YOLLES, PRESIDENT, CLF ROBERT M. FENNER, GENERAL COUNSEL Introductory Remarks Mr. Lewis. The meeting will come to order. This morning it is my pleasure to welcome our friend and former colleague, Norman D'Amours, Chairman of the National Credit Administration. I am going to take an aside, Mr. D'Amours, to let my colleagues know that in the audience today is a long-term friend of mine from beautiful downtown San Bernardino County, Redlands, California, and surrounds, who is a part of the Arrowhead Credit Union, Mr. Maurice Calderon. Maurice is accompanied by Chris Kerecman, who is with the California Credit Union League. Welcome, gentlemen. It is a pleasure to have someone from home here. It is just maybe once or twice in a whole generation we actually have constituents in the audience here. Mr. D'Amours, the budget request for the National Credit Union Administration consists of only a limitation on new loans to $6 million and a limit on administrative expenses of $203,000. The amount of new loan authority requested is the same as provided in fiscal year 1997. The limit on administrative expenses is a reduction of $347,000 from the 1997 level of $560,000. As you know, per usual, Mr. D'Amours, we will be including your entire statement in the record, so you can summarize it if you wish, proceed as you wish. But preceding that, I will call upon my colleague, Mr. Stokes. Mr. Stokes. Mr. Chairman, I don't have any opening statement as such. I would take this opportunity to welcome once again back before our subcommittee our former colleague, a distinguished member of this body, Mr. Norm D'Amours. It is always a pleasure, Norm, to have you appear here, and I look forward to your testimony this morning. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Stokes. Mr. D'Amours, I must mention for you and your associates, early on in the appropriations process, there were major conflicts and meetings, and while there are a number of colleagues who wanted to be here not only just to say hello but to provide questions, they are in other meetings, and so they may be submitting questions for the record, and I would appreciate your responding. Mr. D'Amours. Of course. Opening Remarks Mr. Lewis. In the meantime, as you proceed with your own comments, if you would like to introduce your colleagues for the record, that would be appreciated. Mr. D'Amours. I will, Mr. Chairman. Thank you very much. Thanks for this opportunity to present our request for funding limits on the NCUA Central Liquidity Facility, the CLF. Appearing with me today are Herb Yolles, who is the president of the Central Liquidity Facility, seated to my right, and Robert Fenner, the Agency General Counsel. I am going to skip and give a very brief statement. You have mentioned in your opening many of the points I was going to make. I will not reiterate--or I will not iterate, more properly. In our estimation, Mr. Chairman, the $600 million loan limit is adequate to address unexpected liquidity needs for credit unions. The request is less than 3.55 percent of the limit set by statute, which is 12 times paid-in and on-call capital, or approximately $17 billion. The borrowing authority is not used to build up loan volumes at credit unions because the statute requires that proceeds from the CLF cannot be used to expand credit union loan portfolios. Rather, the funds are advanced almost exclusively to support liquidity needs of natural person credit unions. Over the past years, there has been a wide variance in the fluctuation of outstanding CLF loan balances. The relatively low utilization of our total authority can be viewed as a positive sign of credit unions' present financial condition. By the end of 1996, all loans were repaid, and no direct loans were outstanding. However, because of a liquidity shortage involving one of the corporate credit unions, the CLF did become an active liquidity lender from December 1994 through about February 1995. In that time, the CLF made 601 loans totaling $389 million; the majority, 509 of those, were overnight loans. So, as intended, as Congress intended, the CLF acted successfully to provide liquidity and maintain financial stability during a temporary liquidity shortage. Mr. Chairman, we respectfully--my notes here say ``respectively.'' But we respectfully request that you support our authorization request in order to continue the NCUA's and the CLF's ability to respond rapidly to such adverse liquidity situations. In closing, I would like to thank you, Mr. Chairman, and this subcommittee for having included $1 million into the community development revolving loan program last year. And I want to assure you that we made very good use of it. [The information follows:] [Pages 179 - 188--The official Committee record contains additional material here.] Field of Membership Mr. Lewis. Mr. D'Amours, I have a number of questions that we have prepared. Not all of those I will go through, but I will provide them for you to respond for the record for those that we do not get to. Mr. D'Amours. Yes. Mr. Lewis. I wanted to just shift gears away from my original intent here. There is a good deal of discussion around the House relative to the court case that has been moving to the Supreme Court that involves credit unions and what makes up their membership base. The Court is on the verge of at least consideration and some decision. It has been suggested around the House that there may very well be legislation introduced soon. In journals available to us, we have an indication that at least within the committee there is great hesitancy about introducing legislation. Nonetheless, there is a great deal of interest about that. It is the whole separate question. I am sure you must be somewhat familiar with it. Can you bring us up to do on what you do know, what your rumor mill is telling you about those prospects, and give us some reaction? Mr. D'Amours. Well, your guess is as good as mine, Mr. Chairman. In fact, your guess is better than mine, being an active member of the body, and Mr. Stokes and other members of the committee. But it would appear that legislation is going to be introduced, and I would hope that it was introduced and I would hope that the Congress would begin to act to hold hearings, at least to hold hearings on that legislation. The Court is likely to hear arguments on this case in October and to reach a judgment sometime next year, probably in the earlier part of the year. The fact that the Court took this case under certiorari indicates at least some questions in some people's minds about the validity of the judgment of the Circuit Court of Appeals of D.C. as to the NCUA's actions interpreting common bond. The problem would be if the Court were to rule against us, were to rule against NCUA, and, therefore, against the ability of credit unions to continue reaching out and providing services to people who are underserved. It would be late in the day. The harm, depending on the injunctive results that may follow such a decision, could be devastating. And I would like to think that at the very least the Congress would have had a bill introduced, had hearings on that bill, and, therefore, be in a position, if it did not seek to act earlier, to act very expeditiously from that point on. Depending upon the injunctive fallout of a Supreme Court decision that would go against credit unions, we do not expect that to be the case, but it is always a possibility, there could be terrific harm caused to the credit union industry, and the legislative fix would need to be quick. court injunction Mr. Lewis. Mr. D'Amours, you and I have personally talked a bit about the field of membership and the significance of this question as it relates to the current service provided by credit unions and the future of those services being available. Mr. D'Amours. Yes. low-income credit unions Mr. Lewis. In particular, I am interested in your reaction as to what might be the effect of a negative decision upon low- income credit unions. Mr. D'Amours. Well, until the Washington, D.C., District Court injunction was stayed, there was a cutoff of the ability of credit unions to serve many low-income residents. For instance, there is a credit union in Texas, in Polytechnic Heights, which is a suburb of Fort Worth. A credit union had opened a branch in that area. This is an area that Martin Frost is very concerned about. It is a very low-income area. There was not a bank within 5 miles of that credit union branch. These people had no access to fairly priced credit union services. They were subject to loan sharks, pawnshops, rent-to- own stores and all the number of people who move in to take advantage of these communities when fairly priced financial services are not available. This credit union opened up a branch, spent $2.5 million doing that, and was beginning to sign these people up in droves. Not only were people joining the credit union, but there was a rejuvenation of the community. You could see places being rebuilt, refurbished, fixed up. It was bringing new life into that low-income area. Well, the injunction following the Circuit Court of Appeals ruling, stopped that process in its tracks. The credit union could no longer sign up any new members from that branch. At that date, they had only signed up 200 members. You cannot operate a branch of any financial institution with 200 members, or customers, should it be a bank. That is just one illustration of the harm that was being done to inner-city people and low-income people, and you could multiply that by a factor of several, a large-number factor nationwide. This is only one illustration. I could give many different applications of it. field of membership legislation Mr. Lewis. Yes, sure. Mr. D'Amours, it has come to the committee's attention that while there is discussion out there trying to figure out who the phantom author might be. The relative value of having an author who comes from the committee original authority and policymaking jurisdiction, it is my understanding that at least there is a very strong likelihood that Steve LaTourette of Ohio, a member of the committee, could very well be planning to introduce such a bill. I just mention that for the edification of those who might be interested. Mr. D'Amours. I am sure his phone will be ringing quite a bit before this day is out. Mr. Lewis. By way of information, as I suggest. The use of the Central Liquidity Fund is a subject I would like to discuss a little. The CLF loan limitation request for fiscal year 1998 is $600 million. Mr. D'Amours. Yes, sir. Mr. Lewis. An amount which has been constant for the last 17 years. Mr. D'Amours. Yes, sir. maximum clf loan authority Mr. Lewis. What is the maximum amount of loan authority you have ever used in one year? And has there been concern that the loan limitation amount is inadequate? Mr. D'Amours. Answering your questions in inverse order, Mr. Chairman, there has been no concern that the authority is inadequate. I do not know exactly what the highest number is. I would guess $300-some-odd million, but I do not know. Do we have that information with us? That would have been--then my guess was pretty good. The $389.8 million was the largest amount we have ever used. community development revolving loan program Mr. Lewis. Your statement indicates there is--in it there is mention of the community development revolving loan program which had a $2 million authorization for fiscal year 1998. Mr. D'Amours. Yes, sir. Mr. Lewis. A series of questions, briefly. What is the purpose of the loan program, and how did the $2 million for this loan program help low-income community development credit unions? Mr. D'Amours. Well, it is a revolving loan program made only to credit unions which are considered low-income credit unions. Most of these are serving people who are below the average median family income line, within 80 percent of it. It goes directly to credit unions, and they are able to use it to make loans or otherwise provide services, financial services to these people who do not have access to fairly priced financial services. Originally, we were granted $6 million when the program was created. You added $1 million to that last year under the 1984 legislation, I believe it was. 1994, excuse me. I have to get my decades straight. Under the 1994 Riegle bill, another $10 million was authorized. Only $1 million of that was appropriated, and that was thanks to the good graces of this subcommittee last year. There are $2 million that could be appropriated this year. Last year we were unable to fund $3.6 million in requests for such lending. program performance Mr. Lewis. Would you provide us for the record information relative to the experience that we have had out there with this stimulus of lending program, loss ratios, what kind of success you would attribute to the program and the like? Mr. D'Amours. Yes, sir. I will be delighted to. May I just say that, quite frankly, Mr. Chairman and Mr. Stokes and members of the committee, I do not know, and we will send you documentation for this, I do not know that there is a better, more efficient, clean, more cost-effective way to get these kinds of funds directly to the people who mostly need them, and on a lending basis where these loans are repaid. And the profit, if you will, being made on these loans is recycled back to these very same people with very little cost. Mr. Lewis. As a result of the $1 million, and speaking to the fund in general, I am interested in knowing how many loans we have been able to make with this new authority and how many community development credit unions exist today, items like that, the growth patterns over the last 3 or 4 years. Mr. D'Amours. We will get that to you. Yes, sir. Mr. Lewis. All right. For the record would be fine. Mr. D'Amours. I will get that for the record. [The information follows:] [Pages 193 - 196--The official Committee record contains additional material here.] Mr. Lewis. Mr. Stokes. personal bankruptcies Mr. Stokes. Thank you, Mr. Chairman. Mr. D'Amours, let me refer first to your formal statement on page 2 where you say, ``By instilling habits of thrift and teaching the value and workings of financial discipline, credit unions are still fulfilling the mandate Congress gave them over 60 years ago.'' How do you answer the statement that when we look at the increase in personal bankruptcies, probably now up to about 1 million last year, when we look at the significant rise in consumer debt, much of it on high-interest credit cards, many of them issued by our Nation's credit unions, it sort of raises the question of whether our credit unions are doing all they can to instill habits of thrift and savings. Tell us how big an issue you think this is and if the Credit Union Administration is doing anything about it. Mr. D'Amours. Well, I do not have the specific numbers, Congressman Stokes, but I know that in terms of bankruptcy, failures, the numbers of credit unions compare very favorably with those of other financial institutions, meaning that we do not have that experience nearly to the extent that other financial institutions do. Credit unions, because they are member-owned and member- operated financial institutions, there tends to be a closer relationship between the member owner and the institution than there would be between a customer and other institutions. There tends to be better communication. There tends to be better peer pressure in terms of repayment of obligations and the like. What we do at NCUA is to encourage credit unions to reach out to inner-city communities as the act mandates, to take the actions that the act mandates to not only deal with people as customers, but as members, as brothers and sisters, and owners of the institution, and to teach them and help them to learn the responsibilities of borrowing, of borrowers, and the benefits of establishing a nest egg. We cannot do that directly as a Federal agency, but because the statute defines credit unions in that way, we have never shied away from our responsibility of asking credit unions, when we go examine them and see them, to focus on this responsibility, and we think they have responded quite well. common bond issue Mr. Stokes. Let me ask you this: The chairman explored with you the problems related to the common bond issue. It is my understanding that the administration actually favors some type of legislative approach in this area. Is that your understanding? Mr. D'Amours. That is not my understanding. I do not know. I have not spoken with the administration on this. I know that the administration is defending us in the lawsuit, so I would have to presume from the fact that they defended us in the lawsuit, that they petitioned for certiorari in the Supreme Court, that they have argued that our interpretation of common bond is correct, that they certainly would not be hostile to a legislative solution since they are pursuing a judicial solution to the question. But I have not specifically discussed with the administration whether or not they are actively pursuing legislation. We at NCUA believe legislation is appropriate, and I would have to believe and I would surmise, given their position in courts, that they do, too, as just another way of solving what we think is the misapplication of law by the Circuit Court of Appeals. bank opposition Mr. Stokes. Can you tell us why the banking industry is so opposed? Mr. D'Amours. Well, I think that, first of all, I don't believe the entire banking industry is opposed. I think there are a group of community banks out there who are very upset by the fact that the banking industry is shrinking, that institutions are merging. I was reading in the American Banker just yesterday that community bankers are taking out advertisements critical of and hostile to regional banks. So apparently they do not like what they see happening in the marketplace, and they have identified credit unions as a likely, maybe an easy target. I would say they are making a major mistake if they believe that. And so they are venting their ire and their frustrations at credit unions, perhaps. But I know many bankers who are doing good work, fulfilling the financial mission that they serve in the American economic system, that they have served well for a number of years. I think this issue may be being driven by a segment of the banking community. I do not know that any banker would say he doesn't support it because of the national cohesiveness of any group, but I know personally that many bankers do not care. What it is being driven by, I think, is a misunderstanding of banks, of what credit unions are, what their function is, what their limits are. Banks ought to be able to compete well with credit unions. They have powers of investment that credit unions do not have. They have any number of advantages that credit unions do not have. They are free from very many limitations that we have put on credit unions. Rather than compete, they seem to think that the best tactic is to destroy the credit union movement by attacking it. I think that is a mistake. cooperation among community organizations Mr. Stokes. Just one last question, Mr. Chairman. This morning we had testimony from Secretary Rubin and Ms. Moy relative to community development financial institutions. And, of course, we also have testimony in this subcommittee from the Neighborhood Reinvestment Corporation, which is similarly involved in urban communities and rural communities in terms of helping bring back revitalization of our urban and rural communities. Do you see ways in which the Credit Union Administration can build on what these other two agencies are doing? Mr. D'Amours. Well, I do not know that I would say build on because we certainly can work in a complementary way. Credit unions have been doing this for 60 years. Credit unions have been doing this before some of these other people began doing what they are doing. What they are doing is very vital, but credit unions have a very special function. We get into rural areas. You know, one thinks of Self-Help Credit Union, North Carolina. I personally visited any number of credit unions in South Texas, the Brownsville-McAllen area of Texas, very rural areas where people are building houses with credit union funds. Farmers, migrant farmers, are using credit unions to build houses out in the countryside. They have no other access to loans, fair access to loans, other than credit unions. Credit unions have been doing this for a long time. I think one of the mistakes credit unions have made over the years, if I may say, is that they have been tending to their knitting very well, but they have not been bragging very much about what they do. I think bankers and the general public do not understand enough about what credit unions do and what they have been doing for years and how they could be maybe doing it better. But certainly everything that these other groups are doing, credit unions are and have been doing from the early 1900s, from 1909 in this country. So, sure, we complement one another. The credit union industry and these other efforts you have mentioned work--can work in concert, maybe could better work in concert. But credit unions do all of this, anyway. These are just different applications of what credit unions are already doing. Mr. Stokes. Thank you. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Chairman. Mrs. Meek. community development credit unions Mrs. Meek. I am a little late coming in from another meeting. I am very interested in the credit union movement. I have been a member of one for many, many years. I really missed the microlending presentation that was made when I was on another subcommittee. Anytime--and this is a little off the record, but anytime I see a lot of--my major district is low-income, very low-income, very high poverty. Anytime I see banks start coming into my neighborhood, I know there is some significant reason for doing so. I need to meet with a member of your staff. I need to find out where the credit unions are in my district, District 17 in Dade County, Florida. And that could be done if I could meet with someone from your shop to sit down with me. Mr. Lewis. I think there is a possibility, Mrs. Meek, that that could occur. Mrs. Meek. All right. Thank you. Mr. D'Amours. As a matter of fact, I would be delighted to meet with you at any time and bring whatever staff is necessary to help you. how credit unions can help Mrs. Meek. I am interested in something I see in your testimony here regarding how low-income communities and areas can benefit from other credit unions; that is, if they do not have the know-how of the money to begin their own shop, the way I am reading this they do have a chance to perhaps connect or hook up with another larger credit union. Am I correct? Mr. D'Amours. That is exactly right. I mentioned that earlier, I think before you got here, Congresswoman Meek. There are two ways that low-income communities can be served. They can start their own credit unions--and they do. We started 12 such credit unions last year nationally, 12 start-up low-income credit unions where people got together and, from scratch, built their own financial institution, which is a beautiful thing to behold. That does not always work. That is not always possible. The other way is that an existing credit union will, under regulations we passed in 1994, open up a branch in such an area. We allow them to do that. By the way, the court order prohibits that. The court order would prohibit that. It is being stayed for the moment, but before it was stayed, they could not do that. So those are the two ways in which it occurs. capital in low-income communities Mrs. Meek. I do not think the financial community realizes the amount of money that is in some of these low-income areas. They loan money to churches, but very seldom do they have the knowledge or the know-how to see people in those communities that own homes and can afford a low-cost home. I think the credit union movement could look closer at that as an opportunity to develop more in low-income communities. Mr. D'Amours. Yes, ma'am. Mrs. Meek. Because once they get a home, they pay for the home, and the failure rate or the foreclosure rate is perhaps similar or no more higher than would happen in the regular marketplace. So I guess what I am saying, the credit unions should perhaps take some leadership to model after what the banks are doing. They are coming in, and when they come in, there is always a reason. So I do hope that you and your credit union leadership will look at the propensity that these communities have, particularly for home building. Mr. D'Amours. We are doing that, and we have been doing that. After taking this job, I have done this job for 3 years, Congresswoman, and when I went out into isolated rural areas and inner cities, I learned for the first time how much money there is in these areas. You drive through these streets, you drive through these cities, and you see boarded-up windows, and you see litter in the street, and you see signs of poverty everywhere. But you see loan sharks, you do not see loan sharks most of the time, but some of these check-cashing operations-- -- predatory institutions Mrs. Meek. There is a check-cashing place on every block. Mr. D'Amours. Some are legitimate, but some are really loan shark-type operations. You see pawnshops, you see rent-to-own stores. You see all kinds of these things, and they are everywhere. I had it explained to me when I visited these communities that you may see signs of poverty, but the truth is there are many low-income workers in that community that are bringing home a paycheck. There are retired military veterans in those communities. There are Social Security benefits going into those communities. There are all kinds of hundreds of millions of dollars pouring into those communities. Unfortunately, the kinds of people who provide them financial services, you do not see many banks, if any, but the kinds of people that are providing them financial services are taking that money and dissipating it. Credit unions are targeting those communities and have been. A credit union goes into that community. The money stays in the community because the members, credit unions do not have customers, they have members, control it. It stays there. Credit unions are exactly doing that, and we at NCUA have been encouraging them to expand those efforts. That regulation, IRPS 94-1, that I mentioned earlier was along those lines, and we are making other efforts at the agency to see to it that credit unions expand those efforts. I could not agree with you more, with your statement more. working capital Mrs. Meek. Thank you. The major problem is working capital. You know, the businesses cannot survive because they cannot get the working capital they need from traditional financial resources, and I would just like to know how to put the puzzle together, Mr. Chairman. It is a puzzle that needs to be worked, and I would like to know how from members of your staff how we can take advantage of the credit union movement to do something. Mr. D'Amours. Well, this committee has been very supportive. Last year, even though we did not request it, it allocated, appropriated $1 million for the Riegle bill funds which we made good use of, and there are $2 million subject to appropriation this year. But, again, we are not making a request for those funds. Mr. Lewis. Thank you very much, Mrs. Meek. Mr. D'Amours, we have several new members on our subcommittee who are aggressively displaying interest in policy issues like this, especially those that are designed to stimulate the economy and opportunity in the private sector. Mrs. Meek's questions very much flow along those lines. It is a long time between now and the time we get to conference, and I understand that you have to deal with OMB and the administration in a special way. But in the meantime, we also understand and have a feeling for your needs. Mr. D'Amours. Thank you, sir. Mr. Lewis. Your remarks will be included entirely in the record, and any additional remarks would be acceptable. Beyond that, members who are not present, and those present, may have additional questions as well. So we appreciate your being here, and we look forward to continuing to work with you. Mr. D'Amours. Thank you, Mr. Chairman. I appreciate your courtesy, and Mr. Stokes. Congresswoman, nice to meet you. Mr. Lewis. The meeting is adjourned. [See budget justification at end of volume.] [Pages 202 - 203--The official Committee record contains additional material here.] Wednesday, March 5, 1997. COUNCIL ON ENVIRONMENTAL QUALITY, EXECUTIVE OFFICE OF THE PRESIDENT WITNESS KATHLEEN A. McGINTY, CHAIR, COUNCIL ON ENVIRONMENTAL QUALITY Mr. Lewis. We will call the meeting to order. Let me indicate to those who are here that, because of changes in our schedule, with no votes on Monday and Tuesday, a lot of Members are coming back from their districts today, and a lot of people also have conflicting hearings. Mr. Stokes and I were together earlier this morning and he indicated to me that he has two other meetings, and especially there's an Ethics Committee hearing that he has to participate in. So if you will bear with us, we will be developing the formal record here and, beyond my questions, I will have questions for the record. But other Members will as well. Welcome, Ms. McGinty. We very much appreciate your being with us. Ms. McGinty. Thank you. Welcoming Remarks by Chairman Lewis Mr. Lewis. We will be taking testimony on fiscal year 1998 budget request for two offices this morning that are within the Executive Branch of the President, and are both, of course, under this subcommittee's jurisdiction: The Council on Environmental Quality, which includes the Office of Environmental Quality, and the Office of Science and Technology Policy. We will begin this morning with the CEQ. I am delighted to welcome CEQ's very able chairman, Kathleen A. McGinty. At this time, Ms. McGinty, I would like to invite you to introduce any of your colleagues who are with you that you wish. And, with that, we will proceed with your oral testimony. Your entire statement will be included in the record. Introductory Remarks Ms. McGinty. Thank you, Mr. Chairman. I do have with me today Shelley Fidler, my Chief of Staff; Michelle Denton, my Associate Director for Congressional Relations; Wesley Warren, my Deputy Chief of Staff; and my General Counsel, Dinah Bear. Mr. Lewis. Thank you very much. Ms. McGinty. That's a big portion of the team. Mr. Lewis. Proceed as you wish. We will both include your entire statement in the record, and revise and extend to some extent. Go right ahead. Opening Statement Ms. McGinty. Thank you very much. Thank you, Mr. Chairman. It's a pleasure to appear before you today to present the President's request for CEQ for fiscal year 1998. I also want to thank your staff, who has been very helpful to us, both in preparation for this hearing and throughout the course of the year in the work that we do. I wanted to focus this morning briefly on three things: first, the level of the request that we have presented; second, our work over the past year; and third, I would like to turn to what is really our top priority, which is our initiative to comprehensively reinvent the National Environmental Policy Act. First the level of our request. As you know, Mr. Chairman, CEQ currently operates at a staff level of 19 FTEs and a budget of $2.4 million. Our request today is for 23 FTEs and a corresponding budget of $3,020,000. In percentage terms, as we have discussed, this is a significant increase for CEQ. However, I would like to emphasize to the committee that, even at 23 FTE, CEQ is still significantly below the average in the Bush administration, which was 31 FTE, and very significantly below CEQ's peak level of 70 FTE in the Nixon administration. The resources that we are requesting, Mr. Chairman, are critically necessary if CEQ is to take on what I will describe in a moment as our very first priority, which is the comprehensive reinvention of NEPA. Many, including the Western Governors Association, industry, nongovernmental organizations, certainly Members of Congress, have both praised NEPA's intent, the purpose of NEPA to be a comprehensive integrating statute that brings environmental, economic and social considerations together in a coherent whole, and also its call to afford citizens an opportunity to participate in agency decision making. Having recognized those important purposes, these groups, though, have all recognized that the implementation of NEPAcan and should be improved. I agree with that and I would like to take on as a top priority the reinvention of NEPA to that end. But I do need resources that can be taken out of the daily firefights to get that job done. People who are senior professional and dedicated to the specific mission. As noted, I will return to the substance of this endeavor in a moment. ceq's oversight role Before that, I want to share briefly some of CEQ's work over the past year. As the committee is aware, CEQ has responsibility both for immediate oversight of the environmental assessment process that every agency of the Federal Government is called on to comply with, as well as responsibilities in serving as the President's senior advisor on environmental policy. In that capacity, we coordinate policy among the agencies and settle disputes that may arise among and in the context of those issues. environmental assessments First, to turn to environmental assessments, the first part of our portfolio. We have worked very hard over the last year to use NEPA as we believe it was intended to be used, and that is, not just as a document-production exercise, but really to improve agency decision making. For example, we use NEPA to design a process through which we will complete even the most complex habitat conservation plans. These are the plans that allow us both to protect critical habitat and to offer landowners certainty that they have met their Endangered Species Act obligations. Through NEPA, we will get even the most complex of those done in ten months. I just returned from Washington State, where I signed an agreement with the Governor there that will both meet all Federal obligations and give the State a 70-100 year guarantee that they have met all their Endangered Species Act obligations. NEPA allows us to do that. In addition, CEQ responded to the request of Governor Tony Knowles and the Alaska delegation to launch a process to identify lands for possible oil production and environmental protection in the National Petroleum Reserve in Alaska. Because NEPA acts as an integrating statute, we will be able to see that process through to completion in 18 months or less. This also builds on our effort, which we were able to conclude in six months, to allow for the export of oil from Alaska's North Slope. Through NEPA again, we worked this year to cut processing times for timber salvage sales from three years to less than one year. We resolved a longstanding dispute between the FAA and the Air Force, that finally allows the Air Force to undertake military training activities in Alaska. We provided for the transfer of the Homestead Air Force Base in Florida, but in a way that will protect our restoration activities we have underway in the Everglades. NEPA is the statute that allows us to do that, because it calls on us to get all of the parties together to understand all the obligations and to move forward in one coherent and efficient way. So we are using NEPA to that end. ceq's role on policy On the policy front, as opposed to the environmental assessment front, we have been working hard to coordinate the agencies and to resolve disputes among them. CEQ developed, for example, targeted reforms to the Resource Conservation and Recovery Act that were passed into law in the last Congress. These reforms eliminate duplication between RCRA and the Clean Water Act and Safe Drinking Water Act, and we believe it will result in tens of millions of dollars in avoided costs to industry. CEQ hammered out an agreement that will provide for the financial health of the Bonneville Power Administration, while also providing resources for salmon recovery efforts. We reached out to the National Association of State Attorneys General and to the International Association of Police Chiefs and crafted an environmental crimes bill that now has been introduced in the House and Senate that will, among other things, provide additional resources for State and local law enforcement officials to combat environmental crime. Finally, CEQ worked to implement and craft significant reforms in the wetlands programs and now, with OMB, are working to ensure that flood victims are offered a series of alternatives in responding to the floods, including nonstructural options, for preparing themselves and hopefully avoiding flood damage in the future. nepa implementation and improvement Mr. Chairman, CEQ has worked hard to use NEPA to ensure coordination, coherence and efficiency in environmental policy matters. To turn now to what really is our top priority for this year, we hope to build on the kind of progress we've been able to make in these individual instances over the last year. We want to build on the insights we also gained as a result of the comprehensive review we undertook of NEPA, our NEPA effectiveness study, which we shared with the committee at the end of last year. We are already underway. I have launched a series of three working groups, frankly trying to address what has seemed to be the most troubling aspects of NEPA implementation, and that is in the grazing area, oil and gas area, and timber area. We are working very closely with the Western Governors Association on this. Governor Knowles, Governor Geringer, Governor Kitzhaber and many others are involved. We hope to reach out to the academic institutions. The University of Wyoming and the University of Montana in particular have resources that we think could veryeffectively help us to use NEPA again as it was intended, as a tool to improve and enhance agency decision making. That, Mr. Chairman, is our top priority. We have those three working groups launched. But as you know, NEPA reaches every Federal agency and every major Federal action and decision. So I would like to be able, with the additional resources we are requesting, to step back from the firefights, take a comprehensive look at how NEPA has been implemented, and work towards its improvement. Thank you very much. Mr. Lewis. Thank you very much, Ms. McGinty. I appreciate your testimony, and I certainly have always appreciated both the confidence and style with which you present your testimony. utah's desert wilderness I must confess that if we were conducting this hearing like last fall, as I indicated in our personal conversation in my office, it would have been very difficult to control no small amount of emotion or anger that I felt with regard to the President's actions that involved Utah's desert wilderness. As a legislator representing a large portion of the desert, who has also experienced