[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
DEPARTMENTS OF COMMERCE, JUSTICE, AND
STATE, THE JUDICIARY, AND RELATED
AGENCIES APPROPRIATIONS FOR 1998
========================================================================
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
________
SUBCOMMITTEE ON THE DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE
JUDICIARY, AND RELATED AGENCIES
HAROLD ROGERS, Kentucky, Chairman
JIM KOLBE, Arizona ALAN B. MOLLOHAN, West Virginia
CHARLES H. TAYLOR, North Carolina DAVID E. SKAGGS, Colorado
RALPH REGULA, Ohio JULIAN C. DIXON, California
MICHAEL P. FORBES, New York
TOM LATHAM, Iowa
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.
Jim Kulikowski, Therese McAuliffe, Jennifer Miller, and Mike Ringler,
Subcommittee Staff
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PART 5
Page
Secretary of Commerce............................................. 1
Commerce Inspector General........................................ 290
Commerce Science and Technology Programs.......................... 337
United States Trade Representative................................ 591
Trade Promotion and Enforcement................................... 629
Bureau of Export Administration................................... 703
Business and Economic Development................................. 751
Commerce Statistical Programs..................................... 933
Telecommunications Issues......................................... 1037
National Oceanic and Atmospheric Administration................... 1241
Marine Mammal Commission.......................................... 1381
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Printed for the use of the Committee on Appropriations
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U.S. GOVERNMENT PRINTING OFFICE
41-818 O WASHINGTON : 1997
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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 COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED
AGENCIES APPROPRIATIONS FOR 1998
----------
Tuesday, March 11, 1997.
SECRETARY OF COMMERCE
WITNESS
HON. WILLIAM M. DALEY, SECRETARY OF COMMERCE
Opening Remarks
Mr. Rogers. We are pleased to welcome this afternoon
William Daley, the new Secretary of Commerce who will testify
on behalf of the programs in the 1998 budget request of the
Department.
The Subcommittee, as it has in the past, will be looking
for you to assist us in finding ways to more efficiently
allocate the limited resources the Subcommittee will have for
the Commerce Department. We are looking forward to working with
you and want to congratulate you on your appointment. This is
an important time in our nation's history, especially now in
the post-Cold War era as we must compete with our sister and
brother nations around the world economically.
Your budget request for 1998 totals $4.223 billion, which
would be an increase of $466 million or 12 percent above the
amount that Congress provided for the current year. Let me
start by saying that this is going to be another year of tough
budget constraints. We understand that you're in a ramp-up mode
for the Census.
The difficulty for the Subcommittee is that we're likely to
be faced with overall budget constraints. So, in order to fund
increases in one place, we may have no option but to find
reductions in other places.
We're going to look very hard at all programs to squeeze
out any additional funding that may be needed. And certainly
your ideas are going to be the driving force in that job of
setting priorities. At this point, we will insert your written
statement in the record and the 1998 budget in brief. We invite
you to proceed informally.
Opening Statement
Secretary Daley. Thank you very much, Mr. Chairman and
Members of the Committee. I appear today to present the
President's fiscal year 1998 $4.22 billion request for the
Department of Commerce. This budget supports our programs that
are at the very foundation of our American economic growth, job
creation, and global competitiveness.
It does reflect the President's vision for our Nation as we
approach the 21st Century. In the last four years, we've come a
long way towards an American economy whose house is in order.
We have created over 11 million jobs, pushing unemployment
rates as low as they've been in a quarter of a century.
With new business creations and home ownerships, which are
as high as they've been since the early 1980s, the Misery
Index, which is the combined unemployment and inflation rates,
is at its lowest since 1968. And we've returned to the top of
the World Economic Forum's list of the world's most productive
economies for three years in a row. Both consumer and business
confidences are at all time highs.
The budget deficit that was exhausting our savings and
growth has been cut by more than 60 percent. Today we are the
world's greatest economic power, the greatest exporter, the
finest innovator, the engine that drives the world's
prosperity. This Administration, Congress, our Nation's
business leaders and our workers should be very proud of these
accomplishments. But pausing in our efforts to keep America
thriving at home and a leader around the world is not an
option.
The President, in the State of the Union Address, made this
challenge perfectly clear when he said, ``We face no imminent
threat, but we do have an enemy. The enemy of our time is
inaction.'' If we are to finish balancing our budget, to move
more Americans from welfare to work, to continue to grow our
economy and maintain our innovative and competitive edge, we
must invest in communities, technologies, and industries that
are our greatest strengths.
And we must not squander the opportunities of the day when
we are prosperous at home and at peace around the world. The
role the Commerce Department plays is summed up in our Mission
Statement, which is to promote job creation, economic growth,
sustainable development, and improve living standards for all
Americans.
We do this by working in partnership with State and local
governments, businesses, universities, communities, and workers
so that the private sector leads a strong American economy and
the dividends ripple throughout our Nation. Thefiscal year 1998
budget request for the Department of Commerce is an increase of $466
million over the fiscal year 1997 level. The Department's budget growth
is in three areas: the Decennial Census, ongoing weather modernization,
and technology investments.
Outside those three critical areas, the Department's budget
stays flat from fiscal year 1997. And even with this increase,
Commerce's budget remains the smallest of any Cabinet agency.
And perhaps most importantly, it is in line with the
President's commitment to a balanced budget by the year 2002.
This fiscal year 1998 allocation recognizes the role
Commerce plays in helping to spur economic growth, encouraging
entrepreneurship, helping find export opportunities, supporting
the Nation with cutting edge technologies, managing our natural
resources, and generating first rate economic analysis.
Taken together, these are the building blocks of economic
growth that help the private sector make decisions and
investments which will create jobs, paychecks, and security for
America's families.
To fulfill this, our priorities will be, number one,
aggressive export promotion and trade law enforcement. On the
global economic stage, Commerce will work the open markets,
promote exports, and enforce existing trade agreements. We will
advocate on behalf of American firms while heading off unfair
trade practices.
With our new trade mission criteria in place we will,
again, help the private sector capture growing opportunities
abroad in the face of fierce foreign competition.
Also, I am committed to being an active Chairman of the
Trade Promotion Coordinating Committee (TPCC), and will work to
ensure that the TPCC plays a central role in improving trade
finance and export promotion activities, beginning with a
steering group meeting which I will host before the end of the
month to discuss our priorities and upcoming initiatives.
Since the most promising business opportunities will be
export driven, we will emphasize assisting small- and medium-
sized businesses in fulfilling their export potential. Of
course, our export efforts will continue to be national
security sensitive. So, we will enforce laws to insure American
exports do not become threats to our American interests.
Number two, technology for economic growth. Technology and
innovation, which are the elements of our winning economy today
and are the keys to the global economy of tomorrow, are still
our top priorities. The Administration has long considered the
private sector a partner in keeping us on the cutting edge.
Gone are the days a decade ago when our competitors put
technology, which we developed, to better use. Now, our
technology efforts in telecommunications, manufacturing, high-
tech research and development, and commercialization pay
dividends here at home in the form of better educated students,
more efficient workers, higher paying jobs, and goods and
services which are second to none.
Three, expanding opportunity for all Americans and
communities. Being strong and ambitious abroad means little if
we cast a blind eye towards our workers, businesses, and
communities here at home. As America prospers, the rewards
should be appreciated in every community, rural or urban.
Commerce will continue to work with economically distressed
communities and promote minority entrepreneurship to establish
businesses and jobs that are the cornerstones of our
communities.
Fourth, performing the best census in our history. Commerce
will keep generating economic data analyses that are thorough
market studies of an ever-shifting global economy. The 2000
Census is the most important of those analyses, and not just
because it will add to our competitive advantages or decide
everything from Congressional representation to budget
apportionment, but the Census goes to the very heart of what
this government does.
It is in many ways the most direct contact which people
will have with their government. We can serve America well, re-
establishing reasons for faith in our government, and proving
wrong those who are cynical about bipartisanship, by working
together to conduct a Decennial Census that is accurate, fair,
cost-effective, well-managed, and free of politics. I look
forward to working with this Committee and with the Congress to
fulfill those goals.
Fifth, our resource management and environmental
stewardship. The Commerce Department has critical resource
management and environmental monitoring and prediction
responsibilities. Our budget request will allow America to
manage our resources and compete for the future. Most people
think natural resources at Commerce means only fisheries.
But in addition to this multi-billion dollar industry that
employs thousands, our resource and weather work helps
industries like shipping, airlines, and agriculture, all multi-
billion dollar exporters and employers in their own right,
operate safely and efficiently.
After all, 80 percent of U.S. foreign trade in heavy goods
travels via shipping, which depends on effective charting and
mapping systems. And the Department's Advanced Weather
Interactive Processing System, AWIPS, which accounts for much
of our budget's growth, will improve weather forecasting to
save man-hours, dollars, crops, and most importantly, lives,
all while managing to a $550 million cap.
Like the rest of the Federal Government, our Department is
doing more with less. Over the past six months, Commerce staff
has been reduced by 3 percent, continuing a four-year trend in
personnel decreases.
The number of political appointees will be reduced by
nearly one-third by the end of this year. Management layers
have been eliminated and more staffers are working in field
offices, where they can better serve the American people.
To help our streamlining efforts, Commerce has several
innovative management initiatives which are underway. While not
principally a regulatory agency, we do remain focused on
ensuring that all regulations of our Department maximize
benefits, while placing the smallest possible burden on those
whom we regulate.
The Bureau of Export Administration is taking a new look at
its regulations, and has re-written many of them, simplified
and clarified others, and dropped the remainder. NOAA is
revising and updating its marine resource regulations,
eliminating over 400 pages of these regulations. The Economic
Development Administration has eliminated over 200 of its 370
regulations.
I am determined to continue this effort to make sure the
same efficiency and productivity which America's private sector
has embraced has a home at Commerce. We have already completed
an evaluation of Commerce Department-led trade missions to make
them more accessible and more successful.
We have other initiatives which I would like to discuss
with Congress and the Department's customers that continue the
process of ensuring that every program at the Commerce
Department justifies itself every day. I would also like to
take a look at the Advanced Technology Program (ATP) to see how
we can strengthen it. I believe ATP is a critically important
program that provides enormous benefits to our Nation's long-
term prosperity. ATP projects play a special role in fostering
technological developments that have long-term pay-offs and
widespread benefits to the economy as a whole; those kinds of
initiatives that would otherwise not be funded by the private
sector. The President's budget provides strong support for this
program.
Since becoming Secretary, I've heard a number of questions
which have been raised by you, as well as by many others about
the budget process, about the ratio of new projects to old,
about big companies winning grants outside of the consortia,
about whether applicants first go to private capital markets
for funding, and also about whether States that lack strong R&D
bases should have a better chance of participating in the ATP
program.
Also, I know with your help we can establish a Patent and
Trademark Office as a performance based organization; this will
allow Congress to run PTO like a private sector business
operation with much more flexible procurement, simpler
personnel rules and accountability through a CEO.
Doing this will require legislative approval. But in the
hope of helping the PTO process, we have submitted a
reprogramming proposal to this Committee and your Senate
counterparts which would separate the PTO policy functions from
its operations.
It would also establish three separate business links in
patents, trademarks, and information dissemination which would
reorganize patent examining groups into industry sectors and
would also consolidate administrative functions.
These questions that I mentioned before regarding ATP, I've
asked my staff to consult with private and public experts and
the participants of the ATP Program to prepare an analysis and
report back in 60 days. I obviously would be glad to have the
advice of this Committee on the issues and will be back to you
with our conclusions.
Because I have concerns that there may be duplication of
varying divisions of the ITA, the International Trade
Administration, I've asked for a reorganization of the ITA. I
would concentrate on the following issues; reducing
administrative costs, eliminating redundant functions,
strengthening priority programs such as the Trade Compliance
Center, and moving more export assistance and trade advocacy
resources out of our headquarters and into the domestic and
overseas field offices.
I would also like to put the criteria that drive the
Malcolm Baldrige Quality Award, those which reward the best
private sector management practices, to work at our Department,
beginning with two of our most publicly accessible and visible
agencies: the PTO and the National Weather Service.
Finally, with an eye on the fiscal year 1999 budget, I have
ordered a comprehensive management review for our entire
Department. The teams from my office will examine all of our
programs so we can guarantee that Congress is giving America a
real return on the varied investments that it makes in our
Department, our work, and our workers.
In the end, the same productivity and practicality that has
helped our Nation take the lead in a very competitive global
economy should be applied in our Department of Commerce. We
have covered much ground in the last four years to put America
on the right path. It has taken a combination of achievements,
deficit reduction, aggressive exporting, investments in
technology and education, a smaller and much more efficient and
responsive government, and fiscal common sense to revive the
optimism and confidence of the American people.
Now is not the time to reflect on our accomplishments, but
to build on them and tackle the toughest challenges that have
eluded our grasp, a balanced budget, create opportunities for
every American with more jobs, with better career prospects,
and a standard of living that makes Americans contributors to a
growing and prosperous America.
I believe many of these challenges met me head-on in the
Commerce Department. And I am proud of our fiscal year 1998
budget because it does not shrink from them. The Department's
mission is to keep America prosperous at home by keeping us
innovative, vigilant, and strong around the world. And the
President's budget helps us fulfill that charge.
I'm prepared, Mr. Chairman, to answer any questions which
you may have. I appreciate the time that you've allotted.
[The statement of Secretary Daley follows:]
[Pages 7 - 164--The official Committee record contains additional material here.]
security clearances
Mr. Rogers. Thank you Mr. Secretary. Again, we wish you
well. You are taking over the Department at a particularly
troubled time. Not only in the last Congress was there a
substantial effort to abolish the Department, but then even
subsequent to that, we had all of these charges, counter-
charges and investigations that are going on even as we speak
today.
The FBI is currently investigating some very serious
allegations about activities by former Commerce Department
employees. I realize that none of this happened on your watch.
But every day it seems there are questions and allegations;
allegations that classified documents and information were
removed from the Department by a former employee of the General
Counsel's office; questionable practices on how the Department
handles security clearances, including the most recent reports
of John Huang, who attempted to keep his security clearance,
even after he left the Department. And for unknown reasons, he
did keep his security clearance for almost a year after he left
the Department.
As I say these did not happen on your watch, but it is
important that we understand your policy towards these kinds of
things. Under what criteria will your Commerce Department give
security clearances to your employees?
Secretary Daley. Well, Mr. Chairman, I take the comments
that you have made with the same seriousness that obviously you
do, and the concern which you have about some of the
allegations.
I obviously know that there are a tremendous number of
investigations that are going on. We read about them every day.
The Department, specifically on the matters that you have
talked about as far as security clearances and people who have
left, took steps in the summer to address such a possible lapse
in policy.
So, that the question of people leaving with any sort of
information gathered during their tenure in the Department has
to be addressed. I even asked for a review of the security
procedures that apply to the employees of the Department of
Commerce.
I've asked the head of one of our units to take a look at
this, along with our General Counsel, to make sure that our
programs and our policies prevent such actions from occurring
in the future. I have the same concern you do about such
actions. I think the Department, as I mentioned, did take steps
in December before I came in to address that specific problem
that had developed in that one incident.
Mr. Rogers. Well, I hope so. Now, the records that I'm
referring to, that were taken from the Department, included
classified CIA reports, the contents of which are not clear
quite yet to my knowledge. But they are said to include
intelligence data on energy projects, gas and oil matters,
international trade efforts, and secret political economical
assessments of several countries.
And they were taken by an aide to the General Counsel,
Ginger N. Lew, who was definitely a confidant of John Huang.
These are very serious matters. This is potentially a national
security problem. I just wonder what your attitude toward this
matter is.
Secretary Daley. Well, as I mentioned to you, Mr. Chairman,
I did ask that there be a task force to give me a report with
recommendations by May 1st to respond to some of the concerns,
and quite frankly, so that I am made aware of exactly what I
perceive their job, and receive some recommendations from this
task force.
I have the same concerns that you have, but obviously these
matters were brought about before I came. And I take them as
seriously as you do. But without any knowledge about the exact
details, other than what's been alleged or stated in
different----
Mr. Rogers. How many Commerce Department employees have
that classification?
Secretary Daley. About 4,500 to some degree or another have
security clearance.
Mr. Rogers. Forty-five hundred? Why do so many need to
have access to that data?
Secretary Daley. Well, first of all, Mr. Chairman, that's
something that I've asked the task force to take a look at to
see how many different degrees of security. For example, some
are trade specialists who have to have knowledge of what's
going on in the world.
Again, there are different levels of security. I don't have
a breakdown in front of me as to what levels of approval
they've received. But there are satellite experts and a number
of others.
Mr. Rogers. With that many people having access to so-
called secure information, you must put it on the radio. I
mean, what is really secured? Can you get back to us about what
you plan to do about granting so many security clearances?
Secretary Daley. As I mentioned, Mr. Chairman, the
recommendations that I will receive from the task force will be
shared with you obviously. And any input that you would have we
will appreciate.
Mr. Rogers. Well, I don't have any. That's not my
bailiwick, but I think your folks should develop a system to
prevent abuses. I mean, how could Mr. Huang have kept his
security clearance a year after he left the Department?
Secretary Daley. Well, the procedure that is in place now,
Mr. Chairman, is that once someone leaves, their security is
revoked. What happened in essence in that matter, I think it
was probably two years ago, I don't know. The subject got a
tremendous amount of speculation and it is under investigation
right now. I wouldn't want to say anything.
Mr. Rogers. We're going to want to know what your policy
will be on security clearances for employees.
Secretary Daley. The policy right now is that a security
clearance is revoked when the employee leaves.
Mr. Rogers. No exceptions?
Secretary Daley. No, sir.
reduction of political positions
Mr. Rogers. I hate to dwell on these things, but I think
we have to. The Department has been--and I don't want to call
them scandals-- but these are issues that I think we need to be
clear on in order to make the Department credible before the
Congress, I think it has to be stable and open and has to
reveal everything. As a part of your pledge to set the policy,
you pledged to cut 100 political positions without anything
said. Am I right?
Secretary Daley. Yes, sir.
Mr. Rogers. Once your policy is fully implemented, how
many political positions will be left in the Department?
Secretary Daley. One hundred and fifty-six.
Mr. Rogers. Now, when your predecessor, Mickey Kantor,came
before us last year, he pledged to cut political appointees down to
200. As of January there were 202. So, in fact, you're only cutting,
40. Isn't that correct?
Secretary Daley. Obviously, this is a moving target. There
will be by the end of 1997, 100 fewer political positions
authorized at the Department of Commerce than were there when I
appeared before the Senate Commerce Committee on the day I took
office. So, that's my commitment and we will be down to that
number by the end of the year.
Mr. Rogers. Now, will all of those positions be eliminated
or will some be converted to career slots?
Secretary Daley. Those slots will be eliminated.
Mr. Rogers. And what criteria will you use to decide which
positions are eliminated.
Secretary Daley. We've begun a series of consultations with
our Under Secretaries and our Directors. I must talk to them.
Obviously, the two areas that have a major increase have been
the Secretary's Office and the ITA. In those areas, we probably
will undergo, percentage-wise, a larger reduction than some of
the others.
This large number of political appointees is an historical
number that transcends obviously this Administration. It has
been high for a long time. I think at 156, it will be more in
line with other departments. I think it will make for a more
efficient operation to be honest with you, Mr. Chairman.
Mr. Rogers. Now, will current political appointees be
allowed to fill career positions. How can we be sure there is
no burrowing into the Civil Service?
Secretary Daley. We're not going to attempt to grow the
amount of political appointees. I will reduce the number.
Obviously there will be attrition. People know that this action
is coming. And we are trying to do it in a humane way. Some
people are dedicated employees and have done a fine job. It is
no reflection on them as individuals if they are removed from
their job, but that's the pledge I made. And that will happen
by the end of the year.
Mr. Rogers. Now, are those savings assumed in your budget
request?
Secretary Daley. No, they aren't.
trade missions
Mr. Rogers. So, we can expect further savings. Now, last
week you announced a new trade missions policy. What problems
did you find during your review? How does your new policy
address those problems?
Secretary Daley. When I appeared before the Senate
committee at my confirmation hearing there had been questions
raised about trade missions, about their effectiveness, about
not only the participants in it, but about whether or not the
trade missions were good policy.
I talked to many business leaders, people who are experts
in the trade area, many of the Members of the House and the
Senate, in my meetings in January. There seemed to be a strong
feeling that these missions are important, but yet there were
questions being raised about them. The question that I had
charged the three people in the Department--Under Secretary
Eisenstat, Deputy Chief of Staff, Clyde Robinson, and Andy
Pinkus on my staff to review or basically go over all the trade
missions, how important they are, and what criteria were used
to select people.
I didn't really do a review of what happened in the past.
My charge was that I would take a look and see what would be a
good procedure to move forward. And I came up with a very good
plan. There will be a mission statement for each of these
missions.
Let me just say, Mr. Chairman, there are a number of
different missions. Some are led by the Secretary which
probably would get more attention, more focus, and have been
the subject of attention in the past. But we have literally
hundreds of missions led by support staff and other missions
led by State Governors.
So, the criteria which we came up with last week included a
mission statement so that there would be a public statement
before the mission goes out so that those people who are
interested in a part of the mission will understand exactly
what the goals of the mission are, what we intend to
accomplish, and why we're going to a certain part of the world.
There will be a project officer selected who will be
responsible from beginning to end in putting this trip
together, in making sure that there is a budget, and a budget
which is public and is transparent. There will be input through
the Federal Register.
The criteria laid out by the Project Officer would be
available on the Internet. So, any companies or individuals
that may be interested in joining can see what criteria they
have to meet to be considered to be on the trip.
We will be very cognizant of the budget constraints which
we will be under; a budget will be put forward for each of
these trips. That Project Officer will be held accountable and
responsible for the trip. After the trip, there will be a
review of the goals of the trip; whether the mission statement
was complied with.
Once again, the cost of the trip will remain public so that
people will be able to see. We will keep politics out of the
decision-making. So, I think that's one way to reemphasize.
These trade missions are a part of our export strategy.
They have obviously increased the opportunitiesfor American
businesses around the world, but they have played an important part in
a visible way and in a real way in being opportunities for American
businesses and their workers around the world. These are, again,
opportunities that exist. Primarily where we get involved is where
there is a governmental decision to be made in another part of the
world on a major contract that's involved where American businesses are
trying to be members of those contracts.
Our competitors around the world have been very aggressive;
the French, the Germans, the Japanese, the Canadians all lead
trade missions, often times headed by the Prime Minister of
Canada, Chancellor Kohl or President Chirac, are very
aggressive. We think they're an important part of our export
strategy.
Mr. Rogers. Will you keep the rule, the previous rule, that
a participant's company has to have at least 51 percent of its
product manufactured in the U.S.?
Secretary Daley. Yes, Mr. Chairman.
Mr. Rogers. Mr. Mollohan.
opportunities for small- or medium-sized businesses
Mr. Mollohan. Thank you, Mr. Chairman. Congratulations on
your new position, Secretary Daley. You are taking over the
Department at a time when you can really make a difference. You
have already moved aggressively to do that.
One of the areas you have focused on is the Department's
policy on trade missions. The Department has in the past been
criticized for managing programs that pick winners and losers.
Particularly with the technology program areas, that was a
really unfair characterization.
However, in the area of trade missions, I think one could
make an argument in this regard. I say that because there is an
incredible amount of interest in learning how to do trade
beyond our borders.
Additionally, there is a real lack of information and
expertise in this area. I can certainly tell you there is a
lack of that expertise in my Congressional district. Trade
missions really don't affect very many people when you think
about it.
I don't know how many companies are involved in the average
trade mission. Ten or twenty perhaps. These missions are only
reaching a very small percentage of American businesses. You
have addressed half of that issue. You have addressed my
concern regarding how participants on Commerce-sponsored trade
missions are selected.
Establishing a policy that avoids any appearance of
persuasion is a step in the right direction. But what benefit
is to be derived beyond the specific companies that make
specific deals on a trade mission?
In other words, are trade missions the best way to get
American companies--especially small businesses--into doing
international business? Is there not another way, through
publication and opportunity, and perhaps some kind of
educational process? Particularly for small companies, might
this not be a better approach than a Commerce trade mission?
Secretary Daley. Well, Congressman, I do agree with you
that the trade missions alone will not obviously help small
businesses or medium businesses with the exploring of the
opportunities that may exist around the world.
Obviously the Department has many programs, our Export
Assistance Center, our Center For Domestic Democracies which
tie with our Foreign Commercial Service Offices around the
world providing a unique opportunity to small and medium-sized
businesses to come in and get a better understanding of the
overall export opportunities that may be available to them
around the world.
The trade missions, as I mentioned are just one part of the
strategy. They get a lot of publicity. They can highlight the
opportunities that exist, not only for the companies that may
be on the trip, but for other companies that are looking for
opportunities around the world.
And it also gives an opportunity for government officials
to talk to our counterparts when there is a need to on access
issues that are most important to this Department. So, I think
the trade missions get a lot of attention. And they are
important.
export assistance centers
But just as important, if not more important, are the
Export Assistance Centers which are available throughout this
country so that small and medium-sized companies can get a
better understanding of these opportunities that do exist and
to invest in the future growth of small and medium-sized
businesses along with the tremendous opportunities that exist
around the world.
It is a problem that we understand. And we are trying to
address them along with so many others to make sure that small
businesses and medium-sized businesses have the same
understanding, if not the opportunities, that may exist
forlarge companies.
Mr. Mollohan. It would be very interesting to some sort of
qualitative analysis to get at the benefit of the ways that you
are trying to reach your decision. Such as--particularly
relating to small businesses--what are the results of your
efforts? I want to sensitize you to my concerns with the Export
Assistance Initiatives. They obviously are beneficial.
However, some years ago, I encountered some attitudinal
problems with officials who were setting up an Export
Assistance Center in my district.
The Commerce Department had initiated a reorganization.
They used a term to describe small businesses--export ``want-
to-be's''. I believe these are exactly the people you want to
reach. The businesses who are sophisticated enough not to be
export ``want-to-be's'' have less need for the service.
That's the kind of issue that I would like you to address.
That is what I would like you to focus on as you reorganize
this process, redefine this process. The broader question is
how do we reach real companies and real talents across America?
We have computer capability. We have networking capability.
Perhaps there are imaginative ways to reach these small
companies.
Mr. Chairman, I want to further my own interest here.
Mr. Rogers. Mr. Regula.
anti-dumping policies
Mr. Regula. Thank you, Mr. Chairman. Welcome, Mr.
Secretary. There are draft countervailing duty regulations that
have been issued by the Commerce Department that I think impose
needless and inappropriate cut backs is U.S. trade laws. It
would seem to me that revisions are needed before the
regulations are finalized.
I was involved with many others during the Uruguay Round
negotiations. And, in the Administration specifically,
Secretary Kantor, committed that there would be no weakening or
changes to U.S. anti-subsidy rules, whether statutory or
regulatory. He said those that were covered by green lighting
were specifically mandated.
Given that fact, I wondered what your comment would be on
these proposed changes? I'm speaking to equity subsidies,
privatization, repayments, subsidies to un-credit worthy firms
and other issues of that type. Because it seems to me that
we're faced again with dumping.
There was an article in my local paper stating that Ohio
and U.S. Steel makers face a flood of imports. It said that
1996 was the highest import period in our history. Then I
noticed some specialty steel products had experienced a 10
percent increase in imports. I think it is clear that these
imports may have elements of dumping.
Secretary Daley. Congressman, as you know, those
regulations were published in February and earlier reviewed by
OMB. We, at the Department of Commerce and the ITC have
initiated numerous anti-dumping rules through the
investigations. Hopefully the regulations will help American
businesses by providing some more clarity and predictability in
our proceedings. They are under review at OMB.
Mr. Regula. Are you satisfied that we're not in any way
weakening the anti-dumping policies of this country, that would
make it possible to have a flood of imports that are dumped?
Secretary Daley. I do believe that it will accomplish that.
Mr. Regula. Well, I hope you will review them carefully.
In the conditions of the Uruguay Round, we maintained a strong
anti-dumping environment.
Can you assure us that the Department of Commerce will
vigorously enforce U.S. anti-dumping laws in the cases
involving imports from those countries that we refer to as non-
market economies and economies of transition.
The European markets have established quotas against
imports from Russia and the Ukraine. And these countries have
surplus production. Russia and the Ukraine have been coming
into the U.S. at record levels. I was just wondering if you
were monitoring this carefully and making sure that we're
vigorously enforcing our anti-dumping laws.
Secretary Daley. We are monitoring this, Congressman. I do
take the obligation that we have very seriously to enforce our
anti-dumping laws. As you probably know, the Government of
Ukraine is arguing that they're not a market economy for the
purposes of our anti-dumping procedures. It is under review. We
have only ruled in favor of such a request once in the past.
They are being looked at.
Mr. Mollohan. Are you communicating with not only the
Ukraine, but the People's Republic of China, and Russia also?
Secretary Daley. I'm not sure if there are any requests to
be considered non-market economies. I can get back to you on
that.
[The information follows:]
Non-Market Economies
The Department of Commerce has exclusive authority to
determine Non-Market Economy (NME) status of foreign countries.
The U.S. implementing legislation for the Uruguay Round
agreements contains explicit criteria that must be considered
in determining the non-market economy status of a particular
country. As a policy matter, the Department will address issues
concerning NME status only in the context of ongoing
proceedings so that all parties may have the opportunity to
comment on the facts at issue. During the course of the
investigative process, any party may present data and argument
on evidence that a particular country is no longer a non-market
economy.
In recent years, the only requests from Non-Market Economy
countries for market economy status have been: Ukraine, in the
ongoing steel plate investigation; Russia, in the magnesium
investigation (order issued in May, 1995); and Poland, in the
steel cases (1993).
We graduated Poland to market economy status in the context
of the anti-dumping steel investigations. We denied Russia's
request because evidence did not demonstrate that prices and
costs in Russia adequately reflected market considerations. The
Ukrainian steel plate investigation is still ongoing and we are
still evaluating the request, with a preliminary decision due
in June. Also, in the steel plate investigation, the Russian
government initially indicated it wanted economy status, then
stated for purposes of this case only, it was not pushing the
issue.
Mr. Rogers. Mr. Skaggs.
security clearance procedures
Mr. Skaggs. Thank you, Mr. Chairman. Welcome, Mr.
Secretary. Congratulations on your position. I wanted to double
back for a moment on the discussion you were having with the
Chairman a few moments ago about the security clearance and the
information flow issues.
I have taken some interest in these issues in another
committee in the context of classification reform. I think it
sort of demeans the coin of the realm when we're talking about
secret information as having too much of it or about too few
people having access, and that sort of becomes an every day
matter.
I'm not sure what the right number of people at Commerce
might be that have clearances. I want to say 2,500. I assume
that is all the way down to people who are cleared for
confidential issues, maybe even the location of the bathroom.
But I was a little taken aback at the suggestion that the
security at the Department had become such a problem--Do we
have major security breaches with classified information at the
Department?
Secretary Daley. No, we don't. Obviously, the case that the
Chairman referred to brought quite a bit of attention and does
give me cause for concern. That's why I'm asking for a review,
not only for that, but for a better understanding on my part of
what are the procedures.
I do share some of your concerns and comments about just
the numbers and of course the need for some people to have a
clearance. To the outsider, when you're told or you hear that
someone has a security clearance, they generally think that you
have a great degree of accessibility to gather secret
information, some of which may not be a secret as the outsiders
think. I do not believe that we have a security problem by any
degree at the Department of Commerce.
Mr. Skaggs. There was an earlier school of thought that it
was only classified information that's worth leaking. So, so
many just trade in that realm in relationship with the others.
Changing gears, there was an interesting piece, an op-ed
piece, a few weeks ago that caught my eye.
I'm really raising a question about investments in foreign
technology versus basic research. I've supported ATP and the
Manufacturing Extension Program over the years. I've been
disposed to see them as useful bridges for dealing with some of
the bottlenecks in accountability of capital for certain kinds
of very useful investments.
I was struck in this piece by the argument that in an era
of further constrained resources, in terms of investments in
research, if we can't do everything reasonably well, perhaps we
ought to reevaluate the relative priorities given to basic
research versus applied research. I'm interested in your own
thoughts on that and whether the Department is in, I hope, a
sort of constant reiteration of these competing interests.
Secretary Daley. First of all, U.S. R&D spending has
remained eseentialy flat in the last five years. This has been
an average of about 2 percent.
In contrast, our real GDP growth has been on the average of
about 3.2 percent. The one thing that stands out to me,
Congressman, is that our competitors spend so much. The
European Union spends more. I think that our spending has been
rather low compared to our competitors.
Mr. Skagg. I have to go to another meeting, Mr. Chairman.
Perhaps if you could--on the record, at least asserted trade
off problem between how we split the slice of the pie for
research--since your Department does both. Thanks.
Mr. Rogers. Thank you, Mr. Skaggs. It's nice to be here
with you.
Mr. Skaggs. And with you, Mr. Chairman. Mr. Forbes.
privatization of the patent office
Mr. Forbes. Thank you, Mr. Chairman. Mr. Secretary,
welcome. Mr. Secretary, as you well know the United States
Constitution, Article 1, Section (a) calls for the protection
of intellectual property, saying that the exclusive right of
inventors to their respective writings and documents is the
patent protection that this nation has enjoyed for all of its
history. There is a disturbing movement, sir, to harmonize
patents in a way that is going to jeopardize what is at the
very root of American placement in global markets.
I'm quite disturbed about it. What I'm referring to is the
move, first of all, to privatize the Patent Office. I'm
concerned about the individuals that may be working in their
garages or at their kitchen tables coming up with new ideas or
inventions.
They don't have any way to protect their ideas or
inventions other than the US patent system. Financial
corporations, in this very competitive world, make it their
business to find these kinds of new inventions, this
intellectual property, and exploit it. I have one gentlemen in
my local area, once a young physician, who came up with a
theory about water molecules that ultimately led to the
invention of the MRI. Twenty years later and literally millions
of dollars later, he was awarded what was due for being the
exclusive patentee of the MRI. I'm referring to Dr. Danadian of
Long Island.
He had the protection of the patent system, yet he was
embroiled in litigationbecause there are multi-corporations
that thought they had come up with the idea first. Basically, the
Commerce Department and the Patent Office, as I understand it, embraces
the concept that after 18 months, regardless of whether the individual
has received the patent, that it should be available for all the world
to see. The notion is that under reexamination, the inventor would no
longer have the automatic protection that a challenger has to prove
that he or she, in fact, was the originator of the idea.
The change would require the inventor to defend their
intellectual property. Sir, it's a move, quite honestly that is
disturbing and undermines American ingenuity. I was wondering
if you would speak to this issue because it is of great concern
to me and to many Members of Congress.
Secretary Daley. Congressman, we do agree that disclosure
of patents is appropriate. Europe and Japan, operate in this
way and are very successful. We would agree that sometimes
disclosure is part of an intellectual property negotiation. We
quite frankly work to benefit our inventors and do not believe
that they would be----
Mr. Forbes. Mr. Secretary, in all due respect, how is a
person, who comes up with a good idea, that is not a multi-
national corporation with a bank of lawyers, but somebody who
is working with a shoe string budget supposed to protect their
invention if in 18 months the whole world can basically exploit
that individual's new idea?
Secretary Daley. Congressman, it obviously will be a
problem for the inventor and I think one that quite frankly I
probably should give you a better answer than I've given. So,
if you could allow me to get with you, I'd appreciate it.
Mr. Forbes. I appreciate that, sir. I, again, think this
gets to the heart of the creation of small businesses and new
entrepreneurs in a marketplace. And if they have no means of
defense against those with other resources, I think that we are
going to, as some would refer to it, create a scenario to steal
American technology.
And we're going to be at a disadvantage in the global
marketplace. In all due respect, in our ability to work with
our trading partners, we are leaving the men and women of this
country who are getting in to small business' and new fields
for the first time with little resources. I hope the
Administration will seriously take a long hard look at this and
rethink their position. I thank you for whatever you can get
back to me for the record.
[The information follows:]
Publication of Patent Applications at 18 Months
Publication of patent applications 18 months after their
filing date will benefit U.S. inventors, regardless whether
they are independent or are associated with large corporations.
It must be remembered that the patent systems of most other
industrialized countries provide for publication or public
inspection of applications filed there, 18 months from their
earliest filing date. As a consequence, foreign companies have
the advantage of reviewing, in their own language, technology
disclosed in patent applications filed not only by their
domestic inventors, but also by foreign applicants, such as
those from the United States. American inventors do not enjoy
this benefit here. This is especially of serious concern if one
considers that 46 percent of applications filed in this country
come from abroad, are usually filed here up to twelve months
after having been first filed in the foreign country, and would
therefore be published about six months after their U.S. filing
date. This publication would allow all inventors, including
independent inventors, to avoid duplicating the efforts already
expended by others. They will be able to determine whether the
invention on which they are working has already been disclosed
by another. This is of value especially to those with limited
resources.
The disclosure of an invention, particularly that of an
independent inventor, 18 months after filing a patent
application, does not adversely affect the creation of small
businesses and new entrepreneurs in the market place. First,
the average rate of pendency of an application before the U.S.
Patent and Trademark Office is 20 months from filing. As a
consequence, an inventor will usually obtain exclusive rights
to his invention two months after its publication. In addition,
there are provisions for the inventor's obtaining reasonable
royalties from anyone who used the published invention before
it was patented. As a consequence, the specter of the theft of
American technology caused by the publication of patent
applications in this country just does not exist.
Mr. Forbes. Mr. Chairman, I have additional questions that
I'd like to submit for the record.
Mr. Rogers. Mr. Dixon.
john huang issue
Mr. Dixon. Thank you very much, Mr. Chairman. Welcome to
the Committee, Mr. Secretary. I just briefly would like to
pursue the issue of Mr. Huang just for a second and the
clearance issue that the Chairman raised here today. Do you
know of any violations of procedures as it relates to the
issuance of a secret clearance to Mr. Huang?
Secretary Daley. No. I don't.
Mr. Dixon. As I understand it, Mr. Huang had a top secret
clearance.
Secretary Daley. That is my understanding also, but not
until recently did I have anything to do with Mr. Huang.
Mr. Dixon. Are you aware of any materials provided to him
by the Department of Commerce after he left?
It is my understanding that a top secret clearance would
not entitle a person to either raw material or special
intelligence material, which is probably the most sensitive. Is
that correct?
Secretary Daley. Yes. That's correct.
Mr. Dixon. And do you know of any material of that nature
above his clearance that he received?
Secretary Daley. No. I do not.
Mr. Dixon. Then why do you say that you're reviewing the
procedures as it relates to the issuance of clearances? What is
it that makes you think that they were setting aside the
general rule? Were you given any reason? Why are you reviewing
the procedure? You said there was something wrong with the last
procedure.
Secretary Daley. Well, I didn't mean to imply that or leave
that impression, Congressman.
Mr. Dixon. Exactly. I wanted you to amplify.
Secretary Daley. I have just come into this. Obviously
there has been lots of discussion about this issue. I'm doing
it as much for my own benefit and understanding. As I've
stated, I think all of our programs within the Department, the
policies, should be reviewed.
This is an area of great sensitivity and great concern and
potential of abuse if people care to do that. So, therefore it
is very important for me to have this review.
Mr. Dixon. So, it's based on the intention of the press
and general public scrutiny, but nothing to your knowledge was
irregular about the procedures.
Secretary Daley. No, Congressman; not as a result of
something that was brought to my attention to cause me to call
for this review.
mbda vs. sba
Mr. Dixon. The Committee from time-to-time has talked to
previous Secretaries and other people about the Minority
Business Development Agency. Maybe as the Chairman of the
committee, you could suggest that there be a high degree of
collaboration with the MBDA and SBA. I noticed that you
mentioned it in your statement. Let me ask you, what
specifically is being done as it relates to greater involvement
of SBA with the MBDA?
Secretary Daley. The MBDA and SBA have been trying to work
much closer together. I believe that it was an instruction of
Congress last year that they do that. Obviously they have
different tasks. The MBDA has undergone a major reinvention.
With their budget cuts they're trying to get refocused and
reinvented.
They are working closely with SBA. My understanding is that
now that the MBDA is getting closer. I've been meeting this
week with the new head of the SBA to discuss how they can work
closer together and accomplish most of their missions.
Mr. Dixon. It appears to the Committee, I mean, I think
that we've heard that kind of dialogue before that either we're
going to meet, or we just met, and we're going to do better.
So, I'm wondering if you could in fact follow-up with
specificly what has been done as it relates to the two
agencies.
Secretary Daley. I will do that.
[The information follows:]
Minority Business Development Agency and Small Business Administration
Coordination Efforts
A detailed plan for coordinated FY 1997 activity between
SBA and MBDA was submitted to the Congress on November 20,
1996. MBDA is committed to, and has made substantial progress
toward, carrying out all of its activities as indicated in the
jonit plan. It is important to note however, that the two
agencies had worked on a number of joint projects before the
plan was developed and will continue to do so after the
objectives of the FY 1997 plan is achieved.
Currently, the two agencies have business resource centers
(BRCs) in Nashville, TN; Baltimore, MD; Charleston, SC;
Charlotte, NC; and Atlanta, GA. Additional BRCs are planned for
Miami, FL; and a site to be determined in Texas.
The BRCs are state-of-the-art facilities housing technical
assistance providers from MBDA's Minority Business Development
Center (MBDC) Program and SBA's Service Corps of Retired
Executives (SCORE) and/or Small Business Development Center
(SBDC) Programs. Each partner provides funding for a variety of
the operating expenses of each center. These centers are
located primarily in downtown business districts and have high
visibility within the local business community. The regional
private sector partners, Bell Atlantic in the Mid-Atlantic
region and Southern Bell in the Southeast, also contribute
toward the operations of the BRCs. They provide dedicated
transmission lines for on-line computer services and
teleconferencing capability for workshops and seminars. The
BRCs house extensive libraries of software and printed resource
materials for entrepreneurs seeking to do independent research.
The existence of this partnership is the result of MBDA
promoting its new service delivery methodologies that included
the public and private sectors working together as partners to
leverage resources. Each participant, MBDA, SBA, Bell Atlantic,
Southern Bell, and NationsBank, contribute resources that make
up the business resource centers.
In addition to the BRCs, MBDA has worked with SBA at the
regional level to develop coordinated service delivery between
SBDCs and MBDCs in certain markets.
Each year, MBDA and SBA coordinate a national forum that
honors outstanding entrepreneurs. This forum is called MED week
and has been proclaimed by the President each year since 1984.
This forum is a national recognition of the achievement of
minority owned businesses and the public/private sector groups
that buy their goods and services. This event also allows
minority business people to network for greater market
opportunities. In FY 1998, MBDA plans to continue its joint
efforts with SBA at a level that is comparable to FY 1997
commitment.
In FY 1997, MBDA is committed to expending $3.2 million for
these activities. These activities are as follows: MBDC's--co-
located with Small Business Development Centers (SBDCs), $1.5
million; Business Resource Centers (BRCs)--co-located with
Small Business Investment Corporation (SBIC), $400,000; MBOCs--
co-located with SBA One Stop Capital Shops, $500,000; and
National Initiatives--$800,000.
In FY 1996, MBDA obligated $2.0 million for joint efforts
with SBA that included the co-location of MBDCs, BRCs, and MED
Week.
Mr. Dixon. Thank you, Mr. Chairman.
Mr. Rogers. Thank you. Mr. Latham.
national telecommunications and information administration
Mr. Latham. Thank you, Mr. Chairman. Congratulations on
your new position at the Department of Commerce. I have some
concerns about the telecommunications facilities program. Can
you explain the dramatic budget reduction.
Secretary Daley. The main reason, Congressman, is because
public TV is now available to probably about 95 percent of the
population and public radio is available to 90 percent of the
public. Basically, there is a commitment to support the
activities even though we've eliminated this particular
program.
Mr. Latham. In rural Iowa, broadcasters describe the
program as basically supplying a lot of their funding. They're
going to have ongoing repair maintenance of--technology----
Secretary Daley. I would imagine they will probably have to
go to fundraising techniques at each of the stations and try to
do it that way. They can do that and raise funds in that way.
There may be other ways through modernization.
Mr. Latham. The International Trade Administration has
talked about the importance of assisting small and medium-sized
businesses. In your budget, there actually is somewhat
asignificant decrease for the number of counseling sessions servicing
small or medium-sized businesses. It's on page 42. I was wondering
about what you said and what's in the budget. Are you assuming that
your past assistance has been so successful that we don't need the same
level in 1998?
Secretary Daley. I doubt it.
manufacturing extension partnership (mep)
Mr. Latham. I appreciate that. I looked at those entries
for the Manufacturing Extension Partnership--it's budgeted
about $28.4 million. It does not include the expected increase
in personnel. Do you know where the money is coming from for
personnel?
Secretary Daley. We're taking over some of the TRP Centers
from the Department of Defense. That's where the increase will
be.
Mr. Latham. OK--the rate of growth is about half. Is that
reflected somewhere----
Secretary Daley. One of the reasons may be that the time
base has not grown because our centers have remained constant
over the years. And there continues to be no increase in
centers.
security clearance policy
Mr. Latham. I have an additional comment. I would think
that with policies to allow someone to maintain a security
clearance after they've left the Department, something is
wrong. Do you know of any other Department that allows people
to keep their security clearances for a year after they've left
employment?
Secretary Daley. I don't, Congressman. And I don't know
that was a policy that allowed that to happen.
Mr. Latham. Thank you, Mr. Chairman.
advanced technology program
Mr. Rogers. Let me ask you about two controversial
matters; the Census and the Advanced Technology Program. As you
know, Congress made significant compromises in negotiations
last year for the agency's program to address Administration
concerns--you got money for ATP, and a $4 million increase.
Now, we're told four months later that for new awards you
are going to spend $95 million. Mr. Secretary, that's the
second straight year that funds for continuation grants have
been diverted to new grants. You told the Congress it was
needed for prior commitments. Now we're going to have to have a
talk. It will have consequences far greater than that amount,
consequences which you may not expect. Can we talk?
Secretary Daley. Mr. Chairman, I plan to be very available
to you over the next four years. This issue pre-dates my
joining the Department, however previous discussions and the
action of the Congress last year in supporting them--my
understanding is that within the legislation, there were no
restrictions.
We think it's been, obviously, a good program. We do intend
to continue our competitions. We would like to move forward in
this program, obviously.
Mr. Rogers. Well, you've not yet moved that money. I'll
tell you, such action is going to create a real problem because
it was so hotly negotiated last year. And we thought we agreed
on the budget. Your explanation of the budget tells me that the
Administration's decision to move the money to new awards was
made after those negotiations took place.
Last year, NIST added some money to new awards from funds
for prior year commitments. And I just won't stand for it. It's
the second straight year we've had this. If they can't manage
their money, then perhaps we need to address that. But how can
we have faith in that agency's budget figures when they juggle
these monies around like it's their own money?
Secretary Daley. Well, I don't think we view this as our
own money, Mr. Chairman. Obviously, it's money that Congress
has appropriated.
Mr. Rogers. Well, NIST doesn't pay any attention. Somebody
doesn't pay any attention to what the Congress and the
Administration passed into law. Because now they say, or
somebody says, that they're going to spend $95 million on new
awards and we don't care if you've set $45 million in the
budget. We decided we're going to spend $95 million. Now, if
that's what they want to say, then by golly they will have to
pay.
Secretary Daley. My understanding is that there were no
restrictions within the budget regarding this allocation of
funding for grants.
Mr. Rogers. Well, it was not written in the statute. But
it was plain to everybody at the negotiations--and the people
who were parties to those negotiations know what the intent of
the Congress and of the Administration was at the time we came
to an understanding.
Now, if we have to write all of these things right into the
statute in order for them to live by their word, then we'll do
it.
Secretary Daley. Well, I hear you, Mr. Chairman.
Mr. Rogers. I'm not complaining to you. I'm just saying
that--they have to live up to their word. And if they insist on
doing this, I can't stop them this minute from putting it into
new awards, but I can assure you that there will be a price for
going back on their word.
Number two, there is no commitment here to provide future
funding for these new awards.
Secretary Daley. I'm sure I will discuss this further. We
have begun the process. We feel strongly that these programs
are important, as does the business community. We will take a
look at this program. The grants have not been allocated and
will not be allocated until later on this year.
My understanding is that there are discussions from
thepeople on our side that there were no guarantees or no commitments
made.
Mr. Rogers. That was the whole subject of negotiations.
That was the sole thing we were quibbling on was whether or not
there would be new awards. We finally gave in to an extent. And
to say that now there is more. And there was no consultation
with us before they changed the policy on new awards from $45
million to $95 million. No one came up here and said do you
think we ought to--before we change it? No one said anything.
There was no consultation. I just won't stand for it.
Secretary Daley. I would hope under my tenure, Mr.
Chairman, that we will have good consultation in the future.
2000 census
Mr. Rogers. Mr. Mollohan, and I, and the other Members of
the Subcommittee will work with you. We want to work with you.
We generally agree on these things. But we will have to be
consulted about a change in policy.
Let me ask you about the Census. I don't need to point out
to you that there was a great deal of consideration following
the 1990 Census.
I want to believe that you are being responsible. We spent
billions of dollars and we got a product that was insufficient.
It didn't have any credibility. That's what we want to have--a
credible product. And there is so much suspicion now about the
expectations of the 2000 Census. It is embroiled in politics to
the extent that I don't know whether we can establish its
credibility. Having said that, we must try.
One of the major justifications given to Congress by the
Census Bureau for using statistical sampling has been that it
will result in great cost savings. But to be perfectly honest
with you, we have heard so many different cost savings numbers
that I'm not sure what to believe.
Last year they said the cost savings would be a billion
dollars. Then it was later $500 million. Now, we understand it
may only be up to $300 million. How can we have confidence in
these numbers given these changes?
Secretary Daley. Well, we would hope that through
consultation on an annual basis or on a very regular basis that
you and the other Members of this Committee can address this.
Generally speaking, Mr. Chairman, I obviously want to be
Secretary of the Commerce Department for the next four years.
And this will be the most important job that we will undertake
in this Department and maybe in some ways one of the most
important undertakings of this government over the next four
years.
You're right in saying that the 1990 Census was botched.
The Census 2000 is a work in progress obviously. We are getting
our figures as we've gone toward it. The further you go in this
process, the more refined we get in our procedures.
We should have in the near future estimates to share with
you and your staff and other staffs of the Members. We will be
briefing the Members on a very regular basis. Senator Thompson
had a hearing this morning to begin this understanding of what
is happening.
I think we've got to try everything we can to keep
partisanship and any sort of rancor out of this debate. It will
cost us money if people don't participate, if they view this as
just a political exercise.
I would share your concern about getting a real handle on
this. This is the largest peacetime mobilization in our
country. It is a very costly endeavor. It is a very difficult
process to put together, as has been proven since the 1970s.
So, I share the concerns that you have about not only the
management of it.
I do think we have a good plan. I think we're on our way to
getting solid numbers. Obviously, as I said, the magnitude of
this and so many factors affect the cost of this. They will be
changing these reports. I do believe within the next couple of
weeks, we will have some further refinement of our numbers. You
and your staff can embrace them and obviously any other
numbers, because this will be the cost of development.
Mr. Rogers. Well, it is true, isn't it, that the Bureau's
estimates of the cost of savings are----
Secretary Daley. I don't know what--you used the figure $1
billion last year. But that may have been thrown out there and
surprisingly, no, it would not. I do believe we are very close
to having some very solid numbers. We have to report back on
the labor cost that will go into this Census. That's obviously
a very large part of the cost of this. There will be a change
in numbers based on the numbers of people we need.
Mr. Rogers. Well, by the same token I think the Bureau has
been playing a game with the system. Of course, they'd send
solutions, but you can't rely on their estimates because they
started out with $1 billion in savings. And now we're down to
$300 million and they're still counting.
So, what I want us to do is get out of the game. We've got
to do something right away because--and you and I have talked
about this--I want to work with you to try to get this out of
the way. We've all been focusing on thesampling, but I think
both of us can agree that there are other improvements that need to be
made.
I think the more sellable point, for example, developing
not such an intimidating form, will be a major effort. Can we
work together on this thing to try to get it under control?
Secretary Daley. Mr. Chairman, we are committed to working
with you, with the Committee, and with other Members because I
really do feel very strongly that we must do this together. If
this breaks into a rancor sort of situation, then it goes to
the credibility of the Census.
It will cost us more and we'd have ramifications
afterwards. I do hope to work together with you to address any
sort of suspicions and any concerns. We're not trying to ignore
your responses. We're trying to be open. Again, this is a
massive undertaking.
We are all prepared. And we have put together a good
management team. We will be happy to share with you and anyone
else who'd like to know that what you have today--try to
explain where we're at. And sampling is going to be
controversial. And it's been proven effective. I think it will
save money. More importantly than that, is this Census has to
be done no matter how we do it. It will be done. We look
forward to that change.
sampling
Mr. Rogers. The people who have a problem with sampling, I
don't think have much of a problem with sampling for the sake
of their questions. The people that want an accurate count,
want a real count of the actual number of people. Now, whether
or not they live on a previous street or have a friend here
with purple eyes, you know, that level of detail--I don't know
whether we can separate those two categories or not as to the
numbers of the people for which an actual count is gotten.
And then we want to sample on secondary questions. I think
you can see from the procedure where we do a hard count of
actual people and then perhaps sample them on the secondary
questions. What do you think?
Secretary Daley. Well, I think you're referring to the long
form. Much of the information is gathered from the long form
and is important to areas like transportation for
transportation planning, to make sure that the traffic flows
easier.
Whether it's information about veterans so the Veterans
Administration can make decisions where hospitals should be
built or nursing homes in the future for the veterans. And also
information about areas in case of natural disasters so that
FEMA and others can make judgments as far as population
movement or what impact it may have on population.
So, there are benefits that come from the long form.
Obviously, Congress has to approve the questions on the long
form. I believe we will be submitting by April 1st, the
questions that will be on the long form. I think the final
decision is made in 1998 by the Congress.
Mr. Rogers. Well, what about separating the long form from
the Decennial Census? I think the problem that the Members have
with the 1990 Census--that's what the Congress is really
interested in, among other things, is what grants are
disbursed. There is a lot of economic and political results
that flow from that absolute count of the Census.
So, the actual numbers of people are what we will fall out
over. I'm not going to fall out with you on whether you answer
that you have purple eyes or not. What we're interested in is
an actual count. A lot of us felt in 1990 that there were a lot
of people that were not counted in the Census. In my district I
know of a bunch who simply were not counted. They were never
asked.
And I vowed at that time that I was going to relegate
myself to seeing they would get an accurate count. So, let me
ask you, in the event--and we're getting to the point where
we've got to do something--if you've got an alternative plan in
case that thing is not approved, I'd be interested.
Secretary Daley. When we wrote the report, it was obviously
based on an assumption that there would be sampling. We do
believe that sampling does cause a little more accurate--let me
just go back to one other question. That's probably one of the
reasons to do this long form and to ask these questions, but it
is not cheaper in the long-run to do this all in one endeavor
and then try to separate them out and probably have the ability
to have a greater faith in the accuracy of that information. If
our plan works in the Census then to try to do it in another go
around or in another process suffers from this. But my sense is
that it will be longer and cheaper to do. My understanding also
is that it will cost more to do the long form.
Mr. Rogers. What about a contingency plan?
Secretary Daley. We have a plan that we think will work.
Obviously, if Congress cuts our resources or tells us that we
have to do it another way, we will do that. Right now, we have
a game plan that's well laid out that I'd like to share with
you or your staff on how effective we think it will be. The
bottom line is there will be a Census that will be as accurate
and as fair as can be in the year 2000.
Mr. Rogers. In all seriousness, as I said, I don't know
about final decisions on the question of sampling. This could
be down the pike for all I know. I'm just saying that we need
to have a contingency plan in case that is not approved. And I
think you should do that.
Secretary Daley. We have contingencies for lots of
different matters that may come before us. We are not laying
out aseparate game plan for the Census if sampling is not used.
Obviously, we look for direction from the Congress. Again, if we get to
the year 1999 and the decision is made that the plan will be changed,
then the fact is the cost will have to be addressed then.
Mr. Rogers. I think we need to know what alternatives
there are. What's the other option in case that one is not
approved? So, I would hope that you can develop that
contingency plan. You may not have to use it, but I think it
should be there. I think it would be good planning and good
management, something that you can produce on contingency for
something as significant as this as close to its time line as
the test is.
Secretary Daley. Well, I think we're going to go with this,
unless the Congress tells us otherwise obviously. We will move
forward to a test in the spring in the two locations using
sampling in the form which we have laid out. Obviously, the
alternative to sampling is no sampling. And we go back to
basically the game plan that we put together for the 1990
Census.
Mr. Rogers. There are improvements needed in the 1990
method. I think we need to talk about this because in the event
sampling is not approved, I don't want you to be in a crisis
for not having something in place, because it is going to be
critical to all of us who decide it anyway. When are you going
to start doing it?
Secretary Daley. I think we have made many improvements.
The modernization of logical improvements such as, the scanning
of the forms through computers, spending more money on
advertising than was spent the last time, in order to increase
the percent of people who responded. My understanding is for
every percent that responds, you save about $25 million.
So, that's why as you've noticed, you may have noticed,
that we plan to spend a large amount of money on advertising to
make people aware that this is coming and it is important to
participate. We save ourselves money that way.
So, a lot of the technological and management improvements
that we put into the plan where sampling is a piece of it, will
remain no matter what technique is used.
improvements to the 1990 census
Mr. Rogers. Well, I just think you can increase the
percentage, better than in 1990, of those who respond to your
first questionnaire, with a shorter form; a more comfortable
form than the one that was so intimidating that people threw in
the trash can, and using modern day technology to produce a
more attractive and shorter form.
I think we can increase the percentage who will respond to
diminish the number that has to be sampled for that route or
county. Whatever else you do, I think a shorter ``long form''
will improve 90 percent of the 1990 Census.
Secretary Daley. I agree with you, Mr. Chairman. I think as
I mentioned, I agree with you and I think our plan reflects
that as far as mass marketing techniques, better advertising,
better outreach to community groups, and governmental entities.
We're working more closely with the Post Office.
We are putting together our own address list. We're taking
their address list which will save us a lot of money. So, I
think we're doing a lot of those sort of improvements to the
1990. And we agree with you 100 percent that when this is done,
there has to be some real improvements over the 1990.
Advertising is one part of that. One of the things that I
would hope comes out of our advertising budget, and I hope--is
that we make this more of a civic endeavor that people are
expected to participate. In terms of the length of the
questionnaire, you're absolutely right.
We used some new marketing techniques to make it more user
and customer friendly. So that when people receive it they
don't think it's from the IRS or something. I think we're going
to take you up on some of those suggestions.
Mr. Rogers. Those would be more computer contractor
support.
Secretary Daley. Yes, sir.
Mr. Rogers. Mr. Mollohan.
commerce administrative management system (cams)
Mr. Mollohan. Thank you, Mr. Chairman. Mr. Secretary, I am
returning to my earlier line of questioning regarding small
businesses. First of all, the National Trade data bank is
indexed in a really arcane way. This makes it difficult for the
average person to access information. Small businesses would
need to have an expert intermediary to take advantage of the
system. This is a matter of concern to me. If small business is
not able to access usable data, they are at a large
disadvantage.
My point is that except for the privileged who are selected
for trade missions or have access to the sophistication of paid
experts you really are not in the loop. You are not in the
Commerce loop.
Commerce is not adding value to the average small
companies' ability to enhance its business through trade. Also,
there are Foreign Commercial Offices with the mission to
provide trade information. But that doesn't get very far
either.
We will be pleased to work with Commerce on testing that. I
understand there have been a lot of delays in developing the
Commerce administrative management system. Additionally, there
have been many cost over-runs. Why don't you speak to the
implementation of this system and tell us what is going on.
Then I have a follow-up question on the 2000 Census.
Secretary Daley. Our CAMS implementation has been no doubt
over budget. We're behind schedule. We are on track, though to
have CAMS running and in good shape, particularly at Census.
CAMS has, to some degree, been an embarrassment to the
Department, and we will be in shape by the year 1999. So, we
think there has been substantial improvement recently. You're
absolutely right in your statement--we are in the process of
recruiting a CFO Assistant Secretary. That's an area of great
interest and great concern. But we do think it has improved.
Mr. Mollohan. Can you speak in greater detail or would you
prefer to submit for the record more details, stating what your
projected costs are?
Secretary Daley. I would probably prefer to do that in
writing. I can lay out what we see are the reasons for
obviously the fact that we're behind schedule; why we were over
budget, what steps were taken to address those concerns, and
why we can account that we're on schedule to have this.
[The information follows:]
Commerce Administrative Management System (CAMS) Costs and
Implementation
In December 1994, the Department awarded a contract to
Andersen Consulting for the acquisition of a Core Financial
System (CFS) to meet the requirements of the Chief Financial
Officer's Act and to streamline financial management throughout
Commerce. The system is based on a commercial off-the-shelf
software package developed by a subcontractor to Andersen
Consulting, that was modified extensively to incorporate
Federal accounting functionality. It includes several highly
integrated modules for General Ledger and Financial Reporting,
Payment Management, Receipts Management, Funds Management, Cost
Management, and Workflow Management. The system, with
modifications, was delivered and accepted in August 1996. The
CFS is the centerpiece of the Commerce Administrative
Management System (CAMS) program.