the pain of having my desert carved up by environmental extremists, with almost no communication to the people who either represent the people in the area or the people themselves, watching what took place just last fall for me was kind of like Yogi Berra's old line, ``deja vu all over again.'' Although my anger is not, and probably will not, totally evade, I nevertheless understand how pointless it is probably to revisit the past, and especially that specific decision. Instead, I want to take a moment, if you will, to visit the future. On page 1 of your justification you comment--and I quote-- ``CEQ is mandated to develop policies which bring into productive harmony social, economic, and environmental priorities, with the goal of improving the quality of Federal decision making.'' If I'm not mistaken, that statement is taken directly from the language set forth in the National Environmental Policy Act, and you alluded to that very language. In a similar vein, you comment on page 9 of the executive summary of your recently published report, titled ``The National Environmental Policy Act, a Study of its Effectiveness after 25 Years'', that the study participants felt that NEPA's most enduring legacy is a framework for collaboration between Federal agencies and those who will bear the environmental, social and economic impacts of agency decisions. It seems to me that if statements like these are truly what your organization is all about, then the Utah decision sets NEPA directly on its ear, to do what was done in Utah, let alone the way it was done. By that I refer to the reality that the U.S. Senators, the Representative from Utah, were not consulted regarding this. To say the citizens of Utah were consulted and/or even began to approve of this suggestion, if it didn't hurt so much we would laugh about it. Indeed, it just flies in the face of what I sense really is your style of doing business. Now, I wouldn't suggest that CEQ, having the responsibility, although you review these things, had nothing to do with it, but in my heart of hearts, I find it impossible to imagine that you would be--that it really does seem to me that that takes us to the heart of our relationship. You know of my past interest in environmental questions. Early in my own governmental career I received lots and lots of heat because of ``extremism'' relative to air quality matters that led to the development of the air quality management district, that nonetheless, all of our efforts to strengthen those who would change the environment are threatened, I believe, are undermined if we allow extreme voices to dominate, and especially extreme styles. So how can I help but ask, ``who's next?'' Ms. McGinty. Mr. Chairman, if the point of that part of your question is whether or not there are other national monuments that are currently under consideration, the answer to that is no. To step back to the larger point that you made in the question, yes, additional consultation would have been very much welcomed and recommended and would have improved the process that was undertaken in establishing the national monument in Utah. I do think, however, it's important to keep in mind what the national monument designation does do and what it doesn't do, and where NEPA certainly will have a role in this whole process. The monument designation itself is a recognition that there are artifacts of historical archeological or scientific import, so the President, in designating the national monument, has recognized that, in fact, those things exist in this geographical area. nepa and public participation The question is, what then are the management formulas and prescriptions that follow from such a designation. None of that has been decided. When it comes to deciding how this land should be managed, we will, in fact, use NEPA to its fullest extent. We envision a three-year, intensive process through which the public will participate and have a very strong role in deciding exactly how those lands will be managed. So there is much room, and we will use NEPA to that effect. Mr. Lewis. Well, Miss McGinty, I can't help but say I am reminded of another discussion that's going on. I happened to get home early enough last night to where I actually watched C- Span. One of my colleagues was holding a hearing that had to do with the Immigration Service, with questions about what may or may not have happened across the country, encouraging people who are here, who are not citizens, to be naturalized in order to vote, et cetera. You know, I considered the franchise to be more important than the questions that we're involved in here. But a fundamental point was being made. It was that you're asking us to change the law to facilitate thisprocess, and underlying that, the very administration that's asking for it, at least if we can interpret what the Vice President said, may very well have violated the law that exists presently as it relates to the administration, in terms of CEQ, in which you presented your highest priority to change. I must say that I am reminded of that discussion last night, for at least in terms of the spirit of your testimony, the statements in the existing Act, et cetera, we fundamentally violated one of the basic foundation stones; that is, bringing people together. In my own territory in the desert, we had two monuments-- Joshua Tree National Monument and the Desert Valley National Monument. That territory operated pretty well for many, many a decade. Indeed, I don't see any change at all in terms of the quality of preservation or otherwise of the territory by park designation. But at least, if you're going to have one or the other, the people involved before the fact, before designation, ought to be consulted, participate and et cetera. You're suggesting they will have a chance to participate, but after the designation is made. Indeed, if there is a basic job for CEQ, it ought to be to advise the administration that that's a pretty dumb way of dealing with people. If you would like to respond further, go ahead. nepa: integration of environmental, economic and social objectives Ms. McGinty. I just want to underscore and reiterate our commitment to the principles outlined in NEPA. The various examples of the work that CEQ has undertaken in the past year that I shared with you earlier I think demonstrates very clearly that we have taken very seriously the notion that NEPA is not a statute that is solely about protecting the environment, really. It is a statute that much more comprehensively talks about that integration of environmental, economic and social objectives. When we talk about things like, for example, this dredging issue that CEQ has taken on in the New York and New Jersey Harbor, there was a clash of wills that persisted over the last decade that very much threatened both the economic viability of the port and the environmental integrity of the bay and the ocean. We worked very hard to craft an agreement that I feel strongly will both ensure the economic viability of that harbor but will do no harm to the water quality in those waters off of New York and New Jersey. Everything that we delve into is an effort to live up to what I think is exactly the right mission, and that's the mission that is outlined in the National Environmental Policy Act. So I guess I do want to underscore that the initiatives we have taken on have been very faithful to that spirit and our desire now to reinvent NEPA is really a desire to capture what I think Congress had written 26 years ago and make sure that it is, in fact, implemented. Mr. Lewis. I believe you when you say you really do want to implement that spirit. I am very concerned about the implementation of that other spirit, which is to bring people together and consult them, not presume that just because we happen to be on this side of the Potomac that we can walk across it without getting wet. I must say that it does raise fundamental questions about the way the administration is dealing in environmental areas. Environmental programs are fundamental people programs. Way beyond the endangered species are people problems and challenges, and to not include them in the process is very, very disconcerting. Maybe it's just convenient to take a place like a little rural state in the West and roll right over them, and we can consult people in a larger state where there happens to be water problems. The politics of that are interesting in and of themselves. But it really is perhaps the best illustration of the extremes of Uncle Sam having all the answers and being willing to exercise it at will in almost whatever fashion those people who are not elected would choose. Ms. McGinty. Mr. Chairman, I certainly understand and hear and respect your concern with regard to the Utah decision. But I really did want to underscore that in everything else we have done--indeed, now in the implementation of the Utah decision-- but in everything else we have done, to go back to this dredging example, that was not just a prescription that came out of Washington. The labor unions were engaged in that decision, industry was engaged in that decision, and many Members of Congress, the New York and New Jersey delegations, were involved in that. We worked very closely with Governor Whitman and Governor Pataki in reaching that decision. Environmental groups were involved in it. The habitat conservation plans that I mentioned, that was not prescribed from Washington. That involved local environmental groups, the State of Washington, the timber industry in Washington State. I often think that the meetings that I chair in the White House are often the hottest ticket in town, because no matter what the subject, there are at least 30 people in the room. It is because I really do insist that all the voices are heard from. It means that we have laborious processes to reach conclusions. That means that I chair long meetings, and it's not just because of the gift of the Irish. It is because we really do take seriously that notion that all the voices need to be heard from. I appreciate your indulgence to underscore that point, that I do believe strongly in that and work hard to make sure that that's involved in all the decisions we come to and thepolicies that CEQ promulgates and puts together. Mr. Lewis. May I remind you that my mother's name was O'Farrell. [Laughter.] This discussion does bring up a point. Senator Bennett last week introduced a bill to codify in law what the President promised management in the area would look like. Currently, many of those people who I would suggest may be on the fringes of the environmental community are strongly opposing the Senator's suggestion. Is this an item that CEQ could endorse as a reflection of our good faith in this effort? Ms. McGinty. We are aware of the legislation that has been introduced. We certainly will be looking closely and carefully at it. It absolutely is the President's intention, as he articulated in declaring the national monument, that valid existing property rights in the monument area would be respected, that current grazing activities, hunting and fishing, the multiple uses that were existing in the monument area, would continue, that he did not want to see those things change. So, with that in mind, we certainly will look at the legislation and see if there isn't some agreement we could reach. Mr. Lewis. Might we look forward to next year's session in examining that discussion, and maybe I will have one question to bring to light what CEQ actually advised and what the process was like? Ms. McGinty. Certainly. Mr. Lewis. I will have further questions about your thoughts as it relates to rethinking CEQ. budgetary increase request But moving along in terms of the pattern I have here regarding your budget request, as indicated, CEQ's budget request for $3,020,000 for fiscal year 1998 represents an increase of some $584,000, or about 20 percent over the 1997 level of $2,436,000. Similarly, the 1997 funding level represented an increase of nearly $300,000 over the 1996 level. While the dollar level we're talking about is certainly low compared to most other agencies we deal with, we are nevertheless faced with the perception that while other agencies are asked to cut back on funding, you desire to go the other way. Rather than shifting priorities, backing away from items like the Utah wilderness and working on reform, you prefer to expand budgets, it would appear. Again, even though the amounts are small, you have asked for an increase in every object class category, personnel levels, salaries and benefits, travel, rent, supplies, equipment. Every one would get an increase. On a percentage basis, your request increase is second only to the Corporation for National and Community Service, which I am told is among the President's favorite programs, and is on par with the Department of Housing and Urban Development, which has asked for a $5.6 billion increase just to renew existing, not new, Section 8 assisted housing contracts. That increase, which is pretty sizeable, is a required increase because of past mistakes over the years of Congress as well as administrations as it relates to housing policy. There's no choice there but to put people out in the street. So you are out there among the leaders, without any question, percentage-wise and dollar-wise. Of course, while I will give you the opportunity to defend and make the best case possible for your 1998 request, you must agree that it's difficult to take seriously the administration's statements desiring a balanced budget, when a part of the President's own office asks for such an increase. Would you like to comment? Ms. McGinty. Certainly, Mr. Chairman. First, the requested increase for CEQ, as you know, on a percentage basis is significant, but to underscore again, in terms of the staffing levels over the history of CEQ, we still are significantly below where the institution has been throughout most of its history. Again---- Mr. Lewis. You made that point earlier, and I would like to interject that the thought occurred to me that you're absolutely correct, that during the Bush administration and previous administrations there were more personnel. They were personnel given by the Congress which increased every budget, every year, with almost no review. You know what Washington is like. You give somebody something for nothing, even if they didn't ask for it, and they're going to take it and they're going to spend it. So I'm not sure that that argument really helps us a lot. Ms. McGinty. Well, the President's request is in the context of his balanced budget. In addition to being part of a balanced budget plan, it also is part of his commitment which he has undertaken and fulfilled, to reduce the White House staff by 25 percent. So any increase that CEQ has been able to realize in the President's request has been offset in other parts of the Executive Office of the President. So overall, the President's request for the Executive Office of the President will still reflect and maintain his commitment to a 25 percent staff cut. In referring to the Department of Housing and Urban Development, you noted that mistakes--dare I say that mistakes have been made in the past with regard to some of HUD's programs. To lay it right out there, mistakes were made with regard to CEQ in the beginning of the President's first term. We are still climbing back up from what we realized had been an incorrect decision to so dramaticallyreduce CEQ's resources in the beginning of the administration. So as may have been the case with regard to HUD, where cuts were made too severely, we certainly made that mistake in the beginning of the administration. Now, as part of the President's balanced budget and 25 percent staff cut in the White House, he has realized that this should be more of a priority in the overall scheme of the Executive Office of the President. Mr. Lewis. I must say that I hope I didn't mislead you. It wasn't my point that HUD's programs have been cut too severely in the past but, rather, they grew like Topsy without any thought of the way the formula actually operated. In this case we created circumstances in housing programs with 40-year mortgages and 20-year contracts, and suddenly in shrinking budget times contracts were being renewed and poor people could be put out on the street because Congress just plain doesn't choose to look very far down the line. I would suggest that's a problem of Washington in general. It is honestly one of the few arguments I would make that suggests maybe, from time to time, shifts in the majority is good around here. Forty years may be too long. As indicated in the budget justification and your statements, $482,000 of the proposed increase would be used to hire four new professionals. Ms. McGinty. Yes. Mr. Lewis. Simple division tells me that each of the four would receive an average of just over $120,000 in salary and benefits--and I will give you a chance to respond. These are people who obviously would have significant experience, doing whatever it is you have in mind for them. staffing increase Can you explain in some detail what your plans are for these additional people and indicate the type of experience you're looking for to fill these positions? Ms. McGinty. Yes, sir. Again, the activity toward which these staff would be applied would be this effort comprehensively to improve the implementation of the National Environmental Policy Act. In terms of the kind of staff and the qualifications that I would be looking for, I will look for these staff where I have looked for the staff I currently have. Most, if not all, of my staff come from Capitol Hill. Many have had experience---- Mr. Lewis. None from Utah, right? Ms. McGinty. No, not from Utah, I don't believe, no. [Laughter.] Mr. Lewis. Idaho maybe? Ms. McGinty. Not Idaho, either. Many also come from the agencies where they've had years of experience in the agency. Some of CEQ's current staff have been part of CEQ since the Reagan administration, and I have kept them as part of the team, with all of their years of experience. So I will be looking in those same directions as we build this new part of the team if, indeed, we have the opportunity to do that. In terms of the figures that you have just mentioned, I will need to respond on the record in more detail. But the numbers would reflect--First of all, I guess I should say that, in terms of CEQ's overall budget request, $2.3 million of the $3 million request represents simply salary and attendant expenses. With regard to these new staff, the increase would reflect both salary and the need for additional space and the rent we would need to pay there, equipment, and the money that would be needed to buy that equipment and to support it. I would not envision that any single member of that group of four additional staff would earn $120,000 a year. In fact, I wouldn't envision that they would earn $100,000. My senior policy staff, with the exception of two people in the office-- we do not have support staff at all. So all of my staff are senior policy staff. But the highest salary is on the order of $98,000, I believe, in terms of my policy staff. Mr. Lewis. Do you expect to advertise the four jobs through the Office of Personnel Management or elsewhere, or have you, in fact, determined in advance who you think you probably want to hire? Ms. McGinty. I have not determined in advance who we would hire. We will follow the normal set of procedures, I assume, through the Office of Personnel Management. Mr. Lewis. Is CEQ subject to the Executive Order of last fall requiring that employees who have been RIF-ed be given priority for hiring? Ms. McGinty. I need to determine that. Ms. Fidler. No, we're not required to do that. Mr. Lewis. Okay. So it is within the purview of the administration and separate from those limitations on the tapping of the RIF pools. I must say that, in connection with a relatively small staff and high policy level people, I understand your response and would appreciate a response for the record. The point we're attempting to make here is that I am of the view that it may be that CEQ is coming from a frame of reference that is so slanted in one direction. Any environmental effort is a good effort. The tradition that almost assumes that economic considerations, in spite of what the language in the charge might suggest, is let's go forward with regulation, period. A little mix of flavor in a new staff that maybe isn't of traditional form might be helpful. I think any agency benefits from a different kindof blood, not just new blood. Ms. McGinty. Mr. Chairman, I would certainly be open to any suggestions you might have, in terms of places we might look for additional staff or, indeed, individuals we might talk to. Without taking too much of the committee's time now, I would appreciate the opportunity to expand on some of the examples I have cited today, because CEQ really has undertaken many initiatives. I would say everything that we do is in the spirit of not just looking at environmental protection but achieving that integration that we have spoken about, these RCRA ``rifleshots'' that we call them that are now signed into law. It was CEQ's leadership that put that bill together, with tens of millions of dollars saved to the business community. CEQ also led the effort that again was signed into law to establish clarification on lender liability under the Superfund program. There again, a very significant savings to the business sector. These habitat conservation plans, when we're stepping up to the plate and giving private sector timber companies or, in the last case, the State of Washington, a 100- year guarantee that they have met all their Endangered Species Act obligations, this is not something that the environmentalists, in particular, take too kindly to. But I think it's the right thing to do, economically, socially, and environmentally. But it is the next generation of what we need to think about on the environment. Mr. Lewis. I will be looking forward to your revising the record. nepa as a policy tool Your stated reason for specifically needing more personnel is, of course, related to your launching of a major effort to reinvent the way in which NEPA is being used currently as a policy tool. Your goals for this effort are to improve decision making by the Federal Government and promote greater efficiency in the performance of NEPA reviews. I suppose many people, especially some living today in Utah, suspect that NEPA has been broken since the day it was enacted. They tell me that, anyway. They have that concern or thought. I can certainly attest that many times NEPA has been abused when we've tried to make sensible land use decisions in my own district. Nevertheless, for better or for worse, NEPA has become what many consider to be the very foundation of a myriad of environmental statutes. To change it, or even reinvent it, whatever that means, will at least certainly raise eyebrows, if not ire. Even for a few westerners, I suspect that they would say ``the devil you know is better than the devil you don't know.'' Can you tell us in some specific ways how you believe NEPA is broken? shortcomings in nepa implementation Ms. McGinty. Well, I think there are instances in which NEPA works better than in other instances. Some of the shortcomings in NEPA implementation currently involve too much of an emphasis on document production. Documents are generated for the sake, as far as I can tell, in many instances, for the sake of generating documents. They are also generated at the end of a process, so they don't even effectively inform the decision making itself. Tied to that, constituencies, citizens, state and local governments, are brought in far too late in the process, many times, frankly, after a decision for all practical purposes has been made. The agency is simply going about the job of checking the boxes of what it thinks it needs to do. What we need to do is make sure that process gets inverted---- reinventing nepa Mr. Lewis. That's a very interesting point. Ms. McGinty [continuing]. So that the studies, the analysis that is done, is done in a way that genuinely informs the decision making process, so that citizens are genuinely given a chance to influence the final decisions that are made. Mr. Lewis. Maybe you could elaborate a little bit more on the points you have made, but giving us some better idea of how you plan to go about reinventing NEPA. Tell us what are some of the specific things you believe will be accomplished by doing that. Ms. McGinty. I would be happy to, Mr. Chairman. Mr. Lewis. Do you want to do it now? Ms. McGinty. Oh, I would be happy to. We envision a three-step process. We are currently engaged in the first step, which is to look at a sector-specific basis, starting with the oil and gas sector, grazing, and the timber industry, timber production. In these areas, the agencies are already at work and coming forward with specific recommendations as to how the process can be improved. To take one example, in the grazing area right now, often you have contiguous pieces of Federal property. One piece is owned and operated by the Forest Service; the other piece is owned and operated by the Bureau of Land Management. The Forest Service may have categorical exclusions from NEPA for certain low-impact or no-impact activities. The Bureau of Land Management, on exactly the same piece of land continuous with the Forest Service's piece of land, will have contradictory categorical exclusions. So one of the recommendations that has come from the group already is to look at those exclusions and see if we can't find more, but at the very minimum to harmonize them, so that individuals who are operating both on the Forest Service land and the contiguous BLM land have one consistent message from the Federal agencies. That's the first part of this effort. I think it will be ongoing for the next several months, until we can put together a draft set of recommendations. That draft we want to then share very broadly. In fact, right now we're talking to the University of Wyoming, who may host for us a session in May, where we will just put the document out there, having the varied interest groups at the table, including the Governor's offices, and have at it in terms of seeing whether those recommendations we come up with can be elaborated upon or improved. The second phase will be to reach out from the learning we've had in those three sectors and look at additional sectors across the government. One that has been suggested to us is the mining sector, where improvements could be made in the NEPA process. Then, finally, after we have done our sectoral approaches, the third phase would involve going back out of specific sectors and just looking comprehensively across the board at some general governing principles that we could put in place to better effectuate NEPA's purposes. So it's a three-stage process that we envision. Mr. Lewis. As I understand it, much of the reinvention of NEPA will take place by way of administrative rather than legislative reforms, and you have mentioned in several ways, your focus upon oil and gas, timber and grazing. At least for the West and the Southwest, I can't imagine three hotter buttons. I'm just wondering, how do you really anticipate developing a meaningful dialogue, let alone hopefully increasing trusting relationships, when you start the process with the hottest of issues. Ms. McGinty. Well, we wanted to be responsive to those things that seemed to be most troubling and concerning to people. We did talk about this internally, whether we would start with the general principles and then in an extended period of time get to some of the specifics and try to solve some problems as applied, or if we would do the process inductively--start with the specifics and then build the general principles from what we know works on the ground. Mr. Lewis. Congressman Hansen and Senator Bennett would be concerned about which people you're talking about. Ms. McGinty. Well, this process has been informed most by the Western Governors Association and the Western States Foundation, which as you might know is a coalition of extractive industries for the most part. We just wanted to roll up our sleeves and work with those groups, because I do believe that, while there certainly will be issues on which we differ with some of those parties, there is more than a kernel of truth to their complaint that the process is unwieldy, that they do not get effective or crisp or clear decision making. I know there are improvements that can be made. I am very encouraged by the willingness of the governors to help on this project. They are genuinely interested in participating and seeing if we can't figure some things out here. We also have the very good fortune again of universities pitching in. The University of Montana has something called the Center for the Rocky Mountain West, which is dedicated to trying to find these more collaborative approaches to decision making. And the University of Wyoming has a special board that it has created, with people from all around the country, to focus on natural resource issues. Both of them have made themselves available to help us in this project. Mr. Lewis. In your discussions as you went forward with this and examining these areas of possible use in the process of reinvention, did you consider maybe taking just one of the areas, maybe one of the lesser controversial ones? It's hard to see which one it might be. But while working on lesser controversial ones, experimenting to see how you really build this positive relationship and the level of credibility, I think is necessary, at the same time using the rest of your troops for things like the reinvention, internally doing the nuts and bolts as a part of all that? For example, the grazing item, while very important to the grazers, doesn't involve quite as many people. Did you think about that? Ms. McGinty. Well, we have built up to the specific focus we have in these sectors now. For example, in the timber sector, we are trying to build on the rapport we have already built over the last four years with specific members of the timber industry, through things like our ecosystem approaches and our habitat conservation plans which we do through NEPA. So there is a base of support that has been built and an honest dialogue that has been built in that sector. Similarly, in grazing, as I believe I shared with the committee last year, we undertook 18 months ago or so a pilot project to improve grazing practices and the NEPA implementation there. We are now at the stage where we have some learning from the pilot project that I think has helped to build the bridges for us to take this on as a whole sector. Mr. Lewis. It still boggles my mind that we're going to take up all three of these items at once. No matter what constituencies one has built, there still is a pretty significant level of people who are wondering if we can trust each other. For example, all is not sweetness and light in timber country. It might be helpful if one used--let's say you usedgrazing to demonstrate to somebody that we actually can bring interests together, and maybe make some question marks that are now exclamation points after them. I would like to welcome Mrs. Meek. We appreciate your being with us. I understand your schedule---- Mrs. Meek. I would like to protest because this Committee meets at the same time as the other subcommittee on Treasury and Postal. Mr. Lewis. Mr. Stokes has the same problem this morning, and my National Security meeting is around the corner. Mrs. Meek. I just want you to know I am committed, but I have to shuttle to get back and forth. Mr. Lewis. I'm not sure if you've worked with Kathleen McGinty before, but she is a very delightful person and she can sell an Eskimo an icebox, so be careful. [Laughter.] Mrs. Meek. Her reputation precedes her, Mr. Chairman. mining law proposal Mr. Lewis. While we are on the subject of reinventing oil, gas, timber and grazing, what role have you specifically and your office generally played in the Secretary of Interior's recently announced policy to change mining law administratively because of the failure to do so legislatively? Ms. McGinty. I haven't been involved, Mr. Chairman, in the details of the approaches that the Secretary has put forward. I was aware that he was going to work on administrative reforms. I was involved, however, in the proposal on mining that is incorporated in the President's budget. That proposal would establish a five percent net smelter return royalty on hard rock mining, as well as set up a specially dedicated reclamation fund into which those monies would be put. Those monies would then be used in the communities that have had acid mine drainage damages and things like that, so the money would be used to clean up those sites. There we have had positive response from the National Mining Association, as well as an environmental group or two. I was involved in that part of the proposal. Mr. Lewis. Could you give me a feel for what Secretary Babbitt wants to do with mining law as it fits into your short- term or long-term reinvention goals? It's pretty clear from what you just said that there would appear to be some differences between your direction and what Babbitt may be suggesting. Ms. McGinty. To be clear, Mr. Chairman, I don't know that there are differences. I'm just not versed right now in terms of the details, administratively, of what he will put forward. Indeed, I think he is in some respects in the early stages of putting those proposals forward. But the way that NEPA will work with whatever changes he puts in place is to bring about the integration of what the mining law under the Secretary's regulations may require, with things like what are the Clean Water Act requirements, what are the Clean Air Act requirements, what about RCRA. All of these laws impact the mining industry. The only place that we have to go to make sure those varied requirements are integrated in one coherent whole is NEPA. NEPA is the structure that tells agencies that they need to use a scoping process. They need to look at all the requirements that are out there, and they are supposed to present them to the public as one coherent whole as to what the requirements will be. Mr. Lewis. I think you have heard that line, Ms. McGinty, that is usually used somewhere around the beltway, that ``legislators come and go, and we'll be here forever.'' That is, the bureaucracy suggests that. I know that such a statement wouldn't bother Mrs. Meek, but it bothers the devil out of me. [Laughter.] I guess my point is that, in a fundamental way, we have the Judiciary that has a very specific role; an administration, at least as the Founding Fathers looked at it, was supposed to be in the business of administering laws, going forward with programs that are put together and sent to them by way of elected policymakers. The legislature is in the policy business. And yet, it seems to me there has been an excessive pattern of administrations, particularly at the second and third level of permanency, that uses that statement that I introduced this commentary with, that ``legislators come and go and we'll be here forever.'' With that backdrop, do you think it's the proper role for the Executive branch to make such extensive regulatory administrative changes as we're talking about here when it wasn't able to accomplish many of those same changes in a legislative context? Ms. McGinty. I think it is my responsibility certainly to execute the National Environmental Policy Act as it was written by the Congress---- Mr. Lewis. As those third levels interpreted it being written by the Congress? Ms. McGinty. Well, I feel an obligation myself to read and interpret the obligations there. Most compellingly, I believe there are two obligations. One, again, is to achieve this integration of the various economic, social and environmental objectives, and two is to do that in a way that the public has a chance to participate in agency decision making. I believe that we've made progress in moving towards that very clearly stated directive in the National EnvironmentalPolicy Act, in the kinds of programs that I've discussed earlier today. But I do believe that we are still far away from actually implementing Congress' intent, in that we've been very good at document production, we've been very good at making sure we're not going to get sued, or if we do get sued, we've checked all of the boxes and so we're safe. But we have not been very good at living up to what is a very simple but I think a very important directive that is the heart of the National Environmental Policy Act itself. Mr. Lewis. A final question regarding the Secretary, and then I will be pleased to recognize my colleague, Mrs. Meek. What is the time frame that you believe is necessary to accomplish a reinvention of NEPA and how much would you expect this reinvention to cost? nepa reinvention time frame Ms. McGinty. I believe, sir, in terms of the overall reinvention of NEPA that I outlined, which would involve at least these three phases, I think that would take on the order of several years to finish that entire job. But in terms of these individual pieces of this that we can put together, I would hope, again in May, to be able to take advantage of the opportunity that the University of Wyoming has presented, to present the initial recommendations on the oil and gas and timber and mining sectors, just to open those up to public comment. I think there is real progress and benchmarks we can make along the way. Mr. Lewis. Thank you. Welcome, Mr. Hobson, and my colleague, Mr. Stokes. Mr. Stokes, I was just about ready to call on Mrs. Meek, and I wondered maybe I shouldn't do that because my ranking member came in. I'm going to give you the option. Mrs. Meek. I will yield to the ranking member. [Laughter.] Mr. Stokes. Let me say this, Mr. Chairman. I would prefer that you recognize Mrs. Meek at this time. I have three subcommittees working today. I will yield to her and then you can come back to me. Mrs. Meek. Thank you so much. homestead air force base Ms. McGinty, I understand that at the beginning of your testimony you mentioned Homestead Air Force Base, which as you know is sort of attached by my left arm. I get teased a lot about it here in the Congress. My question to you is, you are going to see that that situation is worked out? Ms. McGinty. Yes. Mrs. Meek. According to the rules and regulations and all of that? Ms. McGinty. Yes. Mrs. Meek. I need to know whether or not, being that that's a very important facility for south Florida, if there are any immediate plans to do so. Ms. McGinty. Yes. Thank you. As you may well be aware, there has been some controversy with regard to Homestead Air Force Base. There were some especially from the environmental community who were very much opposed to the transfer to Dade County of the Air Force Base on the premise that that would be incompatible with restoration of the Everglades. CEQ got involved I think in the fall of last year to see if we