The CAMS program is an outgrowth of a departmentwide effort
to acquire and implement a standard Core Financial System
(CFS). Over time, the scope of the CAMS program has grown
significantly to include other requirements for procurement,
travel, personal property, real property, grants, bankcards,
sales order entry, inventory, and labor cost reporting. As a
result, the cost estimates for CAMS have also increased from
$41 to $56 million. (Concurrently, the budget formulation and
tracking processes is being reengineered to better leverage the
benefits from CAMS.) We are not over budget when comparing the
original project scope (acquiring and implementing a CFS) with
expenditures on the CFS. However, the CFO and the CAMS Steering
Committee, which is made up of senior managers from each of the
major bureaus, are currently reassessing the scope of CAMS to
ensure that it remains a manageable program.
Original plans were to implement the CFS at one bureau in
FY 1996. That bureau would pilot the system for one full year,
and then other bureaus would begin implementing the new system
at the beginning of FY 1997. We were not able to meet this
original schedule, however, the Bureau of the Census began most
of the new at the beginning of FY 1997. The remaining CFS
modules will be implemented at Census during FY 1998. The
National Oceanic and Atmospheric Administration (NOAA) and the
National Institute of Standards and Technology (NIST) have
concurrent implementation efforts underway. To further ensure
that the CAMS budget and schedule are on target we are in the
process of hiring a contractor to perform an independent
verification and validation of our ability to meet our CAMS
objectives with the resources available.
Cams Schedule
Mr. Mollohan. I just want to ask you. When you say are on
schedule, which schedule are you on?
Secretary Daley. The schedule that I guess we've developed.
It is my understanding that planning of those--improved over
the last number of months. We are planning revised schedules
where we can----
Mr. Mollohan. Would you provide that for us also?
Secretary Daley. Sure.
[The information follows:]
Commerce Administrative Management System (CAMS) Schedule
As referenced in Insert 6, the Bureau of the Census began
operating the General Ledger and Financial Reporting, Cost
Management and Receipt Management modules of the new CAMS/Core
Financial System (CFS) at the beginning of FY 1997. The
remaining CFS modules will be implemented at Census during FY
1998. The National Oceanic and Atmospheric Administration
(NOAA) and the National Institute of Standards and Technology
(NIST) have concurrent implementation efforts underway. NOAA
will begin using the CFS accounts payable and small purchasing
modules in the Summer of 1997, and NIST will begin a full
parallel test of the new CFS in the Spring of 1997.
Many of the Department's existing financial systems are
incapable of handling Year 2000 processing requirements. This
has forced a delay in the implementation of the CAMS functional
systems in order to concentrate our resources on the timely
completion of bureau Core Financial Systems as described
further in Insert 8.
computer problems in the year 2000
Mr. Mollohan. You are aware of the year 2000 and the
related computer problems.
Secretary Daley. Yes. I'm aware.
Mr. Mollohan. Regarding the 2000 Census, I am advised the
solution to that is to bring this CAMS program on before the
year 2000 so it will supplant. Again, I am advised you can best
take care of the problem by having your accounting system on
line before the Census. My question is can you assure us that
CAMS will be on line in time for the Census?
Secretary Daley. My understanding is that we will be on
plan. But let me do that in writing with something beyond just
to state my understanding.
[The information follows:]
The Decennial Census, CAMS and the Year 2000 Data Problem
The Department is now facing the Year 2000 with many of its
existing financial systems incapable of handling Year 2000
processing requirements. This has caused the Department to
assess the CAMS program, and to focus attention on Year 2000
issues. To address the Year 2000 problems with the existing
financial systems, the Department will now place top priority
on implementing the new Core Financial System, and its modules
for bankcards, labor cost reporting, and small purchases,
throughout the Department by October 1998. As noted in Insert
7, the Bureau of the Census is already operating most of the
Core Financial System and will implement all the CFS modules
during FY 1998.
We will be reassessing the bureaus CAMS implementation
strategies, schedules and cost estimates over the next 90 days
to reflect the refocused priority on ensuring Year 2000
compliant accounting systems. Plans will be revised so that all
bureaus who do not have Year 2000 compliant financial systems
will be using the new CFS by October 1998, the beginning of FY
1999. Work on the other functional systems for travel, personal
property, real property, grants, sales order entry, and
inventory will be delayed or scaled-back dramatically as
Departmental initiatives until CFS implementation is completed
Departmentwide.
ADVANCED TECHNOLOGY PROGRAM
Mr. Mollohan. I'm very appreciative of the Chairman's
reassurance regarding the ATP Program
It is my understanding that during the final negotiation on
the appropriation bills, the Administration specifically
negotiated out the restrictive language on ATP. I must say that
is the extent of my knowledge on that issue as I was not
intimately involved in the negotiations. Mr. Secretary, what
value do you give to the ATP program?
Secretary Daley. Well, obviously this Administration feels
very strongly that the Advanced Technology Program has created
benefits. As you know, we are extremely proud of the program.
We feel that it is a competitive-based program. There have been
cutbacks in a number of R&D programs that are obviously a
targeted sector today.
There are adjustments in our view that have improved the
program. These are all programs that have been competitively
bid. I've mentioned in my statement that there are some areas
of concern that have been raised and questions that have been
raised in performing that I think need to be addressed and we
will address.
Overall, I think, and in my conversations with many in the
business community over the last four to six weeks about the
program, they have a tremendous interest. I think it signifies
on behalf of this Administration a commitment not only to R&D
but that we are really working with the private sector as they
have done in the past.
So, that there is posturing, as you know; what dollars the
Federal Government puts up that are matched by the private
sector funds. We think that there are broad public benefits
that come from these investments.
As I mentioned earlier, when we compare our sort of
investments with investments of our competitors around the
world, they're very small. So, we feel very strongly that this
program is an important part of ATP. Another reason that the
economy has improved so much is that the private sector feels
so strongly about this Administration's commitment to try to
work in real partnership with them.
These are long-term projects. We may not see the immediate
benefits from them today on the projects, but private industry
would not be investing in, at least--market, but we feel
strongly that overall technology advances things.
Mr. Mollohan. When you worked your budget with regard to
the ATP Program, would you comment on the Administration's
resolve when you get down to real negotiations and the
mechanics.
Secretary Daley. I think the commitment with this
Administration is as strong as it's ever been about the ATP
Program. We have increased it. We are committed to it. I would
imagine that the resolve of the Administration would be as
strong as its been in the past.
Mr. Mollohan. Have you had a chance to call OMB yet?
Secretary Daley. [Laughter.]
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Forbes.
NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION
Mr. Forbes. Thank you, Mr. Chairman. Mr Secretary, as you
are probably well aware, your management of our fisheries has
been somewhat problematic in recent years. We've seen off of
the banks in New England, major problems and of course major
problems off the Coast of Long Island.
I must, first of all, commend Jim Baker and your team at
NOAA and the National Fisheries Service because they really
have put some balance back into the management of our
fisheries. Some of us on the East Coast often times are
frustrated because it seems the focus is strictly on West Coast
fisheries. It has been nice to see some balance return over the
past two years.
There is a program called the National Harmful Algal Bloom
Program, which is basically an attempt to get the Commerce
Department together with the Environmental Protection Agency to
study the causes of algae that is killing off our marine life
and our shellfish in particular.
I noticed in the President's budget submission that there
is a reduction in the Coastal Oceans Program of about $600,000
for this program. I wanted to bring that to your attention
because algal blooms red tides in my part of the world, and
Long Island brown tide, are killing off the scallop industry.
I hope that you will maintain your commitment, Mr.
Secretary, to this problem and that the Department will
continue to do the good work it has been doing to help battle
brown tide and red tide.
BLUE FIN TUNA FISHING
The other issue I would like to raise is that for the last
two years in a row, Blue Fin Tuna fishing has been shut down
off of the Coast of Long Island. It has been a multi-million
dollar disaster to a lot of fishing families on Long Island.
We've been working very closely with the National Marine
Fisheries and I believe they have a program on track. I would
be most appreciative if you could submit for the record the
strategythe Department is undertaking to hopefully help us
avoid the shutdown of the Blue Fin Tuna industry for the third year in
a row. That would be most appreciated. And if you could, Mr. Secretary,
give us a little bit of an indication of where the fisheries lie in
your series of many priorities in the Department.
[The information follows:]
The National Marine Fisheries Service (NMFS) has proposed
rulemaking for the 1997 fishing season on several issues,
including the division of the large school, small medium, and
large medium/giant size classes of Atlantic bluefin tuna (ABT)
into North and South regional subquotas (62 FR 9276, March 4,
1997). This measure, in conjunction with the recently
implemented regulation that authorizes NMFS to close and reopen
the Angling (Recreational) category in identified areas (62 FR
8634, February 26, 1997), would serve to lengthen the fishing
season and provide more equitable geographic and temporal
distribution of fishing opportunities. NMFS has already used
this authority, closing the Angling category on March 2, 1997,
with the intent of reopening the fishery once the fish move
farther north (62 FR 9376, March 3, 1997). In addition, NMFS
has proposed a mandatory toll-free call-in program to log ABT
catch that is not sold to dealers. This could improve the
timeliness and accuracy of quota monitoring. These measures
should provide for broad geographic distribution of fishing
opportunities and scientific data collection throughout the
species range.
BLUE FIN TUNA ISSUE
Secretary Daley. First of all, on the first issue of the
research fund. My understanding is that the Administration has
committed $1.5 million to that research project and we are
trying to obviously get an equitable distribution as far as the
Blue Fin Tuna issue is concerned.
My understanding also as to fishing period, North Carolina
will be closed as of March 2nd. So, that would mean obviously
NOAA and all of the pieces of NOAA are rather important to this
Department. In discussing fishing questions--obviously it has
an important impact upon the economy and upon families,
specifically in your area, family businesses that fish--
Northeast Coast of this country----
Mr. Forbes. Thank you very much, Mr. Secretary.
Mr. Rogers. Mr. Secretary, we appreciate your being here
today. You've got a heavy chore ahead of you. There is no
Department within the Federal Government that has as wide a
jurisdiction as Commerce.
So, you have a big task to get your arms around. And we
wish you well on that. As I've said at the opening, in this day
of post-Cold War, competition in the world economy is greater
than ever. And the Department must help us meet those
challenges.
And the Foreign Commercial Service under your jurisdiction
plays a big part in helping meet that challenge. So, we wish
you well. The President was very smart when he selected you. We
are very confident that you are going to bring some stability
to the agency.
So, this Committee will try to rely upon and depend upon
you. We are here for the purpose you are, and that's to make
the Department run as well as it can. If you need our
assistance, call upon us and we'd be happy to do goodwill.
Secretary Daley. Thank you very much, Mr. Chairman. I
appreciate it.
Mr. Rogers. Thank you. We are adjourned.
[Pages 190 - 289--The official Committee record contains additional material here.]
Tuesday, February 25, 1997.
U.S. DEPARTMENT OF COMMERCE
WITNESS
FRANK DeGEORGE, INSPECTOR GENERAL
Opening Remarks
Mr. Rogers. We will be hearing next from the Inspector
General of the Department of Commerce, Frank DeGeorge.
Once again, this fiscal year will put increasing pressure
on all of us to find budgetary savings and to most efficiently
allocate the limited resources this Subcommittee will have.
Last year we really benefited from your testimony. You
provided specific recommendations to the Committee for
budgetary savings which were very useful in our budget
deliberations. As has been the case for the past two fiscal
years, funding available to this Subcommittee in fiscal year
1998 will be extremely tight, at a time when the Department is
facing an ``upswing'' in terms of funding requirements for
census 2000. So we all have a tough job ahead of us.
In addition to hearing your recommendations for ways to
achieve budgetary savings and spending reductions, we are also
interested in getting your insight on the management
vulnerabilities in the Commerce Department, so that we can
follow up on these issues with the agencies as we go through
our hearing process and focus limited resources in the most
judicious manner.
As well, any findings or recommendations from ongoing or
completed investigations to reduce waste, fraud and abuse would
be of interest to the Subcommittee. We look forward, as always,
to working with you to find budgetary savings in your agency
and ways to most efficiently and effectively allocate the
limited resources this Subcommittee will have.
We will proceed with your opening statement. I will ask
you, if you can, to limit your remarks to 5 minutes, and then
we will place your prepared testimony in the record.
It is good to have you with us. The floor is yours.
Opening Statement
Mr. DeGeorge. Thank you, Mr. Chairman. I can do this one of
two ways. You have the general statement. I have cut that back
as severely as I know how. I will try to even abbreviate there,
so we can go right to your questions.
Our request for $21,677,000 reflects an increase of $1.5
million over our fiscal year 1997 appropriation. Most of this
increase consists of an $805,000 adjustment to base for
inflation and cost increases for salaries and related expenses
and a $432,000 adjustment for audits mandated by the Chief
Financial Officers' Act.
As you well know, sir, if I might diverge for a minute,
this Committee has been very supportive of moving, from agency
budgets to our budget, funds sufficient to complete the
financial audits.
The latter adjustment would complete the process begun in
1995 of transferring funding for financial statement audits
from the bureaus' base appropriations to the OIG's for all
bureaus except PTO. The reason PTO is not included, is that we
are going to do it on a cost reimbursable basis, because there
is a proposal to deal with PTO as a Government corporation,
both internally within the Congress and from the
Administration.
The balance of the increase, or $300,000, will enable us to
expand our capability to evaluate and report on the overseas
operations of the U.S. and Foreign Commercial Service (US&FCS),
as required by the Omnibus Trade and Competitiveness Act of
1988.
For the past year, we have continued to provide advice and
recommendations to the Department and the Congress for
improving management and reducing or containing costs. I would
like to summarize some of that work.
I realize, if I might say so parenthetically, sir, that not
everything I am going to say will meet with this Committee's
approval. However, in your own style, I know you will let me
know where you disagree.
2000 decennial census
The 2000 Census, however, is something that I really have
to talk to. Today I find myself in the difficult position of
simultaneously supporting and criticizing the Census Bureau's
efforts to use new technologies and sampling to make the 2000
decennial census more accurate.
On the one hand, I firmly support the use of statistical
sampling, which you are aware of, to complete a timely,
accurate and cost-effective count. On the other hand, our
concerns over the Bureau's ability to successfully manage,
control, and integrate a number of new processes and the lack
of a completed census design trouble me. There is a greatdeal
of work yet to be done.
To ensure success in 2000, we believe two things must
happen. First, the Bureau must immediately complete and
implement a sound design. We had a meeting with the Secretary
and Martha Riche last week, which I think moved the process
strongly in that direction, and you should inquire of the
Census Bureau as to their commitment in that regard.
Second, the Bureau must be given the resources it needs to
accomplish these tasks, along with the freedom to use its
scientific judgment in researching, testing, and selecting
promising methods, such as statistical sampling, for use in the
decennial census. Cutting funds at this crucial juncture in the
planning process, limiting the Bureau's freedom to select the
most promising methods, would seal the fate of the decennial
census and, in my judgment, leave us with an expensive and
flawed count.
My statement does deal with that in substantially more
detail, as you know, Mr. Chairman.
noaa fleet
Regarding the NOAA fleet, since 1992, when NOAA received
authorization to implement a 15-year fleet replacement and
modernization plan at an estimated cost of $1.9 billion, we,
the Congress, OMB, and others have repeatedly urged NOAA to
explore alternatives to an agency-designed, -owned and -
operated fleet for acquiring marine data. Based on our 1996
program evaluation of NOAA's 1995 fleet operations and
modernization plan, we recommended that NOAA terminate its
fleet modernization plan efforts, cease investing in its ships,
begin immediately to decommission, sell, or transfer them, and
contract for the required ship services.
Despite clear and direct guidance from the Congress and
recommendations from our office and prestigious scientific
panels, NOAA continues to plan investments of millions of
dollars in its aging in-house fleet, rather than using these
funds for more cost-effective alternatives.
We continue to believe that most of NOAA's presently
planned fleet investments and expenditures are wasteful and
should not be made. We believe that better data collection and
ship services for NOAA's programs can be obtained at lower cost
if NOAA acquires such services from the private sector.
Outsourcing would give NOAA program managers greater access to
the latest technologies and more cost-effective platforms.
noaa corps
The NOAA Corps: NOAA currently is drafting legislation and
a transition plan to eliminate its commissioned Corps. Both the
Congress and the Administration have provided direction on this
issue. NOAA's draft legislation proposes to disestablish the
Corps by converting all remaining 299 officers to civilian
positions without any commensurate reduction in NOAA positions.
Such a one-for-one conversion is unnecessary, since many of
these positions are not even used for ship operations.
Very simply, we do not feel that this proposal makes sense
or complies with the intent of the Congress or the National
Performance Review. We believe that greater efficiencies and
economies can be achieved by outsourcing for ship operations
and maintenance and eliminating aircraft activities that are
not directly related to NOAA's unique scientific missions.
satellite funding
Satellite funding: In a recent review of NOAA's Polar-
orbiting Operational Environmental Satellites, we found the
program had $90 million in excessive funding. In fiscal years
1994 through 1996, NOAA received more funding than it needed
for polar spacecraft because it failed to adequately adjust its
budget requests to reflect slowed spending in the program. By
forwarding these excess funds to NASA, which, in turn,
obligated them to its polar satellite contractors before the
funds were needed, no one was aware of these excess funds.
It also enabled NOAA to avoid identifying the unspent funds
as carryover and the scrutiny such funds receive from the
Department, OMB and the Congress.
In a report to be issued this month, we recommended that
the Department notify OMB and the Congress of the excess
funding and improve its financial controls over satellite
funding. In response to our recommendation, NOAA's fiscal year
1998 budget was adjusted by the Department and OMB to account
for the excess.
In addition, NOAA assigned an analyst to NASA to assure
more timely and complete information on NASA funding needs, and
agreed to improve its reporting to the Department and OMB and
the Congress.
goes follow-on acquisition and early launch
GOES follow-on acquisition and early launch: We recently
evaluated NOAA's strategy for acquiring the follow-on series of
Geostationary Operational Environmental Satellites. We found
that NOAA's agreement to pursue a competitive, fixed-price
acquisition in response to pressure from the Congress, NASA,
the satellite industry, and our office will result in lower
cost and less risk and should provide a satellite in time to
avoid a predicted coverage gap early next decade.
However, because NOAA was slow in agreeing to a competitive
procurement and the two operational GOES satellites are
experiencing reliability problems, additional measures are
needed to insure against a coverage gap. Accordingly, NOAA also
is purchasing an additional satellite on a cost basis from the
current GOES satellite contractor. The thesis is, we must have
some insurance, and rather than trying to acquire one to fill
the gap from scratch, we would be better off buying the major
subcomponents and having them available to assemble in case of
need.
It is a tricky call, Mr. Chairman, because in effect we
will probably spend $15 or $20 million for the parts, including
the bus, the parts, the vehicle, et cetera. But I don't think
we can proceed without some kind of insurance policy.
advanced weather interactive processing system (awips)
The Advanced Weather Interactive Processing System: Last
year we testified about the cost growth, schedule delays,
management instability and slow technical progress on AWIPS,
the key integrating element of the National Weather Service's
$4.5 billion modernization program. Costs have continued to
climb and schedules to lengthen. Last August, because of
serious defects with the contractor-developed AWIPS software,
NOAA decided to abandon substantial portions of it and to use
WFO-Advanced as the basis for continued AWIPS development.
WFO-Advanced is being developed by the Forecast Systems
Laboratory, (FSL), of NOAA's Office of Oceanic and Atmospheric
Research. Because of this change in direction, the Secretary
decided to delay Key Decision Point-4, the milestone that would
allow nationwide AWIPS deployment. KDP-4 is now scheduled for
December 1997. In the meantime, the Department is allowing NOAA
to procure and deploy 21 systems, with an option for 18 more.
While we do not object to a limited deployment, serious
issues and decisions remain. In particular, use of WFO-Advanced
requires transferring most designresponsibilities from the
contractor back to the Government, determining the respective technical
responsibilities of the National Weather Service, the laboratory, and
the AWIPS contractor, carefully planning the work needed to complete
AWIPS development, and revising the contract.
Although 6 months have passed since the decision to use
WFO-Advanced, such planning has not yet been completed. NOAA
lacks a detailed definition of the work and has not yet
identified organizational roles and responsibilities which, in
my opinion, are vital in order to get the system and process
continuing.
noaa operations and research center
NOAA has requested fiscal year 1998 funding to begin
planning for the design and construction of a $97 million
research center to be located at NASA Goddard in Greenbelt. The
proposed new 350,000 square foot facility would house 1,200
NOAA employees involved in satellite and weather services.
We learned of NOAA's plans to construct the facility in
June during our ongoing review of NOAA's use of leased space.
NOAA originally planned to lease the facility while a third
party authorized by the State of Maryland provided financing
for the project. The Government cited some third-party
financing mechanism. However, we recently learned that NOAA was
seeking authority and funding to begin the project in fiscal
year 1998. We do not know why the financing approach was
changed.
We have begun an audit to determine whether NOAA has
adequately justified its revised decision. Our preliminary work
has identified concerns with NOAA's economic analysis. The
analysis does not evaluate all viable alternatives, including
the cost of renovating existing facilities or leasing other
General Services Administration or privately owned properties.
national institute of standards and technology (NIST)
The National Institute of Standards and Technology: During
fiscal year 1996, we continued our efforts to analyze NIST's
plans for modernizing and expanding its laboratory facilities.
In our fourth report, issued this past month, we highlight the
need for NIST and the Department to reassess and reorder NIST's
construction priorities in light of budgetary realities, make
important adjustments in its plans for procurement construction
services, and construct an Advanced Metrology Lab (AML) in
Gaithersburg.
In addition, we strongly urge that NIST work closely with
the Department, OMB, and the Congress to obtain full funding
for unified construction in Gaithersburg, since we believe that
phased construction--and this may not be possible with the way
the programs are scored--is too expensive. We strongly
recommend that the total AML building in Gaithersburg be fully
funded.
However, if full funding or authority cannot be made
available, we still believe that NIST should proceed with
phased construction of the AML in Gaithersburg.
patent and trademark office (PTO)
The Patent and Trademark Office--and I guess I will end it
here, sir--PTO apparently is delaying some aspects of its $1
billion, 5-year information technology plan to upgrade existing
capabilities and to implement a new and more efficient
customer-friendly process. We plan to monitor PTO's plan, how
it is progressing, and how its information technology
objectives fare under tighter budget constraints. It is also
moving towards a long-term, long-lease commitment for space.
commerce administrative management system (CAMS)
A word about CAMS, which has been delayed, as we predicted,
and is somewhat more costly. I guess that would complete my
remarks, sir. I would be glad to answer any questions.
[The statement of Frank DeGeorge follows:]
[Pages 296 - 315--The official Committee record contains additional material here.]
NOAA weather satellites
Mr. Rogers. First, let me deal with weather satellites. Was
there an effort by NOAA to hide from the Congress and everybody
else, $90 million, so it would not be counted against the 1998
budget?
Mr. DeGeorge. I don't think I could confirm that
accusation. I can tell you that the process of tracking the use
of the money and NASA's accountability of the money was very
sloppy, and I am sure the contractors didn't disagree with
having excess money available.
My understanding is that OMB has made the judgment that, in
effect, the money may be slightly different, but essentially
all necessary reductions should be reflected in the budget
marks for 1998.
It is always hard to prove intent. I think that NOAA has
the same problem the rest of the Department has. Unless there
is visibility in its accounting systems, unless there is
visibility in the budget process, unless we get the
appropriations system to match the accounting system--or really
the other way around, the accounting systems to match the
appropriations process--we are never going to know.
As the Chairman well knows, we had this problem in NIST a
year or so ago.
Mr. Rogers. Exactly, the same modus operandi.
Mr. DeGeorge. The same lousy bookkeeping.
Mr. Rogers. You call it that. I call it hiding money. I
think there is an effort at NIST to obligate that construction
money in order to keep it from being declared surplus or unused
funds.
Mr. DeGeorge. They wanted to obligate it so it wouldn't be
available.
Mr. Rogers. Sure. It looks to me like NOAA has learned the
trick and it almost worked.
Mr. DeGeorge. I don't know how long it has been working
like that. I believe it has been a number of years. But it has
now been fixed, Mr. Chairman.
I doubt if there was an intention to deceive. I would just
think that it is a much more convenient way to do business.
Mr. Rogers. Well, is this problem isolated to the polar
program?
Mr. DeGeorge. No. We are completing audits in the satellite
launch program, as well as GOES. I think there is probably $20
million that needs to be fixed, as well.
Mr. Rogers. They have obligated $20 million----
Mr. DeGeorge. I think NASA has another $20 million in the
launch program and satellite program. This is a guess; we won't
have the report for another couple of weeks. That would be a
reasonable guess; that is if we are following the same trail.
Mr. Rogers. Any others?
Mr. DeGeorge. Not that I know of.
Mr. Rogers. Well, is NOAA exercising appropriate oversight
of the satellite programs?
Mr. DeGeorge. The answer to that is, we are not, no.
Mr. Rogers. How can we improve it?
Mr. DeGeorge. Well, I guess the way you can improve it is
to demand better accountability, demand they get their
accounting systems fixed and report to the Committee on a
periodic basis and show where the money is going.
Right now, they move their money around a lot, as you know,
within NOAA, and there is a lack of----
Mr. Rogers. Maybe they should check back with NIST and find
out what happened to NIST when they tried to put some money in
the shell game last year.
Mr. DeGeorge. Yes, I would suggest that we should set them
up to talk to the Director of NIST. But the real problem, Mr.
Chairman, is knowing enough to know that it is there. Until you
get agencies to accept that their responsibility is not to
spend the money because it is there and to return to the
accountability side--I think this is not a unique problem in
Government. I would presume that there are other places where
money is appropriated, and because they didn't need it at that
point in time, they don't look towards reducing future
requirements.
How do you make people deal with it? I think it is an
attitude. I think it is a habit. I think it is lack of
accounting information that people know about it.
AWIPS
Mr. Rogers. Now, on AWIPS, as you know, that is 4 years
behind schedule and $200 million over the original cost
estimates.
Mr. DeGeorge. Yes, sir.
Mr. Rogers. As you say, because of very serious
deficiencies, NOAA is again completely restructuring the
program. That is the second major restructuring in two years.
Are we finally on track, do you think?
Mr. DeGeorge. Yes, I do. I hope I am not proven wrong.
Let me put it this way. Fortunately, the Forecast System
Laboratory had been developing as an alternative plan, actually
for future development, the WFO-Advanced system--which I think
your staff has taken a look at--is a better system. AWIPS was
only 20 to 30 percent designed when the recent change was made.
I am very grateful that the National Weather Service had
this system, that we can move towards an alternative. It is
probably 2 years ahead of where the contractor was. In that
sense, we are much further along and, I think, are moving in
the right direction.
Mr. Rogers. What are the issues and the problems that need
to be addressed?
Mr. DeGeorge. On AWIPS?
Mr. Rogers. Yes.
Mr. DeGeorge. Well, the first problem that has to be
addressed is deciding how to allocate the remaining design
responsibilities. Currently, the contractor is responsible for
design, installation, and check-out of the system and hardware.
That is probably $150 million to $170 million.
That contract probably should be continued by the
contractor. At this point, going out and allowing another
contractor to do the installation and check-out would probably
be yet more expensive. Dividing the work between the
laboratory, the Systems Integration Office in the Weather
Service and the contractor, and understanding who will be
responsible for what has not yet been finally, totally designed
and has not yet been defined.
We know we have the WFO-Advanced system that is preferred.
We know that the NWS wants the contractor to do some more
development of the program software. The NWS has indicated that
they are working as fast as they say they know how to determine
what everybody's role is, and I presume they are. So providing
the technical responsibilities for the balance of the program
is the first thing that has to be done.
The second thing that has to be done is finalize the
estimates to complete. In other words, we think and we hope
that it will live within the $525 million ceiling that the
Committee has set. I would say we will be lucky if costs only
hit $560 million. We have to get estimates to complete. We have
to also understand who is still working on the job in-house
within the Weather Service, the staffing required.
national forecast lab
The National Forecast Lab has to be adequately funded to
complete their work. That money should be taken away from the
contractor. The disputes are, the contractor still has some
software development money left in its budget, and I think the
Weather Service has to justify what they are going to get for
the remaining development work from the contractor.
So defining the work technically, establishing the
schedule, establishing an estimate to complete, and
understanding what each role is, is yet to be completed. I
think completing these decisions is scheduled for the next
month or two or three. There is a reason why we pushed to hold
the actual production release to the lowest minimal number. It
was so it would give us an opportunity to confirm WFO-Advanced
is a working system. If we had waited for another 6 months or a
year, I think it could have been even more expensive to change
direction.
I have seen the WFO-Advanced system. Others have seen it.
It is a working system. It has been operationally deployed in
Boulder for the last year or so. We have every reason to
believe it can be completed, but not if we continue to be--I
guess the word I was thinking of was ``sloppy,'' or
``unorganized'' in the completion of the program between what
the contractor does, what the lab does, and what the Weather
Service Systems Integration staff does.
So it is similar to every other large systems project. The
schedule, the technical decisions as to who is going to do
what, and how much does it cost, is what has to be confirmed as
soon as possible.
Mr. Rogers. Well, if the Department had to eat the cost of
AWIPS above $550 million----
Mr. DeGeorge. I think they made that commitment to you.
Mr. Rogers. Yes, they did. Will that have any impact on
getting it done?
Mr. DeGeorge. Well, if you presume that they are committed
to the AWIPS program as the operating system then without this
system, they don't have a weather modernization, modern system,
they must do it. If Congress doesn't fund any increased costs
that NWS thinks are legitimate, or for one reason or another
the program is further delayed, NOAA is going to have to find
other parts of their budget, I would presume, to either
reprogram or cut back on.
Mr. Rogers. Will you keep an eye on that?
Mr. DeGeorge. Yes, sir, I will.
Mr. Rogers. They committed that if they spend a penny more
than $550 million, they will find the money elsewhere in their
budget. Can you help us keep an eye on that?
Mr. DeGeorge. Yes. I think we ought to both require it. If
NOAA has any reason to believe the program costs are increasing
they should tell you what other costs are going to be reduced.
A better way to handle it, I think, is if the program
continues to run and NOAA needs another $20 or $25 million, or
whatever NOAA tells you, where are they reducing costs? If you
don't ask what program is being reduced it is possible you
would find that they were reducing the wrong accounts.
There is also another problem. As you start to get new
equipment installed and operating, it is not always easy to
identify where the continued development stops and where the
operational expenses begin.
Mr. Rogers. Mr. Skaggs.
noaa boulder lab
Mr. Skaggs. Thank you, Mr. Chairman.
Good afternoon. I know you know this, but just to put it on
the record, we are building the new NOAA lab in Boulder now,
finally--and thank you again for the work you did in an earlier
life that enabled that to proceed.
Mr. DeGeorge. I brought, which I am going to give you for
the record, a copy of a 1989 memo that describes the issues
when this started. Some things just take awhile.
Mr. Skaggs. Don't they?
Mr. DeGeorge. But thank you.
[The information follows:]
[Pages 320 - 321--The official Committee record contains additional material here.]
1998 budget request
Mr. Skaggs. Are you satisfied with the amount included in
the Department's budget for your own operation?
Mr. DeGeorge. Yes, sir. We have a unique way of dealing
with it. I don't know if I have ever explained it to the
Chairman.
We make our own budget estimate which goes directly to the
Deputy Secretary, and the budget people don't generally
comment. I presume they have a few comments on it. But then it
goes directly to OMB, and OMB looks at it and makes their own
comments or changes.
Actually, they have been pretty fair to us for the last 3
or 4 years, and this Committee has too.
DECENNIAL CENSUS
Mr. Skaggs. Are we going to be ready for the 2000 Census?
Mr. DeGeorge. Are we going to be late?
Mr. Skaggs. Are we going to be ready for it?
Mr. DeGeorge. Only if we deal with the two major issues
that I think are on the table. We should be ready if we deal
with sampling correctly and if we deal with the management
improvements that I have talked to Secretary Daley about and he
is committed to deal with them--yes, then we will be prepared.
I really would not begin to advise this Committee or any
other committee as to how concerned they should feel about
sampling as an issue. I have tried in my testimony today not to
deal with sampling per se, except to say that getting anywhere
close to what the budget will allow will require sampling--
anywhere close.
Mr. Skaggs. May I interrupt to make sure I understand.
If we are going to live within the amount now projected, is
the only way to do that to rely much more on sampling rather
than universal coverage?
Mr. DeGeorge. Yes, sir. Census tract, which is now the
present design, is moving too damn slow for me--strike that--
but moving too slow for me. It is the best combination of
statistical sampling and political salesmanship for everybody
involved.
I testified before this Committee and others that I thought
sampling should be started at the 70 percent response rate.
Sampling at 90 percent is probably the most realistic way to do
it today. It is more accurate and cheaper. Congress is going to
have to decide how to deal with it.
I would just restate one point. No matter what we do, Mr.
Chairman, we need to make the investments, I feel, in census
planning that are in this present budget. Whether Congress
decides that it doesn't want to allow sampling or takes some
other approach, other than a statistical basis, the research
work that is in the 1998 census budget is necessary. I can only
tell you I support the present budget request. I think it is
the only way to go.
There are other problems. The whole process has changed--
data retrieval, data input, the way we are designing the forms,
the way you are going to read the forms. The whole process has
changed. To bring the administrative process up to date
technologically, is a massive job. If you can imagine tens of
thousands of people with laptops, which is the present plan,
taking data input; if you think finding 500,000 to 700,000
people to do the enumeration of a normal census is difficult,
think what we are going to do; if the economy continues as good
as it is, in a couple years, finding maybe one million people
to help with the counting aspect of it is daunting.
The projections which I hear, which no one seems to
disagree with--I will leave the question here--is that the
percentage of returns or response rate will continue to fall.
In other words, we will be lucky to get 55 percent, 60 percent
response. Census has done a great deal, with the Chairman's
support, to simplify the reporting format. I will leave it to
somebody else to debate between the short and long form.
But the issue of how much time, effort and money we spend
to find people who do not want to be counted is a basic
problem. It is going to be very difficult to replicate the 1990
response rate. I have been beat up on both sides of this issue,
I don't know that there is any proper way to do it. I know I am
very supportive of the present plans.
Census needs more help in procurement, engineering,
technical support, management, program control and all the
elements that run a large, sophisticated program. That is what
I call the ``management programs.'' And we need a strong,
dedicated Undersecretary and Secretary to deal with it. I think
they are moving in that direction.
The problem is, the sooner you make a decision on the
design, which means sampling, no sampling, or any percentage,
the sooner you have a good chance of doing the demonstration,
which is one year from now, 1998. You have one year. It is a
serious management problem.
I apologize. That is about as close as I get to emotional
with you, Mr. Chairman. I appreciate your patience.
FOREIGN COMMERCIAL SERVICES
Mr. Skaggs. Thank you. I am curious about the extent to
which you have looked at the Commerce Department presence
overseas and evaluated that.
Mr. DeGeorge. Not enough. As you know, the Omnibus Trade
bill suggested, because of previous management problems in the
foreign service business, that we should review the US&FCS
every 3 years. It is important for us to look at foreign sites,
our own domestic offices as often as we can.
There are two problems. First, the State Department's ICASS
costs are increasing and our share of it keeps going up. My
colleague who was here earlier thinks it is a wonderful system;
I do not. That is one side of the issue. The other is that we
really need to understand how we maximize information
technology from our domestic staff to our overseas staff.
As an aside, if I might, the various committees--Judiciary,
the oversight committees--are very concerned, because we went
to Indonesia last year; a couple of contributors were there at
the same time. We were there to look specifically at the trade
center site. We have a big new trade center in Indonesia.
But remember the Department's responsibilities. US&FCS has
between foreign service nationals, and American staff, a couple
of thousand people overseas. It is a big job, and we really
need more resources to get it done.
It is our obligation to go look and see what they are
doing. These posts and stations are 8,000, 10,000, 12,000 miles
away--and the State Department doesn't provide much support. To
be very candid about it, they don't support them as much as I
feel that they might. You get over there and they have six
people, eight people in Indonesia, in Moscow and the Ukraine.
It is tough for them to be as accountable as I think we would
want them to be.
Mr. Skaggs. If you have any recommendations as to
structural changes within the Foreign Commercial Service that
would address that, I am sure we would be glad to receive them.
Mr. DeGeorge. As you are probably aware, the Department is
considering a reorganization that would include US&FCS. I
presume the Secretary will talk to you about that issue or
decide whether he is going to implement the suggested proposal
at this time.
There is much to be said for some improvement in the way
that the ITA is organized. Trade promotion versus trade
development has always been an issue.
I think everyone now recognizes, particularly if you are
going to meet the Secretary's commitment to cut 100 political
employees that ITA needs to deal with the number of political
appointees. They are only really in two places, in ITA and in
the Department's structure.
I think there will be some kind of thrust from the
Department for proposals for changes. The Department has been
very gracious to ask our comments on how to proceed.
Mr. Skaggs. You referred to your disagreement with the
ICASS approach to things. Would you elaborate on that?
Mr. DeGeorge. The Department of State has had repeated
budget reductions over the past several years. I don't know if
that is the right term or not. However, I know they apparently
have been looking for ways to recover more of their expenses
overseas, including security, accounting and other
administrative costs. They are in the process of developing a
new system which is intended to more fairly allocate their
overseas costs to participating Departments and agencies.
Any time you develop a new system, Mr. Chairman, it costs
someone more money. But the one continuing thing that is
happening in this process is, the costs to the Foreign
Commercial Service are increasing. That may be because of the
way they are reducing or reallocating the cost accounting, or
may be because there are costs of leaving old systems that have
to be allocated. The US&FCS has direct expenses. They have to
meet payroll, pay bills, they have to travel, all of the
expenses that go into administration. And the State
Department's accounting system from an overseas perspective--I
don't know what they are telling you, Mr. Chairman--in my view,
does need some repair.
The question is how much do we pay?
Mr. Skaggs. I wasn't sure whether you were saying your
point of departure is that ICASS is administratively heavy and
costly as a system or whether you disagree with the conceptual
starting point of spreading the costs differently?
Mr. DeGeorge. I don't disagree with the conceptual starting
point of spreading the costs. The expenses are rising so fast
that the option I think ought to be considered by Commerce and
US & FCS as to whether we ought to go it alone or whether there
is any possibility of other alternatives to continuing with the
State Department.
The cost is becoming very expensive. I think it has gone
up, our perspective--I will submit it to the Committee
officially--I think the cost in the last five years has tripled
for agencies like us. With that kind of an increase, I think we
have to search for alternatives, plus the bills are late, the
process is archaic. I think the State Department would probably
agree with that.
So I think it needs fixing. The question is, should we
continue to directly participate?
Mr. Skaggs. The alternative being just to get your own
space?
Mr. DeGeorge. Not space so much, but accounting and other
supporting services. Do it on an individual basis or go it
alone. I think we need to look at those issues.
[The information follows:]
[Pages 326 - 328--The official Committee record contains additional material here.]
EMPLOYEE COMPLAINT
Mr. Skaggs. Finally, would you please describe the internal
process within your office if a junior person has some
complaint as to the way they are being treated--and I dont mean
to suggest that I know anything is wrong. Hypothetically, how
are internal corrective measures taken if somebody inside the
IG's shop has a problem with something going on?
Mr. DeGeorge. There are a lot of mechanisms to deal with
it, including the EEO process and the complaint process. But
the only way that you can really deal with that process is if
you know who it is. In a particular case, a recent charge was
anonymous, and while I can speculate who it was, I have not.
I turned this charge over to the President's Council for
Integrity and Efficiency. I said, look, I didn't do this, but
somebody has to look at it, and that is what the PCIE has the
responsibility to review. They will look at the charges and
make a judgment whether it was a management judgment or
something other than that. They will refer it to the Office of
Special Counsel, the Department, or someone else who could deal
with it, if it appears to be necessary.
We do our best to deal with the day-to-day problems with
staff. Sometimes the staff doesn't agree with me, or sometimes
they have a different agenda. I respect that. It is kind of
hard to deal with these kinds of complaints.
Mr. Skaggs. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Latham.
OIG Staffing
Mr. Latham. Just a couple of questions. On the Census 2000,
there is a large increase in funding to get on track. In your
office of the Inspector General, are you going to have to
increase funding to track what they are doing? How much more of
a commitment is this?
Mr. DeGeorge. Our staffing is adequate, in my judgment. We
have three very capable people. One, Mort Schwartz, behind me,
is a very strong economist and basically has two staff members
available there. I think we have considerable involvement, and
I don't think we need a lot of people or more people to deal
with the process, per se.
CAPITAL ASSET ACQUISITION ACCOUNT
Mr. Latham. I believe in the Department's request, they are
talking about separating capital improvements or capital
expenditures from operations and administration. I would like
to get your impression of that system, what your feeling is,
and then go back to the NOAA situation. Where would you draw
the line, as to which was capital or ongoing operations, or
isn't there a way of really doing it?
Mr. DeGeorge. I think it is really an accounting issue.
Capital accounts, the way I understand it--and I may be wrong--
really deal with buildings, whether owned or leased, and the
support that would go with them, and anything that you want to
buy long-term, systems like the Weather Service modernization
that we are talking about, and like the Patent and Trademark
Office that talking about spending $1 billion in future systems
upgrades.
If I can use an accounting expression, these are basically
long-term expenditures that you would normally depreciate like
buildings, equipment, hardware, those kind of things, that is
the way I understand the account has now been separated.
The trick is to understand what is behind the operating
expenses and what is behind the capital expenses. You have
choices. Like anyone who thinks accounting is an exact science,
it doesn't work that way.
Mr. Latham. Especially as we get close to April 15.
Mr. DeGeorge. We need data; we need information; we really
need to know what is going on. Let me put a plug in for
performance reviews, strategic plans, CFO statements; the
statements will get there in a year or two. But then what the
devil do they mean? What do they tell us about what is going on
over time?
What you want to measure is cost, quality, and schedule. As
an example with the Patent and Trademark Office--what
percentages of the patents and trademarks are issued on time,
what does it cost per unit, what are the backlogs? That is a
problem for this Committee and others to understand the
information you received.
As you get into this PBO concept, the public corporation
concept, you must know what the fee structure is. You must
reach some judgments as to the efficacy of the fee structure.
As important as that is, you have to understand who has the
controls, who makes decisions, etc.
There is a big temptation on the part of the Federal
Government, the executive branch, to say anything we can take
out of the normal agency control that we should transfer to the
private sector.
I will give you one example: NTIS Cyberfile project. The
Committee knows about this. This was Commerce's attempt to work
with IRS to develop an interactive filing system. NTIS and the
IRS took too many shortcuts and had no end of problems.
Mr. Latham. Do you support breaking up the capital
accounts?
Mr. DeGeorge. Do I support it? Well, eventually it winds up
in one Department budget or another. I think that OMB feels,
and I agree, that before you make that down payment on a long-
term system acquisition, you ought to have a sense of what the
total costs are.
That is the idea. You want to build a building; it costs $1
billion. Do you want to have a Weather Service modernization
that costs $300,000,000? Tell me at the start what it is going
to cost over the next 10 years. It is a concept I can't
disagree with. But are we going to get the appropriate
information? Are people going to be straight with us? Are we
going to know what is going on? Do we have access? Do we have a
strategic plan? Do we have performance statistics we can
measure? Do we get reports that people look at? Do we know what
is happening? That is the important thing.
Have I ever questioned anybody's agenda? I have never
questioned that everybody wants to know. The problem is, there
are certain advantages of not knowing. So we have got to get
beyond that mind set.
The number one thing I think that has come out of the
change in the last 5 years in Congress is, there is less money
to go around, so we better start looking for choices and
understand what bills we are getting. That is what I think an
IG's job is all about.
Mr. Latham. Do you think, going to that type of system, you
would have more opportunities for creative accounting than----
Mr. DeGeorge. In capital budgeting?
Mr. Latham. Splitting it out. I can just see this program
being able to push part of it over here and spend more of it
over there.
Mr. DeGeorge. As long as this Committee says there must be
a bottom line of how much you are willing to spend; as long as
you don't give more credibility to capital projects per se
because they will take 5 or 10 years, like the Weather Service
projects to complete, as long as you actively know what is
going on, I think it can be helpful.
But these plans are all guesses. What I have more problems
with is today's procurement process, which is becoming much
more difficult to understand. There are a lot of open questions
about the new procurement regulations that are being developed
and how we are going to balance and review the award process
against the freedom to run businesses like the private sector.
That is what I would be looking at long-term.
Mr. Latham. Thank you, Mr. Chairman.
cams
Mr. Rogers. You mentioned problems with CAMS. Why is CAMS
behind, and what can we do to resolve the problems?
Mr. DeGeorge. Our office made the supreme sacrifice. We
transferred our Assistant IG for Audit to the Department's CFO
office. He should be very helpful to the Department. I think
leadership is very important. The problem involves the
Department putting in place the staff, procedures, and Chief
Financial Officers to implement the programs.
But the issue is completing what we started and controlling
the contractor and the staff in house. This accounting system
was a very, very big step. We have some additional benefits
from CAMS--the ability to deal with the 2000 conversion
problem. I don't think that the Department necessarily had that
in mind when they began the implementation of CAMS.
We have a system that is now being tested. If everyone
responsible continues to oversee the implementation, and
assigns the necessary staff, the Department should complete
implementation on time. Implementation will be later than
scheduled; that is also not a surprise. But the choices of
going back are not viable. I think that they have upgraded
their capability downstairs.
Get Mr. John Newell up here, and require the Assistant
Secretary to constantly brief your staff as to what steps are
being taken. We will continue to review the program and to
offer advice. CAMS is doable, but it has to be watched.
Mr. Rogers. Anything further, Mr. Skaggs?
Mr. Skaggs. No, sir.
Mr. Rogers. We thank you very much.
[Pages 332 - 335--The official Committee record contains additional material here.]
Thursday, March 20, 1997.
COMMERCE DEPARTMENT SCIENCE AND TECHNOLOGY PROGRAMS
WITNESSES
MARY L. GOOD, UNDER SECRETARY FOR TECHNOLOGY
BRUCE A. LEHMAN, ASSISTANT SECRETARY OF COMMERCE AND COMMISSIONER OF
PATENT AND TRADEMARKS
Mr. Rogers. The Committee will come to order.
This morning we welcome representatives from the Commerce
Department to discuss programs related to science and
technology and our industrial competitiveness.
With us today testifying on the budgets for the Technology
Administration and the National Institute of Standards and
Technology is the Under Secretary for Technology, Dr. Mary
Good. Also joining us is the Assistant Secretary for Commerce
and Commissioner of Patents and Trademarks to testify on behalf
of the Patent and Trademark Office.
The fiscal year 1998 budget request for the Technology
Administration and the National Institute of Standards and
Technology is $701.8 million, a $120.3 million increase over
the fiscal year 1997 enacted level. At the same time, the
request to this Subcommittee for direct appropriations for the
Patent and Trademark Office is $27 million to support a total
operating budget of $656 million.
Fiscal year 1998 will bring with it another year of budget
constraints. We want to know what your priorities are and what
actions you're taking to streamline, consolidate, and become
more efficient. We will begin with your spoken remarks. We will
insert your written statements into the record. Given our time
constraints, we would hope that you could try to limit your
oral remarks to about five minutes or so. Dr. Good, you may
proceed.
Overview
Dr. Good. Thank you very much. We appreciate very much,
Mr. Chairman, the opportunity to be here today. Since you've
already said that our written testimony will be in the record,
I will simply take a very short amount of time to say a few
words about the budget and the programs that are represented
there with respect to some of the increases.
We have done some of the streamlining that we've talked to
you about. One of those that we've done is in the Office
Technology Policy. We've now streamlined that to do primarily
assessments and internal competitiveness and international
competitiveness. The strength of that program is better than it
was before. We are also using the limited funds that we have to
contract with outside university experts and industry expects
to get that work done.
The two new issues there, are small programs, which is an
extension of the program that we promised last year we would
start, with the business of interaction between the Federal
Government and the States. We have a very good working
relationship.
We took some of our money last year and combined that with
a contract with the National Governor's Association to start
this Federal-State partnership. This will enable the states to
more readily leverage what we actually do in the Federal
Government. That has gone very well. What we've asked for is a
small amount of money to start a program which would allow us
to begin to build on NSF's EPSCOR Program to work with those
States that really need to now leverage what technology assets
they have in their States--to plan to use those for economic
development.
So, that is the biggest number change that you see in our
budget. I would also remind you that we had promised that the
1997 budget would be the last year of the money that went for
the U.S.-Israel grants program, and that is the case. The $2.5
million that was in our budget for 1997 completes the
President's commitment. That program is underway and doing very
well. As far as we are concerned, it is now complete with the
1997 budget.
I want to say just one word about NTIS. We are not
requesting any appropriated funds for that agency. It is a fee-
only agency. We will probably come back at some point this year
with a request for legislative changes that let that operation
perform more flexibly. Since it is fee-only, it's important
that it be able to make a living. We need some flexibility for
it to be able to do that. We want to put in some business-
oriented kinds of activities that will allow their revolving
fund management and their personnel management to be more
representative of what they have to do. Other than that, there
will be no budget request.
Within the NTIS budget request, I would like to mention the
budget increases first, in the laboratory program. We are
asking for a relatively modest increase. But the two programs
that are in that increase are extraordinarily important.
The first one is to really beef up our ability to do
measurements and metrology in the nanometer scale to support
the semiconductor and the miniaturization in the electronics
field today. This is an area the industry has pushed us very
hard to do. We are asking for money to beef that up and to
truly begin to move that out to the state-of-the-art where it
is required.
The second is, to have some increase in our ability to do
international standards harmonization. To be clear, Mr.
Chairman, that money for the standards issue is not to move
people to foreign offices. This is to permit staff within the
NTIS organization to have the resources to do the kinds of
harmonization between standards organizations overseas and
ours.
This is becoming one of the most urgent issues with respect
to trade issues. We are having this problem aroundthe world, as
you know, where countries are using internal standards as non-tariff
barriers to trade. We need to get these organizations moving. We would
like to be aggressive in that. So, we have requested some increases to
do that.
We also have asked for an increase as we did last year with
respect to expanding the Baldrige Award to move into the health
care area and into the education area. The Foundation for the
Baldrige Award has agreed that it will start to raise $15
million of private money if we can get the $2 million to do the
Secretariat and to do the staff work within NIST.
We think these are really timely to do. The industry is
very supportive of it, even the health care industry is. The
Foundation now has two major health care company CEOs on its
Board. They are willing to participate. They think this whole
business of bringing the Baldrige process standards to them is
very important to do.
Then the pieces where we have bigger increases are in the
extramural program. We understand this is an area where there
are major issues between where we are and what some of the
Congressional people would like, but we feel that this is still
an extraordinarily important program.
We're asking for a $50 million increase for the Advanced
Technology Program. Mainly, what we need in ATP is a stable
number so we can have an equilibrium program, so we can run a
national program which has as many projects finishing in the
year so that we can start those new ones in the next, and that
it's an equilibrium. The $50 million that we have in the budget
will begin to get us to that sort of a position.
The increase in the Manufacturing Extension Partnership
Program (MEP) is for two reasons. One is that now, in the 1998
budget for the first time, we have all of the funding for MEP
in our budget. There are no carryover funds from Defense as
there was a small amount in fiscal year 1997. So, this request
is for the first time a very clean budget for MEP, the
Manufacturing Extension Partnership Program. All of that is now
in our budget.
This will fund the 75 centers that we presently have. We
now have a center available in every state. The program has
grown, and we think it's doing extraordinarily well. We have
requested some money to provide some tools for these centers to
work particularly in some areas which have really major needs
today.
One is the whole issue of supply chain optimization. I have
put in your packet, Mr. Chairman, a paper which was done by a
person at MIT who has studied this supply chain issue very
much. What we've done is, we talked last year about where
manufacturing was in the United States.
What has happened is that our original equipment
manufacturers today are world class. They have pushed their
quality and things down to their major suppliers. But when you
get below that, the last 40 percent or 50 percent of the supply
chain is really in jeopardy today. This is the area where we're
seeing major Japanese supply chains, major supply chains
elsewhere, bidding against our small and medium-sized
manufacturers.
We're sort of in the position that we may win the battle
with respect to building cars, for example, but lose a part of
the war because 50 percent of the content in that car will be
from non-U.S. suppliers. So, we think this ability to begin to
get the centers to address that is a very urgent activity. So,
a part of the increase we've asked for is to do that.
Those are the major program issues. The last one has to do
with construction. As you know, we had major discussions about
the construction at NIST last year. We've got a new planning
process going on which will be finished, we think, in June
which will address the long-range needs that NIST has, both in
renovations and in new construction.
What you see in front of you for the budget this year is
about $17 million which we will simply use to address the most
urgent of our repair needs. And that's all that this money
would accomplish.
Mr. Chairman, I will close here and I will leave the rest
of the statement for the record because I know we won't have
time for questions and people to participate. We still believe
that this activity within the Department of Commerce is truly
important for the country as a whole. The whole issue of
civilian technology today is the issue around the world. People
know that to get economic growth with high quality jobs, it
must be built on new technology development and technology
infusion. All of our activities in the Technology
Administration are focused on trying to do that for us.
So, we think these are really very high priority activities
and clearly, the Administration believes that because they have
requested increases in our budget. The funding clearly came
from other places, which obviously had to have decreases if we
were here.
So, we appreciate your consideration. We are willing to
discuss them in any way that you would like.
[The statement of Dr. Good follows:]
[Pages 341 - 355--The official Committee record contains additional material here.]
Mr. Rogers. Secretary Lehman.
overview of the patent and trademark office
Mr. Lehman. Thank you very much, Mr. Chairman. I am
pleased to have come to this room because the first thing I see
is the first patent that we issued in 1790. Actually, it's a
good place to focus as a talking point to explain the unique
nature of the Patent and Trademark Office.
We, unlike most agencies that appear before you, are not a
programmatic agency where often times appropriation decisions
basically have to do with fundamental decisions about the
programs of the Federal Government. Should we do this program?
Should we do that program?
We have had one program since 1790. That is to issue
property rights in innovations to U.S. innovators so they can
get the financing from the private sector that they need to
make new technological ideas a reality in the marketplace.
In 1870, we added trademarks and the issuance of trademarks
to that area of responsibility. Ever since that time, that's
been our business. Now, since 1993, as you know, we have not
received a penny of taxpayer money to finance our operations.
We've been entirely fee funded.
We expect in Fiscal Year 1998 to collect $748 million in
fees. However, we are proposing only to spend, of that fee
revenue, $656 million. So, when Dr. Good talks about a business
model for the National Technology InformationService, we are a
business model which expects next year to produce a profit for the
United States Government. That will pose a very serious management
challenge to us. We hope that you will work with us in seeing that we
have the ability to accept those management challenges.
fee revenue
There are just a couple of things I would like to acquaint
you with that may not be familiar, at first look, about the
unique nature of our accounting. One of them is contained in a
chart that I have here. I think you need to have a little bit
of understanding as to where this fee revenue comes from and
where it goes.
We tend to think of the PTO budget as a single budget,
because we tend to think of the patent operation, which is the
biggest part of our operation. In reality however, you will
notice that if broken down separately into spending for
trademark operations and patent operations, between 1997 and
1998, we will actually have an increase in spending for the
trademark operation, and a very substantial decrease in
spending in the patent operation.
You should know that one of the reasons for that is that,
by law, the trademark operation must receive every penny in its
fee funding. In other words, your Committee really doesn't have
any appropriations control over the trademark funding.
So, any decisions that you make or that are made by the
Administration have to come completely from the patent side. I
think that is something not totally understood. I think we need
to understand that. This is a statutory requirement. Now, in an
attempt to deal with this, there is a bipartisan consensus in
this country which has rarely existed in many, many years in
that the number one national priority is the elimination of the
Federal budget deficit.
Part of our revenue returned to the general Treasury
contributes to that national priority. This will require
skillful management on our part to make certain that we can do
more with less.
pto reorganization
In that regard, we have sent to your Committee an
administrative reprogramming notice which is step one in
attempting to give us the modern administrative tools necessary
to provide healthy management for the PTO. It is a very simple
reprogramming notice.
It basically permits us to recruit a professional manager
to run the business operations of the PTO so that we won't have
the problems of political appointees coming and going, and
periods of 18 months or so between appointments.
During the last Administration it took 18 months to appoint
a person to be Commissioner. Then, it was another 18 months
between when that person left and when I was appointed. We
can't have that kind of rudderless situation. So, we are
proposing to have a Chief Operating Officer for the Patent and
Trademark Office.
That is the beginning and the end of the reprogramming
notice that we have sent up to this Committee. However, there
is step two. The House Judiciary Committee, our authorizing
committee, has approved separate legislation that we have been
jointly working on along with the Administration.
We have differences of opinion about the exact nature of
that legislation. The basic thrust, from the point of view of
the Administration and our authorizing committee, is the same.
It is that we should be able to have the flexibility that a
business operation would have, in addition to having a Chief
Operating Officer, who will be held accountable for
performance.
We will also have greater flexibility in other areas such
as procurement, personnel policies, so on and so forth. These
tools are necessary if we are to meet the management challenges
of providing our contribution to budget deficit reduction.
So, I'd be happy, Mr. Chairman, to answer any specific
questions you have about this.
[The statement of Mr. Lehman follows:]
[Pages 358 - 363--The official Committee record contains additional material here.]
Mr. Rogers. We have a vote on the floor. We will be back
in about two minutes.
[Recess.]
advanced technology program
Mr. Rogers. We will come to order. Dr. Good, I don't
understand NIST.
Dr. Good. Okay. We will try to help you if we possibly
can.
Mr. Rogers. I don't think you and I are talking the same
language.
Dr. Good. Okay.
Mr. Rogers. This is the second straight year that NIST is
trying to game the system. In the final negotiations on the
fiscal 1997 budget, we, the Congress, reluctantly accepted the
Administration's demand to fund their request for continuation
grants for ATP, and gave them about $45 million for new grants,
based on the spending plans you gave us.
Four months after we passed that bill, with a grand
compromise in it on the limitation of new grants at $45
million, you told us that now you're going to divert $43
million of the money that we gave you for continuation of prior
year grants.
You were going to shift that money, about $50 million of
it, for additional new grants. As I said, that's the second
time in two years that we were told that money was needed for
continuation grants for prior year awards, only to have NIST
come back after the appropriation was enacted, after the
people's representatives spoke, and divert additional monies to
new awards.
It's been acknowledged that decision was made after we
passed our bill. In fact, NIST's 1997 spending plan that I
requested in January, said you were only spending $50 million
for new awards. You've increased that to $95 million with no
consultation with this Committee, no consultation with the
Congress.
As a result, you are increasing out-year costs for ATP by
$152 million. As I told the Secretary the other day, we won't
stand for that. I will not have anybody cavalierly ignoring
this Committee or the Congress with our money. Now, what do you
say about that?
Dr. Good. Well, Mr. Chairman, let me just put our case on
the table.
Mr. Rogers. Make it quick.
Dr. Good. We shall. The program originally planned to pay
the mortgages each year for those grants that had been made in
previous years, but to pay only one year of those mortgages at
a time. That, across the Government, is the way these sorts of
research programs are funded, with the caveat to the recipients
that the future year funding is subject to funding by the
Congress.
During all of my years at the National Science Foundation
when we funded three-year grants or five-year grants that's the
way they were done.
Mr. Rogers. That's not what we were told in the 1997
negotiations.
Dr. Good. No. I'll get to that. But I'm simply saying that
these programs were designed and this program was designed to
operate that way. In the discussions last year, the questions
that were asked were what would it take to pay off all of the
mortgages, even those that are not just this year, but those
that would come due next year and the following year? How much
money would we have to set aside to do that? We did our best to
give you those numbers. The budget resolution, as we understand
it, and that's all I can respond to, Mr. Chairman, the budget
negotiations were done in two ways. One was that the
restrictive language about not funding out-year new proposals
was removed. So, we are under the impression that the budget
resolution allows us to do new grants.
Mr. Rogers. Well, you'll do them at your own risk.
Dr. Good. I understand that. Just let me tell you what our
understanding of the budget resolution was.
Mr. Rogers. Well, let me tell you what my understanding of
the budget resolution was.
Dr. Good. Okay.
Mr. Rogers. Because we wrote it. The resolution was, as I
have told you, $45 million for new grants. Four months after we
passed that bill, you are shifting $50 million from the
continuation grants to new grants.
Now, in January of 1997 we specifically requested your
spending plan for 1997.
Dr. Good. Right.
Mr. Rogers. The spending plan said that you were doing
about $50 million in new awards. And the next thing we knew
after we passed that, four months later, we read a press
release a few days after you came up here, announcing this
shifting of monies from the continuations to new grants.
Now, how come we were mislead in January of 1997?
Dr. Good. Mr. Chairman, we did not intend to mislead
anybody. Let me at least say that. The point is that the
language of the budget resolution included no prohibition on
new grants or new starts and our intent is to try to get this
program back on track for funding all of the grants for this
year.
We have no intentions of not funding all of the 1997
obligations. When we do that, there is $95 million left of the
$225 million in the appropriation and prior year carryover
that, in our view, is available for new grants. In fact, we
have just completed the 1996 general competition. That
competition did not use as much money as we had expected it to.
So, there will be some small amount of new money for new grants
that comes back to us from that competition.
One of the problems, Mr. Chairman----
Mr. Rogers. Let me ask you something.
Dr. Good [continuing]. Is we don't know exactly----
Mr. Rogers. Let me ask you something.