couldn't say there is a way for both of these objectives to be met; namely, the economic development opportunity for Dade County, as well as preservation and rehabilitation of the Everglades. The agreement that we have reached among the Federal agencies and also with the mayor there, and the county officials, is a process that would involve two stages. One, which is currently underway, and we anticipate will take roughly four months--potentially four months to a year--which will enable actually the transfer of the base to be effectuated. The analysis that is underway right now will simply look to whether there is additional environmental concerns that should be reviewed. But we are confident in this first process in four months to a year that the base will be transferred. The second part of the agreement depends on the county's plans for the Air Force base, which then will become a commercial air strip. If the county wishes to expand the current footprint of the air strip and potentially put a second or third runway in, at that point we would reengage the environmental analysis process and look at the issues then. But we didn't want that larger picture, which is quite speculative right now, to impede the economic opportunity for Dade County. So that's the agreement we put in place. It will allow for the transfer of that Air Force base, and we think it will allow for that to happen without any genuine concern with regards to Everglades restoration. Mrs. Meek. I'm glad to hear that, in that the community college in the air base conversion, they were awarded a part of that space that you've talked about. But they're being held up by all of these--I don't call them peripheral, but the political impasses that have been reached because of the air strip and all of that. That is holding up the college's project. The money that the Congress awarded them is in jeopardy as well. So do you have any idea as to when---- Ms. McGinty. I could look into that specific issue, but overall, I think we now have the blueprint for having this move forward. We have figured out a way that this does not need to be an impasse we can't surmount. We will be able to transfer the Air Force base. As I said, it may take on the order of four months or more to do that, but we are on the way towards that objective. Mrs. Meek. Thank you, Mr. Chairman. Mr. Lewis. Thank you very much. Now, if you would yield the balance of your time to my ranking member, Mr. Stokes. Mr. Stokes. Thank you, Mrs. Meek, and thank you, Mr. Chairman. Ms. McGinty, it's nice to see you again. I understand that you've had an extensive discussion this morning regarding your efforts relative to undertaking this major effort to reinvent the way Federal agencies implement the National Environmental Policy Act. epa's rule on ozone and particulate matter Let me ask you this. One proposed set of environmental regulations now generating a great deal of comment and activity this year is the Environmental Protection Agency's rules on ozone and particulate matter. Can you comment on CEQ's involvement to date in these regulations? Ms. McGinty. Yes, sir. This is a pending rulemaking, so in terms of the details of the substance of the proposals, there is still comment coming in that will be reviewed on those proposals. But CEQ's role has been and will continue to be, as this rule moves towards its final versions--which I believe is in June or July of this year--we will work with the Office of Management and Budget to make sure that there is a comprehensive review of the proposed standards. That will involve making sure that the comments that come in from the public on the record to the Environmental Protection Agency are made available to the other agencies that have an interest in this issue. Second of all, in the next two weeks, we will engage a series of meetings where we will invite in state and local governments, the environmental community, and representatives of industry, to hear directly from them what their perspective is on that. So the short answer to your question is that CEQ will be very much involved in terms of the White House review of these rules, and in undertaking that, we will make sure especially that we have a public outreach process to hear comments on the rules. Mr. Stokes. In this regard, there appears to be a great deal of discussion and difference of opinion within the scientific community itself as to whether the data support the proposed rules. Of course, Congress is now getting in the picture and having some congressional hearings on the matter to add more confusion to the picture. Do you have any comments in that regard? Ms. McGinty. Well, sir, again, the rules are pending, so we will see the comments that come in. I guess I would also note that my colleague, Dr. Gibbons, will be here soon and certainly can speak to the science. I would just say that it's my understanding that some of the confusion pertains I think more to the ozone standards than the particulate matter. There the confusion so to speak is, I think, relevant not to whether or not there is a health problem and whether or not a change in the current standards is necessary. The EPA's advisory group I think has spoken to that. But because ozone is an area where there is not a clear bright line, where we know that on this side of the line it's unhealthy and on that side of the line you've achieved perfect health protection, it's more of a sliding scale. Therefore, in the end, science won't be able to tell us exactly, directly, definitively, where the right point is. There will need to be a policy judgment as to what that right point might be. proposed asset exchanges Mr. Stokes. If Mrs. Meek still has some time, let me try to get in another question or two. One of the administration's methods of dealing with certain difficult environmental issues in an era of extremely tight budgets has been to propose asset exchanges. Probably the two more noteworthy examples of this approach are the proposed land and asset swaps for the New World Mine near Yellowstone National Park and for the headwaters old growth timber in Northern California. Concerns for this approach prompted the Chairman of the House Appropriations Committee to write to the President expressing his reservations. What has CEQ's role been in these proposed asset exchanges? Ms. McGinty. We have been very much involved in these asset exchanges because they involve a plethora of agencies. Each one of them involves a broad array of agencies who have a piece of those issues. To put these initiatives in context, pursuant to the Federal Land Management Policy Act and several other statutes, the agencies do engage on the order of 200 land exchanges every year. The purpose of them is to protect and preserve particularly valuable resources or to achieve better coherence and coordination in management responsibilities. So it is pursuant to those laws that these exchanges have been undertaken. Now, the magnitude of these two exchanges is larger than most of the exchanges that have happened in the past. So what we are undertaking to do is to find the assets that could be offered in exchange. We have visited with Mr. Livingston, as well as Mr. Regula, who had signed and sent the letter to the President that you referred to. We have briefed their staffs and certainly we will stay in very close coordination and contactwith the Congress as these things move forward. Mr. Stokes. Is it your opinion that the administration has the legal authority to engage in these swaps? Ms. McGinty. Yes, sir. Again, this is pursuant to the Federal Land Management Policy Act, I think called the Weeks Act. There are a series of land management statutes that proscribe and authorize the exchange of assets. Again, on the order of 200 of these exchanges are done every year by the various land management agencies. Mr. Stokes. Thank you, Mr. Chairman. You have been very generous with Mrs. Meek's time and I thank you. Mr. Lewis. Thank you, Mr. Stokes. I appreciate both of you participating. Mr. Hobson, the same with you. Mr. Hobson. Thank you. I had another hearing, too, and I'm supposed to be over there. I'm going to ask a series of questions, and you can answer whichever ones you want. Ms. McGinty. OK. [Laughter.] Mr. Hobson. I'm sure she'll get to all of them. On air quality, I want to make a statement on EPA's proposed air quality standards for ozone and particulate matter. This is very important to Ohio. We had a delegation meeting and we had more Members attend that delegation meeting than we've ever had since the six years I have been here. We had more state legislators in on that issue than I have ever seen before. I might tell you that Senator Glenn actually took the lead on that issue for our state. So this is a bipartisan problem as our state looks at it. I don't think anybody is locked into anything. We're told the cost is two billion dollars a year on our state, on something that the science is not really there. So we're searching for an answer. I will tell you that it's an issue of concern. I'm also really concerned about the Everglades. I think anybody who has ever been to Florida is really interested in the preservation of the Everglades. I'm concerned about the proposal that was defeated in Florida that would have helped in the Everglades, and I don't know what you're going to do about that. The third issue is on this new generation of vehicles. I'm going to be a little parochial for just a moment. Wright- Patterson Air Force Base is working with the private sector in the transfer of technology for new types of materials, and I would hope you would look at that technology. I would also tell you that I know we're only doing this with Ford, Chrysler and GM, but I heard last night from a company in my district that is going to produce a natural gas vehicle that will be the most efficient natural gas vehicle on the market in California. It will be produced in Ohio and shipped to California. I might tell you that it's not a company on that list. I think we're missing an opportunity if we limit our technology to not include some of these companies. They're going to have a natural gas vehicle on the market that's going to have a 200 mile range and I think it's going to sell like hot cakes in that area. So somebody ought to look at that. The last issue is something I ask everybody when they come before us, so people need to get prepared if they're not. It's about your rent. I notice a jump in your GSA rent. You say it's nonnegotiable. That troubles me. GSA should not dictate to you and you should have the ability to negotiate. If they don't, you need to come and see me. GSA met with me last year when I started asking about rents. The Consumer Product Safety Commission took on this issue with GSA and the Commission was able to move their labs and make some changes. I think you need to look at your rent. I want you to take on GSA, and if they're not being responsive, then you need to come to our committee and we need to follow up. agency rent cost If you look at these agencies across the board, the percentage of money they're spending on rent is not right. It's an arcane system and we need to take a look at that, Mr. Chairman. If you want to respond to the rent question, the rest of it you can answer later if you wish. Ms. McGinty. I'll start with that one and say that we accept and we'll call to follow up and have an appointment with you. Mr. Lewis. You can reduce that rent across the street from the White House, right? Ms. McGinty. Right. Mr. Lewis. That would be interesting. Ms. McGinty. It would be wonderful. We would love to have a reduced rent, so we would love to follow up with you on that. air quality standards On the other matters that you raised, on the airstandards, one of the roles that again CEQ will play is to provide a forum for various stakeholders, including especially state and local governments, to come in and make presentations to us on the specific concerns they have with regard to the rules. As you might know, the rules are still pending. The comment period is still open. The final rules have not been promulgated. Starting, I believe, on March 10th, we will begin to hold that series of meetings, together with OMB and the White House, and we look forward to hearing from the state governments on those specific issues. Mr. Hobson. Have they been notified yet to get ready? Ms. McGinty. They may well have yesterday. The requests for folks to come in may have gone out yesterday. But, in any event, they will be issued very soon. florida everglades On your second point with regard to the Everglades, I am very optimistic in terms of the progress we have made with the bipartisan support of the Congress in beginning to turn the tides on Everglades restoration, and I think in a way that achieves the environmental objective but underscores the economic importance of the Everglades in terms of water quality and drinking water supplies in south Florida. In terms of the specific issue of the funds that are needed to continue the restoration job, the President has again built on what the Congress did last year in providing $200 million for some of the restoration work, to increase the budgets of the agencies that are involved here so that we can get the job done. We do need to work in a bipartisan way, I think, to try to secure the resources that really are necessary. While we have made a lot of progress, the overall tab for Everglades restoration is on the order of $3-4 billion. So the $200 million down payment that the Congress provided last year is very much a help but only a beginning. Mr. Hobson. If I may, Mr. Chairman, one of the real problems is there are two or three companies down there that are getting off, in my opinion, scot free that have been major polluters in that situation. They went out and spent a lot of money on a campaign to tell people that it was all wrong. I watched that campaign and it was very troublesome. I know we have problems everywhere, but that is a natural resource in this country that should be protected and people shouldn't get away with what happened there. I'm going to leave it to Congresswoman Meek. But there is bipartisan support I think for the Everglades. Ms. McGinty. I would just note on that particular point that the President has reproposed in his budget that the sugar industry be asked to contribute a penny per pound of sugar produced towards the restoration of the Everglades. So we are hoping we can secure that piece of the budget as well. Mr. Lewis. Can you do that by regulatory adjustment or do you have to have legislation? Ms. McGinty. We need legislation, yes. Mr. Lewis. I just thought I would ask the question. [Laughter.] As you can kind of sense from this committee, at least from the questions here on both sides of the aisle, we really do-- especially on environmental considerations--do hope to have as nonpartisan an environment as possible, for the environment is for all of us to be concerned about. The credibility question very much applies and underlines all the thrust of our direction today. You know, whether Secretary Babbitt likes it or not, the mining law of 1872 is pretty clear on what it means and what it does. I mean, even a nonlawyer like me can read it and kind of make a reasonable, narrow adjustment. To change the administration of the law through executive action, using conflicting statutes as cover, is a clear violation of congressional and statutory intent. That comment takes us right to kind of the heart of there really needs to be a partnership here rather than presumption. I make that point even though I intended to be through with CEQ. Ms. McGinty. I would be happy to follow up on that point. I do know that the basis for the Secretary's action was a report developed by the Bush administration, in terms of regulations that had not been promulgated or had not been updated that are called for in the statute. They have to do, I guess, with the environmental management provisions envisioned in the statute. Mr. Lewis. I note with interest that you often refer to a former administration that happens to be Republican. I understand that. But the reality is that that goes back to the point: ``Legislators come and go and we'll be here forever.'' I hope to end on a positive note. You mentioned Northern California and some of the problems that were up there. Frankly, it's a long ways from my district, but it's where the flooding was horrendous. My friend, John Garamendi, wants FEMA to give the USGS some $2 million for levee mapping. The problem is there are 4-6,000 miles of levees and we don't know how high they are, what their condition is, a lot of things. People at the California conservation agencies suggest that FEMA mapping might well be a waste of money and that there are technologies that perhaps can better do the job. Because these problems were not so long ago in the black,and I've been familiar with them for a while, I might bring to the attention of your people programs like GEOSAR and I-Star, which is a mapping process using airplanes like 737's with technology that can do it very rapidly and very effectively. I would suggest maybe, if two million is the right amount, that we go in another direction and get the job done quickly, especially as the weather ahead of us gets to be better. That's something I would urge you to look at. Ms. McGinty. Thank you very much. We are very closely in contact with Doug Wheeler, the secretary of the resource agency in California, to undertake this effort. Mr. Lewis. I'm not sure that Doug of GEOSAR, for example, as a potential. It is an item that--through another venue I have been in contact with it. That stuff is now no longer in the black and portends really some fabulous things for environmental and agricultural considerations and so on. As you know, the Corps of Engineers can issue Section 404 permits. If it's all right with the Members, it's approaching the time when we move to our next series, but I want to go through just this item and maybe ask you to respond for the record, except for those questions that Members have pressing on their current agenda. The Corps of Engineers can issue Section 404 permits based on wetland objectives identified in a special management plan, called SMP. Local governments and land owners in many parts of southern California and other states are interested in conducting such comprehensive plans similar to the habitat conservation plans that have been approved and are currently being developed. Upon completion of the SMP, a comprehensive, long-term permit could be issued for the area, replacing the needs for applicants to seek a permit for each individual proposed action. This concept has the dual benefit of protecting wetlands and allowing for development under a thorough yet economical and streamlined permitting process. Does CEQ support this concept, and if so, what and can will you do to help facilitate its implementation? Ms. McGinty. I am not aware of that particular program, but certainly the concept of it is very consonant with what we've done with the habitat conservation plans and some other areas. So I would be very happy to look into it and see if we have a program there or if we could build one. Mr. Lewis. I'm constrained, because my colleagues are so kind to be with me, to ask you to look at the balance of my questions for the record and see if either of my colleagues have questions they want to pursue here. Mrs. Meek. Mrs. Meek. I don't know, Mr. Chairman, whether my question is relevant, but allow me to ask it and perhaps I can get the proper reference. brown fields sites What is the situation regarding the brown fields situation? Does that come within your purview? Ms. McGinty. I do work on that very closely. I believe it's a perfect example of where we have an environmental, economic, and social objective brought together in a very good program, yes. The situation is that there are several proposals that are pending. First of all, administratively, we have established a hundred brown field sites around the country where we have been able to provide seed money to local communities to restore blighted urban areas and bring them back into productive use. The President's budget calls for, I believe, a doubling of that number, so that we could get on the order of 200 sites, and I think moving towards a goal of 300 sites eventually. Bills have also been introduced in the Congress that would go a step further and specify technical assistance that could be provided in developing brownfields proposals. And finally, the President's budget also includes a new tax incentive that is a $2 billion tax incentive that encourages private industry to invest in brownfields areas. And the Council on Economic Advisors estimates that that $2 billion if we can get the Congress' support for it, will leverage on the order of $10 billion of private sector investment in these abandoned areas. And I would be happy to get you additional information on the program itself. Mrs. Meek. It will certainly help us in the welfare or the work programs that we are all trying to do. Ms. McGinty. Exactly. Mrs. Meek. And I would like to talk with you about it further. Ms. McGinty. Exactly. It is a very good source of job opportunities and it is where the environment can help create jobs. Mrs. Meek. That is right. Thank you. Ms. McGinty. Thank you. Mr. Lewis. Thank you, Mrs. Meek. Following up just a little bit on the flooding question I was talking about earlier. As you know, normally we think about floods in a State like California or elsewhere in the country and now all over the country. We think of FEMA in terms of the immediate response. Ms. McGinty. Right. Mr. Lewis. But many of the problems relative to those kinds of challenges are not FEMA responsibilities. In fact, a number or a key problem with government response has to do with environmental organizations using NEPA and other statutes and/ or regulations that seem to slow down or hold up river channel restoration, and dike repair replacement. flood plains Southern California is the country's largest area flood plain unprotected with maybe a billion and a half dollar project altogether because of a past history of dumb policy making. Again, there are tens of thousands of homes in the flood plain in Orange County south of an area way up north. There are billions of dollars of property involved and yet, much of the work moving forward is, in many ways, being hindered by almost excessive use of NEPA and other laws by environmental groups who want to see no channeling whatsoever. Are you familiar with what is going on, especially in the west in that regard? Ms. McGinty. This issue was raised to me as a concern by Congressman Fazio and also Senator Feinstein. And I visited with both of them and immediately within 24 hours, we issued a statement that made it very clear that none of these laws would impede operation and maintenance repair of these levies and flood, the various hardware that is in place to prevent flooding. The concern I think was as much one of confusion about what are we or are we not allowed to do and, so, we tried to put out a statement that would clarify that as much as possible. What we are hoping to do in the flood work that we have undertaken is to provide communities and some of the individuals you have talked about with options. Previously folks were not offered any options in terms of how they could respond to a flood. The only option was to rebuild the levy and be in jeopardy of being flooded again the next year or the next several years. The options that we will provide will enable people to move levy structures back to increase the flood plain and the absorptive capacity of the river, to relocate if they would like to get out of the flood plain. These are options that previously were not available but the Congress passed new authorizing legislation last year that gives us the ability to do that and we are trying to make sure that, in fact, those things are executed. Mr. Lewis. I appreciate that response and as I indicated, all the members have questions they would ask for the record. We very much appreciate your being with us today and for now, we will thank you and this part of our session is adjourned. Ms. McGinty. Thank you, Mr. Chairman, I appreciate it. [Questions for the record follow; see budget justification at end of volume.] [Pages 231 - 390--The official Committee record contains additional material here.] Wednesday, April 9, 1997 AMERICAN BATTLE MONUMENTS COMMISSION WITNESSES GEN. FRED. F. WOERNER, USA [RETIRED], CHAIRMAN, AMERICAN BATTLE MONUMENTS COMMISSION MAJ. GEN. JOHN P. HERRLING, USA [RETIRED] SECRETARY KENNETH S. POND, EXECUTIVE DIRECTOR COL. ANTHONY N. COREA, USAF, DIRECTOR OF OPERATIONS AND FINANCE COL. DALE F. MEANS, USA, DIRECTOR OF ENGINEERING AND MAINTENANCE COL. KEVIN C. KELLY, USA, WW II MEMORIAL PROJECT OFFICER Introductory Remarks Mr. Lewis. The meeting will come to order. Our hearing this morning relates to the budget for the American Battle Monuments Commission, and it is my pleasure to welcome General Fred Woerner. I don't have any formal comments, per se, but I would call upon Mrs. Meek, who was kind enough to be here with us this morning, if she has any comments she would like to make. Mrs. Meek. No, Mr. Chairman. Mr. Lewis. Presuming that our schedule is to move forward today and to try to get our work done in a reasonable time, we have three groups before us. I would appreciate it very much, General Woerner, if you would introduce your guests and present your testimony, and then we'll have questions. General Woerner. Thank you very much, Mr. Chairman. To my right is the Secretary, Major General John Herrling, USA-retired, and to my left is Mr. Ken Pond, Executive Director. I will be very brief. I have submitted a full statement for the record. Mr. Lewis. And it will be included in the record. Thank you very much, General. General Woerner. Thank you, sir. On behalf of the American Battle Monuments Commission, I am pleased to appear before you today. I do thank you, Mr. Chairman, and members of this committee, for the fine support that you have provided us in years past. The very special nature of the American Battle Monuments Commission places it in a unique an dhighly responsible position with the American people. The manner in which we care for our Honored War Dead is, and should remain, a reflection of the high regard in which we, as a Nation, memorialize their service and their sacrifices. As you are well aware, the American Battle Monuments Commission was established by Congress in 1923. It is a small, one-of-a-kind organization, responsible for commemorating the services of the Armed Forces where they have served since 1917. We do this through the construction of memorials and memorial burial grounds on foreign soil. The American Battle Monuments Commission administers, operates and maintains 24 permanent memorial cemeteries and 28 monuments, memorials and markers in 15 countries around the world. We have eight World War I and 14 World War II cemeteries located in Europe, the Mediterranean, North Africa, and the Philippines. In addition, we are responsible for cemeteries in Mexico City and Panama. Interred in these cemeteries are a total of 125,000 War Dead. We also care for 5,000 more Americans buried in Panama, and we honor, in addition, 94,000 of those who are missing in action or were lost or buried at sea. The care of these cemeteries and memorials requires a significant annual program of maintenance and repair of facilities, equipment and grounds. It is important to note that this maintenance requirement is extraordinarily labor- intensive. Therefore, in our budget, 72 percent is committed to salaries, leaving us only the 28 percent balance to provide for our operations, including engineering maintenance, our utilities, our horticultural supplies, equipment, and administrative costs. Furthermore, in our uniqueness, we do not have the option of closing or consolidating cemeteries or memorials. We must achieve any improvements through greater efficiency, and we are attempting to do that precisely through automation in both the operational and financial management areas. Complementing these missions, we have been mandated by Congress to construct two new memorials in Washington, D.C. In 1995, President Clinton and President Kim Young Sam of the Republic of Korea dedicated the Korean War Veterans Memorial, and in February of this year, we opened the Korean War Veterans Memorial's information kiosk. This kiosk houses an automated honor roll, which allows friends and relatives to query a data base containing the names and information about those who died during the Korean War. With the opening of the kiosk, that memorial is now complete. In May of 1993, Congress authorized the American Battle Monuments Commission to build a national World War II Memorial. The Rainbow Pool site on the mall was dedicated on November 11 of 1995 by President Clinton. Since that time, a national design competition for the memorial was held, with over 400 preliminary designs submitted. Six finalists were selected for the final stage of competition, and this past January, the President announced the winner of the design competition. As directed by Congress, the project will be funded through private donations. Our greatest challenge, Mr. Chairman, for fiscal year 1998, will be dealing with aging facilities and equipment. Our cemeteries and memorials range in age from approximately 50 to 80 years, and our Mexico City cemetery is over 140 years of age. The permanent structures and plantings, which make our facilities clearly among the most beautiful memorials in the world, are aging and require prioritized funding to maintain them at current standards. fy 1998 budgetary requests Therefore, we are requesting $242,000 more in fiscal year 1998 for maintenance and minor construction. In addition, much of our equipment is old and rapidly reaching the end of its useful life. In order to resolve this problem, we are requesting an additional $201,000 to fund our equipment repair and replacement program. We also have small increases of $207,000 for supplies, $300,000 to integrate our financial system in compliance with OMB, GAO, and the recent congressional directions. And finally, $214,000 for the rental of office space that, up until this year, was provided at no cost. In summary, since 1923, the American Battle Monuments Commission's cemeteries and memorials have been held to the highest standard in order to reflect America's continuing commitment to its Honored War Dead, their families, and the U.S. national image. The Commission intends to continue to fulfill this noble trust. Our appropriation request for fiscal year 1998 is $23,897,000. Mr. Chairman, this concludes my remarks. I am at your pleasure, sir. [The statement of General Woerner follows:] [Pages 394 - 397--The official Committee record contains additional material here.] Mr. Lewis. Thank you very much, General Woerner. foreign currency fluctuation As you know, last year the committee expressed its concern about the Nation's cemeteries and war memorials relative to their general condition, and wanting to make sure we were attempting to at least be responsive to some of the problems there, we added $2 million above and beyond the President's request, that funding essentially going to that account dealing with foreign currency fluctuations. The budget justifications indicate that the entire $2 million will be utilized. I had some questions in connection with that, and those questions obviously apply to similar considerations in the 1998 proposal. What is the currency fluctuation loss, for example, for the most recent month? General Woerner. Yes, sir. Tony, you have the specific numbers. Colonel Corea. The most recent month, March 1997, the loss was $113,000. Mr. Lewis. I understand the monthly estimates in the justifications for January through September averages in the $170,000 range. Colonel Corea. Yes, sir. Mr. Lewis. Is it your estimate now that the entire $2 million will actually be used? Colonel Corea. Our original estimate, was that the $2 million would be used. That was based on where we were last year. As you know, the dollar has been exceptionally strong this year in the overseas foreign currency markets. For instance, today the French franc is at 5.77 francs to the dollar, which is higher than what we had estimated. Our guesstimate--and I just say it's a guesstimate because we don't know what will happen with the foreign currency markets--is that we will use about $1.4 million this year, as opposed to the $2 million that we estimated last year. But that's strictly, as I said, a guesstimate, based on where we're sitting today. Mr. Lewis. The problem with our budgetary process is that we don't have to guesstimate about the reality that we've got a huge deficit out there and there is not much fluctuation, except it seems to keep going up. There was some adjustment downward in the annual amount recently, but the 1998 request does include projections that assume fluctuation problems, and it is a guesstimate as well, I assume. Colonel Corea. Yes, sir. 1998 is our best estimate. However, 1998 does include a repricing of the foreign currency budget rate, which we have not done since the account was established in 1988-- Mr. Lewis. Repricing of the budget rate, what is that? Colonel Corea. Repricing is to bring the budget rate closer to the actual market rate. For instance, the rate that we've been using since 1988 has been six francs, actually 6.01 francs, to the dollar. However the actual rate hasn't been there in years. OMB has come back to us and we've looked at the rates, and we're repricing using the DOD rates because they have the experience and the staff to be able to estimate the rates more precisely than we could. So we're going to be using a 5.28 rate for francs in the future. And this will be closer to where the actual dollar is versus the foreign currency budget rate. General Woerner. Of course, it is well known that we should neither lose nor profit from the currency exchange. Certainly we have never profited. However, we have lost, and in fiscal year 1996 we had to take $.7 million out of our operating funds--actually take it right back from the field--thus increasing our backlog of maintenance. So at the end of this year, if the foreign currency market stays exactly the same, we might have $.6 million left in the account, that will remain purely for future currency exchange issues. We would add an additional $2.1 and hopefully start to re-establish a balance in the account, rather than be in the negative and have to take foreign currency costs out of our operating funds, as we have done. Mr. Lewis. I'm interested in that, and I hear what you're saying. But essentially what you're saying is we're going to build that reserve account because of the impact of fluctuations, that it may very well cause us to delay upkeep and repairs that are really the reason for our existence in the first place. Those kinds of decisions are delicate decisions. Indeed, if the Congress gets the view that maybe you're more concerned about fluctuation than you are taking care of memorials, we could have a problem. General Woerner. Yes, which we are clearly not. Nevertheless, having been through the experience of taking $.7 million out of very limited operating accounts, which are only 28 percent of our budget. We would like to have at least a point or two margin in there, rather than gamble on the zero, given the capriciousness of the currency exchange market. Mr. Lewis. Well, we handled similar problems with other much larger accounts by way of supplementals, but some supplementals are relatively easy in debate and others are more difficult. pay raises The budget requests $12,250,000 for salaries in 1998, a 2.9 percent increase above 1997. Given that the majority of ABMC's employees are foreign nationals, where cost-of-living increases are determined by their foreign country and, thus, not subject to your control, is that 2.9 percent realistic? Mr. Lewis. Tony? Colonel Corea. Well, we expect that it's not. We were limited to the 2.8 percent because it was the standard rate.