Dr. Good [continuing]. What these are going to be.
Mr. Rogers. Let me ask you something. Do you have any
understanding at all of what makes this Committee mad?
Dr. Good. Sure. I have no question about that. I do
understand it.
Mr. Rogers. When you tell us that you're going to use this
money for new grants, four months after we limited the dollar
figure for new grants, and you come back, I think, arrogantly
saying we're going to spend this anyway. It's there----
Dr. Good. Mr. Chairman, we're not trying to be arrogant.
Mr. Rogers. Let me ask you something. Do you think that
time ends today?
Dr. Good. No, sir.
Mr. Rogers. That there is no tomorrow?
Dr. Good. I sure don't. But, Mr. Chairman, again, this
really is a misunderstanding.
Mr. Rogers. There is no misunderstanding on my part. I know
precisely what you've done. I know precisely what I'm going to
do.
Dr. Good. Okay. I can't comment on that, sir.
Mr. Rogers. Secretary Daley and I talked about this the
other day.
Dr. Good. Right.
Mr. Rogers. And he told me he is going to do a 60-day
review of the program, and he has put you in charge of the
review.
Dr. Good. Correct.
Mr. Rogers. So, I think I know what the outcome will be.
So, go ahead and do your thing. And we'll do our thing.
Dr. Good. We hear you.
Mr. Rogers. Pardon me?
Dr. Good. I said, we hear you. I mean, Mr. Chairman, we
really do have a major misunderstanding of what the budget
resolution says.
Mr. Rogers. This was a major fight last year. This was the
central fight in the Commerce Department's part of the 1997
negotiations that were hard fought and the bargains were tough.
We had to give on this part, inch-by-inch, and I made bargains
with my fellow Members of Congress; a whole committee worth of
them.
The Science Committee held my feet to the fire on this
particular item, and I made a commitment; my word to those
people. Then I have to read a press release saying, well, to
heck with that. We're going to do our thing. I don't take that
very lightly.
So, are you going to make the new grants?
Dr. Good. Mr. Chairman, our understanding of the budget
resolution was that the restrictive language was removed.
The people on our negotiation staff gave us the
instructions that we should be able to run this program in a
regular way and fund those mortgages that are due in 1997 and
that what is left should be available for new programs. That's
the language that we're trying to operate under.
Mr. Rogers. It's the Science Committee that authorizes this
program.
Dr. Good. Right.
Mr. Rogers. We can't appropriate funds unless they
authorize the dollar figure for the program.
Dr. Good. Right.
Mr. Rogers. They were holding our feet to the fire. We were
negotiating off the numbers provided by your agency. We asked
for your specific plan and amounts for new grants and
reaffirmed that in January. You told us $45 million for new
grants. You've told us more than that, but the negotiations
finally narrowed it down to $45 million. The Science Committee
finally signed off on that. We signed off on it. Leadership
signed off on it. The White House signed off on it. The Senate
leaders signed off on it. It went through the process.
The people's elected representatives voted on it. We
authorized that amount of money. That's what passed. I'm
telling you the Congressional intent. If you don't interpret
the language that passed in that fashion, and there is a
reasonable difference in what can be interpreted from that
language, I would think you would think it wise to take into
account Congressional intent.
Dr. Good. Mr. Chairman, there is no question that we are
very cognitive of your position. The only comment I can make is
that the Secretary has looked at this. He has discussed it with
the Administration. It is our interpretation, this we can
disagree on, that the budget resolution that was approved by
everybody at the final budget discussions was that the
prohibition about the level of new grants was removed. That's
what we're trying to operate under. That's truly all I can tell
you.
We can discuss it with the Secretary. In fact, you, I, and
the Secretary can have a private discussion to see if we can
come to some resolution of where we are.
Mr. Rogers. Well, you go ahead do what you think you need
to do. We'll do what we think we need to do.
Dr. Good. Understood.
Mr. Rogers. And don't be surprised.
Now, I don't know how we're going to write your budget. I
can't depend on what you tell me. You've submitted a budget and
for two years, you then juggle the numbers around. This is the
only agency that I've had this trouble with.
Dr. Good. Can I ask you a question, Mr. Chairman?
Mr. Rogers. Yes, ma'am.
Dr. Good. Which parts of the budget? Are you concerned
only with the ATP numbers?
Mr. Rogers. Well.
Dr. Good. The other numbers that we've tried to work on, I
cannot believe that there are misunderstandings about them. I
think they're rather clear.
Mr. Rogers. Last year we caught NIST juggling the ATP
numbers around.
Dr. Good. No. I'm saying can we agree that your issue of
concern about number juggling is just with ATP. I think the
rest of our budget that we are all on the same wavelength that
I think you would----
Mr. Rogers. Well, in the construction account last year;
that is, the carryover in the NIST construction account last
year, in my judgment, we found the agency trying to pull the
wool over the Congress' eyes on the dollars in the construction
account.
Dr. Good. We didn't intend to, sir. We really did have
lots of consultation with your staff on that. We really had no
intentions of doing that.
Mr. Rogers. Well, that's not what they tell me. So, we'll
talk one of these days, maybe.
Dr. Good. Okay. I'd be happy to do that.
Mr. Rogers. But I just can't put any faith in your
numbers. You tell me one thing and then after we pass a bill,
you take dollars from one area and put them into another.
Dr. Good. No. We don't do that, sir. We don't move between
the lines. Any juggling with ATP is within the ATP line.
Mr. Rogers. What about the construction account last year.
Dr. Good. There is no juggling within the construction
account. It is either there or it isn't.
Let me make one comment about ATP. I think there really is
a misunderstanding of how it works. If we go out with a
competition, we don't know, as we set aside a certain amount of
money whether that competition will need or use the full
amount.
That is because when the proposals come back, the amount of
money that actually gets spent depends upon how well the
proposals flew, whether or not the Board decided that that
money should be spent. So, the problem of giving you an exact
number in ATP is almost impossible because it's a snapshot of
the day that you get it. For example, we have a few contracts
that don't finish for various reasons. That money then comes
back into the pot.
That number is not an exact number. I think we tried to
explain that last year, Mr. Rogers, that it is not an exact
number. For example, we expected to spend about $25 million on
this 1996 competition, which finished about a month ago. It
appears as if, on the basis of the quality of the proposals,
that we will not spend that much money. It will be considerably
less.
Mr. Rogers. How much are you going to spend?
Dr. Good. The proposal group that came in was not viewed as
favorably as some in the past. We're probably only going to
spend about $12 million of that.
Mr. Rogers. I'm told it's $6 million.
Dr. Good. Is it $6 million? The number could be $6
million.
Mr. Rogers. Oh, you know, $6 million, $12 million, $25
million, $130 million, what difference does it make?
Dr. Good. It makes a lot of difference, sir. I cannot give
you an exact number until we finalize the contracts. I mean,
it's a really difficult problem here. I could get Mr. Gary to
run the books today and give you a number.
When all of those are done and all of the contracts are
done, it may or may not be exactly that. It will be whatever
the final contracts are.
[The information follows:]
FY 1997 Obligations for ATP General Competition 96-01
In FY 1997, NIST plans to obligate $6.2 million in support
of the eight awardees from the 96-01 ATP general competition.
Mr. Rogers. Why weren't you able to spend the money?
Dr. Good. The competition that we held, the general
competition that was for the money for 1996, was a very big
disappointment to us as well as to the community. There were
two reasons.
One was that because of all of the discussion last year,
many of the small companies who have to put these proposals
together were not at all sure that there was going to be money
available. So, they did not get their act together to get their
proposals together in the kind of time frame that they would
have normally. This is the reason why we need this program to
be stable.
Mr. Rogers. You had 300 applications.
Dr. Good. That's correct.
Mr. Rogers. You only funded eight.
Dr. Good. Eight; that's correct.
Mr. Rogers. Which indicates to me one of two or three
things. First, even you admit that there is not much need--you
only granted eight out of 300 applicants. Two, it says to me
that we don't need this program.
Dr. Good. Mr. Chairman, what happened was the people did
not really have adequate time to respond. We had 26 proposals
that were invited to make oral presentations, where people come
in and talk about their programs and what have you. Out of
those 26, the recommendation of the Review Board for those not
funded was that they revise their proposal, get their
commitments together, and try again.
The issue was that they didn't have sufficient time in the
time available to make the connections needed to put together a
good proposal. So, we chose not to fund them and to have them
come into the next general competition so that they would have
time to do a complete job. The ideas were outstanding.
Mr. Rogers. We were told that at the outset of the
negotiations, we were told that $25 million wouldn't be enough.
Dr. Good. That's right.
Mr. Rogers. That you probably would need as much as $40
million just this year in 1996 funds for the good applications
that were coming in.
Dr. Good. That's right. I still believe that.
Mr. Rogers. Ten months later, you had ten months to work on
it, and you had $25 million, and you made eight out of 300
awards, and you only used up $6 million when we were told you'd
need $40 million.
Dr. Good. Mr. Chairman, you will agree with me that the
people out there who have to put these proposals together did
not know whether there would be any money or not until the
first of October.
Mr. Rogers. You folks told us though--and I don't know
about that, all I'm relying on is what you told us.
Dr. Good. That's right.
Mr. Rogers. You told us back then, we will need as much as
$40 million instead of $25 million.
Dr. Good. I still believe that. What I'm trying to explain
to you is the fact that these people did not have time to make
all of the connections needed to do comprehensive proposals.
Here is the issue, Mr. Chairman. We could have funded more than
the $25 million.
It was the decision of the Board which includes a whole lot
of people outside of my purview and I don't make that decision.
That external Board makes that decision. We don't meddle with
their recommendations. Their decision was that a number of
those proposals should come back into the general competition
that we're going to hold right now and in fact, it closed as of
this week--so that they can have better proposals and their
connections would be better made. We think they'll be there.
Mr. Rogers. What I want you to do is get me the dollar
figure for the record, of what it will take to fund the grants
that we're legally obligated to make to continue this minute.
Dr. Good. We can do that.
Mr. Rogers. And nothing new. If you stopped competition
this minute, what would it take to buy us out of this program?
[The information follows:]
Closeout Costs for ATP
In FY 1997 the NIST is legally obligated to fund $115
million to renew ATP awards created in prior years. Cumulative
run out costs for these awards through are $173 million. In
addition, NIST would need adequate resources for program
administration to manage an orderly shutdown of the program.
Dr. Good. Let me restate what you're asking me to do.
Mr. Rogers. Yes, ma'am.
Dr. Good. Because I have a competition that closed this
week. I will have to include that and it will have to be an
estimate.
Mr. Rogers. Well, be sure those people understand that
we're making no obligations past this year to anybody for
anything in this program.
Dr. Good. We never do make the obligations beyond.
Mr. Rogers. Well, you make that plain to them this time,
because it's my intention to zero out this program because
you've botched it up and screwed it up. We can't depend on what
you tell us about it. Mr. Mollohan.
technology programs
Mr. Mollohan. Thank you, Mr. Chairman. Dr. Good and Mr.
Lehman, welcome to the hearing this morning. I appreciate your
testimony.
Dr. Good, let me follow-up a little bit on the Chairman's
question. I'm hopeful that there may be a misunderstanding here
that, with a little unraveling, can be the basis for
reposturing your program.
I personally believe that the technology programs are
extremely important. I think they're doing good things out
there for American competitiveness and establishing
strategicrelationships between the private sector, academia, and the
non-profit sector. I think that both programs are very valuable, the
Advanced Technology Program and the Manufacturing Extension
Partnership.
However, I do think that as you implement the ATP program,
you have to take into consideration the budgetary realities and
policy realities in the Congress. The Chairman has alluded to
the Science Committee which was a very negative influence in
regard to your programs last year.
The Chairman and this Committee found themselves having to
be responsive. In that process there are certain agreements and
compromises that are made in a lot of different directions.
Frankly, I believe they were probably working for you in a
direction that you probably weren't even seeing.
So, it is very difficult for Chairman Rogers to do that and
then be faced with this kind of a circumstance. As I understand
your position, you are pointing to the fact that the
restrictive language was negotiated out----
Dr. Good. Correct.
Mr. Mollohan [continuing]. As an indication that all
previous conversations about limitations on spending in this
program were negated.
Dr. Good. Yes.
Mr. Mollohan. Let me just give you a chance to talk about
that a little bit more.
Dr. Good. Okay.
atp funding
Mr. Mollohan. With the idea of working toward an
explanation here that maybe gives us a future.
Dr. Good. Okay. I'd be happy to try to get one here.
Mr. Mollohan. Well, to be honest with you, I think the path
is littered with obstacles. Could you explain your previous
budgetary submissions with regard to ATP?
I'm looking at a spreadsheet here which lays out the
spending estimates for 1996-1997 by quarters. It reflects with
regard to the ATP Program a purported adjustment for 1997. It
estimates $52 million.
I understand the Chairman is talking about a $45 million
understanding which when you add a few million for carryover
gets you to $52 million. Where does that $52 million come from?
Dr. Good. Okay. The $52 million is essentially the same
number as the $43 million. That's what I was trying to explain
to the Chairman.
Mr. Mollohan. I don't think he was asking for an
explanation of that. I think he was asking for an explanation
of how we get from there to $95 million.
Dr. Good. Okay. But the $52 million is essentially the same
as the $43 million. There are pluses and minuses that come into
the program.
Mr. Mollohan. All right. And so that's the number which
there is a consensus around.
Dr. Good. I would think that's correct.
Mr. Mollohan. All right. How do we get to $95 million and
how do you justify that?
Dr. Good. The way you get to the $95 million is, let me
first tell you in principle how you get to it and then look at
the numbers. In principle, the way you get to it instead of
funding the out-years beyond 1997 for grants made in prior
years, you fund just the 1997 commitments.
Mr. Mollohan. That's where you get the money.
Dr. Good. That's correct.
Mr. Mollohan. Okay. I really wasn't asking that question.
Dr. Good. Okay.
Mr. Mollohan. I was asking how you get to it as a matter of
policy. The confidence of what I'm hearing is an understanding
that you were going to total $45 million.
Dr. Good. Well, your question is very relevant, Mr.
Mollohan and I'm trying to get at this in the following way if
I can. First of all, I was not one of the final negotiators on
the project.
Mr. Mollohan. I understand that was an agreement actually
with OMB.
Dr. Good. That's correct.
Mr. Mollohan. So, you weren't privy--when the language was
lifted, you weren't actually privy to the negotiations.
Dr. Good. No. I was not a part of that.
Mr. Mollohan. All right.
Dr. Good. But the response we got back from OMB and the
other people involved in that negotiation was that they had
negotiated the language out with regard to the restrictions of
new grants. Therefore, we should revert to the practice which
the program started with and was always intended to do, which
is funding all of the obligations for 1997. Then what was left
in the budget was available for new starts. That was the
understanding that was given to us as what we negotiated. We're
simply trying our best to do that.
Mr. Mollohan. All right. That confirms my understanding of
your testimony regarding the Chairman's questions. I would
invite you in this public hearing to readdress this issue.
Dr. Good. We're willing to do that, but you understand what
I'm saying. We can certainly go back and talk to all of the
people on the other side to understand where they are.
Mr. Mollohan. I think you probably need to do that.
Dr. Good. Okay. We're willing to do that. I'm willing to
talk to the Chairman about that.
Mr. Mollohan. I think this is having consequences. The
circumstances surrounding the negotiation of that budget
resolution were unique.
Dr. Good. I understand that too.
stimulating technology
Mr. Mollohan. Okay. Let me ask you about your proposal on
the competitive program to stimulate technology.
Dr. Good. Right.
Mr. Mollohan. I am equally supportive of this program and
others that we've just talked about. However, I want to ask you
a couple of questions about the focus of your proposal here.
Dr. Good. Okay.
Mr. Mollohan. If I understand it, you're focus is on
planning grants.
Dr. Good. Let me tell you about how we came about doing
this request. We put it together last year, as we told you we
would. We took money out of our base budget in the Office of
Technology Policy and used that to start.
We stopped some programs and started that new as we
promised you we would. We took our base money and used that to
start this State-Federal partnership with the Governor's
Association. We actually have a cooperative agreement with
theNational Governor's Association to work that.
They went out to the States to see if there was a major
interest in it. It was interesting to see----
Mr. Mollohan. To the EPSCOR states?
Dr. Good. No. This was to all of the states; whether they
would really have an interest and would they be willing to work
together to try to figure out ways to better leverage the
technology base that's funded by the Federal Government with
respect to needs in the states. This is not to give them new
money but to better leverage what already is spent and to look
at how to utilize the programs to be sure they had information
on what was there.
The thing that came back from that discussion was that some
of the Governors who were most interested in it were from
states that, in the past, had not had very much in the way of
economic development based on indigenous technology intensive
kinds of issues.
epscor program
So, to see about how one might be able to stimulate that,
we looked at the EPSCOR Program because it was something that
had been done. This was a case where you already had the NSF
put money into the states to upgrade their universities
primarily.
So, the point was how could you then leverage the improved
status of those in the economic development arena.
Mr. Mollohan. Can I just comment; not to interrupt you.
Dr. Good. Yes. That's okay.
Mr. Mollohan. Yes, the money from EPSCOR goes into states
which don't have a tradition of doing very powerful research
and development in order to enhance that raw capability.
Dr. Good. Exactly.
Mr. Mollohan. But at the same time, the good EPSCOR states
have also linked that with their economic development strategy
for diversification.
Dr. Good. Many of them have.
Mr. Mollohan. Many of them have. As I understand it, that's
what this planning----
Dr. Good. That essentially would require them to put
together a plan which would link both their universities and
the private sector together.
Mr. Mollohan. Right.
Dr. Good. In other words, they couldn't come in with plans
that just had the university system, or just had the private
sector. They have to have plans which have the private sector
linked to their universities and have the states committed to
doing indigenous economic development.
Mr. Mollohan. I want to hear more about this.
Dr. Good. Okay. We'd be happy to.
Mr. Mollohan. Not necessarily at this hearing.
Dr. Good. Okay.
Mr. Mollohan. But I would just comment. West Virginia,
which I will stipulate to the fact that it's been a long time
getting it right with regard to EPSCOR----
Dr. Good. Right.
Mr. Mollohan. I think a lot of states have gotten it right
before we have and I think a lot of the EPSCOR states have
gotten it right before we have. However, we have put together
the Science and Technology Council which is a policy body first
and its mission is to establish its overall science agenda.
That's the plan.
Dr. Good. Right.
Mr. Mollohan. What we really need at this point, are the
resources to facilitate that plan.
Dr. Good. Okay.
That's precisely what this would be for. They could use
this however they want.
Mr. Mollohan. Okay. So, if they needed more flexibility,
then they'd have it.
Dr. Good. Absolutely. The thought here is if you've got a
state that has already worked on that plan then it could
compete for this and use that----
Mr. Mollohan. Well, I'm very much for you getting into
EPSCOR.
Dr. Good [continuing]. And then use that to leverage their
plan, and use it at least for seed money to begin to implement
it.
Mr. Mollohan. Okay. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Latham.
Mr. Latham. Thank you, Mr. Chairman. I don't have any
questions.
Mr. Rogers. Mr. Skaggs.
Mr. Skaggs. Thank you, Mr. Chairman. Good morning. In
situations like this I always feel that we need to let Mr.
Lehman know that we care about his office.
Dr. Good. I suspect Mr. Lehman is very pleased.
basic research vs. applied technology
Mr. Skaggs. I don't want him to feel that he was being
neglected. I'd like to pick up on the ATP Program but with a
question about policy more than about this unfortunate
situation we find ourselves in.
I mentioned this when the Secretary was in a couple of
weeks ago. There is certainly a school of thought that in this
difficult budget environment we should be doing the basics as
well as we possibly can before we do things that are nice, but
perhaps have a more problematic return to the taxpayers. Of
particular relevance here is the issue of basic research versus
the applied technology R&D work that ATP is all about.
I'm troubled by tradeoffs that are at least arguably
involved here between, say, the public investment in the core
programs at NIST or the core research that NOAA does, just to
keep things within the balance of the Commerce Department's
budget, and the extent to which they may be being shorted in
order to continue the ATP effort, which in theory I think is a
terrific idea.
I believe your testimony is that the jury is still out on
this, but we believe it will have a beneficial effect. Again,
arguably the nature of basic research makes it essential for
there to be public support, whereas, on the applied side, maybe
some of this stuff is going to get done even if we don't help
do it. What do you think?
Dr. Good. Yes. Let me comment on that because it is a
legitimate discussion. We need to have that discussion frankly.
The issue is as follows, at least from my point of view. We
have made in the United States a major commitment to
fundamental research for a long time.
We have a science and technology base from that, that has
been really excellent. In the past we have, through primarily
the Department of Defense, some through NASA, and some even
through the Department of Energy, we have also funded early
technology development before it was commercial.
What has happened is that in the Defense budgettoday that
is not getting done. That's gone away. There is not much in the NASA
budget for any of that.
It still happens at NIH. The NIH budget is essentially 50
percent fundamental research and 50 percent applied. So, they
have the full spectrum there. That's why you see their stuff
getting out into the marketplace rather quickly. They've had
the money to do trials. They have all of the kinds of things
that can move it into the marketplace in a hurry.
If you look at everything else today, we have fundamental
work going on, but we don't have the mechanisms that we used to
have in the Defense Department. The more fundamental work that
was being done in the companies is not being done today.
We are now to the point where if we don't spend a small
amount of our budget on what I consider to be these bridge
programs that take emerging technologies and enabling
technologies into the marketplace, or at least get them to the
point where they can move into the marketplace, then we're
going to lose big time in the environment we find ourselves.
Here is the issue. We just finished this book, I believe
you have one of them, on Science and Technology Plans,
Policies, and Investments around the world. There are one-
pagers for all of the countries. Every country in the world
from the developed ones to the developing ones knows that their
ticket to advanced standards of living is based on being able
to both create new technology and infuse the technology we know
into what they do.
There is a very big move to acquire technology where it is.
The issue today is that unless we have incentives or people to
bring the ideas out of our science and technology base quickly
and effectively, that base will be used very effectively all
over the world.
The Internet today makes it possible. We have people in
other countries who use our science and technology data base
better than we do in some instances. I can give you some new
examples of that.
So, the point I would argue that these kinds of programs
should be a huge piece of the budget, but they are not. Of the
budget for the Government, R&D today is less than 5 percent.
So, I think we should spend some anyway to move this.
Mr. Skaggs. I'm looking at the relative core programs at
NIST. We now have MEP and ATP greatly exceeding the core
program.
Dr. Good. But what you have to look at is, is the core
program appropriate for what we want to do? Remember, you have
to look at these programs, ATP and MEP, in context. We talked
about this last year. It's too bad we can't look at the whole
R&D portfolio together. And it ought to be looked at like that.
Mr. Skaggs. With no reflection on the insight and the
wisdom of the people that work in the Department, do you have
some kind of outside advisory body that helps us understand
this.
Dr. Good. Oh, absolutely.
Mr. Skaggs. They're made up of whom?
Dr. Good. There is a major advisory committee from NIST
that looks at this.
I believe they are made up of about half university people
and about half public/private sector people.
Mr. Hebner. There is only one individual from a
university.
Dr. Good. I guess that's right. For example, the Chairman
of that committee----
Mr. Rogers. We'll need to know his identity. Tell us your
name.
Dr. Good. Excuse me, sir.
Mr. Hebner. Robert Hebner, Acting Director of NIST.
Dr. Good. Right. The Chairman of the Visiting Committee is
Bob Hermann who is the Senior Vice President for Science and
Technology for United Technologies Corporation.
Mr. Skaggs. Have we essentially put to them the question
of where should we best apply the next $100 million increment?
Dr. Good. Right.
Mr. Skaggs. Applied versus core NIST?
Dr. Good. Yes. And their answer today would be where you
see it. But it's only because if you look at what we've done
for the basic laboratory programs at NIST over the last five
years, the progress has been rather generous.
If I go back to 1993, the budget for those four laboratory
programs was only $193 million.
Today, that request that you see in your budget is $271
million. There is no question that if that had not been the
case, then their argument would have been that we should put
that money into the NIST labs. In other words, they understand
they are a very fundamental key, and we're not going to skimp
on requesting what NIST needs.
Mr. Skaggs. If you would kindly put in the record whatever
is the most recent written representation of the Advisory
Committee's view and also its membership. That would be
helpful.
Dr. Good. I will be happy to do that.
[The information follows:]
[Pages 377 - 439--The official Committee record contains additional material here.]
Mr. Skaggs. Just one final question, which is to ask Mr.
Lehman to comment on the discussion we've just been having. You
are sort of at the end of the technology pipeline, in some
sense, in terms of the certification of new ideas.
Technological Development Stimulation
Do you have a sense about where we get the most for our
money?
Mr. Lehman. Well, Mr. Skaggs, I would suggest that the
Administration has been extremely successful in devising a
series of national policies which have stimulated technological
development and created wealth for this country.
I frequently deal in an area of international law, and I
have to travel around the world. I go to countries who are
major competitors who have 13 percent unemployment rates. We
have 5.4 percent.
When I look at the patents issued by the U.S. Patent and
Trademark Office, I see that we had something like 13,000
biotechnology patents issued by the United States Patent and
Trademark Office last year. Japan had 1,000. The entire
European Patent Office had 3,000.
You will see similar statistics with regard to software and
other advanced industries. I think the bottom line is that we
simply need to put together a package which stimulates
technological development. That is America's competitive edge.
Our competitive edge is not in low wages for workers. It is
not in manufacturing environments next to a smelly old canal
with pollution where workers die at the age of 35 with no
health benefits.
Our competitive edge is high technology, high wage jobs. We
have put together a package of which NIST's programs are a
part. My work is the part that is keeping America very strong
and very competitive; probably more so than it has been in many
years.
Mr. Skaggs. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Forbes.
Mr. Forbes. Mr. Lehman, I appreciate your being here
today. I can tell you that I, for one, have not ignored your
presence here. I appreciate it very much.
Privatization
As you know we've previously talked about an issue that I
find of paramount importance to the future ability of
entrepreneurs to compete in the global marketplace. It's my
sense that based on some of your public remarks, as well as
your testimony in previous years, that under your leadership
there is a great push to harmonize patents around the world.
I must tell you, and it is no surprise to you, I am very
troubled by the notion that after 200 years of protecting the
inventor, the little guy in the garage who cooks up a great
idea or the person sitting at their kitchen table coming up
with a great new innovative device for this country, you are
ready to throw away the system that gave us our superiority in
the global marketplace.
This massive push to harmonize patents is going to put,
particularly the little guys, in a very precarious position.
While I hail selected privatization, the notion that we would
contract out or privatize some of the functions of your Office
could quite possibly compromise our ability to have people who
are removed from the marketplace reviewing patents.
If you privatize your Office, particularly the role of
examiners in your Office, we're going to put them in a very
precarious position, as opposed to the protection they now have
as government employees.
The other thing is the notion that all will be revealed
within 18 months for the whole world to see, even if the patent
hasn't been issued. Most individuals I think would agree that
after 18 months of filing, very few patents have been issued.
A lot of them, biotechnology, the high tech industry; are
very complicated. They take many years before they come into
certification by the Patent Office. The other problem we need
to talk about is the idea that the little guy, the person who
comes up with this great invention, once the patent is issued
loses the protection of your Office whereas historically it's
been up to challengers to get the legal talent to upset that
patent.
House Resolution 400
There is a move that I think you've endorsed which is in
the guise of House Resolution 400 and which would basically
upset some of the legal protections that a person at any time
has to legally challenge the patent.
Again, I'm giving an abbreviated version here. Please sir,
if you could, first of all, do you endorse House Resolution
400?
Mr. Lehman. The Administration does not endorse in full
every aspect of House Resolution 400. The general thrust of it,
the objective of it, and many parts of it, we do endorse. We
have been in continual discussion with the House Judiciary
Committee during the course of this Congress and previous
Congresses as that legislation has evolved.
That discussion continues. Suffice it to say that this is
an issue with a great deal of history. We don't have the time
to flush out all of that history in this abbreviated
Appropriations Committee hearing. The Judiciary Committee has
indeed spent a great deal of time on it.
House Resolution 400, which certainly in principle, and in
many parts, particularly the parts that concern me the most,
has total agreement from the Administration. It has bipartisan
support and that is very rare. The Judiciary Committee, both at
the Subcommittee level and at the Full Committee level,
unanimously reported that legislation.
Mr. Forbes. With all due respect, sir, could you get to
the points of revealing in 18 months the inventor's specifics
for the whole world to see and the notion of privatization?
Performance-Based Organization
Mr. Lehman. I'll be happy to answer every one of your
concerns. First, let me deal with the question of so-called
privatization. First of all, neither House Resolution 400 nor
any proposal made by the Administration privatizes the Patent
and Trademark Office.
The Administration proposes to make the Patent and
Trademark Office a performance-based organization. That will
mean that we will become a government corporation under the
Government Corporation Act. That is not in any sense a
privatized or private organization.
There are absolutely no plans to contract out a single job,
or even a single examiners task. Every single employee of the
Patent and Trademark Office will continue to be a government
employee. The Patent and Trademark Office will continue to be
subject to the supervision of appointees of the President,
confirmed by the United States Senate.
Those people will be subject both under House Resolution
400 and under the Administration's proposal, to the supervision
of the Secretary of Commerce. Our appropriations will continue
to be subject, as they are now, to this Committee and its
supervision. So, we will be a long way away from what I would
call privatization. It is a restructuring.
Mr. Forbes. If I may, Commissioner; hasn't the Patent
Office attempted to contract out with the European Patent
Office at one point some of its functions?
Mr. Lehman. No.
Mr. Forbes. That was never contemplated by the----
Mr. Lehman. No. I think you're misinformed, Mr. Forbes,
about that. There are a lot of difficulties here but
overwhelmingly the customers of the Patent and Trademark Office
support these reforms.
I have a list here of the trade associations and the
companies which represent virtually the entire spectrum of U.S.
industry, particularly high tech industry, including a lot of,
very small industries where we look for innovation, like for
example, the Software Publishers Association.
Mr. Forbes. I appreciate that, sir, but I----
Mr. Lehman. And the reason they support this is because
they understand what we are trying to do. Unfortunately, there
are some people, who misunderstand what we are about. I'm sorry
for that. We're trying to educate them. I think the
HouseJudiciary Committee in proposing House Resolution 400 has
attempted very, very valiantly to address and sway any concerns that
certain dissenters have to this overwhelmingly accepted policy.
Obviously, and I don't need to tell you that as a Member of Congress.
patent pendency
Mr. Forbes. I understand. Could we stick to specifics. For
example, revealing the invention specifics to the whole world
after 18 months even if the patent hasn't been issued.
Mr. Lehman. Sure. I'd be happy to address that point. First
of all, there are two reasons to modify U.S. policy to publish
patents at 18 months. Keep in mind that under the existing law
in the United States, a patent is published. It is made
available to the world at large when it is issued.
At the present time, our pendency is running just slightly
over 20 months for the average patent. So, a good many patents
are already published at 18 months. So, why should we begin to
change that policy and publish in 18 months? Well, there are
two fundamental reasons.
First, we are dealing with a global economy at the present
time. America's most important asset, its technology, must be
marketed on a global basis. This means that innovators must
file patent applications in other countries as well. When we
grant a patent in the United States, this does not protect
somebody in Germany, France, Japan, Singapore, or wherever.
They have to file in those countries as well.
When they do so, they must file, under the relevant
conventions and international law. They must file virtually
concurrently with the point in time with which they file with
the U.S. Patent and Trademark Office.
Meaning that 18 months after the patent application is
filed in the United States, every single high technology
company which seeks international protection will have its
patent application published in other countries in the language
of that country because that is the international standard at
18 months. In this manner, that technology is made known
elsewhere in the world.
Mr. Forbes. Even if it hadn't been issued, sir?
Mr. Lehman. Even if it had not been issued, yes.
Mr. Forbes. Please, on that point, you've got somebody who
is brand new, who has filed a patent with the United States
Patent and Trademark Office, and is waiting to get the patent
issued, before they're granted the patent, we're going to let
the whole world know about the idea they are trying to patent?
Mr. Lehman. That's under the existing situation. The point
is----
Mr. Forbes. That's under the proposed legislation, sir;
right? House Resolution would do that.
Mr. Lehman. When you file a patent, and when you want to
see international patent protection, as well as American, your
patent has to be filed in Japan and Germany at the same time.
Eighteen months later it will be published in those countries.
So, the only people who will not then have the advantage, the
easy advantage, of knowing what's coming down the pike, what's
out there, are other people in U.S. industry. And this is a
distinct disadvantage to them.
Now, there is another reason to publish at 18 months, which
has nothing whatsoever to do with the fact that it puts us at a
disadvantage, for the United States not to know what's coming
down the pike 18 months after a patent application is
published, but to have the Japanese, the Germans and everybody
else know about it.
patent pending
It is regarding the patent system itself. You've often
heard the expression, and I'm sure you've seen it, ``patent
pending.'' What the patent owner wants is to put the world on
notice, don't tread on me. This belongs to me. These are my
rights.
In an era of rapidly advancing technology, when there are
increasingly rapid technological cycles, they may be faster
than the time it takes to process a patent application. The
reason that U.S. industry overwhelmingly supports this is
because they want the capacity to put the world on notice that
this invention belongs to me, even though the final ``i's''
haven't been dotted and the ``t's'' haven't been crossed on the
patent application in the Patent Office. This is to say to go
spend your research money someplace else. Don't tread on me.
Similarly, investors would like to know that so that they
don't waste their money on a patent that somebody else is going
to get. Finally, and a very important point, is that should
someone utilize the information contained in a published patent
application, between the period of time at which it is
published at 18 months and when the patent actually issues, the
legislation passed by the House Judiciary Committee
specifically provides an iron clad right to receive
compensation for the use of that invention, and then the right
to enjoin and prevent any further infringement.
Mr. Forbes. You've already said that sir.
Mr. Lehman. From that point on.
Mr. Forbes. In all due respect, they don't have an iron
clad guarantee because you've opened it up. I mean
reexamination may be initiated by any person at any time. They
don't own the rights to it. We have many, many little inventors
who had to spend years in court to protect, under the current
system, their patents and I'm not talking about internationally
filed patents right now.
I'm talking specifically about, the small mom-and-pop
people who have a great idea, who are filing with the patent
office, and are just getting started out of their garages.
They're not looking at Japan, Asia, and elsewhere. They're
worried about protecting their idea here in the United States.
The legislation that you support, would put the onus on
them to protect their rights after the issuing of the patent.
So, again----
Mr. Lehman. You're raising another issue. We were
discussing 18 months. Now, you're talking about----
Mr. Forbes. I'm talking about both of them, sir.
Mr. Lehman. Now, you're talking about----
patent reexamination procedure
Mr. Forbes. If you have to reveal it after 18 months, you
do not have the protection of the patent as you would
customarily have had under this new bill. Our small guys, it
seems to me, are going to be thrown into the world community
where the resources are great and the multi-national
corporations are able to do even better than they've done
before, and come in and copy some of those ideas. Is that not
true?
Mr. Lehman. Congressman, that is the reason for modifying
the reexamination procedure. In other words, let us say a
patent has been issued. Then subsequent to the issuance of the
patent it comes to someone's attention that the patent was
incorrectly issued, that there was prior art that would have
invalidated the patent.
Prior to 1982 when we enacted the original reexamination
statute, the only way to fix the problem was to gothrough
patent litigation. That's an extremely lengthy and costly process. I
haven't studied your voting record, but I guess that you, like many
Members of Congress, are very sensitive to the costs and burdens of
litigation in our society at the present time.
Patent litigation is extremely important and particularly
debilitating to the small inventor. He or she cannot afford to
pay the upwards of $1 million in patent fees required for
litigation. So, in 1982, Congress, under the leadership of the
Reagan Administration, decided to provide an alternative which
states that when new information is brought to light, we have a
simplified review procedure in the Patent and Trademark Office
to relook at what we have done, to see if we can't solve the
problem that way.
When the Bush Administration came into office, what they
heard was that there needed to be some modifications to that.
The perceived difficulty was that it did not permit all of the
parties and interests to avail themselves of the less expensive
procedure. We didn't implement any of these Bush Administration
proposals at that time.
We held extensive public hearings on them after we came
into office. Again, it was clear that expanded re-examination
is supported by a whole list of organizations that support this
legislation overwhelmingly. It is the sentiment of all of those
in U.S. industry that the expanded reexamination procedures,
along with 18 months publication, are ways to avoid litigation.
If you know that someone else has something coming down the
pike, you're not going to spend money on a losing battle and
then have to go to your lawyers to straighten that out.
Mr. Forbes. I disagree, sir. Mr. Chairman, I know my time
is running out here. So, I appreciate the indulgence of the
Committee. I thank you, Mr. Lehman. I am obviously very
concerned about this issue and the Administration's push to
hurt small inventors, not the multi-nationals, but the small
inventors in this country. Thank you.
reduced pto appropriation
Mr. Rogers. Thank you. There will be time for a second
round if you'd like. Commissioner Lehman, as I understand from
your printed testimony, you are worried about the low
appropriations request for your agency.
Mr. Lehman. I don't think that's in my printed testimony. I
think we are fully supportive of the Administration's request.
Mr. Rogers. Yes.
Mr. Lehman. My testimony does reflect that this poses a
serious management challenge to us. We hope to be able to work
with the Committee. That gets to some of these issues that we
have just addressed here, to have the flexibility to deal with
those management challenges.
Mr. Rogers. How much did you request of OMB?
Mr. Lehman. The original PTO request was for, as it has
been every year, for access to half of the entire fee base, to
all fees, that have been charged to patent applicants. I want
to emphasize patent applicants, because as I pointed out to you
before, the trademark people are not effected. Half of all
patent application fees should be returned to the patent
application process so that they can be used for that purpose.
But after deliberations within the Administration, given the
overwhelming bipartisan goal of budget deficit reduction, we
concluded that we would have to make our contribution to that
goal because we are committed to doing so and to provide a
return to the United States Government on the work that we do.
Mr. Rogers. But your budget justifications have referenced
a problem as you call it, and that is the austerity that the
patent function at PTO will have to face. Let me talk to you
about that. I think it is important to talk about what's
occurred in the patent area at the PTO for the last few years
since the patent surcharge fee was first imposed.
Since fiscal year 1991 your patent workload, that is, the
number of new applications filed as well as your backlog of
pending applications, has grown about 29 percent, but the
number of applications you've disposed of has only increased by
14 percent, and as a result, your patent pendency rate has
increased by 22 percent.
At the same time, you're patent budget increased by 139
percent. Patent staffing increased 45 percent. You've spent
$500 million on patent automation. Therefore, my question is,
why is patent pendency going up when your budget and staffing
growth have far exceeded your workload growth?
Mr. Lehman. Well first, Mr. Chairman, I think if you
actually examine the portion of our budget which goes to the
Patent Office that I gave you earlier, you have to remember
that the trademark funds are segregated. You can't look at this
whole PTO budget.
Mr. Rogers. These are only patent figures.
Mr. Lehman. I believe the statistics will show that in fact
the increase in the number of patent examiners has actually
lagged behind as a percent of the increase of the business,
that is the number of applications that we have.
So, the growth in expenditures and in the number of
examiners to date has generally reflected a growth in our
business. It's reflected growth in the number of applications
that we received. There are some other factors that you have to
take into account as well. That is, that technology is more
complex today than it was many, many years ago.
As an example of what we're dealing with, lets look at the
biotechnology area. We have about 124 patent examiners who have
PhDs. They are bench-trained PhD scientists. We had a challenge
earlier this year. We had some patent applications that came
into our office. Until we figured out how to deal with them, it
appeared at first that we might have to shut down our main
frame computers from every other thing we were doing in order
to spend six months running those computers to run the DNA
sequences in those patent applications. This was all necessary
simply to compare the sequences in that new application with
the prior art. Those are the kinds of challenges that we
continually face every day.
So, we are dealing with an increased workload and we're
dealing with increased complexity. I think the statistics will
show that all increases in the staffing and in the funding that
we've had over the years has generally gone to deal with those
associated costs.
Mr. Rogers. You've had big increases. You can't complain
about not having had big increases.
Mr. Lehman. Of course, the increases are not programmatic.
They're because patent fees have not gone up other than for the
CPI. So, we're getting what that reflects. It is increased
business. We are getting more patent applications. We are
returning that revenue to the application process.
BUDGET DEFICIT REDUCTIONS VS. PATENT PENDENCY
Mr. Rogers. Well, the point is, you've had big increases
and we're seeing increases in your patent pendency. When will
we start seeing the benefits of these huge investments that
we've made in staffing and automation; $500 million in
automation? When can we expect to see those things begin to
effectively----
Mr. Lehman. We are not going to. You are not, given our
second budget assumptions, Mr. Chairman, going to see a
decrease in pendency. We will see an increase in the pendency.
That's because we are making investments, but as in everything,
these investments, even though they've enabled us to do a good
job, do not necessarily always equal the nature of the problem.
Particularly, we're at a crossroad right now.
Now, had our initial budget assumptions been accepted, and
we were not going to contribute to budget deficit reduction, we
would be able to say that we will experience a decline in
pendency. But I cannot say that to you at the present time.
We have to make hard choices. I don't need to tell you. You
make hard choices every single day that I'm sure you hate
making because you like to do more than you can with your
resources. The hard choice that we are making here is whether
we are going to have budget deficit reductions or are we going
to permit a rise in patent pendency?
Mr. Rogers. No. That's not correct. That's just not
correct. For the last three years, you've not spent all of the
money that you had available to you, even though we didn't
provide all of the money you requested. You didn't spend all
that you were given even though it was not as much as you
wanted.
In fiscal year 1996 you spent 40 percent of your total
budget in the last quarter of the year. You still carried over
$26 million to the next year. So, I'm concerned about this
increase in patent pendency area because you've been given tons
of money and you've not spent all that we've given you.
Mr. Lehman. Could I address your concern about the 40
percent in fiscal year 1996, Mr. Chairman? That specifically
dealt with the unusual circumstances of 1996 that we're all
familiar with, largely because of the absence of a Federal
budget. We had to put back and delay a lot of the major
contracts that we had out.
We have a lot of contracts that deal with our automation
system and so on. It would have been imprudent to spend that
money without knowing whether we were going to have an
appropriation or even an authorization.
That was an unusual year in which we back loaded a lot of
our contractual expenses. That accounts for the 40 percent. The
other point that you raised, Mr. Chairman continually arises. I
know it sometimes is a problem always explaining. It goes back
to the unique nature of the Patent and Trademark Office--in
that since we are not like every other agency of the Federal
Government which gets an appropriation that covers all of its
expenses. If we were, I'd know, based on the money that you
gave me, I'd have x amount to spend next year. I would be able
to plan accordingly.
The Patent and Trademark Office is dependent fundamentally
on user fees. Since this Committee only appropriates a portion
of those fees back to us, the Patent and Trademark Office's
revenue stream is dependent on the fees that we get. We can
only estimate what those fees are going to be. We do a pretty
good job of estimating them.
In various circumstances there are changes. For example,
last year, largely as a result of the business climate in this
country, we saw a very large increase in trademark
applications. Unlike patents, trademark fees are paid entirely
up-front.
When a person files a trademark application we get the
check in the mail along with the trademark application. The
patent people are in effect, permitted to pay on the
installment plan. They pay part of their fees later on. Once we
get that patent and that trademark fee in the door, then
obviously we have an obligation to process to make the money
work for us.
That ends up resulting often times in a situation where we
get a disproportionate amount of work. It results, in spite of
our best efforts, in our having, as we work this off, sometimes
a surplus in our bank account. This is precisely because we do
not have an appropriation for the entire budget, and because we
cannot function unless we have money in our bank account.
It would be imprudent for us to draw that bank account at
any point down to zero. It's a little bit like any company in
America which can't operate with zero cash in the bank unless
they have a line of credit. Of course, we aren't able to have a
line of credit. By law we cannot have a line of credit. In
fact, quite the opposite. If we were to spend more money than
we have, I would be subject to criminal prosecution under the
Anti-Deficiency Act.
So, we try to keep our----
Mr. Rogers. Your point is to keep money in the bank.
Mr. Lehman [continuing]. Cash, but we end up with more
money in the bank at some times more than at others.
NIST PROGRAM TURNOVER
Mr. Rogers. Thank you very much. Now, Dr. Good, it's my
understanding that every year a portion of NIST's lab programs
and projects end, and thereby money is freed up to be
reallocated for new programs and initiatives. How much of
NIST's lab budget is recycled in that fashion every year from
projects ending with new initiatives in terms of percent.
Dr. Good. I think what we should do on that, Mr. Rogers,
is respond in writing if we could. I've been told by Mr. Gary
that it's about 10 percent. But I will not answer that until I
can actually see what it is myself.
Mr. Rogers. I'm just looking for a good rough estimate.
Dr. Good. No. I understand.
Mr. Rogers. Is 10 percent a good rough estimate?
Dr. Good. That's what he said. As I said, I'm not taking
responsibility for that because I have not looked at it.
[The information follows:]
NIST Program Turnover
NIST annually reallocates five to ten percent of its STRS
appropriation as a means of funding new activities and/or
reflecting the evolution of specific programs. This activitty
does not, however, represent fertile ground for the start of
major new programs. These adjustments are the type necessary
for an organization to test the feasibility of new ideas,
provide seed money to prepare for new program starts, or
gradually evolve a program in new directions.
Mr. Rogers. How do you determine the redistribution of
those funds?
Dr. Good. The redistribution is simply put back on the
highest priorities. If you look at some of the things that we
have been able to move into the whole idea of the things like
the new nanometer technology issue that we're talking about
asking for increases, those are the kinds of things that get
started at the time that they need to be.
Mr. Rogers. So, you can get involved in new things, even
with old money is what I'm saying.
Dr. Good. Well, I hope so because----
Mr. Rogers. Even with a static budget, you can still get
involved in new things.
Dr. Good. If we couldn't do that, we'd be in deep trouble
because we do not want to carry these things if----
Mr. Rogers. I understand. I'm not being critical. I'm just
trying to understand.
Dr. Good. No. But there is clearly an evolution. If you
look today at what we do and what we did in even 1990, I think
you'd find it quite different.
Mr. Rogers. Much of the value of the lab is its
responsiveness to the needs and priorities of its users.
Dr. Good. Correct.
Mr. Rogers. Namely, other Federal and non-Federal agencies
and the private sector as well. In fact, spending at the labs
has been to a great degree augmented through reimbursements
from government agencies and the private sector. That's helped
maintain that customer focus at the labs which is good.
Dr. Good. That's true.
REIMBURSABLE PROJECTS
Mr. Rogers. Who have been your major customers over the
past two or three years? Has the make-up of your customers
changed?
Dr. Good. We can give you the specifics on that. I think
that would be very interesting. The biggest customer has been
the Department of Defense and continues to be in terms of
reimbursable.
[The information follows:]
[Page 450--The official Committee record contains additional material here.]
Mr. Rogers. Has the number of reimbursable projects and
work requested or proposed by other Federal and non-Federal
entities declined over the last few years?
Dr. Good. Yes. It has. If you remember, Mr. Chairman, we
had a conversation with the Committee--because for an agency,
like the laboratories at NIST, you always want to have some of
their work requested by other people. I mean, that's precisely
correct. The comment you made is right.
You want them to be responsive to customers. On the other
hand, you don't want to get to the point where a big portion of
their effort is for hire. The reason is if that's the case,
then you cannot continue to do the fundamental base work on
metrology, measurements and so on that supports all of the
rest. So, what we had, what we were in the process of trying to
do, is to shift from somewhere around, if I remember the
numbers correctly, about 40 percent of our budget in the early
1990s was reimbursable.
What we had hoped to do was to work that down to maybe 20
or 25 percent, depending upon the demand. But what has also
happened, as other agencies become pressed for budget numbers,
they also look very carefully at their out-sourcing. So, what
they do today is get only that work that they just absolutely
have to have. So, we're down to about 30 percent right now.
Mr. Rogers. Yes. The reimbursable work has declined from
$140 million in 1995 to $95 million estimated for 1998.
Dr. Good. That's correct.
Mr. Rogers. Now, will you need additional appropriations
to offset that decline?
Dr. Good. No. In fact we have not requested that, if you
look at our budget request. Our objective was to keep the
staffing at a relatively stable level and to shift these new
monies that were given us over the last few years into some of
our fundamental core areas. Then we could continue to do 20 to
30 percent of out-sourcing. What is left is probably pretty
stable.
MANUFACTURING EXTENSION PARTNERSHIP PROGRAM
Mr. Rogers. Let me switch to the Manufacturing Extension
Partnership Program. Your budget request includes language
requesting that the sunset on Federal funding for regional
centers under the Manufacturing Extension Partnership Program
be waived to allow two additional years of funding for each
center. Will you be proposing a two-year waiver in the
authorization bill?
Dr. Good. Yes, sir. We will. In fact, we discussed that
with them yesterday. There seems to be a fair amount of support
for that.
Mr. Rogers. Is it the Administration's position that
centers receive a total of eight years worth of Federal funding
or do you intend to provide a permanent subsidy for the
centers?
Dr. Good. Mr. Chairman, what we would like is to have the
sunset eliminated because of the experience that we have had
with these centers. Today, we are reaching about 5 percent of
the small- and medium-sized companies that we would like to
reach.
With the numbers that we are requesting here, we think we
can move that up to reach about 15 percent of them each year.
Remember that in this small- and medium-sized manufacturing
community, the turnover there is about 10 percent per year. In
other words, 10 percent new companies come in and 10 percent
either get bigger or pull out of the mix.
So, we think that this program is the kind of thing that we
should continue to support. However, we do not believe it
should be an entitlement. In other words, we think that at the
end of six years, each center should have to recompete. For
example, other centers could come in with a proposal and
compete against the existing center. In other words, we do not
want to create an entitlement program.
Mr. Rogers. Well, as you know, Federal support for the
program was supposed to be seed money. The centers, if they
were serving a purpose, a legitimate purpose, were supposed to
become self-sufficient after six years.
Dr. Good. Here is the issue on that, if I might. We now
have experience and what happens is thefollowing. If the
centers must become totally self-sufficient, then what happens is that
the small beginning new companies who cannot afford to pay the full
freight will get cut off.
What happens is the centers will simply become consulting
firms that will provide services for those companies that can
afford to pay. That's not what's going to keep us in business.
What we'd really like to see, frankly, is that the Federal
Government match stays at about a third, the State government
match stays at about a third, and we'd like for them to be sure
that they can generate about a third on their own. We'd like
for them to charge clients who can afford it. We'd like to even
have them charge those who can't at least a little. We'd like
everybody to pay something.
This is such a service, Mr. Chairman, to these small- and
medium-sized companies, that we think this is a program that
ought to continue. That does not mean that each specific center
should continue. They ought to have to recompete, just like you
do in other programs around the Government.
Mr. Rogers. Well, you know, last year we provided a one-
year waiver.
Dr. Good. That's correct. You did.
Mr. Rogers. Now, you're back here asking for a two-year
extension?
Dr. Good. Essentially what we're asking and what we're
going to propose to the authorization committee is that the
six-year sunset simply be eliminated.
Mr. Rogers. And that there be no limit.
Dr. Good. That's correct, but that they must recompete.
Mr. Rogers. Now, is that NIST's position and the
Administration's position?
Dr. Good. Yes, sir.
Mr. Rogers. Does the Administration agree with you on that?
Dr. Good. Yes. They do.
Mr. Rogers. I was under the impression that they would only
support a two-year extension.
Dr. Good. No. The reason for the two-year extension is to
be able to move on the 1998 budget request.
Mr. Rogers. Well, does their budget proposal assume this.
Dr. Good. Yes.
Mr. Rogers. That it would be a permanent subsidy for these
centers?
Dr. Good. It is not subsidy for these particular centers.
It maintains a stable program level for manufacturing extension
services.
Mr. Rogers. Well----
Dr. Good. Let me just read to you what we proposed, Mr.
Chairman. On the duration of the Federal financing assistance
that goes to the Manufacturing Extension Centers ``it may
continue beyond six years and may be renewed for additional
periods, not to exceed two years, at a rate not to exceed one-
third of the Center's total annual cost.''
In other words, we'd like to cap the contribution from
NIST's budget to the center's cost to one-third. They would
have to generate the rest either from fees or from State
governments and local governments.
Mr. Rogers. What efforts do you take to ensure self-
sufficiency in the centers as they near their six-year life?
Dr. Good. There is a number of them that have worked toward
being self-sufficient. There are a few in the major
industrialized cities that probably could be today. My guess is
that the Cleveland Center could.
On the other hand, it will then begin to function as a
service for those companies that are now to the point where
they can afford those kinds of services. One of the things that
you're facing at that point is that you then are not meeting
the need for the small companies that are beginning and getting
started.
Mr. Rogers. Can you tell me how much of the expiring
centers' budgets are coming from fees that they generate?
Dr. Good. I can get you exact numbers, Mr. Chairman, I just
don't have it off the top of my head.
Mr. Rogers. Provide it for the record.
Dr. Good. We can do that. You want the percentage of their
budget that is set generally for those that are coming up
against the six-year end?
Mr. Rogers. Right.
Dr. Good. Fair enough.
[The information follows:]
MEP Fee Revenues Generated
The FY 1996 budget for the six Manufacturing Technology
Centers due to expire in FY 1998 was $37.9 million. The fee
revenues generated by these six centers in FY 1996 totaled $9.9
million or 26.1% of the total budget.
Mr. Rogers. We will get that for the record, but do you
have an off-the-top of your head figure?
Dr. Good. My guess is that it is on the order of 25 percent
or 30 percent or so.
Mr. Rogers. Is coming from fees.
Dr. Good. Yes from fees.
Mr. Rogers. Well, now in your request you're asking $12.4
million to continue funding for centers who have reached that
six year period.
Dr. Good. That's correct.
Mr. Rogers. So, it is a $12.4 million subsidy that you're
requesting.
Dr. Good. Yes. I have the list of those that would close if
we didn't do that. There are several on it this time.
Mr. Rogers. Well, submit it for the record.
Dr. Good. Okay. We will.
[The information follows:]
MANUFACTURING EXTENSION CENTERS THAT WOULD CLOSE IF NOT EXTENDED IN
FISCAL YEAR 1998
------------------------------------------------------------------------
Name of center City State
------------------------------------------------------------------------
1. California Manufacturing Hawthorne............... CA
Technology Center.
2. Great Lakes Manufacturing Cleveland............... OH
Technology Center.
3. Michigan Manufacturing Ann Arbor............... MI
Technology Center.
4. Mid-America Manufacturing Overland Park........... KS
Technology Center.
5. Minnesota Manufacturing Minneapolis............. MN
Technology Center.
6. South Carolina Manufacturing Columbia................ SC
Technology Center \1\.
------------------------------------------------------------------------
\1\ Formerly named Southeast Manufacturing Technology Center.
Mr. Rogers. Mr. Mollohan.
fee generation
Mr. Mollohan. Thank you, Mr. Chairman. Mr. Lehman, just a
couple of follow-up questions. You have an interesting way that
you've developed your budget. You try to project what you think
your resources are going to be. Then you budget accordingly. Is
that right?
Mr. Lehman. That is right. I wouldn't call it a backwards
way, generally. I think that's an unusual way for government.
Almost every other government is in the same boat.
You have a programmatic budget, just like x number of ATP
grants, this XYZ. Then that's all laid out for you. With our
budget, we don't know exactly what it's going to be because we
don't know how many people are going to come and ask us to
examine their patent and trademark applications. So, we have to
guess and then make assumptions based on those guesses.
Mr. Mollohan. Beyond that, what you really are guessing is
how much money you're going to have coming in from fee
generation. Isn't that correct?
Mr. Lehman. That's correct.
Mr. Mollohan. So, you budget from that projection.
Mr. Lehman. That's correct.
Mr. Mollohan. Rather than considering programmatic issues.
Then you somehow fit programmatic needs into your projected
resources but that's the starting point. Do you at some point
sit down and say; if we were submitting a budget to the
Congress, independent of fees, we would need x resources?
Do you ever sit down and go through that drill?
Mr. Lehman. Well, I guess maybe I don't understand.
Mr. Mollohan. Well, do you have a budget that would allow
you to have patents current?
Mr. Lehman. You mean how much money that would take?
Mr. Mollohan. Yes.
Mr. Lehman. Yes, absolutely. We do go through that kind of
modeling.
Mr. Mollohan. The answer is?
Mr. Lehman. Yes. Then we have to adjust the reality of what
we deal with.
Mr. Mollohan. I understand adjusting. Then is that the
basis for your submission to OMB at all?
Mr. Lehman. Basically, yes. It is. I think the interesting
thing about the patent fee structure is that there are issues
about how fees are allocated. Basically the fee structure of
the Patent Office is adequate to return the revenue that we
need to do our job.
Mr. Mollohan. Thank you, sir. If you went through that
drill, would all of the fees generated have paid for the budget
that you developed?
Mr. Lehman. That's correct.
Mr. Mollohan. It would have?
Mr. Lehman. Yes.
Mr. Mollohan. In other words, you'd have all fee money
here. And that was basically your request?
Mr. Lehman. In fact, I think it's fair to say we could have
reduced fees in past years. Obviously, everybody has things
they can spend money on. We have in fact had money diverted
elsewhere by this Committee. I know the pressures that are on
you. We could have actually probably reduced fees.
omb request
Mr. Mollohan. Okay. Those are policy decisions that we have
a right to make and you have a right to comment on. When your
budget was submitted to OMB, did you request a reduction of 339
positions in patent examinations?
Mr. Lehman. No. We did not.
Mr. Mollohan. Did you request any reduction?
Mr. Lehman. No. We requested an increase to deal precisely
with the problems that Mr. Rogers had indicated-- pendency.
Mr. Mollohan. Did you request increasing the trademark
applications by more than 225?
Mr. Lehman. No. We did not. That's because as I indicated,
the trademark operation basically operates almost like an
independent policy process. It's independent of you. The way it
was setup by statute, all of that money goes to whatever they
need. They get it. They can spend it. That's a little bit of
oversimplification, but as you saw from that chart I gave you,
we will actually hire more trademark examiners. They will have
an increase in their activities.
Mr. Mollohan. You're suggesting that you want to create 225
new positions to focus on trademark applications. Are you not?
Mr. Lehman. That's correct. That's because that money is
basically untouchable.
Mr. Mollohan. Let me ask you this. Do you have a need for
that many?
Mr. Lehman. Yes. We have an increased trademark pendency.
This is good news, because as you know, all kinds of new
businesses are coming into being. They're filing new
trademarks. People are coming out with new marketing
strategies. So, the trademark business is booming.
As I indicated unlike patents, when a trademark application
comes in the door, we get a single check and then that will
cover the entire processing cost of that trademark
registration.
So, the management problem for us is obviously like anybody
who is in a booming business. Like the PC industry, for
example, sometimes you find that you don't have the capacity to
supply the demand. So, it becomes a delay in getting the
product to the market. We have exactly the same problem.
I mean, we then have to go out and hire and train patent
and trademark examiners to deal with those problems. In the
meantime, there may be an up-tic in pendency until we get that
under control. We also have had in the past issues when we were
trying to reduce the overall Federal work force and reduce
FTEs.
We have from time-to-time been subject to government-wide
restrictions on hires that did not necessarily always take into
consideration our unique characteristics. Then that stops us
from hiring and from using that trademark money.
Legislative Changes to Operate As a PBO
Mr. Mollohan. Moving to your restructuring to a
performance based organization, what legislative changes do you
need and how much of it can you do administratively?
Mr. Lehman. Well, the only thing that we can do
administratively, and that's what our reprogramming notice
reflects, is basically to create a new position which will be
the Chief Operating Officer of the Patent and Trademark Office.
Right now, we have a structure where the Patent
Commissioner functions as the chief administrator of the Patent
and Trademark Office. I have about five or six people that
report directly to me. That creates a big problem in two ways.
One is that I have a lot of other policy responsibilities
in this world. For example, we're trying to negotiate new
treaties in the World Intellectual Property Organization with
everybody else. I have to deal with those. And it is hard to
run the Patent and Trademark Office too.
Then secondly, although I'd like the Clinton Administration
to be in office forever, there will be a change in
Administration. So, there is also going to be a change in the
Commissioner. There is inevitably this long period of time
between appointments of Commissioners. That creates a very
unstable management position.
That would be largely resolved by creating an officer
independent of the Commissioner of the Patent and Trademark
Office who is not a policy officer. It would be a manager who
would be able to keep the trains running and be held
accountable to that.
Mr. Mollohan. Everything else is subject to statutory
changes?
Mr. Lehman. Everything else is subject to statutory
changes. That involves things like----
Mr. Mollohan. No.
Mr. Lehman. That's all I'm going through.
Mr. Mollohan. One other question. In this reorganization,
do you anticipate a new funding scenario being a part of this
reorganization?
Mr. Lehman. No. We do not.
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Forbes.
Reexamination of Patents
Mr. Forbes. Thank you, Mr. Chairman. Mr. Lehman, I know
that your time is precious here. Maybe if you could give me
quick answers on a couple of my concerns.
As the Patent Office is established now, once the patent is
issued, that patent holder is protected legally and the onus is
on challengers to upset that patent. Is that correct?
Mr. Lehman. That's correct.
Mr. Forbes. The changes as they're going through the
Congress now would change that dynamic. Is that true?
Mr. Lehman. I do not agree with that. The presumption will
be that the patent is valid. If there is not a change in that
legal presumption under the legislation that has been
submitted, the reexamination----
Mr. Forbes. So, the same protections of the holder of the
patent that exist today would be in place under the changes
contemplated by the Congress?
Mr. Lehman. Absolutely. I should add, the primary users of
the reexaminations are the patent owners themselves.
Mr. Forbes. I understand.
Mr. Lehman. If you think that you need, that maybe there
has been a mistake in the processing of your patent, rather
than subject yourself and have to go out and spend millions of
dollars suing somebody, you'd rather come back into the Patent
and Trademark Office and have an adjudication of those claims
there for a few thousand dollars.
So, the principal people who want a reexamination are the
patent owners to make certain that if their rights are
challenged in litigation they'll be successful.
Average Pendency
Mr. Forbes. How long, on the average does it take from the
filing of a patent until the patent is issued generally?
Mr. Lehman. It's I think about 21.0 months right now.
That's the average pendency.
Mr. Forbes. So, under the contemplated changes, those
individuals who are trying to file for a domestic patent,
they're not interested in foreign patents, would have all of
their information published in the open market prior to the 20
months, 18 months after the patent has been filed.
Mr. Lehman. I guess you could say the average would be
assumed. I wouldn't say all patents. I would say the average
would be such that with all patents, there would be a two-month
gap.
Mr. Forbes. So, the holders would not have the protection
of the Patent Office if those obviously larger corporations are
coming to file?
Mr. Lehman. No. That's not true because the legislation
specifically provides for provisional rights the moment the
application is published so anyone uses that technology is at
their peril.
Mr. Forbes. Is it not, sir, also the responsibility of
that patent holder or the potential patent holder to protect
those rights legally?
Mr. Lehman. It is always, even under the existing system,
as it always has been and shall be. It's their responsibility.
The Government does not send the U.S. Attorney out to----
Mr. Forbes. I understand that, sir. My question here is if
you are revealing all of their secrets after 18 months, they
don't have the protection of the patent that they have today
here in the United States.
Mr. Lehman. Well, we obviously just have a disagreement
about that.
Mr. Forbes. Sir, you also mentioned that the Patent Office
was not going to be privatized. According to the legislation
moving through Congress, that you support, it says, for
purposes of internal management the United States Patent and
Trademark Office shall be a corporate body, not subject to
direction and supervision of any Department of the United
States.
You're going to be creating a management board of 12, which
as I understand it would be largely weighted toward people who
have, ``substantial background in achieve in corporate finance
and management.'' So, it sounds like the board is----
Mr. Lehman. What document are you referring to?
Mr. Forbes. That is House Resolution 400, sir. It appears
that the management board will be weighted toward the larger
corporations and against the individuals. I'm talking again
about the small, innovative inventors who are not privileged to
have a corporation behind them. The little guyis who I'm
talking about.
There is one provision in here, sir, that I would like to
bring to your attention that you may be equally disturbed
about. It says that one of the powers of the office would be to
``accept monetary gifts, or donations of services, or of real,
personal, and mixed property in order to carry out the
functions of the office.''
Again, that's not currently allowed in a government office.
So, I would respectfully suggest that it's going to be more
privatized than it is public, just based on some of those
concerns. The last thing I would like to ask you about one more
time, sir, if I could.
Reexamination
This notion of reexamination is very, very troubling,
especially if we're talking about the small inventor here in
the United States, not somebody who is working in the global
marketplace, but the little guy getting started.
How, if I may ask, are they going to be protected, with
little or no resources? How are they going to be protected
under this change?
Mr. Lehman. Well, they're going to be protected largely
because they will be the ones who will use the reexamination
procedure to avoid very extensive litigation in which they will
be disadvantaged. Keep in mind, the only time that
reexamination can be used is when there is prior art that was
not considered by the patent examiner at the time of issuance
of the application.
In other words, there is prior art that someone else had
really invented this before. The moment it surfaces that such a
prior art does exist, in effect, we have made a mistake. At the
present time, a small inventor or anybody else the only way
they have of testing that is to subject themselves to extremely
expensive litigation in a Federal court. Now, they have a
mechanism for going into the office and testing it out to see
whether we made a mistake or not.
That is the purpose of reexamination. That was why changes
in the reexamination procedure have been supported on a
bipartisan basis from the Bush through the Clinton
Administrations, and why that provision was unanimously
accepted by the House Judiciary Committee last week.
Mr. Forbes. I appreciate that, Mr. Lehman. The Chair has
asked that we recess while we finish the vote here. I'll be
right back.
[Recess.]
Mr. Forbes. Please continue, Mr. Lehman.
Mr. Lehman. First of all, this is not a new thing. The
Department of Commerce has for many, many, years as I assume
have many other departments, been permitted to accept gifts or
donations to carry out functions, in addition to the tax
revenue that is provided.
Project Excel
Let me give you an example. For so many years a program
called Project Excel was started under Commissioner Quigg, one
of former President Reagan's patent commissioners. Under that
program, high school teachers come in from all over the
country, science teachers largely, to learn about the patent
system; to learn about creativity.
To finance that program, we have received money that was
given to the Secretary of Commerce in the form of donations to
fund basically those kinds of activities on a very modest basis
that aren't provided otherwise in the authorization of the
committee. That's a very good example of that sort of thing.
That has been going on I think for many, many years. All
the language in which you have cited is to recognize that in
the new entity which will be set up, that practice will
continue.
Mr. Rogers Will the gentleman yield?
Mr. Forbes. Yes.
Mr. Rogers. Do you have further questions of Dr. Good?
Mr. Forbes. No.
Mr. Rogers. She has a plane to catch and I'd like to be
able to excuse her.
Dr. Good. I appreciate that, Mr. Chairman.
Mr. Rogers. Thank you very much.
Dr. Good. You and I will talk shortly anyway.
Mr. Rogers. All right. Thank you. Do you have further
questions?
Mr. Forbes. Yes.
Mr. Rogers. Go ahead.
Privatized Patent Office
Mr. Forbes. Mr. Lehman, a privatized Patent Office doesn't
have the ability to accept corporate gifts, conceivably for the
support of programs like you just mentioned. Don't you find
that a terrible conflict with the notion that the Patent Office
is very possibly going to be reviewing applications by some of
those very corporations that would be giving monetary gifts?
Mr. Lehman. Well, Congressman, as I indicated, this is not
a new practice in the Federal Government.
Mr. Forbes. Not in the Patent Office.
Mr. Lehman. Precisely. We have a program right now and I
just gave it to you.
Mr. Forbes. Do you accept monetary gifts now in the Patent
Office?
Mr. Lehman. Well, the gifts go to the fund administered by
the Secretary of Commerce which we can draw on, but we have in
place a series of procedures to insulate the office and the
Commissioner from donors. I don't know even who is giving this
money. It goes into a pot of money.
There are careful review procedures that are overseen by
the Assistant Secretary of Commerce for Administration. That's
currently reviewed by the Inspector General of the Commerce
Department and so on and so forth.
Mr. Forbes. Is that currently, sir?
Mr. Lehman. That's currently the case. Keep in mind, you
know, I'm not the author of House Resolution 400. To the extent
that there are concerns that there should be additional
oversight over this, I'd be happy to work with the Committee on
that. I don't think this is considered to be a problem.
Mr. Rogers. Did you vote?
Mr. Forbes. Yes. I did. I just came back.
I appreciate it. I just think when a newly constituted
entity is privatized or quasi-governmental, as you've
suggested, these monies would go directly to the Patent Office
as opposed to the Secretary of Commerce that is being
stipulated in this bill.
Mr. Lehman. Well, I mean the one solution would be to just
let us use the fee money for educating high school teachers and
so on.
Mr. Forbes. Well, there is nothing here to prohibit that,
I gather.
Mr. Lehman. You know, I think there is. It would be a very
nice way to look atit.
Mr. Forbes. Just one final question, Mr. Chairman. I beg
your indulgence. The notion that the Board of Management would
be weighted toward somebody with corporate finance, I imagine
experience, is a troubling notion. I'm asking you if you
support the Board being constituted in that manner?
Mr. Lehman. The short answer to that Mr. Forbes is that I
agree with you. And indeed the Administration will be sending
up its own version of House Resolution 400 as our template, so,
that's something that you may wish to take up with your
colleagues on the Judiciary Committee.
Mr. Forbes. Does it include creating a Commissioner of
Patents as well as a Commissioner of Trademarks under the----
Mr. Lehman. The Administration's template is to have an
Under Secretary of Commerce for Intellectual Property policy
official. Then to have a Chief Operations Officer of the Patent
and Trademark Office who will be an administrative official who
will be appointed by the Secretary of Commerce under a five-
year contract with certain performance requirements that have
to be met. If he doesn't meet them, then he won't get paid as
much money, so on and so forth.
Mr. Forbes. Thank you very much, Mr. Chairman.
Mr. Rogers. Thank you for being here this morning. I
appreciate your testimony.
[Pages 462 - 589--The official Committee record contains additional material here.]
Friday, March 14, 1997.
OFFICE OF UNITED STATES TRADE REPRESENTATIVE
WITNESS
AMBASSADOR CHARLENE BARSHEFSKY, U.S. TRADE REPRESENTATIVE
Mr. Rogers. The Committee will be in order.
We welcome today the newly confirmed U.S. Trade
Representative, Ambassador Charlene Barshefksy.
We congratulate you on your recent confirmation. Of course,
you are not a stranger to this Committee or to the U.S. Trade
Representative's Office, having served as the Acting U.S. Trade
Representative since April of 1996. And, of course, prior to
that, as principal U.S. Deputy Trade Representative since 1993.
You have become the U.S. trade negotiator at a very
critical time. As all nations struggle to compete in this new
global economy, the United States will be presented with both
opportunities and challenges. Your office is critical to
ensuring the global playing field is level so that the United
States can compete. We look forward to hearing your thoughts on
these issues.
We are running a tight schedule today. We have to conclude
this hearing as close to 11:00 as possible to accommodate the
next hearing. So if you would like to proceed with your opening
statement, we will insert your written statement in the record
and you can summarize, if you would like to.
Ms. Barshefsky. Okay.
Mr. Rogers. Thank you.
Opening Statement of Ms. Barshefsky
Ms. Barshefsky. Thank you very much, Mr. Chairman.
It is a pleasure to be before you again. This Subcommittee
has consistently supported the USTR's mission to open markets,
to support expansion throughout the world and to enforce trade
laws and agreements. We look forward to your continued support.
Let me, if I may, present USTR's program priorities for the
next 18 months and describe our budget request for fiscal year
1998, and respond to questions that you might have.
As you know, the Office of the United States Trade
Representative has an enormous mission. It is to develop and
coordinate U.S. international trade, commodity, and trade-
related direct investment policy; to articulate trade policy
for the Administration; to lead negotiations with other
countries and organizations on these matters; and to enforce
trade agreements.
With the support of this Committee and the Congress, we
have been successful in carrying out this mission. In the 50
months since January 1993, we have negotiated more than 200
trade agreements, with the Uruguay Round and NAFTA being 2 of
the 200. We have also enforced our trade agreements with
renewed vigor, having brought 46 enforcement actions in the
last 4 years and having filed 21 cases in the WTO.
These accomplishments are substantial for any organization,
but are, we believe, impressive for an agency with only 164
full-time equivalent staff and a budget of barely $22 million.
The results are made possible by a genuinely industrious and
dedicated career staff, who tackle their jobs with enthusiasm
and competence. In carrying out our mission, of course, we also
draw on program and trade experts detailed to USTR from other
Federal agencies, and we use students and volunteer interns.
Let me simply review for you some of the key highlights of
our program priorities over the coming year: First, on the
multilateral side, there are four areas that we intend to
concentrate on. Of course, there is the built-in agenda of the
WTO, which includes review of the agreements on intellectual
property rights, agriculture, rules of origin, services,
dispute settlement and many other areas. In addition, we will
work very hard to implement the recently concluded Information
Technology Agreement and the recently concluded
Telecommunications Agreement.
Second, WTO Accessions: There are 31 pending accessions,
two of which are China and Russia. These accessions will be
used by us to achieve substantial increases in market access in
the countries that wish to accede.
Third, agriculture: Multilateral agriculture negotiations
begin again in 1999. We must do substantial preparatory work to
ensure that those negotiations are to our advantage.
And fourth, there are a variety of new issues in the WTO:
bribery and corruption, competition policy, investment and
government procurement. And we will be pursuing each of those
initiatives with vigor.
On the regional side, we will continue to make steady
progress in the APEC process, working to accelerate market
opening among our Asian-Pacific partners. We will also continue
to push market openings in the FTAA process, ensuring that in
our own hemisphere markets, which are natural markets for the
U.S., remain so.
We will provide further initiatives with respect to the US-
EU relationship, and we will further the cooperation we have
already undertaken through our transatlantic business dialogue.
And we, working with the Congress, will look at ways to help
Africa integrate more successfully in the global community.
This is an important priority, both for economic and
humanitarian reasons.
With respect to our bilateral agenda, we will continue an
aggressive bilateral trade agreements program. As you know,
with Japan, for example, we have concluded 24 agreements, which
have brought--helped to bring the Japan deficit down. But there
is much work that remains to be done.
We will also pursue bilateral agreements with China, Korea,
Brazil, Argentina and a host of other countries, again always
insisting on greater reciprocity in our trade relationships.
With respect to enforcement, which is a key activity of
USTR, we are in the process of looking at the possibility of
additional WTO cases. There is no credibility if we don't
enforce our trade agreements.
And with respect to legislative initiatives, Mr. Chairman,
we will be looking at fast track negotiating authority, CBI
enhancement, GSP renewal and several other trade initiatives.
With respect to our fiscal year 1998 budget request, may I
say that over the past several years USTR has done and will
continue to do more with less. In the 6-year period from fiscal
year 1991 to 1997, appropriations for base USTR operations rose
by 4.4 percent at a time when inflation increased by 19.4
percent.
Over this period, appropriations for USTR actually fell 15
percent, or $3 million behind the rise in the cost of doing
business. We have managed this 15-percent decline in purchasing
power by reducing staff by 5 percent and by implementing a
series of management improvements designed to cut overhead and
improve efficiency.
After 6 years of essentially flat funding, we are asking
the Congress, in fiscal year 1998, to provide enough funding to
allow us to meet scheduled employee pay raises and other
inflation-driven cost increases and to fully fund our 164 full-
time equivalent staffing authorization.
For fiscal year 1998, therefore, the budget request
proposes 164 FTE's and $22,092,000 in new budget authority.
This represents the same number of staff as authorized in
fiscal year 1997 and about a 3 percent increase above the
fiscal year 1997 appropriation level. This increase is the net
result of a number of offsetting changes affecting our budget.
There are four areas of increase, by far the largest of
which is detailed in my written statement. These include
employee salary and benefit costs, including amounts needed to
finance the costs of the January 1997 and January 1998 pay
raises to fully fund our staffing ceiling.
In addition, we have experienced inflation-driven cost
increases, higher State Department charges for Diplomatic
Telecommunications Services in Geneva, and funds needed to
compensate for an expected loss of carry forward funding.
Offsetting these increased requirements, though, we do
expect to realize some significant savings, particularly
$560,000 in nonrecurring expenses from completion of the Winder
Building fiber optic cable installation, additional savings
from improvements in the exchange rate in Geneva and some
savings for lower transportation expenses in fiscal year 1998.
Our budget policy for fiscal year 1998 is to sustain the
record of accomplishments the agency has achieved over the last
4 years, while continuing to reduce overhead, streamline
operations and provide smaller, more responsive government.
In summary, Mr. Chairman, and Members of the Committee, the
work that lies ahead is challenging. I can assure you that we
stand ready to accept those challenges. We remain small,
efficient and highly effective, focusing on achieving very
specific missions that the Congress and the President have
assigned to us.
Our authorization request continues the 35-year tradition
of a small but dedicated team.
This concludes my formal statement, and I would be pleased
to answer questions that you may have.
[The information follows:]
[Pages 595 - 605--The official Committee record contains additional material here.]
Mr. Rogers. Thank you very much.
trade compliance unit
Now, I think because of the time limit we are under this
morning, we will proceed under the 5-minute rule because we
have to complete this hearing no later than 11:00.
Ambassador Barshefsky, USTR and ITA both undertook a new
initiative last year, supported by this Committee, to develop a
mechanism to monitor and enforce trade agreements.
Tell us a little bit more about how you have used that unit
to date and how it has interacted with ITA's new Trade
Compliance Center.
Ms. Barshefsky. First of all, we thank the Committee for
having been supportive of the creation of this unit.
We believe that trade agreements negotiation is the first
step, but that that negotiation must be followed either by
implementation by our trading partners or enforcement of our
rights by the United States. Because we foresaw substantial
increases in enforcement activity and indeed had increased
enforcement activity, we decided to create a unit at USTR
dedicated to enforcement, both with respect to our traditional
trade laws, 1377 on Telecom, Title VII on Government
Procurement, Section 301, Special 301 on Intellectual Property
rights and so on; but also with respect to WTO cases, the WTO
dispute settlement process having beenput into place in 1995.
We have brought 21 WTO cases in the last 20 months. These
are complex litigations. We have also brought a variety of
other actions under Section 301, Special 301, and so forth.
This unit at USTR essentially manages the litigation
aspects. The unit at the Commerce Department supports us in
some of that work but also helps assist the enforcement unit
and our individual offices in the monitoring of trade
agreements compliance.
The Uruguay Round Agreements themselves require very
substantial monitoring, which has then paid off with respect to
WTO cases we have brought to enforce our rights. And this is
the way the two units work together.
Mr. Rogers. No duplication?
Ms. Barshefsky. No, sir.
Mr. Rogers. All right. Let me discuss China with you.
Ms. Barshefsky. Yes.
trade deficit with china
Mr. Rogers. One of the major arguments the Administration
makes for Most Favored Nation status with China, is that it
means U.S. exports and jobs. That is also the argument used to
support China's entrance into the WTO, which the Administration
is currently negotiating.
But the 1996 trade numbers are troubling. Our trade deficit
is at its highest level since 1987, almost a $115 billion
deficit, largely because of our soaring trade deficit with
China. In fact, our deficit with China now rivals that with
Japan. It is almost $40 billion at a time when China's economy
grew at a phenomenal rate of almost 10 percent.
In fact, exports to China remain flat. We are losing the
battle in a phenomenal way with China on trade. And we continue
to have major problems with China abiding by its existing trade
agreements with us. Your own statement mentions $80 million in
sanctions levied against China concerning textiles.
How can we claim that Most Favored Nation status with China
is working to support more U.S. exports and jobs?
Ms. Barshefsky. If I may answer the question first by
saying a word about the overall trade deficit and then by
specifically responding on the China issue. As you know, trade
deficits are a function of many factors, macroeconomic,
structural, differentials in growth rates between countries,
exchange rate swings between countries, and to some extent,
trade barriers.
With respect to economic growth rates, our rate of growth
has far outstripped that of our major trading partners, which
are Canada, the EU, Japan and Mexico.
As you know, trade deficits are also a function of
differential savings rates. The United States savings is low
compared to a number of developed countries, and particularly
low compared to Asia.
With regard to the absolute size of the trade deficit, a
third of our trade deficit is petroleum products, primarily
crude oil. Last year, petroleum imports rose 20 percent in
value but were off 2 percent by volume, and this increased the
overall goods trade deficit. But for petroleum, the goods trade
deficit would have been down by $4 billion over the preceding
year.
Of course, we run a significant services surplus, as you
know.
In addition, we have created about 11.5 million new jobs in
this economy in the last 4 years, and if we look at U.S.
industrial production, we see that since 1992, U.S. industrial
production is up by about 18 percent, Japan's up by about 5
percent, and Germany's is actually negative. Exports are at
record levels in virtually every sector of our economy, and we
believe on balance the trade deficit does not reflect the
actual economic performance of the country--of our exports or
of our trade portfolio.
On the China question, the deficit number is disturbing.
Our exports have grown by about 100 percent over 5 years with
China. This past year, as you rightly say, our exports were
essentially flat, up by about 1.5 percent.
There are two reasons for that: The first is a substantial
decrease in our agricultural exports, which were the function
first of two bumper-crop years in a row in China, but also the
function of sanitary and phytosanitary barriers to our exports
in China. And second, a reduction in textile inputs, which we
sell to China to support their textile outputs. China's textile
industry, which is in a substantial state of disarray, has
decreased their overall world export performance and,
therefore, their imports of textile inputs have declined very
sharply.
Having said that, we believe that we have to continue to be
aggressive with respect to China on market access issues. You
are quite right that there are times China does not abide by
its trade agreements, and this then goes back to enforcement.
In the textile sector, we levy penalties when they don't
enforce their agreements. In the intellectual property rights
sector, we have twice threatened very substantial retaliation,
and I am pleased to say we have made some significant progress
on the intellectual property rights front with China, as
evidenced by the fact that our own domestic industry has now
put Russia as its top priority over China.
So we have some significant work to do with China. WTO
accession provides us some possibility for additional market
access; there should be some significant possibility for that.
But those negotiations have quite a ways to go yet.
Mr. Rogers. Well, you are right when you say we have a bit
of work to do on the China trade question. They are our fourth
largest exporter and yet what we sell to them--we sell more to
Singapore than we sell to all of China. We sell more to the
City of Hong Kong than we sell to all of China, and I just
think it is outrageous. We are going to have to make some
changes. And I want to come back to China's accession into the
World Trade Organization in the second round.
Ms. Barshefsky. Yes.
Mr. Rogers. Mr. Mollohan.
Mr. Mollohan. Thank you, Mr. Chairman.
Ambassador, welcome to the hearing.
unfair trade practices in the steel industry
I represent the largest employee-owned steel company in
America, Weirton Steel, located in Weirton, West Virginia, that
produces high-quality steel for markets certainly in the United
States, but also internationally.
Ms. Barshefsky. Yes.
Mr. Mollohan. 5,000 employees. I am sure you are aware 1996
marked a record year for steel imports into the United States.
Ms. Barshefsky. Yes.
Mr. Mollohan. Weirton has joined a number of other steel
companies in a request to you that you look at the subsidy
situations in regard to certain international producers andto
begin a dispute settlement process under the WTO subsidy code. You are
familiar with all of that. They have asked specifically that the WTO
address the large-scale subsidization of this fairly new production
facility, or at least newly enhanced production facility in Korea,
known as Hanbo Iron and Steel.
As I understand it, Hanbo is the 14th--or was the 14th
largest company in Korea. It was a conglomerate and it started
as a small mini-mill, and recently Korea made a commitment that
they were going to increase capacity and become a world leader.
I think they went to the extent of building a port.
Ms. Barshefsky. Yes.
Mr. Mollohan. And one of the facilities in this is this
Hanbo facility, which received, I think, $6 billion in loans, a
third of it coming from the Korean Government. They went
bankrupt, I understand, last year or in the recent past, and
then the Korean Government bailed them out.
Ms. Barshefsky. Yes.
Mr. Mollohan. So now they are back in business again. And
they are producing heavily-subsidized steel and competing very
effectively in our markets.
There is a case pending before you. I would like to know
what is the status of this request? I understand they go
through some kind of a negotiation with the offending partner,
and I would like for you to tell me the status of this.
Ms. Barshefsky. Yes.
Mr. Mollohan. And what action you think the United States
can take to challenge these practices through the WTO.
Ms. Barshefsky. We received the request. What I have done
is I have sent a letter to the Korean Trade Minister indicating
that we have very grave concern that what has been done with
Hanbo is WTO illegal, and we requested a variety of specific
information with respect to government outlays on Hanbo. We
have since indicated to the Koreans we expect a very prompt
response to this letter so that we have a little more baseline
information than what has been provided so far.
Mr. Mollohan. What does that mean?
Ms. Barshefsky. Well----
Mr. Mollohan. What kind of baseline information are you
referring to?
Ms. Barshefsky. In terms of the precise form of government
assistance, what went to Hanbo, what were the uses of the
funding, where the government funds came from, were they
literally a charge on the public account?
Mr. Mollohan. Okay.
Ms. Barshefsky. Were they funneled through banks? What the
whole range of the transaction was.
Mr. Mollohan. A full factual development.
Ms. Barshefsky. Full factual development.
And then we also have, as you know, a steel bilateral
consultative mechanism with Korea which was set up about 2
years ago in response--on a different product line than this--
in response to some concerns. And that has provided a very
useful forum.
We have also invoked that forum, through which we intend to
discuss Hanbo, and then we have indicated to the Koreans that
we are also simultaneously looking at a WTO case. And once we
have our full factual development, we will decide precisely on
our direction in terms of any potential case.
Mr. Mollohan. Well, help me here. Don't you already have a
WTO case? If these companies have committed----
Ms. Barshefsky. We have consultations--we have
consultations that we can request formally, which is a prelude
to a panel.
Mr. Mollohan. Okay. Let me ask----
Ms. Barshefsky. We have not requested formal WTO
consultations. We have requested consultations bilaterally and
our request for factual development, so that we are sure when
we go into WTO consultations as a prelude to a panel we have
all of our factual ducks in a row.
Mr. Mollohan. Okay. Process question. Help me out. If the
steel companies file with you----
Ms. Barshefsky. Yes.
Mr. Mollohan [continuing]. Or put you on notice, I don't
know what kind of a document triggers this action, do you not
already have a WTO case?
Ms. Barshefsky. No, no. Typically, a WTO case----
Mr. Mollohan. You initiate the WTO case?
Ms. Barshefsky. We do initiate the WTO case.
Mr. Mollohan. As a government through government?
Ms. Barshefsky. Yes.
Mr. Mollohan. Government to the WTO?
Ms. Barshefsky. Yes. It is either by petition, such as a
301 petition, or on our own motion.
Mr. Mollohan. Okay. I don't have very much time here.
So the status of this is that you are in a pre-WTO case
phase?
Ms. Barshefsky. Correct. Exactly right.
Mr. Mollohan. Why wouldn't you----
Ms. Barshefsky. We are in the factual development phase.
Mr. Mollohan. Why wouldn't you do that in the context of
this WTO case? I mean, this is pretty egregious.
Ms. Barshefsky. It is pretty egregious. Our feeling on this
is that we simply like to have more facts before entering the
WTO consultation phase.
Mr. Mollohan. I know you are aware of this, but timing--I
mean----
Ms. Barshefsky. Is of the essence, and we understand that.
Mr. Mollohan. Very much.
Ms. Barshefsky. We understand that.
Mr. Mollohan. So I mean, you have a case up. I look forward
to working with you a little more on it.
Ms. Barshefsky. And rest assured we will pursue this very
vigorously. We just like to be sure--when you initiate WTO
consultations formally, that is 99 times out of 100 the prelude
to a panel, to an absolute litigation.
Mr. Mollohan. This is pretty prima facie, I mean.
Ms. Barshefsky. In terms of winning a WTO case, we just
like to be sure we have got our factual ducks in a row.
Mr. Mollohan. Mr. Chairman, do I have any more time?
Mr. Rogers. Second round.
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Kolbe.
Mr. Kolbe. Thank you very much, Mr. Chairman.
Ambassador, welcome, and congratulations on your
confirmation. I am sure you are happy to have that behind you.
Ms. Barshefsky. Thank you.
renewal of fast track authority
Mr. Kolbe. I had the privilege of being with Ambassador
Barshefsky in Singapore, and other places but in Singapore, and
I was certainly impressed by your performance there, your grasp
of the issues and your performance on behalf of the United
States.
You have laid out a pretty ambitious list of things to do
here and suggested that the office has a lot, and I think it
does have a lot, but an awful lot of this seems to me depends
on having Fast Track authority for the President to enter into
these negotiations. I think a lot of these negotiations are
going to be very difficult to do, as we found out on the
shipbuilding issues, without Fast Track authority. Don't you
agree?
Ms. Barshefsky. I think that we will need Fast Track
authority not for all of the initiatives we have outlined, but
for a number of the initiatives that we have outlined.
Mr. Kolbe. So a lot of initiatives, free trade with the
Americas, Chile.
Ms. Barshefsky. A number of important initiatives. As you
know, we have been working with various Members of Congress on
both sides of the aisle to see if we can craft an approach that
would be suitable.
We are making some progress in there, and I am hopeful that
we will shortly introduce a bill which would provide the needed
Fast Track authority. This would involve both tariff
proclamation authority as well as authority with respect to
nontariff and other measures.
Mr. Kolbe. Well, I think you will find, speaking not for
everybody by any means, but I think you will find among a large
group up here a willingness to give the Administration Fast
Track authority that extends beyond the geographic and into
other areas as well. But I must say, I think that the
Administration has got to show some leadership in this area. It
is distressing to me, of course, that we went through all of
1995 and 1996 with no requests for Fast Track authority
extension. I understand the politics of it. I understand why,
because of the support that the President had from labor unions
that it wasn't deemed advisable to do that. But I would hope
with this election behind us that we might try to seek--an
approach to this that wasn't leaning entirely towards the
wishes of these interest groups that want to be sure that
worker rights and environmental considerations get embedded
into the context of a trade agreement.
As I told you before, personally, it is my view that you
run into a significant structural problem in Congress because
of the different committees and the jurisdictional authority of
different committees. It is tough enough for the Ways and Means
Committee to give up its jurisdiction to give Fast Track, but
then get into other committees giving up areas of labor law, of
environmental law, and you are changing, I think, the whole
context of what we are trying to do with trade negotiations. I
don't know if you want to comment on that.
Let me just add one other comment and then you can comment
on that, and that is from the standpoint of the timing of this
thing, I just wish this Interagency Task Force that you have
started, work a little earlier on this because I think we have
a very, very narrow window of opportunity. Frankly, it is not a
window that stays open. It closes. And it is closing fairly
rapidly. If we don't have anything done by the time we get into
the NAFTA review this summer, forget it. There isn't going to
be anything. And the President is going to South America in
May.
Ms. Barshefsky. In May.
Mr. Kolbe. He is going to Mexico in April, at least I
think. Based on our action yesterday, I am not sure. But he is
going to South America in May, and I am not sure he is going to
have anything to take down there with him. It seems to me you
have got to have something for the President to go with.
Ms. Barshefsky. I think that we will be moving very
expeditiously on this issue, and certainly we look forward to
working with you and Members of Congress. We are aware that the
window is short, but we intend to take advantage of the window.
Mr. Kolbe. I certainly hope so. I think you will find some
Members of Congress very committed to doing that.
Thank you, Mr. Chairman.
Mr. Rogers. Mr. Skaggs.
Mr. Skaggs. Thank you, Mr. Chairman.
Good morning, Ambassador.
Ms. Barshefsky. Good morning.
Mr. Skaggs. I wanted to take a moment, first of all, to
congratulate you on the telecommunications negotiations----
Ms. Barshefsky. Thank you.
Mr. Skaggs [continuing]. And in passing to recognize one of
your key people who is an old friend of mine, Jeff Lang----
Ms. Barshefsky. He is fabulous.
Mr. Skaggs [continuing]. Who I believe had some part in
that success.
Ms. Barshefsky. ``Some'' is not the right word. Substantial
role in that success.
Mr. Skaggs. We know that you work real hard, but you
couldn't do what you get done without some terrific support
people.
Ms. Barshefsky. There is absolutely no question.
Mr. Skaggs. Since Jeff is here this morning, we can
embarrass him on the record without fear of rebuke.
Ms. Barshefsky. That is right, that is right.
wto and the helms-burton act
Mr. Skaggs. Moving on to something less pleasant, WTO and
Helms-Burton.
Ms. Barshefsky. Yes.
Mr. Skaggs. You know we have got a tremendous stake in the
success of WTO as a transparent mechanism for resolving
disputes in good faith, which would seem to me a much greater
stake in all of the benefits and values that attach to that
than early along having to manipulate the process in a
contrived way.
Having not given you any heads-up about my feelings about
this matter, where are we headed with our European friends and
their attack on Helms-Burton and the possible invocation of a
national security exception?
Ms. Barshefsky. We are in consultation with the European
Union that is being headed by Stu Eizenstat, as you know,
trying to see if there is an acceptable resolution to the
problem. We had been working quite well with the European Union
when they brought this case, which we felt was irresponsible
and ill-advised, challenging as it does, through the years, the
Cuba embargo and the views of sevenPresidents of the United
States that that embargo is justified on foreign policy and security
grounds. Nonetheless, U.S.----
Mr. Skaggs. That is a primary relationship between us and
Cuba, not any extraterritorial secondary boycott?
Ms. Barshefsky. It is both. They have challenged
everything, everything including the 30-year embargo.
Nonetheless Europe decided to proceed with that case, we think
irresponsibly so, given the allegations that they have made
with respect to the entirety of the embargo. And despite that,
we have continued to pursue a negotiated resolution.
We are, of course, strong supporters of the multilateral
system. But for the United States, there would not be a
multilateral system as we know it today; but for the United
States, there would not be a WTO; and but for the United
States, there would not be the kind of dispute settlement
process that we have today.
But the WTO is a commercial organization. Its
jurisdictional bounds are quite clear, and in our strong view,
this Helms-Burton issue and the issue of our Cuba embargo over
the last 30 years is not a trade issue and is not, therefore,
properly before the WTO at all.
Mr. Skaggs. I give you high marks on presenting that in
good faith. Academy awards are in order. But if we are really
taking the yellow pad out and putting costs in one column and
benefits in the other, if it comes right down to it, do you
truly believe we as a Nation are advantaged if we have to
invoke a national security exception----
Ms. Barshefsky. I believe----
Mr. Skaggs [continuing]. Compared to the damage that will
be done to this arrangement?
Ms. Barshefsky. I believe, as we and Europe agreed in the
Nicaraguan case, which raised national security issues, that
the national security exception is self-judging, and that once
invoked it is outside the province at that time of the GATT
system, now of its successor the WTO. Europe was entirely
comfortable with that approach during the Nicaraguan case,
which was actually a case that followed the Falklands
controversy where Europe took precisely the same position. It
is a position we are taking and will continue to take here, one
that Europe at this juncture apparently does not agree with, to
its peril.
Mr. Skaggs. And what damage will be done to the WTO if we
invoke national security?
Ms. Barshefsky. I think that the WTO will end up being just
fine. I do. I do. But I also----
Mr. Skaggs. So the Europeans are essentially above all of
this?
Ms. Barshefsky. I also think that Europe, Europe bears a
responsibility to the multilateral system as well, and its
action in bringing this case on the basis on which it has
brought the case flies in the face of their own determination
of the bounds of GATT and WTO jurisdiction and was an
irresponsible action. If there is blame to be spread, there is
plenty to go around.
Mr. Skaggs. I am sure you are right on that. I just would
hate to see, no matter which cliche you might wish to invoke,
cutting off nose to spite face or other similar ways of
catching the essence of this.
Do I have any more time? Not this round.
Mr. Rogers. Not this round.
Mr. Skaggs. Thank you.
Mr. Rogers. Mr. Regula.
Mr. Regula. Thank you, Mr. Chairman.
Ambassador, I know I speak for members of the steel caucus
when I say that we are very pleased with your confirmation.
Ms. Barshefsky. Thank you.
Mr. Regula. You appeared before our group last September. I
was very impressed with your testimony.
1916 anti-dumping laws and the steel industry
This is a little esoteric but are you familiar with the
Geneva Steel action involving the 1916 antidumping law?
Ms. Barshefsky. No. I mean, I know the 1916 Dumping Act.
Mr. Regula. Yes, that's right. Geneva Steel is trying to
use the 1916 Anti-Dumping Act, which provides for a private
cause of action against parties that intend to injure a
domestic industry, and, of course, their allegation is that we
are getting steel products dumped in the United States from
Russia and the Ukraine, which is, in part, due to the quotas
that have been put on steel imports by Europeans and others.
Ms. Barshefsky. Yes.
Mr. Regula. Will you, as U.S. Trade Representative, fight
the challenge that Europeans have mounted against the 1916
anti-dumping law in the WTO?
Ms. Barshefsky. The 1916 Dumping Act is grandfathered as
far as we are concerned. It is a completely legitimate trade
remedy mechanism. The difficulty in pursuing the 1916 Act, if
my memory serves correctly, is that because it is analogous to
our antitrust laws but on the foreign side, one must prove
intent. And that 1916 Act cases, the few that have been
brought, have failed on the basis of inability to demonstrate
intent. But it is a remedy that from our point of view is
completely, completely WTO-consistent.
Mr. Regula. So that would be obviously your position?
Ms. Barshefsky. Yes, yes.
Mr. Regula. Former Senator Dole, introduced a bill to
provide for a WTO review commission.
Ms. Barshefsky. Yes.
Mr. Regula. I think this bill was introduced because, in
part, of the fear of the impact on the U.S. sovereignty. Do you
have any opinion on the need for that legislation or the lack
thereof?
Ms. Barshefsky. We had supported the Dole bill, not because
we believed the WTO impinges on U.S. sovereignty, we don't
believe that, but because we believe that to the extent there
is a review mechanism, this gives Members of Congress greater
comfort and spurs, we think, the credibility of the entire
multilateral process. So we did support that legislation, and I
can't recall now what happened in terms of legislative action
here on the Hill.
Mr. Regula. Not much.
Ms. Barshefsky. But not much. I think once the leader left,
the bill sort of sat.
But we have tried to make sure that we provide the maximum
information possible on the cases to Congress, and we do
provide Congress with periodic reports of the status of cases,
where we are, what the outcomes have been, to provide that kind
of transparency and to increase congressional comfort level
with the WTO.
Mr. Regula. So you would still support it. And I might say
I have introduced it both last term and this one.
Ms. Barshefsky. Good.
multilateral specialty steel agreement
Mr. Regula. Okay. One last question. Can you providean
update on the ongoing negotiations of the multilateral specialty steel
agreement?
Ms. Barshefsky. Yes. Not too much is happening. You know,
of course, that the MSA, the Multilateral Steel Arrangement,
has been under negotiation for about 6 years.
Mr. Regula. I know.
Ms. Barshefsky. Our industry views it as a means by which
we can curb subsidies and gain better market access,
particularly into Europe. Europeans view it as a way that they
can stop us from using our dumping laws. So that is a
nonstarter. So those talks have floundered.
The specialty steel industry, both in the U.S. and Europe,
both came forward and said, hang on. We may want a separate
agreement. We think we can resolve certain trade-law issues in
a manner that perhaps the carbon producers were less
comfortable in resolving.
We expressed our view to Europe that we would like to see
this negotiated. Europe indicated that it, too--we had this in
the European Commission--it, too, was agreeable, but then our
further consultations with Europe have come up fairly dry and
empty, and we are now back in consultations with our own
specialty steel industry as to what our next steps might be.
We would like to try and conclude an agreement here if we
can.
Mr. Regula. One quick question. We hear a lot about NATO
expansion. This will take some convincing of the Europeans, but
it seems to me the European Common Market, the EU, ought to
take the Eastern Europe countries in and give them economic
development as a precursor to NATO expansion. I would like your
comments.
Ms. Barshefsky. I don't have a comment. I know a morass
when I see one.
Mr. Rogers. Mr. Latham.
Mr. Latham. Thank you, Mr. Chairman.
Restructuring of USTR Agriculture Office
Welcome. You testified previously in the Agriculture
Committee. I am from Iowa and I have quite an interest in our
agricultural exports; it has been the bright part of our export
picture.
Ms. Barshefsky. It has been great.
Mr. Latham. You told Chairman Smith that you are going to
raise agriculture as the number one issue----
Ms. Barshefsky. Yes.
Mr. Latham [continuing]. In your shop. And I just wondered,
are you dedicating any specific additional resources to that
goal, or any restructuring? Do you expect to be more aggressive
as far as WTO cases in regard to agriculture at this point?
Ms. Barshefsky. You are quite right. I had indicated to
Chairman Smith that we must make agriculture a priority. We see
agricultural exports at record levels in 1995, again in 1996.
They will fall off a little as USDA has predicted, a little bit
in 1997, largely weather-related they think.
But we know from our trade agreements negotiations that a
number of countries impose very substantial sanitary and
phytosanitary barriers to our exports which are absolutely not
justified on any scientific ground. China is one such offender
in that regard, but we have had, as you know, substantial
problems with the EU, problems with Latin American countries,
problems with Russia and elsewhere.
For that reason, I will be restructuring our agricultural
office first to bring in a much higher level negotiator than we
have ever had before; second, to shift a little bit of our
lawyer services toward agriculture, more even than what it is
now, and it is already substantial now; and then to buttress
the staff with people with specific expertise.
So I would expect to increase the number of people doing
agriculture at USTR, as well as the level, so that when they
negotiate with their counterparts, they are able to negotiate
at the ministerial level. With the way our current ag shop is
negotiating protocolwise you can't get there from where we are.
In addition, Dan Glickman and I have spent a lot of time
talking about a system of much better coordination between USDA
and USTR, particularly as we go into negotiations. If we are
not singing off the same sheet, nothing good happens.
Mr. Latham. Right. Very good. I am pleased to hear that.
Subsidization of Pork Exports
One thing that has been a big concern and problem we have
had in the pork industry, basically----
Ms. Barshefsky. Yes.
Mr. Latham [continuing]. With China and Taiwan. In your
negotiations with them as far as the World Trade Organization,
is that being brought up, or are there goals? This goes back
somewhat to what you were talking about before.
Ms. Barshefsky. Right. It sure is, both with China and with
Taiwan. And in Taiwan, the pork issue emerges actually as a
rather big issue. It isn't just that we can't get our pork into
Taiwan; it is also that because Taiwan is a protected home
market, they are able to subsidize their pork exports to Japan,
which means that we are losing sales not only in Taiwan, we are
losing sales in Japan.
So with respect to the outstanding issues on Taiwan,
accession of the WTO, in the ag area pork and poultry are the
two key items and problems that we face. And similarly, on the
China side, we have made very clear to China that WTO accession
has to be on commercial terms, and that if the deal isn't good
for agriculture, it isn't good.
Mr. Latham. Thank you very much, Mr. Chairman.
Mr. Rogers. We are going to get you out of here at 11:00
come heck or high water.
CHINA'S ACCESSION TO THE WTO
Now, briefly, the fundamental issue with China's entry into
the World Trade Organization it seems to me, is have they
earned it. Shouldn't we demand more tangible compliance with
existing trade agreements as well as greater market access
ourselves before we let them into the World Trade Organization?
Ms. Barshefsky. Has China earned WTO entry?
Mr. Rogers. Yes.
Ms. Barshefsky. At this point, no.
Do we monitor our agreements with China very, very
carefully? Absolutely.
There are many areas of many of the agreements we have with
China where compliance is actually very high, and this is also
true in the case of, for example, tariff reductions that have
taken place under our 1992 MOU with China. Those tariff
reductions have come in right on schedule. Diminution in
licensing requirements and import controls came in right on
schedule with China. In transparency they have lagged behind,
but the amount of work to be done there is astronomical, as you
can imagine, given the regime and the culture. There are a
variety of issues on intellectual property rights where China
has, in fact, come into good compliance.
Having said that, there are also areas where China doesn't
comply, and those are areas we must be willing to enforce as,
for example, in textiles, where China fails to comply.
If absolute compliance with trade agreements were a
condition of entry into the WTO, there would be not very many
WTO members, quite apart from China. We simply have to be sure
we have the legal rights to enforce our agreements if there is
a breach in one particular area or another.
Mr. Rogers. What about market access?
Ms. Barshefsky. With respect to market access, that
absolutely has to improve, and we have told China, as have the
Japanese and the European Union, there is going to have to be a
very substantial market access down payment--that is,
substantial market opening upon entry into the WTO, not left
for the future or some transition.
There will be areas where China does need transition
periods or phase-ins, and that is perfectly acceptable to the
extent the areas are limited. But we are going to have to see
very substantial commitments on tariffs, including a number of
reductions that would have to take effect the day they join the
WTO; reductions in nontariff barriers and the like.
In addition, we are working bilaterally with China on a
range of outstanding market access issues, in some goods areas
and in agriculture, and we have indicated that those areas, as
a practical matter, are going to need to be resolved first.
Mr. Rogers. Well, as far as I am concerned, I want to see
some concrete results and change in exports to China before I
would ever submit to entry into the WTO.
Mr. Mollohan.
Mr. Mollohan. Thank you, Mr. Chairman.
How do you plan to handle the nonmarket economy aspects of
China as you consider its entry into the WTO?
Ms. Barshefsky. You asked really a profound question.
Mr. Mollohan. Oh?
Ms. Barshefsky. Because as you think about the WTO, it is a
rules-based regime and its fundamental underpinning is
transparency. If you look at a China or a Russia or the former
Soviet Republics, you are not necessarily looking at countries
that have applied a rule of law in any consistent manner, and
you are not necessarily looking at countries which have, as an
underpinning, transparency in the trade regime or in the
economic regime generally. So this is a complicated situation.
We have had three experiences with the accession of
nonmarket economies to the WTO, and they were Poland and
Romania and Hungary; Hungary, the least nonmarket economy of
the three. And there were special safeguards put into place in
all three, including the ability to sue for protection of
particular sectors if there are import surges that are
unexpected. Those kinds of protections are the kinds of
protections we are going to have to look at in the China case
as well, as well as in the case of Russia, Ukraine and a number
of the other former Soviet republics.
I will say with respect to Poland, Romania and Hungary, the
accessions have worked very successfully, first because those
countries were committed to economic reform, but second because
the WTO rules have often, in turn, formed the basis for their
own domestic law, because these were countries looking for
domestic legal regime.
Mr. Mollohan. That would be a good thing.
Could you apply the subsidy code to China as admission for
accession to, say, the WTO?
Ms. Barshefsky. They would have to. They would have to
accede to the subsidies code, yes.
Mr. Mollohan. Let me just real quickly follow up on those
questions I was asking about the Weirton Steel suit.
Ms. Barshefsky. Yes.
Mr. Mollohan. I am interested in the timing on this. How
long have you been on notice that Weirton and these other
companies were concerned about it?
Ms. Barshefsky. I sent the letter to the Korean trade
minister perhaps 2 weeks ago. It is hard to remember now, the
time goes by so quickly. I can't tell you that I know the date.
Mr. Mollohan. What would be an outside date for the
resolution of the problem?
Ms. Barshefsky. I think we will probably give them a total
of 30 days to come forward with information. If not, we will go
with the WTO.
Mr. Rogers. One last question, Jim.
Mr. Kolbe. Maybe I will get two quick ones in here on
China. How are you going to deal with the big problem of the
state-owned industries, the government-owned industries?
The Liberation Army owns huge defense industries and so
forth. The subsidies to these industries, how are we going to
tackle the problem in the accession?
Ms. Barshefsky. On state trading, we have said a couple of
things. First off, as a general matter, we know that state
trading enterprises can exist. Europe, Canada, many countries
have state trading enterprise. But those enterprises must
operate on a commercial basis, and their operations must be
sufficiently transparent that you can determine on the basis of
cost and pricing that they are operating on a transparent
basis; and that is what we have demanded with respect to China.
Apart from that, in the agriculture sector, the state
trading is an issue. We are looking at various ways to deal
with the problem, including a system of tariff rate
quotas,which is common in a number of countries.
Mr. Rogers. Thank you.
Mr. Latham?
Mr. Latham. I will submit some questions.
Mr. Rogers. We will all perhaps have questions for the
record that we would like you to respond to.
Madam, thank you very much. It has been an interesting
appearance.
[Pages 620 - 628--The official Committee record contains additional material here.]
Tuesday, March 18, 1997.
TRADE PROMOTION AND ENFORCEMENT
INTERNATIONAL TRADE ADMINISTRATION, DEPARTMENT OF COMMERCE
U.S. INTERNATIONAL TRADE COMMISSION
WITNESSES
STUART E. EIZENSTAT, UNDER SECRETARY, INTERNATIONAL TRADE
ADMINISTRATION, DEPARTMENT OF COMMERCE
MARCIA E. MILLER, CHAIRMAN, U.S. INTERNATIONAL TRADE COMMISSION
Mr. Rogers. The Committee will come to order.
Today, we welcome to the Committee two agencies which are
responsible for our trade promotion and enforcement activities.
Representing the Department of Commerce is the Under Secretary
for International Trade, Stuart Eizenstat.
This may be Under Secretary Eizenstat's last appearance
representing the Department of Commerce. But we look forward to
working with him as the new--can I say it?
Mr. Eizenstat. You can say it.
Mr. Rogers. The new Under Secretary for Economic Affairs
at the Department of State. Is that subject to confirmation?
Mr. Eizenstat. Yes, sir.
Mr. Rogers. Good luck, Mr. Secretary. We obviously wish
you well. You've been great working where you are and will be
where you're going.
In addition, appearing before the Subcommittee for the
first time is the new Chair of the International Trade
Commission, Marcia Miller. We look forward to working with you.
As all nations struggle to compete in the new global
economy, the United States will be presented with both
opportunities and challenges. Both of your organizations are
critical to ensuring that American businesses are competitive
in the global marketplace. However, fiscal year 1998 will
represent another year of budget constraints.
So, we want to work with you to find ways to ensure that we
can preserve our critical trade activities in an era of
declining resources. We're very pleased to have both of you
with us today. If you would like to proceed with your opening
statements, we will make your written statements a part of the
record. Mr. Secretary, we will begin with you.
Opening Statement of Under Secretary Eizenstat
Mr. Eizenstat. Thank you, Mr. Chairman. I appreciate your
thoughtful words and your willingness to place my full
statement in the record. I want to thank you and Ranking Member
Mollohan for the extraordinary cooperation that you and your
staff have given us during my tenure. We appreciate very much
the support that you have given the International Trade
Administration and hope it will continue for this fiscal year's
proposed budget.
Our request is for $271.6 million and 2,270 full-time
equivalent positions. When compared with the current fiscal
year, this represents essentially a flat budget with an
increase of only $1.6 million over all the units, and indeed a
decrease of 90 full-time equivalent positions.
Our services help U.S. companies sell American products
overseas, and we help create in the process, jobs at home. Our
work is carried out by four program units. I want to especially
recognize the work of Deputy Under Secretary Tim Hauser and
Acting Assistant Secretary Ginsburg, Assistant Secretary and
Director General of the U.S. and Foreign Commercial Service,
Lauri Fitz-Regado, Assistant Secretary Raymond Victory, and
Acting Assistant Secretary Robert Larusso of the Import
Administration. I am fortunate to have such truly
extraordinary, able and dedicated public servants working for
me.
Essentially, our proposed budget allocations, Mr. Chairman
and Mr. Mollohan, to ITA's four major operating units for
fiscal year 1998, remain nearly equivalent to this year's.
I'd like to point out that this is the fourth consecutive
year in which we requested a nearly steady level of resources.
Indeed we have 300 fewer people on board than we did two and a
half years ago. Yet, we've taken on new major responsibilities
in the new Compliance Center, the Advocacy Center, the
expansion of Export Assistance Centers around the country, the
Re- Converging of Markets Initiative, and the new
responsibilities under the Uruguay Round which bring additional
workload to the Import Administration.
This is reflective of our willingness to try to do more
with less. It demonstrates at the same time the support we've
enjoyed from this Committee and your willingness to give us the
resources to try to do the job that we need to do. We believe
that sustained support is fully justified because the
importance of trade and export promotion for economic
prosperity is clearer than ever inthis globalized economy. By
approving our budget request, you will enable us to continue serving
American business and American workers. We're the only agency with the
proven capacity to provide hands-on assistance to U.S. companies
seeking to broaden their markets by exporting their goods and services
abroad.
We have the ability to provide strategic support for the
development of U.S. international trade and commercial
policies. We're putting the U.S. Government more forcibly than
ever squarely on the side of U.S. exporters to level the
playing field in a fiercely competitive global market.
If you will fund our request, it will enable us to continue
to assist in interpreting foreign rules and regulations to help
arrange joint ventures with foreign partners, and to enable
small and medium-size companies to enter foreign markets.
What we do is critically important to the U.S. economy.
U.S. companies are following through with unprecedented levels
of export performance. They have grown at a rate of about 8
percent over the period, well above the rate of overall
economic growth.
Our trade programs and initiatives are critical in not only
helping to generate economic growth, but also to enhancing our
overall commercial interests and furthering our foreign policy
objectives as well. When I appeared before you a year ago, I
identified a number of high priority activities that will help
support our mission to help U.S. business sell products and
services abroad. I'd like briefly to outline what we've done in
the past year. I will give some brief examples of our
achievements.
First, we have strengthened our advocacy and trade
promotion. The Trade Promotion Coordinating Committee has been
a major priority of ours. Our advocacy efforts are applied
almost exclusively when the foreign decision maker is a foreign
government or a government corporation and thus pure market
forces are not at work.
In fiscal year 1996 our Advocacy Center had its best year
ever since its establishment in November of 1993. We assisted
U.S. companies in winning 122 overseas contracts with a U.S.
export value exceeding $26 billion over the lifetime of those
contracts.
About 20 of those successes were projects for small and
medium-sized businesses (SMB). We are doing more and more with
the small and medium-sized enterprises. That doesn't even count
the impact on SMBs that occur when large companies succeed.
Another area of promotion focus has been the Trade
Promotion Coordinating Committee, which I have spent an
enormous amount of time with. Our fourth annual report in
September responded to one of the greatest problems in access
to world markets.
Namely, practices used by our competitors such as bribery,
subsidies, corruption, and other methods that create an unfair
playing field. We made specific suggestions for ways to counter
this by working with organizations like the World Bank, by
changing our own advocacy guidelines and by getting Ex-Im Bank
and OPIC to change theirs.
We also did a special small business initiative, Mr.
Chairman, and Members of the Subcommittee, to address the fact
that access to capital is a chief problem for small businesses
wishing to export by working with the Small Business
Administration to expand their 7(a) program and Ex-Im Bank to
pilot a new program.
This small business initiative will guarantee bundles of
small business loans for a period of time. It will help create
access to capital for small businesses, in small communities,
who wish to export. The second goal that I outlined was for
outreach to small and medium-sized businesses.
We will continue to provide export assistance to these
enterprises through our Commercial Service network of domestic
and overseas field offices. We will complete our domestic field
transformation into the Export Assistance Center Network with
19 operating Export Assistance Centers.
Our Export Assistance Centers achieved over 8,000 export
actions, that is, export sales which were directly facilitated
by trade specialists. We helped 3,970 different U.S. firms; the
large majority of which were small businesses.
As a followup to a promise I made to you at this very
hearing a year ago in which I indicated that we'd organize a
special outreach effort to small businesses, we've organized
and I've personally participated in five separate seminars
around the country targeting small and medium-sized businesses
interested in exports. There were sessions on how to export,
what resources we have. We tried, Mr. Chairman, to identify
particular market niches. For example, we held one a few weeks
ago dealing with the auto parts market in Japan.
While our industry representatives meet one-on-one with
U.S. businesses in hundreds of thousands of counseling
sessions, our Trade Information Center is the principal point
of contact, particularly for small businesses. Last year we
handled 72,000 inquiries; 90 percent of which were from small
businesses. One example pulled completely at random is a
Louisville, Kentucky company, a carrier of operating equipment.
It just happened to come up on our screen.
This is a small manufacturer of vibrating conveyor systems
which has seen its exports grow from 10 percent to 30 percent
of its total sales since 1990 as a result of aggressive
marketing and direct assistance from our Louisville office.
They plan to add 15 to 20 new workers to their payroll. And
they attribute much of their success to trade missions and
overseas travels supported by our program.
The third priority is trade enforcement and compliance. Our
objective is to strengthen our law enforcement and compliance
monitoring, including working with the recently established
Trade Compliance Center you and your Committee so generously
supported. In line with guidance from this Committee our Market
Access and Compliance (MAC) unit has refocused its goals and
its functions. It's concentrating on identifying existing and
potential market access problems and initiating U.S. Government
action to overcome market access obstacles. MAC is now
reoriented and totally focused on obtaining expanded market
access for U.S. companies in foreign markets, leveling the
playing field for U.S. bids and ensuring foreign compliance.
The Trade Compliance Center, Mr. Chairman, is a tremendous
success. I visited it this week, again, to get an update.
Doug Olin, the Deputy Assistant Secretary, has done a
fantastic job. We now have 30 agreements in the data base.
Businesses will soon be able to directly access any trade
agreement that we've reached from the beginning of the recorded
time for the U.S. Government. This will allow them to know what
agreements have been reached to help them enter foreign
markets. It is the firsttime ever that we will have a
comprehensive data base of agreements and a quantitative means of
measuring compliance, a first for any agency of the Government.
The restructuring of MAC, and I mentioned the Compliance
Center because the Compliance Center is in MAC, has already
begun to have a dramatic impact. It has helped us conduct very
important mutual recognition negotiations with the European
Union. It has helped monitor key trade agreements with Japan.
It has played an integral part in obtaining a delay, for
example, on the Mexican Government labeling requirements which
would have cost U.S. exporters millions of dollars in the loss
of sales and time.
Through our Import Administration (IA) unit we were also
very successful in carrying out our trade law enforcement
responsibilities, having completed more than 100 anti-dumping
case reviews. We've also provided, through the Import
Administration, technical advice and negotiating support on a
variety of multilateral and bilateral issues. We're now
developing new anti-dumping and countervailing duty regulations
commensurate with our Uruguay Round commitments.
The fourth priority I identified was aligning our trade and
foreign policy objectives. We've placed emphasis on encouraging
U.S. exports and U.S. business leads in areas of emerging
democracies to strengthen those democracies. We also emphasize
regions with fragile peace processes like in countries such as
Turkey and Egypt, facing threats from radical forces.
Concrete examples were evident last fall in Pittsburgh when
we hosted a Trade and Investment Conference for Northern
Ireland and Irish Republic companies in support of both our
commercial and our foreign policy objectives. Nearly 500
matchmaker appointments were scheduled. Early results are
promising, with two contracts already being executed with
Northern Ireland firms.
Lastly, Mr. Chairman, I promised that we would continue to
give priority to Big Emerging Markets (BEMs). Since the
inception of our BEMs initiative, we've increased staff levels
stationed in those markets by 38 percent or 125 positions.
We've opened Commercial Centers in three BEMs areas, Sao Paulo,
Jakarta, and only a few weeks ago I traveled to Shanghai to
inaugurate our Center there, and interestingly, Mr. Chairman
and Members of the Subcommittee, we're working closely with
state offices which are co-locating there. For example, in
Shanghai, the States of Washington, Maryland, and Michigan are
already in our office. We believe that Pennsylvania and
Virginia may soon join.
To conclude, this fiscal year, we're going to continue to
do the following: vigorously enforce our trade laws to complete
the refocusing of our MAC unit; ensure implementation of our
1996 export strategy, particularly getting off the ground this
Small Business Financing Initiative; work even more strenuously
on any bribery issues; improve our advocacy efforts to
electronic interconnection with the finance agencies, and focus
on fighting untied aid that is in fact tied by incorruption in
foreign deals; and continue our outreach seminars to small,
medium-sized, and minority businesses, and our efforts to get
our data base ready. Mr. Chairman, I think you and Mr. Mollohan
talked about this, this week. Small business can now access our
data base. They can directly find out what trade leads exist by
country and by sector. That's something you asked me a year ago
to make sure they could do. And we're now able to demonstrate
that.
We're also going to support ongoing Administration efforts
to China and Japan. We're going to follow-up on efforts to
support our foreign policy goals in Central America, Panama,
Asia, Northern Ireland, the Middle East, and Bosnia.
Mr. Chairman and Mr. Mollohan, I want to thank you
personally and the Members of the Subcommittee for your help
over this past year in sustaining our level of resources. I
know this is not easy in a time of very sharp cutbacks.
This enables us to increase our exports and to help create
more U.S. jobs. With your guidance, support and the continued
close consultation we've had with you and your staff, we will
continue to focus on those objectives because they're so
critical to our Nation's future.
Again, I thank you and Members of the Subcommittee for your
support and for your cooperation.
[The statement of Mr. Eizenstat follows:]
[Pages 635 - 648--The official Committee record contains additional material here.]
Mr. Rogers. Thank you, Mr. Secretary. Chairman Miller.
Opening Statement of Chairman Miller
Ms. Miller. Mr. Chairman and Mr. Mollohan, thank you very
much. It's an honor to appear before this Subcommittee today in
my new capacity as a Commissioner and current Chairman of the
International Trade Commission.
I have worked with the Senate Finance Committee as a
staffer on trade issues for the last ten years. So, I certainly
have been familiar with the work of the Subcommittee in that
capacity, as well as in the support that you've shown the
International Trade Commission.
I want to thank you and tell you how much of a pleasure it
is to meet you today. I'm accompanied by Commissioner Don
Newquist, and a number of members of the senior staff including
Queenie Cox, our Director of Finance and Budget. I was just
checking to make sure there aren't any other Commissioners that
have joined us. If you have questions for them, they'll be
available as well.
I won't read my prepared statement at this point, but just
let me summarize the highlights for you that I'd like to bring
to your attention. First, let me say just a few words about the
Commission, its form and its functions. Two aspects about the
International Trade Commission are unique in the scheme of U.S.
Government trade agencies.
Those are important to me and a majority of the Commission
and I think they're important for this Committeeto keep in mind
as well. The first aspect is the Commission is an independent agency.
Its budget is submitted directly to the Congress without
one alteration, unlike other Executive Branch agencies. The
second aspect is the Commission's non-partisan nature. No more
than three Commissioners may be of the same political party.
Six Commissioners are appointed by the President, subject to
Senate confirmation, for terms of nine years.
These two elements of the Commission's structure I think
are particularly important to keep in mind because they come
from the statute and help ensure its objectivity in trade
analysis and decisionmaking. Congress put them in the statute
for the purpose of making sure that the Commission would be an
independent and non-partisan fact-finding agency that both the
Executive Branch and the Congress can rely on for advice and
judgment which is essentially independent from any particular
political persuasion.