\1\ We expect that we could have pay raises higher than 2.8---- --------------------------------------------------------------------------- \1\ Permitted for personnel cost increases. --------------------------------------------------------------------------- Mr. Lewis. The standard rate? Colonel Corea. It is the rate that OMB allowed us to apply in this year's budget request. Mr. Lewis. I understand. Okay. Colonel Corea. So it should be adequate for U.S. employees, GS employees and U.S. miliary, but it may very well not be adequate for our foreign national employees, who may receive pay raises higher than the 2.9 or 2.8 percent. So we could have to take funding from other accounts in order to pay our foreign nationals' pay raises. Mr. Lewis. Okay. Any further comment? General Herrling. No, I don't think so, Mr. Chairman. fte Mr. Lewis. The justifications indicate that the 1998 request will support 363 FTEs, a decrease of one FTE below the 1997 level. Last year, you estimated 367 FTE in 1997. What causes the number of FTEs in 1997 to decrease by three? You estimated it was 367, so it was a reduction of three, with the current estimate of 364. The Congress provided your full 1997 budget request--in fact, we added that $2 million that I mentioned. What FTE level does ABMC need to maintain its cemeteries and memorials at the current high standard? I presume you're going to tell me it's the amount you're requesting. General Herrling. Mr. Chairman, the 363 is about the right level to maintain the cemeteries at the current standard. As I go around and talk to superintendents, there is concern that their workforce is being cut back to a point where they can no longer maintain these cemeteries at the standard that we expect. They are very concerned about future cuts in the workforce. I have gone into headquarters and taken as much out of the headquarters and the European region as I can. But I think we have reached a point now where it would be very detrimental to take further cuts below 363. foreign currencies Mr. Lewis. I'm assuming that you're using the French franc as the measuring tool compared to the dollar, because so much of the work is in France? Colonel Corea. Yes, we actually use each of the currencies. We used the French franc here strictly as an example. General Herrling. We use seven different currencies in Europe: French francs, Belgium francs, Netherland gilders, British pounds, Luxemborg francs, Italian lira and Tunisian dinar. maintenance backlog Mr. Lewis. Let's talk about that backlog in maintenance and repair projects. The justification indicates that the backlog will total $8.4 million at the end of 1998. Last year, you estimated a backlog of $5,844,000 at the beginning of 1997, and that same level at the beginning of 1998. What happened? General Woerner. Well, sir, the American Battle Monuments Commission, both at the Commissioner level and at the secretariat level, is under new management, and we threw out the old list. We lost confidence in it. We also got aboard a new engineer, replacing an individual who had been with the Commission for 22 years. So, with a clean sheet of paper, we went out and did a thorough scrub of our entire holdings and came up with a new prioritized list in which we now have total confidence. We feel that the approximate $10 million engineering project list is an accurate statement of all the projects we need to complete. After completing the fiscal years 1997 and 1998 projects, those remaining on the list constitute our backlog. Mr. Lewis. I would say at the very least that's a significant adjustment, percentage-wise and, indeed, in your budget, dollar-wise. General Woerner. Yes, it is. Very significant. Mr. Lewis. You have replaced somebody who had been there 22 years, so suddenly the scrub shows that the condition is considerably less than you might wish it to be and thereby we have a backlog that's considerably higher than we originally estimated, just by replacing a person who had been there 22 years, if that's the case. General Woerner. Also, this scrub was made and--this new list was built on clearly articulated and established standards, against which we can measure the condition of our buildings and grounds. Mr. Lewis. Is that a new thing? You didn't have clear standards before? General Woerner. Certainly not to the degree that we have now. We were not satisfied that the list had been built against hard criteria. management headquarters Mr. Lewis. General, this line of questioning has taken me right to the heart of some of our fundamental budget concerns. You said that a very high percentage of your budget involves personnel who are required to actually do the maintenance. What percentage of your personnel base is in management here in Washington? Colonel Corea. I think it's three percent. General Herrling. Three percent of our total personnel, of those 363. Mr. Lewis. Which means about 90 or 100 people, right? General Herrling. No, sir. Mr. Lewis. Oh, that's a third. General Herrling. We have 14 people. Mr. Lewis. You have 14. Has the total volume of 364, 367, been reasonably close to the number of employees you've had for an extended period of time? General Woerner. Reasonably close, and coming down. We have drawn down, and with this one coming out in fiscal year 1998, we will have drawn down the directed eight spaces. So it's been in the---- maintenance backlog analysis Mr. Lewis. What I want to push for, for the record here at least, I would like to get an idea of the process you went through in terms of this scrubbing, establishing new standards and maintenance, et cetera, and then looking again, why that led to a sizeable readjustment, when was the last time we did a scrub like that and set standards, et cetera. General Herrling. Let me try that, Mr. Chairman. When I came in a little over a year ago--I've been on the job 18 months--and in preparation for this hearing a year ago, I sat down with my then engineer and went over the list of priorities and what the backlog of maintenance was in dollar figures. I wasn't happy with the answers. The detail wasn't there and the justification wasn't there. So when he retired, after spending 22 years in this organization, and with a total of 50 years of military service, I brought in a new engineer. He's sitting behind me, Colonel Dale Means. The charter I gave Dale was, go out and visit every cemetery we own, and as many monuments as you can, and make an assessment on what our real hard projects are, as far as construction and repair. I also hired a new engineer in the Paris office. The fellow who we had over there was not an American. The superintendents complained that he wasn't responsive to their needs in the cemeteries, so I hired an American engineer and put him in the Paris office. Between these two engineers, they visited our cemeteries, they have consolidated the master engineering projects last, and I am confident that we now have a list that I can bring to anybody and justify. In fact, I think---- Mr. Lewis. Let me tread on dangerous ground by making a comment for the record. I hope it's not a reflection of what you just described as the process you went through. There is a major project in my district of no significance to the entire county. It happens to relate to a military circumstance. But that project is going forward with some policy discussions by elected officials who don't necessarily know a lot about long-range planning or how you create jobs, et cetera, et cetera. But the project is being run by a retired person from the military. Every time we have a problem in my region, we seem to hire a former military person, and the project seems to not work very well. You suggest we've got a guy here who--I don't want to be overly critical, but 50 years with the military and, after 22 years in this operation, we have some concerns about maybe the standards. That would suggest to me serious questions about a process whereby we review not only what our responsibility is but how it's getting done. I would really like to have some more elaboration and discussion, at least with my staff, as we develop this record. General Herrling. I think I have tried to do exactly that since I came on board as Secretary; to really take a new look at how we're doing business, the personnel situation, our project listing and how we finance projects to see if we can't apply some real hard management principles to the processes. I am looking to the future. We're trying to come up with a long-range plan, a plan for the next five or ten years for those cemeteries, and a lot of this has just been started in the last year, Mr. Chairman. abmc management and leadershipI21General Woerner. May I add to that, Mr. Chairman? Mr. Lewis. Sure. General Woerner. The organization has always been very committed, but some of the people had an unusually long tenure and hadn't grown with new managerial techniques and skills. So while the heart was there, some of the talent was in short measure. There have been significant changes in the managerial side of the organization, not only with the Secretary but also with the Paris office, a new region director there, a new deputy region director, new engineer, and in our Washington office, a new executive director as well as a complete change over in our directors for finance, engineering and personnel/ administration. In addition we changed the director in our Mediterranean office and the superintendent at our Manila cemetery. So what I'm saying, sir, we now have the leadership aboard that are products of modern management techniques, rather than the dedicated men who learned their skills 30 or 40 years ago. Mr. Lewis. I must say, General Woerner, and General Herrling as well, I appreciate your candor in connection with this discussion. But I have been on this committee for a number of years and this is the first time I have heard a discussion like this. It would appear to me that maybe there has been a need for this discussion some time ago. Even though your budget is a small budget, $20 million is a lot of money, and it is designed for a very important purpose. But if, one way or another, because of a lack of oversight on our part, there has been a lack of management skill to deliver the product at the other end, it deserves some questioning. Mrs. Meek. Mrs. Meek. Mr. Chairman, I have here questions that were submitted to me by your ranking member, and I would like to ask maybe two of them and comment on one. Mr. Lewis. You go right ahead and take all the time you want. world war ii memorial Mrs. Meek. I will submit the rest for the record. First of all, I want to commend the staff of the Commission for being here. This being my first time, I didn't even know you existed until I became a member of this Committee. I am happy to know you and know that you're doing good work. I have been reading some of the material regarding the battle, regarding the World War II monument, and it has stirred a lot of controversy in terms of not so much the structure of it, the way it looks, and the rationale of it--it obviously has been very well received. But, on the other hand, the location of it has caused a big public outcry. I have been reading where even a member of the Senate has commented on it. I'm a community-based person and I would like to know what kind of process did you use to come about doing this. Was the public really involved in your decision making? Just what happened? Tell me a little bit about what happened in this process. General Woerner. I'll lead off, Mrs. Meek, and then turn it over to John. First, the short answer is it was a very public process, that we believe addressed it within the context of the best interest of the American people. Specifically, the procedure requires that we come up with a recommendation and process it through three Washington commissions: the Commission on Fine Arts, the Washington Planning Commission, and, in effect, the National Park Service. All of those three commissions, speaking for the American people, concurred that the selected site that has been dedicated by the President, is the most appropriate site in Washington, D.C. for this memorial. Furthermore, the opposition, in our analysis of the opposition, suggests that it is not widespread. Quite to the contrary, it is focused, specifically in Senator Kerrey's office, and in one particular editor of an architectural magazine. So it's from those two primary sources--and there's been others picking it up. But our sense is that we have an approved site, having worked it through the three wickets in Washington, that the American people say they want for this seminal monument in American history. John. General Herrling. It goes back to the Commemorative Works Act, Mrs. Meek, of 1986, which the Congress passed. It gave three bodies the responsibility to take a look at Washington and what was built here, particularly on the Mall. General Woerner just mentioned those three bodies. But they are entrusted to act in the public interest for anything that's built here in the City of Washington or on the Mall. So we had to seek their approval for the site that was finally selected. They gave us nine sites to look at. We looked at all nine and they were all evaluated based on their location, their prominence, their historical significance of World War II and other things. Those three commissions all agreed and approved the Rainbow Pool site as the right site. Now, we have received some controversy in the paper, but I would say we have also received considerable favorable reviews through personal correspondence to our office and through other means. I think what is printed in the Washington Post and other media tends to get the headlines, but it may not reflect the common view. Mrs. Meek. I asked that question, not so much as to how negative or positive your response has been, but in terms of the process, to be sure you did get public involvement. I've been in government a long time, so I know what ``public involvement'' means. So I just wanted to ask you that question to be sure you're also looking at reviewing that process whenever you do this, so that the process will sort of be ironclad. Because the American public probably goes much broader than those three commissions you spoke about. I mean, that Mall belongs to the people of this country. I don't have that strong a feeling about where it's located. It looks all right to me. But the General spoke about the American public, and that's a very vague term. I wish it was so that we meant the real public that enjoys that Mall and could have some involvement. Of course, the people---- Mr. Lewis. Would you yield, Mrs. Meek? Mrs. Meek. Yes. Mr. Lewis. I think the point you're making is an important one. You and I both probably don't remember the controversy that swirled around--this was long before I had this kind of responsibility--swirled around the Vietnam Memorial, which was very, very controversial. Now it is the memorial that everybody, everybody wants to visit. Indeed, I hope we learned from that process, and I'm sure that we did. General Herrling. I think we did. General Woerner. Very definitely. Mrs. Meek. Because, man to man veterans were concerned at the time about that. So that's what I'm talking about, General, the process. rental funding The second question I have is a budget question. It's something that the ranking member, Mr. Stokes, wanted asked. It has to do with budget decisions--I'm looking on page 13 of your Monument Commission. It's line item 23, rent, communications and utilities. First of all, you need $214,000 to pay for office space more than you had for last year, and you mention that it was free. His question is, what is this based on? Why did you get it at no cost at the beginning and why is it no longer available to you at no cost? He's looking for ``freebies'', General. General Herrling. We were, too. We were living on ``freebies'' for many, many years. But we were under the wing of the U.S. Army Corps of Engineers. We are a tenant in the Corps of Engineers building at 20 Massachusetts Avenue. For years we were allowed to maintain our offices there at no cost. Then a review by the DOD and the Department of the Army lease noted this and they said no. It's time that you anted up and paid your fair share of the lease for that building. So that's why we are asking for the money this year for the first time. Mrs. Meek. So you're sort of looking at some other spaces? General Herrling. Yes, we are. Mrs. Meek. And that's why you're estimating $214,000? General Herrling. It is. individual cemetery funding Mrs. Meek. The second question. You have a comparison of individual budgets for cemeteries on page 16. You have quite a few increases and decreases throughout this entire thing. The question is, can you tell us why the budget for Cambridge, which is the fifth item down, increases by 22 percent, and the budget for Epinal--and I may be mispronouncing that--increased by 28 percent, and why the budget for Argonne increased by 45 percent? Can you sort of elaborate on those? Colonel Corea. I can say something on that. The reasons for the basic increases by cemetery are based on the projects that we're planning for 1998 in those particular cemeteries. The standard costs for a cemetery, from the labor to utilities and supplies and equipment, are fairly flat on a year-to-year basis. What you're seeing there shows the funding for projects, which end up being a part of the cost of a cemetery for that year. So that's why the numbers jump, and you'll see other numbers that go down proportionately because they don't have the same level of projects next year. Mrs. Meek. Explain to me what you mean by ``projects''? Colonel Corea. Engineering maintenance projects and construction projects---- General Woerner. That's this new list, the revised list, which gives us the priority in which we want to address our backlog of maintenance and repairs. We can't do it all at once, so certain cemeteries, those most in critical need, are reflective in the pluses, and those that can be delayed further are reflected in the minuses. Mrs. Meek. Mr. Chairman, do I have time for one more? Mr. Lewis. Go right ahead. world war ii memorial fund raising and cost Mrs. Meek. You mentioned that all this will be private monies which you will have to raise. Is it going to be raised before site preparation and construction can begin? If it is, is there some kind of schedule that you're relying upon, and have you allowed for cost overruns which inevitably happen? If so, will you come back to this committee and ask for more money? I'm not the Chairman, so I can ask all these questions [Laughter.] Will you come back and ask for some more money if things don't work out the way you planned? General Woerner. Our best estimate is the $100 million mark that we now have. Congress told us that this is to be done by private contributions. So the Congress has not addressed cost overruns that we could come back on. We have to manage this memorial construction within the funds that we are able to raise. Mr. Lewis. Mrs. Meek, one more time, if you would yield on that, I understand that Senator Dole has agreed to take on this project, leading the effort. We know he will give his best effort. But it still is a lot of money. General Woerner. Yes, it is. world war ii memorial--dedication date Mr. Lewis. Presuming they're successful, how long will it take you to build this memorial? General Woerner. Our mark on the wall, sir--and it's an ambitious one--is to dedicate the memorial in the year 2000. Very ambitious. Mr. Lewis. Thank you, Mrs. Meek. Mrs. Meek. Thank you. May I say something? Mr. Lewis. Sure. world war ii memorial funding Mrs. Meek. Having been around in World War II, I would be very happy if the Chairman were benevolent enough to say today that he would see to it, if there's a cost overrun--and I'm saying this without tongue in cheek--that we would be willing in our minds to commit something to this. Mr. Lewis. I certainly hope that we wouldn't discuss that for the record at this point in time. [Laughter.] I would be happy to chat with you about it at some other time. Mrs. Meek. I had to do something to shake the Chairman up. [Laughter.] General Woerner. Mrs. Meek, thank you very, very much. [Laughter.] We have just made you an honorary member of the Commission. Mr. Lewis. Mr. Wicker. world war ii memorial Mr. Wicker. Thank you, Mr. Chairman. Let me just say that Mr. Lewis and Mrs. Meek have been very thorough in the questions that they have asked, and I don't have many more. But let me comment about the World War II Memorial. I'm looking at the proposed design, and it really looks wonderful. General Woerner. Thank you, sir. Mr. Wicker. I notice in your testimony that you're actually hoping to have a dedication by Veterans' Day in the year 2000. My father is a World War II veteran. He just turned 73 on Monday, and he will be 76 on the proposed date of this dedication. I sure hope to have him there. Also, I appreciate the fact that Senator Dole has taken on this fundraising responsibility. You know, these men and women that fought for us in World War II are among a group of people who we owe a great debt to. By the same token, this country has been very, very good to them, including my father. I just don't think you're going to have too much trouble raising this $100 million from private sources. I think, once the word gets out, that generation of Americans will respond as they always have to a challenge. I think it will be a wonderful thing. world war ii memorial--design approval process Let me just ask a question about whether this design is a done deal. We've got the design jury that passed on this, and Miss Meek talked about the process. It has gone before the Commission, and the World War II Advisory Board made suggestions. But I note in an article from the Los Angeles Times that there are still a couple of hurdles. Am I correct there-- General Herrling. Correct. Mr. Wicker. It's the Commission on Fine Arts and the National Capital Planning Commission. Where are we on that, General? General Woerner. In terms of the approval process, this design was recommended to the American Battle Monuments Commission by an evaluation board and a separate design jury, each operating in the blind of the other, unanimously. Their recommendation was unanimously recommended to us by the World War II Memorial Advisory Board, a presidential advisory board, and my Commission approved it unanimously. We now must run the wickets just as we did on the site; through the Commission of Fine Arts, the National Capital Planning Commission, the National Park Service--acting on behalf of the Secretary of the Itnerior. Each of those must---- Mr. Wicker. Three wickets? General Woerner. Three wickets. Mr. Wicker. So where are we on that, General? General Woerner. Just about to start. Have the formal hearings been scheduled yet? General Herrling. They have. Our first hearing before the Commission of Fine Arts, Mr. Wicker, is on 19 June, and then the National Capital Planning Commission meeting is the 26th of June. Now, to go back to the question--is this design a ``done deal''. What we have now is a design concept. The design will change somewhat. But the basic design will stay the same. Already there's been some minor modifications to the design. But all these designs have to go before the three commissions, who will look at them in great detail, and then will probably tell us to go back and change this aspect of it or that aspect of it. This approval process by those commissions will take probably another 10 to 12 months, because it's an iterative process. You go in with the preliminary design and they say it looks fine. You're going to have to change this and that. Then you go back with a more advanced design and they'll review that and comment on it. AT some point, you'll go back in for a final design review, when you've got it all put together, and then they'll make a final judgment on the design. So the entire process takes nine, ten, sometimes twelve months. General Woerner. But each time one of those review commissions makes changes, you have to get their recommendations through the other two. General Herrling. There's an interesting aspect to the process. You mentioned your father, who is 73. We received a letter from a World War II veteran and he said, ``General, it only took us three-and-a-half years to win this war. Why is it going to take you seven-and-a-half years to build a memorial?'' Mr. Wicker. How long did it take to build the Pentagon? General Herrling. Eighteen months. General Woerner. Eighteen months. world war ii memorial--site Mr. Wicker. The location, in your view, has been finally decided? General Woerner. Yes. Mr. Wicker. That issue is past. General Woerner. The President has dedicated the site and there's a marker on it, yes, sir. world war ii memorial--design approvals Mr. Wicker. What are the preliminary reactions you're getting from the Commission of Fine Arts, the Park Service, and the National Capital Planning Commission about the design? General Herrling. Very positive. We gave all three a preliminary look at the design before we had the official unveiling in the White House. We wanted to do that to preclude embarrassment later on, if one of those commissions did not agree with it. But the National Park Service said it's a very good design. The Commission of Fine Arts and J. Carter Brown thought it was a design with great promise, as did the National Capital Planning Commission. Harvey Gantt also felt that it was a very good design. Now, that doesn't mean it's going to be smooth sailing. There will be a lot of comments from the members of those commissions, and a lot of modifications, as we go through this process. Mr. Wicker. It would seem to me that, once it all gets finally set, then the money will start pouring in more quickly. I would imagine it's hard to raise money for something that you're not quite sure what it's going to look like. world war ii memorial--fund raising sources Mr. Lewis. If the gentleman would yield, in connection with that, how long one can really wait to have precise detail before you begin selling the design is problematical. Before we can break ground and meet that target date that we want your father at, we have to raise the money. That gives us a little over a year, is that right? General Woerner. Yes, sir. We are raising the money right now. We have initiated that and the first direct mail requests are in the mail. Senator Dole is aboard. We hope to fill out the volunteer organization and to pair up Senator Dole with a co-chairman from corporate America. In fact, John is meeting with the Senator this afternoon. Mr. Lewis. Let me suggest, if you would continue to yield-- Mr. Wicker. I yield back. Mr. Lewis. I would suggest to you that it's very important that the veterans' service organizations be plugged into this. General Woerner. Sure. Mr. Lewis. I'm sure they're beginning to. But there are ways that this committee can help with that sale, if you will, or the Veterans Committee--I'm sure that Bob Stump and the ranking member would be willing to participate. General Woerner. Wonderful. Mr. Lewis. Maybe starting right here in D.C. But clearly in places like Texas and California and otherwise, and in Florida-- Mrs. Meek. Yes. General Woerner. We consider all the veterans' organizations absolutely crucial to the efforts. I appreciate the offer. Mr. Lewis. The sooner they're motivated to be out there, the better. I presume they may be doing that. General Woerner. Yes, sir. They are. Mr. Lewis. It's possible that members of both bodies might be willing to participate in helping promote their interests. General Woerner. Thank you, sir. Colonel Kelley. Let me mention, sir, that tomorrow I'm going to meet with the American Legion leadership-- Mr. Lewis. You have to identify yourself. Colonel Kelley. I am Colonel Kelley. I'm the project officer for the World War II Memorial. We have a meeting tomorrow in Indianapolis with the leadership of the American Legion, who is backing us. They have agreed, at least tentatively, and we're working out the details of how they will help, and we're doing the same thing with the VFW. We will get to the other organizations as we go along, yes, sir. Mr. Lewis. Thank you. Mrs. Meek. Mrs. Meek. This question is for Colonel Kelley. In my community we have very large Memorial Day celebrations and that kind of thing. You haven't come to that stage yet where you're asking for public contributions, have you? If so, a rendering of this entire thing would help, if it were big enough, on Memorial Day. Like North Miami has a very large one, in which I participate, and a rendering of this later on, if you can get started, would help in that particular area for fund-raising. I know you're thinking about that. But always remember that you have congressional offices that are very much interested, particularly when you have someone who was around in World War II. We're trying to help as best we can. So you can utilize us, and I'm sure all the other Congresspeople would be interested in this as well. You would be surprised at how anxious we are to help in these kinds of things. world war ii memorial--program management My second question is, who is running this project? Is that you, Colonel Kelley? Colonel Kelley. General Woerner is running this. [Laughter.] Mrs. Meek. Okay. General, not being in the service, let me ask this question. Do you think you can manage a project this big? General Woerner. Without a doubt. Mrs. Meek. With your resources? General Woerner. Without a doubt. Mrs. Meek. Without a doubt. General Woerner. That's right. We have, in addition to the gentlemen sitting at this table, augmented our staff that is to address the issue of fundraising. We are confident that we have the professionals, the paid staff aboard. What we haven't completely put together yet is the voluntary network. That's the subject of this afternoon's conversation. Mrs. Meek. Thank you. General Herrling. Mrs. Meek, I would add that we are in preparation of a book that we will send to each Congressman and Congresswoman and Senator on the World War II Memorial project. I am hoping to have those books signed by Representative Marcy Kaptur, who introduced the legislation, and Senator Stevens. But it will provide you with a little more detail on the World War II Memorial. Mrs. Meek. Thank you. Accounting Systems Mr. Lewis. A couple more questions briefly. This can really be answered for the record, but I want you to know that I'm interested and the fact that your budget request of $300,000 to fund a new comprehensive accounting system has come to our attention. There are other agencies of government that have requested funding for redoing their computer accounting systems that haven't done so well. I hope that your review and development of a system will be better than the IRS has proven to be. You might want to respond to those questions that are specific, not that part of it, but those questions for the record. State Department Funding Mr. Lewis. The administration recently sent up a budget amendment that proposes to transfer $210,000 to ABMC in 1998 from State Department funds for the cost of overseas operations at embassies. In subsequent years, such cots would be included in ABMC's budget. Do you know how this cost for ABMC's overseas operations was determined, and if so, explain. Colonel Corea. Yes, sir. It was determined by the levels of support that the State Department provides us in Rome, Paris, Mexico City, Bangkok, and a number of places. The new State Department system is called ICASS which stands for ``International Cooperative Administrative Support Services. It's where state is supporting our administrative functions, payroll functions and those kinds of requirements. The idea with all of this is that a lot of costs in the past have been borne by the State Department. Mr. Lewis. Kind of like the rental costs. Colonel Corea. Yes. But this is throughout the government. As you know, we're just one small agency on a list of many agencies that are overseas, where the State Department provides support. So that $210,000 will come to us and then we will end up paying it back to the State Department for their services. Mr. Lewis. The question, really, though, is have you evaluated how they determined that $210,000? Colonel Corea. Yes, sir. There has been long meetings with our staff in both our regional offices, as well as in Manila. They have gone through all the pieces of it, and there has been a lot of discussion as to what is provided us, what is not provided us, how it's factored, and how they're counting the support provided to ABMC. We're satisfied that the $210,000, after all of that, is going to be appropriate. Mr. Lewis. Okay. I think you may know that funding for the State Department generally, from time to time, becomes controversial around here. If it is suggested on the floor that, one way or another, they're increasing their budget by the back dooring of all kinds of other activities, including your own, it could become controversial. You're satisfied, though, that this is---- Colonel Corea. We're satisfied with the $210,000. The idea is that that money is going to come from their-- Mr. Lewis. I understand. At any rate, we very much appreciate your presence today, and we do appreciate the work that you're about. Indeed, the Committee does want to be of assistance in the project we have discussed in some detail today. Thank you. General Woerner. Thank you very much, Mr. Chairman. [The information follows; see budget justification at end of volume.] [Pages 412 - 414--The official Committee record contains additional material here.] Wednesday, April 10, 1997. CEMETERIAL EXPENSES, ARMY WITNESS H. MARTIN LANCASTER, ASSISTANT SECRETARY OF THE ARMY, CIVIL WORKS STEVEN DOLA, DEPUTY ASSISTANT SECRETARY, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY JOHN C. METZLER, JR., SUPERINTENDENT, ARLINGTON NATIONAL CEMETERY RORY SMITH, BUDGET OFFICER, ARLINGTON NATIONAL CEMETERY Introduction Mr. Lewis. It is my pleasure to welcome to discuss with us the Army cemetery expenses, Mr. Martin Lancaster, our colleague and friend. Welcome Mr. Lancaster. Thank you, Mr. Chairman and Congresswoman Meek. Mrs. Meek. Good to see you. Mr. Lewis. Your entire statement, as you are familiar, will be included in the record, and you can proceed as you like. While we will have a limited number of questions, we may have others for the record as well. Mr. Lancaster. I will summarize my remarks and would request that the full statement be included, and I do appreciate the opportunity to testify this morning in support of the 1998 fiscal year budget for Arlington National Cemetery and the Soldiers and Airmen's Home National Cemetery. The superintendent, Mr. Metzler, and Mr. Rory Smith, who is budget officer, are with me from Arlington, as well as my deputy, Steve Dola. They will be available to respond to questions that I may not be able to answer myself. Fiscal Year 1998 Request The request for fiscal year 1998 is $11,815,000. This amount will finance operations at both of the cemeteries and supports the work force, will assure maintenance of the buildings and grounds, and will permit the superintendent to acquire necessary supplies and equipment. Construction Projects Major new construction projects proposed for 1998 include replacement of the historic Custis Walk which is approximately 2,500-feet long and is about 75 percent affected by heaving and cracking, which requires visitors to exercise additional care and represents a true safety hazard on the grounds of the cemetery. Also, access roads at the Columbarium complex will be constructed which will allow full use of the new courts currently under construction. Government-Wide Streamlining Additionally, $200,000 is being applied to further expand contracts that enhance the appearance of the cemetery while implementing Government-wide streamlining plans and staff reductions. Our total personnel strength is declining from 128 authorized in fiscal year 1996 to 121 in 1997 to 117 for 1998. However, at the same time, we plan to perform the same work contractually that was previously performed by civil service personnel, and we have directed those contractors to take on additional tasks that need to be accomplished. Ground maintenance, tree and shrub maintenance, custodial services, guide services and informational receptions, and headstone setting, realignment, and cleaning are all major functions now performed by contract personnel. Three Programs The $11,815,000 requested are divided into three programs, operations and maintenance, administration, and construction. The O&M program, totalling $8,779,000, will provide for the cost of daily operations necessary to support an average of 20 inurnments or interments per day and for maintenance of approximately 628 acres. This program supports 111 of the 117 full-time permanent positions. The administration program, $599,000, provides for essential maintenance and administrative functions to include staff supervision of Arlington and Soldiers and Airmen's Home National Cemeteries. The construction program, $2,437,000, provides $1,175,000 to replace the Custis Walk, $810,000 to construct the access roads to the Columbarium, both of which I mentioned earlier, and $350,000 to continue the grave-liner program and other minor items. In fiscal year 1996, there were 3,325 interments, 1,733 inurnments. 