The International Trade Commission is not a trade policy
making agency. Our role is two-fold. First, we implement
certain laws that are important to U.S. trade policy. We do
that as decision maker in some instances where the Commission
implements, for example, part of the requirements under the
Anti-Dumping and Countervailing Duty law.
In other cases, we do so by making recommendations to the
President, such as Section 201, escape clause cases or Section
337 cases relating to unfair trade practices of import trade
violations, or 337 cases related primarily to intellectual
property rights violation, and in particular patent loss.
Our second role is to support the trade policy making
functions of the Congress and the President. We do that by
providing independent information, such as fact finding studies
for the Congress or the President. Essentially, those are fact
finding studies that aid in the conduct and formulation of U.S.
trade policy. They can be of a very specific or general trade
focus.
Turning to the Commission's budget proposal for fiscal year
1998, the Commission is requesting an appropriation of
$41,980,000. That essentially amounts to an increase of
slightly more than $1 million over our fiscal year 1997
appropriation of $40,850,000. It is a budget that maintains our
current staffing level of 378 full-time permanent positions.
I'd like to put this request into context for this
Subcommittee. In some ways, that context even came as a
surprise to me when I joined the Commission. First, the
Commission made a conscious effort during the 1990s to reduce
its staff levels consistent with the desire and trend for
government downsizing.
In fiscal year 1992 the Commission funded 472 full-time
permanent positions. This year, we're funding 378 full-time
positions. That amounts to a decrease of 94 positions or a 20
percent reduction in our staff levels. I believe by any measure
for Government agencies, that is a fairly sizeable decline.
Two-thirds of those staff cuts were voluntary on the part of
the Commission. They were achieved primarily through attrition
over the years from 1992 until last year.
However, last year in response to a $2.5 million cut in the
Commission's appropriation, the Commission did implement a
reduction in force of 34 employees. Threats of deeper cuts
forced the Commission in October of 1995 to issue RIF notices
to 125 employees.
That was basically a third of the agency staff on board at
that point. The Commission in the end only had to RIF 34 to
live within its appropriation. However we lost 70 employees in
that process. We went from a staff level in August of 1995 of
425 to a level by April of 355. That was essentially because
the RIF process at the Commission obviously created a lot of
uncertainty for our well qualified employees and many of them
went out and found other jobs. It was a very disruptive period,
but the Commission has come through it, and I think, in fairly
good stead.
The end result today is that the Commission is essentially
staffed more for the troughs in our workload than for the
peaks. That's not a problem at present because, given our
current caseload, which is relatively low, we're able to manage
that. Further we've looked for ways to become more efficient
and reduce our costs wherever possible. The difficulty
obviously in dealing with budget cuts at the Commission is that
72 percent of our budget goes to personnel costs.
The cost of running the Commission, is essentially the cost
of people. Over 95 percent of our requested increase this year
is to fund the nondiscretionary personnel increases that we
will see--the required increases in salaries and benefits.
We've looked for ways to absorb some of those nondiscretionary
cost increases.
We believe our request to be a moderate request. We're
determined to try to hold our costs down as best we can. I
would mention that we have just completed the fourth clean
audit of our financial records which means we've now had four
consecutive two-year audits totalling eight years with clean
unqualified opinions on our financial operations. The
Commission is proud of that record.
Having said what I've said about the caseload currently,
let me now point to the future and implications of recent
statutes for the commission's future workload. As a result of
the Uruguay Round, a change was made to U.S. law requiring that
all anti-dumping and countervailing duty orders be reviewed
every five years.
The Uruguay Round requires that anti-dumping or
countervailing duties be terminated after five years, unless
the revocation of the duty would be likely to lead to the
continuation or recurrence of the dumping or the subsidies and
of the material injury.
The Commerce Department will make the determination
regarding dumping. The Commission will make the determination
regarding injury. These are commonly known as the Sunset
Reviews. You are likely aware this was a fairly controversial
issue in the context of the Uruguay Round implementing
legislation.
Conducting these Sunset Reviews will be a new obligation
for the Commission. It is one that essentially, requires the
review of these outstanding anti-dumping and countervailing
duty orders. They are scheduled to begin in July 1998 and must
be completed by July of 2001. There are about 315 such orders
on the books currently. We will have a three-year transition
period essentially to review all of those orders.
There is a lot of uncertainty in this task, but there is no
doubt that it is a big task. The exact number of reviews, how
much information will be required, the rate of appeal to the
Court of International Trade, and to the Federal Circuit court
is unknown. But the bottom line, our best estimate at this
point, means that we will see a doubling in our caseload
beginning in fiscal year 1999 and a tripling of ourlitigation
load.
This Sunset Review activity will begin toward the end of
fiscal year 1998. However we have not proposed at this point
any increase in our fiscal year 1998 budget, basically on the
belief that most of the work will come at the beginning of
fiscal year 1999. It is important to mention it because it's
something that this Subcommittee should be aware of in terms of
our future workload as well as current funding.
Right now, we're essentially in a time of preparation for
that period. Frankly, I won't be Chairman by the time the
Sunset Reviews begin. It's a two-year limited Chairmanship, and
that task will be turned over to another at the Commission. I
do feel it is my responsibility to work at the Commission to
make sure that we are prepared for the workload that's coming.
This is the year essentially for maintaining our current
staff, enhancing their skills and their preparedness, and
laying the groundwork for the job that's ahead of us.
Basically, my view is that at this point I want to assure you
that I will do everything I can to make sure that the
Commission is prepared for the workload to come.
Thank you, Mr. Chairman and Mr. Mollohan. I will be happy
to answer any questions that you may have.
[The statement of Ms. Miller follows:]
[Pages 652 - 657--The official Committee record contains additional material here.]
Additional Anti-Dumping and Counterveiling Responsibilities
Mr. Rogers. Thank you both for your statements, your work
and your preparation. Both agencies have additional anti-
dumping and countervailing duties and responsibilities growing
out of the Uruguay Round.
Mr. Secretary, how much is included in your budget for
those new responsibilities?
Mr. Eizenstat. Mr. Chairman, we've requested $532,000 to
enable us to more vigorously enforce the new provisions imposed
upon us by the Uruguay Round implementation legislation. These
include Sunset Reviews, subsidies enforcement, and
administrative reviews.
This comes on top of our already burdening caseload that
Import Administration has. These are imposed upon us by
statute. Those Sunset Reviews will begin immediately. And so we
need that additional money in order to be able to----
Mr. Rogers. What about the outyears? What are we going to
see in the outyears as a result of the Uruguay Round?
Mr. Eizenstat. These Sunset Review will undoubtedly
expand. I can't forecast at this point. We'll have to see how
this coming year's figures grow. There is no question that
there will be more actions brought under anti-dumping and
countervailing duties. At this point I am not able to forecast
what it will require for the outyears.
Mr. Rogers. Chairman Miller, your budget does is not
request an increase in fiscal year 1998 for this activity. But
your budget justifications indicate that you intend to reassign
staff internally to meet the demands of 1998. How many staff
does your budget assume will go to this function? And what
activities will you have to curtail in order to shift that
staff?
Ms. Miller. We do not expect, for the most part, to have to
reassign staff in fiscal year 1998--there may be some that
could occur toward the end of the year. We expect most of that
reassigning to begin to occur as the workload increases
starting in FY 1999. One of the uncertainties here is that we
do not determine the exact timing of these Sunset Reviews,
which are the bulk of the increased work that we will see as a
result of the Uruguay Round.
The Commerce Department determines the timing and
sequencing of that. We will be in consultation with them as we
have been to date, but our assumption has been that most of
that work will come in fiscal year 1999 as opposed to fiscal
year 1998.
Mr. Rogers. And what will be necessary in 1999?
Ms. Miller. In 1999 we're anticipating that we will need
as much as 59 additional work-years for conducting these Sunset
Reviews. We're expecting to be able to reassign probably about
19 staff internally. These are our current, preliminary
estimates; we obviously will have to undergo a more thorough
budget preparation for the appropriations process next year. We
will come to you with hopefully more concrete numbers at that
point.
The expectation is that 19 out of the 59 additional work
years we can accommodate by internal reassignments. Where would
they come from, you asked, Mr. Chairman. At this point in time,
it may be hard to determine. Because we shift staff to work on
several different types of activities it's difficult to assess
exactly where we will have some staff to make these kinds of
reassignments.
Mr. Rogers. How much extra money will you need in 1999?
Ms. Miller. I will tell you that for fiscal year 1999 we
proposed to the authorizing committee, to the Ways and Means
Committee----
Mr. Rogers. No. I'm talking about how much money are you
going to ask us for?
Ms. Miller. Mr. Chairman, at this point I have no reason
to believe that we will ask for anything different, but we are
dealing with something that's rather uncertain. We are
proposing or have proposed a fiscal year 1999 budget of
$46,125,400. The authorizing committee has approved that level
in the subcommittee.
I don't believe they have taken it up in the full committee
yet. However, I don't want to totally preempt the normal
budgetary process that we would go through this fall in
developing a proposal to this Committee. If we have more
information at that time that allows us to lower that level or
if we conclude that we under-estimated the level, we'd go back
to the authorizing committee and advise them of that and
explain to you any reason for the discrepancy.
Mr. Eizenstat. Mr. Chairman, if I may, I'd just like to
supplement that. In 1998, we expect an increased workload as a
result of these Sunset Rules of 1995.
Mr. Rogers. Now, both of you indicate that you have
responsibilities for trade monitoring, as well as providing
research analysis for trade policy discussions and
negotiations. ITC devoted over 80 percent of its staff and
budget to trade research and analysis. ITA has two units, Trade
Development and Market Access and Compliance each composed of
trade experts who also provide research and analysis. ITC
indicates it has responsibility for trade monitoring. ITA has
just established a new Trade Monitoring and Compliance Center
in conjunction with the U.S. Trade Representative's office.
Help me out here. Are we duplicating each other's services?
Mr. Eizenstat. I don't think we're doing the same type of
work that occurs on a case-by-case basis. In terms of
ourCompliance Center, it is totally unique. What we're doing is
inputting into a data base every trade agreement that this country has
reached and then determining the degree of foreign governmental
compliance on a systematic basis for each of those agreements so that
we know where we can put pressures, not only on behalf of individual
companies, but in terms of an entire country that may not be complying
with the obligations for market openings that they committed themselves
to.
Also, our market research emphasizes market access and
trade promotion. So, it has a dual responsibility when
reviewing compliance. We also have our country and regional
teams and our central teams based on industry sectors who are
trying to analyze the best ways in which these open markets can
be taken advantage of by U.S. companies. I don't think the ITC
is doing that.
Mr. Rogers. Do you agree, Chairman Miller?
Ms. Miller. Yes, Mr. Chairman. Let me start by going back
to some of my comments about the nature of the agency.
Mr. Rogers. I don't want a treatise on this now. Are you
duplicating each other?
Ms. Miller. Well, I would describe our analysts as
essentially students of industry as opposed to trade promoters.
Their objective is essentially to provide unbiased, fact
finding studies as students of the industry rather than to
translate Presidential policy into policy direction at the
agency level.
I think the short answer is that our analysts essentially
perform a different role. But, taking note of your comments
about not wanting a treatise, from the point of view of the
Executive Branch and, probably more importantly, the Congress,
the fact that our analysts provide information which
essentially comes through without being directed or serving a
particular policy purpose means that they are unique in our
trade agencies.
duplication between ita and itc
Mr. Rogers. I'm not sure I understand. We're so tight with
money here that we've got to stretch every penny as far as it
can go. It seems to me on first blush that there may be some
duplication between what ITA and ITC are doing in monitoring,
research and analysis. Then we've got the State Department's
Economic Affairs officers out there who are doing much the same
thing. Is this something we can look at to try to see if we can
ferret out any duplication amongst the Commerce Department, the
Commission, and the State Department, and perhaps anybody else?
It just seems like we're seeing things two or three times here.
Mr. Eizenstat. First of all, because you've asked and it
is important to us, critically important, I'll make sure that
we sit down with Ms. Miller and her staff to see if there are
areas where overlap exists that can be eliminated. I do think
that the purposes are very different.
state department economic officers and commercial service officers
ITA's mission is oriented to trade and market access. But
nevertheless, the point you make is important. We will sit down
and try to give you an analysis. With respect to the Economic
Officers in the State Department and Foreign Commercial Service
Officers, I know this is something that you have a particular
interest in determining duplication. It has been in your report
language for fiscal year 1997.
As a result, we did a study with roughly half a dozen hosts
abroad. We asked them to look at the question of whether there
is duplication. I had my own experience when I was Ambassador
to the European Union (EU) and I had felt that there was not.
That this was in fact a complimentary measure. But we wanted to
do an objective study.
That study indicated that in fact the activities of the
Economic Officers of the State Department and the Foreign
Commercial Service Officers were almost exclusively
complimentary and not overlapping. While the Commercial Service
Officers were engaged in company-by-company export promotion,
helping with close deals, and helping directly reduce market
failures. The Economic Officers at State, Mr. Chairman, on the
other hand, were reviewing and reporting on broad trends in
economic developments rather than dealing directly with an
individual company or an individual deal.
Mr. Rogers. Well, when you move to your new position over
at State, you're going to be in a unique position because you
will be overseeing the Economics Officers, among other things.
And also, having served in the Commerce Department's ITA gives
you a unique perspective on the interplay of these two major
portions of our international trade efforts. And of course you
know the work of the Commission.
So, I'm hopeful that in your new role, you'll be even more
valuable to us in weeding out duplication. Maybe taking the
same information that each agency has, drawing whatever
conclusions the agency that you're in has from the same
numbers, it seems to me, we could save money here.
Mr. Eizenstat. Well, I'll do my very best and with the
Senate and the Good Lord willing, if I have that opportunity I
assure you that I will. I also want to say and I mean this very
sincerely, I've seen from my perspective as an employee of the
State Department when I was Ambassador to the EU and now
working at Commerce that it is completely and totally
impossible for State to do its job of supporting our foreign
policy goals in a world in which economics is increasingly
dominant as a national security instrument, without having the
private sector in the United States bring to bear its resources
on behalf of that effort. The institution best able to involve
the private sector is the Foreign Commercial Service.
The Foreign Commercial Service is the one who can create
the deals, the investments, and the joint ventures, and at the
same time support our foreign policy goals. I can't imagine, if
I am over there, not being in regular, if not daily contact
with the Foreign Commercial Service and using their resources.
Mr. Rogers. Good. And if we ever see that you are not, we
may want to remind you of that.
Mr. Eizenstat. Yes, sir.
Mr. Rogers. Mr. Mollohan.
Mr. Mollohan. Thank you, Mr. Chairman. Under Secretary
Eizenstat and Chairman Miller, welcome to the hearing.
Ambassador Eizenstat, earlier in your testimony you talked
about four new initiatives. I looked at that in the context of
your budget request which is as you say essentially flat. I'm
wondering how you're really going to be successful with these
initiatives.
Let me just ask you about the Trade Compliance Center. How
important is the Trade Compliance Center as a new initiative?
What role do you see it playing at ITA in fulfilling its
mission and what's the importance of that role?
Mr. Eizenstat. I appreciate you asking that question,Mr.
Mollohan. When I testified before two Senate committees for
confirmation last year, early last year, I said that I wanted to make
the creation of a Trade Compliance Center (TCC) a number one, new
priority. I've worked with this Committee under the notice requirements
that you were sent to create that.
We will be, by the end of the year, up to 25 people in that
Center. It is critical because we have negotiated some 200
agreements in the four years of this Administration. I have to
be frank to say that although we certainly haven't ignored
compliance we've put so many resources into negotiating an
agreement and then negotiating the next ones, that we don't
look back at the ones we've already negotiated to make sure
we're getting from the foreign governments what they've
obligated themselves to do.
I think in an era when there are strong protectionist
forces, when people are wondering about the value of open
markets and whether we're getting a good deal, and we open our
markets and we have trouble penetrating other countries'
markets, it's absolutely essential to sustain a consensus for
trade liberalization to have this kind of Compliance Center.
Depending on how much funding you give us either by this
fall or next spring, a company will be able to plug into this
data base by sector, by type of argument i.e. intellectual
property or by industry such as steel, and determine what
agreements exist and whether there has been compliance.
Mr. Mollohan. I've heard that testimony. I would just like
to explore that further. I'm wondering if you can do that
really. You've been working on it for a year, and you only have
30 agreements on the data base.
Mr. Eizenstat. Yes. We now have the whole data base. It's
been loaded. Now, we're in the process of what they call
imaging. We have imaged 30 trade agreements. Imaging is not
just getting the mass of agreements in the database. We have to
review every agreement article-by-article so that you can plug
into the particular articles and particular sectors.
I went to the TCC yesterday or the day before yesterday to
make sure that we had the most current information. I was told
that they're loading about two to three agreements per week.
We're starting with the most critical ones like the Uruguay
Round and NAFTA.
Mr. Mollohan. All right. They're loading them on the
database. These are legal documents. You've got to go through
some kind of verification process. How many of that 30 are in a
state that you could depend upon their accuracy?
Mr. Eizenstat. I'd bet my life on all 30.
Mr. Mollohan. Oh, don't do that.
Mr. Eizenstat. All 30 are accurate because we don't load
them into the database until they are accurate.
Mr. Mollohan. We value you too much.
Mr. Eizenstat. But seriously. I'm absolutely confident
that the 30 we've loaded are accurate. Just to give you a sense
of how scattered this is, Agriculture has documents that USTR
doesn't have and so forth.
Mr. Mollohan. Okay. Let me control this before we move
closer. So, if you're loading two a month----
Mr. Eizenstat. Two a week.
Mr. Mollohan. I'm sorry. You're loading two a week, all
right, then you said you negotiated 200 agreements. So, it will
take you two years to load them all. Am I right about that two
a week?
Mr. Eizenstat. Yes.
Mr. Mollohan. You'd be two years before you got them all
on. How many more besides the 200 that you have negotiated are
out there?
Mr. Eizenstat. Well, there are hundreds, depending on how
minute you want to get.
Mr. Mollohan. All right. In your testimony, you said soon
we'll be able to access any agreement reached. What is
``soon?''
Mr. Eizenstat. Soon, what I mean, is by the fall or by the
spring.
Mr. Mollohan. But how could that be?
Mr. Eizenstat. It will be soon that we will be able to
access those agreements that are already loaded on, not all
agreements; only those agreements that are already loaded on.
Even though we have 30 on already, you can't access those 30
from the outside. Again, we've tried to be discriminatory in
terms of which ones we start with first.
Mr. Mollohan. And you started with the most important
ones.
Mr. Eizenstat. We started with the big ones like the
Uruguay Round; the ones that had the biggest impact.
Mr. Mollohan. All right. So, you're saying soon you'll be
able to start accessing the ones you have on the database.
Mr. Eizenstat. Yes, sir; they cannot be accessed now.
Mr. Mollohan. All right. I'm just wondering how much
resource you're giving to this, if it's as important as you've
suggested it is. You're requesting $271.6 million for ITA?
Mr. Eizenstat. Well, that's of course for the whole ITA
budget.
Mr. Mollohan. I understand. But how much are you
requesting for the Trade Compliance Centers?
Mr. Eizenstat. You earmarked $2.5 million in this current
fiscal year.
Mr. Mollohan. Well, talk to us about that earmark.
Mr. Eizenstat. Okay. I appreciate being able to do that
because one of the concerns we had was that the MAC unit in
which that Compliance Center has been put was cut 14 percent in
fiscal year 1996. It was cut 13 percent in fiscal year 1997.
The combination of the 13 percent cut from the overall unit
and an earmark of $2.5 million to one sub-unit within it, it is
as if the rest of the unit has had a cut of almost 25 percent,
which is not sustainable. So, what we've asked for is the full
amount. We're suggesting, after paying its allocable share, the
Trade and Compliance Center will have $1.78 million in this
fiscal year.
Mr. Mollohan. Wait a minute. I'm sorry. Will you repeat
that again.
Mr. Eizenstat. You earmarked $2.5 million.
Mr. Mollohan. Right.
Mr. Eizenstat. And we believe we'll have 25 full-time
equivalents in this fiscal year. They have to pay----
Mr. Mollohan. No, no. I'm sorry. You said something like
after we got finished with doing something the number was
something.
Mr. Eizenstat. Yes.
Mr. Mollohan. After you got finished doing what, the
number was what?
Mr. Eizenstat. All units have to pay a share of overhead.
Mr. Mollohan. You said $1.7, if I recall you correctly.
Mr. Eizenstat. Yes, sir; $1.78 million.
Mr. Mollohan. You mean, we earmarked $2.5 million and you
end up providing $1.7 million on this? That's a little less
than 50 percent.
Mr. Eizenstat. Each unit has to bear its share of the
overhead. So, that's true of any unit you could mention.
Mr. Mollohan. Is every unit sharing in overhead equal to
this?
Mr. Eizenstat. Yes.
Mr. Mollohan. That's a big tax. Go ahead. I'm sorry.
Mr. Eizenstat. The only qualification of that is because
the problems of MAC here. It came up for this particular fiscal
year with an allocation system in which some pay slightly more.
But essentially, there is----
Mr. Mollohan. Okay.
Mr. Eizenstat. For fiscal year 1998 what we're suggesting
is not earmarking money for the Trade Compliance Center, not
because it's not critical, but because it is not the number one
priority. However, it makes it much more difficult for us to
manage the program as a whole----
Mr. Mollohan. So, you're asking for a separate
appropriation for that not to be earmarked.
Mr. Eizenstat. Exactly. We're not asking for a separate
appropriation for the Trade Compliance Centers. We're asking
for an overall appropriation which allows us to allocate money
to the MAC unit. And then within the MAC unit we will allocate
funds to the Trade Compliance Center.
Mr. Mollohan. Okay. We want you to be successful.
Mr. Eizenstat. I believe really it will be more successful
if we don't have the earmark. We want to put the emphasis on
this, I assure you, but the earmark really ties our hands in
management of the overall unit, within which the Compliance
Center works.
Mr. Mollohan. I look forward to working and following-up
and working with the Chairman on that. Next, I have a question
about the non-market economy countries and how you treat them.
In November of 1996 Werthing Steel and a couple of other
producers filed an Anti-Dumping case against some non-market
countries.
We're concerned that these dumping cases are being handled
in a way that almost guarantees an unsatisfactory result. I
understand that this is a really difficult thing to try to
measure. And that you use data from surrogate countries
sometimes to come up with the numbers.
I'm advised that in this process, that the values
determined through this surrogate analysis process have been
reduced each time. Which means that there is a determination of
no injury.
And there are other anomalies in this process which make it
pretty arbitrary. It just seems that the American companies are
not getting any relief. I have a couple of questions about
that. Just talk to us about this process, generally, and the
trouble you're having with it. Are our concerns legitimate?
These people are asking who we are working for.
Mr. Eizenstat. Well, interestingly, it is generally the
foreign governments against whom Anti-Dumping actions are found
that are hoping to get out from under the non-market economy
designation and the petitioners who want to keep them in that
status. We only graduated Poland from a non-market to a market-
economy status. We approved through that graduation only after
consideration in the context of an actual case, so that all
affected parties can participate in the decisionmaking.
In a non-market economy, prices of certain goods are
essentially not balanced. And so we pick a surrogate market
country, most comparable in economic development. Then we
construct a price based on the actual cost or input in that
surrogate market country. Frankly, generally, Congressman
Mollohan, that will result in higher margins than if they were
market economies.
In part, that is also because all companies in a given
industry are treated as one, unlike in a market economy where
each company is treated as a separate company for purposes of
analysis now, how do we go about making the decision?
Mr. Mollohan. You said that it often will skew to the high
side.
Mr. Eizenstat. That is generally the way it falls out.
Mr. Mollohan. Okay. Then the problem is that you've thrown
that out.
Mr. Eizenstat. No, sir. Only in one case, the one country,
Poland, have we said that they are a market economy.
Mr. Mollohan. We will talk about this a little more in a
second.
Mr. Rogers. We can come back to it.
Mr. Mollohan. Thank you.
Mr. Rogers. Mr. Latham.
commitment to small- and medium-sized businesses
Mr. Latham. Thank you, Mr. Chairman. I just have a couple
of quick questions. Last week when Secretary Daley testified, I
asked about the commitment to small- and medium-size businesses
and expanding export opportunities.
I'm concerned that in your budget you projected a decrease
in both the number of counseling sessions and number of
financings you're going to serve. This is of great concern
given my hope for more exporting. Would you like to comment on
this?
Mr. Eizenstat. Yes, sir. I know this is a concern of
yours. It is something that I looked at myself. The reason for
that reduction in counseling is because of what's happened to
the MAC unit. MAC does a lot of business counseling for small
and medium-size enterprises. As a result of the severe cutbacks
that MAC has had, and the creation of the Trade Compliance
Center with the earmark, which gives us less flexibility to
manage, resources previously devoted to business counseling are
being refocused on monitoring compliance with trade agreements.
That is the reason why we have a reduction in the number of
counseling sessions. It is almost exclusively because of that.
It will not be happening with the Foreign Commercial Service or
the Trade Development unit. However, as a result of the
cutbacks that have occurred, that will be a difference of about
7,600 counseling sessions and 7,200 clients. It's caused by
these severe cutbacks in MAC and the need to reorient MAC's
resources to trade clients.
Mr. Latham. If that's the case, I would have to say the
Secretary's testimony did not reflect that there was a
reduction. The inference was that it would be greatly expanded.
That obviously is not the case.
Mr. Eizenstat. The amount of outreach to small and medium-
sized business is being greatly expanded. Again, our Advocacy
Center is increasingly working with small business. Our Export
Assistance Centers and District Export Offices around the
country, 90 percent of their clients are small businesses.
I've done these special seminars, five of them now, for
small business. We've developed this new financing mechanism
through SBA and Ex/Im Bank to help small business get access to
export financing. It is this one unit, however that will be
doing less because of the reasons I've just mentioned.
agricultural export promotion
Mr. Latham. That's good to hear. Both the Secretary and
the U.S. Trade Representative gave positive reports from a very
agricultural status. Their commitments to agricultural products
are a real priority as far as agriculture promotion.
I would just ask you, how specifically do you intend to
help achieve the goal as far as agriculture?
Mr. Eizenstat. Let me, if I may, give you one specific
example. And then I'll be quite frank in expressing the
problem. When I was in China ten days ago, I spent a great deal
of time stating that one of the reasons why our exports to
China in 1996 were essentially flat was because of the real
drop, dramatic drop, in agricultural exports to China.
And I mentioned this because it has been the agricultural
sector that had been among the most strong supporters of most
favored nation treatment of China. It was urgent that, if they
wanted to keep that constituency on board, they not use the
kind of phytosanitary and sanitary standards on things like 26-
A wheat and others that are key among our products.
In fairness, a part of the decline is there was a good
harvest. But that's only a part of the problem. So, we are very
aggressive in pressing agricultural exports. We know Commerce
deals more in goods and services. But still, I wanted to be
frank on one area.
The Secretary of Commerce chairs the Trade Promotion
Coordinating Committee, which is a statutory Congressional
created committee. The President, of course, judicially
established it by an Executive Order in the Congress in 1992.
It's a 19-agency group. I do not believe that the Department of
Agriculture is as integrated into the efforts of that TPCC as I
think they ought to be.
I hope that Secretary Daley will work on that. We ought to
be doing a better job coordinating the work of all other
agencies on behalf of agricultural exports. But agriculture has
tended to want to do this itself. And I think we can give them
some help if they'll let us.
Mr. Latham. I thank you and appreciate your answers.
Mr. Rogers. Mr. Skaggs.
Mr. Skaggs. Thank you, Mr. Chairman. I apologize for not
being here for your opening statements. I think I'm probably
likely to cover territory that you already did on those.
Mr. Eizenstat, I hope we didn't catch you at an awkward
point in your career, being in the crease of the zone between
Commerce and State.
Mr. Eizenstat. I would say my career has been a series of
awkward positions.
administrative charges paid to state department
Mr. Skaggs. But you are uniquely positioned to give us a
sense of the relative equities of State Department tenants and
whether your colleagues in the Commerce Department have been
over-taxed or under-taxed in terms of paying rent to the State
Department overseas--whether you're views on that are likely to
change when your job does.
Mr. Eizenstat. Well, I thought when I was Ambassador to
the European Union that the Commerce Department was being
under-taxed. I now have a very different feeling about that.
But seriously, there is a new ICASS system.
Mr. Skaggs. Right. That's really what I wanted to get your
comments on.
Mr. Eizenstat. We want to make sure it succeeds. We think
in the short term that the system is going to be positive
because it's a more transparent system that will give us a more
advanced notice of what our actual costs are and what the costs
of all other agencies are.
However, in the medium term, that is to say in the next two
or three years, it may actually increase costs because there
will be a fuller allocation of overhead expenses to the State
Department agencies. I think in the long-run it's going to be
positive and we will overcome the increased costs from the
medium term.
Mr. Skaggs. Given your facility with economics, I wonder
if you would give some thought to and put something on the
record as to the following question. I believe that, as the
ICASS process goes forward, it still will not get at the
difference between essentially the marginal costs to State in
providing a home for its various tenants, on the one hand and
the value, or the opportunity to benefit, to those tenants on
the other, which may in fact in many cases exceed the rent for
all sorts of different reasons. To the extent that we continue
to make decisions for State Department purposes based on those
nominal rents, rather than on the real value to the tenant
agencies, that distorts the decision process somewhat. If you
have thoughts on this question now, great.
Mr. Eizenstat. I'll just mention some of that. I would put
individual costs on the record. I think that once you get to
subjective factors like opportunity costs, you really are in a
very treacherous territory. I think it's better to try to have
an overhead system which makes an accurate assessment of the
actual costs.
Mr. Skaggs. This is not going to affect your life one way
or the other, where you are or where you're headed, but as we
struggle with rationalizing this ICASS system, if you have some
observations, I'd sure appreciate it.
I assume, Chairman Miller, that you cannot give me or
you're not permitted to give me much of a status report on the
NEC computer case that is currently in process. But if you can,
I'm interested.
nec computer case
Ms. Miller. No, Mr. Skaggs. I think your assessment is
right. Actually, the case at this point is pending before the
Commerce Department and will not return to the Commission until
the Commerce Department makes the final determination.
Mr. Eizenstat. I'm sorry, Marcie. Let me make a statement.
The NEC case is now in litigation, and very serious litigation.
Depositions have been taken of several people. The Judge held a
hearing last Friday, I believe, and he's urged the parties to
try to settle the case. I understand there are intensive
settlement discussions that are now ongoing.
I can't speak beyond that because it is in litigation, but
it is certainly a matter we're all concerned with. I didwant to
say that Commerce's role in this has been only to involve itself with
respect to the question of whether or not there was any dumping.
We have not in any way tried to intrude on the National
Science Foundation or anyone else's procurement process; only
to make sure that, that factor was taken into account. But this
is now, again, a matter of litigation. It is in settlement
discussions. I hope that the matter will be resolved shortly.
Mr. Skaggs. I'd like to ask you a question having to do
with Helms-Burton law on Cuba. From my point of view, anyway,
you've had an unenviable task in trying to promote the merits
of Helms-Burton to a tough audience overseas.
If you are able to indulge me with a little bit of
intellectual gymnastics in putting aside politics and whatever
the alleged national security interests may be from our U.S.
point of view, strictly in terms of United States economic
self-interest and its rich and complex set of international
economic relationships, would we not be better off repealing
the secondary boycott provisions of Helms-Burton?
Mr. Eizenstat. No. Let me first say that I have had eggs
thrown at me in Mexico, demonstrations in Canada, and verbal
barbs throughout Europe. So, I certainly have found the slings
and arrows of outrageous fortune on this one.
But I feel that we've made some very real progress, and
that Helms-Burton has helped us do that. First of all, I have
explained to our allies that Helms-Burton has a much more
limited impact than is recognized.
It only deals in those few situations in which a foreign
company is investing in confiscated U.S. property. And they
will know that to be the case in almost every instance because
there is a claims register in the State Department going back
to 1972 of 5,911 claims.
And any lawyer doing any minimal amount of due diligence
for a client wishing to invest in Cuba could check that claims
registry and know if they are using confiscated property. It
does not, in any way, form a secondary boycott, for example, as
has been alleged. It does not in any way deter normal trade and
normal investment in Cuba.
Other nations have taken new positions including: very
tough action by the European Union through a common position
which conditions any future improvement in their economic and
political relationships with Cuba on expressed and concrete
changes in the human rights and democracy situation in Cuba;
tougher action by our Latin friends of the recent Euro-Latin
Conference; adoption of best business practices by a number of
European business enterprises; and actions by European NGOs
setting up what they now call the European Platform on Human
Rights and Democracy in Cuba.
All of those positions enable the President to continue to
suspend the suits under Title III. And he said he would
continue to suspend that so long as he sees stepped up efforts
continuing. So, we have made a lot of progress. There is a WTO
case. It is a very serious case.
We have stated that because of the security concerns, we
will not participate in that. We can't settle it. We are hoping
that we can. I don't want to be overly optimistic, but we will
continue to try.
Now, what is the national security interest? Our interest
has existed for eight Presidents and 37 or 38 years. We've
always considered Cuba to be a matter of security for us. It's
90 miles from our shore.
Mr. Skaggs. Let me interrupt if I may because I really did
just want to zero in on the economic and international trade
aspects of this.
Mr. Eizenstat. I would certainly be incorrect if I didn't
say that our allies are very upset about it and very concerned
about it.
Mr. Skaggs. Well, as are most major United States trading
companies, are they not?
Mr. Eizenstat. Many.
Mr. Skaggs. Most?
Mr. Eizenstat. Well, I don't have a scientific study. But
the ones that come to see me seem to be concerned about it. But
I give them the explanation that I've given to you. And at
least they have a better understanding.
Mr. Skaggs. Okay. Thank you, Mr. Chairman.
us & fcs staffing
Mr. Rogers. Now, Mr. Secretary, as you have said, the
domestic and overseas offices of the Foreign Commercial Service
are our direct link for small and medium-sized businesses,
especially to get into the export business.
I'm concerned in your 1998 budget proposal about the dollar
figures. In the last two years during tight budget times, this
Congress has tried to make the Foreign Commercial Service a
priority. In your fiscal year 1998 budget that you submitted,
there is a proposed 7 percent cut in U.S. & FCS staffing from
the 1995 level, but no cuts in staffing levels for other ITA
units. It seems like the Foreign Commercial Service has taken
the entire hit. Am I correct in that?
Mr. Eizenstat. We have tried to deal with the severe
budget cuts without impacting U.S. & FCS which I consider, and
I know you do, to be our absolute front line in terms of export
promotion. If I may explain the situation, Mr. Chairman. The
U.S. and FCS is now about 55 under their FTE ceiling.
Now, this came as a result of 5 percent cuts that Secretary
Kantor imposed and the President's own across-the-board cuts.
We have now opened up and under Lauri Fitz-Pegaolo's leadership
those positions as much as possible--so, you're quite correct
that they are under their ceiling.
That this in part was due to the furloughs and
uncertainties of last year. We're now hiring up. Of those 55,
36 of those slots are overseas. And so we now have over 100
candidates. We will be making job offers to about 40 or 50 top
prospects. That will be done very shortly.
Mr. Rogers. Well, I'm concerned because everybody else, in
actual numbers of employees, everybody else has increased and
FCS is down 94 people from actual 1995 numbers. And no one else
has taken a hit. So, our foreign trading posts are taking a hit
here, it seems to me.
Mr. Eizenstat. In terms of our figures, I'm sorry, but I
don't have the 1995, but our fiscal year 1996 actual number for
FCS was 1,242. And we're proposing for fiscal year 1998, 1,301.
So, we would have more slots than the actual number in fiscal
year 1996 which would cover, of course, the last 1995 calendar
year.
Mr. Rogers. All right. Well, you're going down from the
1995 levels by about 94 people. So, that's the bottom line.
Mr. Eizenstat. Well, again, we are certainly trying to do
the most we can within the budget constraints we have. We would
have more people, 1,301, than we had in fiscal year 1996 and
more than we would have in fiscal year 1997. In fiscal year
1997 we will have 1,256 actual. We're proposing to go to 1,301.
So, that we would be increasing the FTEnumbers if you were to
grant us this budget request.
I know your emphasis on the Commercial Service and I
absolutely share it. I want to give it everything I humanly can
to make sure that we increase the number. And this is a
proposed number which would go up by over 50 slots.
Mr. Rogers. Well, the proof is in the pudding. And the
pudding shows that we dropped 94 personnel in the FCS overseas
operation since 1995, while everybody else has stayed at least
even. So, they've taken what hit there has been.
I think this Subcommittee's idea is, the more people we can
have on the front line selling products overseas rather than
sitting in a Washington office, the better off we are. That's
what it was designed to do. And that's what we're going to make
happen.
Mr. Eizenstat. I couldn't agree more. And may I say that we
have around 900 or so Foreign Commercial Service offices
abroad, about 300 in the States. I've talked very frequently
and recently with Director General Lauri Fitz-Pegado and she
shares your view very strongly on what you wish; to get as many
of these people out of the headquarters and into the field,
domestic and foreign. I assure you that we will continue to do
that. We will keep in very close contact with you on the
numbers.
Mr. Rogers. Well, we don't want to get into the business of
dictating or earmarking where you spend your money. But if we
have to, then of course we will.
Mr. Eizenstat. We get your message loud and clear.
Mr. Rogers. We're determined that US & FCS staffing levels
be adequate. The FCS actually is almost a creation of this
Subcommittee years ago. And it's the non-partisan consensus in
the Congress that this is a good thing to do. We don't want to
interfere in the Department's business unnecessarily. But we
don't want our will thwarted.
Mr. Eizenstat. Your admonition is well taken. It is
accepted. I have a slight degree of history with this myself
because when I was in the White House it was my reorganization
plan that Congress approved with President Carter, that got the
Foreign Commercial Service moving to where I'm at now.
Mr. Rogers. Well, you and I want to see our child progress
then; don't we?
Mr. Eizenstat. Yes, sir.
increased counseling to small- and medium-sized businesses
Mr. Rogers. Now, according to the 1994 National Export
Strategy, the top 50 U.S. firms represent 50 percent of all
manufacturing exports. And the top 1,000 firms represent 80
percent of all of our exports.
The National Export Strategy recommended increased
counseling and assistance to small and medium-sized businesses.
We've touched on this briefly before. But according to the 1996
National Export Strategy since 1994, spending by the Department
for government-to-government advocacy has grown by 58 percent,
while funding for export counseling and assistance has only
grown 34 percent.
Am I correct that the primary beneficiary of the
government-to-government advocacy is big business? And the
primary user of your export counseling and assistance services
is primarily smaller businesses? Is that generally accurate?
Mr. Eizenstat. I think that's generally accurate. Although
again, we have some 24 small businesses for whom we've had
successful advocacies in 1996 worth $1 billion in exports.
spending on advocacy
Mr. Rogers. Well, the reason I'm bringing this up is the
spending for big business advocacy has increased by some 58
percent. And spending for help to small businesses is only up
34 percent. In spite of everybody's statement that we're in the
business to help small businesses, it's not being borne out by
the facts. Am I completely off base on that analysis?
Mr. Eizenstat. Well, I wouldn't want to put it that way,
but I do think there is a significant explanation for it. And
that is that there was no Advocacy Center until November of
1993; that is, at the beginning of fiscal year 1994 it didn't
exist at all. And so the ramp up cost of creating that Advocacy
Center which, as you indicate, does significantly work with
large business, but by no means exclusively.
I think that accounts for these figures. Again, the
increases are against a much smaller base. We basically didn't
have an Advocacy Center before. So, creating that Center,
staffing it, manning it, operating it since fiscal year 1994
has meant further increases of our resources in that purpose.
Now, it's paid huge dividends, Mr. Chairman. Our figures
are that since November 1993, we've had something like $100
billion in U.S. exports which have been helped and assisted by
the Advocacy Center; over $60 billion of which are U.S. export
content. So, it's had a huge payoff.
I think that is the reason for this comparison that you've
given us. I don't doubt the figures you've given us but that's
the reason for it. I think you will begin to see that figure,
that gap, begin to be reduced significantly as we put more and
more emphasis on our counseling and our small business
outreach.
measuring small business export sales
Mr. Rogers. You and I privately discussed the other day in
my office this idea of trying to create some sort of a
statistic from year-to-year that would measure the dollar
volume of small business exports so that we could get a handle
on how we're doing in aiding small business exports. Have you
had a chance to do any more thinking on that?
Mr. Eizenstat. Yes. I'm going to try to meet with Under
Secretary Erlich who is head of the Census Bureau within the
Department of Commerce to see what kind of data base there is
and what it would cost to construct. I think it's a very
important measure.
You're quite right. We need a baseline so we know whether
we're being successful or not. I'm going to try to do
everything I can. I'll give you a report very shortly on
whether or not this is feasible. And if it is feasible we'll
see what the cost might be.
Mr. Rogers. Well, we are seeing an exploding trade deficit.
I think that this year is the highest in almost ten years. It
seems to me that we will never overcome that deficit until we
harness the energy of the many small and medium-sized
businesses across the country and give them the help they need
to get into the export business.
Mr. Eizenstat. The statistic that I quote often, and this
we have macro numbers on, is small and medium-sized enterprises
contribute 25 percent to the total GDP of the United States in
manufacturing products, but only 12 percent in terms of
exports. That's a very large gap.
That's due to the lack of financing, lack of information,
fear of foreign markets, lack of staffing, and so forth. I
quite agree. Now, I do want to say, if I may, because I think
there is a lot of misinformation about the deficit,without in
any way contradicting your point which I fully agree with, that we need
to do much, much more and that it would help narrow that gap if we
could get more small businesses to export.
The trade deficit is also significantly a reflection of
macro economic factors. This country has been growing much
faster. And therefore, sucking in more imports than the
country's major markets to whom we send our exports.
Their growth has been generally flat to negative. And that
is certainly one of the reasons for the entire trade deficit
that we're experiencing. But that again, in no way, indicates
that we shouldn't do exactly what you say and we will. We will
do everything we can to promote small business exports. It is a
critical gap that we have to narrow.
participation in trade missions
Mr. Rogers. For years, companies wishing to participate in
Commerce Department-led trade missions had to certify that at
least 51 percent of their product's content would be
manufactured in the U.S. Are you changing those rules? And if
you are, how do we justify spending scarce Federal dollars to
promote companies who will be manufacturing the majority of the
product overseas?
Mr. Eizenstat. That's a very good question. We have had
that 51 percent rule. It continues to be the rule for American
affiliates and foreign-owned companies. And it's a benchmark,
or at least a factor, that is taken into account.
We're now however, having a slight additional amount of
flexibility by having a national interest test. That is to say
that there may be some instances where a lower content will
still qualify for advocacy if, and only if, it's a very large
contract and that smaller percentage, let's say 20, or 30, or
40 percent is on a huge contract where the job impact is such
that it's worth going below 51 percent.
So, it would be in no case what an ordinary activity would
do. We wanted to have the flexibility through this national
interest test if we were in a situation where less than 51
percent content part of a very, very large contract which would
support a tremendous number of U.S. jobs.
Mr. Rogers. Well, we have so few seats on that plane,
unless we start taking a convoy of planes.
Mr. Eizenstat. I'm not sure with respect to trade. This is
more with respect to our Advocacy Centers. With respect to the
trade missions, we have a new set of criteria. We can go under
51 percent, under our advocacy guidelines, and the new trade
mission procedures also if they meet the national interest test
as we've indicated.
So, you're right that there are a limited number of seats
on a plane. That those seats are going to be filled as
Secretary Daley indicated on March 3rd, in a completely
transparent and non-political way. But that we want to make
sure that we're filling them with people who are producing
products here.
Again, I don't want to suggest that it will be an everyday
occurrence that we will go below 51 percent. We want to have as
much flexibility in the circumstances I indicated for both
trade missions and for Advocacy Centers.
re-write of rules for trade missions
Mr. Rogers. Secretary Daley, speaking of trade missions
when he testified, told us that he had rewritten the rules
about who participates on trade missions overseas. Did you have
a role in drawing up those new rules?
Mr. Eizenstat. Yes, sir. I was the coordinator of that
effort, along with two other people----
Mr. Rogers. Tell us what problems and concerns you tried to
address in the changes. And what impact will it have on the way
you do business?
Mr. Eizenstat. We wanted to deal with the perception which
I believe to be a complete misperception. Somehow these
missions were seen as something less than completely objective
in the way they were selected.
So, we worked for about six weeks to develop what is for
the first time a fully transparent process. For each trade
mission, for example Mr. Chairman, there will be a written
statement in advance that will give the reason for the mission,
the market sectors that are to be emphasized, and why the
countries were selected for those market sectors.
In addition, we will have a very real outreach to companies
through Internet, through flash fax, through newsletters, and
the Federal Register for the first time. Federal Register
notices will be issued telling companies that a mission is
going, when it's going, and soliciting their company
participation.
So, we want companies to come to us. Any factor taken into
account in the selection of a company will be put into a record
and made available, without a Freedom of Information Act
request to the public, to journalists, and to the Congress.
If there is any political request from any political
committee, it will be sent back immediately. We will have, for
secretarial missions, a career group of people who will make
the final selections for the companies with no political input
whatsoever.
There will have to be a post-mission report, also publicly
available, to describe what success was achieved in meeting the
goals of the mission. All of this will be in writing. The
policy is in writing. And we did this because we wanted to make
sure.
As you know in Washington, perception becomes reality. If
there was no perception whatsoever that these missions were in
any way politically driven and we wanted to instill confidence
in you, your Committee, the Congress, and the public that these
missions which we think to be, by the way, critically important
in terms of market access, were done in a completely apolitical
and transparent way.
We're also creating cost factors. There would be a strong
presumption, for example, for the use of commercial aircraft
unless it could be demonstrated that non-commercial would be
needed to make the mission successful. In other words, it's a
very comprehensive effort. I worked very hard on it.
Clyde Robinson, Andy Pinkus, and I would say perhaps 25
people in ITA, we worked very, very hard on this. And we also
helped reach the business community. We wanted to make sure we
didn't go so far as to scare businesses away from coming at
all. So, this was shown in advance to the business community.
They feel that it's fair. I hope that Congress does as well.
Mr. Rogers. Well, we're having to assume, and we're
assuming that some of the allegations that have been made may
be true. But I admit that's a fairly wrong perception.
But let's assume that some of the allegations are true. And
that some of the people that went on the Commerce Department-
sponsored foreign trade missions bought their way on the plane
with a contribution.
And I say that is a wrong assumption, but if that's true,
then we have just spoiled a major instrument. And we've gota
long way to go to recuperate the reputation of that instrument. Do you
have any thoughts about that?
Mr. Eizenstat. Without in any way being offensive, I came
on board two days after Ron Brown was killed. Everything I know
from the time I have been on board and everything I have been
able to find out about what happened before I came on board
indicates that people did not buy their way on.
This was done in a fair way. The reason Secretary Daley
took this extraordinary action is because of a perception, not,
I hope the reality, that there was any wrong doing. We hope,
again, that this will still any concerns. I must say that I
can't share the assumption.
I hope that it's incorrect. Only time will tell. But
everything I've been told certainly seems to indicate that
there was no politization of these missions.
Mr. Rogers. Well, I share your hope. Mr. Skaggs.
Mr. Skaggs. Thank you, Mr. Chairman. It seems to me we've
been going awfully light on Chairman Miller.
Ms. Miller. I'm enjoying my company.
Mr. Rogers. I don't hear her demanding equal time.
Mr. Skaggs. We don't want to introduce any gender bias
here either. I understand that in your budget justification you
cite studies looking at the question of WTO membership for
China and also further hemisphere trade agreements.
I just wondered if you could elaborate a little bit on both
what you are studying and if you have any preliminary
conclusions that can be reported.
wto membership for china
Ms. Miller. Congressman Skaggs, in both instances this
reference I believe is to work that we anticipate may be
requested of the Commission but has not as of today. Regarding
the possibility that we may look at the issue of China joining
the World Trade Organization, there are some staff-to-staff
level discussions going on between USTR and the Commission, but
no formal request has yet been sent to us.
Mr. Skaggs. What would be the authority under which you
would get involved in backing up the development of
Administration policy there?
Ms. Miller. It would be under our general authority under
Section 332, which allows the Congress or the President to
request the International Trade Commission to do objective
analysis and independent research fact finding studies
regarding a broad range of issues in the international trade
area.
The Commission conducts many, many such studies and has
ongoing a number of them right now at the request of either the
Congress or the President. So, that would be the basis for any
such request. The Commission in the past, for example, studied
the possibility of the NAFTA and the Uruguay Round. Should the
Administration decide to go forward with additional hemisphere
agreements, I think given the past practices, there is a fairly
large likelihood that the Commission could be asked to look at
that question.
Mr. Skaggs. For both of our witnesses, I'm just interested
in understanding a little bit better the mechanisms that exist
for you to provide back-up to USTR and its responsibilities.
What priority attaches to that responsibility?
Mr. Eizenstat. One of our most important functions is to
support USTR in their trade negotiating functions. They heavily
rely on our sectoral and regional expertise through our MAC
units and our Trade Development units--they heavily rely on
them. They do not advocate--Mr. Skaggs, to do this work
themselves.
So, we consider that a very important obligation. And the
areas you just mentioned, hemisphere agreements--and the China
WTO. We are very much involved. For example, in the hemispheric
agreements, not only are we doing sectoral and regional
analysis to support the USTR, but we also are helping to run
the private sector component of the FTAA.
There is a private sector business component which is a
very important factor. The Secretary of Commerce also chairs
the JCCT with China which just met back in September. With
respect to the actual WTO negotiations, at our last negotiating
session there was some progress made in the human rights area.
Yet, they were a long way from being ready to meet the
commercially viable standards which we think are essential to
China in the WTO. But we have very, very direct support in
almost a day-to-day role in support of the USTR in those
negotiations.
Mr. Skaggs. Ms. Chairman.
ustr support
Ms. Miller. Congressman Skaggs, I would say that the
personnel of the ITC feel tied to USTR in many regards, because
there is both a formal and informal relationship. In terms of
the studies, they may be formally requested, such as the
possible China WTO study that may occur that we mentioned. Then
there is much informal consultation as well. Looking at the
current list of ongoing studies that we have right now, in nine
studies, I see that seven of them were requested by USTR.
They relate, for example, to analysis of the commitments
that trading partners are making under the Services agreement
of the WTO, or reviewing the implications of APEC, the Asian
Pacific Economic Cooperation Forum; and examining U.S.-Africa
trade flows.
We do a number of these kinds of formal studies for them on
specific issues that relate to ongoing or past negotiations,
and trade liberalizing efforts. We also have a history of
having a number of staff detailed to USTR on professional
developmental assignments.
I think that's good for our staff, as well as assisting
USTR particularly in periods of tight resources at USTR. It's
good for us because our staff gets the benefit of the
experience at USTR.
We participate in a number of inter-agency matters. Then
informally we are often consulted by phone and provide
information to back up their efforts.
Mr. Skaggs. I have respect for the leverage that we
achieve with a relatively small agency such as USTR. I just
wondered whether we are to some degree living under an illusion
that USTR is so small if in fact it relies heavily on tasking
out much of the support services that you have been alluding
to.
In this continuing tight budget circumstance where the
rational allocation of resources becomes even more important,
is there some advantage in making explicit what is implicit in
the budget relationships among your agencies?
Mr. Eizenstat. Well, I think it's useful to note how much
we do support USTR. At the same time, they are the only ones
generally, with few exceptions, who actually do the actual
negotiations there. Now, we are a part of thenegotiating team.
For example, in the agreement with China, that was just
concluded in January. Troy Cribb actually went with Rita Hayes;
was a part of her team; sat in the room; and did a lot of
direct assistance with negotiations. So, it is a cooperative
thing. Certainly, perhaps in terms of the budget, it might be
useful to note the extent to which we are cooperating.
Mr. Skaggs. If I could ask each of you, for the record,
just to submit a best estimate. I don't want to take hours and
hours of anybody's staff time, but I'd like to see something to
one decimal point anyway, as to the percentage of your overall
budget that might fairly be described as spent in support of
USTR, which would give us a better fix on exactly how much our
Trade Representative activities cost the government.
[The information follows:]
INTERNATIONAL TRADE ADMINISTRATION--U.S. TRADE REPRESENTATIVE RELATED
ACTIVITIES--FISCAL YEAR 1997 ESTIMATE
------------------------------------------------------------------------
Dollars in
Program unit thousands Percent
------------------------------------------------------------------------
Trade Development............................. $8,393 13
Market Access and Compliance.................. 1,023 4
Import Administration......................... 255 1
US&FCS........................................ 50 0
-------------------------
ITA Total............................... 9,691 3
------------------------------------------------------------------------
[Page 678--The official Committee record contains additional material here.]
Mr. Skaggs. I will yield back my time, Mr. Chairman. Thank
you.
Mr. Rogers. Chairman Miller, you've commented briefly on
duplication of research and monitoring analysis. It's come to
my attention though, that no one in Congress can get analysis
out of the ITC, except for the Senate Finance Committee and the
House Ways and Means Committee. Why is that?
Ms. Miller. Well, Mr. Chairman, the statute provides that
the President, either Committee that you've referenced, or
either Branch of the Congress could request a study.
Mr. Rogers. Is it specific on committees?
Ms. Miller. It's specific on the Senate Finance and House
Ways and Means Committees or either Branch of the Congress.
Historically, in the early years of the Commission----
Mr. Rogers. Is it exclusive to Ways and Means in the
House?
Ms. Miller. In terms of named committees, it is. But the
statute also says either Branch of Congress.
Mr. Rogers. Well, up until now, only Ways and Means could
get analysis out of ITC. I don't read the statute quite that
way.
Ms. Miller. I would not quarrel with your characterization
that it is only--in terms of a single committee, for example in
the House that can request a study, yes; only the House Ways
and Means Committee. That is the authority under the statute.
And I know there has been occasionally in the past
discussions about changing the law. That's a matter, I would
say, for Congressional deliberation that perhaps the ITC should
habitually stay out of. It's a matter between the Committees
and the Congress.
But either Branch of the Congress may also request a study.
And in fact, studies are often requested by law. We have one
study that was requested by virtue of the fact that one bill
passed last fall that was passed by the Congress. The studies
come to us in a variety of ways.
Historically, they have come to us by resolution of a
single House. That has not happened in the recent past. I think
the last time you had such a resolution passed it was probably
in the 1960s.
Mr. Rogers. Mr. Secretary, one of the major arguments that
the Administration makes for Most Favored Nation status for
China is that it means U.S. exports and jobs. That's also the
argument used to support their entry into the WTO which USTR is
currently negotiating.
But the 1996 trade numbers are troubling. Our trade
deficit, as we've mentioned, is the largest it's been since
1987, almost $115 billion, but largely because of the soaring
trade deficit with China. In fact, that now rivals the deficit
we had with Japan, almost $40 billion, at a time when China's
economy is growing at a phenomenal rate of almost 10 percent a
year.
Exports to China remain flat. We continue to have major
problems with China abiding by its existing trade agreements
with us. Almost $80 million in sanctions have been levied
against China in the textile industry alone. How can we claim
that Most Favored Nation status with China is working to
support more U.S. exports and jobs when the numbers don't bear
that out?
Shouldn't we expect them to improve their trade record with
us before we even consider supporting their bid to join the
WTO?
Mr. Eizenstat. That is something I strongly agree with. I
said only two weeks ago I wish I had you to stand in for me
because it would have been more effective. But I made many of
the same points. I said the current deficit is unsustainable.
That they are now 25 percent of the total deficit in the world.
That since 1990, their deficit has gone up four-fold. And
that we have no desire to keep our markets closed to them. And
that you cannot expect not to have pressures if they didn't
open their market to us. Now, MFN status is not a gift to
China, nor despite the misnomer that Most Favored Nation is
something special. We have given it to well over 100 countries.
It's a normal traditional trading relationship we have with
many countries.
What are we trying to do about it? First of all, I fully
agree, they should not come into this WTO unless they can
demonstrate that they're improving access for our products.
That's the whole thrust of our negotiation strategy.
There are many, Mr. Chairman, who say let them in and then
maybe they will reform. That is not our position. Our position
is our trade rights, our national treatment on market access on
agricultural products, on a whole range of areas. They have got
to be able to meet international norms.
Yes, there can be differences in transition periods when
appropriate. But otherwise, we have no assurance that our
products will have access. The second thing I said when I was
there is that we have got to have a fair share of the $1.5
billion in infrastructure projects that they're going to have
over the next several years.
We're not asking for a quota. But we find that our
companies often times don't get the kinds of contracts they
should and that our European and Japanese competitors are
getting more than us, when we are China's biggest importer and
buyer of their products.
That's not fair. And we made a very big push on
that.Systemically, the best way to melt this deficit down is to get a
good WTO market access, internal norm related agreement. If that
occurs, then we believe that will occur. We're trying to do our part
with Commerce, Mr. Chairman.
One of the reasons I went to China was to open a new
commercial center in Shanghai, with three states in it now,
there will be several more. This will be a home away from home,
particularly for small and medium-sized businesses that can't
afford their own offices in China.
It gives them conference rooms, meeting rooms, faxes,
computers, all of the telephones, all of the things they need
to meet their Chinese counterparts; trade shows, exhibit space,
and so forth for their products.
Beginning May 1, we are putting an Ex/Im Bank official for
the first time in Beijing. This person will travel around the
country so that on the ground we will have somebody to help
with export financing. I will be quite honest with you, one of
the problems we have encountered is that although Ex/Im Bank
has one of their largest exposures in the world in China, I
hear concerns raised from American businesses that they have
difficulty obtaining the kind of Ex/Im Bank financing that they
need.
The Chinese also complain about our export controls. We are
trying to reduce, consistent with our national security
interests, and our export controls on high tech products. We
are carrying trade missions to China. There, the Foreign
Commercial Service is beefing up its activity.
We're doing everything we can. But when we're all done, the
single most important thing is the point you've just mentioned.
And that is getting a good, fair, commercially sound WTO
package.
Mr. Rogers. Well, we thank both of you for your testimony
here today. It's been interesting and helpful to us. We hope
that it has been to you.
We will, again, this year be squeezed for dollars. So,
you'll have to stretch out your resources as best you can. And
that's why I think it's very important that we try to eliminate
any possible duplication between what you do to try to save
some money so that we meet everyone's highest priorities.
Keep in touch. We look forward to seeing you again. We are
adjourned.
[Pages 682 - 702--The official Committee record contains additional material here.]
Thursday, March 6, 1997.
BUREAU OF EXPORT ADMINISTRATION
OVERVIEW OF THE BUREAU OF EXPORT ADMINISTRATION'S FY 1998 BUDGET
REQUEST
WITNESS
WILLIAM A. REINSCH, UNDER SECRETARY FOR EXPORT ADMINISTRATION
Mr. Taylor. The Committee will come to order.
This morning, we would like to welcome Mr. William Reinsch,
Under Secretary for the Export Administration who is appearing
before the Committee today in support of the budget request and
activities of the Bureau of Export Administration at the
Department of Commerce. We are glad to have you with us, sir.
The Bureau is requesting a budget of $43.1 million for
fiscal year 1998, a $3.2 million increase over fiscal year
1997. Fiscal year 1998 will be another austere year, most of
you know, and if you don't, I would be glad to have you
accompany me to some of the briefing meetings that I attend. In
terms of amounts of money, the Subcommittee will have a greater
challenge this year in that area, so we need to continue to
look for ways to reform the way we do business by prioritizing
our programs, eliminating out-of-date and unnecessary
activities and finding ways to streamline and become more
efficient.
As you know, with the end of the Cold War and globalization
of the marketplace, the manner in which both we and our allies
control exports of dual-use commodities has changed
significantly, with many controls being liberalized. I am
particularly interested in and follow our activities in Russia
as well as other parts of the world.
It will be interesting to hear how the Bureau has adapted
to these changes and whether the Bureau's budget fully reflects
these changes and the challenges we face in the postwar era and
what opportunities there are for further streamlining. We have
a lot of challenges but there are opportunities.
At this point, we will insert into the record your written
statements and ask you to proceed with an oral statement. We
are glad to have you with us, Mr. Secretary.
[The information follows:]
[Pages 704 - 712--The official Committee record contains additional material here.]
Mr. Reinsch. Thank you very much, Mr. Chairman. I am glad
to be here and I appreciate the Committee providing the time.
bxa accomplishments
To begin let me just say, we have had a busy four years. We
have what I consider to be a significant record of
accomplishments and I would like to leave with your permission,
for insertion in the record, a list of those accomplishments
that we can append to my testimony.
Mr. Taylor. Certainly.
[The information follows:]
[Pages 714 - 720--The official Committee record contains additional material here.]
refocusing resources
Mr. Reinsch. We have, as you indicated, due to the end of
the Cold War and the President's policies undergone significant
downsizing and change in BXA. From our peak year 1991, in terms
of manpower, we are down more than 200 positions or about 32
percent since 1991.
In addition, the main thing that I have done resource-wise
within the Bureau is to shift resources away from licensing, as
our licensing burden hasgone down, to enforcement. In the past,
the Committee has supported this shift in resources and this
rechanneling will continue to be our objective.
Throughout this period we have been, and are likely to
continue to be, approximately one percent of the Department's
budget. While we are not big and the amount of money is not
large, we think it is an important one percent that needs to be
put into perspective.
Our request, as you noted, is $43.1 million, representing a
$3.2 million increase. The increase is for new missions that
have been assigned within the Administration on which I will
comment in a minute.
enforcement
First, let me express my appreciation to this Committee for
the support you gave us last year with respect to enforcement.
The Congress appropriated $3.9 million specifically for the
purpose of expanding our field agent force in efforts to raise
it to the level necessary to undertake some of the enforcement
responsibilities that we have in a number of locations,
especially China but also Russia and Iran, Iraq, and the Middle
East. The Committee has been supportive of our enforcement
efforts and I'm glad to report to you that we are undertaking
exactly what you told us to do.
By the end of the fiscal year we will have added an
additional 26 field agents for this function, and provided
extensive training for all of our agents in counter terrorism
and nonproliferation. We look forward to having this additional
force help us with a caseload which has more than doubled since
1990. Currently we have about 1,570 cases, which we are running
on an ongoing basis.
This is significant. The only comment I will make is that
having done what you asked us to do and what we very much
wanted to do, that you continue to support our efforts. More
than half of them are here and they will all be here by the end
of the year. We hope the Committee will sustain this effort in
the future. We have not asked for an increase beyond what you
gave us last year for enforcement, but we hope the Committee
will continue to send the message you sent last year that
strong enforcement is important.
chemical weapons convention increase
Now, with respect to increases, there are two. The first
one is familiar to you, $2.3 million for the Chemical Weapons
Convention. Every year I come here to ask for this money, and
every year the Committee tells me it is not going to be
ratified. I go away, and every year the Committee has been
right.
I hope this year, with all due respect, that I will be
right and that the Senate will ratify the Convention. If so, a
significant number of responsibilities will become effective
for the Commerce Department, and in particular BXA. We are not,
where the Chemical Weapons Convention is concerned, in the
policy negotiation realm. If it's ratified, we are responsible
or will be responsible for the nuts and bolts outreach to
business and assisting industry in complying with the
provisions of the Convention. As you may know, this is a
convention that imposes responsibilities on business as well as
on government. We will be responsible for receiving the data
declarations that chemical businesses must make for compiling
those declarations, for maintaining the database, and for
arranging and assisting in the conduct of any inspections that
would occur.
This is a front-loaded responsibility because the data
declarations are due shortly after entry into force and
therefore we have a significant startup cost to get this going
and will continue to have maintenance responsibility as the
years roll on.
This year, the Committee's task will be made easier by the
time table. This Convention will enter into force with or
without us on April 29. It is the President's hope that the
Senate will ratify the Convention prior to that date so that we
can be an original party when it enters into force. If so, I
would expect that would then give the Committee plenty of time
to decide how to act in the face of Senate action on this
subject one way or the other.
Obviously, if the Senate declines to ratify the Convention,
we won't have the responsibility and there won't be a need for
a request. The Committee in the past has consistently stated in
report language, which we greatly appreciate, that it would be
prepared to consider a reprogramming midyear in the event of
ratification, and I hope the Committee, if the Convention is
ratified, will go forward and adopt our request for '98, and, I
can tell you, if it is ratified, we will be back with a small
reprogramming request, probably less than a million dollars for
'97.
encryption increase
The second and last increase request is for our new
encryption responsibilities. The President, as of January 1, by
executive order, transferred jurisdiction over export licensing
of encryption from the State Department to the Commerce
Department. This has meant not only a significant increase in
our licensing burden in a complex area, but it has also placed
us as the main agency responsible for the implementation of the
President's encryption policy which is a complex system. The
President has proposed that we somewhat liberalize the export
controls on encryption products for companies who commit to
build and produce within a two-year time frame key recovery
products. These are products that we believe will be helpful to
our law enforcement and national security entities in meeting
their responsibilities and trusts in this area.
Thus far, we have received six plans. We have approved
four. We will approve the other two shortly. And we look
forward to an ongoing responsibility here.
Mr. Taylor. We have a vote that we were not anticipating.
We might just take a few minutes' recess and have both of us go
ahead and vote and we will be back in just a second so neither
of us will miss your testimony excuse us a moment.
Mr. Reinsch. Fine.
[Recess.]
Mr. Taylor. Well, I apologize for that interruption. We
have told them that we have serious business up here and we
wish they would not play these games.
Thank you. Go ahead, Mr. Secretary. I would appreciate it.
Mr. Reinsch. Thank you, Mr. Chairman. I am just about
finished.
With respect to encryption, I would estimate that we will
have an ongoing responsibility in this area that is roughly one
million dollars and 12 people as long as we have a policy of
controlling these items which, as you know, is a matter of
legislative interest in the Congress as well.We have submitted
a reprogramming request of $834,000 for this year because our
responsibility began January 1, and we have received more than 400
individual license applications just in that time period, which created
a backlog problem. So I hope the Committee will consider that request
soon. The 1998 request, which is for $926,000, and the two additional
people that I think we will need, predicated on approval of the
reprogramming request, and is roughly the same level that we expect to
need in the future.
seizure and forfeiture authority
This is an important, complicated issue, and I would be
pleased to discuss it with the Committee if you want, but let
me just conclude by mentioning one element of our legislative
language, which is the inclusion of seizure and forfeiture
authority language. This is language that is virtually the same
as language that we proposed in our authorizing statute in the
past. We have included it this year at the suggestion of OMB
for two reasons. One, our authorizing legislation did not pass
last year for unrelated reasons. This was not a controversial
part of it.
Second, by adopting this language, we will become what is
known as a ``friend of the Fund'' with respect to the Justice
Department's Assets Forfeiture Fund. This will allow us under
certain circumstances to obtain funds for seizure and
forfeiture activities. We have met with the Justice Department
in this regard. We would like this authority, because at
present we do not now have adequate clear authority to seize
and then to undertake forfeiture actions, and so we would like
the authority in and of itself. We would like to be a friend of
the Fund, because this legitimizes us in a sense with other law
enforcement agencies.
Our estimate, however, is that the uses of the Fund are so
limited to specific seizure and forfeiture activities that the
most BXA could possibly benefit from it would be about $50,000
a year. So I would not consider it a significant budget item,
but it is an important item for us, and I hope the Committee
can accommodate our request and that of OMB's to include it.
At that point, Mr. Chairman, I will conclude and thank you
for your time and attention and thank the Committee for the
support it has shown us in the past.
Mr. Taylor. Thank you, Mr. Secretary.
lack of authorization
As you just mentioned, there has not been an authorization.
What other impact has this lack of authorization had on the
BXA?
Mr. Reinsch. Aside from personal frustration at my
inability to do this, since I came from the Hill, and wrote a
number of these when I was up here, it has not yet had a major
effect on our operations. We are operating under emergency
statute and pursuant to executive order, which provides us
adequate cover for our licensing operation.
I have concerns which thus far have been abstract about our
litigation position should some of our enforcement actions end
up in court. The authority under which we operate is a little
bit different than the Export Administration Act with respect
to both judicial review and some other matters, and were we to
end up in protracted litigation over an enforcement action or
an antiboycott action, because we also administer the law that
precludes American cooperation with the Arab boycott of Israel,
I would expect counsel for the defendant in those kinds of
cases to argue that our statutory base was deficient.
Thus far when this has come up in the past, the courts have
decided with us, but the longer we go without an authorizing
statute, the more questions I have about what might happen, but
it is not a present problem.
export control reform
Mr. Taylor. You know the last time the export control
system for dual-use technology was overhauled was 1988, and
obviously things have changed. The House passed a bill last
Congress, but it was not fully enacted. Do you agree that we
need reform in that area?
Mr. Reinsch. Yes, I do, Mr. Chairman. The Administration
proposed legislation and the Administration supported the House
bill when it passed. We had a couple of changes we were going
to ask the Senate to make had the Senate taken it up, but we
were pleased that the House stepped up and passed the bill last
year. I visited with our authorizing subcommittee staff, and
have encouraged them to pass the same bill again early this
year. The Senate complained last year they got it too late to
act. I have suggested that if the House wants to act again
early, that will give the Senate plenty of time. I believe
Congresswoman Ros-Lehtinen, who is our subcommittee chairman,
is considering that, but I do not know what she plans to do.
Mr. Taylor. What about the Administration's reform
proposals? What impact would that have in reducing the Bureau's
workload or its long-term budget needs?
Mr. Reinsch. The reforms we have taken administratively
have already had a significant impact on reducing the licensing
burden, and the staff needs have changed accordingly in the
direction of more enforcement, less licensing. The licensing we
do, however, has become more complicated. During the cold war
when we were doing more than 100,000 licenses a year, we were
licensing computers at performance levels far below those of
current personal computers. Those were decisions that did not
require a lot of judgment. We had a lot of people who were
processing paper.
We do not do that anymore. The ones we have now are much
more complicated. They involve a lot more engineering training
and background. Fewer people but more time, and we have
adjusted accordingly. The legislation, both the House's and the
Administration's, I think would not make a significant
difference in our budgetary situation. It would not change our
burden substantially.
These days to the extent our burden is being changed it is
because we are being tasked with new missions. For example,
Congress passed the Fastener Quality Act. We do not have a
specific request this year, but the Congress passed that act.
We have also been tasked with enforcement of it. We did not
seek that but we are happy to do it. We have also been tasked
with CWC responsibilities, if it is ratified. We have been
tasked with the encryption responsibilities. The growth in our
budget is new missions, and that is probably what you will see
in the foreseeable future.
consolidation of agency export control
Mr. Taylor. Well, I will ask a last question. As you know,
it is sort of a tripartite control system with State, Defense,
and Commerce, and then of course Customs being the gatekeeper.
Can we consolidate all the export controls into one agency, and
if not, why not?
Mr. Reinsch. That has been proposed from time to time, and
the Congress has not seen fit to pass it. I have frankly been
on different sides of that question at different times. Having
now had experience running the system, I am kind of at peace
with the way it works now. This is inherently aninteragency
function. If, for example, we are asked for permission to export a
sophisticated machine tool to China, that is unquestionably a
commercial decision. It is a lot of dollars for an American company. It
is also a foreign policy decision and a national security decision,
depending on what that machine is going to be used for. It might also
be a nuclear policy decision if it is going to be used in China's
nuclear energy development programs. And it is an arms control
decision.
What the President decided, via executive order in December
1995, is that all those agencies have equities in these
decisions, and that there is not really a structure that can
dispense or that ought to dispense with their appropriate
policy input. What the President decided is that the Commerce
Department is the appropriate agency to run the program. We
know the industries, we know the technologies, we have the
outreach experience, we are an experienced regulatory agency,
and the others are not. We run it, pass the licenses out,
provide a system in which agencies can consult, agree or
disagree, and if needed, move the licenses up.
The fact is, Mr. Chairman, that in our experience, 96
percent of the license applications are resolved by consensus
at career levels, and only 4 percent move up.
While we have a process that allows them to go all the way
to the President, none in this Administration have gone beyond
the level of the assistant secretaries. They meet, weekly if
necessary, to deal with these things. The system operates
smoothly. Frankly if you tried to consolidate the agencies from
whom you were drawing this responsibility, they would reinvent
it and recreate it, because they all believe they have a policy
role here that they want to play, and if you attempt to take
that role away from them, they will redesign it and reinsert
themselves one way or the other.
Mr. Taylor. I may ask some other questions, but Congressman
Mollohan, do you have questions?
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Under Secretary, welcome to the hearing today.
Mr. Reinsch. Thank you.
passage of the chemical weapons treaty
Mr. Mollohan. What has changed in the United States Senate
that gives you confidence that the Chemical Weapons Treaty is
going to be ratified?
Mr. Reinsch. Well, I am always confident. Of course I was
confident last year.
Mr. Mollohan. What has changed that has increased your
confidence? Has your confidence increased?
Mr. Reinsch. Yes.
Mr. Mollohan. It has increased?
Mr. Reinsch. Marginally. I think the main difference is the
absence of an election-environment and the absence of a
political environment that will allow the debate to go on on
the merits rather than in the context of a Presidential
campaign in which the candidate of the other party expressed
reservations----
Mr. Mollohan. Are you suggesting that this debate has not
been on the merits over in the Senate?
Mr. Reinsch. I felt that in September last year the bill
was pulled from----
Mr. Mollohan. It is almost unimaginable.
Mr. Reinsch. Well, I realize it comes as a shock to you,
Mr. Mollohan, but last year the other party's candidate for
President expressed reservations about the treaty two days
before the vote, and the treaty was pulled.
There is substantial opposition to it in the Senate, and I
do not want to suggest the opposition is political. It is not,
it is substantive. This is a significant treaty, and it is an
intrusive treaty.
Mr. Mollohan. Well, it is a dicey issue.
Mr. Reinsch. No question.
Mr. Mollohan. There are many concerns about verification,
and the number of people who have chemical capability are not
going to be signing up to it. But I was just wondering why you
felt confident enough about it. You have already expended some
resources in preparation for it; is that correct?
Mr. Reinsch. That is correct.
Mr. Mollohan. What resources have you expended, and for
what?
Mr. Reinsch. We have spent approximately $200,000 for
hardware and software to develop a computer program that will
allow us to maintain the data base that we have to have.
Mr. Mollohan. Out of what funding did you provide these
resources?
Mr. Reinsch. Our base. We have just taken from other
things. We are not doing some travel that is associated with
this function. There are a lot of meetings, international
meetings, that we are asked to attend, and I have told my
chemical people that we will find money for the meetings that
are scheduled through April 29, but if the Senate does not act,
we are going to stop participating.
Mr. Mollohan. When did you expend this hundred or so
thousand dollars?
Mr. Reinsch. In the last fiscal year, 1996.
Mr. Mollohan. 1996. Have you expended any money in Fiscal
Year 1997 for this purpose?
Mr. Reinsch. Well, we have an Office of Chemical,
Biological and Treaty Compliance, which has ongoing
responsibilities. We control chemicals now for export. So we
have people on the staff that are engaged in chemical and
biological licensing. They do this kind of function in
addition.
Mr. Mollohan. So you will know by----
Mr. Reinsch. We have not hired new people, specifically.
Mr. Mollohan. We will know by April if the Treaty will be
approved, will we not?
Mr. Reinsch. We should know by April 29 what the Senate
plans to do, yes.
encryption
Mr. Mollohan. I would like for you to explain for the
committee the policy regarding encryption. As I understand it,
the responsibility for approval has been transferred from State
to Commerce.
Mr. Reinsch. Yes.
Mr. Mollohan. Is that correct?
Mr. Reinsch. Yes.
Mr. Mollohan. I have been advised that you are trying to
accommodate the concerns of industry by liberalizing your
approval process. However, this liberalization is contingent
upon companies utilizing a key system that will allow access to
the encryption technology they are selling. If they do not
implement this system within a certain period of time then you
will revoke their license. Is that your plan?
Mr. Reinsch. We will have regular checks every 6 months to
make sure they are making progress, but it is a 2-year window.
Mr. Mollohan. Please explain this to me, becauseit sounds
to me like you are in a rush. In an effort to accommodate industry
concerns, and the international competition out in the marketplace, you
are approving licenses prior to companies implementing the key
technology? Is that correct?
Mr. Reinsch. It's more complicated than that.
Mr. Mollohan. Is it? Please explain why. Is it possible
that the horse is out of the barn, so to speak?
Mr. Reinsch. It's possible, but I believe it is not and let
me explain why.
Mr. Mollohan. Please.
Mr. Reinsch. Let me say first, this may be perceived as an
effort to try to accommodate industry's concerns and I think
it's fair to say it is not succeeding.
Mr. Mollohan. I don't think that's a bad thing to do. I
just----
Mr. Reinsch. Let me tell you, this is probably
intellectually one of the most complicated things I have ever
dealt with.
Mr. Mollohan. Give us a try.
Mr. Reinsch. I don't have any doubt about your capacity. I
have some doubts about mine.
We are trying to balance interests which are frankly
competing. Encryption was originally a munition and viewed in
the World War II context of code and code-breaking, as
historically a military function.
With the advent of high performance computers and
electronic commerce, it has become a mass-market function.
Encryption is important for privacy. It is important for
electronic commerce. If you want to bank by computer, and
people are going to be banking by computer in the future, when
you send a message to your bank to pay your electric bill, you
want to know that your message went to your bank and that they
are only going to pay the amount you told them to pay and they
are going to pay it to the electric company. The bank, in turn,
is going to want to know the message came from you and not from
somebody else.
That demands a level of security that is going to include
an encryption function as well as a digital signature function,
which is a means of validating that you are who you say you are
when you send a message, because you are not there in person
and you have not signed a letter. Those are equities on one
side.
We have law enforcement and national security
considerations on the other side which are, as far as law
enforcement is concerned, essentially the same equities
involved in wiretapping. The law enforcement community believes
that in the case of terrorists, organized crime, drug dealers,
surveillance is an important part of law enforcement, and if
they cannot obtain and decrypt encrypted communications of
terrorist units or drug cartels, they believe that law
enforcement will be compromised, and there is a growing list of
actual cases where this has been a factor. They are better than
I in explaining them, but in fact there are some involving
child pornography among other things and terrorist activities.
The President decided on a policy that attempts to balance
those equities, and frankly, people who don't believe that law
enforcement is important, and there are some, are not
interested in a policy of balance. They are interested in a
policy that promotes privacy.
Key recovery technology is one in which there is
essentially--I am not supposed to say ``back door''--but
essentially another door to decrypting the encrypted message.
The owner has a key to encrypt the messages he sends and
decrypt the messages he receives, and then somebody else or
perhaps the owner himself has a spare key or somebody else
holds the key.
Mr. Mollohan. Escrowed by some good faith party?
Mr. Reinsch. That would be one scenario, yes. Self-escrow
is a possibility or what is called a trusted third party escrow
system is probably what is going to spring up.
Our policy is market-driven. The market is going to decide
this. What we are learning is there is a market for key
recovery regardless of the Government. Banks and companies want
to have a spare key.
In the case of a bank, if you are a bank employee and you
leave and get hit by a bus on the way home from work, the bank
wants to decrypt your personal files.
If you, perish the thought, embezzle $3 million from the
bank and slip off to Bermuda, the bank is going to want to
decrypt your files and want to know how you did it and who the
victims are.
So banks and corporate customers are going to want key
recovery because they want to have a secondary means of access.
Individuals may want key recovery if they lose their key, so we
see key recovery springing up. Key recovery, of course, because
there is an extra key, would also give law enforcement an
opportunity for access.
We have not proposed an opportunity for access or authority
for access that is any different than wiretapping. Existing
legal and constitutional procedures have to be followed. Law
enforcement officials have to go to court or whatever to get a
warrant, but the means of recovery would be there.
Mr. Mollohan. Okay. Going back to my initial issue, I have
some concerns regarding your policy of approving these licenses
for export contingent upon the development after the fact of
the key technology. Is there a valid concern there? Do we have
a legitimate concern that the horse might be out of the barn?
Could you address that?
Mr. Reinsch. Yes. I have to tell you a little bit about bit
length. Essentially we measure the strength of encryption
capability by the length of the algorithm that encrypts the
message. The longer the algorithm, the more complicated it is
to decrypt it.
For some time we have been relaxing our licensing controls
for export of encryption software and we now permit, without
advance individual approval, shipment of encryption software at
40 bits. That simply is not at a level of sophistication that
worries us.
What we have said is that we will permit companies to
export non-key recovery products at the 56 bit level, which is
substantially more sophisticated, if they are developing key
recovery products in the two-year window. We will permit the
export of products with key recovery features of any bit length
because that of course has the capabilities we want.
Mr. Mollohan. All right, I understand that.
Mr. Reinsch. We have done this in consultation with
industry. We have tried to use this as an incentive to get
companies to develop the products we want.
There is a two-year window here in which they may be
exporting 56 bit non-key recovery products.
With respect to the window and the risk, we are a bit
caught in the middle.
The industry will tell you that the market has gone on to
128 bits and we are behind the ball----
Mr. Mollohan. All right, so in six months we won't have to
worry about this?
Mr. Reinsch. Well, that's what they say. The foreigners
will say they are not at 56 bits and this is an American scheme
to capture our markets, a commercial decision and not an
encryption policy or national security decision.
My view based on the work we have done is that this is a
market that is growing very rapidly, but it is not growing as
fast as our industry says it is, and it is not quite at the
point where they say it is in terms of lots of other competing
foreign products out there.
Mr. Mollohan. What, if you know, would our law enforcement
community and our national security community say about this
issue? Are they comfortable with your policy?
Mr. Reinsch. If they were here testifying, Mr. Mollohan,
they would say they support the President's policy.
Mr. Mollohan. Is that responsive to my question?
Mr. Reinsch. I think they are comfortable. We had a lot of
conversations with them about this and there is a group, a
deputies level group, on this that was chaired by John Deutch
until he left the Government, and is now chaired by Sally
Katzer in OMB that has representatives on it from the
Department of Defense, the FBI, the Justice Department, and
NSA. All the relevant parties are there.
We have kicked all these issues around.
NSA I think is clearly comfortable with what we have been
doing. The Justice Department is comfortable. I think you will
find within the Justice Department and the FBI a range of
opinions on that subject and a range of comfort, but I think
their interests and equities are slightly different.
The fact is there aren't very many people----
Mr. Mollohan. But no less serious.
Mr. Reinsch. Pardon me?
Mr. Mollohan. But no less serious.
Mr. Reinsch. Oh, yes. No question about it, but there
aren't that many people using encryption of this sophistication
right now in the United States that they are worried about.
If we do nothing, this will be a big problem. Right now
it's small.
Mr. Mollohan. One last question. So you have this
responsibility and you are asking for an appropriation.
Mr. Reinsch. Yes.
encryption budget
Mr. Mollohan. What are you asking for in fiscal year 1998
and what are you establishing to implement this policy? This is
a new responsibility for you, isn't it?
Mr. Reinsch. That's correct. Well, we have had an
encryption license responsibility in the past but it's for the
low level products that were not treated as munitions.
We believe this responsibility, which includes the State
Department's licensing responsibilities which have been moved
over to us, which produce approximately 2,000-2,500 licenses a
year----
Mr. Mollohan. You are asking for two people and a million
dollars?
Mr. Reinsch. For '98. We have submitted a reprogramming for
'97 for $834,000 and 10 people.
Mr. Mollohan. Okay.
Mr. Reinsch. And we envision a team of about a dozen, and
about a $1 million a year in perpetuity.
Mr. Mollohan. Thank you, sir.
Mr. Taylor. Okay. Mr. Latham?
Chemical Weapons Convention
Mr. Latham. You have covered a lot of my questions and I
apparently missed questions pertaining to the chemical weapons
convention. You said you had reprogrammed some money from
fiscal year '96. What about '97? You'll have some expenses if
it is ratified this year.
Mr. Reinsch. If it is ratified we would expect to make a
reprogramming request for '97. The size of it would depend a
little bit on the time of ratification before or after the 29th
of April and also the nature of the implementing bill that is
ultimately passed.
If the Congress passes the bill the Administration has
submitted, I have some confidence about what we will need. If
the Congress makes changes, I can't predict. In any event, it
will almost certainly be less than a million dollars for '97.
Mr. Latham. That's all I have. Thank you, Mr. Chairman.
streamlining and Downsizing
Mr. Taylor. I know some of the savings that you had
indicated you had made would come from the efficiencies that
have brought in the streamlining and licensing procedures.
Should there be further opportunities for streamlining and
downsizing? Can we continue to reform the export control laws,
the regulations? Where can we save some more money?
Mr. Reinsch. This is probably heretical, Mr. Chairman, but
if you really want to save money in BXA you can provide buyout
authority that we could use and you could reform the personnel
system.
We are at a level of export controls right now that I think
will be fairly stable. The items that we control are by and
large now multilaterally controlled. They are chemical
precursors. They are biotoxins. They are very sophisticated
machinery.
With a couple of exceptions, I don't see significant
changes in our licensing burden in the near term. If anything,
it will increase slightly as technology moves and our controls
stay the way they are.
To the extent that we have excessive costs, if you will,
they are that we continue to have people whose skills were
appropriate for the Cold War, whose skills are not needed
anymore, and we have no means of dealing with that problem.
We cannot RIF them because in fact if we do a RIF they are
not the ones that will walk out the door. The new ones that we
hired who have the skills we need are the ones that will walk
out the door, and the buyout authority that you provided last
year frankly is so constrained that we can't take advantage of
it. So I am not happy with the situation, but if you really
want to do something, that is where I would suggest you look.
Mr. Taylor. I appreciate your candor. We'll take that into
consideration.
terrorism
Let's move over to terrorism and talk a little bit about
the $3.9 million in emergency terrorism funding.
What are your plans for spending that money?
Mr. Reinsch. What the Committee told us to do and what we
have proceeded to do is use I think somewhat more than two-
thirds of it, probably closer to three-fourths of it, to expand
our field agent force.
We have eight field offices in enforcement, and that is
where most of our work is done--out in the trenches. They are
mostly located in ports of exit--Miami, L.A. We have one in San
Jose, which is Silicon Valley. A lot of our customers, if you
will, are there--Boston, New York, Dallas, Chicago. We have one
in Springfield, Virginia, in this area.
It's been my goal since I came here to get our field agent
force back to 99, which is the level it was in its peak year.
What we have done with the money that you provided us, you
directed us to hire--as I recall in the report language--
between 22 and 25 people for this purpose. Because we are going
with new people that we intend to train and hope they will make
enforcement a career rather than people that are near the end
of their careers transferring from other agencies, we will be
able to hire 26 new field agents.
We have already taken on more than half of them and by the
end of the year we will have them all on board. Therest of the
money will be used for counterterrorism and nonproliferation training.
We have two major training sessions planned, one in April and one in
May, for our entire agent force as well as our intelligence people and
we will do additional training the rest of the year.
Mr. Taylor. What is encompassed in that training, just
generally? I am talking about the areas that they would train.
Mr. Reinsch. They are in the process right now of
developing the training schedule for that. I may ask Mr.
Deliberti, who is our Acting Assistant Secretary in this area,
to comment, if I may.
There are several challenges, one being to keep our agent
force up to date with changing technology and with the new
kinds of problems that we have, and I can give you an example.
Take the case of biotoxins such as anthrax, botulism, and
others of that nature. These can be exported for vaccine
purposes, which are legitimate uses, but they also could be
used as biological weapons. One of the biggest enforcement
problems we have is dealing with the scientific and academic
community who ship samples to fellow researchers and don't
think they are exporting. They think they are engaging in
scientific transactions with their counterparts somewhere else
in the world but, in fact, when you send a vial of anthrax off,
you have made an export, even if you are sending it to a
professor in some other country.
So a lot of what we have to do first is outreach. We have
to train our agents to do outreach and teach these people that
they are exporting, and that they are not just engaged in
research. And we have to train our agents to understand the
kind of commodities that are being exported, to know what
biotoxins are, to know how to recognize them and to do the same
thing with chemical precursors that can be used for chemical
weapons.
We also have to teach them how these crimes could take
place on computers and how to use computer technology.
Frank, do you want to say something further?
Mr. Deliberti. I think you pretty much covered it but, in
addition, we will be naturally working with the Federal Bureau
of Investigation, their counterterrorism unit, the Central
Intelligence Agency's counterterrorism unit, some experts from
the private sector to enhance their training skills.
Mr. Taylor. Thank you.
Mr. Mollohan, do you have further questions?
Mr. Mollohan. No, I don't, Mr. Chairman.
Mr. Taylor. We have some we may also submit for the record.
Mr. Latham?
Mr. Latham. No, thank you.
Mr. Taylor. If not, we appreciate your attending and the
information you have provided and your candor. Thank you very
much for coming.
Mr. Reinsch. Thank you, Mr. Chairman.
Mr. Taylor. The Committee will be adjourned.
[Pages 734 - 749--The official Committee record contains additional material here.]
Wednesday, April 16, 1997.
BUSINESS AND ECONOMIC DEVELOPMENT
WITNESSES
AIDA ALVAREZ, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION
PHILLIP A. SINGERMAN, ASSISTANT SECRETARY, ECONOMIC DEVELOPMENT, U.S.
DEPARTMENT OF COMMERCE
PAUL WEBBER, III, ACTING DEPUTY DIRECTOR, MINORITY BUSINESS DEVELOPMENT
AGENCY, U.S. DEPARTMENT OF COMMERCE
Mr. Rogers. The Committee will come to order.
This morning we are pleased to welcome to the Subcommittee
the three agencies in our jurisdiction responsible for business
and economic development. We are pleased to have with us the
new Administrator of the Small Business Administration, Aida
Alvarez. Congratulations.
Ms. Alvarez. Thank you, sir.
Mr. Rogers. And from the Department of Commerce, Phillip
Singerman, the Assistant Secretary for Economic Development,
and Paul Webber, the Acting Deputy Director for the Minority
Business Development Agency.
We are pleased to have all of you here today.
Mr. Webber. Thank you, sir.
Mr. Rogers. We will proceed with your oral statements. All
of your written statements will be made a part of the record.
We hope that you summarize within five minutes or so apiece.
Administrator Alvarez, we'd like to ask you to proceed.
Ms. Alvarez. Thank you, sir.
Opening Statement of Ms. Alvarez
Mr. Chairman and Members of the Subcommittee, thank you for
the opportunity to appear before you today for the first time
to discuss the President's fiscal year 1998 budget request for
the Small Business Administration. I look forward to a very
positive and productive relationship with the Chairman and
Members of the Subcommittee.
After these brief remarks, I would certainly be pleased to
respond to questions. I have asked that the written statement
be entered into the record.
SBA has played a key role in the growth of small business
over the last four years by nearly doubling its loan volume,
providing record amounts of private capital investment and
ensuring that millions of small business owners receive the
counseling and training that they need to succeed.
SBA's budget request for fiscal year 1998 continues the
Administration's commitment to assisting small business while
taking into account the need for all of us to work toward a
balanced budget. We request $701.6 million, which compares to
our fiscal year 1997 appropriation of $852.4 million.
Although reduced from the previous year, this requested
funding level allows SBA to continue all of its existing small
business programs. In fact, this budget would allow SBA to
provide $14.4 billion in total credit assistance in fiscal year
1998. This compares to $13.8 billion in fiscal year 1997.
This is a very critical time in SBA's development. SBA
plans to shift many of its loan-related activities to the
private sector and to continue centralizing some of its loan
servicing functions. This Committee has been very supportive of
SBA's plans to establish two loan document processing centers
in Sacramento, California and Hazard, Kentucky.
I am pleased to report that we are well on our way to
having these centers up and running. SBA has streamlined many
of its processes and placed an increased emphasis on building
successful public/private partnerships. Currently, nearly 70
percent of all new 7(a) loans are serviced and liquidated by
private lenders.
Beginning in 1998, SBA proposes that all new 7(a) loans be
serviced and liquidated by participating lenders. SBA is
implementing the congressionally-mandated pilot to privatize 30
percent of its disaster loan servicing. Starting in fiscal year
1998, SBA proposes to begin selling some of its business loan
and disaster loan assets.
We intend to engage in all of these initiatives in a
carefully managed and monitored way to help ensure positive
results. One critical element of the fiscal year 1998 budget is
our request for an additional $18 million to improve our
financial and information management systems and our oversight
of SBA's loan portfolio and participating lenders.
We also request $1 million to conduct more sophisticated
analysis of loan performance. These steps are essential to help
SBA become a leading edge financial agency, allowing us to
better assess risks and manage our credit programs. SBA plays a
critical role as a source of much needed access to capital and
credit for small business. The requested budget authority of
$173 million will provide guarantee authority of $8.5 billion
for 7(a) loans; $2.3 billion for 504 debentures; $832 million
for SBIC debentures and participation securities; and $44
million for microloans.
The budget will also allow SBA to continue to provide
support and assistance to victims of natural disasters through
our Disaster Loan Program. The good news, Mr. Chairman, is that
we have a very robust economy and that the demand for the 7(a)
Loan Program continues to serve record numbers of small
business owners.
Unfortunately, our most recent loan figures suggest that
there will be a shortfall in meeting demand for the 7(a)
program this fiscal year. As you will recall, the
Administration's budget request for fiscal year 1997 sought a
7(a) program level of $11 billion.
Congress provided funds, $158 million in appropriations,
plus $40.5 million in carryover, sufficient to support a
program level of $7.8 billion. Given the loan activity to-date,
SBA projects fiscal year 1997 demand of $9 billion to $9.5
billion, leaving a potential shortfall of between $1.2 billion
and $1.7 billion.
Absent any action by the Administration or Congress, this
shortfall would cause SBA to run out of program funds by mid-
August. SBA seriously considered a number of possible ways to
deal with the shortfall. These included requesting supplemental
funding from the Congress, requesting a legislative increase in
fees, restricting loans to certain business segments such as
real estate, prohibiting refinancing, imposing a cap on loan
size, or allowing the program to shutdown until the end of the
fiscal year.
After examining all of the available options, we determined
that it makes the most sense to administratively limit the
maximum size of a loan that we would guarantee to $500,000. Let
me share a few numbers with you. In fiscal year 1996, only 7
percent of 7(a) borrowers received loans greater than $500,000,
but these loans accounted for 34 percent of loan dollars. SBA
has seen a continuing increase in the average size of its
loans. As a result, for the first six months of fiscal year
1997, 10 percent of 7(a) borrowers received loans greater than
$500,000. This number of loans accounted for 40 percent of loan
dollars. SBA faced a similar situation in January of 1995 and
imposed the same cap. We know from this experience that there
were minimal disruptions for the vast majority of our borrowers
and lenders.
There are a few other items in our request that I'd like to
highlight. A critical budget element will help us bring more
Americans into the economic mainstream.
As Administrator, I want to reform and modernize our 8(a)
Business Development Program. We have requested an additional
$1.9 million for much needed technology, systems, and staffing
in this program. It is badly needed and will be well-spent. We
also need to bring families on welfare into the mainstream.
In the next year, we will explore an array of alternatives
to provide opportunities for former welfare recipients. These
include working with small businesses to explore incentives for
employment, coordinating with state efforts, collaborating with
other Federal agencies to provide technical assistance, and
using the SBA Microloan Program to help budding entrepreneurs.
We also hope to ensure that the education and training
currently provided to nearly 1 million small business owners is
made available to all of those who seek assistance. Restoring
the 7(j) business development assistance to previously provided
levels, for example, will give more women, minorities, and
other disadvantaged individuals the opportunity to make their
businesses competitively viable.
We also propose to add 10 to 12 New Women's Business
Centers to our existing network of 54 sites, and to increase
our 39 Business Information Centers by opening 10 to 12 more.
These centers have been overwhelmingly praised by small
businesses. They do a fabulous job and deserve strong funding.
Finally, we continue our support for SCORE and the
SBDCProgram. I'm strongly committed to the SBDC Program. The Small
Business Development Centers do a very capable job of counseling and
training across the country. We want them to continue their fine work.
However, as the budget reflects, SBA is asking those
benefitting from this program to bear a share of the cost. We
propose that they pay reasonable fees for the services
rendered. I will work closely with the SBDCs to ensure their
continued viability and success.
SBA has played a key role in the growth and support of
small business since its inception in 1953. Through its 44-year
history, there have been many significant achievements by this
agency. SBA now manages a $42 billion loan portfolio, and it
has improved the lives of millions of Americans by helping them
to start, run, and succeed with their own small businesses.
I hope to help add to this list of achievements by
providing leadership for the SBA in an important time of
transition. I look forward to working closely with you to
improve the way our government serves small businesses and I
welcome your questions. Thank you.
[The statement of Ms. Alvarez follows:]
[Pages 755 - 774--The official Committee record contains additional material here.]
Mr. Rogers. Thank you. Assistant Secretary Singerman.
Opening Statement of Mr. Singerman
Mr. Singerman. Chairman Rogers, Congressman Mollohan and
other distinguished Members of the Subcommittee, thank you for
the opportunity to appear before you this morning to present
the Administration's 1998 budget request for the Economic
Development Administration.
Before I start my remarks, I'd like to thank you and the
other Members of the Committee and your staff for the personal
generosities that you have extended to us and the graciousness
that you have extended to me and my staff over the last year in
working with you.
Mr. Rogers. Thank you.
Mr. Singerman. At this point, I'd like to introduce some of
our key management staff who are with me today. Debrorah
Simmons is our Budget Officer.
Mr. Rogers. Raise your hand so we can see who you are.
Mr. Singerman. Awilda Marquez is our Deputy Assistant
Secretary for Program Research and Evaluation. Chester Straub
is our Deputy Assistant Secretary for Program Operations. Ella
Rusinko is our Director of Communications and Congressional
Liaison. Ed Levin is our Chief Counsel.
The budget that we are presenting this morning requests
$343.028 million. This represents relatively stable funding in
the base appropriation from fiscal year 1997. It supports EDA's
management initiatives, focuses on improving efficiency and
effectiveness, and maintains partnerships that promote locally
identified priorities to help communities meet the challenges
of today.
What I would like to do, Mr. Chairman, is request that my
statement be included in the record. And I would like to turn
to a set of flip charts that we have provided to the Members of
the Subcommittee and briefly highlight some of the key elements
of our program.
I'd like to refer you to page two. EDA has demonstrated a
tangible record of 30 years of achievement for the American
economy, which is why there is broad bipartisan support for the
agency and its programs, and why the Clinton Administration has
proposed this budget.
Over the 30 years of the agency's existence, more than 3.1
million jobs have been created; $16.4 billion invested in
distressed communities. More than $3 in outside investment is
leveraged for every federal dollar invested.
Please turn to page four. Over the past two years EDA has
intensified its management improvements in our operations.
We've attempted to create a leaner and more streamlined agency.
Over the past two years we've reduced the number of employees
in our agency by approximately 30 percent. We've reduced the
number of political appointees in the agency by nearly 60
percent. In fiscal year 1996 alone, we reduced the number of
employees in headquarters by 25 percent. There are very few
other agencies in the Federal Government that have undergone
such a significant downsizing during such a short period of
time.
We've also attempted to reduce the regulatory and
administrative burden on our grantees by reducing regulation by
more than 60 percent and creating a single application form. We
have also delegated decision-making authority to the regional
offices so that decisions can be made at the grassroots level,
close to the communities that have to implement the programs.
We have, and I will be pleased to talk about this in
greater length later, implemented a program performance
measurement system in compliance with the Government
Performance and Results Act of 1993. In order to carry out our
significant responsibilities with reduced staffing, we have
implemented a reorganization which your Committee very quickly
approved last fall.
Earlier this year, Secretary Daley transmitted to the
Congress the Administration's request to reauthorize EDA
through the Economic Development Partnership Act of 1997. I am
told that this is the first time in nearly two decades that an
Administration bill proposing the reauthorization of the agency
has been submitted.
Let me ask you to turn to page five. I'd like to discuss
our core program, the Public Works Program, which focuses on
communities in which there is substantial and persistent
unemployment and underemployment. This is our major program
generating jobs for local communities. Historically, we have
created one job for every $2,000 in EDA investment.
The distribution of funding is illustrated on the attached
pie chart. We have continued the practice of providing
approximately two-thirds of our funding to rural communities,
and approximately one-third to urban communities.
Let me refer you to page six. Last year at this hearing,
Chairman Rogers asked if EDA would follow the criteria that
focus funding on distressed communities that were outlined in
legislation that was then being considered by the House. These
criteria, in particular, are for communities of high
unemployment in which the unemployment rate is at least one
percent above the national average, or low income whose per
capita income is 20 percent below the national average.
Chairman Rogers asked me if we would follow those criteria
in the allocation of funds in our Public Works Program. I said
to him at that time that we would. And the answer is
demonstrated on the following page in the bar chart. This is a
chart that represents each of the 158 public works projects
that were funded in fiscal year 1996.
Fully 50 percent of the projects, the yellow bar, were in
communities which had both high unemployment and low per capita
income. Approximately 30 percent of the projects were in
communities which had high unemployment. Approximately 14
percent of the projects were in communities which had low per
capital income. Approximately 6 percent were in communities of
mild distress.
Those represent 11 projects. Each of those 11 projects were
in communities in which the per capita income was below the
national average; primarily in communities in which there were
pockets of poverty inside growth centers, or communities that
demonstrated distress through other quantitative measures such
as population out-migration.
Let me ask you to turn to page ten to discuss the other
major traditional program at EDA, economic adjustment, which
provides a flexible source of funding for communities
undergoing structural economic changes. The following
illustrates one of the major program activities that Congress
and this Administration have asked EDA to undertake over the
last five years--disaster assistance.
Congress and the Administration have appropriated over $450
million in supplemental appropriations for post-disaster
economic recovery assistance covering large parts of the
country as a result of hurricanes, floods, typhoons,
earthquakes, and other natural disasters.
If I may ask you to turn to page 12. I just briefly want to
touch on our Research and Evaluation Program. One of the major
criticisms of the agency in the past is that we did not have in
place a systematic and rigorous method for evaluating the
impact of our projects on local communities. We have focused
our technical assistance and research dollars on this issue
over the last year.
A major study that we commissioned is being carried out by
Rutgers University with a coalition of other universities and
the National Association of Regional Councils. They have looked
at every public works project that was completed in 1990 and
have evaluated the impact of those projects on their
communities.
The preliminary results of this study are very robust. I
would request that if possible the report's summary of
findings, which will be available within the next four weeks,
be made a part of this hearing record.
[The information to follows:]
[Pages 778 - 812--The official Committee record contains additional material here.]
Mr. Singerman. Let me now turn to a brief summary on page
13 of our appropriations request. We are requesting for fiscal
year 1998 a balanced and stable program, one that provides
adequate funding for all of our program activities and
maintains the current level of services we provide through
local organizations such as Economic Development Districts,
University Centers, and Trade Adjustment Assistance Centers.
We are proposing $160 million for our Public Works Program;
$24 million for our Planning Programs; $9.1 million for our
Technical Assistance Program; $9.5 million for the Trade
Adjustment Assistance Program; $500,000 for Research and
Evaluation; $26.7 million for Economic Adjustment; and $89
million for Defense Economic Conversion. We are also requesting
$24.028 million for our salaries and expense budget.
If you turn to the pie chart following that budget summary,
you will see that as in the past more than half of our funding
goes for Public Works and another third goes for our Defense
Economic Adjustment Program. So, the vast bulk of our funding
goes for projects in local communities.
Finally, let me conclude with the status of our
reauthoriztion legislation. As I mentioned, Secretary Daley
transmitted this to the Congress on March 31st. This proposed
legislation essentially preserves the valuable program tools
that have stood the test of time. It includes a number of
provisions in our authorization that were considered by
Congress last year, in particular the eligibility criteria that
I discussed just a moment ago.
The legislative reauthorization supports the management
initiatives that I've described so as to enhance the efficiency
and effectiveness of EDA. We have attempted to eliminate
unnecessary provisions to reduce the burden on local
communities and also tried to achieve some consistency among
programs so that communities can work with us more effectively.
The program focuses on distressed communities and encourages
cooperation among federal agencies to target all of our
resources.
Mr. Chairman, this concludes my brief presentation. I
would, of course, be pleased to answer any questions that you
or the Committee may have.
[The statement of Mr. Singerman follows:]
[Pages 814 - 818--The official Committee record contains additional material here.]
Mr. Rogers. Thank you very much. Mr. Webber.
Opening Statement of Mr. Webber
Mr. Webber. Thank you very much, Chairman Rogers.
Chairman Rogers, Congressman Mollohan, distinguished
Members of the Subcommittee, it is my honor to present the
President's fiscal year 1998 budget request for the Minority
Business Development Agency.
I'd like to start by first of all apologizing for the
absence of the Director of MBDA, Joan Parrott-Fonseca, who has
unfortunately been incapacitated with a back injury. I'd like
to thank the Committee on her behalf for extending the courtesy
of allowing us to go forward in her absence.
I would also like to take a moment, if I may to introduce
the members of the Minority Business Development Agency who are
supporting me here in this effort today. We have with us Harlyn
Boulware who is the Budget Director for MBDA; Rudolpho Rudolfo
Fuentes who is the Senior Policy Advisor for the Director; and
Charles Melley who is the Special Assistant to the Director.
Having said that, I will proceed. Mr. Chairman, as you know
MBDA has as its sole mission to serve as the coordinator of
Federal Government efforts to assist in the growth and
expansion of the nation's minority business sector.
Now, at first blush, this would seem to be an extremely
broad mission for an agency that at no time in its history ever
had a budget of greater than $64 million in any oneyear.
However, the fact is that the work of MBDA has always been done through
strategic research and policy-oriented initiatives that leverage
maximum results for the minority business community with a minimal
expenditure of Federal resources.
It is this flexible research and policy-oriented focus
which is the hallmark of MBDA's approach to minority business
assistance and which distinguishes MBDA's program from other
government sponsored business assistance programs.
Members of the Subcommittee, a number of recent
developments have underscored the continuing need for the types
of business assistance that MBDA currently provides. The Census
Bureau's Survey of Minority Owned Businesses, which was
released last year, reports that while the number of minority
owned firms increased 62 percent since the last census, only 11
percent of the Nation's businesses are currently minority
owned.
Those 11 percent of the total firms generate only 6 percent
of the Nation's gross receipts. This is despite the fact that
minorities constitute roughly 25 percent of the overall U.S.
population. If you look at the survey as a whole, what it shows
is that minority individuals are electing entrepreneurship and
are forming new companies at a rapid rate, but that there is a
continuing need for business development assistance in order to
ensure that these companies have access to critical training,
management and technical assistance, as well as to information
that alerts them to available market opportunities. MBDA's
current budget request reflects the agency's commitment to
provide these needed resources and represents a prudent
investment in the long-term success of America's minority
communities.
The other noteworthy factor, I might add, that will impact
upon MBDA's service delivery for the coming year is the
heightened importance of programs that promote outreach,
advocacy, education, and other race neutral means as a vehicle
for providing minority business assistance in the wake of the
Supreme Court's decision in the Adarand v. Pena case and in
other recent legal decisions.
Mr. Chairman and Members of the Subcommittee, these are the
very methods that MBDA has been using over the past 25 years to
help minority firms succeed on their own merit in the
competitive mainstream economy. Through its community based
business development centers, minority business opportunity
committees, special sector initiatives, and other programs MBDA
will continue to provide leadership and coordination to the
Nation's effort to harness the entrepreneurial talents for
minority citizens.
The Los Angeles MBOC, for example, is credited with helping
Los Angeles area minority firms access $2.6 billion in
contracts in both the public and private sector. And, again,
this is done solely through outreach and advocacy. The MBOC
currently averages 40 to 60 requests per week from prime
contractors for referrals of minority owned subcontractors and
suppliers.
In Baltimore, Maryland, to use another example, the
Baltimore Minority Business Development Center assisted in
developing the syndication that provided the equity financing
necessary to transfer ownership of the Park's Sausages Company,
one of the country's largest minority owned firms. This
syndication has infused the company with new capital and will
hopefully help to ensure the future profitability of this
venerable Baltimore institution.
Members of the Subcommittee, the Administration's budget
request for MBDA for fiscal year 1998 is $27.811 million. This
amount would essentially constitute level funding as against
the fiscal year 1997 enacted amount. MBDA's budget request
reflects the continued effort that is underway at the agency to
complete the reorganization and downsizing that we initiated
following the budget reduction of fiscal years 1996 and 1997.
As we in the Federal Government have followed the public's
mandate to cut costs and improve efficiencies, the flexibility
that has been the cornerstone of MBDA's program has served us
well. We look forward to working with the Committee and with
the Congress as a whole to achieve our goals.
And again, we thank you for the opportunity to appear this
morning.
[The statement of Mr. Webber follows:]
[Pages 821 - 838--The official Committee record contains additional material here.]
Mr. Rogers. Thank you very much. A number of our
Subcommittee Members have other obligations later this morning.
A number of my colleagues and I have to attend a mark-up of a
disaster supplemental for the Energy and Water Subcommittee,
and I'm sure others have similar obligations. So, we're going
to try to wrap this up by around 11:30 a.m. With that in mind,
we will do a five-minute round of questions the first time and
allow for second rounds as time allows.
sba 7(a) program
Administrator Alvarez, you just announced yesterday
afternoon some administrative changes to the 7(a) loan program
to ensure that it will continue through the end of fiscal year
1997, given some constraints on your levels of financing.
As you know, last year we faced major problems, again, with
the 7(a) loan program. And we had to find an additional $43
million in appropriations at a terribly difficult time to find
money, just to ensure that we could have a $7.8 billion
program--a 7 percent increase over fiscal year 1996.
I know you mentioned in your testimony that you are going
to limit the eligibility for 7(a) loans to no more than
$500,000 per loan. Can the needs of some of the borrowers who
would not be eligible under your program be taken care of
through other SBA programs such as the 504 Program, for
example?
Ms. Alvarez. They might, sir. Ninety percent of our
borrowers fall in the $500,000 and below category. So hopefully
this will be the least disruptive alternative. Ideally, we
would serve all of our customers.
Mr. Rogers. But can't the 504 Program handle some of the
larger loans perhaps?
Ms. Alvarez. Can they handle all of the demand, I'm not
certain about that.
Mr. Rogers. Not all of it, but some of it.
Ms. Alvarez. One of the things I neglected to do--my
colleagues were more courteous than I--was to introduce senior
members of my team. So, if I could do that.
Mr. Rogers. Very quickly.
Ms. Alvarez. I would ask actually Jeanne Sclater to
respond. She is the acting head of the Loan Program.
Ms. Sclater. Congressman, we do expect that the 504 Program
can help a number of the people needing financing over
$500,000. There are some restrictions in the 504 Program, but
we will work to the extent that we possibly can to make sure
that those people needing amounts greater than $500,000 get our
support.
Mr. Rogers. Are you going to ask for supplemental
appropriations?
Ms. Alvarez. No, sir.
Mr. Rogers. Are you discussing other proposals with the
authorizing committees such as fee changes to address this
issue?
Ms. Alvarez. We internally contemplated a range of
alternatives. I would say that none of them is an attractive
alternative except that the least offensive I think is this
capping at the $500,000 level.
Mr. Rogers. My question is are you going to discuss other
options with the authorizing committees?
Ms. Alvarez. Yes, sir. I did meet yesterday with Senator
Bond and Members of the authorizing committees to, in general,
discuss the other options. I am notifying them by mail today in
a letter so that during the 15-day notification period they can
contemplate other options.
Mr. Rogers. Does your fiscal year 1998 budget request
support a $9.5 billion program?
Ms. Alvarez. The fiscal year 1998 request is for $8.5
billion.
Mr. Rogers. In fiscal year 1998, you do not request an
increase in appropriations, but instead assume other
programmatic changes will be made to lower the subsidy rate
while allowing the program to grow.
Ms. Alvarez. That's right.
Mr. Rogers. What changes are you proposing?
Ms. Alvarez. We've requested, for example, $18 million
which we believe will help us create not only the
infrastructure that we need, but will help us with lender
oversight. What we are proposing in 1998 is to move from the
current situation where 70 percent of our loans are being
serviced by preferred lenders to a situation where all of our
lenders will have the responsibility for servicing and
liquidation.
We think that will improve our recoveries and that it will
create economies that will result in the necessary savings.
Clearly, it is contingent on our having resources to implement
the changes.
Mr. Rogers. Well, if those changes are not accepted, how
much additional funding would be required to support the $8.5
billion program?
Ms. Alvarez. I think we would need about $44.2 million.
Mr. Rogers. And how much to support a $9.5 billion program?
Ms. Alvarez. Another $18 million, assuming the enactment of
these proposals, or another $23.2 million if they are not
enacted.
Mr. Rogers. $18 million?
Ms. Alvarez. Yes.
Mr. Rogers. Well, clearly we are facing tremendous budget
constraints, the same as we did last year; perhaps even more
severe. So, I'm hoping that you can work things out without
needing additional monies.
Ms. Alvarez. That's right, sir.
Mr. Rogers. And that's really an understatement underlined
18 times.
Ms. Alvarez. It's a serious charge.
Mr. Rogers. But you are working with the authorizers to try
to come up with some qualifications that would avoid the
necessity for additional funds.
Ms. Alvarez. Yes, sir.
Mr. Rogers. Godspeed.
Ms. Alvarez. Thank you.
Mr. Rogers. Mr. Mollohan.
Mr. Mollohan. Thank you, Mr. Chairman.
proposed changes to the sba 7(a) program
I would like to follow up a little bit on the Chairman's
questions. I am concerned about what is happening in the 7(a)
Program, I'm afraid that the proposals that the SBA is seeking
may result in it being harder for small businesses in rural
areas to get loans; particularly the higher dollar loans. I
want to explore this with you for two reasons.
First of all, it is going to put burdens on rural lending
institutions for servicing capabilities that small banks just
traditionally may not have. Secondly, you say the loans you are
cutting off are only 10 percent. That's true, as I understand
it. However, almost by definition they are the harder loans to
get because they are the high priced loans.
So, you can talk to me about that. Last year your 1997
subsidy appropriation was $198 million to support a $7.8
billion program level at an assumed subsidy rate of 2.5
percent. Is that assumed subsidy rate holding up?
Ms. Alvarez. Yes.
Mr. Mollohan. You stand by that. You think that estimate is
what you're going to experience.
Ms. Alvarez. Yes.
Mr. Mollohan. Okay. Your 1997 demand, however, exceeds what
you projected. You're actually seeing a demand of $9 billion to
$9.5 billion.
Ms. Alvarez. We had projected $11 billion. The
Administration had asked for $11 billion. But this is a very
difficult environment.
Mr. Mollohan. Please provide just the numbers because I
only have ten minutes.
Ms. Alvarez. Okay.
Mr. Mollohan. So, Congress did not appropriate enough
funding to meet the level of demand.
Ms. Alvarez. Correct.
Mr. Mollohan. So, you're coming back trying to accommodate
that demand by lowering in this fiscal year your lending
levels.
Ms. Alvarez. That's correct; yes.
Mr. Mollohan. Will you have to get authorization to do
that?
Ms. Alvarez. No. We can do this as an administrative
action, but there is a 15-day period during which Congress can
offer alternatives, legislated alternatives.
Mr. Mollohan. Is there any reprogramming action that's
necessary by this Committee to approve or support that request?
Ms. Alvarez. No; not that I'm aware of.
Mr. Mollohan. So, in 1998 you are requesting $153 million.
This funding level would support an $8.5 billion program level.
Ms. Alvarez. Yes, sir.
Mr. Mollohan. You do that by assuming a 1.8 subsidy rate,
which is significantly less than your 2.5 rate in this fiscal
year.
Ms. Alvarez. That's right.
Mr. Mollohan. How do you make that assumption?
Ms. Alvarez. A part of that is contingent on our
instituting the reforms, the lender oversight.
Mr. Mollohan. How will lender oversight reduce your loss
rate?
Ms. Alvarez. The assumption is that the private sector will
do a better job than the public sector. And that there will be
recoveries that we haven't seen in the public sector as a
result of turning it over to the lenders.
Mr. Mollohan. So, the $18 million you are asking for
oversight is for personnel. You're going to hire new personnel?
Ms. Alvarez. It's a minimal number of personnel. A lot of
it is for the infrastructure, hardware and software, that we
need. We're talking about 20 additional FTEs to give us the
capacity to do this job.
Mr. Mollohan. Have you done any assessment of the
capability of small rural banks to take up this responsibility?
Ms. Alvarez. Well, my staff tells me that they assumed that
most small banks, rural banks, should have the capability to do
this. However, I assure you that if there is an issue or a
problem we will examine it on a case-by-case basis.
Mr. Mollohan. It would be more comforting for you to
testify here that you had considered that issue and reached a
conclusion about how it might affect the ability of rural areas
to participate in this really important program.
Ms. Alvarez. We certainly will do everything to ensure that
the rural banks will participate. We are very inclusive and
they have to be able to participate.
Mr. Mollohan. I know you are.
Ms. Alvarez. Yes.
Mr. Mollohan. But it's really getting down to the pick and
shovel work of looking at that issue. Now, the Chairman has
very accurately reflected the financial condition of the
Committee.
At the same time, have you considered requesting additional
money for the 7(a) program? Did you, for example, ask OMB for
additional money in your 1998 request?
Ms. Alvarez. We did ask OMB for additional money.
Mr. Mollohan. What number did you request of them?
Ms. Alvarez. To the level of $10.8 billion.
Mr. Mollohan. And how much was the subsidy appropriation to
support that lending level?
Ms. Alvarez. Greg Walter is our Deputy CFO.
Mr. Mollohan. Sure. These are all getting down to a fairly
fine level of detail.
Ms. Alvarez. We would need $195 million instead of $153
million.
Mr. Mollohan. Thank you.
Mr. Rogers. Mr. Forbes.
Mr. Forbes. Thank you, Mr. Chairman.
sba delta loan program
I would like to welcome you all here today. Administrator
Alvarez, there is a program known as the Delta Program.
Ms. Alvarez. Yes, sir.
Mr. Forbes. It was created by Congress in fiscal year 1995
for the purposes of helping businesses transition from defense
dependent work to more commercial applications. Could you maybe
tell us to what degree the program is working and how many
loans the program makes a year?
Ms. Alvarez. I'm going to ask Jeanne Sclater to tell us
about the specifics of the program. We are very supportive of
the program.
Ms. Sclater. Sir, we can provide you with the exact numbers
of loans. But there are probably less than 200 loans on the
books right now. The existing legislation is constraining. And
we are working to the extent that we can to try to expand the
numbers under existing legislation; eligibility, for example.
Mr. Forbes. Has the agency made any efforts to try to
broaden the program? If so, in what way?
Ms. Sclater. We are working on that and we have looked at
the limitations. And I know that we are looking at the proposed
legislation that you have offered and are developing a position
on that.
Mr. Forbes. If I'm not mistaken, is it $30 million that was
allocated for the program?
Ms. Sclater. $30 million was transferred to us, yes.
Mr. Forbes. From the Department of Defense?
Ms. Sclater. Yes.
Mr. Forbes. And how much of that $30 million has been
expended?
Ms. Sclater. As of March 31, 1997, 102 DELTA loans have
been made, worth $60.5 million.
Mr. Forbes. Do you anticipate using all of the funding?
Ms. Sclater. Sir, not with the existing constraints.
Mr. Forbes. Have you requested an extension so that you do
not lose the balance of that funding?
Ms. Sclater. No.
Ms. Alvarez. My understanding is that it doesn't lapse
until the end of next year.
Mr. Forbes. The end of?
Ms. Alvarez. Next year.
Ms. Sclater. It does run through September 30, 1998.
Ms. Alvarez. Yes.
duplication and coordination among programs
Mr. Forbes. Last year, the Chairman pointed out that this
Committee had requested that the agencies, all three of your
agencies, sit down and work first to develop a preliminary
report on areas of duplication, as well as areas you might be
able to find some commonality, and reduce overhead, and get
more dollars into your actual programs.
It is a perennial issue. It comes up every year. We get the
same answers every year. The Vice President's reinventing
government proposals have certainly talked about this very
problem, which is that the agencies have almost similar
missions; serving similar constituencies.
If the Committee will indulge me, I will ask one more time,
are there any efforts afoot, besides, in all due respect, a lot
of lip service about sitting down and figuring out how the 8(a)
Program, and the MBE programs, which have similar goals and
missions, could maximize the dollars for both of those
programs, by minimizing your overhead and your duplication?
I know you've filed a preliminary report after the
Chairman's repeated urging to this Committee, but you've never
sat down together, to my knowledge, ever, in my three years as
a Members of this Subcommittee, even though annually, every
year, you've all said, your agencies have said, that you were
going to be sitting down, and going over these very issues.
I ask each one of you to speak to that goal. And can we
expect, finally, a sit down of the three agencies; so that you
can maximize the dollars to your program recipients and
minimize your overhead?
Mr. Webber. Congressman Forbes, if I may, I'd like to start
in terms of giving a brief response certainly from MBDA and the
Department of Commerce's perspective. And let me assure this
Subcommittee that this whole notion of creating efficiencies
among MBDA, SBA, and EDA is something that the Department of
Commerce takes very seriously.
Since we were last before this Subcommittee last year,
there has been an inter-agency working group that has been
commissioned by the two Departments under, at that time the
leadership of Secretary Kantor and Administrator Phil Lader.
That interagency working group met on a number of occasions
through Christmas of last year.
Mr. Forbes. And its goal being what?
Mr. Webber. It's goal being to look in a comprehensive way
at creating efficiencies and attempting to streamline the three
agencies by promoting joint activity, shared resources, and
that kind of thing.
What we found, Congressman Forbes, was that if we were
really going to go about this in a serious way, we had to start
from square one looking critically at the mission of the three
agencies and the mission of the various programs, and really
begin to try to align them.
So, we started literally from square one. And what we found
was that when you start talking about budget issues, very often
the line between budget and policy becomes a very fine one.
We've taken some steps and articulated them in the report that
was submitted to this Subcommittee back in November,
particularly with regard to the expenditure of $3 million
between MBDA and SBA.
But in addition to that, we have begun to develop a number
of issues that we believe are going to have to be addressed at
a higher level than the interagency workinggroup because of the
policy implications that are involved. And I'm very happy to report
that Administrator Alvarez and incoming Commerce Secretary William
Daley have begun to have meetings to further process what was initiated
with the interagency working group. So, I'm very confident that, given
time, we will get to the point where we have something substantive to
give to this Subcommittee.
Mr. Forbes. How much time, sir?
Mr. Webber. Well, it's difficult to say because I don't
want to speak for the Secretary. But I will convey to this
Subcommittee that we really do view this in the spirit that it
was intended. And in order to go about doing this job right, we
must address an understanding of what we can accomplish in
terms of MBDA functional areas dealing with SBA functional
areas. We've really had to elevate this thing to a higher
level.