3,500 interments and 1,900 inurnments are estimated for both fiscal years 1997 and 1998. Columbarium The 11,286 niche capacity of the Columbarium Phase III currently under construction will bring the total niches in the Columbarium complex to 31,286. Phase I, completed in 1984, and Phase II, completed in 1991, each provided 10,000 niches. The North Court will be completed in October of this year, and the South Court will be completed in June of next year. At this time, there remain only about 2,000 niches in Phase II. So we are right on schedule to complete the new construction as they exist and capacity is completed. We appreciate your support for the Columbarium effort because the inurnment of remains is increasingly popular at the National Cemetery and has taken up much of the slack that would be otherwise existent as we run out of space for interments. Arlington National Cemetery is the Nation's principal shrine to honor the men and women who served in the armed forces. In addition to the thousands of funerals with military honors held there each year, hundreds of other ceremonies are conducted to honor those who rest in the cemetery and those who served, and we appreciate the strong support that this Committee has given through the years in maintaining the Arlington Cemetery as the premiere place in the country where we honor those who served and, more importantly, those who paid the supreme sacrifice. That completes my testimony, Mr. Chairman, but we will be happy to respond to questions. [The statement of Mr. Lancaster follows:] [Pages 418 - 440--The official Committee record contains additional material here.] Contracts Mr. Lewis. Thank you, Mr. Lancaster. You state very clearly and very well the importance of the Arlington National Cemetery and the way it is, if you will, used by the Congress as well as the public-at-large. Your statement indicates an increase of $200,000 being requested for contracts to enhance the appearance at Arlington. Does that increase totally offset the proposed reduction for FTE 1998? Mr. Lancaster. If you don't mind, I will yield to Mr. Metzler to answer that kind of specific question. Mr. Metzler. Yes, Mr. Chairman, it does, and it also provides us an opportunity to do some more work in the Cemetery and enhance the appearance of the Cemetery. We are undertaking some new contracts in fiscal year 1997, headstone cleaning, and we are also undertaking an increase in that number in 1998. So that is going to be a benefit to us. Mr. Lewis. Extending that a little bit, Mr. Metzler, that would suggest that you still believe that contracting out for these services is less expensive than having the work done by civil servants? Mr. Metzler. In the repetitive work area, yes, it is, and it is working to our advantage at this point, and we are happy with the results we get. Response Time Mr. Lewis. As I understand it, in some instances, it takes more than one week, sometimes more than a month from the notification of the desire for burial at Arlington until the actual interment. Is that right? Mr. Metzler. It depends on what the family is requesting and the availability of the services at the cemetery. It is a difficult question to answer in each case, but I could give you a couple of examples. The military who provides us honors at the Cemetery are not always available each day. As an example, this morning, we had the Prime Minister of Canada visiting the cemetery in an official capacity. When that happens, then the Air Force and the Navy ceremonial troops are tied up for that period of time. Often times, we have other elements that are not available. The chaplains, the Chapel Service itself has been committed for from someone else. So, if someone is asking for a specific date, a specific time, and a specific military support, it may not be available for a week, and sometimes it may take 2 weeks to get that available. Mr. Lewis. The Committee is interested in knowing how often this kind of difficulty occurs where you may have as much as a month delay, and that which you describe kind of touches on the edges of the difficulties you have with such scheduling. So we would like to have you elaborate on some of that for the record. Mr. Metzler. I would be more than happy to provide you with some more information. Scheduling Delays Arlington National Cemetery currently averages 20 funeral services daily, Monday through Friday. Each service involves staff members of Arlington National Cemetery and the Chaplain's Office. Some services may involve military personnel from one or all branches of service, some may require the scheduling of the Fort Myer Chapel, and some may require the use of a caisson. Scheduling a funeral service requires consideration of the date and time the family requests a service, the level of honors authorized the deceased, the availability of military personnel, the religious denomination of the deceased and availability of a chaplain of the same denomination or the Fort Myer Chapel. To prevent one funeral service from interfering with another while coordinating all the above potential participants creates delays in scheduling, especially if the family insists on specific honors or two of day that the service is to be conducted, or there is a conflict in the availability of military support staff. The military support staff all have other ceremonial obligations outside of Arlington National Cemetery, there are only two caissons available and the Fort Myer Chapel is limited to six services a day. A one week delay in scheduling funerals, therefore, is not an uncommon occurrence. A one month delay, on the other hand, does not occur. columbarium cost Mr. Lewis. Last year, Mr. Lancaster, it was estimated that the cost of the Columbarium project would be $7.7 million. You recently awarded the construction contract, the second part of the project. Is $7.7 million still the estimated cost of the project? Mr. Lancaster. Actually, the total estimated cost of the project is currently $7.4 million, as I recall. So it actually is under the estimate, which we were pleased to have happen. Mr. Lewis. Does that dollar amount include the $810,000 requested? Mr. Lancaster. No, sir, it does not. Mr. Lewis. It does not. Mr. Lancaster. The construction of the two Columbarium courts and the associated roads make up the $7.4 million estimate; however, the $810,000 for roads is part of the fiscal year 1998 request. Mr. Lewis. What would happen with that roughly $400,000 of savings? Mr. Metzler. We have several areas that we are looking at with potential use of that savings. One is to reimburse a settlement claim that we had with the contractor, $98,000, and the others---- Mr. Lewis. Excuse me. I hope that contractor is not the same one that was just awarded this more recent contract. Mr. Lancaster. This was the maintenance contract. Mr. Metzler. This was the grounds maintenance contract, and he is long gone. Another part of it would be to pay for repair of a broken storm sewer line in Section 33, and another possible use would be to fund the completion of the new master plan. master plan Mr. Lewis. I understand the new master plan is currently under review. When will that master plan be available? Two years ago, we had an estimate of January 1996. Mr. Lancaster. We are prepared--in fact, you should have received by now a letter from me, Mr. Chairman, offering to come over and brief you on the master plan, and we are available to do that at your convenience either collectively as a Subcommittee or one by one to the members who are interested. We hope that by mid-summer, having completed the briefings and completed the incorporation into the master plan of the comments that we are hearing during the comment period, to have completed that master plan. Mr. Lewis. It is my understanding you have that letter, Martin. So we will be communicating. Mr. Lancaster. That is right. project management Mr. Lewis. In the area of cost overruns, it is suggested that the Corps of Engineers--where we are talking about cost overruns on some construction project, it is suggested that the Corps of Engineers district manager. It was suggested that the Corps might manage some of those projects. The recently completed McClellan Gate Restoration Project was managed by the Seattle District. Mr. Lancaster. Yes, sir, that is correct. Mr. Lewis. What is your view about having the Corps manage these projects? Mr. Lancaster. We have traditionally managed the contracts for Arlington. So I don't think that is a change. What is a change is going to the Corps district that has the expertise for doing the project instead of simply depending on the Baltimore District in which Arlington Cemetery finds itself physically located. The historic preservation expertise is in the Portland District--I mean, the Seattle District, which did the McClellan Gate Restoration. The Custis Walk, we are actually using the Norfolk District instead of Baltimore. So it really is our trying to manage the expertise of the Corps to get the best service available to Arlington that they can possibly have. I don't believe, but I will let Mr. Metzler speak to this--I don't believe the fact that the district was in Seattle created any management problems in the completion of that work, nor has the design work for the Custis Walk being in Norfolk created any problems, but I will let Mr. Metzler speak to that. Mr. Lewis. Was it right below, for example, the $660,000? Mr. Metzler. The project was, and as a matter of fact, I think one of the advantages we had is it offered some competition within the Corps of Engineers, as we offered these projects out to the different districts, and we have been satisfied with the results that we have had at this point. Mr. Lancaster. The McClellan Gate came in, I think, under significantly and, in fact, allowed us to do some things with that restoration that would not have been otherwise possible. grave liners Mr. Lewis. We may have some additional questions in connection with that, the Norfolk area that you mentioned, the Curtis Walk question. The justification indicates that the cost of grave liners in 1998 will increase by $40,000 to $350,000. Mr. Lancaster. I believe, but again, I will let Mr. Metzler amplify on this--I believe that that is not an increase in the cost of grave liners, but rather, an increase in the use of grave liners by families. In the past, families were buying vaults at their own expense, but the trend in recent years has been that these concrete grave liners are every bit as effective, and they are provided free of charge. So families are increasingly using that which is made available as opposed to purchasing upgrades, as it were. As a result, that has increased our cost because this is a service that has always been offered free of charge to the veteran. Mr. Lewis. You have provided me a new understanding of grave liners. Mr. Lancaster. Yes. Mr. Lewis. Mrs. Meek? Mrs. Meek. Mr. Chairman, I have some questions to submit to the record for Mr. Stokes, but first of all, I would like to welcome Martin Lancaster. I am happy to see you and your staff here today. Mr. Lancaster. Thank you. visitor study Mrs. Meek. According to your report here, you mentioned that during the fiscal year 1996, you accommodated approximately 4 million visitors, but you also asked for $35,000 for a study which you want to develop a procedure, which you would normally continue to use after that. My question is, what procedure are you using now? You were able to predict or to show that you had 4,000,000 or more visitors there. What procedure are you using now? If you do get the $35,000, what kind of changes do you envision as a result of this way of estimating this? Do you think it will have any impact on your operations there? Mr. Metzler. The procedure that we are using right now is we are counting the number of visitors who enter the cemetery either by the Metro system, through the Tour Mobile system, the number of funerals that we do per year, and then we are using a multiplier and then the same thing for the people who pay or park in our pay parking lot. The number of 4 million visitors is an estimate. What this study hopes to do is to validate the number and give us a more factual accounting of the number of visitors that we have at the cemetery. Since we provide this number not only to this Committee, but to other Committees and other people who ask that question, we want to have a more accurate count. Mrs. Meek. So what will $35,000 do? Mr. Metzler. It will have an independent study performed at Arlington Cemetery to validate how many visitors are touring the grounds each year. Mrs. Meek. All right. Thank you. Mr. Metzler. Yes, ma'am. Mr. Lewis. Mr. Price? Mrs. Meek. I have others, but there are more people here. Let's give them a chance. non-funeral events Mr. Price. Thank you, Mr. Chairman. I also want to add my welcome to our good friend, Martin Lancaster, and his colleagues here today. I think the budget justifications really cover most of the ground. I am struck by the number of events, though, that you are hosting and the kind of requirements that that presents in terms of personnel operations. You estimate 2,700 non-funeral events in these national cemeteries. Now, is that Arlington plus---- Mr. Lancaster. It is primarily Arlington. I think very seldom are there ceremonies at the Soldiers' and Airmen's Home Cemetery. Mr. Price. What is the nature of these 2,700 events? What kind of range of ceremonies are we talking about? Mr. Lancaster. Well, everything from events such as today when the Prime Minister of Canada visited, and generally, we will lay a wreath at the Tomb of the Unknown, to military units that may have a memorial site on the cemetery that will come back on the anniversary of some event. It is a wide range of events that are unrelated to funeral services, but generally commemorate some military-related event in history or a ceremonial visit by a distinguished visitor. Mr. Price. You are hosting an average of six or seven such events a day. Mr. Metzler. This time of year, we are doing more like 15 or 20 a day. The children or the school groups that are in the halls here at the Capitol also work their way over to the cemetery, and part of their tour of the grounds of the cemetery is to lay a wreath at the Tomb of the Unknown Soldier in most cases. A lot of those 2,700 events are the school groups in town. We probably do another 100 to 300 events that are more intense with military units and heads-of-state visits and things of this nature. international visitors Mr. Price. Do you have any way of estimating your level of international, numbers of international visitors, and what kind of special efforts to you make to accommodate international visitors? For example, how many languages are your brochures printed in? Are foreign languages accommodated in your tours, that sort of thing? Mr. Metzler. They are not. We do not have the means right now to provide any multi-language services to our international visitors. To answer the first part of your question, I really don't have a handle on how many foreign visitors and the different languages they represent come to the cemetery. Within the book store that is co-located at our Visitors Center, we do offer some materials in multiple languages that are the more popular, Japanese, Spanish, languages that will sell, but beyond that, the signage, the people that are doing the tours in the cemetery, it is strictly done in English. Mr. Price. Thank you very much. Mr. Lewis. Thank you, Mr. Price. It is my privilege to recognize my colleague, Mr. Hobson. He came just to say hello, Martin. Mr. Hobson. Yes, I did. Nice to see you, Martin. Mr. Lancaster. Nice to see you. rents Mr. Hobson. Glad to have you back. I have two questions which I will submit for the record. One of them I ask everybody, and that is about rents. Mr. Lancaster. Rents? Mr. Hobson. You have some rents, and they have gone down, and then they are going back up. So, at some point, could you respond? Mr. Lewis. Please respond for the record, not now. Mr. Hobson. Not now, not now. So I won't hold you up, but welcome and good luck. Mr. Lancaster. Thank you. Thank you. closing Mr. Lewis. Mr. Lancaster, let me mention that Mr. Stokes did want to be here. He has a conflict with another Committee that relates to the Ethics Committee work. I would like with the Committee's permission to include that explanation at the beginning of each of our other two hearings, which I meant to do earlier as well, but in the meantime, we appreciate your appearance, look forward to working with you, and our meeting is adjourned. [Page 447--The official Committee record contains additional material here.] Wednesday, May 7, 1997. CONSUMER INFORMATION CENTER WITNESSES TERESA NASIF, DIRECTOR, CONSUMER INFORMATION CENTER BETH NEWBURGER, ASSOCIATE ADMINISTRATOR FOR PUBLIC AFFAIRS, U.S. GENERAL SERVICES ADMINISTRATION Welcome to Consumer Information Center Mr. Lewis. Our next witness I am pleased to welcome is Teresa Nasif, Director of the Consumer Information Center. Ms. Nasif, welcome back to the Committee. Ms. Nasif. Thank you. Mr. Lewis. If you'd like to summarize your statement, we will include your entire prepared statement in the record, and in the meantime the agency's 1997 appropriations involve 21 FTEs, a total of $2.26 million. The request for 1998 is an identical number of FTEs, and $2.119 million of budget authority requested. So if you'll proceed as you like, we'll go on with questions from there. Ms. Nasif. Thank you very much, Mr. Chairman, and Members of the Subcommittee. Thank you for the opportunity to present the fiscal year 1998 budget for the Consumer Information Center. With me today is Beth Newburger, Associate Administrator for Public Affairs, U.S. General Services Administration. Mr. Lewis. Welcome, Ms. Newburger. Ms. Newburger. Thank you very much, Mr. Chairman. Opening Statement Ms. Nasif. Established more than a quarter of a century ago, the Consumer Information Center successfully continues to carry out its vital mission mandate of helping Federal departments and agencies inform the public about health and safety issues, developments in Federal programs, and the impact and effects of Federal research and regulatory actions. Today many elements of the CIC program remain the same: an essential mission mandate, a commitment to serve the American public, and the firm support of the Administration and this Committee. However, the CIC program is going through a time of change that reflects a new environment in government and in customer behavior. Overall, Federal agencies have reduced the scope of their publishing activities due to budget constraints, and the American public is placing fewer orders for merchandise, including information, by mail. CIC is meeting these challenges in two ways: first, we have redoubled efforts to identify private sector partners who share Federal information goals, and who can provide resources to stretch limited Federal dollars. And, second, CIC has set up telephone ordering systems for both the Consumer Information Catalog and its list of publications. In partnership with GSA's Federal Information Center program, we have implemented a toll-free number, 1-888-PUEBLO, for citizens to call to receive a free copy of the catalog. Also I'm pleased to report that beginning with the Spring 1997 edition, all copies of our catalog will include a telephone number for placing publication orders at the Pueblo facility. Citizens pay for these calls, thereby sharing in the expense of the program. Making access easier and quicker will encourage more Americans to take advantage of the wealth of information available from the Federal Government. CIC remains in the forefront of Federal electronic dissemination, as more and more schools, libraries, and families are accessing information through the Internet. The public will access the CIC Website more than 3 million times in fiscal year 1997, a threefold increase since its inception in fiscal year 1995. While Americans can now access CIC either electronically or by ordering by phone, our address, Pueblo, Colorado, 81009, remains one of the best known addresses in the country, where Americans order millions of publications published by more than 40 Federal departments and agencies. The Government Printing Office facility in Pueblo provides order fulfillment services for tens of thousands of orders received weekly as a result of the promotions done by the CIC. During fiscal year 1996, consumers ordered 7 million publications from Pueblo. In the years ahead, we will continue to make helpful information available to all citizens, whether they are seeking it by computer or by mail. We're very committed to maintaining a vigorous publication distribution program in recognition of the fact that most Americans still continue to receive their information through traditional print channels. Our ongoing efforts to identify and obtain valuable Federal information, our media and marketing programs, our centralized distribution system, and our widely acclaimed electronic information activities all combine to make CIC an essential source for citizens needing vital consumer information from their Federal Government. Mr. Chairman, we trust the committee will agree that CIC is a valuable Federal program, and that it will look favorably upon our request. I'd be pleased to answer any questions you have at this time. [The statement of Ms. Nasif follows:] [Pages 451 - 454--The official Committee record contains additional material here.] questions from mr. stokes Mr. Lewis. Thank you very much. Mr. Stokes, do you have any introductory comments or questions? Mr. Stokes. Yes, thank you, Mr. Chairman. I have a couple of questions here. internet access Ms. Nasif, during last year's hearing we discussed the expanding use of the Internet and the Center's activities, as well as the fact that a majority of the population, and my guess is it's a considerable majority of the people, contacting the Consumer Information Center do not have access to the Internet. You alluded that it is a problem, but also CIC is maintaining the print distribution network, even as electronic dissemination becomes more prevalent. With another year's experience on the Internet, tell us how your operations have changed? For instance, how many hits do you get on your Website? How has the number of print publications changed? Ms. Nasif. This year we have seen progress in both the print publication area and in our electronic dissemination activities. On the Internet side, we are expanding. When we started the site in 1995, we had 1 million accesses that first year. Then in 1996, that increased to more than 2 million accesses. In 1997 we probably will exceed 3 million. We think that the Internet is getting more popular for a variety of reasons. We have a very good site. It has valuable information not easily available anywhere, it's user friendly, it's easy to navigate, and it's possible to search by topic. But the other thing that is happening is that the number of American homes with computers is increasing. In one study, the number of American homes having access to the internet in 1996 increased from 4 million to 11 million. It's the administration's goal to see that every school in our country has Internet access, and I know it's expanding in libraries across the country, as well. Now, with the advent of the ability of consumers to buy a Web Box, you don't even need a computer to access the Internet. It's possible through a purchase of one of these devices to also be part of the information highway. distribution of publications But we see the Internet as something that will continue to be an enhancement, and complementary to our print program which is still the main part of the Consumer Information Center. As I mentioned, during last year we distributed 7 million publications, and we're continually trying to get the message out that the information is available from Pueblo by print or by computer, and we have instituted some innovations like the telephone ordering systems, because we're finding that for whatever reason, Americans are more attuned to picking up the phone and ordering something by phone than they are to sending away for the information by mail. Mr. Stokes. You're committed to continue the print dissemination process? Ms. Nasif. Absolutely. We absolutely are committed to it, and we do everything we can to keep ahead of the curve in terms of motivating the public, informing them that the information is available, and encouraging Federal agencies not to give up on their print program. It's a tough decision for Federal agencies. Because of the budget constraints that they're facing, they're tempted to go all electronic and not to bother printing the product. And the point we make to them is that you must have the printed product, because that's what enables you to promote it to the media, and for those people who don't have access--which is still a large percentage, a major percentage of Americans in this country--it's important to have a print product available. a two-tiered system Mr. Stokes. Let me ask you this: Although some print publications of the CIC are distributed without charge, there's a fee associated with many of the publications. Alternatively, most people with access to the Internet can download printed copies at little or no cost to themselves. Aren't we at risk of creating a two-tiered system here, where in general those most able to pay for the information wind up not paying, and those possibly most in need and less able to pay wind up paying more? Does this disturb you? Ms. Nasif. It's a difficult question. We initially looked at the Internet site as possibly a method of generating revenue for the program, and what we realized is that, number one, there is no Federal site that charges for its use at this time. And it would probably serve to countermand our mission mandate of getting information to the public by our trying to put a charge for consumers using this site and coming on to the site. So it's a difficult question. But right now, it's true, that you can download any of the information from our Website at no charge. But I would like to point out that as far as the publications that we offer in print form, about 50 percent are free, and a good number of the sales publications are only 50 cents, so that more than 80 percent of the titles are either free or 50 cents. So the publications are available at very moderate cost. Also, because of our marketing and our media activities, a lot of the information is put out through the media. So someone doesn't really have to order a book from Pueblo, or even get on our Website. We have a very aggressive program to get information out through newspapers and magazines. And we do press releases, and keep in touch with the media to make sure that they highlight and disseminate that information to the public. cost for publications Mr. Stokes. What is the highest cost of your publications? Ms. Nasif. With the exception of a couple of subscriptions, the highest cost one listed in the spring catalog is $3.25. And that is one from the Department of Veterans Affairs on benefit programs. GPO sets the prices for the sales publications. But more than 80 percent are free or 50 cents. Mr. Stokes. Thank you, Mr. Chairman. questions for the record Mr. Lewis. Thank you, Mr. Stokes. Just a couple of questions, and then we have a number of questions for the record as well, Ms. Nasif. [Questions and answers follow:] [Pages 458 - 461--The official Committee record contains additional material here.] gift authority for consumer's resource handbook Mr. Lewis. The fiscal year 1997 regular appropriations bill transferred responsibility for publication of the Consumer's Resource Handbook from the Office of Consumer Affairs to the Consumer Information Center. In addition to the responsibility, the Congress provided $200,000 and gift fund authority to enable you to accomplish that task. First, what resources have you been able to generate through the gift fund to help offset the cost of publishing the Handbook? Ms. Nasif. The gift authority was given to us primarily to support the development and the printing and the distribution of the Consumer's Resource Handbook. However, through the Committee's generosity, by the fact that you provided $200,000, that is the money that we are using to pay the distribution costs of the edition that was actually put together by the U.S. Office of Consumer Affairs at the end of fiscal year 1996. They had completely revised and printed and reissued the Consumer's Resource Handbook at the end of 1996. So we are now using the $200,000 to pay the distribution costs out of the Pueblo facility. The gift fund authority would have been used had we retained responsibility for the Handbook. But, of course, the President's budget transfers back the responsibility for the Consumer's Resource Handbook to OCA beginning in fiscal year 1998. So in fact we have not used the gift authority this year. resources for updating the handbook Mr. Lewis. Does the Consumer Information Center have the personnel and resources necessary to update and publish the Handbook? You just indicated you were not going to be doing that as a result of the President's direction. Ms. Nasif. In fiscal year 1998? Mr. Lewis. Yes. Ms. Nasif. It is the President's plan that it would revert back to the Office of Consumer Affairs, and we support that transfer back to OCA. transferring responsibility for handbook Mr. Lewis. Is there some reason why you support that transfer back? Ms. Nasif. They've done a very good job through the years. It's been by the of U.S. Office of Consumer Affairs since 1979, and it has consistently been one of the most popular Federal documents available to the public. And I think they've done an excellent job of compiling it, and they have the expertise to continue putting it together. So therefore we support it going back to the rightful owners, you might say. Mr. Lewis. So, you are really suggesting that if you had the responsibility going forward, you might not have been able to do it as well? Ms. Nasif. We would have done a good job also, of course. But I think that in part we would have done a good job because of the excellent track record that OCA had set down for us. Mr. Lewis. Could you explain to the Committee from your perspective what the logic of the Congress you work with was to transfer that authority in the first place? Ms. Nasif. I believe that there was the plan that the U.S. Office of Consumer Affairs would be terminated for fiscal year 1997. The belief was that here was one very valuable publication that should continue, and so therefore it was transferred to the Consumer Information Center. Mr. Lewis. The Government has great difficulty even considering closing one small agency, and consolidating operations, don't we? Ms. Nasif. Yes, I think it's hard to close down an operation that has a good track record. Mr. Lewis. Even if you're giving it to another agency that has a good track record? Ms. Nasif. I think we would do a fine job as well, but it's based on the decade or more of OCA perfecting the formula for the fund raising, and the systems for gathering the information. I think they do a great job, but I'm sure we would do a great job, too. So I think you're fortunate to have two capable consumer agencies appearing before this committee. questions from mrs. meek Mr. Lewis. Thank you very much. Mrs. Meek. Mrs. Meek. Thank you very much, Mr. Chairman. We are happy to have you here this morning. Ms. Nasif. Thank you, Mrs. Meek. Mrs. Meek. I have utilized your Pueblo publications a lot in my area. And I find there's a paucity of information that's simple for people to understand. And I distribute it at my town hall meetings, and, of course, I have Diahann Carroll's picture--that's me. [Laughter.] I do this, and it sort of individualizes this booklet. And you would be surprised: I get more feedback, positive, from this than when I talk about the policies and the new laws and the new regulations that are made in Washington. The consumers are very, very interested in what's coming before them and what's good and what's bad. And this book has been very helpful in that regard. Ms. Nasif. I'm so glad. Thank you for the kind words. Mrs. Meek. I would recommend this to any member because there so many things. At this point in the new Federalism, and that's the only word I can give it, there is very little help you can give your constituents when it comes to roads, buildings, post offices, or those kinds of things. But now you can give them information. You can provide them information; you can provide them help. I find that to be very, very useful, particularly for people who are information poor. And I would commend this to the other members as well. Ms. Nasif. Thank you very much, and thank you for the endorsement. We are fortunate that we've had six of our committee members actually take advantage of our imprinting service. cost of consumer information center service Mrs. Meek. It does cost money. Ms. Nasif. Yes. Mrs. Meek. To me, to get it. Ms. Nasif. It's $200, that's true. Because it covers the plate change at the time we go for the printing. But we think it's a wonderful consumer value, of course. change in zip code Mrs. Meek. Now, your zip code has changed? It was 81009 and is now 81002? Ms. Nasif. 81009 is still the zip code. It's very astute of you to notice that. Very few people notice that. Mrs. Meek. I'm a woman. [Laughter.] Mr. Lewis. And a grandmother, too. An astute grandmother. Ms. Nasif. 81009 is actually the number that we promote through the media. The reason we put 81002 on the catalog itself is that way we can track the performance of the various editions of the catalog, We can track catalogue order blanks and how they perform. We do a lot of counting in the Pueblo facility. Every promotion that we do has a different coded address, so that we know exactly how many people respond as a result of an IRS mail back card versus a print out, versus a radio spot. And we keep counts on all of it in order to figure out what we're doing well and what we're not doing well, and how to improve what we're doing. It's the same place, even though it has a different zip code. One is the Pueblo Post Office, and the other is actually our facility. Mrs. Meek. So we can keep that. Ms. Nasif. Yes. publishing the catalog Mrs. Meek. My next question has to do with your publishing dates. When do you propose publishing this booklet again, and how much will it cost? Ms. Nasif. We publish it every three months. And that enables us to drop publications that we've run out of stock on, and we can put in new publications coming out from the Federal agencies. And the publishing budget is in the neighborhood of about $370,000. We print 12 million copies total each year of the catalog, and then we distribute it in a variety of ways. About half the catalogs go out through a bulk mailing list to educators, librarians, community leaders who have requested to be on the list, who then distribute copies of the catalog to their constituents. We also distribute through members of Congress through the program that you participate in. Mrs. Meek. Thank you. Mr. Lewis. Thank you, Mrs. Meek. We appreciate it. Mr. Hobson. drop in rent Mr. Hobson. I have a couple of questions. First of all I would like to comment that your rent does go down a little bit. How did you accomplish that, do you know? Ms. Nasif. The $99,000 rent? Mr. Hobson. Yes. It dropped from $102,000. So it's going in the right direction, anyway. Ms. Nasif. We are assessed rent by GSA just as GSA assesses rent for all Federal agencies. They take into consideration what the prevailing rates are. Mr. Hobson. I wish they did. You need to look at that, because they really don't very well. But that's another point. You need to watch them on their rent. But you are going down, which is better than most of them. Ms. Nasif. Yes. Mr. Lewis. But with a GSA assessment, at any rate. Ms. Nasif. Actually we are right in the GSA building, and it's good space, and we think it's worth $102,000. We were delighted when our programmed amounts went down to $99,000. Mr. Hobson. Just remember, we're watching that. Ms. Nasif. Okay. other services Mr. Hobson. The other thing is, three other quick questions. I don't understand the ``other services.'' Are you getting reimbursed for all that money from other agencies? Or how does that work? Ms. Nasif. Yes. The ``other services''--are you referring to other income on page six? Mr. Hobson. No, I'm looking at page eight, where you have an item that says ``other services.'' And what I'm concerned about is that is a way of increasing the agency's expenses by passing--one of the ways that people work statements is to get other people to reimburse them for it, and gradually then suddenly they won't do it any more and then you'll come in and say well, we've got to have this. So suddenly we're hit with the cost. Ms. Nasif. Agencies participating in our program, who wish to offer their publications without charge to the public actually are billed for the postage and the handling and the distribution services that are incurred by the Government Printing Office facility in Pueblo, Colorado. So if you are an agency--you're the Social Security Administration for example--and you would like the CIC to offer your booklets without charge, as the booklets get mailed out, GPO charges us, CIC. We will in turn assess you, as the sponsoring agency, for those postage costs. That's what that represents. Mr. Hobson. That's what I'm worried about. What I'm worried about is this could eventually become a way of gaming the system, because they will then come back and say to you some day, because this has jumped from $2.7 million to $3.8 million and it's going up. Ms. Nasif. Yes. Mr. Hobson. They'll come back and say, oh, we don't have it in our budget any more. Now, you've got to come back in here and ask us to do it. And I just want to forewarn you. Be careful that somebody doesn't game you on that. average salary The other thing is the average salary in your agency will be--it is $56,000 and will be $58,000? Is that what you're proposing? Ms. Nasif. Yes. That's correct. And that reflects increases in pay including the locality pay adjustment. So there is some increase due to that. Mr. Hobson. There's an increased locality adjustment for Pueblo, Colorado? Ms. Nasif. No. We are actually located here in Washington, D.C. Mr. Hobson. So it's for D.C. Ms. Nasif. Yes, we get it for D.C. The 50 or so people in Pueblo, Colorado are actually GPO employees. average grade Mr. Hobson. Ours hasn't been changed for about 30 years, on the location thing. The other thing is, I think this is the littlest thing--it may be technically correct. But you have--if I read this correctly--you have 18 people that are nines or above, and three people that are below nine. Is that correct? Ms. Nasif. Yes. That's correct, and I can explain. Mr. Hobson. Well, that's what it says here. But down here it says that your average grade is 11.86. I think that's a little misleading, if 18 of them were above nine. It may be technically correct. Of course, the other three are very low, and that affects the overall average. But the real average in here--I mean, the real thing is it's weighted to nines and above. Because there are only three people below nine. Ms. Nasif. Yes. Mathematically that is the average, but I will be glad to go back and double check on that. Mr. Hobson. No, no. But it may be technically correct, because those three are way below, and they pull the average down, but the real bulk of people in this agency--and I'm not arguing with you about it. I'm just saying we should understand--that the number of people in this agency are really--they are 12's and above. Because there are nine people at 12, there are five people at 13s. No, I'm sorry. There are nine at 12. There are five at 13. There are three at 14. And there's one at 15. So that's out of the 21 people. Mr. Lewis. Ms. Nasif, we do expect that Mr. Hobson will have another series of very detailed questions for the record. [Laughter.] Mr. Hobson. I just want you to know that somebody does look at these things. Ms. Nasif. I appreciate it, because it takes a lot of work to put this together. Mr. Hobson. I used to read financial statements a long time ago, and government statements drive me nuts. Ms. Nasif. Well, I appreciate the attention. Mr. Lewis. Mr. Frelinghuysen. no questions from mr. frelinghuysen Mr. Frelinghuysen. Mr. Chairman, Mr. Hobson's attention to detail is so profound that I'm going to resist asking any questions. Mr. Lewis. He's just overwhelmed you. [Laughter.] He has covered the territory in such detail. Thank you. Mr. Hobson. Let me tell you, the previous agency did change their rent, because of---- Mr. Lewis. GSA. Even though they thought the space was worth every dime they paid for it. Mr. Stokes. cic income application chart Mr. Stokes. Thank you, Mr. Chairman. I'll be very brief. I noted that you have not included a CIC income application chart in this year's justifications. Why is that? Ms. Nasif. There was no particular reason, Mr. Stokes. We'd be happy to provide it for the record. We were trying to streamline our package, but the chart would be pretty similar, to last year's. We actually created it, and then we were going through the justification to see any way to make this easier to look through. And we just arbitrarily decided to take it out. Mr. Stokes. Would you provide it? Ms. Nasif. Certainly. We felt that perhaps page six did the job. But I'm with you. I think a picture is worth a thousand words, so we will be happy to provide it. Mr. Stokes. Thank you. [Page 468--The official Committee record contains additional material here.] Mr. Stokes. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Stokes. EXPENSES VERSUS REIMBURSEMENTS Last question, very briefly, a large portion of your publications are reimbursed. So that leads to a question regarding expenses versus actual reimbursement. In 1996, the difference between reimbursement and expenses was about $250,000. But in 1997 and 1998, your budget indicates a difference of over $850,000, an increase of differential on the negative side. Can you explain what appears to be a trend of expenses outpacing reimbursements? Ms. Nasif. The amounts to be collected are increasing? Mr. Lewis. I'm saying that the actual reimbursements show a pattern whereby your expenses are outpacing those reimbursements, a pattern from $250,000 in 1996, and then 1997 and 1998 being something over $850,000. Ms. Nasif. I can explain that. The publication distribution figure, $3.008 million, actually is collected from two sources of funding. It's collected from reimbursements from agencies which will be $2.151 million. But also from private sector organizations under other income, which in 1998 will be $857,000. We collect money not just from Federal agencies, but from our private sector partners. And so we will be collecting money, for example, in the actual 1996 column, it was $1.9 million from Federal agencies, but then an additional $215,000 from private sector partners. So we do collect enough to pay the GPO bills, and that money is really like pass-through money that comes through the CIC fund. GPO bills us and then we turn around and send the bills off to the Federal agencies or the private sector partners who have agreed to cover distribution. Mr. Lewis. Okay. Ms. Nasif. So we are not spending more than we collect. We stay within our budget. Mr. Lewis. Well, thank you for that clarification. And if we have further questions, we will ask them for the record, and other members are welcome to extend questions as well for the record. In the meantime, Ms. Nasif, thank you very much for being with us. Ms. Nasif. Thank you, Mr. Lewis. Mr. Lewis. It's a pleasure to meet you. [Pages 470 - 502--The official Committee record contains additional material here.] Wednesday, May 7, 1997. U.S. CONSUMER PRODUCT SAFETY COMMISSION WITNESSES HON. ANN BROWN, CHAIRMAN HON. MARY SHEILA GALL, COMMISSIONER Mr. Lewis. Ms. Brown, you'll have to be patient with our members, since we have all kinds of overlapping meetings. You understand this process. But in the meantime, we want to welcome you, and we're very interested in hearing your discussion of the Consumer Product Safety Commission's 1998 suggestions, and the administration's request. If you'd like to summarize your statement, you know the entire statement will be included in the record. We'd like to get to questions, and facilitate the process as easily as possible. Ms. Brown. Good. Well, I'll summarize briefly. I think Commissioner Gall who is with me has already submitted her statement for the record, and I'd like to submit Commissioner Moore's statement for the record. [The statements of Ms. Gall and Mr. Moore follow:] [Pages 504 - 507--The official Committee record contains additional material here.] Ms. Brown. Commissioner Gall is with me today, and I will be brief. I am pleased to have this opportunity to testify in support of our fiscal year 1998 appropriations request. Mr. Lewis. Fine. summary statement Ms. Brown. At the outset, I want to express our appreciation for our fiscal year 1997 appropriation of $42.5 million, the full amount requested in the President's budget. I want to assure you that these funds are being used effectively to protect the American people against unreasonable risk of injury or death from dangerous or defective consumer products. I'll give you just one example, which is recall roundup. When we do our recalls, which is very often very serious, for products that cause injuries and death, we get the word out. But oftentimes we can't get all of those products out of people's homes. So we did a recall roundup, which was a spring cleaning, for people to go into their attics and basements to recheck to see if they had any of these products. It was extremely successful. We worked with the States, and every State in the United States, all 50 States, worked with us. Many States did more than one program; in fact, the great State of California did five different programs with us. And I just want to tell you what the whole effort cost. It cost $1,700 in printing costs, and $8,500 for video news release. But everything was seen by millions across the Nation. So that's the effective way I think we work. In fiscal year 1998 we are requesting an appropriation increase to $45 million, an increase of $2.5 million to continue and to expand our vital work. And I feel that we have worked with you, and I appreciate it, very closely and very, very well. That you have been extremely cooperative with us. I don't think that every agency has the same fine relationship that we have had with you, and that also the same bipartisan relationship. I think this is what the American people want to see the bipartisan spirit in the Government. And so I thank you, Mr. Chairman and members of the Committee. In preparing our budget, we carefully reviewed the needs and contributions of our three operating divisions, Hazard Identification and Reduction, Compliance, and Information and Education. As a result, we are proposing important investments above current service levels in most of these areas to enhance our ability to prevent and reduce the deaths and injuries related to consumer products. The modest program increases requested for fiscal year 1998 are more than justified by our record of accomplishment. CPSC has made vital contributions to the 20 percent decline in annual deaths and injuries related to consumer products that have occurred between 1980 and 1993. Past agency work in electrocutions, children's poisonings, children's cribs, power mowers and fire safety helped save the Nation almost $7 billion annually in health care, property damage and other societal costs--more than 100 times CPSC's annual budget, or about $155 million in savings, for each million of the agency's 1998 request. The agency expects its 1993 standard to make cigarette lighters child resistant to save over $400 million in societal costs, and to prevent up to 100 deaths annually. Similarly the agency expects its work in carbon monoxide poisoning to reduce societal costs by $1 billion annually. CPSC removal of dangerous fireworks from the marketplace prevents about 14,000 injuries each year. As you know, in a concurrent submission to this subcommittee and the OMB in September, 1996, the Commission requested a budget of $49.7 million for fiscal year 1998. The OMB reduced our budget request to $45 million. Although this reduction of $4.7 million seems small, it will have a negative impact on our efforts to protect the health and safety of American's children and families. An additional investment of $1 million would allow us to respond faster and better to product hazards, saving more lives, and preventing more injuries, and would help us to implement the FOIA law. CPSC is a data driven agency. It carries out its mission with a sense of urgency, since quick action by the agency saves lives. To provide even greater benefits to the American consumer, we would like to establish an integrated information system at the agency, that would give the staff access to a much larger universe of product safety data, and would improve the speed with which staff could gain access to that data. Mr. Chairman, the CPSC is of great value to the American people. By every rational, cost/benefit measure, we save the taxpayer many times our budget in deaths, injury and property damage prevented. Accordingly, we urge you to appropriate not only the full amount we requested. We also hope you can find an additional $1 million within the subcommittee's budget allocation, and within the framework of the balanced budget agreement announced last week for necessary enhancement of our information technology. Thank you. [The statement of Ms. Brown follows:] [Pages 510 - 523--The official Committee record contains additional material here.] Mr. Lewis. Thank you, Ms. Brown, Ms. Gall. Mr. Stokes, I believe I heard Mrs. Brown suggest that they had asked for $49.9 million as the budget went to OMB, and OMB suggested they could do well with $45 million. But Ms. Brown is suggesting that even $1 million more would be very, very important. This is the first time--I'm not surprised that there's some disagreement, but it's the first time, I think, I've heard somebody actually suggest their original request was the right request. At any rate, I yield to you for comments or questions, if you like. I think Ms. Brown feels secure in her responsibility. cpsc budget Mr. Stokes. I must say it's unusual. Thank you, Mr. Chairman. Let me pick up right where the Chairman commented, Ms. Brown. First let me welcome you back before our subcommittee, and say it's always a pleasure to have you here. We remain very, very proud of the work you do in this capacity. I noted that the budget that the Consumer Product Safety Commission submitted to the Office of Management and Budget requested $49.775 million for your operations for 1998. The President's budget was rather generous with the Commission, including a request to Congress for $45 million, an increase of nearly six percent above the enacted amount for 1997. First of all, why do you think the CPSC fared relatively better than so many other agencies and Department's this year? Mr. Lewis. This is the hard part. [Laughter.] The easier ones are coming. Ms. Brown. I am delighted to answer you. [Laughter.] Quite honestly, Congressman Stokes, I do believe that this is a vote of confidence in the work that we are doing, not just the work that we are doing to prevent deaths and injuries and huge costs, but I think in the way that we are doing our work. And that is when I came into the agency, well before the 104th Congress, I said that we had to bring all of the parties in, in order to make full progress. And I think that we have worked with industry very well. Also I think that you must realize that over the past decade, in the 1980s, while our mission has grown substantially, we have, in fact, been cut. If you compare it with EPA's budgets from 1981 to 1996, EPA increased 25 percent; FDA's budget from 1981 to 1996 increased 56 percent; while CPSC's budget, over those years, over all declined by 45 percent. So one, it's a vote of confidence, and, two, it is helping us to make up some of the loss over those years. Mr. Stokes. Okay. Now, although the budget includes this relatively health, increase, even the Administration's number is nearly $5 million less than the amount you say you need. Ms. Brown. Yes. effect of budget reduction Mr. Stokes. What are the principal activities you would like to undertake and will not be able to at the Administration's request level? Ms. Brown. I would like to have Pamela Gilbert, our Executive Director, speak to that. Ms. Gilbert. Thank you very much. We have, as the Chairman noted, asked for an additional $1 million, and that would be for information technology increases that are very, very badly needed to upgrade our current network system, to obtain a new Internet server that is going to help us comply with new FOIA requirements, and to update very old equipment and technology that doesn't even let us keep up with the current technologies that are available now, such as Windows 95, that are fairly common for many others but are right now beyond our capabilities at the Agency. In addition, we had a number of programmatic requests and initiatives that we had asked for in our original budget submission, that have been significantly reduced in our new submission, as a result of the President's request. This includes twice as big an investment in fire initiatives than we have now planned in our 1998 budget. It includes an entire update of children's anthropometric data, which is very important and critical to our work in keeping children safe. It also includes additional funding to contract out product testing of the more sophisticated and complex hazards that we face. So what we indeed have had to do in our budget request right now is scale back significantly the product safety initiatives and the information technology initiatives that we originally put in the budget request to the President. Ms. Gall. And if I could just add to that, it also addresses some of the concerns we have about the year 2000 technology changes. And anthropometric data that Pamela has mentioned are beneficial to a lot of agencies, because we're the ones who obtain that data for NIH, for the Department of Transportation and their concerns about air bags, seat belts and children. All those kinds of things are very important and wrapped up in the anthropometric data that we are trying to improve. It means updating it. It's quite a few years old. special investigations unit Mr. Stokes. Okay. Ms. Brown, your statement and the justifications indicate that a major initiative in 1998 will be the proposed expansion of the Special Investigations Unit within the Office of Compliance, for which you are seeking a $580,000 increase. You say this unit will be involved in investigations of technically complex issues and new applications of existing technologies. What level of funding, and how many staff years are you devoting to this effort in 1997? Ms. Brown. Well, in 1997, let me ask my staff if they have the funding for 1997. While they get that for me--or else I can get it to you--what we are asking for in 1998 is $580,000. And really the SIU is not meant to be a ``gotcha'' effort. What is clearly meant is to handle the very complicated technical kinds of problems that we have to deal with now, to find new sources of data, and also to deal with important technical problems. We really don't want to waste our resources worrying about the very minor problems. But we want to come up with the most different ones. And so the work of this group already has resulted in a number of significant investigations, including an investigation of a technically complex horizontal furnace that may pose a serious risk of fire or carbon monoxide poisoning, and anelectric heater whose design may contribute to potential fire hazard. And we have been working, and developed information sharing relationships with insurance companies a number of independent engineering consultants, and fire investigators. And we have an excellent relationship now with the International Association of Arson Investigators. So this has potential to be very valuable to the Agency. In the year 1997 the SIU had small funding of $50,000 and no additional staff. We now have four full time staff who have their major work at the SIU, but we have not added staff for that purpose. Mr. Stokes. Okay. I have a number of other questions, Mr. Chairman, but I'll yield at this time. And thank you very much. composition of commission staff Mr. Lewis. Mr. Stokes, since you have asked a number of the questions I was going to ask initially, let me shift a moment and ask some questions that you and I have asked together in the past. Ms. Brown, one of the efforts that Mr. Stokes and I have been about since we've worked together on this Committee over some years now is to recognize that within each of our agencies and commissions there is an established personnel base carrying on very important functions. In your budget request, if the $45 million were granted and no more, there would be 480 FTEs, as Mr. Stokes outlined. We would hope that within that mix, as all of our agencies mature, that they would look a good deal like America, that is, reflect the mix of the country, its strengths, the mix of its race and otherwise. And I would like to have you, if you would, outline for the Committee efforts you have made in connection with that. Ms. Brown. I'd be delighted to. Since I've been Chairperson, 58 percent of the hires have been women, and women presently comprise 48 percent of the CPSC's work force. That's approximately the same percentage found government-wide according to the most recent statistics available from the EEOC. Since coming to the Consumer Product Safety Commission I have increased the number of women in the Agency's overall work force by four percent. Since I've been Chairperson, 38 percent of the hires have been minorities. Minorities comprise 32 percent of CPSC's work force. That is four percent higher than the government-wide figure of 28 percent. And since coming the Consumer Product Safety Commission, I have increased the number of minorities in the Agency's overall work force by two percent. Now, in the upper grade levels, which I think is also important besides the overall figures, I want to share with you some figures regarding women and minorities. Fifty-six percent of the promotions have gone to women, in the upper levels. That would be grade 13 and above. And for minorities, 44 percent of the promotions have gone to minorities. Mr. Lewis. In Southern California we are experiencing a rather phenomenal adjustment in our population, and there are similar impacts in States like Florida and Texas, a very rapidly growing Hispanic population. Can you tell me what may have happened to your personnel base as it relates to Hispanics and Hispanic speaking personnel? Ms. Brown. I don't have the exact figures. We will provide that for you. Ms. Brown. In personnel, we are doing some very active work in outreach to the Hispanic community. We've had a meeting where we had important people in the Hispanic community come in and give us some advice about how to improve our outreach. We have had many of our publications translated into Spanish. We have two Spanish-speaking operators on our hotline now. We are doing a pilot program that we're starting work on in California to see how we can get our messages out to the Hispanic population. In Texas, our outreach person down there, the person who works in the field, is a Spanish-speaking person of Hispanic descent, and he has been very active in working on this with us. Mr. Lewis. I'd appreciate your following up on that. Ms. Brown. We'll certainly get that. Mr. Lewis. Mr. Frelinghuysen. baby safety showers Mr. Frelinghuysen. Thank you, Mr. Chairman. Good morning, Chairman Brown. I'd like to thank you first for agreeing to come to my District to host a baby safety shower. I learned from being on this committee earlier from Mr. Hobson how successful your visit to his District was. Would you be good enough to comment on your success in this area, what you've been able to highlight, what sort of demand there is out there, and what sort of private businesses have been helpful to you? Ms. Brown. I look forward, first of all, to going to New Jersey, where two of my children are residents. Mr. Frelinghuysen. It's a good reason to come. Ms. Brown. And my great-grandchildren, in addition to working with you, as I said, in a bipartisan manner. The baby safety showers is a grass roots effort. The CPSC, in conjunction with Gerber Products, who have funded this for us, a private/public partnership, to get the word out in an innovative, fun way to parents and expectant parents across the country about how to keep their baby safe in the home. And we have promoted local ownership in the baby safety showers by community organizations doing this, such as hospitals, health departments, churches, social service organizations, day care centers, too numerous to mention. The program cost the Consumer Product Safety Commission next to nothing, postage to send out documents, and minimal staff time. But Gerber has been very generous with us. And we don't know how many showers have been held around the country, because this is a grass roots program with no intrusive government oversight or reporting requirements. However, we do get reports back from people throughout the country that they have been holding these showers very, very successfully. There's a huge demand for our baby safety documents, a ``how to'' kit. And the other thing that we have is the material has gone out in Spanish, as well. And, for instance, local organizations are incorporating baby safety showers into their ongoing health programs. The State of Maine has recently incorporated it into its entire program. This is one of the ways that government should work, helping people to have the knowledge to help themselves. Mr. Lewis. Could you yield on that point for a moment? Mr. Frelinghuysen. Certainly. Mr. Lewis. It just occurred to me that my colleague Mr. Stokes is recently a relatively new grandfather, and his daughter is a somewhat noted broadcaster. I wonder if a shower might not be appropriate. Jane might be interested. [Laughter.] Jane being the grandmother. Ms. Brown. I think you've pulled ahead of me in grandchildren. Mr. Stokes. You're much younger. Mr. Lewis. We're taking up Mr. Frelinghuysen's time. Mrs. Meek. This is not a question. Mr. Lewis. Okay. Mrs. Meek. I just wanted to ask you for some equal time. My son just had a 9.6 pound baby boy. Mr. Lewis. Congratulations. Mr. Stokes. Congratulations. Ms. Brown. We will send you a packet of all our baby safety material. [Laughter.] Mr. Lewis. Mr. Frelinghuysen. Mr. Frelinghuysen. Mr. Chairman, those are two tough acts to follow. [Laughter.] anthropometric data Mr. Frelinghuysen. But thank you for your leadership, for your willingness to come into my District. I have a general question relative to data collection. There's a lot of adjectives in here I'm not exactly familiar with, but maybe you could sort of pull it all together. You have discrete data collection, and you have integrated data collection, and then there is some term here that I have never heard of--anthropometric, which I can probably figure out what that is. Ms. Brown. Nobody can figure out what that is. That's a trick word in the agency. Mr. Frelinghuysen. How do all these things come together, and what's it all mean? Ms. Brown. Well, I can tell you what anthropometric measurement is. I just learned that. It took me three years. But, in fact, these are measurements of a child's size. And these are used by many other agencies as well. We are the agency that has this kind of data. It's very important, for instance, if you're going to help a company decide what the space should be in something, or if we have to do a regulation about crib slats spacing, what are the sizes that babies can get through or not get through? It's a very serious science. And we are looking for some additional funding, because we think this measurement needs to be updated, this data, because the American children are becoming larger. So therefore we only have the money to do a pilot project, and it's very, very important. Now, somebody is going to help me with discrete data. I'm going to call on the professionals. This is Ron Medford. Mr. Frelinghuysen. Thank you for response. But a 9.6 pound baby. That sounds like rather a discrete figure. [Laughter.] Ms. Brown. Ron is Director of Hazard Identification. Mr. Medford. The discrete database that is referenced in the budget document really deals with those finite bodies of data collection systems that we have--the National Electronic Injury Surveillance System, which is our hospital emergency room data system that fits into that category. The death certificate collection program that we do with the States is a discrete program. The medical examiners/ coroners alert program is a discrete program. Mr. Frelinghuysen. Discrete in the sense that it's limited? Mr. Medford. Discrete in the sense that it is a program that we collect every year, and it's definitive in terms of the universe of products that we're trying to collect information on. The integrated part was actually referred to in the information technology area, where we're trying to put into the computer system a way in which someone can sit at the terminal and pull all of that information together from one place, and integrate those databases. So you have all those discrete databases with that data in it today that aren't integrated. You go from one computer file to the next. The effort that we're talking about is actually integrating those, and that's where the word integration comes from. Mr. Frelinghuysen. It's fascinating. Ms. Brown. So our entire staff can have access to a single database quickly. Mr. Frelinghuysen. That's fascinating. Thank you very much for shedding some light on that. Thank you, Mr. Chairman. telecommuting Mr. Lewis. Thank you, Mr. Frelinghuysen. Mr. Price? Mr. Price. Thank you, Mr. Chairman. I'd like, to add my thanks to our guests this morning, and probe a bit on a couple of items in your testimony. You talk about the efforts you've made to save funds through using telecommuting, page six of your testimony, I'm referring to. The field telecommuting effort, under which staff use computers to work out of their homes. That's an interesting trend in the work place in general. It sounds like you've gone quite far with it. I'd like to know how this works. With over half of the field staff telecommuting--that sounds like a pretty extensive trend. I wonder, how does this work? How does it save money? How does it change the face of your field operations? Ms. Brown. Well, I think telecommuting is an excellent example of how we work smart at CPSC. It means that in the right conditions, employees may work from their homes using computers and other information technology. So technology has certainly made an advance in this. We did a pilot test late in 1995 that showed that working from homes could be productive. And with the success of the pilot, we offered the option to all our field offices to do this on a voluntary basis. The person had the right to accept it. Those who are new hires are hired with the idea that they will work from their homes, but people who were there could choose to or not. Now, the results have been very, very good. We have reduced field space rent by 50 percent, saving about $500,000 annually. And that's a big chunk of change for the Consumer Product Safety Commission with our small budget. We've released GSA space in 18 cities, and significantly reduced office space in 13 cities. Over 50 percent of our field staff telecommute. Now, that's 69 employees out of 128. So you know when we're talking about--this is not a huge amount of people. We only have 128 field staff. We expect additional savings in the future, as non- participating employees leave, and we have found, most important, that telecommuting, with less commuting time and better automation tools, has improved both employee morale and productivity. Mr. Price. Now, these telecommuters, are they typically working out of their homes entirely? Or for part of their work? Ms. Brown. They are typically working out of their homes entirely. Ms. Gall. They are also working in the field, doing investigations, and that's another reason that technology integration is so important, because that way our field people, if they're on site doing an investigation, can tap inwith a laptop computer to some of the technology information we have in Washington, in the area here, pull up additional data about that particular issue, and send in their investigation report and so on with the technology. That's why it's such an important investment for us. And they also go into their various regional offices for meetings, and have an ongoing relationship with the heads of those offices. Mr. Price. They would have an ongoing relationship with the regional offices. Ms. Gall. Of course. Mr. Price. Does this pose any problems in terms of supervision and communication? Ms. Gilbert. It has actually improved communication, because what we often had in the past were many layers of supervision that the field investigator, the line staff person, had to go through before the information filtered to headquarters where we need it, and need it as quickly as we can get it. And what our field staff is now learning to do more and more, because of the telecommuting effort, is to deal directly with the compliance officer in headquarters who is conducting the overall review of the product. And so we're getting quicker input, and quicker information back and forth from the field, and better information, because, as you know, like in the game of telephone, if too many people are filtering the message, you don't get as clear a message as you do if it goes directly from the person requesting it to the person actually doing the work. So communication has much improved because of the telecommuting effort. Mr. Price. So you're saying you get the best of both worlds from this kind of development? Ms. Brown. Yes. Mr. Price. You anticipate saving $500,000 annually? Ms. Brown. We are saving it annually. Ms. Gilbert. In 1997 we'll save $500,000. We hope to increase that as the years go on. voluntary compliance Mr. Price. Let me quickly ask you about one further aspect of your testimony. You stress your voluntary compliance efforts. You refer with some pride to negotiating 106 voluntary corrective actions in fiscal year 1997. You also talk about the stress on cooperative, non- adversarial solutions as a hallmark of your Administration, your leadership at the Agency, pointing out that you've developed 17 voluntary standards, and issuing only 10 mandatory regulations since you became chairperson. I wonder if you could fill in the record on that as well, and particularly the trend toward voluntary corrective actions? Can you give us some sense of how that 106 figure for fiscal year 1997 compares with previous years, and what kind of change in approach or policy, if any, is implied by that? Ms. Brown. We have increased working with industries voluntarily. There are two different ways that we work. One is our compliance people, who do recalls. And almost all of our recalls of any dangerous product are arrived at voluntarily, negotiated with the company that has the recall. The other area are voluntary standards, that's standards of a whole product category. And we have emphasized working with industry voluntarily, with industries. But there have to be certain caveats, of course. The caveats are that we do monitoring of these voluntary standards to make sure that the industry is, in fact, adhering to a voluntary standard. It is much faster to work voluntarily. To do a mandatory standard, which we will not hesitate to do if the situation presents itself, however, that takes a very long time, and we very often end up in court. Speed is of the essence for what we're doing, in order for more people not be injured. So a voluntary standard is preferable if it is complied with, and if it is speedily arrived at. If that doesn't work that way, then we must turn, of course, to mandatory standards, as we did with our child resistant caps. Caps are child resistant, and have been for a long time, and the poisonings for young children have gone from 284 a year to 34 a year. But 34 a year is still too many children dying from poisonings from medications. With the child safety caps, we now have found that we have the technology to make child resistant caps and also adult- friendly. We were able to negotiate with the industry, but to reach a regulation for that, we had to go the mandatory route. By the end of this year you will find that all of that medication that used to be only child resistant now will be easy for adults to open as well. Mr. Price. Well, and the possibility that mandatory standards are an option, of course, strengthens your hand in negotiating these voluntary agreements. Ms. Brown. That is correct. Mr. Price. If there is something you could furnish for the record that would give us some idea of any trendlines in this, that would be helpful. Ms. Brown. We'll come up with that for you, certainly. [The information follows:] trend in the number of voluntary corrective actions The trend in Section 15 voluntary corrective actions has been increasing during Chairman Brown's tenure at CPSC. The chart below covering fiscal years 1994-1997 (to date) reflects that increase. Fiscal year: Voluntary corrective action plans 1994.......................................................... 159 1995.......................................................... 280 1996.......................................................... 302 1997 (to date)...............................................\1\ 164 \1\ Thru May 15. Ms. Brown. In fiscal year 1994, there were 36 voluntary standards. Fiscal year 1995, 40 voluntary standards. Fiscal year 1996, 51 voluntary standards. Eleven more than 1995, and 15 more than 1994. We have found this a very successful way to work with industry, but as we say there must be compliance with the voluntary standard. Mr. Price. Thank you. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Price. Mr. Walsh. savings from telecommuting Mr. Walsh. Thank you, Mr. Chairman. Thank you, Chairman Brown, for your testimony today. Mr. Price asked some questions about this telecommunicating which is something I am very interested in. Before I came here, I spent 15 years in the telecommunications industry. This is sort of what we talked about back then. I am just curious, though. On these savings, you said most of those savings came from rental savings, so you were able to consolidate offices and reduce rent. Ms. Brown. Or in some places eliminate an office altogether. Mr. Walsh. Okay. Now, when you talk about savings, obviously there are some costs that increase to things like personal computers, and modems, and telephones, and telephone lines. Lease lines, perhaps. Faxes. Printers. And maintenance agreements. Are all of those costs included, when you consider what savings you have had? Have you considered also the increased costs? Ms. Brown. All right. Let's get the Executive Director, Pamela Gilbert. Mr. Lewis. One more time, Ms. Gilbert. Ms. Gilbert. The $500,000 is not a net cost. It is the cost that we are saving from our rent. However, the other costs that are involved in telecommuting, that you just mentioned, Mr. Walsh, much of that we would have had to spend anyway. We have to update our computers. We have to buy new computers for the field. So we bought the portable type rather than the type of computer that sits on your desk. But we would have had to replace computers anyway, so there are just really marginal costs that have been involved. For example, we had to have fax capabilities anyway for these offices. One of the things to remember with our field offices--many of them are one or two person offices. So the fact that those people went to their homes, did not mean we had to buy a lot more equipment for each person, because they had most of it in their offices. But what we do not have to do anymore is pay rent for that office because they are now working from home. Mr. Walsh. Would each of these individuals then have a PC or a laptop, a modem, a fax, printer? Ms. Gilbert. Yes. They have all of that, all of the equipment that you just mentioned, at their home. But again, they would each have had most of that at their office anyway. Mr. Walsh. Each one of them? Ms. Gilbert. For the most part that is right. So that we did not have very many additional costs included in the telecommuting effort. Mr. Walsh. How about with more people contacting from different locations your mainframe or whatever it is that you have at your office? Did you have to spend additional funds to upgrade that, so that more people could access it? More courts? Ms. Gilbert. Oh, you mean as far as telecommunications at our headquarters? Mr. Walsh. Yes. At the central location. Ms. Brown. Doug may know that. Ms. Gilbert. Our Information Services Director will respond to that. Doug Noble. Mr. Walsh. I just want to make sure--you know, the savings sound great, but are they real savings? Ms. Brown. Right. Now you must understand, of course, the $500,000 savings are annual, while our equipment costs of course are one time. Mr. Walsh. Sure. Absolutely. Mr. Lewis. One time, they replace it. Ms. Brown. That is right. Mr. Walsh. That does not mean it is charging this rental for the private lines or the American On Line, or whatever it is that you use? Mr. Noble. That is correct, Congressman Walsh, and what we have done, regardless of telecommuting, has gradually expanded our telecommunitions program. We had a wide area network in place, and as more and more staff, got on to this network, who needed access, we found the load increasing on our network. What we are looking for is a way to sustain our communications and increase the capability for staff to work off our headquarter's computer network. Mr. Walsh. So you have a lease-line network for these folks that are not dialing over the network? They are not dialing that? Mr. Noble. We do it through Federal Telecommunication Service lines. Mr. Walsh. Okay. Mr. Noble. It is basically phone lines that we have, and they come into our headquarters computer in Bethesda. Mr. Walsh. Could you estimate the cost of establishing that for your field folks? Mr. Noble. The wide area network itself? It was approximately $100,000 to establish equipment and lines, and of course there had to be some training involved for these employees to learn how to actually use the network. [The information from Mr. Noble follows:] [Pages 535 - 537--The official Committee record contains additional material here.] Mr. Walsh. Sure. Now, does each one of these employees have a maintenance contract for all the equipment that they have also? Mr. Noble. Up till this year, we actually had equipment that would have been under warranty. As the equipment has aged, the warranties have expired, and so in 1998 we are going to have to develop blanket purchase arrangements for on-site maintenance, if our employees at our headquarters cannot help the employee troubleshoot it through a telephone call. Mr. Walsh. If we could, perhaps next year, maybe--or maybe in ensuing months you could give us sort of an estimate of the cost of migrating your field staff from office oriented to home oriented. Ms. Brown. Right. We will get that to you. [The information from Ms. Brown follows:] [Pages 539 - 540--The official Committee record contains additional material here.] productivity of telecommuters Mr. Walsh. Because I think the application is marvelous. The other question I had was productivity. You said productivity was increased. How do you measure that? Ms. Brown. How do we measure increased productivity? Mr. Noble. Well, if I may just volunteer, the easy answer is we have saved thousands of hours in administrative time in terms of just improved communications. We can send messages, instantly, whereas before, it would have taken days, weeks, and hours, and that would have had a direct impact on our ability to react quickly to any situation we needed to address. So I think that is your major answer--is thousands of hours of administrative time have been devoted to programmatic work. Ms. Brown. Our talk with supervisors has also shown us that they feel that the work they are getting from their staff members is more productive. We have also found that people who have done this like it. When you have people who are working happily, they are usually working smarter and better. Mr. Walsh. And I think you mentioned earlier about flattening out your organization. Ms. Brown. That is the other point I wanted to make. Mr. Walsh. That is, eliminating layers that really did not get---- Ms. Brown. Layers of bureaucracy is something that we really wanted to cut through with that commission, and this is a very important step forward in doing that. We have been able to do it, you know, quite easily at headquarters, when you start to do that. But when you start to do it in the field, it is quite important. Mr. Walsh. I think your experience--and I am not sure what other departments of Government are doing this--could be very valuable to the rest of the Government, if we could quantify what the start-up costs are in the monthly or annual costs of doing it this way, and then compare that to the actual savings and productivity. Ms. Brown. I think we must have that, because we won an award of reinventing Government, a Government award on this telecommuting program from the Vice President for reinventing Government. It is one of our three hammers. [Laughter.] But I do think that we must have this, and we will get this to you, promptly. Mr. Walsh. Great. Mr. Lewis. Would you yield. Mr. Walsh. I would be happy to yield. Mr. Lewis. Mr. Walsh, you are asking a line of questions that is very important, but it has been suggested that that which you do not measure, you never know the results of. So I would be very interested in our next session, a year from now, having a full discussion of the way you measure increased productivity, and what it really means, in more detail, et cetera, so that we can get a handle on that, as that might be reflected in requests in other agencies. There was, Ms. Brown, an item on television this morning, I am not sure which of the channels was involved, where they were talking specifically about