Mr. Forbes. With all due respect, sir, this has been an
issue discussed by the heads of these agencies, over as many
years, certainly, as my three years as a Member of Congress,
and before that in my tenure as a Regional Administrator of the
SBA. This is, historically, the same issue. We've heard this
every year.
And that's why I think, rightly last year I think, you
heard the Chairman being quite exasperated, because this
Subcommittee has pleaded with these agencies to get down to
business on this. Frankly, I put great hope in the notion that
the Vice President's Reinventing Government I and II would
seriously take into consideration this example.
As a former practitioner, I have to tell you that I know
full well that there is an excessive amount of duplication. And
we could better serve constituents of these programs, I
believe, if we could get the three agencies to be very serious
about this. And I appreciate that, at certain levels, these
discussions are taking place.
But we have had both the Secretary of Commerce, the last
three Secretaries of Commerce, several of the last
Administrators, this Administration and the previous one I
think, convey to this Subcommittee that there is a serious
intent on sitting down and doing that.
I appreciate the Subcommittee's indulgence, but I think
that it is time to set a time table. I respectfully ask that
you communicate with this Subcommittee in regard to that,
because we know there are serious duplications on very valuable
programs in each of your agencies.
Mr. Webber. Congressman Forbes, if I may I'd like to
briefly----
Mr. Forbes. Briefly.
Mr. Rogers. The time of the Gentleman has expired.
Mr. Webber. What our conclusion has been thus far is that
the work is made difficult by the fact that while the three
agencies have similar goals in terms of program objectives that
they seek to achieve, the problem is that these programs are
very different. For example if you look at the SBDC Program,
the Small Business Development Center Program, and the MBDA
Network of MBDCs, there appears to be a lot of duplication.
What we find is that the SBDCs have an approach of service
delivery that is geared toward entrepreneurial education,
workshops and seminars, delivery of services to the extensive
network of colleges and universities that are the primary
sponsors and operators of the SBDCs.
The MBDCs' focus is direct one-on-one client assistance
through professional engagements, individual retainers, almost
like you would find from a management consulting firm, a Peat
Marwick or an Arthur Anderson.
The SBDC approach is an appropriate strategy for giving
people broad information about what it takes to start a
business. The MBDC network is geared for an individual who is
already in business, who has made a commitment to provide a
product or service and needs specialized assistance on specific
issues.
Mr. Forbes. I appreciate that.
Mr. Rogers. The time of the Gentleman has expired.
Mr. Forbes. I appreciate that very much. Thank you.
Mr. Rogers. Before moving to Mr. Skaggs, let me just
briefly comment on the question the Gentleman appropriately
brings up.
We've been hammering trying to get duplications ironed out
on this Subcommittee with your predecessors and your superiors
for years now, all to no avail. We can't even get you to sit
down and talk about the report with staff. It's a matter that
we've discussed with the Secretary and we will continue to
discuss with him because it is obvious that the agencies cannot
achieve any kind of success on this score.
I think we've got to raise it to a higher pay grade. The
Administrator of the SBA is new on the job, and I don't want to
be too harsh on her at this point on this. And Mr. Webber's
boss can't be here. By the way, we wish her well. Be sure to
tell her that.
Mr. Webber. Thank you. I will.
Mr. Rogers. But we are going to insist that action be taken
on the consolidation report. And if you can't do it or the
Secretary can't do it, then we will have to do it ourselves. It
is better that you do it with a scalpel than us do it with a
meat axe. Can I put it any plainer?
Mr. Webber. No, sir.
Ms. Alvarez. No.
Mr. Rogers. Mr. Skaggs.
Mr. Skaggs. Thank you, Mr. Chairman.
sba regional office staffing
Good morning. A paragraph in the report accompanying this
fiscal year's appropriation ends with a direction that the SBA
immediately cease all activities to increase staffing in the
regional offices.
That is preceded by references to two proposals on
downsizing and the elimination of the Deputy Administrator
positions in the regions. Evidently, there may be some
confusion about interpreting that language. Do you read it as
having a broader effect than its stated terms that is not
increasing regional office staff? Are you filling vacancies
that exist in the regional offices?
Ms. Alvarez. Where we have vacancies, especially where it
is appropriate to fill them and they are needed positions, I'd
like them to be filled, yes. I understand the intent, which is
we don't want to grow our regional offices. We haven't done
that.
Mr. Skaggs. Okay. I wanted to make sure this was not
getting in the way of regular staffing and, in particular, the
impact that it would have on conducting audit and review
activities.
Ms. Alvarez. Yes, sir.
Mr. Skaggs. And it's not.
Ms. Alvarez. It is not. No.
sba subsidy rate calculations
Mr. Skaggs. Okay. Also, I was just flipping through your
budget submission and the table on page five labeled the
Historical Execution Subsidy Rates for the SBA Credit Programs.
I'm sure I am missing something in my economics knowledge, but
could you explain why the rates there vary so widely and seem
not to proceed in parallel from one program to another? Some
will go up while others go down.
Ms. Alvarez. Why don't we ask Greg Walter who is our
Deputy CFO.
Mr. Walter. Good morning. I'm Greg Walter, Deputy CFO. The
subsidy rate cost is a present value calculation of expected
cash flows. Within that process there is an assumption made on
the future defaults of loans, as well as recoveries. And that's
all discounted back to the present based on a Treasury cost of
funds to the Federal Government.
Each program actually performs differently. And we've been
able to demonstrate that by looking at our actual historical
loan information. We look at the actual performance information
and apply it against a series of economic and analytical
factors to produce a subsidy rate.
So, for instance, in the Disaster Program, that program has
a cap of a 4 percent interest rate. So, as a result, there is
an inherent subsidy in the interest rate of that program that
causes that program to have a higher subsidy rate than say a
program that has an interest rate that varies with the market.
So, interest rate differences explain some of the differences,
as do the default patterns and the recovery patterns.
Mr. Skaggs. I was struck in the 7(a) Program by the bump
from 1.06 percent in fiscal year 1996 to 2.54 in fiscal year
1997. Given that that's a big program, a small rate change
there has huge consequences. Is there any insight you can offer
into that anomaly or is it an anomaly?
Mr. Walter. Yes, sir. Last year was the first year that
SBA undertook a comprehensive analysis of its loan performance.
We established an extensive data base which captured actual
loan performance for about a 13-year period and used that to
apply to the subsidy calculation for 1997.
Prior to that time, for the first five years of credit
reform the SBA had relied upon a sampling of data from the data
base and not a full analysis of actual transactions. So, there
was an adjustment period that was done in last year's budget
that catches us up to where we now use actual data. Since 1997,
we see more incremental changes that will occur from year-to-
year because we have passed that catch-up period.
Mr. Skaggs. Okay. Then these numbers would be used to
inform CBO scoring of the actual outlays associated with these
programs.
Mr. Walter. Those numbers are used in calculating the
budget authority impact and then there is a subsequent spend
out rate associated with these to calculate the outlay impact.
Mr. Skaggs. Does CBO take these numbers at face value or
do they have their own set of calculations for all of these
programs?
Mr. Walter. They get the cash flow assumptions from SBA.
And they also have a copy of the OMB subsidy modeling that does
the present value calculation. And then they put in their
series of assumptions about the economy, and future recoveries,
future defaults, to calculate the subsidy rates.
However, by statute OMB has the ultimate authority for
calculation of the subsidy rates. Therefore, the subsidy rate
that we work with for the execution of the annual budget is
developed by OMB upon passage of the budget.
Mr. Skaggs. Okay. Thank you, Mr. Chairman.
Mr. Rogers. Thank you, Mr. Skaggs. Mr. Latham.
Mr. Latham. Thank you, Mr. Chairman.
sba asset sales
The SBA apparently is going to propose to begin asset sales
of remaining resources. Could you explain that and how it
really differs from the present situation?
Ms. Alvarez. Jeanne, would you talk about that?
Ms. Sclater. Sir, at the present time we service most of
our loans through four servicing centers; four disaster home
loans and two commercial servicing centers across the country.
Our commercial centers are in Fresno and Little Rock; and
disaster centers are in Sacramento, El Paso, Birmingham, and
New York. What we are going to try to do, using a model that's
been very successful in other agencies such as HUD, is to
attempt to sell off a portion of the assets that we are now
servicing, believing that our work force that's involved with
the servicing will be better used on the front end--in
extending credit rather than managing our portfolio.
Our belief is that our portfolio is good enough that if
sold in the commercial market we can actually save money for
the agency. We are working with the Office of Management and
Budget and relying on the experience of other agencies, as well
as some of their staffs in putting together our best possible
approach in this.
small business development centers
Mr. Latham. The Small Business Development Centers
program, according to the budget, is going to be reduced in
funding by 24 percent. Do you expect the same level of services
from those centers with this reduction?
Ms. Alvarez. Yes, sir. We do. That's based on the
assumption that they will begin to charge fees for services.
But SBA doesn't dictate what kind of fees they charge. It would
be something that would be left to their discretion to
determine what level of fees could be handled by their
customers.
Mr. Latham. Do you think you are going to get the SBDC's
participation? What kind of fees are you proposing?
Ms. Alvarez. Well, currently, the SBDCs don't charge fees
for counseling. They do charge fees for training. And they did,
last year, charge a total of $4.8 million for training. They
haven't been charging fees for the consultation services and
the other business development services. Obviously, they would
prefer not to have to.
We believe that as many other programs in government do
charge modest fees and are able to function effectively and
serve the communities that are their customers that the SBDCs
should be able to make up the difference by charging fees.
Mr. Latham. And is the authorizing committee going to go
ahead and authorize these fees?
Ms. Alvarez. Are you suggesting it needs to be a
legislated change for this to occur? We have the authority to
recommend that they charge fees. There is no impediment to
their charging fees.
Mr. Latham. You don't know what change in participation
that you're going to expect from small businesses?
Ms. Alvarez. As we thinkabout the projections, the $16
million potentially if they were to charge, for example, $80 a case,
would still allow them to service 200,000 clients. And depending on how
they chose to do that, they might not want to charge a start-up
business that was struggling. Whereas, they might be able to ask a fee
from a firm that was in better shape.
Mr. Latham. Are there any guidelines or rules that are
written that are discretionary?
Ms. Alvarez. Our relationship with them is very much of a
partnering negotiated relationship. So, we would certainly work
with them to develop guidelines.
Mr. Latham. Who has the authority to make the decision on
whether they charge fees?
Ms. Alvarez. That's what we're recommending.
Mr. Latham. Recommending?
Ms. Alvarez. Yes.
Mr. Latham. To who?
Ms. Alvarez. As a part of our budget package, we are
recommending to the SBDCs that they begin to charge for
services.
Mr. Latham. Okay, but then you said also that SBDCs would
charge some businesses and not charge others. Who has that
discretion?
Ms. Alvarez. It's their discretion.
Mr. Latham. Who is the person on the ground making that
decision?
Ms. Alvarez. I have had meetings with the SBDC heads. They
have trade organizations. We have our own representation at SBA
that negotiates with them. It's a case-by-case negotiation
really that we would do with them.
Mr. Latham. Who makes that decision? Who picks and chooses
which businesses they are going to charge and which they are
not going to charge?
Ms. Alvarez. That would be their judgment on what is
appropriate.
Mr. Latham. Who is ``they?'' That's what I want to know. I
mean, is it someone----
Ms. Alvarez. There are over 950 centers around the
country.
Mr. Rogers. Is it the director of the local center?
Ms. Alvarez. Yes, sir. That's right. It would be the
director of the center.
Mr. Latham. Are there any guidelines? It just appears that
you could very easily have all of your friends come in and not
charge them without any kind of guidelines.
Ms. Alvarez. I would think we would want to develop some
guidelines across the board and we would work with their
representatives. They do have national representatives that we
meet with from their trade organization. That would then become
the guideline that would be implemented on a case-by-case
basis. We certainly wouldn't want those kinds of abuses to
creep in. I agree.
Mr. Latham. Well, there is the potential for abuses
without guidelines.
Ms. Alvarez. You're correct. We would want to work with
the trade organization to develop the guidelines.
Mr. Latham. Thank you, Mr. Chairman.
sba disaster loan request
Mr. Rogers. Now, regarding disaster loans. You request no
appropriations in fiscal year 1998 for the Disaster Loan
Program. Instead, you assume that you would have sufficient
carryover from the current year.
Ms. Alvarez. Right.
Mr. Rogers. As well as access to a new government-wide
``contingency fund'' that the Administration requested to
address disaster needs. What is your current estimate of the
dollar amount of loans you will do in fiscal year 1997?
Ms. Alvarez. We are estimating over $1 billion in fiscal
year 1997. I've asked for Mr. Kulik, who runs our Disaster
Assistance Program, to join us.
Mr. Rogers. How does that impact your fiscal year 1998
budget request?
Mr. Kulik. Based on a loan program this year of slightly
over $1 billion, if the recommended change in the interest rate
that is in the budget is approved, we will still have
sufficient carryover to run 1998; again, based on the ten-year
average. Unfortunately, it is very hard to determine in advance
what the demand will be, not only in any given year, but from
month-to-month.
Mr. Rogers. Well, if changes are not made to increase the
interest rate and if a contingency fund is not approved, based
on your current estimates will you need an appropriation in
fiscal year 1998? If so, how much?
Mr. Kulik. We would have sufficient funds to operate a
program of approximately $600 million which means if we were to
go on the ten-year average again, we would need additional
funds of approximately $45 million.
sba portfolio management
Mr. Rogers. Well, Administrator Alvarez, as you know the
subsidy rate is a direct reflection on how well the portfolio
is being managed. If default rates are high and recovery rates
are low, it costs us more in subsidy costs. You indicate in
your testimony and in your budget that improvements that the
SBA has made in the last year will help to better manage the
loan portfolio. If so, why then are we seeing an increase, not
a decrease, in the subsidy cost for the Disaster Loan Program?
Mr. Kulik. For the most part, sir, the increases are due
to the fact that our average term for the loan has increased.
Also, obviously, we don't know what the interest rate
fluctuation will be, but the subsidy rate that we used reflects
the differential between the interest rates that we are charged
and the rates that we charge, which is 4 percent. That has a
big part also.
Mr. Rogers. Well, have you implemented management approval
in this through liquidation improvements?
Ms. Alvarez. Yes.
Mr. Rogers. When can we expect to see results from that?
Ms. Sclater. We are seeing results now. We did establish
earlier this year something which we call LIP, the Liquidation
Improvement Project. And we are working fast and furiously to
look at systems redesigns that need to be made. We've hired
some additional people. And we are now seeing some increase in
our recovery. We also expect that with asset sales, we may be
able to better manage our portfolio and relieve some pressures.
Mr. Rogers. Well, we are looking for results and so far
I'd have to say they are pretty meager, if they exist at all.
Some people say that we ought to turn this over to the
privatesector to be serviced as a way to improve management. What do
you think about that?
Ms. Alvarez. We are turning more and more of our functions
to the private sector. In fact, we are----
Mr. Kulik. We are in the process of piloting 30 percent of
our loan servicing by the private sector. And I think that
pilot will show which is more efficient.
Mr. Rogers. Well, I very much doubt that we're going to
have this government-wide emergency contingency fund of $6
billion from which to draw. I doubt that's going to happen. I
doubt you are going to have much of a carryover from 1997. So,
I think we are flirting with disaster.
Ms. Alvarez. Well, we hope we won't have as many disasters
as we've had. That's the other catch. There have been years
where we've had $200 million worth of disasters which we could
handle and those with $600 million.
Mr. Rogers. Well, if we have very many disasters, you're
headed into a disaster.
Ms. Alvarez. Pray that it doesn't happen.
Mr. Rogers. Well, we're not in that business. I mean, we
are in that business, but we've also got to provide monies just
in case the Lord doesn't take care of us. And I don't think you
are doing it with your Disaster Loan budget. I say that to you
frankly.
AGENCY STREAMLINING ACTIVITIES
Let me talk to you about streamlining. Secretary Singerman,
you've been very quiet here this morning, except for your
opening statement. We want to give you the opportunity to
answer questions. As you know, given our budget constraints and
the desire to streamline, EDA salaries and expenses have been
reduced very significantly, as you know all too well.
What actions have you taken to reorganize and streamline?
And how have these reductions been taken in both headquarters
and the field?
Mr. Singerman. Thank you for the opportunity to speak.
As I mentioned earlier, we have gone through very
significant downsizing in our agency. We have tried to take a
disproportionate downsizing at headquarters. That's why in
fiscal year 1996 we took a 25 percent reduction in
headquarters. We have submitted, as you know, a reorganization
plan which you approved, which is included in the flip charts
that I've provided, which creates a more streamlined, and de-
layered and rationalized agency superstructure.
We've consolidated duties so that we have a greater ability
to deploy staff and reduce the stove pipes. That's the problem
with Federal agencies. We've created an Office of Finance and
Administration so that we can be more responsive to our
oversight agencies here in the Congress and in the
Administration and provide greater accountability for our
dollars.
In the field, we have created regional teams. This was the
suggestion of our regional operations professionals in the
field; regional teams that will have on each of them all of the
EDA technical capabilities and knowledge of EDA's programs so
that a community works with the same group of people from the
beginning of project development to post-approval monitoring.
It also more effectively enables us to deploy staff. We
will undergo cross training so individuals will have a broader
knowledge and expertise, not just in their traditional area of
responsibility. So, it's been a very major focus of our
reorganization to streamline it and downsize the agency.
Mr. Rogers. Now, you are requesting an increase for
salaries and expenses in a very difficult year for us. Why do
you need that increase?
Mr. Singerman. At the same time that we've gone through
this downsizing, we have very significant responsibilities. We
are not only the largest grant program in the Department, but
we are as large as the other Commerce grant programs combined,
the Advanced Technology Program, the Manufacturing Extension
Partnership, the National Information Infrastructure Assistance
Program, and the Minority Business Development Agency.
So, we have a sizeable programmatic responsibility. Our
ratio of administration to program is about 7 percent. That is
for every dollar of administrative funds, we are responsible
for approximately $14 of program activities. In addition,
something not widely recognized, is that we have responsibility
for approximately 2,000 open and active projects which
represent something in excess of $1 billion in undisbursed
obligations. Further, we have responsibility for monitoring 400
revolving loan funds that represent invested public capital of
a half a billion dollars.
So, our administrative responsibility is much bigger than
the program dollars that are appropriated to us each year. We
have cut every discretionary expense that we could find. We've
really tightened everything and we watch our pennies. That's a
particular responsibility of mine.
Mr. Rogers. If we are not able to find that additional
funding, what will happen?
Mr. Singerman. The consequences I think would be very
severe. With 260 full-time equivalents we were able to maintain
the field and regional structure that is essential to the way
EDA does business, working intimately with local communities to
develop projects.
When we developed our downsizing plan before 1995, we
looked at a number of options. And a downsizing plan that would
go below that limit would really transform the agency into a
different kind of agency: one that has a centralized office
that does periodic solicitations, and really could not provide
the hands-on assistance that local communities require.
Mr. Rogers. Mr. Mollohan.
Mr. Mollohan. Mr. Chairman, I know you've got a lot of
questions. So, I'm just going to ask a couple here real quick,
if that's okay.
First of all, let me, which I should have done in the
opening, express a special appreciation to Ms. Alvarez and Mr.
Singerman for the outstanding work that both of your agencies
do. That's not to slight the Minority Business Agency at all.
We hope that, likewise, you all are pleased with the quality of
programs we are working in the nation and in West Virginia.
Mr. Singerman, I want to especially compliment you on the
EDA recognitions that you have gotten; an especially good job.
That's evident by the kinds of acknowledgements that are listed
in your report. I have just one real quick line of questioning
for you.
EDA DEFENSE ECONOMIC ADJUSTMENT
I noticed in your presentation here, you are heavy on
public works. And that is obviously appealing to this
Committee. But I don't see anything about your Defense Economic
Adjustment Program. As I go through your activity summary, I
note that for Defense Economic Adjustment, you are essentially
asking for the same amount of money as you did last year.
Actually, your fiscal year 1998 request is $1 million less.
How long is Defense Economic Adjustment going to be with us?
And what progress are we making in adjusting these communities
to defense dislocations? And when can we expect them to be
readjusted?
Mr. Singerman. The current budgetary projections of OMB
call for funding for Defense Economic Adjustment in fiscal year
1998 and in fiscal year 1999. Approximately half of the
community bases that have been closed have been serviced by EDA
support.
So, approximately half of those that have already been
closed or slated to close have not. The assumption behind the
OMB recommendation is that 1998 and 1999 funds will be
appropriate to provide the level of support that is required.
Mr. Mollohan. So, you would anticipate in the year 2000
not having a request for Defense Economic Adjustment?
Mr. Singerman. That's the current projection of OMB.
Mr. Mollohan. Okay. Let me ask you this in a final
question. Defense Economic Adjustment is 50 percent of your
budget request for public works projects.
The public works projects cover every community in the
country that meets the economic criteria. And that's a high
percentage of the communities in the Nation. It is certainly a
lot more than are covered by the defense adjustment program.
Yet, it is only twice as much funding.
I would like for you to speak to that issue, the relative
need. Aren't we paying disproportionately more attention to the
economic hardships in defense adjustment communities versus the
rest of the country?
Mr. Singerman. That's a really hard question to----
Mr. Mollohan. We don't ask the easy ones.
Mr. Singerman. First of all, I would say that the needs of
communities that have been impacted by base closures are very
intense and also constricted in time. These communities fall
under the sediments of severe economic dislocation criteria.
It's like a major plant shutdown magnified many times over.
Mr. Mollohan. I'll tell you what I'm going to ask you to
do. I'm going to ask you to contemplate that issue for the
record, but to get a considered statement back.
[The information follows:]
[Pages 854 - 856--The official Committee record contains additional material here.]
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Rogers. Thank you. Well, I thank all of you for your
testimony and your answers today. As Mr. Mollohan has said, EDA
and, SBA especially, and MBDA have been doing wonderful work in
my judgment.
The Members of this Subcommittee provided some resistance
to the long knives that were out, particularly for EDA, last
year and the year before. Because of the work that the EDA
does, we were successful. I don't know of a better
Administrator that I have seen of the EDA than Secretary
Singerman. He does an excellent job administering a very
difficult agency covering the whole breadth of types of
programs. And we appreciate the job, Assistant Secretary
Singerman, that you are doing with the EDA.
Mr. Singerman. Thank you, sir.
Mr. Rogers. And Administrator Alvarez, we are looking
forward to working with you, SBA is another difficult agency to
deal with because you cover such a wide variety of programs and
you can't always predict what's going to happen next because
you deal a lot with disasters, and with some high risk loans,
to mention just a few.
Mr. Webber, we, again hope that you will convey our best
wishes to the Director of MBDA for her full and speedy
recovery. We are hoping that we can consolidate a lot of the
activities common to all of our business and economic
development programs to try to save some money. Every penny we
save results in more money we can get out to the people that
need the help.
We look forward to working with you. And we are not going
to have all of the money that you would like for us to be able
to appropriate. I know that is shocking shocking news to you.
We don't anticipate much new money this year. Again, we live in
a time of austerity. We're trying to balance the budget.
Every agency and every department will have to feel some of
the pain of that as we go through the process. We will know
later what our allocation is, but don't expect Santa Claus.
Thank you all for being here.
[Pages 858 - 931--The official Committee record contains additional material here.]
Thursday, April 10, 1997.
DEPARTMENT OF COMMERCE STATISTICAL PROGRAMS
WITNESSES
EVERETT M. EHRLICH, UNDER SECRETARY FOR ECONOMIC AFFAIRS, DEPARTMENT OF
COMMERCE
MARTHA FARNSWORTH RICHE, DIRECTOR, BUREAU OF THE CENSUS
J. STEVEN LANDEFELD, DIRECTOR OF THE BUREAU OF ECONOMIC ANALYSIS
Opening Remarks
Mr. Rogers. The committee will come to order.
I'm sorry to be late. The Chairman went to the wrong
hearing room. The Chairman went to the old hearing room. I
apologize for the delay.
We're pleased to welcome our witnesses for this morning's
hearings on the Commerce Department's Statistical Programs, Dr.
Everett M. Ehrlich, Under Secretary of Commerce for Economic
Affairs and Dr. Martha Farnsworth Riche, Director of the Bureau
of the Census.
In addition, Dr. Steven Landefeld, Director of the Bureau
of Economic Analysis has submitted a statement for the record
and is in the audience for any questions that may come his way.
For many people, the most important event of the year 2000
will be the dropping of the ball in Times Square to ring in the
new millennium. But for us in this House and this Subcommittee
and the witnesses, the most important event in the year 2000
will be the decennial census.
Planning for the census is, of course, underway and the
fiscal year 1998 budget request includes $661 million for the
Census Bureau as a whole, an increase of $313 million over last
year, a 91 percent increase of which $313 million is for Census
2000 and related activities.
Despite the approaching deadline, there are still enormous
questions and issues concerning how the census will be
conducted and a lack of consensus on how it should be
conducted: from what the cost will be and whether the Census
Bureau's estimates are reliable or attainable, to the manner in
which the Bureau is planning to conduct the census, to what the
census form should look like and so on.
That is what we're here to look into today among other
things. Before starting, I would like to mention that a Member
of the Full Committee, Carrie Meek from the 17th District of
Florida, has asked to sit in on the hearing. Of course, she
will be welcome. In the last Congress, Mrs. Meek served as
Ranking Member on the Government Reform Subcommittee with
jurisdiction over the Census Bureau. We're pleased to have her
here when she arrives.
Dr. Ehrlich and Dr. Riche, we have your statements in the
record. They will be made a part of the record. If you would
like to summarize briefly those statements orally, we would
welcome that at this time. Dr. Ehrlich, we will start with you.
Opening Statements
Mr. Ehrlich. Thank you very much, Mr. Chairman and Members
of the Committee. It's a pleasure to be in front of you once
again to discuss our proposal for fiscal year 1998. Let me
reiterate at the outset, as Secretary Daley has said of our
program, we are confident but not complacent about our ability
to manage and implement a census in the year 2000 that is
accurate, fair, and cost effective.
We think that we've made some important achievements in the
last year. I have summarized those in my statement. We hope to
be able to discuss them with you at greater length during this
hearing. The important point that we need to make this morning
is that the cost of the Decennial Program in 1998 is
substantial, but we are at a point in the process where
important preparatory work for Census 2000 must be undertaken
in ernest.
Dr. Riche, in her statement, will discuss in greater detail
those activities for which we seek funding in fiscal year 1998.
We understand that there are differences, that there is an
absence of consensus about the design of the 2000 census. We
understand that there are information gaps that is our
responsibility to fill. But it must be understood that our
program and our submission in fiscal year 1998 are not related
to the issues about which there is disagreement, but the issues
about which there is agreement.
That is: the need to conduct a dress rehearsal; to build
our address list; to award contracts for telecommunications and
data management; to begin our program of outreach and
promotion, and a variety of other activities that this
Subcommittee in the past has directed us to accomplish.
These are the nuts and bolts activities that will determine
the success of the next census regardless of the issues of
design that may not yet be the subject of consensus. The bill
for these activities is large, and we invite your scrutiny of
it.
Your scrutiny has played an enormous productive role in the
2000 cycle to date. But the bill that we are presenting you
with must be paid if we are to fulfill our constitutional
mandate to conduct a decennial census that accounts for every
resident of the United States.
We will also have the opportunity to discuss this morning
the quinquennial economic census of 1998. The quinquennial
economic census sounds abstract, arcane, and perhaps to people
who aren't statisticians, irrelevant. It is not. It is the
backbone of our ability to measure a rapidly changing advanced
modern economy.
The data that we collect in that census are used in every
economic survey and the calculation of every economic statistic
over the subsequent five years. Again, it is an activity that
is costly, to which we invite your scrutiny, but a bill that
must be paid if we are to transact our commitment to have an
economic statistical system.
I appreciate, Mr. Chairman, your willingness to allow us to
submit for the record the statement of Dr. Landefeld, the
Director of BEA. We appreciate the Subcommittee's support for
our economic data program following our 1995 Mid-Decade Review
and look forward to working with you on these matters at both
BEA and Census.
There are outstanding differences that we need to resolve
about Census 2000. We understand that. We are committed to
doing everything that we can to explain our program and to
build that consensus. I think that we can agree, though, that
we are committed to a census that produces statistical accuracy
and that does not waste taxpayer money.
Let us move forward together, therefore, from that
agreement to embrace a program that best accomplishes those
objectives. Thank you very much for this time. Let me turn to
Dr. Riche.
[The statement of Dr. Ehrlich follows:]
[Pages 936 - 938--The official Committee record contains additional material here.]
Dr. Riche. Mr. Chairman, thank you for the opportunity to
be here today. I too will submit a statement as you mentioned.
I'd like to just make some remarks about Census 2000. I know
you are greatly interested in it.
Although I have complete confidence in our progress towards
Census 2000, clearly we must do a better job of keeping the
Congress informed. We've begun a series of regular meetings
with congressional staff. We expect to explain our progress
towards Census 2000 in those meetings, and to listen to your
perspectives, your concerns.
In that light I bring before you today two matters of
critical importance that have a significant affect on Census
2000's planning and its results. The first matter concerns our
plan to make the census as accurate as possible by using
statistical methods to supplement our counting efforts.
This plan is in line with the recommendations of three
National Academy of Sciences panels, one of which was
commissioned by the Congress. The professional staff of the
Census Bureau and our other external advisors have reached the
same conclusions.
We've got broad based support: we've heard from the
American Statistical Association, the American Sociological
Association, the National Association of Counties, and a host
of advisory committees. Despite this overwhelming professional
and public support, I realize there is some reservation in the
Congress about the use of statistical estimation. We've tried
to provide answers to all of the technical questions. We've
promised to continue to do so. We are committed to keeping you
fully informed about our detailed strategy and about our plans.
Mr. Chairman, I believe in our approach because I am
convinced that it is the best way to take an accurate census.
Incorporating statistical estimation into Census 2000 will
enable us to make the census both more accurate than ever
before and to do so at a significantly lower cost per housing
unit than repeating old procedures. I believe that if we don't
use statistical estimation, in Census 2000, then we will be
left with a census that is less accurate than the flawed 1990
result and that costs more than necessary.
That brings me to the second matter, the budget for Census
2000. We find ourselves asking for increasing amounts of money
as we get close to 2000, while the Congress has the difficult
task of trying to balance the Federal budget. Despite these
competing objectives, I'm hopeful that we can work together to
ensure adequate funding for this year and the next two years so
that we can get funding for the many tasks necessary to make
Census 2000 a success. If we don't have sufficient resources,
there is serious risk in having a poor quality census when our
nation needs the best one in its history.
The estimated total cost of Census 2000, the full cycle
costs included in the President's budget estimate, is $4
billion. That's up from the estimate of $3.9 billion announced
a year ago February. Based on the views of our stakeholders,
including the Congress, we decided to personally contact 90
percent of all of the people in each census tract rather than
in each county.
This change reduces the risk of a count that is based on
limited mail responses within a large geographic area. Although
it will cost $100 million more in the year 2000, it will result
in a more accurate count for all areas. Let me emphasize that
beyond this change we are committed to achieving our goal of
offsetting and absorbing adjustments in the total cost of
Census 2000.
That goes for refinements in the plan like the more
accurate and rapid method we just chose for sampling housing
units that don't mail back forms. It goes for factors out of
our immediate control such as the wage rates necessary to
attract and retain temporary field staff.
For example, we recently had an independent contract review
the tightening labor market to see what it might cost to get
the temporary workers we will need in 2000. Based on that work,
it looks like increasing the wages we pay could reduce our
turnover from as much as 250 percent in some areas to about 80
percent nationwide.
That could offset a lot of recruiting and training costs.
Another factor not within our control is that we find that
communities with non-city style addresses are converting to
city style street addresses more slowly than we had expected.
We know they're doing this because they want to go to 911
emergency systems. But that delay means that the Census Bureau
in 2000 may have to deliver far more forms personally, forms
that we had expected that the Post Office would be delivering
for us.
My point is that we're going to continue to monitor
emerging situations like this. Our goal is to try to offset an
increase in cost by more refinements in our plan. Our goal is
to stay within the $4 billion estimated cost of Census 2000
that's in the President's budget.
I hope that our periodic meetings with the congressional
staff will provide the opportunity to explain this process as
it keeps going on and to gain your full support for our plan.
It's going to take a continuing collaborative effort by the
Congress, the Department of Commerce and the Census Bureau to
get the full cycle funding necessary to be a success in 2000.
I believe that the risk to the census is not in its
technical design, but as the GAO recently noted, that the
Administration and the Congress won't reach consensus on the
design until it's too late to implement it effectively. I'd
like to turn now to the resources required to conduct Census
2000 operations in fiscal year 1998. I'd like to emphasize that
the refinements in the plan that I've just mentioned have no
effect on our 1998 budget request.
Today, we're less than three years away from Census 2000.
That means that we've gotten to a point where there is very
limited flexibility within our request if we're going to
complete census planning and move quickly into full operations.
Let me just indicate the things that we're planning to do in
1998 for 2000.
We will complete the initial phase of our partnerships with
the U.S. Postal Service and with local governments to build a
truly accurate address list. We will begin our effort to ensure
that we have a complete address list in areas that don't have
street addresses. Those are primarily rural areas.
We will conduct a full-scale dress rehearsal of Census 2000
to demonstrate and evaluate in an operational environment all
of the aspects of our plan. We must do this and begin to
analyze the results if we're to lower risks when we go to the
full plan in 2000.
We need to finance support for the contracts for automated
data processing and telecommunications--those parts of the
census that we've said that we would privatize to get more
accurate, more up-to-date expertise from others. If wecan't
award those contracts in fiscal year 1998, we put at risk our
commitment to privatize, our commitment to let people answer the census
by phone, for instance, as well as by mail.
We need to open the 12 regional census centers and the
census field offices that we need for building the address
list.
Finally, we need to dramatically increase our promotion and
outreach efforts through awarding a contract to manage
advertising and to add staff to develop partnerships with
State, local, tribal governments and private sector
organizations. Failure to fund either aspect of our promotion
and outreach program will preclude our opportunity to evaluate
the effectiveness of advertising in our dress rehearsal and
virtually eliminate the possibility of establishing effective
partnerships with local and tribal governments.
Mr. Chairman, we've been an active participant in the
President's efforts to balance the budget. We've studied our
business operations to become more efficient. We've eliminated
programs that are not central to our mission or the Nation's
need for statistics.
We haven't compromised the collection and dissemination of
timely, relevant, and quality data about the people or the
economy of the United States. We appreciate the past assistance
of this Subcommittee. We look forward to continuing to work
with you, your staff, and other Members.
Mr. Chairman, thank you very much.
[The statements of Dr. Riche and Dr. Landefeld follow:]
[Pages 942 - 962--The official Committee record contains additional material here.]
decennial census sampling
Mr. Rogers. Thank you, Dr. Riche and Dr. Ehrlich.
Well, we're still on the sampling question in the 2000
Census. You're determined at this point to use sampling in
spite of the fact that a lot of people say it is inaccurate and
misleading, including many Members of this Congress.
We're left with the question of whether or not in
appropriating the monies for the census on behalf of the people
of the country, whether or not you will do it your way or their
way. It is a pretty simple question.
One of the major justifications that you've used in
justifying your argument to use sampling is that it will result
in great cost savings. That resounds heavily on this
Subcommittee. That's what we deal with of course. We're going
to be limited on monies this year, as usual.
I'm beginning to wonder whether there is a huge cost
difference between a census that uses sampling as you've
proposed and one that doesn't. For two years you've told us the
difference was about $1 billion; that sampling would save us $1
billion.
Last year we questioned that and you came back after
analysis and said it was around $500 million in savings. Last
week, we continued to question and try to boil that down and
you came back staff-to-staff and said the difference was only
about $200 million, a savings of only about $200 million. I'm
not even sure that's right.
I think the true range probably is around $100 million that
you would save. How can we justify or how can you explain these
huge discrepancies in the claims of what a sampling would save
us? How can we have any confidence in those numbers that you
now say, Dr. Ehrlich?
Dr. Ehrlich. Mr. Chairman, we very much want you to have
confidence in the numbers we provide to you. I think we should
review the numbers that you've given. If I am not mistaken,
we've never claimed that sampling saved the full virtual $1
billion. That's the product of sampling and the various other
improvements, automation, address lists, other management
reforms that are independent of streamlining. I do not recall a
time when we represented otherwise.
Mr. Rogers. Well, it was very plain last year and ever
since that even though it may include other things, it was
believed that sampling would save us $1 billion. I mean that
was very plain to the world.
Dr. Ehrlich. Mr. Chairman, I'm prepared to be corrected,
but don't believe we made that representation.
Mr. Rogers. I think you did.
Dr. Ehrlich. If we did, it was in error because, I don't
believe we've ever represented that. Regardless, the question
you then raise about the $400 million to $500 million versus
$200 million is a very important one because the savings
resulting from sampling depend on what you want to compare it
to. If you want to have a census that is accurate--that has an
expected undercount of virtually zero--sampling will save you
$400 million.
If you want to have a census with an error rate of around
1.9 percent, around 2 percent of the population, about 15
percent more than the error rate was in 1990, then the savings
from sampling goes down to $200 million. This makes the point
that I believe we've tried to make repeatedly to the Congress.
That is, the more accurate you want the census to be, the
more effective sampling becomes, the greater the cost savings
that it produces. So, the answer to the question of how much
does sampling save depends on how accurate a census you desire.
If you want to have error rates that are larger than we had
in 1990, we can implement a no-sampling program, repeat the
1990 design and the cash savings, Mr. Chairman, will be on the
order of $200 million. If we want to have a census that
eliminates the undercount in the United States, then it will be
on the order of $400 million.
Mr. Rogers. Well, eliminating the undercount, that's the
key phrase and whether or not your process called sampling
would eliminate the so-called undercount. That's as you know a
matter of great controversy.
As I understand it, your position now is that using the
sampling procedure, we'd save at the maximum $200 million?
Dr. Ehrlich. No. No.
Mr. Rogers. Using the adjustment process.
Dr. Ehrlich. Sampling would save $400 million if we want
to have an undercount rate of zero and $200 million if you want
to have an undercount rate of 2 percent.
Mr. Rogers. Well, you're not taking into account, I don't
think, in that calculation other changes that are being made
that hopefully will improve the responses to your mail out, are
you, i.e., you are refining the form?
Hopefully, it will be much more effective in getting people
to respond directly to the mail out, saving a lot of money--
correct?
Dr. Ehrlich. Yes, Mr. Chairman.
Mr. Rogers. So, hopefully, some of the changes that you're
making in the process will reduce the non-response to the mail
out which would make the census more accurate regardless; would
it not?
Dr. Ehrlich. Those savings are in the estimate of the
balance of the savings over and above sampling. They're not
directly attributable to sampling and therefore we don't
include them. I think that's a part of the confusion about the
number in thearea of $1 billion and the number in the area of
$500 million. When we look at automation, address list improvements,
management and outreach savings and the like, those produce savings in
the census when compared to a rerun of 1990, but we do not attribute
those savings to sampling.
decennial census forms
Mr. Rogers. Well, let me turn quickly then to the forms.
You've just announced your categories for the long and short
forms. While we've made progress on the short form, it appears
the long form will be just about as long as it was in 1990. You
and others claim the long form is not a significant cost.
According to your own estimates, the direct cost of
printing, production, and so forth cost between 8 and 10
percent of the total cost of the census--about $320 million to
$400 million--which is not exactly pocket change; and the
hidden cost, the cost to followup for people that don't mail it
back by your own accounting may be as much as $130 million.
Therefore, the real cost of the long form, as I calculate,
is about 25 percent of the total, not the 8 to 10 percent that
we've been told. Further, what is more troubling is that it
disproportionately impacts response rates for the hardest to
count populations.
A 1992 GAO report found that for the populations that are
hardest to count there is a large disparity in the response
rate for the long and short form. The short form response rate
was 61 percent. The long form was 53 percent; the very
populations that we spent most of our money trying to find.
The point I'm trying to get at is can either of you tell us
that the use of the long form mixed in with the short has no
impact, negative impact, on the response rate of the
differential undercount? In other words, does mixing in the
long form cause us to have somewhat less response from the
people that it goes to?
Dr. Riche. In 1990, there was a less than one percentage
point difference in the overall response rate as a result of
the long form. In other words, there was a 5 percentage point
difference in the response rate to the short form compared to
the long form. But since the long form only goes to one in six
households that netted out to less than one percentage point.
I guess I put this in the context of compared to what, what
the trade-offs are. On the one hand, people in the communities
tell us these data are very important for them for getting the
information they need to apply for grants, empowerment grants,
things like that.
Mr. Rogers. I understand that. The only question I wanted
to know from you was, does mixing in the long form cause us to
lose effective response?
Dr. Riche. Well, in 1990 it was about one percentage
point.
Mr. Rogers. Well, that's nationally.
Dr. Riche. Yes. That's nationally.
Mr. Rogers. But the long form, I am told, in more sparsely
populated areas goes to one in two people; correct?
Dr. Riche. That's right, one in two housing units, yes.
Mr. Rogers. In rural areas.
Dr. Riche. Right.
Mr. Rogers. In lowly populated areas. And in urban areas
it goes to one in eight people; correct?
Dr. Riche. One in 20 I think in like New York City.
Mr. Rogers. Why is that? Why is there such a disparity?
Dr. Riche. Well, it is to get data of equal quality for
all of the communities across the country.
Mr. Rogers. Well, I dispute the idea that the response
rate for the long form is only one percent less than the short
form.
Dr. Riche. No. That was a net. It was definitely more than
one percent, the difference. I think it was about a 5
percentage points difference between the two, but it nets out
to that. I hear your question and I would be very happy to get
for the record the differences in response rates by the
different geographic types.
Mr. Rogers. That would be interesting to see.
Dr. Riche. Okay.
[The information follows:]
[Pages 967 - 969--The official Committee record contains additional material here.]
content of census forms
Mr. Rogers. I guess the point I'm getting at is this. The
decennial census as mandated by the Constitution is that we
count the number of residents.
Dr. Riche. Right.
Mr. Rogers. That's all it requires. Obviously, there has
to be a few other questions that go with that. You've boiled
the short form down to what, six?
Dr. Riche. Seven.
Mr. Rogers. Seven questions now; down from, what was it,
12?
Dr. Riche. Twelve, yes.
Mr. Rogers. So, you're making some progress there. I think
you're going to see a lot better response out of that shortened
and more digestible form--people will respond to it. But the
long form asks, I mean, you're still asking a bunch of
questions. How long is the long form going to be? How many
questions?
Dr. Ehrlich. Twenty-seven subjects.
Mr. Rogers. Twenty-seven subjects. And how many pages is
it; 50 questions and 27 subjects.
Dr. Ehrlich. The list of questions is being developed
following congressional approval of the subjects. On the order
of 50.
Mr. Rogers. But is it less comparable to last time?
Dr. Ehrlich. Relatively comparable.
response rate
Mr. Rogers. We had a dismal return rate in 1990.
Dr. Ehrlich. A differential of 6 percent.
Mr. Rogers. Nationally.
Dr. Ehrlich. Nationally; that's correct.
Mr. Rogers. The long form asks a lot of worthwhile
information. No one disputes that. It is terribly important
that the planners around the country have that kind of
information. But it's not constitutionally mandated. Have you
ever thought of that?
Dr. Riche. Well, we did.
Mr. Rogers. What have you thought about?
Ds. Riche. In the early 1980s we did test separating the
two activities.
Mr. Rogers. You read my mind.
Ds. Riche. What we found was that it was significantly
more costly and we got only about half as much response rate to
the second stage. So, if you look at the whole activity
overall, it was vastly less successful.
What we've been looking at since you've continued to be
concerned, and rightly so, as you know I agree with you about
the response rate burden on folks, we have been developing this
system called Continuous Measurement where we de-couple totally
the data collection from the census. That's a way that's cost
effective. It's cost neutral compared to the way we tried in
the early 1980s.
Mr. Rogers. But that's only in the year 2010 that you
would do that, correct?
Dr. Riche. That's right and henceforth.
Mr. Rogers. It seems to me that there ought to be some
very serious thought given to de-coupling the information
sought on the long form from the decennial constitutional
mandate to count the residents of the country. And then six
months later, or whatever, do the long form. I don't care if
you use sampling on the long form.
Sample all you want as long as it's scientifically proven.
But on the decennial census it seems to me that we're looking
for that very simple question of counting the number of
residents and the related information that the Constitution
mandates; do that as effectively as you can. We will worry
about getting the answer to the question of how many bathrooms
are in the house six months later. What do you think about
that?
Dr. Ehrlich. First, Mr. Chairman, your involvement in
taming the long form and imposing some discipline on the
process is widely appreciated in the Bureau and in the data
constituencies. We are put in a very difficult situation in so
far as we are at a cross-current between the congressional
mandate regarding the long form, the constitutional mandate
regarding the conduct of the census and the like. The question
of separating the two can mean a variety of difficult things.
To us in the long term it means continuous measurement. I
think that gives us an effective vehicle to avoid the kinds of
cross contamination that you're discussing and to do effective
cost management for the whole project, including attribution to
individual agencies, which is a topic on which we agree.
In the year 2000 we agree with you, the Department does and
the Bureau does, that separating the two in terms of budgetary
treatment and cost allocation is an important goal and we want
to try to find ways to do that so that the cost is allocated
correctly to the people who benefit from it.
The issue as to whether or not you could separate them
logistically in the field is one that we have considered in the
past and in the past have not pursued because of the cost of
starting up the field operation after closing it down.
We would be happy to submit to you for the record some more
formal statement about our view of our separation, including
what the field procedures would be, what the costs would be on
some order of magnitude.
As you would point out, we do not need to replicate the
entire field staff because it's a one in six national sample.
Let us respond to you for the record about that.
Mr. Rogers. I'd appreciate that. Yes. If you did the
questions on the long form in a separate time frame different
from the actual decennial census, you would not need to do the
long form questions using the same precision as you do the head
count, it seems to me, where you could use sampling or
adjustments based on scientific procedures.
I don't think anyone would have a really bad time with
that. What some of us have a bad time digesting is on the
actual resident head count that, that would get us to where we
need to be. There are some reservations. I would appreciate
hearing from you on that.
Mr. Ehrlich. We will follow-up about the long form.
Mr. Rogers. Thank you.
[The information follows:]
The net increase in cost for a two-stage census methodology
is estimated at $391 million.
Mailing a long form within six months after Census Day
rather than during the regular enumeration period would not
substantially improve response rates in the ``basic counting''
stage of Census 2000, and it would add substantially to overall
Census 2000 costs. It would stretch even further our already
attenuated resource requirements.
Our 1990 census experience suggests that the overall affect
on short form mail response rates from delaying the long form
would not be large--about a 1-percentage-point increase. The
1990 census mail response rates were 60 percent for the long
form, 66 percent for the short form, but--because the long form
was used for only 1-in-6 households--the overall mail response
rate was 65 percent. The Census 2000 plan is to continue
sending the long form to 1-in-6 households.
We estimate that the response rate for a delayed long form,
however, would decrease significantly. The Census Bureau tested
a two step collection methodology in a 1985 test census in
Jersey City to compare it with a one-stage method. The long-
form mail response rate in the two-stage test was extremely
low, about half compared with the one-stage test.
Delaying the long form data collection process by three to
six months would increase Census 2000 resource requirements and
associated costs for a number of activities. Infrastructure
(both office and staffing) requirements would be lengthened.
For example, local census offices would need to remain open
longer to cover the follow up period. The same would hold true
for all the other office space we lease for processing. In
addition, we would need to release the large army of temporary
census workers after the regular enumeration, and then several
months later, we would have to recruit, hire, and train
approximately 30,000 additional census workers to conduct a
delayed long form follow up. With a delayed long form, the
requirements for data capture and processing would be higher
and thus more costly. Postal and printing costs likewise would
increase considerably because more short forms would need to be
printed and mailed in stage 1. We would need to extend the
extensive outreach and marketing program, designed to boost
overall census participation, leading to further costs. We have
not included such costs here because we would need further
assessment to determine requirements. The complex partnership
program, firmly in place for the regular enumeration, might run
the risk of collapsing for the delayed long form follow up.
Both of the latter programs play crucial roles in creating what
we call the ``census climate''--an environment that will
produce awareness and interest in Census 2000 and, in itself,
promotes response.
Based on cost modeling techniques, the following figures
show the increased estimated costs of a two-stage census:
decreased nonresponse follow up in stage 1--($25 million);
increased infrastructure (office space and staff)--$33 million;
increased printing and postage for extra short forms in stage
1--$106 million; increased data capture for extra short forms
in stage 1--$18 million; increased staff costs for second stage
follow up--$259 million. Total net cost increase (plus any
additional outreach and marketing costs)--$391 million.
While the American Community Survey (ACS) can replace the
long form in 2010, if full funding is provided, considerably
more research and development is needed. The ACS is not ready
to replace the long form in 2000.
error rates
Mr. Rogers. Mr. Mollohan.
Mr. Mollohan. Thank you, Mr. Chairman. Dr. Ehrlich and Dr.
Riche, I welcome you to the hearing today.
Do you have a knowledge of the error rates that we
experienced during past census? When was the first census,
1790?
Dr. Riche. That's right.
Mr. Mollohan. What was the error rate in the 1790 Census?
Dr. Riche. Well, all I can tell you is that when Thomas
Jefferson delivered the census to George Washington in the
cover letter he said, here are the results. The official
results are written in black. The true results, so far as we
know them, are written in red. But he didn't say what the
difference was. History doesn't tell us that.
We didn't really get an idea of the error rate until 1940.
We started using statistical sampling to evaluate our work
around that time. What happened in 1940 actually was that, if
you will forgive me telling a little story here, that the
Census Bureau delivered to the Selective Service Board numbers
of how many men should be expected to show up for the Draft.
And we found that 3 percent fewer men, excuse me, 3 percent
more men showed up than we had said there were, but 13 percent
more African American men showed up than we had said there
were. So, that was our first knowledge of the dimensions of the
under count and the fact that it was differential.
So, we've been working on bringing it down ever since, but
as you probably know 1980 was the best we did and 1990 got
worse.
decennial census direct contact
Mr. Mollohan. If you go to the 1790 Census and look it up,
you will find a name and a number of people in the household,
and you might even find names of people in the household and it
will tell you their ages. It's very literal in that way.
If you go to some kind of a directory or a resource with
regard to the 1990 Census, would you be able to find the same
information?
Dr. Riche. We don't release the census results until 72
years after the census.
Mr. Mollohan. If I went to the 1910 Census.
Dr. Riche. Yes, 1920.
Mr. Mollohan. If I went to the 1920 Census, would I be
able to find the same information?
Dr. Riche. That's right.
Mr. Mollohan. Seventy years from now could I go to the
1990 Census and find the same information?
Dr. Riche. If you're lucky enough to be here, yes. You
will be able to.
Mr. Mollohan. Well, I plan on it.
Okay. So, you do have this kind of literal information that
you gather to the extent possible?
Dr. Riche. That's right.
Mr. Mollohan. Is that really right? Do you do it to the
extent possible if you address the issues that the Chairman was
getting at? If your total focus was getting an accurate,
literal count, what would be the way you would conduct this
census?
Dr. Riche. Well, the goal we----
Mr. Mollohan. I'm talking about my goal.
Dr. Riche. Okay. Your goal is literal.
Mr. Mollohan. Yes. My goal is as accurate a count as
possible. How would you do that?
Dr. Riche. I think we'd do it the way we're planning to do
it. We are going to use interviews with a quality control
survey after the census to correct the work that we're doing in
the first intensive parts of the census where we are getting
forms from people that they've mailed in, that they've
telephoned in, that we've gotten from going door-to-door. Then
we will correct the results.
Mr. Mollohan. And then you propose to overlay that with a
statistical factor.
Dr. Riche. That's the correction. That's the overlay right
there, the quality control survey that corrects.
Mr. Mollohan. I think we went through this once before. I
would like to know what percentage of the population will you
record in the way I've previously described.
Dr. Riche. That we will actually physically have gathered
the data from one of the forms I've mentioned?
Mr. Mollohan. Either through a personal interview or
forms.
Dr. Riche. With direct contact it's 90 percent in every
neighborhood in the country.
Mr. Mollohan. That's consistent for both rural and urban
neighborhoods?
Dr. Riche. That's every neighborhood. We call it a census
tract.
Mr. Mollohan. I just want to make sure I'm understanding
what you're saying.
Dr. Riche. That's right.
Mr. Mollohan. You will achieve a 90 percent literal count
in every neighborhood in the Nation?
Dr. Riche. Correct.
Mr. Mollohan. How do you describe that?
Dr. Riche. I say direct contact.
Mr. Mollohan. Direct contact.
Dr. Riche. Uh-huh.
Mr. Mollohan. So, in the rural areas you will have 90
percent.
Dr. Riche. Right.
Mr. Mollohan. And in the urban areas you will have 90
percent.
Dr. Riche. That's right.
Mr. Mollohan. It just works out that way?
Dr. Riche. No. We're going to work hard to make it work
out that way. That's the way the plan is constructed.
Mr. Rogers. Would the Gentleman yield?
Mr. Mollohan. Yes.
Mr. Rogers. How do you know it's 90 percent? How do you
know when you get to 90 percent?
Dr. Riche. That's why we're so insistent on the address
list that we're building. The address list gives us a list of
every housing unit in the country. We don't know in advance
about every person in the country. We only know about every
housing unit. So, we will be checking off housing unit-by-
housing unit, getting to 90 percent of every neighborhood.
Mr. Mollohan. All right. My first question was, forgetting
about all of the sampling.
Dr. Riche. Right.
decennial census methodology
Mr. Mollohan. If you were just counting people, you would
do it the exact same way you are proposing. Are you sure about
that? I mean that's a responsive answer.
Dr. Ehrlich. It absolutely is. The point of the design is
to get to that best count in accounting for all residents of
the country on April 1, 2000. It's more than sampling. You do
that in extensive partnership with state and local governments.
You build an address list that is world class. You use
technology to process information correctly to scan forms. You
use technology to catch duplication so we can move the forms
into 7-Elevens, in schools, in places where people go. The form
finds them. You use marketing techniques like our advertising,
like our outreach and promotion and you do all of that to get
the best field data and then you use the most appropriate
statistical methods to assure that the quality is second to
none.
The answer to your question is, is that if we had all of
the time--not all of the time, but certainly all of the money
in the world, if we could gold plate the census in some sense
and spend every last dime to produce a statistically correct
answer, we would do what we're doing now because it is
impossible to count every person through physical contact;
either through the mail, face-to-face, or over the phone. There
are always people that we will not count. Our process will
account for them after that count.
Mr. Mollohan. Is there any disagreement in the
professional statistical community? Is there any disagreement
in that community about your methodology?
Dr. Ehrlich. No, there isn't. I believe we have the
endorsements of the National Academy of Sciences, the American
Statistical Association, the Population Association of America.
Mr. Mollohan. Okay.
Dr. Ehrlich. And other associations that I will not bore
you with.
Mr. Mollohan. I'm not bored.
Dr. Ehrlich. There is a good number of them, you know.
census of mineral industries
Mr. Mollohan. I'm taken back a little bit by your proposal
to eliminate the census for mineral industries. I'm really
taken back by it. I'd like for you to tell me, did you
personally participate in that decision, either one of you?
Dr. Ehrlich. I did. Dr. Riche--it's an economic policy
decision that is made finally at the Under Secretary level.
Mr. Mollohan. Who made the decision? Did you personally
make the decision?
Dr. Riche. I made the decision and Mr. Ehrlich.
Mr. Mollohan. You made the decision to eliminate the
census of mineral industries.
Dr. Riche. Right.
Mr. Mollohan. Who participates in that decision?
Dr. Riche. Well, I participate in it and as he has said,
Under Secretary Ehrlich. It was a matter of taking a very hard
look when we got our funding at what we were going to do with
it. I certainly didn't like eliminating one sector of our
eight-sector economic census, but I felt that it was important
that we use a responsible criteria for doing it.
Mr. Mollohan. What's the criteria that you applied to this
decision?
Dr. Riche. Well, the data are used for----
Mr. Mollohan. No. What's the criteria you used in making
the decision?
Dr. Riche. The criterion was the least harm to the
national economic statistics, the gross domestic product and
related statistics. So, that was why I asked the staff to tell
me what would do the least harm.
Mr. Mollohan. Why was eliminating mineral industries cause
the least harm?
Dr. Riche. Because it's the smallest sector. It has the
smallest--it has the least growth.
Mr. Mollohan. Well, it is only marginally different than
agriculture. What's agriculture, 2 percent, isn't it?
Dr. Riche. Okay. But the previous year the census of
agriculture had gone to another Department, the Department of
Agriculture. So, that went first and then the census of
minerals came next.
Mr. Mollohan. I just have to fundamentally disagree with
the decision.
Dr. Riche. I understand.
Mr. Mollohan. Do you agree that appreciating the value of
energy, how it's produced and where it comes from is of a
fundamental importance to the national economy? Cheap energy is
very important to the nation. Do you have any idea how much
energy is produced by coal for example?
Dr. Riche. I don't personally, but I know it is important.
Mr. Mollohan. Well, you personally participated in this
decision to eliminate the census of minerals, did you not?
Dr. Riche. That's right.
Mr. Mollohan. And you do not know what percentage of
energy--in the nation is produced by coal?
Dr. Riche. No. No, I don't have any idea about coal.
Dr. Ehrlich. If I'm not mistaken it's on the order of 20
to 22 quadrillion btus. It's roughly 20 to 25 percent of total
production.
Mr. Mollohan. Try 56 percent.
Dr. Ehrlich. Excuse me, sir?
Mr. Mollohan. Try 56 percent.
Dr. Ehrlich. I stand corrected.
Mr. Mollohan. I understand the census of minerals was one
of the core categories?
Dr. Riche. There were eight different categories;
manufacturing----
Mr. Mollohan. Eight core categories.
Dr. Riche. Eight core categories.
Mr. Mollohan. Eight core censuses.
Dr. Riche. That's right.
Mr. Mollohan. And you eliminated this one.
Dr. Riche. It's the smallest one.
Mr. Mollohan. Were there any non-core categories that you
will continue to fund?
Dr. Riche. No, sir.
Mr. Mollohan. Are you sure about that?
Dr. Riche. Of all of the censuses?
Mr. Mollohan. Uh-huh.
Dr. Riche. There is the--we have manufacturing services,
transportation----
Mr. Mollohan. Other related programs.
Dr. Riche. Other related programs.
Mr. Mollohan. Non-core programs. Did you keep any of
those?
Dr. Riche. Of the----
Dr. Ehrlich. In the Economic Census Program?
Mr. Mollohan. Yes.
Dr. Ehrlich. Yes. It includes the survey of minority-owned
business enterprises and a survey of women-owned business
enterprises. That's correct.
Mr. Mollohan. Does it include the survey of truck
inventory?
Dr. Ehrlich. Yes, it does.
Mr. Mollohan. Did you keep that?
Dr. Ehrlich. It's on the cusp, but that's correct. The
truck inventory and use survey is, yes, a part of the program.
As Dr. Riche stated, the criteria is the size of the sector in
terms of contribution of GDP. If I may, Congressman, let's
return to your point.
We are as concerned as are you about the fact that we're in
a position where the economic census and the resources that we
now have to do it with will not allow us to measure adequately
every sector of the economy. We regret the fact that there are
choices we have to make.
Mr. Mollohan. Well, I obviously have a parochial interest
in this. However. I think others would agree it is a bad idea
to undermine the information that we have available to assess
the energy capability of the nation. It speaks to the potential
of the nation to provide cheap energy into the future. Coal is
going to be a part of that. I made a point and I'd like to
follow-up with that because I think I can work with the
Chairman who may have a similar interest. Thank you Mr.
Chairman.
Mr. Rogers. Mr. Latham.
Mr. Latham. I'm going to have to leave.
Mr. Rogers. All right. Mr. Dixon.
decennial census sampling
Mr. Dixon. Thank you very much Mr. Chairman.
I'd like to follow-up on the issue that the Chairman raised
with you. I wasn't really clear as to the answer you gave. I
believe he was setting forth the proposition that there
probably wouldn't be any objection to using statistical
sampling on the long form and suggested that it should be done
at some other period.
It's my understanding that the Department maintains that
statistical sampling will in fact give you a more accurate
count of the population. So, to use it at some other time would
really not apply to the purpose for which you want to use it
for. Is that correct?
Dr. Ehrlich. Yes. That is correct.
Mr. Dixon. We had a discussion, the Chairman and I, and
the two of you about seeking declaratory relief. I wonder if
you ever followed through with that issue and if in fact what
the results are. I'm told that the legal department feels that
there is some issue of standing.
Dr. Ehrlich. We wouldn't have standing to seek such
relief. I'd be happy to submit for the record the opinion of
our counsel in that regard.
[The information follows:]
[Pages 978 - 980--The official Committee record contains additional material here.]
sampling
Dr. Ehrlich. We discussed this issue after our last
hearing. We welcome the ability to have that standing and to
resolve the issue.
Mr. Dixon. I don't think there is a shortage of people who
would pursue this and with the resources of the Department you
could probably find somebody that would have standing and
encourage them to move forward with it if the feeling is that
the Department itself does not have that standing.