this whole area of telecommuting, people doing work at home, et cetera, and reporting seemed to be, from whatever operation that was from the private sector, considerably different than that which I am hearing here. I mean, you might have somebody try to figure out which program that was, and it is an interesting story and it relates to this whole subject area that has a growing interest---- Ms. Brown. Yes. We will find that. We can find that with a television monitor that we have. Mr. Lewis. Okay. airbags Mr. Walsh. Mr. Chairman, if I could just ask several questions on airbags. Mr. Lewis. I might mention that it is obvious that other committees are through with their hearings, so we have got a broader attendance. We tend to take up all the time that is available, regardless, so I might mention that---- Ms. Brown. Well, I am delighted and I thought it was excellent attendance because of the fine job that we did. Mr. Walsh. Life is easier when there is only one hearing a day. [Laughter.] Ms. Brown. Yes. Mr. Walsh. On airbags for cars, I do not have in either of my cars, airbags, but obviously it has been a huge controversy. But what has been your department's role in this, and where do you see this thing going? Ms. Brown. Well, quite honestly, you know that airbags are in the jurisdiction of the National Highway Traffic Safety Administration. We have nothing to do with airbags. Mr. Walsh. I did not know that. Ms. Brown. But I can just give you a---- Mr. Lewis. But as a mother. Ms. Brown. Well, not only as a mother, but as a short woman, I can tell you that other women have called me, who know I am in the safety business, and I have been able to tell them where they can get pedal extenders. What we have learned for our agency, to try and look at the airbag experience--and I have made this very clear to our entire agency--any time that you do a safety innovation, you must look to see what will be the results of that innovation. Your testing has to include more than just a 5 foot nine male in the testing. We are a scientific and technical agency. You must use the best science and technical abilities available to understand further repercussions of safety. We do do data collection for the National Highway Traffic Safety Administration through our data collection system of emergency rules. But the airbag situation does give us a lesson in health and safety regulation. Mr. Walsh. Thank you. Mr. Lewis. Thank you, Mr. Walsh. To my favorite grandmother, I want you to know that I only have six grandchildren. So I am behind you now. One more time, Mrs. Meek. Mrs. Meek. Thank you, Mr. Chairman, and to Administrator Brown, we are very pleased to have you here today, and knowing of the accomplishments of you and your agency in the past, I want to commend you. My commendation, first of all, is based on the fact that you have been able to work out a reciprocal kind of relationship with business, where you do not come on as some big arbitrator in the sky, and just say we are going to change this, and they have to conform to everything. I think that is going to add to the continuous success of your agency, and what you are doing. I also would say in the area I represent, there are a lot of middle income to low income people, and they profit, and can profit a lot from your informational technology, and I would agree that this is an area you really need to enhance, and only through the help of this Committee can you do that. But I do hope that this Committee will be favorable to that, because the outreach efforts, and the way you have of reaching out to all the public is extremely important, in that so many of them know very little about the consumer product agency. But when they hear it or see it on television or see it in their newspapers, or have some of the local commentators talk about it over the air, it is extremely important. And I think a lot of this success has been due to the fact that you have women in the agency who have had to confront these kinds of things; not to say that men do not have this as one of their priorities. But I think that that approach has helped also. So I do hope that the information technology--I cannot imagine your being able to do a good job without all aspects of the computer industry, particularly in this area. We would not dare say to NASA, to any other agency, ``We want to limit your capacity to reach your constituency.'' So I do hope that this will come over real strong with this Committee. And I notice that you are doing quite a bit in fire prevention. Ms. Brown. Yes. fire prevention Mrs. Meek. That is really, really a very big problem in the area, and the people I represent. Many of them--there are a lot of fatalities because of fire, because of the societal conditions that exist in those areas. And I do hope that perhaps the Agency can set as one of its goals a focus on how to reach those communities, and delivery systems that will help make it more possible for you. Ms. Brown. Fire prevention, of course, has been one of our major efforts, the fire prevention, and we are doing many things. Now, additional funds that would be used to try and see what we can do about the high cost of fires, both with human lives and also with what it does to a community--something burns out, and the whole economic vitality of an area will be damaged. Increased funding would provide a mix of research and action items for us to further continue our fire efforts. We need a broader and more inclusive attack on the Nation's fire problems, especially in the lower income communities which bear the brunt, and to the elderly and children. Mrs. Meek. Right. My last mention here is the fact that you are dealing with usually an industry that is well-established. I want you and your staff to think also about some of the linkages into that focus group you have here, in industry, that there are a lot of flea markets and a lot of discount places which people, middle income people, and lower---- Ms. Brown. Dollar Stores? Mrs. Meek [continuing]. And middle income people like myself frequent. And many times they have not gone through the process that you have indicated. So your investigative powers, in that regard, would come into good help, a good consumer product help in those areas. Ms. Brown. Our recall roundup, which I mentioned before, was emphasized in communities and focused on making sure that older products, that do not meet our safety standard were either repaired or destroyed. Mrs. Meek. That is right. Ms. Brown [continuing]. We also emphasize emergency room health care. Many people do not go to pediatricians. That is a luxury, these days. Mrs. Meek. That is right. Ms. Brown. They get their primary health care very often in emergency rooms. So we are extremely cognizant of the populations that we need to serve. Mrs. Meek. Thank you. Ms. Brown. Thank you very much. Mr. Lewis. Thank you, Ms. Meek. Mr. Wicker. Mr. Wicker. Thank you, Mr. Chairman, and before I begin, I would note that we are joined by my colleague, Mr. Hobson. Mr. Lewis. His questions have been asked already. Mr. Wicker. Who is also a new grandfather. [Laughter.] Ms. Brown. We have had all kind of reports today, Dave. How many pounds did yours weigh? Mr. Hobson. Eight pounds, 5 ounces. I was there, but not in the room. That is number four. Trying to catch up. [Laughter.] Mr. Wicker. Congratulations. Mr. Lewis. Mr. Wicker. upholstered furniture flammability Mr. Wicker. Madam Chairman, I appreciate you being here, and I also want to say, at the outset, that I recently requested that your senior staff meet with mine concerning your commission and your mission and activities, and that briefing was very helpful to them and to me. Ms. Brown. Thank you, sir. Mr. Wicker. I want to talk, briefly, today, about flammability and the upholstered furniture industry. As you may know, in my district in Mississippi, manufacturing is one of the largest sectors of the economy, and of that sector, upholstered furniture is overwhelming the largest portion, employing tens of thousands of people. Ms. Brown. Yes, sir. Mr. Wicker. This is a very price-sensitive industry, with hundreds of very, very small businesses participating in the manufacture of upholstered furniture. Any unnecessary regulatory cost which might be placed on the industry could have a negative effect on job creation as well as on the ability of consumers to afford the product. It is my understanding that the commission has a number of furniture-related projects, which I will ask you about in just a moment. But also that the industry itself has been very proactive in assisting your agency in its work. I have received a briefing about your agency's ongoing projects regarding upholstered furniture flammability. Approximately 75 or even 80 percent of such fires are caused by smoldering cigarettes, as you know. The industry has made great strides in this area through its voluntary program known as the Upholstered Furniture Action Council. Ms. Brown. UFAC. Mr. Wicker. Or UFAC. The UFAC program on a cost-effective basis has established construction criteria which must be met by the upholstered furniture manufacturers in order to qualify for participation. Reflecting the success of UFAC, over 90 percent of the dollar volume of U.S. furniture is pledged to be in compliance. This has been a success story, according to your own agency's data. Since the beginning of the UFAC program in 1978, there has been approximately a 76 percent reduction in fires associated with a cigarette ignition of furniture, and this rate continues to fall each year. My question concerns my understanding that your agency is now considering whether to supplant this voluntary industry standard with a mandatory Federal regulation. I further understand that your agency is studying whether to move beyond cigarette ignition to require resistance to small open flame sources such as lighters, matches and candles. This is a much more complex and a much more potentially expensive undertaking to make upholstered furniture resistant to such open flame ignition sources. I note on page one of your testimony, that the mission of your agency is to protect the public against unreasonable risk. Ms. Brown. Correct. Mr. Wicker. And it is not totally clear to me that a reasonable consumer expects his or her couch to be totally impervious to open flame. I am also not sure what materials or constructions would yield this level of resistance to open flame, and at what cost to the consumer. I certainly share the comments of Mrs. Meek concerning the need for fire prevention. In my other subcommittee on labor, health and education, we are funding a pilot program of smoke detectors for this program. So, clearly, the agencies are working together, and none of wants to jeopardize the progress the industry has made on the larger question of cigarette ignition. Nor would we want to render furniture unaffordable to lower or middle income people. So my question to you is since it has been a little over a month since your staff met with my staff, could you update us on the Commission's furniture project? Ms. Brown. Yes; I certainly will. First of all, I was down in High Point and had a very, very successful and well-received visit to the furniture market. I think it is very important that the lines of communication are kept open in this, and for their work in another field--it happened to be bunk beds--they won an award working with us on a voluntary standard. So we would not turn to this just haphazardly, unless we saw cause. And I am going to have Ron Medford talk to you about this. This is a work in progress. We have not completed it, and we have not reached any conclusions--that is what we are doing work for. And Ron will talk to you further about where we are in this, and why we began this. Mr. Medford. Just quickly, by way of background, the Commission was petitioned by the National Association of State Fire Marshals to actually promulgate three mandatory rules or standard. One rule, a mandatory rule for smoldering ignition from cigarettes. The second one for a small open flame rule, the one you have been mentioning. The third rule is for a large open flame test. The Commission has taken several actions. First, on the large open flame issue, it denied that portion of the petition, which is more appropriate for commercial furnishings and not for residential furnishings. It deferred action on the cigarette part of the petition until it evaluated the degree of conformance by the industry with the voluntary program. And that work is going on right now. The staff has almost completed that work, and intends to give it to the Commission, some time in June. And thirdly, the Commission granted the piece of the petition that dealt with small open flame ignition, because the Commission found that it may present--these are preliminary findings on the part of the Commission--an unreasonable risk of injury, and that there are no national standards, either voluntary or mandatory, that address that issue, except in the State of California. What the staff has been doing is looking at the technical feasibility of developing a small open flame standard, and looking at the cost-benefit considerations, the one issue that you mentioned. All of those things are really intended to come to the Commission for a decision. The decision the Commission will make next with respect to those two issues is whether to grant the petition on smoldering ignition, which would depend entirely on the degree to which the voluntary program is working and being conformed with by the manufacturers. And secondly, the open flame issue is whether or not to go to the next stage of rulemaking, which is a proposed standard. It will be the first time that the Commission is presented with a preliminary regulatory analysis which looks at the cost and the benefits to society of such a rule. The upholstered furniture area actually represents one of the largest area of fire deaths in the country. There are something like 680 fire deaths every year, amounting to $244 million in property losses. The latest fire statistics for upholstered furniture are attached. So it is one of the biggest fire problems that we have in the Nation, and that is why we are spending so much time and effort looking at it, along with a number of other serious fire problems in the country. [The information follows:] [Page 548--The official Committee record contains additional material here.] So that is where we are. The next stage for consideration is whether the Commission wants to propose a regulation for small open flame, and at the Commission we are required to use a three stage rulemaking process. Mr. Wicker. Does Commissioner Gall want to comment? Ms. Gall. I just wanted to comment that I think some of the figures that Ron is quoting about the number of deaths, and the fire incidents associated with upholstered furniture are very old and before the UFAC certification program came into being. So that has to be remembered as well. That is a factor. I voted against moving the small open flame portion of that particular petition because I did not feel we had sufficient data to move forward. So I am the dissenting vote. Mr. Wicker. I appreciate what everyone has had to say about that, and particularly keeping lines of communication open, and I would simply reiterate that up to 80 percent of the upholstered furniture fires are related to smoldering cigarettes, and much progress has been made and continues to be made to the tune of over a 75 percent reduction. I would also simply mention to you, Madam Chairman, that the second largest furniture market in the Nation is in my hometown of Tupelo, Mississippi, and I would certainly welcome having you come down and meet with the very, very small furniture manufacturers who supply that second largest event, and I think you would astounded to see the progress we have made in Northeast Mississippi. fire safe cigarette Ms. Brown. I would love to do that, and I will look forward to an invitation, and of course small business is equally as important to me. My family background is in small business. I do want to mention one other thing to you. The upholstered furniture industry has unfairly borne a largeburden of cigarette smoldering emission fires, because the cigarette industry has not shouldered its share. We had, in 1994, a bill entered by Congressman Moakley. We had done some work that showed that the cigarette industry could work, and in fact did work with us. It was possible to make a more fire-resistant cigarette. That bill did die, and there does not appear to be anything, although we have talked to Congressman Moakley about that again. That the cigarette industry should in fact assume its full share of the burden of reducing fire deaths. Mr. Wicker. Thank you. Mr. Lewis. Mr. Wicker, thank you very much for your questions, and your special interest in this subject area is helpful to the Committee as we review the work of the Commission. I might mention that I am very interested in your exercise of measurements by way of a cost-benefit ratio. I would appreciate your helping us get a better understanding for the record relative to how you go about making those measurements. The question of upholstered furniture, for example, that may have been put in the marketplace before certain standards were met is important. When one talks about fires and you relate X number of fires to X billions of dollars of less, whether the original cause was a forest fire or in the home, those questions are relevant questions and, indeed, it is important that we be measuring in a way that is helpful to all of us. [The information follows:] [Page 551--The official Committee record contains additional material here.] Ms. Brown. We have what we call good-natured disagreement here, and you will get our data, and the data that we have from the fire services, which show how carefully we measure cost- benefit. Of course it is part of our regulations. Mr. Lewis. I must say that we find, on this side of the table, that good-natured disagreement between us often stimulates better results and answers as well. Ms. Brown. There you go. That is why we are a three member Commission. Mr. Lewis. Mr. Hobson, I might mention to you, formally, for the record, that questions regarding savings and rent, and et cetera, have been asked, extensively, but we would love to have you round out that portion of the work. [Laughter.] Mr. Hobson. Well, I do want to welcome the Chairman and the Commissioner today, and all the staff that is here. Ms. Brown. Thank you. small business ombudsman Mr. Hobson. We have worked very closely with this Agency. I think it is an example of where we can do things together, and you can do them without heavy rules and regulations by getting people together, and work. And as a new grandfather, you know, I do not have as many as other people. They are all important, and we have learned a lot from what the Consumer Product Safety Commission has done, and Roger, we will all be happy to come down to Mississippi if you can arrange a trip for us down there. Mr. Wicker. Wonderful. Mr. Hobson. Rodney and I said we had not been invited. I am sure Ms. Meek will want to go, too, with us. Maybe we can get Lou to go also. But I do have a couple questions I would like to ask, if I could, very quickly. And I understand that CPSC has established a highly successful small business omnibus program, and I do not know if any question has been asked about that, but would you tell us about what you have accomplished with that. Ms. Brown. Yes. It so happens that Clarence Bishop, our small business ombudsman is here, and I would like him to give you the information on this, since we will get it directly from the source. Mr. Lewis. Come on up, Clarence. Why don't we have you formally identify yourself for the record. Mr. Bishop. Good morning. I am Clarence Bishop, Deputy Executive Director of the Consumer Product Safety Commission. CPSC has always been sensitive to the needs of small businesses, and particularly now with a Chairperson who has a family background in small business, that sensitivity has been increased. So in June of last year, we established a small business ombudsman program to provide better services and to allow small businesses to interact easier with the Commission. And since June of last year, we have handled responses from almost 1,000 small businesses representing 44 States and actually three or four other locations, Puerto Rico, England, and some other places like that. And it is our goal that from the point that a small business contacts the ombudsman office, and within 48 to 72 hours we have an answer or the information or the clarification regarding our rules and regulations that they are seeking. And we have been about 80 percent successful in this 48 to 72 hour turnaround time. Mr. Lewis. Did you want to make a comment about that? Anybody else? Ms. Brown. No; no. Mr. Lewis. I am just happy to see that program working, Mr. Bishop. Ms. Brown. Not only to our expectations but Clarence Bishop has been excellent in this, and it is working really very, very well. We are awfully pleased. We had a small business conference where we announced this, and there were many small business people who are scared of Government and Government regulation. I know that from my father's experience. Mr. Lewis. We all were, when we were in business. [Laughter.] Ms. Brown. Well, on particularly small business. And this has really started to bridge the gap. Mr. Lewis. I think that is very important because small business does not have the resources a lot of times, and people come in and you get whacked with these things and you want to do the right thing but sometimes you just cannot. Ms. Brown. No; no. Mr. Lewis. Good. Thank you, Mr. Hobson. Mr. Hobson. I have a couple other questions. Mr. Lewis. Do you really? Mr. Hobson. Yes. [Laughter.] Mr. Lewis. We have two other agencies. Are you going to stay for a while? drawstrings on childrens' clothing Mr. Hobson. Yes. For one of them anyway. I want to talk just briefly about drawstrings, because we worked on that, and it was a wonderfully successful program, but I am really concerned about an article I read the other day, and I am not sure whether it is correct or not. But the school buses in the districts are not fixing those mirrors as I understand it. It is like a five dollar repair to fix these mirrors, that the drawstrings would not get caught in it. Now we have successfully gotten the clothing manufacturers to come forth and do their part, without any rules or regulations. What do we need to do to get these school districts to make this repair so some young person does not get caught again? Ms. Brown. The place that we have been able to be effective, as you are saying, the Consumer Product Safety Commission, is we now have a voluntary standard and the industry leapt forward to do that. Where there should be no more than 2 inches at the waist, where they removed the strings at the neck, voluntarily, and there should be only 2 inches allowed at the waist and it must be tacked. Fortunately, that is on all new clothing and we have monitored the industry, monitored the stores to see that that is correct. The other part about it could happen on school buses, since that is not something we can attend to except to encourage our sister agencies and local jurisdictions to do that, that is another part of it. Mr. Lewis. We all need to figure out how to send out a message, then, because it is like $5 a bus. We are not talking big money and a child's life is certainly worth it. Ms. Brown. I think the National Highway Traffic Safety Administration has been trying to work on this, and I think that what I will do is to, when I get back today, call Dr. Martinez and see where we are on this. Mr. Lewis. And I will have my staff make an appointment for you and Mr. Porter so we can discuss it whenever HHS comes in. Mr. Hobson. Okay. I would like to do that because it is something that should be done. Quickly, on two other things. I want to continue to encourage you on the baby safety showers because people talked about we have done it, we are going to try to do it with another Member close to us, and I think it is a good thing for Members to---- Mr. Lewis. Near Cleveland? Mr. Hobson. No, this is going to be over near Columbus. Cleveland is a little far for me to drive. [Laughter.] laboratory consolidation Mr. Hobson. And we always consider it way up north. If you want to do one, I will be happy to come, if you guys are going to be there. The other thing is, and I understand maybe you have talked about this already, but I use you as an example before all the other agencies when they come in on rent, because you did fight on it. The GSA guy did show up and said, ``Hey, what are you doing?'' but he was very positive about what is happening on that, and I want to congratulate you. I think you have probably talked about this, about receiving the Hammer Award. I think that is pretty neat and---- Ms. Brown. We also are consolidating our two---- Mr. Lewis. You won on that. That was a big fight you had with GSA. That needs to be in the record, that she won, and fought on that. [Laughter.] Ms. Brown. And we are consolidating our laboratories and it has worked out to be a very successful enterprise and we will be---- Mr. Hobson. Where are you consolidating? Ms. Brown. Pardon me? Mr. Hobson. Not in Ohio. Not in my district. Ms. Brown. No; no. Mr. Hobson. But the important thing is that agencies need to know that you can have these discussions with GSA and that you can work things out and get it done, and that is an important message to be sent to everybody, I think. Because there is a tendency for agencies to say, ``Well, GSA said this,'' and I do not think we have to--you have to live with that. So thank you, keep up the good work, and thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Hobson. With the attendance we have had today, I must mention that somebody, one side or the other, has asked all the questions I had formally prepared, which I thought might happen. Ms. Brown. I have not answered one of your questions, if I may, about our Hispanic staff. Eight percent of CPSC's minorities are Hispanic. Two percent of CPSC's overall staff are Hispanic, and Hispanic staff has increased approximately 40 percent in the three years since I have been here. Mr. Lewis. I will be interested in following that progress, and frankly, we have done very well, across the board, in that whole area of interest. But nonetheless, I do find, particularly in California, that Hispanic access to executive levels in Government, as well as other locations, seems to lag significantly, and it does not hurt to raise that question from time to time. Ms. Brown. Absolutely. Mr. Stokes. Mr. Chairman. Mr. Hobson. Yes, Mr. Stokes. Mr. Stokes. On that area, can I just make a request that on this area, as in your previous questions, that Ms. Brown be permitted to expand on this in the record and provide tables for us also. Mr. Lewis. Absolutely. Ms. Brown. Oh, absolutely. That will all be provided, Congressman. Mr. Stokes. Thank you. [The information follows:] [Pages 556 - 559--The official Committee record contains additional material here.] housing project Mr. Lewis. Thank you, Mr. Stokes. I might mention, I was going to raise this when there were more Members present, but there is a good number here at this moment. It is separate from your subject but we are still in session and the thought is in my mind. On June the 5th, we are going to involve ourselves with as many Members as possible in a thing that is now being called ``The House That Congress Built.'' The Speaker and the Democratic leader have agreed to come together, and bring the leadership together, to go to a Southeast location in Washington, D.C. and complete the building of what actually will end up being two homes for people by way of Habitat For Humanity. It will be an effort whereby we hope to get a broad cross- section of Members who are in the committees, authorizing as well as appropriating committees, that deal with public housing and housing in general, kind of the edge of the kickoff of home ownership week. We would hope that maybe that would even lead to the following year, Members going back to their individual districts and participating in similar efforts. But Mr. Stokes and I are very pleased to be a part of sponsoring this and want to bring it to your attention while you are here. And with that, thank you, one more time, for very fine testimony, Ms. Ann Brown, and I very much appreciate Commissioner Gall being with us, and for your contribution as well. With that, for now, we will see you next year. Ms. Brown. Thank you very much on behalf of all of us. [Pages 561 - 624--The official Committee record contains additional material here.] Wednesday, May 7, 1997. U.S. OFFICE OF CONSUMER AFFAIRS WITNESSES LESLIE L. BYRNE, SPECIAL ASSISTANT TO THE PRESIDENT, DIRECTOR Opening Remarks Mr. Lewis. It's a pleasure to welcome Ms. Leslie Byrne, director of the Office of Consumer Affairs. Ms. Byrne. Thank you, Mr. Chairman. It's good to see you again. Mr. Lewis. Nice seeing you. Ms. Byrne. Members of the committee, how are you today. Mr. Stokes. Ms. Byrne, how are you? Ms. Byrne. I'm doing well. I have Howard Seltzer and Sandy Aguilar from our staff with us today. And I have a formal statement that I'll submit for the record, and just make a few brief comments. Mr. Lewis. I would make some introductory remarks as well, and perhaps Mr. Stokes may want to, and then we can go from there, Leslie. It's a pleasure to welcome you to the committee, and for your first appearance before the subcommittee in this capacity. Ms. Byrne, you have the distinction of being the subcommittee's last witness of our review of the fiscal 1998 budget which began February 26th when we had hearings on NASA's budget. Thank you for being with us today, and while we welcome you to the committee, we wish you well. We certainly hope you're enjoying your work as much as we're enjoying hearing from you. Ms. Byrne. Thank you, Mr. Chairman, and as I say, I'll submit my formal remarks, but let me just say---- Mr. Lewis. Let me see if Mr. Stokes would like to say anything. He might want to welcome you as well. Mr. Stokes. Thank you, Mr. Chairman. I would like to welcome Ms. Byrne, as a former member and colleague, and someone for whom we have great respect and admiration. It's a pleasure to have you appear here in this new position, and I join with the Chairman in wishing you well. Ms. Byrne. Thank you. Mr. Lewis. So then you can proceed as you like, Ms. Byrne. Ms. Byrne. Okay. Well, because of a letter we've received, the good news is that we've had a generous offer from a group who purport to be Nigerian officials, and we won't need an appropriation for 1998. [Laughter.] We may be able to turn money back to the Treasury. They say they find themselves with an embarrassing surplus of $28.6 million, in U.S. dollars, and because of intentionally over- invoicing a contract, they've graciously offered us 30 percent if we will bank the money for them here in the U.S. and supply them with several items of personal information, including our bank account number. Their letter closes with: ``let honesty and truth be our watchword''. So it must be legitimate. Mr. Lewis. I would suggest the Office of Consumer Affairs proceed with great caution. [Laughter.] Mr. Hobson. I've gotten those letters. Ms. Byrne. That's right. And Mr. Hobson, although this scam is laughable on its face, and transparent, it is a prime example of the type of fraud based on illegal use of personal information, which we have focused much of our efforts at USOCA. We focused on consumer education and policy development, and coordination of various agencies, so that people will be aware of these kinds of frauds. As a matter of fact, when we testified on the other side last month, Senator Bond indicated that one of his friends had been taken in by this very same fraud I just outlined. We are the only executive branch agency, by executive order, to coordinate and monitor Federal consumer programs throughout the government, to identify consumer needs, and educate and be advocates for consumers. We are non-regulatory. We have no mixed mission, or restrictions on our role to represent consumers. We are proactive in giving people the tools they need to protect themselves in the marketplace. Mr. Chairman, our budget request shows that we understood what your committee was saying last year about reducing government and making it more efficient. We are reorganizing. We are using technology to make us more productive, and to help the public with fewer tax dollars. We've instituted, since I've been there, a database that we can track complaints as they come in by letter and by phone, sharing that information with other government agencies, so that they have access to what we know also. We're developing Web links with the FTC and the CIC so that our handbook is going to be on every available Federal Consumer Website, so that when people click in to the Federal Trade Commission, or the Consumer Information Center, that they can pick up our publication. Our emphasis is on providing people with the education and information they need to help themselves. Because, quite honestly, it costs less, and is more efficient than fixing problems after the fact. Because of the shift of our economy to a service and information based economy, we are planning a White House Conference on Consumer Issues for 1998. Consumer rights are associated with products like cars and air conditioners, but those rights aren't easily transferred to international travel packages, or on line services. We need to ask questions in a borderless marketplace. Where do you go when something goes wrong? Our long term goal is a wide acceptance of core values that we've come to call a fair shake marketplace. These values are disclosure and information, choice of products and services, access to the marketplace, and redress when something goes wrong. We plan to continue to recognize entities that achieve these goals. That's why we have such a good relationship with the business community. They want to do right by their customers, and we want to tell the public when they do. Finally, Mr. Chairman, we will continue working with Congress on specific consumer issues, in town meetings and joint seminars, and on topics of privacy and fraud, credit and debt management and other issues that we know you feel are important. These are some of our goals, and with the support of this Committee we will also continue to have a consumer advocate in the Federal Government. That closes my remarks, Mr. Chairman. [The statement of Ms. Byrne follows:] [Pages 628 - 645--The official Committee record contains additional material here.] Mr. Lewis. Thank you, Ms. Byrne. As you might have anticipated, the bells have just gone off. So we're going to move along and see what happens in the next few minutes. USOCA REQUEST FOR FY 1998 APPROPRIATIONS The Office of Consumer Affairs 1997 appropriation was for 13 FTEs and $1.5 million. The 1998 request, reflecting a slight adjustment, 13 FTEs, the same, and $1.8 million of budget authority request. Mr. Stokes, any questions? Mr. Stokes. Thank you, Mr. Chairman. Ms. Byrne, I don't think there's any secret that over the last two or three years your agency has had a difficult time here in the Congress. Since becoming Director, tell us what you've done to address these concerns, and what additional actions you might take. Ms. Byrne. Well, the first thing we did was sharpen our focus. With everything being consumer issues, it's hard to deal with everything. So we focused in on fraud and privacy as our two priorities. The other thing is we have reorganized to have better lines of responsibility within the agency itself, so that everybody isn't trying to do everything. Those two things, in and of themselves, I think helped tremendously. Externally, the role that we had played as coordinator among the Federal agencies had been fairly moribund before I got there. It hadn't been an active role. We sat down with all the Federal agencies on April the 24th and talked about how we can cut out the proliferation of 1-800 numbers. There are so many 1-800 numbers now, people are getting confused which ones to call, and how we can help each other enhance our messages, and create message weeks, if you will, so that some time some agencies will talk about seat belts, to help NHTSA out with their message, and others would talk about how to control your debt and credit to help the Fed with their message. So those are things that I think are very positive aspects of our three part mission. And that is the advocacy and policy arm for the White House; being a coordinator among Federal agencies for consumers; and the education. And once you get your mission clarified, I think you do a much better job. I think quite honestly we had not done as good a job as we could have in communicating that mission. Mr. Stokes. Based on these activities, do you have reason to hope that the 1998 appropriation process for OCA may be less volatile? Ms. Byrne. One always has hope. [Laughter.] That's how I got into politics. It's a very hopeful profession. But I do believe that we serve a valuable function in that we are proactive. We don't wait for somebody to have their credit card misused. We try to educate people on howto protect their credit card numbers. That's a cheaper way to do business, quite honestly. That's a better way to do business. And now that I think we've clarified in our own agency's mind how to do what we need to do, I hope that this Committee understands that we're on a positive road. USOCA'S ROLE IN GOVERNMENT Mr. Stokes. One other question, Mr. Chairman, and then I'll submit the balance of my questions for the record. Ms. Byrne, you indicate that OCA's primary focus is on fraud prevention and personal privacy issues. Many Federal agencies have considerable efforts under way in these areas. What makes your activities different and worth while? Ms. Byrne. Well, as I stated, Congressman Stokes, we have an umbrella approach. For example, on the issue of privacy, we're working on overseas privacy, in trying to find out how we can encourage our businesses to be able to have no trade barriers overseas, because they have more stringent privacy protections. What we can do to help them meet those privacy protections, and get through those trade barriers. We also have the advocacy role. The Federal Trade Commission, for example, which is the other agency that's working on privacy, gets X number of calls. Two hundred, five hundred. What we try to do is help that person who had their identity taken away from them in a false way, help them on the spot. Where do they go to get help? Who do they talk to? What do they have to to make it right with the credit bureaus who are telling them that somebody took a loan out for $100,000 in their name. It's very tough times for people, and we get a lot of calls from congressional offices where they've called us to help their constituents, because it is a very personal kind of approach. So it's not a high volume business. We're not looking for the thousandth case to send the matter to the Justice Department. We're trying to help people on the spot. Mr. Stokes. Thank you, Ms. Byrne. Thank you, Mr. Chairman. Mr. Lewis. Ms. Byrne, I believe that Mr. Hobson has a couple of questions. Mr. Hobson. Yes, Mr. Chairman. Mr. Lewis. I'm going to run up and vote, and come right back down, and then we can go on with our hearing. Mr. Hobson. First of all, on the rent, I see your rent is dropped from the 1996 level. Did you get different space? Ms. Byrne. We got different space. We were in the same building as the drug enforcement group, the drug czar, and he wanted to grow, and so they found us different space, and we were able to negotiate a better deal. USOCA'S CONSUMER RESOURCE HANDBOOK Mr. Hobson. Glad to see you negotiating. I'm trying to get that message out to people. Now, I'm going to ask this question, and I hope staff will bring it to the Chairman's attention when he comes back. The CIC publishes the Consumer Information Catalogue and your office publishes the Consumer's Resource Handbook. Is that correct? Ms. Byrne. Yes. We publish the Handbook, and CIC, who just testified before us, does the catalogue. Mr. Hobson. How does these documents differ, and if both CIC and the Office of Consumer Affairs have similar goals and purposes, should we be looking at combining these, or what should we be doing? Ms. Byrne. Well, if you look at the catalogue, Congressman Hobson, you'll see that it's a compendium of all Federal publications. CIC is basically a distribution center for public information, whether it's how to worm your dog or whatever. Our book is very specifically tailored to how to protect yourself in the marketplace, where to go on the local, State and Federal level to get your questions answered. So, CIC is a distribution center for all publications. We have a specific number of publications that are tailored directly to consumer interests. They distribute our Handbook. But it's a difference between a policy arm and a distribution arm, if you will. This is our Handbook that is sent out. And while CIC distributes it for us, I think from Ms. Nasif's testimony today, it's apparent that there's a lot of work that goes into this beyond just distributing it. It has to have a policy component. What are you going to emphasize? What are you going to de-emphasize? What's the hottest problem people are facing? We're looking at, if, indeed, we get the ability to go back into business with this, we're looking at emphasizing child care as a consumer issue. How many families spend what proportion of their family income in child care? This is a big consumer issue. It's not something that's static. It's not something that's cast in stone. Mr. Hobson. Well, I think it's important for us to know, because if you don't know, it looks so similar. Ms. Byrne. Exactly. Mr. Hobson. That's what I was trying to bring out. Ms. Byrne. Exactly. Mr. Lewis. Thank you, Mr. Hobson. Mr. Hobson. And thanks for coming to visit with us. Ms. Byrne. Thank you. national consumers week Mr. Lewis. One of the primary efforts, Ms. Byrne, of the Office of Consumers Affairs is the National Consumers Week, which is held each October. Can you explain the role that the Office of Consumer Affairs plays in National Consumer Week, and approximately how many events are held nationwide, and how critical is your office to insuring the success of this effort? Ms. Byrne. Well, there again, it's a catalyst to have local, State and Federal agencies focus on what they're doing for consumers, and how to do it better. It is also a time for businesses to kind of strut their stuff on what they've been doing to help their customers. We have had over 100 events last year, all around the country, and we've had contests where people submit what they've done for consumers. And we had three winners. The winner of our business category was General Motors, in conjunction with Ford and Chrysler. I think that it's a amazing that we got the big three to work so cooperatively together. So those are the kinds---- Mr. Lewis. It is amazing. Ms. Byrne. It is amazing. And it goes--I think it speaks to our stature among the business community, quite honestly. That they know that we're not going to take advantage of their good will. But we are the catalyst. We bring them together. We have some focuses that we're looking at. Again, privacy in the Internet is something that we're going to be looking at this National Consumers Week, because it is a hot topic. How to protect your privacy in the online world. And other State and local and Federal agencies are going to be doing things to highlight their work. But I'm not sure who would take the lead, if we weren't there to do it. Because it is a large coordination effort among the various entities to make sure that we're all pulling in the same way. Mr. Lewis. Well, I frankly feel that there is a need for a proactive effort in this whole subject area. There's little doubt that information is fundamental to consumers having a better idea of how to protect themselves, both their privacy, but also their economic well being in some instances--many instances. And oftentimes it's that person with the least available capital or access who needs this information the most. Your testimony notes that due to budget constraints, the newsletter normally distributed by your office has been discontinued in 1997, and will only be a semi-annual newsletter in 1998. What was the frequency of the newsletter in the past, and what was the cost, and what do you expect the costs will be for the semi-annual? usoca's consumer's newsletter Ms. Byrne. Well, it was quarterly in the past, and it was about $80,000 a year. We're looking at a $30,000 a year cost, and, quite honestly, the reason for the newsletter is, again, that effort to coordinate those kinds of consumer protection areas, where we have, without the coordination, we have a lot of duplication. There's no question. Mr. Lewis. Yes. Ms. Byrne. And the Federal agencies, instead of complementing each other's efforts, start to compete. It's the nature of the beast. Mr. Lewis. That's right. Ms. Byrne. And so what we try very valiantly to do, and the newsletter is a tool to do that, is get them all singing off the same hymnal, to make them understand that there are ways to work cooperatively, that they don't have to reinvent the wheel. We're working quite closely with NPR, on National Performance Review, in the same efforts. They see us as a vehicle for a lot of the things they'd like to do because of this consumer advisory council, in making sure that we are complementing and not competing with each other. Mr. Lewis. Your remind me of something I mentioned at a meeting earlier, that the first time I ever testified before a Committee was in ancient times, some time in the 60s I went to Sacramento to testify before a health and insurance committee, my field being the life and health insurance business. Testifying about those, what we described then, as suede shoe salesmen who were using large print on the front page of health contracts to convince elderly citizens that the contracts did much more than they ever were able to do. It's very, very important that Government knows it has a responsibility here, and to coordinate those efforts in a positive way. So I want to welcome you to the Committee. I'll have a number of questions for the record. Ms. Byrne. Certainly. [The information of Ms. Byrne follows:] [Pages 651 - 654--The official Committee record contains additional material here.] Mr. Lewis. It's great to see you again. Ms. Byrne. Well, it's good to see you again, Mr. Chairman. Mr. Lewis. Mr. Stokes. why usoca should be funded Mr. Stokes. Mr. Chairman, I just have one further question to pose to Ms. Byrne. I would like to ask you, as a former member of this institution, and a good member of this institution I would like to add, I think you understand better than most the fierce competition for dollars under Federal appropriations. Tell us what, in your opinion, or the best argument you can provide this Committee, why it should fund the Office of Consumer Affairs this year, especially at a rate that is 20 percent above the current appropriation. Ms. Byrne. Well, Mr. Stokes, you understand that our requested appropriation for the last fiscal year was $1.8 million. It's the same, and it's only by the perils of Pauline that we survived with the $1.5 million, and I understand that. We're barely hanging on with that amount, to be quite honest with you. We're not doing what we should be doing with $1.5 million. We, for example, before we came here, I did an interview in Fargo, North Dakota. When there's natural disasters, the con artists come out of the wood work. We should be much more proactive in getting information to people who are facing these natural disasters, so they don't lose twice. And yet we don't have the resources to do it. We're the only agency, quite honestly, because we're non- regulatory, that can have that fast turn around. We can use the education and information to get people on the right path quickly. We're not run by lawyers. And so we're teachers. And so that's how we're proactive instead of reactive. We don't wait for somebody to be taken in a scam. What we want to do is get out there in the community and give people the information they need to protect themselves. And I think that makes us unique among most of the other agencies, is that we are proactive. We don't wait for a child to get hurt by a venetian blind cord, which is what, the Consumer Product Safety Commission has to wait for some demonstrable thing to happen, several of them, before they take action. The same with the Federal Trade Commission. But our job is to give people the understanding that they are in control of their destiny, so to speak, if they know what to look for. And that's what we do. Mr. Lewis. Ms. Byrne, you're comment in response to Mr. Stokes' question, your comment regarding disasters and scam artists coming out of the woodwork I think is an item that isvery worthy of our consideration. I don't know if you have had communication with FEMA regarding this problem, but we'd like to know more about that. It is an item that the Committee ought to look at with some care. Ms. Byrne. It really is. And we were trying to work--we had talked to FEMA, and they are up to their ears in rebuilding right now. Mr. Lewis. Of course. Ms. Byrne. But it's something, that I think, again, we have a role to play in coordination with the Federal Trade Commission and others, in getting folks down to these sites so that they aren't taken. There is an insurance scam going around in Fargo right now where people are purporting to sell retroactive flood insurance. Mr. Lewis. That's easy isn't it? I'll just collect your premium and see if you can collect your payment. Ms. Byrne. That's right. And so I was on the radio station with them this morning, saying there is no such thing. You can't have retroactive flood insurance. So if they come and approach you, just close the door. And hopefully that got to a few people who won't be taken in by it. Mr. Stokes. Mr. Chairman, I concur with you, that what Mrs. Byrne has just said to us about these kinds of scams taking place in disaster sites, is something for us to take a look at, particularly with the type of concern and interest that you have and that I have and that this Subcommittee has relative to FEMA and these disasters. People already devastated by that type of thing just do not need people in there. Mr. Lewis. There's no question that at times of panic, times of disaster and concern, people react and look for help and look for answers, and they can be taken advantage of. It's a very interesting subject that I haven't really thought about. Ms. Byrne. When your basement is under five feet in water, sometimes that stress makes you lose that common sense that you would ordinarily have. And so we have to just kind of remind folks that they've got to look for licensed and bonded contractors and things like that. Mr. Lewis. Well, one member of our Committee, a new member this year, who never loses her common sense, regardless, would at least like to say hello. Mrs. Meek? Mrs. Meek. Thank you, Mr. Chairman. Good to see you again. Very good to have a colleague back. I am certain in accord with the Chairman and Mr. Stokes about the fraud and the scam artists that follow these natural disasters. I've had a lot of experience with that after the hurricane in Miami. Some people still do not have their homes rebuilt. Bogus contractors are still running around. It doesn't seem like anyone can get a hold on this. The country has tried. And FEMA is trying. And I'm glad to hear they may ask for some kind of coordinated effort in doing this, because it is still a big scam, and people just cannot recoup their farms and the monies that they have lost. I am new to the Committee. Therefore I'm having not problems, but I have a concern. You are the third agency that has appeared before us with a consumer type focus. And I understand that you have no regulatory power, but I would like you to differentiate very quickly if you can the difference between you and the other acronyms, and I shouldn't say acronyms, but the others who have appeared before us. The second thing is, why is it we couldn't have--no one here is old enough except Lou to remember the lady who used to be the Federal consumer person--always on television. Ms. Byrne. Esther Peterson. Mr. Stokes. Esther Peterson? Mrs. Meek. It wasn't Esther Peterson. This lady was--Betty Furness. Mr. Lewis. Oh, yes. Mrs. Meek. Everybody in the country knew about Betty Furness. So is there any reason why this Congress could not build a mega-so-called consumer agency with perhaps a head to it with all of these different groups under that agency. I can see how an organization like that would work. But I need to know from you the differentiation, and also what you think of my idea. Ms. Byrne. Well, let me take your last question first, that when this agency was put together under President Richard Nixon, it was pretty much one big agency. And so little by little it was bifurcated and trifurcated and spun off. And the way that it was spun off is that the Consumer Product Safety Commission, the one that testified first here today, deals in things. They deal in tangible things, and the safety of those things. And the CIC, the Consumer Information Center, is a distribution center for all Federal publications. And as I told Congressman Hobson, while you were out, it can be anywhere from how to be a good consumer to how to worm your dog. It has all the information you could ever use. And we deal in services and information. Information in how to protect your privacy, services in credit card fraud, debt, how to protect your financial health, telemarketing fraud. All of those things, those services and the information that sometimes goes wrong for the consumer. So we've got Consumer Product Safety Commission who deals with real time tangible items. We've got CIC who distributes all the information. We've got us who deal with services, and information products. Mr. Lewis. You wouldn't think Mrs. Meek was a new member of the Committee for her to be asking that question, would you? Any further questions, Mrs. Meek? Mrs. Meek. No, sir. Thank you. Mr. Stokes. Mr. Chairman. Mr. Lewis. Yes? Mr. Stokes. Before you conclude, my understanding is that this is our last witness, and this terminates our hearings for this year. I just want to take this opportunity to say to you, as I sit here and reflect, you and I have served on this subcommittee together for a long period of time. Mr. Lewis. A long time. Mr. Stokes. A number of years. And we've both served when neither one of us was chair. [Laughter.] So we've been here a long time. But I want to commend you for the excellent hearings that you've conducted this year, the very fair manner in which you have presided over all of our hearings, and it's a pleasure to serve under your chairmanship. And I just want the record to reflect that. Mr. Lewis. Thank you very much, Mr. Stokes. Mr. Stokes. And I'm sure I speak for Mrs. Meek and all the members on our side. Mr. Lewis. There are many of us who are attempting to extend the spirit of Hershey. You may have heard about our conference at Hershey, Pennsylvania. Ms. Byrne. Absolutely. Mr. Lewis. Actually there is a great residue there on both sides of the aisle, of people who want to begin dealing with issues in terms of their problems and solutions rather than sometimes being driven by rhetoric alone. But, indeed, it is a pleasure to work with you, and I appreciate those comments. And we appreciate your being with us, and with that, this meeting is adjourned, and our hearings are adjourned for this year. [Pages 659 - 935--The official Committee record contains additional material here.] W I T N E S S E S ---------- Page Blanding, W.L., Jr............................................... 1 Brodsky, L.C..................................................... 1 Brown, Ann....................................................... 503 Bryson, J.T...................................................... 41 Byrne, L.L....................................................... 625 Corea, Col. A.N.................................................. 391 Coronado, Gil.................................................... 1 D'Amours, N.E.................................................... 177 Davis, R.T....................................................... 41 Dola, Steven..................................................... 415 Fenner, R.M...................................................... 177 Galdo, J.H....................................................... 41 Gall, M.S........................................................ 503 Guest, H.E....................................................... 41 Herrling, Maj. Gen. J.P.......................................... 391 Kelly, Col. K.C.................................................. 391 Kelly, M.H....................................................... 41 Knight, George................................................... 41 Lancaster, H.M................................................... 415 McGinty, K.A..................................................... 205 Means, Col. D.F.................................................. 391 Metzler, J.C., Jr................................................ 415 Moy, K.S......................................................... 93 Nasif, Teresa.................................................... 449 Newburger, Beth.................................................. 449 Pond, K.S........................................................ 391 Porrata, C.B..................................................... 41 Rubin, Hon. R.E.................................................. 93 Smith, Rory...................................................... 415 Widener, M.L..................................................... 41 Woerner, Gen. F.F................................................ 391 Yolles, H.S...................................................... 177 I N D E X ---------- Selective Service System Page Annual Report to Congress........................................ 9 A Message from the Director.................................. 9 Congressional Affairs........................................ 12 Financial Management......................................... 15 Information Management....................................... 25 Operations................................................... 19 Planning, Analysis and Evaluation............................ 28 Public Affairs............................................... 16 Resource Management.......................................... 10 The Regions.................................................. 23 Biography--Executive Director.................................... 29 Committee Position............................................... 30 Cost of English and Spanish Public Service Announcements......... 40 Cost Per Registration............................................ 39 Mail-back Postcard............................................... 36 Mobilization Timetables.......................................... 33 Moving the Data Management Center................................ 39 Opening Remarks.................................................. 1 Automation Modernization..................................... 2 Greetings from the Lewises................................... 2 Mobilization Timetable....................................... 2 Service to America Initiative................................ 3 Other Outsourcing or Moves....................................... 39 Outsourcing...................................................... 35 Public Service Announcement...................................... 34 Obtaining Celebrity Support.................................. 35 Service to America Initiative.................................... 30 Agency's Technical Ability................................... 31 Department of Defense Help................................... 32 Proposed Expenses............................................ 33 Recruitment Service.......................................... 32 Streamlining Agency.............................................. 38 Written Statement................................................ 4 Agency Continues to be Examined.............................. 5 Automated Data Processing (ADP) Initiatives.................. 7 Fiscal History (Chart)....................................... 4 Health Care Personnel Delivery System (HCPDS)................ 6 Impact of New Induction Timetables........................... 5 Planning and Performance Measures............................ 5 Registration Improvement..................................... 6 Service to America Initiative................................ 7 Neighborhood Reinvestment Corporation Acknowledging the Importance and Success of NRC.................. 54 Campaign for Home Ownership...................................... 57 Chairman's Trip to New Orleans................................... 55 Community Development Block Grants and Home...................... 80 Comparison with Bangladesh Program............................... 58 Defining Critical Mass........................................... 53 Developing a New Campaign........................................ 59 Economic Development............................................. 58 Engaging the Private Sector...................................... 56 Examples of Tax Base Increases................................... 42 Explaining Budget Request Figure................................. 53 Federal Low-Income Housing Purchases............................. 88 Grants and Leveraging............................................ 66 Loan Default Rates............................................... 86 Measures of Impact............................................... 43 Mutual Housing Associations...................................... 83 Mutual Housing................................................... 61 Neighborhood Housing Services of Cleveland, Inc.................. 73 Neighborhood Housing Services of America......................... 70 Neighborworks Client's Characteristics........................... 75 Neighborworks' Campaign for Home Ownership....................... 65 Network's Focus on Diversity..................................... 56 NHSA's Secondary Market.......................................... 91 Opening Remarks.................................................. 41 Personnel........................................................ 72 Program Reviews and Audit........................................ 61 Preserving Affordable Housing.................................... 60 Preserving Affordable Housing.................................... 68 Questioning OMB's Recommendation................................. 54 Reduction in Grant Request....................................... 59 Request for Affiliation/Creation of Neighborworks Organization... 81 Results of FY 1996 Appropriation................................. 41 Statement of George Knight....................................... 44 Training Costs................................................... 64 Training Institutes Courses...................................... 63 Training Institutes.............................................. 62 What Has Been Learned............................................ 42 Community Development Financial Institution Administrative Costs............................................. 127 Application Review............................................... 154 Capital Access and Economic Activity............................. 95 CDFI Fund Staffing Plan.......................................... 122 Concluding Remarks............................................... 155 Default Rates and Performance Goals.............................. 123 Disbursing Funds................................................. 126 Disbursing Loans and Grants...................................... 130 Eligibility...................................................... 128 Entitlement Programs............................................. 100 Housing.......................................................... 128 Introductory Remarks............................................. 93 FY 1998 Budget Justification..................................... 156 Leveraging Other Money........................................... 108 Matching Funds................................................... 125 Microenterprise Activity......................................... 97 Multifamily Housing.............................................. 129 National Credit Union Administration............................. 100 Number of Applications........................................... 126 One-to-One Ratio................................................. 121 Opening Remarks of Director Moy.................................. 106 Opening Remarks of Secretary Rubin............................... 94 Performance Agreements........................................... 110 Performance Agreements........................................... 124 Profiles of Organizations Selected for Funding................... 131 Public Housing Programs.......................................... 121 Questions for the Record......................................... 165 Repayment Capacity............................................... 123 Rural Areas...................................................... 109 Santa Cruz Community Credit Union................................ 109 Self-Sufficiency................................................. 98 Self-Sustaining Institutions..................................... 108 Shorebridge Strategy............................................. 109 Small Businesses................................................. 129 Staffing......................................................... 127 Training Initiative.............................................. 124 Bank Opposition.................................................. 198 Capital in Low-Income Communities................................ 200 Common Bond Issue................................................ 197 Community Development Credit Unions.............................. 199 Community Development Revolving Loan Program..................... 191 Cooperation Among Community Organizations........................ 198 Court Injunction................................................. 189 Field of Membership Legislation.................................. 190 Field of Membership.............................................. 189 How Credit Unions Can Help....................................... 199 Introductory Remarks............................................. 177 Low-Income Credit Unions......................................... 190 Maximum CLF Loan Authority....................................... 191 Opening Remarks.................................................. 178 Personal Bankruptcy.............................................. 197 Predatory Institutions........................................... 200 Program Performance.............................................. 191 Working Capital.................................................. 201 Council on Environmental Quality Welcoming Remarks by Chairman Lewis.............................. 205 Introductory Remarks............................................. 205 Opening Statement................................................ 206 CEQ's Oversight Role............................................. 206 Environmental Assessments........................................ 207 CEQ's Role on Policy............................................. 207 NEPA Implementation and Improvement.............................. 208 Utah's Desert Wilderness......................................... 208 NEPA and Public Participation.................................... 210 NEPA: Integration of Environmental, Economic and Social Objectives..................................................... 210 Budgetary Increase Request....................................... 212 Staffing Increase................................................ 214 NEPA as a Policy Tool............................................ 216 Shortcomings in NEPA Implementation.............................. 216 Reinventing NEPA................................................. 216 Mining Law Proposal.............................................. 219 NEPA Reinvention Time Frame...................................... 220 Homestead Air Force Base......................................... 221 EPA's Rule on Ozone and Particulate Matter....................... 222 Proposed Asset Exchanges......................................... 223 Agency Rent Cost................................................. 225 Air Quality Standards............................................ 225 Florida Everglades............................................... 226 Brownfields Sites................................................ 228 Flood Plains..................................................... 229 Questions for the Record......................................... 231 FY 1998 Budget Justification..................................... 355 American Battle Monuments Commission ABMC Management and Leadership................................... 402 Accounting Systems............................................... 410 Fiscal Year 1998 Budgetary Requests.............................. 393 Foreign Currencies............................................... 400 Foreign Currency Fluctuation..................................... 398 Full Time Equivalents............................................ 400 Individual Cemetery Funding...................................... 405 Introductory Remarks............................................. 391 Maintenance Backlog Analysis..................................... 401 Maintenance Backlog.............................................. 400 Management Headquarters.......................................... 401 Pay Raises....................................................... 399 Questions for the Record......................................... 412 Rental Funding................................................... 405 State Department Funding......................................... 410 World War II Memorial Dedication Date............................ 406 World War II Memorial Design Approval Process.................... 407 World War II Memorial Design Approvals........................... 408 World War II Memorial Fund Raising Sources....................... 409 World War II Memorial Funding.................................... 406 World War II Memorial Fundraising and Cost....................... 406 World War II Memorial Program Management......................... 410 World War II Memorial Site....................................... 408 World War II Memorial............................................ 403 World War II Memorial............................................ 407 Written Statement of General Woerner............................. 394 Cemeterial Expenses, Army Closing.......................................................... 446 Columbarium Cost................................................. 442 Columbarium...................................................... 416 Construction Projects............................................ 415 Contracts........................................................ 441 Estimating the Kinds of Visitors................................. 447 Fiscal Year 1997 Request......................................... 415 FY 1998 Budget Justification..................................... 424 Government-wide Streamlining..................................... 416 Grave Liners..................................................... 443 International Visitors........................................... 445 Introduction..................................................... 415 Master Plan...................................................... 442 Non-Funeral Events............................................... 444 Opening Statement................................................ 418 Project Management............................................... 443 Rent Fluctuations................................................ 447 Rents............................................................ 446 Response Time.................................................... 441 Scheduling Delays................................................ 441 Three Programs................................................... 416 Visitor Study.................................................... 443 Consumer Information Center A Two-Tiered system.............................................. 456 Advertising Budget............................................... 459 Agency Reimbursements............................................ 459 Average Grade.................................................... 466 Average Salary................................................... 466 Change in Zip Code............................................... 464 CIC Income Application Chart..................................... 467 Cost of Publications............................................. 456 Cost of Consumer Information Center Service...................... 464 Decline in Administrative Expenses............................... 460 Distribution of Publications..................................... 455 Drop in Rent..................................................... 465 Expenses versus Reimbursements................................... 469 FY 1998 Budget Justification..................................... 470 Gift Authority for Consumer's Resource Handbook.................. 462 Grade Creep...................................................... 461 Income Application Chart......................................... 460 Information with Government Checks............................... 458 Internet Access.................................................. 455 Opening Statement................................................ 449 Other Services................................................... 465 Publishing the Catalog........................................... 464 Resources for Updating the Handbook.............................. 462 Telephone Ordering............................................... 458 Transferring Responsibility for Handbook......................... 462 Welcome to Consumer Information Center........................... 449 Consumer Product Safety Commission Airbags.......................................................... 542 Anthropometric Data.............................................. 528 Baby Safety Showers.............................................. 527 Bicycle Safety................................................... 569 Butylated Hydroxy Toulene........................................ 562 Cellular Telephones.............................................. 566 Composition of Commission Staff.................................. 526 Cost Benefit Analysis............................................ 551 Cost of Wide Area Network........................................ 537 CPSC Budget...................................................... 524 Drawstrings on Children's Clothing............................... 553 Effect of Budget Reduction....................................... 524 Estimated Fire Losses in Residential Structures.................. 548 Fire Prevention.................................................. 543 Fire Safe Cigarette.............................................. 549 FY 1998 Budget Justification..................................... 570 Government Performance and Results Act........................... 568 Housing Project.................................................. 560 Laboratory Consolidation......................................... 554 Laboratory Consolidation......................................... 561 Laboratory Services.............................................. 563 Minority and Women at CPSC....................................... 556 Productivity of Telecommuters.................................... 541 Savings from Telecommuting....................................... 532 Senior Executive Service......................................... 557 Small Business Ombudsman......................................... 552 Special Investigations Unit Involvement.......................... 567 Special Investigations Unit...................................... 525 Special Investigations Unit...................................... 564 Statement of Hon. Ann Brown...................................... 510 Statement of Hon. Mary Sheila Gall............................... 504 Statement of Hon. Thomas H. Moore................................ 505 Subjects of Special Investigations Unit.......................... 565 Summary Statement................................................ 508 Telecommuting Cost/Benefit....................................... 539 Telecommuting.................................................... 529 Trend in the Number of Voluntary Corrective Actions.............. 532 Upholstered Furniture Flammability............................... 544 Upper Grade Level Representation................................. 556 Voluntary Compliance............................................. 531 U.S. Office of Consumer Affairs National Consumer Hotline........................................ 652 National Consumers Week.......................................... 648 Office of Consumer Affairs on the Internet....................... 652 Office of Consumer Affairs Publications.......................... 653 Opening Remarks.................................................. 625 Outreach to Youth................................................ 651 USOCA FY 1998 Budget Justification............................... 659 USOCA's Consumer Resource Handbook............................... 647 USOCA's Consumer's Newsletter.................................... 649 USOCA's Role in Government....................................... 647 USOCS Request for FY 1998 Appropriations......................... 646 Why USOCA Should Be Funded....................................... 655