Dr. Ehrlich. If I may, the irony is that one would
anticipate that we would be challenged by someone who objected
to sampling and that they would have taken us to court by now,
but they've not. I believe that that perhaps relates to their
poor prospects.
census 2000 dress rehearsal
Mr. Dixon. All right. The other question, Dr. Riche, is I
noticed in the testimony that you outlined that you wanted to
have a full-scale dress rehearsal. I think there are three
communities; one in Wisconsin, Sacramento in California, and I
believe an Indian Reservation.
Dr. Riche. South Carolina.
Mr. Dixon. Right. What is the cost of that going to be?
Dr. Riche. I haven't got the exact costs with me, but I'd
be happy to submit them for the record.
Dr. Ehrlich. It's on the order of $30 million to $35
million in 1998.
Mr. Dixon. Okay.
[The information follows:]
The total cost of the Census 2000 Dress Rehearsal is $35.5
million. In fiscal year 1997, we will spend $4.5 million to
conduct address list development activities in the three Dress
Rehearsal sites. In fiscal year 1998, we will spend $27.2
million to deploy the full range of Census 2000 enumeration
activities. In fiscal year 1999, we will spend $3.8 million to
complete processing of the Dress Rehearsal responses and
deliver the prototype redistricting and detailed data products.
Analysis of the Dress Rehearsal options is vital to the Census
Bureau's efforts to refine and improve the plans and
assumptions for Census 2000. The prototype data products are
vital to state redistricting officials and other data users as
they prepare their systems to use the results of Census 2000.
2000 dress rehearsal
Mr. Dixon. My question is what you said, Dr. Riche. I
assume that you hope that this will demonstrate that the
statistical sampling method is more accurate. And you used the
term ``compared to what.'' I'm asking you, I assume you're
going to get some figures out of this, but compared to what?
How will you know it is in fact more accurate?
Dr. Riche. Well, we have population estimates for all of
our areas. We know from a number of independent ways what kind
of accuracy we're looking for. You know, we have birth
certificates, death certificates; an independent set of records
that tells us what kind of people we tend to miss using the
traditional census processes, so we have an idea of what kind
of people we're looking for to make sure we have effectively
not missed them.
Mr. Dixon. Maybe I didn't understand your answer. I assume
that you're going to, from this dress rehearsal, obtain a set
of numbers. And you're going to say that this set of numbers,
using statistical sampling, demonstrates that it's more
accurate than the way you've done it in the past. Is that
basically what you're going to do?
Dr. Riche. A broader purpose for the dress rehearsal is to
basically run through everything that we're going to be using,
all of the new things that we're doing, privatization through
contracts, advertising, every--partnerships with local
organizations, all of that. We will also be working on the
statistical procedures as you've said and having folks----
Mr. Dixon. So, is the dress rehearsal intended to
demonstrate the accuracy of the statistical sampling?
Dr. Riche. I think----
Mr. Dixon. Or just to work out the kinks in the system?
Dr. Riche. Well, we've tested almost all of the individual
activities that we're going to do. This is putting it all
together in a real dry run. It's an integrated plan.
Mr. Dixon. Well, let me ask it another way.
Dr. Riche. Yes.
Mr. Dixon. What do you intend to demonstrate by the dry
run, if anything, or do you only intend to work out the
methodology in the kinks in the system?
Dr. Ehrlich. No. We intend to demonstrate the entire
operational sweep of the census. It will verify the accuracy of
the statistical methods.
Mr. Dixon. How will you verify it? That's what I'm
interested in? Compared to what? We've got these numbers.
They're more accurate. How do you know they're more accurate?
Dr. Ehrlich. We will know that from the conduct of the
quality check survey that Dr. Riche refers to and then once we
have that statistically corrected result, as Dr. Riche
mentioned, we can compare it to other information we have, such
as birth and death records, other administrative records. We
use ratios of the male to female population which are fairly
constant over time; other manners of administrative and other
demographic data to which we bench mark the results we have.
Dr. Riche. If I might add, we would also hope during the
dress rehearsal to use for the first time what we're calling a
transparent procedure, developing the outside validation,
looking at the process so that everyone can get comfortable
with it and that includes----
Mr. Dixon. Let me ask it another way.
Dr. Riche. Okay.
Mr. Dixon. After you do this dry run, what criticism will
the skeptics be able to make about this process?
Dr. Riche. I'm not sure. That, I can't project. It might
be they might say that privatizing contracts doesn't work.
Mr. Dixon. They might say how do we know it's more
accurate? You say it's more accurate and then you're going to
have some other data to put up along side it aren't you?
Dr. Riche. Right.
Dr. Ehrlich. Yes.
Dr. Riche. Yes.
Mr. Dixon. So, at that point it will be difficult to argue
one way or the other because the comparison data will show that
it's more accurate. Is that correct?
Dr. Ehrlich. Yes. That's correct, because of the
demonstration of the entire operational sweep of all of the
procedures. If there are now outstanding concerns that sampling
adds operational complexity that can't be managed, then that
criticism can be assuaged to that issue, at least forthrightly
addressed. It's our view that it won't.
In fact, it simplifies matters in many regards. But
nonetheless, that is the kind of issue that could be resolved
in the dress rehearsal.
Mr. Dixon. Well, it just seems to me that this dress
rehearsal is very, very important.
Dr. Riche. Yes, absolutely.
Mr. Dixon. And should be taken with great care so that we
can not only rely on the scientific community, but put to rest
through an actual practice, whether or not it turns out to be
more correct. Now, the demographics of the areas, are they
diverse enough so someone will say, well, you did Sacramento
but that was real easy to do?
Dr. Riche. Yes.
Mr. Dixon. Have you taken into consideration all of the
diversity?
Dr. Riche. In fact that was interesting. Sacramento was
one of the few cities of the size we could afford to do a dress
rehearsal on that had an extremely representative makeup of the
entire U.S. population. The South Carolina area has rural areas
in it as well as small towns. We think we've got a pretty
representative study.
Mr. Dixon. Well, what about the argument that it wouldn't
work in a big city like New York. You did it in Sacramento but
it wouldn't work in New York? I'm trying to--and I hope you
anticipate the kinds of legitimate criticism that will be made.
Yes, you did it in a little small town like Sacramento, but New
York City is a whole different thing. It won't work there. Are
you taking into consideration those kinds of arguments?
Dr. Riche. Yes. We are. We are trying to work with our
advisors from places like New York City, as well as other
cities, other places of concern. That's the reason we have such
a broad advisory list of stakeholders.
Dr. Ehrlich. Let me also add that this is not the only
test we've performed in the cycle. We've performed tests in
Chicago. We've performed tests in Oakland. We've performed
tests in other cities around the country. We've had experience
in operating in these areas.
Mr. Dixon. And just once again, Mr. Chairman, it's the
opinion of your counsel that the Department of Commerce would
not have standing to ask for declaratory relief.
Dr. Ehrlich. We will be happy to submit that to you and
look forward to your reaction to it.
[The information follows:]
[Pages 984 - 986--The official Committee record contains additional material here.]
Mr. Dixon. Thank you, Mr. Chairman.
1998 dress rehearsal vs. 1995 test
Mr. Rogers. Thank you, Mr. Dixon.
To followup a little bit on the dress rehearsal, now we did
a 1995 test, did we not? How does the 1998 dress rehearsal
differ from the 1995 test?
Dr. Riche. It is a complete dry run. It has all of the
pieces that we tested separately put together in one place. It
will have our partnerships in it. It will be testing the
advertising component. One of the reasons why Sacramento is a
good place is it is a complete media market. So, we can have
some understanding of how that works. It is a complete run-
through.
Mr. Rogers. Are you doing methods or activities in the
1998 test that were not tested in 1995?
Dr. Riche. I think the principal thing that we did not
test in 1995 would be the advertising portion.
decennial census forms
Mr. Rogers. And the questionnaire, the form.
Dr. Riche. And the questionnaires are all new.
Mr. Rogers. You're going to try this new slick form that
you've been developing.
Dr. Riche. Well, we've got some posters if you'd like to
see them.
Mr. Rogers. Is it in purple and chartreuse this time?
Dr. Riche. No. We decided one color was cheaper. So, it's
not quite as glamorous as it was last time. But it's
substantially slimmed down. We've got a picture from the old
form up here and one from the new one that we can show you.
Mr. Rogers. Now, these are the short forms; right?
Dr. Riche. That's right. The long form will have the same.
Mr. Rogers. I hope that's the old one.
Dr. Riche. Yes, that is the old one.
Mr. Rogers. And ta-dah, the new one; right?
Dr. Riche. Yes.
Mr. Rogers. Now, is this the final version of it?
Dr. Riche. I've got a copy here I'd like to give you;
actually a whole mailing. We are still doing some testing, but
we're down to wrinkles.
Mr. Rogers. And you will use these colors?
Dr. Riche. Well, I'm not sure what the exact test is. But
so far this color has worked pretty well. It turns out the
yellow we used the last time was hard for older people to see
the letters against it.
Mr. Rogers. I would think some mailing outfit could tell
you what colors are best.
Dr. Riche. That's what we're working with.
Dr. Ehrlich. As Dr. Riche has informed me, we're going to
be somewhat secretive about colors because we don't want other
direct mailers to use those colors in their graphics, so we can
capitalize on your expenditures.
Mr. Rogers. I won't tell anybody.
Dr. Ehrlich. Then we'll keep you in our confidence.
Mr. Rogers. Has this been tested in any fashion?
Dr. Riche. We've tested the forms that you have right
there last year. We've got some interesting results; took all
of those into this form right here which is actually in test
right now.
Mr. Rogers. What have you concluded from your testing?
Dr. Riche. Well, we've concluded that certainly
simplifying the form is a great help; particularly helping
people see very clearly what we're asking them to do and taking
off as much verbiage as possible.
Mr. Rogers. Well, we look forward to digesting this again.
It seems to me already I can see a huge difference between the
1990 form which a lot of people threw in the trash because it
was too forbidding and intimidating. I can already see a lot of
improvement. But you're still working on it?
Dr. Riche. Yes.
Mr. Rogers. When will you finally settle on the form?
Dr. Riche. We have to get the printing done for the 2000
forms. We have to be settled by next fall.
decennial census outreach and promotion
Mr. Rogers. Now, you're planning to spend $100 million to
advertise in 2000 to publicize the census to bring people's
attention to it rather than relying, as we have in the past, on
free public service announcements. You're going to buy $100
million worth of advertisement. In what form will that take?
Dr. Riche. Well, basically it's $100 million over a four-
year period. The bulk of it would be in 2000. The bulk of it is
for buying space and time on television, radio, and print
advertisements. What I was interested to find was that when the
broadcast industry was deregulated, they were relieved from the
obligation of carrying public service announcements.
In 1990 we then had no control over where or how often the
announcements occurred. As it turned out, we didn't get any
prime time television, except on Hispanic networks. We have
many communities where there was simply no publicity at all.
Mr. Rogers. Do you have any kind of analysis to support
the use of paid advertising and it's impact on response rates?
Dr. Riche. Well, we've gone to the other Government
agencies that use advertising, principally the Defense
Department for recruiting and the Postal Service. We've gotten
from them what information they have and that's what was used
to budget the campaign. Again, the dress rehearsal will be when
we have a chance to really come up with some facts and figures.
Mr. Rogers. Well, as you know there is some skepticism and
even criticism over that plan as you might expect.
Dr. Riche. Yes.
Mr. Rogers. GAO has said that the Federal Government has
little experience in that area and it has not been tested. How
do you respond to that?
Dr. Riche. That's why we're going to the private sector to
do it. We're in the process of getting a Request for Proposal
out to the private sector. They are the ones that have the
experience. They do it all the time. We are hiring somebody who
has experience in running one of the federal contracts for
advertising.
Basically, the private sector will do it. We have an
oversight board put in of people who procured it, as I say,
from these other agencies. Yes, I'm well aware that we don't
have experience doing it. We shouldn't be doing it. We're
trying to get the experience to manage the contract.
Mr. Rogers. Will you be testing that in the 1998 dress
rehearsal?
Dr. Riche. That's right.
Mr. Rogers. You will be doing some paid advertising in
that dress rehearsal?
Dr. Riche. Yes.
Mr. Rogers. And will you wait for the results of that
testing before you decide to finally go with the 2000
advertising plan?
Dr. Riche. That's right.
Mr. Rogers. We have a vote on the floor. Ms. Meek is with
us. I want her to have the chance as well to ask questions. So,
I'm going to declare a short recess while we go do our American
duty and vote. We shall return shortly. We will be in recess
for a few minutes.
[Recess.]
decennial census address list
Mr. Rogers. We will resume the hearing. I appreciate your
indulgence for our absence.
Let me talk to you, Dr. Riche, a moment about the address
list. The poor quality of the list was a major contributing
factor to both cost and accuracy in 1990. Do you agree with
that?
Dr. Riche. Uh-huh.
Mr. Rogers. We spent $182 million to develop the list and
we still missed or miscounted 5.5 million households. We sent
enumerators to 13.4 million housing units that were either
vacant or didn't exist at all, to the tune of $317 million; 39
percent of the total spent on non-response followup.
Clearly, a better address list would save a lot of money
and make the count more accurate; agreed?
Dr. Riche. Right.
Mr. Rogers. You are requesting $102 million for address
list development in fiscal year 1998. That's a $100 million
increase. What are the current plans for address list
development? How do they differ from 1990? How does your 1998
request fit in with those plans?
Dr. Riche. Well, I think the most important thing that's
happened is the legislation that was passed earlier to allow us
to first take off from the Postal Service's list rather than
from a bought one. Then secondly, to share the list that we
developed with local governments.
That's something that we're moving into doing in the
partnerships with local governments. That's a major activity.
Both the map sharing with them for the geographical boundaries
and the address sharing.
Mr. Rogers. What, if any, costs are we avoiding that we
incurred in 1990? Have you run into problems which may reduce
the cost savings you originally thought for this activity? What
are they and what impact would they have on costs?
Dr. Riche. Well, I think probably the major saving is
using the Postal Service to identify vacancies for us, which
we've tested. It worked pretty well, not perfectly. But we have
a quality control process in to correct for it. That will make
a big saving.
Then I think the thing that we've run into most recently
that I alluded to in my statement, that to get the Post Office
to deliver the questionnaires they have to have street-style
addresses, while we deliver it ourselves if it's a non-city
style address. We have found that communities are moving slower
than we had anticipated to convert to those. But we hope to
absorb that cost.
Mr. Rogers. So, there are some significant differences in
the problems in developing address lists for urban areas versus
rural areas.
Dr. Riche. In the urban areas, we've got the postal list
we can start from. In the rural areas or the non-city style, we
have to do it ourselves.
Mr. Rogers. How will you do that?
Dr. Riche. Well, we will hire employees. That's what we
will be doing in 1998. We will be hiring temporary employees to
go out and basically find the housing units, put them on a map,
put them on----
Mr. Rogers. Am I correct, for example, the address list in
a rural area may say P.O. Box 49. Of course you don't know
where that house is.
Dr. Riche. Yes. We have to find the actual house.
Mr. Rogers. You have to actually find that house.
Dr. Riche. That's right.
Mr. Rogers. Correct?
Dr. Riche. That's right.
Mr. Rogers. And that's what you're talking about.
Dr. Riche. That's right.
Mr. Rogers. Are there other things that I'm missing in
that?
Dr. Riche. Not that I'm aware of, but I'd be happy to
submit a more detailed description.
[The information follows:]
For areas with predominantly city style addresses,--such as
``101 Main Street'' or ``1217 Maple Ave., Apt. 306,''--the
Census Bureau is building the address list for Census 2000 in
partnership with the U.S. Postal Service and with local and
tribal governments. For each city style address provided by the
U.S. Postal Service and each participating local and tribal
government, temporary Census Bureau staff must determine the
correct census block location--unless we already know the
location. We will also update our geographic data base to
include all new streets added to the address list, along with
the address ranges that document the relative location of those
addresses along each street. The FY 1998 budget requests funds
to accelerate this work and ensure its completion as part of
the Census address list building process. The Census Bureau
will continue to receive updated address information
periodically from the U.S. Postal Service, but only those
addresses received by the Summer of 1998 will be included in
the Local Update of Census Addresses (LUCA) program. Additional
updated addresses from the U.S. Postal Service, and our local
and tribal partners, will be used in Census 2000.
For areas with predominantly non-city style addresses--such
as ``RFD 7, Box 19''--the Census Bureau will build the address
list for Census 2000 through a series of field operations that
will begin in the summer of 1998 and extending through March
1999. This process uses temporary staff to visit every housing
unit in these areas, ``spot'' the location of the housing unit
on a map, record the census block number in which the housing
unit is located, and knock on the door to also determine the
mailing address for the housing unit. This address listing work
must be completed before we can submit the Census address list
to a local or tribal government as part of the LUCA programs.
To provide an opportunity for local and tribal governments
to review both the completeness of the address list and the
geographic assignment of each address to a census block, the
Census Bureau will conduct the LUCA program from January
through June 1999. This program, which includes all city style
and non-city style addresses, is required by P.L. 103-430. The
LUCA operation will be conducted on a flow basis as the Census
address list becomes available for each government. Local and
tribal participants will have several weeks to review the
addresses for their communities and return any corrections or
additions to the Census Bureau. This will ensure the best
possible address list to deliver forms to each household in
Census 2000 and to use in the nonresponse follow up operation.
address lists
Mr. Rogers. Well, I think you're telling me that this is
going to be slower than you maybe once thought.
Dr. Riche. No. We think we're on schedule for it. I
understand that GAO has just taken a look at how we're doing
and they say we're progressing on schedule. We expect to be
done a year in advance of the census with the address list.
Mr. Rogers. Well, as I understand it under your current
schedule and your budget, the rural address list won't be
completed until April 1999.
Dr. Riche. That's right.
Mr. Rogers. Local review and any problems must be
completed by June of 1999; correct?
Dr. Riche. Two months, yes.
Mr. Rogers. In order to meet the September 1999 deadline
to complete the list; correct?
Dr. Riche. I think that's right.
Mr. Rogers. Aren't we pushing it to get that done in time?
Dr. Riche. Well, we're pretty confident that we can make
this deadline. This is something we've done a lot--we've got a
lot of experience with. Because we won't have the Postal
Service list to check against for those non-city style
addresses, that's why we put it a little bit later in the
process so that we will gain a little accuracy off it.
Mr. Rogers. You feel confident on the rural address list.
Dr. Riche. Yes. I do.
Mr. Rogers. That you will have that done as well as it can
be done.
Dr. Riche. Yes, sir.
Mr. Rogers. On the time schedule that you've laid out.
Dr. Riche. Yes, sir.
Mr. Rogers. Can you assure us that the quality of the
address list for rural areas will be as good or better than the
urban areas under your current schedule?
Dr. Riche. Yes, sir.
Mr. Rogers. Will your current schedule give the rural
governments sufficient time to work with you to review the
lists and appeal if there are any unresolved problems?
Dr. Riche. Well, that's the way we've designed it. And
we've been going to various meetings of associations where they
are to get their attention now so they will be ready when the
time comes.
Mr. Rogers. Well, I think that's an important step. I
think one of the big errors in 1990 was that we did not allow
those local governments to have input on this thing.
Dr. Riche. That's right.
Mr. Rogers. Because if I've heard it once, I've heard it
10,000 times, they never asked me how to do this. They never
asked our opinion. Then I heard different people say well, no
one ever contacted me. They didn't count me. I heard this from
all over. So, I hope that you do plug in those local government
units because they can help enormously I think. I hope you will
allow plenty of time for that. Are you confident you have?
Dr. Riche. Yes. I believe so. We have the problem at the
other end of going too soon because as you know there is a lot
of turnover in local government. I've found when I go out now
somebody will say--I'll say we told you about this last year.
They'll say well I wasn't here last year. That's another reason
we set the timing the way we have.
Mr. Rogers. Well, to date local government participation
or interest is not as great as I would like to see myself. I'm
sure you feel the same way. To date only about 12 percent of
local governments have expressed interest in supplying lists
and 2 percent have said they're not interested and very few
have actually supplied information. Is that correct?
Dr. Riche. That's right. That's why next year is really an
important year. We've really got to step on the gas.
bea--national economic accounts
Mr. Rogers. Now, Secretary Ehrlich, I guess we ought to
get off the Census Bureau for just a moment. Initiatives have
been proposed in the past by the Bureau of Economic Analysis to
improve our national economic accounts. Because of budget
constraints, we've not been able to provide increased funding
for that activity. I understand BEA has reprioritized and
streamlined its programs so that base funds can be devoted to
this area. Can you give us an update on BEA's streamlining and
the status of your initiative to improve the national accounts?
Dr. Ehrlich. I'd be happy to. As you understand in March
of 1995 we held the Mid-Decade Review, which was the first
comprehensive strategic plan for the Nation's accounts in 40
years. We established in that review what the highest priority
items were across the economic programs, at both BEA and at
Census, which gives most of the supporting data for BEA's
calculations.
The highest priority, as we have discussed in the past, is
improving the measurement of prices and output in the economy,
which relates to the problems of inflation measurements and a
variety of other issues that we have discussed. Following that
review, we eliminated a variety of programs that were in fact
very important.
The leading economic indicators were sent to the Conference
Board, and we eliminated projections of regional economic
conditions into the future. We cut back our measurement of
foreign direct investment, although we still feel what we have
is the best in the world.
We unfortunately cut out our measures of pollution
abatement and control expenditures, sub-national retail sales
at Census, a variety of other data at Census to support BEA;
all of them important to the Nation and to, of course, affected
constituencies, but they were less directly involved in the
calculation of contemporaneous growth and inflation than the
other programs we had. Some hard choices had to be made and
we've gone out and made them.
I would also add that we believe we're at a point where our
entire program at BEA is built around that primary mission. If
we have to absorb further cuts, we would find ourselves
delaying or postponing elements of the revision process that
are necessary to assure the accuracy of the GDP data.
bea funding
Mr. Rogers. Now, you're requesting a $6.3 million increase
to continue those efforts in 1998. Given our budget
constraints, I'm not sure where we're going to be able to go
with that.
Dr. Ehrlich. I understand.
Mr. Rogers. But I commend you for your success in
streamlining very sincerely. How would you spend that increase
if we were able to do that?
Dr. Ehrlich. We would spend some of it, if I'm not
mistaken, on adjustments to base. But we would also spend some
of it on finishing the modernization of our computer system.
BEA, as we have discussed in the past, is finishing its
transition off of a 1970s vintage Honeywell main frame. The
hamster inside is dying.
We would also continue the primary objective of improving
data on savings, on price measurement, and on improving the
data that go into the measure of output and GDP to reinforce
these fundamental priorities.
consumer price index
Mr. Rogers. Why does Commerce not calculate CPI?
Dr. Ehrlich. Because the Labor Department was given that
mission about 80 years ago and continues to do it.
Mr. Rogers. Are you equipped to do it?
Dr. Ehrlich. No. We could not do it as the Labor
Department does. The Labor Department, in order to calculate
the CPI, puts thousands of field workers out into stores, to
sample the prices of something like 15,000 or 16,000
commodities every month.
That data is then taken to the Department of Labor,
aggregated and used to calculate the CPI. It is then sent to
Dr. Landefeld and BEA at the level of 50 to 100 product
aggregations. We use that data where no better alternative
exists in calculating the GDP.
When we can find a better alternative, either by
constructing it ourselves through our own research--that's one
of the activities we're trying to fund or find it elsewhere in
other federal data or elsewhere within BLS, for example, we do.
Mr. Rogers. Without being critical of another agency, God
forbid, is there a better way that exist in science to
calculate the CPI than the current procedure?
Dr. Ehrlich. The issues raised by former CEA Chairman
Boskin in his report about the CPI are the right issues. We
know that there are some problems with the CPI related to the
fact that it does not adequately rotate new products into its
measurement. And that there are perhaps biases in the formula
that is used to aggregate up from product detail into broad
categories.
I think there is broad agreement about that. I think the
Labor Department understands that as well. The Boskin report
then goes on to say that we do not pay adequate attention to
the issue of the change in quality of goods and services in
CPI. Perhaps the most fundamental problem with our data is that
the data treat the phone that's on your desk today the same as
the one that was on your grandma's credenza some years ago.
If both cost $50, then in fact phones have improved in
price performance because the one on your desk can do so many
more things and is so much more of a quality product. That is
not the subject of broad consensus within the economic
community although there is a broad understanding that it is a
problem.
It is unclear as to how much the CPI would move were we to
measure that correctly. My understanding is that BLS feels that
the expected value of that correction is zero. My personal view
is that they're wrong. It is probably positive, but right now
we're speculating absent the research that allows us to answer
that question.
One of the things we're trying to fund in BEA this year is
that kind of research in areas such as telecommunications,
health, and other kinds of services that allows us to measure
product quality in an objective fashion in the way that BEA did
for computers ten years ago and in fact initiated work in the
area by so doing.
Mr. Rogers. Do you agree with Chairman Greenspan and
others that the currently calculated CPI is not accurate?
Dr. Ehrlich. Yes. I do.
Mr. Rogers. I think he said it overstated the CPI by
upwards of one percent.
Dr. Ehrlich. That's not an unreasonable estimate. I don't
have a basis for giving you an estimate as to how much it's off
by. But our economic data throughout the Federal Government, in
our agencies as well as BLS', overstate inflation and
understate real gross product.
DECENNIAL CENSUS SAMPLING
Mr. Rogers. Well, if the expertise of the government can't
determine the cost of living increase accurately by sampling,
how can we do an actual head count of the census by sampling?
Dr. Ehrlich. And there you go. The sampling involved is
the way we collect data. The problem is not the sampling. The
problem is (a) are there resources to adequately fund the
program, (b) does the management of those agencies have the
will to produce the kinds of changes that get adequate data,
and (c) do they have an organized plan to do so. We are here
today, Mr. Chairman, to discuss the resources, but I am telling
you that I believe that we have the will and the plan to
implement if we have the resources.
Mr. Rogers. We're delighted to have Ms. Carrie Meek with
us who is a Member of the Appropriations Committee again, and
although not a Member of this subcommittee she is welcome here
today. Ms. Meek if you would like some questions or comments,
it's all yours.
Ms. Meek. Yes. Thank you, Mr. Chairman Rogers.
Last, in the 105th Congress I was on the authorizing
committee for the Census. I had quite a few discussions with
the two people who are here today. Thank you again for coming.
I have had a strong interest, Mr. Chairman, in the Census
since the 1960s. I've been closely involved in them. When you
asked Mr. Rogers if he would be around during that time based
on how long I've been around, maybe he will be here when you
come back again, Doctor.
Mr. Rogers. I want to know your secret.
WAIVERS FOR ENUMERATORS ON PUBLIC ASSISTANCE
Ms. Meek. Well, I don't know. But I've been there. The
reason I asked the Chairman to let me come in this morning was
to listen to the proceedings here and to talk about an interest
which I have still. I've worked very closely with the Census
Bureau. Last year I introduced a bipartisan bill which would
have done many of the things which the Census Bureau has
already decided it would do and that is good. One part of that
bill had to do with sampling, just one aspect of sampling. It
had to do with sampling with the inter-census track because I
felt that, that was a smaller demographic sample and it would
perform much better in terms of getting an accurate count.
So, I don't want to even dwell on that because I think Mr.
Rogers and this committee and the Authorizing Committee will do
that. Instead I want to focus on another part of it which I
mentioned last year in the bill. I've refiled that bill again
this year. And that's the use of neighbors working on the
census.
There were many, many I would say blockages to permitting
that. There were blockages that would come--what I wanted to do
was hopefully have poor people serve as census enumerators and
not be penalized because of that. I do know that people who
know the neighborhoods can more accurately collect this
information than people who are strangers in those areas.
Many of the people that have, I think, been involved in
this under count are people who are a little reluctant to even
talk to strangers. Many of them think that you're coming there
to turn them in to Immigration and all other kinds of things. I
understand you are counting every head wherever they are.
So, I think it's important that we use these people on
these temporary jobs and because they are temporary jobs I
think they only last for two months, people just don't--they're
a little concerned about becoming an enumerator because what it
does is prohibits them or it cuts down on some of the benefits,
federal benefits, which they are already receiving.
So, I thought it might be a good idea if I talked to you
about that again this morning, these federal benefits. If they
serve as a census enumerator, I'm hoping that in some way the
funds that they receive from that will not be counted for
purposes of the Federal Benefits Program.
Now, the last time the census was taken I think you were
able to get waivers for many of these people. Now, we're being
told that very few of these agencies now can provide these
waivers. I know HHS cannot provide them. We know that the Food
Stamp people cannot provide them.
My interest is whether or not we should go back again
trying to get waivers provided for these people who live within
these neighborhoods. Many of them are receiving federal
benefits. It's prohibited to even ask them to be an enumerator
if it's going to take away from their federal benefits.
So, I just need to get a feel from the two of you as to how
you feel about this. I know the productivity will be better if
you have people who live within these inner city areas and
within the other areas, particularly where a lot of immigrants
live, if they go in to take this to enumerate, you will get
much better results than you would if you didn't use them.
Dr. Ehrlich. We agree wholeheartedly. The census cannot
function without field enumerators who come from the
neighborhoods they go to count. It simply won't work. You made
the statement, Congresswoman, that some of these agencies
cannot provide the waiver.
I think the issue is, that it cannot or it will not. We are
going to be working with OMB steadily to produce those waivers
because they're essential. In fact, I will work with OMB to
provide a statement about our efforts and our success to-date
for this record so that we can be clear about the state of our
progress.
We have also said in the past that if the Congress chooses
to provide some statutory relief to us in this area then we
would welcome it because it's imperative that the goal of
getting enumerators who come from the neighborhoods that we
count be met.
Ms. Meek. That answers my question and my concern. I have
filed this bill. I don't know how far it will go. It has about
80 or 90 co-sponsors so far. It's a bipartisan bill. It will
give the kind of enabling kind of thing that the Census needs
to provide this kind of waiver.
Dr. Ehrlich. We will be happy to provide an answer to you.
Ms. Meek. All right.
[The information follows:]
In 1994, the Census Bureau worked with various agencies to
see what exemptions with regard to certain Federal benefits
could be achieved administratively. Through March of this year,
the Census Bureau has received two approvals for administrative
exemptions; the OPM has exempted retired federal and military
officers from the mandatory income/annunity offset required
under 5 USC, sections 5532, 8344, and 8468, and the HUD has
exempted Public and Indian Housing Program recipients to
eliminate any adverse affect on their program or benefit
eligibility. Discussions are ongoing with other agencies to
determine the possibility for obtaining the necessary
exemptions.
Ms. Meek. Thank you Mr. Chairman.
Conclusions
Mr. Rogers. Thank you Ms. Meek. We appreciate you being
here with us for the length of time that you have especially.
Dr. Riche, Dr. Ehrlich, we appreciate your testimony today.
It's been lengthy, but we appreciate the good answers that
you've given. We look forward to working with you. We're not
flush with money again this year. But we will have to do the
best we can with what we have. We will get you all of the money
we're capable of.
We don't know yet what our number is going to be for the
whole Subcommittee and won't know that perhaps for a little
while yet. That will give us time to confer with you further,
if necessary. So, we wish you Godspeed in your work. The next
year and year and a half, two years will be especially
demanding on you and your staff.
We appreciate that. I know it's a terribly difficult thing
to get the census together with conflicting pressures from a
thousand different places and perhaps more than that, including
from here. So we look forward to seeing the result. We hope
it's a heck of a lot better than it was in the 1990 Census.
That's not asking a lot, to be frank with you, but we think
the procedures that you're taking are going to give us a much
better number. We like the new form here. That may not be the
color that you go with, but I'm sure you will come up with the
best color. Thank you very much.
Ms. Meek. Thank you.
Dr. Ehrlich. Thank you, Mr. Chairman.
[Pages 998 - 1035--The official Committee record contains additional material here.]
Thursday, March 13, 1997.
TELECOMMUNICATIONS ISSUES
WITNESSES
REED E. HUNDT, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION
LARRY IRVING, ASSISTANT SECRETARY FOR COMMUNICATIONS AND INFORMATION,
NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION,
DEPARTMENT OF COMMERCE
Chairman Rogers Opening Statement
Mr. Rogers. The Committee will come to order.
This afternoon the Subcommittee will hear testimony from
representatives of the Federal Communications Commission and
the Commerce Department's National Telecommunications and
Information Administration.
Testifying before the Subcommittee today will be Reed
Hundt, Chairman of the Federal Communications Commission and
Larry Irving, Assistant Secretary of Commerce for
Communications and Information.
Again, this year we have attempted to bring together both
agencies which play a vital role in promoting both a national
and international telecommunications infrastructure. It has
been just over a year since passage of the landmark
Telecommunications Act of 1996, the most significant overhaul
and deregulation of our Nation's telecommunications industry in
over 60 years.
True competition and the advent of new and improved
technologies and services will bring Americans the benefits of
a truly global infrastructure. We should not underestimate the
power of telecommunications. The national and international
information infrastructures will be as important to our
country's economic growth as the interstate highway system was
40 years ago.
Both agencies before us today have an important role to
play in ensuring this infrastructure results in a truly
competitive and accessible telecommunications system for all
Americans.
However, fiscal year 1998 will bring with it another year
of fiscal constraints. We want to know what efforts you're
taking to streamline, consolidate and become more efficient
with your monies. We will proceed with your opening statements.
We ask you to try to limit you remarks to five minutes. We will
insert your written testimony in the record. Chairman Hundt,
you're invited to speak.
Opening Statement of Mr. Hundt
Mr. Hundt. Thank you very much, Mr. Chairman. It's a
pleasure to see you again this year, especially in these more
spacious quarters that you have for us.
Mr. Rogers. Well, they're just temporary, unless we can
just act as squatters and take it over.
Mr. Hundt. Well, that would certainly be well within your
right in my view. You're certainly right, Mr. Chairman, to
emphasize the landmark nature of the Telecommunications Act of
1996.
I know that our colleagues at the Department of Commerce
and everyone at the FCC agrees when I say that we feel that our
experience with this new law in the last 13 months, since it
was signed by the President following the overwhelming
bipartisan vote in both Houses, has been that it was a truly
wise and courageous act that Congress took to pass this law.
In fact, this law has now led to a worldwide agreement in
the World Trade Organization to adopt the principles of
competition in lieu of the idea of monopoly in all
communication sectors. So, the United States, again, has shown
world leadership in this policy revolution.
And we are, I hope and believe, showing world leadership,
not only here in our Congress, but also in our private sector,
as everyone is investing in and making plans for further
investment in the different communications markets that are now
open to competition.
The impact of all of this on the FCC has been enormous. I
mean that quite literally. Our overtime electricity bill in
1996 was three times what it was the year before. I emphasize
overtime. Some people said this only means we're turning the
lights on in the daytime.
In fact we're staying awake very late at night trying to do
the right thing in the many rulemakings, and many other matters
that Congress asked us to do.
We have also seen, however, a tremendous impact across the
board. For example, our Office of Public Affairs is receiving,
at this current rate, about 70,000 requests for information
from consumers per year. We've gotten a record number of
letters from Congress per year; more than 7,000 in 1996. And
the level is going up.
Those letters often reflect concerns by constituents about
the impact of the communications revolution. We've tried to
deal with the tremendous increase in volume by new technique;
including electronic filing and an extensive Internet web site.
Our web site currently averages about 132,000 visits a day.
We're also seeing a tremendous amount of consumer anxiety about
the impact of the communications revolution. You may have seen,
Mr. Chairman, an article in The Washington Post today about
some of the unintended effects or surprising nuances, I think
it was called in the article, that seem to come with
competition.
Eventually, I believe that any consumer irritation with one
company will be an invitation to some other company to come in
and be a less irritating supplier, and competition will replace
regulation. But in this transition period that we're all in, it
is certainly the case that the public is looking more than ever
to Congress, and certainly to the FCC, to create a smooth
transition for consumers and for businesses.
In this context, we nevertheless are presenting to you
today a proposal that begins what we hope will be a continuing
process of trimming down. We actually are proposing to you a
budget that, except for the amount of money relating to our
move to the Portals, is flat.
That means that it will actually fund fewer people because
we have, as you well know, Mr. Chairman, certain unavoidable
increases, such as for salaries. So, our budget actually
contemplates that we'll be reduced by about 100 in number in
the fiscal year in question.
We do have a one time increase in our budget for the
purpose of moving to the Portals. We are operating, as you
know, pursuant to a very complicated legal situation and a
court order, upon instructions from GSA. But the specific
dictate to us is to move to the Portals in November of this
year. The building is going to be topped off, or roofed over,
by April 15th, I believe.
Approximately four floors are already being substantially
built out of the eleven floors total. It appears that the
building schedule, as far as we know, will be met. In any
event, we have to start paying the rent very soon.
So, GSA has instructed us to move in and to take advantage
of the building rather than pay the rent without being there.
So, that's the major item that causes our appropriation to be
higher than it was the year before. Thank you, sir.
[The statement of Mr. Hundt follows:]
[Pages 1040 - 1055--The official Committee record contains additional material here.]
Mr. Rogers. Mr. Secretary Irving.
Opening Statement of Mr. Irving
Mr. Irving. Thank you, Mr. Chairman. I want to thank you
and Members of the Subcommittee for your support of our
programs. I want to tell you, it has been a tremendous year.
Domestically, we've been working very, very closely with
Chairman Hundt and the Members of the FCC to ensure that the
American public benefits from the Telecommunication Act we
passed last year.
On every major proceeding--universal service, access,
interconnection--and in the other proceedings, NTIA has spoken
for the President and presented, we believe, some articulate
views expressing how this revolution should change America's
way of doing business in telecommunications.
We've also been active on the Internet, defending against
unnecessary regulation of the Internet. The FCC understands
that the Internet doesn't need to be regulated, but many in the
States and many places around the globe are still actively
trying to find ways to regulate that which should not and
really cannot be regulated.
And we also are working to ensure America's privacy. One of
the things we're noticing in this new day of privacy is that
there are so much data about so many people on electronic
networks that the American people are concerned. I was
appointed by the President to serve on the National Commission
to Reform the IRS. I came from a meeting this morning where one
of the major issues we talked about was the amount of
information that's out there on networks and how to ensure
people that they have privacy.
We have an initiative before this Committee asking for
$300,000 to try to get a good grip on what's happening on
privacy. It's not only to make sure the people want to use
these networks, but it's also to ensure that we can work in a
global market.
The European Union has a directive that requires by June of
1998 each of its member states will cease doing business with
nations that can't assure the privacy of data. We have to make
sure the United States is not precluded from the European
market because we haven't addressed these privacy issues.
Mr. Rogers. The Speaker commends you for that initiative,
by the way.
Mr. Irving. Thank you. With regard to spectrum management,
we're very appreciative of the guidance you've given us as
well, Mr. Chairman. The spectrum reimbursement program has been
a major success. We have $2.5 million of the $5 million in
hand. And we hope with a little bit of time and energy, we'll
be able to receive the other $2.5 million.
We are requesting that the fees program go to $7.5 million
next year. We're wrapping that program up. We've also been
active in ensuring that public safety needs with regard to
spectrum are addressed at an early level. We've worked very
closely with the Chairman of the Commission and the members of
the Commission to make sure that public safety is addressed.
Our labs are continuing to perform cutting edge research and
they are continuing to be a trusted independent source of
information.
One of the best things we've done, I think, over the last
year Mr. Chairman has been the TIIAP Grants Program. It is the
single most competitive grants program in the Federal
Government. We receive 12 applications for every grant we
actually give.
We had 2,000 people attend workshops over the past few
weeks because there is so much interest in this grants program.
We sent out 20,000 periodicals per applications just this year.
Last year there was an NII Awards Program. Four of the nine
winners of the national competition were awardees of our
grants. And we're very proud of what they're doing.
Mr. Chairman, we are still applying the ``but for'' test
that you and Mr. Mollohan asked us to apply. We are looking
very carefully and making sure that the only people who get
grants are those who have absolutely outstanding grant
proposals or those in communities or those in areas that ``but
for'' our grant program wouldn't have the opportunity to
participate in this information revolution.
Schools, libraries, telemedicine, public safety, delivery
of government services, economic development, all of those
entities are learning more every day about how they work
because of the work we've done. We are requesting $36 million
this year for the NII Grants Program.
Perhaps the most exciting activity we're involved in
internationally, and I'm glad that you stressed that, we're
building a national and international infrastructure, Mr.
Chairman, is the WTO. This year, the WTO Agreement that we
passed is going to have a more profound affect on
telecommunications than anything that has been done in the
history of telecommunications, including the passage of the
Telecommunications Act in this country.
We're going to free-up opportunities for U.S. companies and
for liberalization and competition in 69 countries comprising
95 percent of the world's telecommunications market. Chairman
Hundt, Charlene Barshefsky at USTR, Secretaries Kantor and
Daley deserve a lot of the credit.
But it's U.S. companies, U.S. workers, and U.S. business
people who are going to benefit. We are continuing to work
closely with U.S. industry on things like the Latin American
Telecommunications Summit, the Chinese American
Telecommunications Summit, and MIDCOM which are conferences we
hold with these industries to help them break open markets.
We believe that the WRC, the World Radio Conference,and the
ITU Plenipotentiary are all going to require considerable effort and
leadership by the Executive Branch. Mr. Chairman, I've learned that
going overseas and telling people how important regulatory reform is
has some benefit.
We've gotten the momentum. People are adopting the
principles we need. One thing we've learned is to bring them
tangible things, we're telling them how to build up information
superhighways, how distance medicine is going to help them, and
how telemedicine is going to help them, how an intelligent
vehicle highway system will cure traffic jams in Brazil, New
Dehli, or in Mexico City.
If we can bring some of our spectrum management, some of
our laboratory skills, in addition to talking about policy
changes, we can show them why they need to make these policy
changes. In the Department of Commerce, particularly the NTIA,
we're going to use the synergies of what we do in our
international efforts. We are hoping through the ITU
Plenipotentiary next year and through a radio conference this
year, we can bring some of NTIA's skilled people to help U.S.
industry.
With that, Mr. Chairman, I thank you for your time this
afternoon and look forward to answering any questions you might
have.
[The statement of Mr. Irving follows:]
[Pages 1059 - 1077--The official Committee record contains additional material here.]
telecommunications act implementation
Mr. Rogers. Well thank you Mr. Secretary and Mr. Chairman
for your statements. We will try to abide by a time limit this
afternoon so that all Members might have a chance to ask
questions.
Mr. Chairman, in fiscal year 1996 we gave you $10 million
to bring your staffing levels up to 2,255 full time equivalents
(FTE) in order to implement the Telecommunications Act. In your
testimony you indicate that, ``We've been able to meet or beat
every deadline Congress set-up for us while continuing to carry
out all of our other responsibilities.''
According to the information that we have, you've been able
to manage that task with only 2,050 FTE. We commend you for
that. But the question is why are you asking for an additional
100 people in 1998 above your current strength, given the down
slope we're on?
Mr. Hundt. The number, the 2,050 that you're referring to,
is not the number that we've desired. We've had a terribly
difficult problem keeping our forces up to the level that would
really be appropriate to deal with the jobs that we've been
given. Last year for example, we lost more than 10 percent of
the agency to other jobs.
We find that the complexities of the Telecommunications Act
are making our employees very desirable to the private sector,
where they are being offered a lot of money and a lot shorter
hours.
In fact, I'm quite concerned about the attrition rate,
which is accelerating even as we move into this particular
chronological year. If I had my druthers, we'd be at the levels
that we are funded to be at. We simply cannot get the people in
who are appropriate for the jobs as fast as they're leaving for
the private sector.
Mr. Rogers. Can you cite for us specific examples of what
responsibilities you will not be able to undertake if you don't
hire these additional people that you're asking for?
Mr. Hundt. Well, I wouldn't want to anticipate any
particular rulings that we couldn't make or rulemakings that we
couldn't do well. I think it's just generally the case that we
are incredibly overworked and over stressed. The hours are
taking a toll on people's lives, and I hope not too terribly on
the work product, but I can't deny that we are pushed to a real
extreme.
That is why our attrition rate is going up. And I have to
tell you in all candor, I am quite concerned as a manager about
the agency's ability to cope with the pressures.
Mr. Rogers. When could we expect to begin to see decreases
in your budget and staff as a result of the Telecommunications
Act?
Mr. Hundt. Well, I think that certainly our intent and our
plan is to get this move to the Portals done. When we're in the
Portals, our FTE level should be approximately 100 lower than
it is in this fiscal year. And our hope and our plan would be
to continue that kind of downward slope over time in the
future.
fcc relocation costs
Mr. Rogers. Well, speaking of the Portals move, for the
last two years, as you know, we've implored you to get the cost
down of that move. Last year we specifically directed you to
work with GSA to get the cost down and to work out some kind of
alternative funding arrangement which would reduce our costs.
Have you reduced the cost of the move?
Mr. Hundt. We really have not materially reduced it. We
certainly engaged in the effort. And we took your instruction
to heart. In fact, we spent a great deal of time with GSA. But
we are not able to report back to you that we developed any
particular way to materially lower the cost of the move.
Mr. Rogers. In fact, I'm told that GSA more or less is
loaning or fronting the FCC the money to pay for the move, and
you're asking for $30 million in 1998 to pay back that loan. Is
that correct?
Mr. Hundt. That's right. In other words, there is planning
work that we have had to do already, consistent with the court
order and GSA's commitment, which they have a legal right to
make on our behalf. That had to be paid for, and GSA did, in
fact, pay for that out of its budget.
Mr. Rogers. And we learned about all of that just through
the budget briefing. That's not a very good way to do business
with the Committee that funds your agency.
Mr. Hundt. I certainly agree with your observation.
Mr. Rogers. It was never discussed with these Subcommittee
Members or staff before you entered into that agreement with
GSA. And that's a $30 million move that you know we found quite
high and controversial. In fact, the whole doggone move is
controversial.
Mr. Hundt. It certainly is controversial.
Mr. Rogers. I am absolutely amazed that you didn't think to
pick up the telephone or have your staff pick up the telephone
and call my staff or call me and let me know what you were
thinking about.
Mr. Hundt. You mean with respect to GSA paying for these
expenses?
Mr. Rogers. Yes.
Mr. Hundt. Well, I certainly agree with you.
Mr. Rogers. We don't have any jurisdiction over whether or
not you should move. I wish we did, but we don't. But we
certainly have jurisdiction over your budget. And I don't like
to read about that big of an item in the newspaper.
Mr. Hundt. It's a fair point.
Mr. Rogers. So, you and I may have to have a talk.
Mr. Hundt. It's a very fair observation.
Mr. Rogers. And GSA may have to go begging for a while. I
mean if they're willing to front you the money, then maybe they
ought to pay for it all together.
Mr. Hundt. As you know, I don't have the legal authority to
be responsive to this particular observation.
Mr. Rogers. Well, if you don't get the money and the GSA
enforcers come looking for you, don't call me.
Mr. Hundt. I understand.
Mr. Rogers. Now, is GSA currently incurring costs on behalf
of the FCC?
Mr. Hundt. I'm absolutely positive that they're continuing
to pay the contractors and the other creditors who are doing
the work and expecting to get paid. I don't have the details of
that. I can get them for you I hope.
Mr. Rogers. Now, the Committee indicated last year that if
funds to finance the move were needed in fiscal year 1997, we
would be willing to entertain a reprogramming. You have an
extra $8 million in funds available in 1997 from carryover
balances that you did not expect to have.
Why haven't you proposed to reprogram some of that
carryover or all of that carryover in fiscal year 1997 to help
pay for the move, instead of asking the Subcommittee for
another $30 million to pay back GSA, which you borrowed from?
Mr. Hundt. My Managing Director advises me that he
understands this money must be exclusively devoted to
Telecommunications Act implementation. I have to confess that I
haven't personally looked into the possibility that it could be
diverted to the move, but I'll be happy to look into that.
Mr. Rogers. Again, it's something that could have been
discussed with the staff or Members of the Subcommittee because
I think only $2 million of the $8 million is dedicated to the
Telecommunications Act implementation and that $6 million may
be available. At least it's something we should have talked
about.
Mr. Hundt. We should.
Mr. Rogers. I'm absolutely amazed at sometimes the cavalier
attitude of some agencies of the Government who think they have
the power to spend the taxpayers' monies without the Congress
approving of it.
Mr. Hundt. I can absolutely commit to you that we will look
into this idea immediately.
Mr. Rogers. Well, it's almost too late because the cat's
out of the bag. Mr. Mollohan.
long distance competition
Mr. Mollohan. Thank you, Mr. Chairman. Gentlemen, I'd like
to join the Chairman in welcoming you all to the hearing today.
Mr. Hundt, with regard to new long distance competition and
the requirement that facilities-based competitors make
application or contract with local Bells to enter their market.
If that doesn't happen there is a provision, as I understand
it, for the Bells to enter the long distance market. If no
facilities-based competitor in business and residential markets
requests access from Bell Companies, which I understand is a
requirement for the Bell Companies to go forward, can you
assure the committee that the FCC will follow expeditiously
Section 271 of the Act regarding failure to request access in
order to certify a Bell Company?
Mr. Hundt. Yes. The Act as you're pointing out----
Mr. Mollohan. Just talk about that a little bit.
Mr. Hundt. Yes, sure. As you're pointing out, Congressman,
the Act basically gives the requesting Bell Company either of
two routes to choose for its petition for entry into long
distance. One is where it can prove, as you've just mentioned,
that there is a predominantly facilities based competitor in
the market, one or more, with which it has interconnection
agreements that meet the checklist.
Providing of course, that the public interest test is met.
Mr. Mollohan. If it shows that, then it's eligible to get
into the long distance market.
Mr. Hundt. That would be one route. And then, of course, it
would still have to meet the checklist and the public interest
standard. The other route is to show that even though no one
showed up, so to speak, to be a predominately facilities based
competitor----
Mr. Mollohan. It's just a circumstance out of control of
the Bell Companies.
Mr. Hundt. Yes. That route is what we at least at the
agency call the ``generally acceptable terms'' route, where the
petitioner says, ``Here is the offer I made. Nobody showed up,
but I made the offer and you can't hold me responsible for the
fact that no one accepted it because it's a fair offer.''
Provided, again, that they otherwise meet the rest of the test.
Mr. Mollohan. And that's Section 271.
Mr. Hundt. Right. I think paragraphs (a) and (b), if I
remember right, are the two different paragraphs usually
referred to. But in any event, at this moment, we don't have
pending in front of us a petition under either route for any
Bell Company in any state.
Mr. Mollohan. Okay. I guess the question is if there is no
facilities based competitor that wishes to come into these
markets and the Bell Company proceeds under the 272 Section,
can you assure the committee that you will move to certify
their getting into long distance?
Mr. Hundt. I don't think Congress indicated any prejudice
if a company were to choose the second route.
Mr. Mollohan. I guess people just want to hear you affirm
that.
Mr. Hundt. Well, I'm certainly happy to make the
affirmation that I know I'm capable of making at this time,
which is that there is no reason why a petitioner is prejudiced
by having the generally acceptable terms route be theirs as
opposed to the facilities based route. And I've said publicly
and privately to the Bell petitioners, those that have
indicated an interest in following either of these paths, I've
said it has to be the case that where there is a will there is
a way.
In other words, if you demonstrate that the checklist is
met, well then you should have the way into long distance; the
check list and the public interest standard. Even if you
haven't selected the predominant facilities-based competitor
because you couldn't find anyone to show up.
I'm sure that this is on the mind Congressman, of the Bell
Companies in states such as West Virginia and some of our other
states that are not major urban areas, where the Bell Companies
don't now see anyone planning to be a competitor.
Mr. Mollohan. And won't likely have.
Mr. Hundt. Certainly, not in the first wave. Anyone would
expect a new entrant to focus on urban areas, whether there are
more people and more density and it's easier to market. But I
can't tell you this is true. I can only say that some of the
Bells seem to be more likely to go the other route that you're
outlining in West Virginia and in some of the other states.
There is no prejudice to them under this law for doing that.
Mr. Mollohan. Can you give us a time frame when, once
applications are received, we can realistically expect to see
Regional Bell Companies providing in-region long distance
service?
Mr. Hundt. The only thing I can in fairness tell you is
that we have an obligation under the law that we certainly
intend to meet, which is to rule on any petitions within 90
days after they're filed. We haven't had any applications----
Mr. Mollohan. Any applications filed----
Mr. Hundt [continuing]. Any applications that have gone the
full 90 days. We had two filed that were withdrawn by the
petitioners. Both by Ameritech and both in Michigan. We don't
have any, as I said, pending right now. And I simply can't tell
you what decisions the Commission would reach.
Mr. Mollohan. I'm not asking you about what decision was
reached. I was just asking about the time frame in which they
would be reached.
Mr. Hundt. Okay.
Mr. Mollohan. You said the statutory time limits; 90 days
to review it; comply with that. I just think people want to
hear you affirm that.
Mr. Hundt. Yes.
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Forbes.
Mr. Forbes. Thank you very much. I appreciate you being
here gentlemen. Welcome back, Mr. Irving.
Mr. Irving. Thank you.
fcc jurisdiction and alcohol advertising
Mr. Forbes. Chairman Hundt, an issue of growing importance
to me and to several people is the issue of jurisdiction and
the responsibilities the FCC has.
Certainly, your statement suggests that you've got a full
plate. I can appreciate that, whether it's the public safety
spectrum, cable and broadcast issues, or the various changes
the FCC is undergoing in this fast-paced telecommunications
era.
Once again, it's clear that your plate is full. That's why
I am a bit perplexed, sir, that in the area of alcohol beverage
advertising, which I know you've taken a personal interest in,
the FCC is committing a tremendous number of resources and
making it's will known about alcohol advertising.
While I don't make a judgment on the propriety of that
issue, it does strike me that the Federal Trade Commission is
perhaps more directly charged by Congress with the
responsibility of overseeing this area. In fact, one of the
principle functions of the Federal Trade Commission is to
safeguard the public by preventing the dissemination of false
or deceptive advertisements of consumer products and services
generally, and food, drugs, cosmetics, and therapeutic devices
particularly, as well as other unfair and deceptive practices.
That gets to the heart of the concerns that I have. It's my
understanding that the Commission currently comprised of our
members is evenly divided on the role of the FCC and the
censorship of certain kinds of advertising.
My question, Mr. Chairman, is that you've made your
position known on alcohol advertising. At what point does the
Commission branch out even further and take a look at beer and
wine advertising, or the advertising of various over-the-
counter drugs that the National Institutes of Health suggest
are now causing three times as many fatalities as in the
history of some of these products? But what about these
products, what about No Doze, caffeine pills and aspirins, and
Nyquil and herbal stimulants? At what point does the FCC draw
the line? You are the regulatory body. You're charged with
overseeing the appropriate use of our communications vehicles.
But, sir, wouldn't you agree that the area in which you're
attempting to branch out to, the regulation of advertising is
more the purview of the Federal Trade Commission?
Mr. Hundt. No. I wouldn't agree with that at all,
Congressman. As you mentioned the jurisdiction of the Federal
Trade Commission relates to false and deceptive advertising.
The concerns that I've publicly and privately expressed do not
hinge upon any notion that the advertising of hard liquor
which, for the first time in my lifetime has commenced on
broadcast TV, consists of false or deceptive statements. I'm
concerned about the use of the public's airwaves for hard
liquor advertising.
Mr. Forbes. Sir, isn't it a fact that they are not
advertising because there is a threat, or an implied threat, by
some broadcast facilities that if they do air alcohol
advertising that their license could be in jeopardy.
Mr. Hundt. The Chairman of DISCUS, the trade association
for the hard liquor industry, openly bragged just the other day
that he had seduced hundreds of TV stations into the campaign
of carrying hard liquor advertising. I cannot vouch for that
because I cannot find any hard data because no one in the
broadcast industry will give it to us. When I wrote a letter to
DISCUS asking for the information, he refused to respond.
Mr. Forbes. So, my question still is why is it in the
purview of the FCC and not the Federal Trade Commission?
Mr. Hundt. Because it is not about false or deceptive
advertising. It is about whether the public's airwaves should
be used for advertisements that, never in my lifetime, have
ever been broadcast to audiences that specifically include
children over the public's airwaves in the public's medium.
Mr. Forbes. Would you be prepared to list other products
that are currently being advertised that you believe should be
censored as well?
Mr. Hundt. I don't say that they should be censored. I say
that the right thing for the FCC to do is to inquire into what
exactly is going on and to discuss in public, in open, what are
the facts and what, if anything, are the right remedies.
Mr. Forbes. But it is your position that spirit
advertising, alcohol advertising, that you believe is in the
purview of the FCC, should not be done. Is that correct?
Mr. Hundt. I have said to broadcasters publicly and
privately that I do not think this is the right thing to do.
They wrote a code in 1948 that said that none of them would do
this. As recently as approximately six years ago, they sent
someone to Congress who testified that the code was a good
unwritten rule and they would continue to live by it.
Mr. Forbes. Again in all due respect, Mr. Chairman, I think
it's not whether this is appropriate or not. It's the
jurisdiction of the FCC. Again, my question is, what about
over-the-counter drugs that, taken in the wrong kinds of doses,
could lead to tragedies? Again where does the limit extend with
the FCC's decision-making on these products?
Mr. Hundt. There are many, many, many products that
broadcasters have for literally decades, ever since television
became popular in this country, generally agreed among
themselves that it was inappropriate----
Mr. Forbes. Broadcasters. That's correct, not the Federal
Government.
Mr. Hundt. Products that it was inappropriate to use the
public airwaves to show. They include, for example, firearms.
That's why there is not a nationwide advertising campaign for
firearms.
Mr. Forbes. Again, we're not making a case whether the FCC
or anybody condones that kind of advertising. What we're saying
here is the jurisdiction is being expanded. The FCC which has
the decision-making capability on who gets a license and who
does not get a license, has a very powerful ability to
intimidate folks based on what they decide is appropriate to be
advertised when in fact, as you've suggested, the industries
rightly have governed themselves.
I express great concern to you, sir, that with all that
you've got on your plate, and with other jurisdictions having
appropriate authority over these issues, that the FCC, and you
as Chairman, are beginning to move into an area of censorship
that frankly belongs to somebody else.
Mr. Hundt. We've had approximately twelve, and my memory
may be failing me in the exact number, state attorneys general
petition us to conduct exactly the kind of inquiry that I think
we should conduct, because they don't have any authority over
the broadcast industry.
Mr. Forbes. The Commission is deadlocked on that. Is that
correct; 2/2?
Mr. Hundt. Commissioners Chong and Quello have refused to
allow us to even investigate the facts on this subject. That's
correct. And these attorneys general right now have no forum in
the United States to which they can go in order to have this
inquiry conducted.
Mr. Forbes. They can't go to the Federal Trade Commission?
Mr. Hundt. That is correct because we are not talking about
any assertion by the attorneys general that the advertising is
false or deceptive. We're talking about what practices are
currently underway in the broadcast industry.
They came to the FCC and asked us to just find out what was
going on so that they could report to the people they
represent. I don't see why the FCC has any ability to say, or
ought to have any ability to say, we are indifferent to this
petition and that Americans have no forum for raising these
issues.
Mr. Forbes. Well, I beg to differ with you. It, again, says
that the Federal Trade Commission is charged with,
``Safeguarding the public.'' And I think it would be within
their jurisdiction to make these kinds of decisions. I think
that you make it clear, sir, that alcohol is one thing, but
you've said nothing about other kinds of advertising which, in
the eyes of the public, could equally be of concern. So, I
would suggest to you that there is great concern on this
Member's part that the FCC with all it's got to do is expanding
into a jurisdiction it does not rightly have the authority to
be in. Thank you.
Mr. Rogers. Mr. Dixon.
fcc auctions debt collections transfer
Mr. Dixon. Thank you, Mr. Chairman. I, too, would like to
join in welcoming you Secretary Irving and Commissioner Hundt.
Commissioner, I noticed in your prepared statement that
there is an area where you say that there needs to be some
evaluation as to relinquishing the jurisdiction you have. On
page 12 you talk about the shifting management responsibility
for the FCC, auction debt.
And you talk about that you are the regulator of the
wireless competition and their banker. And later on you infer
that perhaps the jurisdiction for this should be the Treasury.
I'm wondering what conversations, if any, you've had with
officials of the Treasury Department and what has been their
reaction?
Mr. Hundt. We have had a memorandum of understanding
between the FCC and the Department of Treasury for I think
approximately six months. Pursuant to this memorandum of
understanding, the Treasury collects the payments on the
installment payment plan that exists for approximately, I
think, $12 billion worth of debt that represents the promises
made by various firms for the licenses that they won in the
auction.
This is working very, very well. We are talking to Treasury
about expanding the scope of that memorandum of understanding
to include really all aspects of the creditor/debtor
relationship that now exists between the Federal Government and
those auction winners.
Mr. Dixon. So, their response generally has been favorable.
Mr. Hundt. Well, I don't think their response has been
definite. I definitely think that the Treasury is the right
agency and that the FCC is really not, by experience or
expertise, the right agency to handle a creditor/debtor
relationship, which is what has in fact come into being through
these very successful auctions.
Mr. Dixon. So, their reaction is inconclusive at this
point.
Mr. Hundt. I would say that they are ruminating. But I
certainly would be very eager to have them respond favorably on
this topic. You know, Mr. Forbes and I could at least agree on
this topic. This would be a wonderful thing to see us not be
doing. Indeed, we desire to not do certain things that seem to
be coming with our territory.
public safety spectrum allocation
Mr. Dixon. One of those 7,000 letters that you received
from Members of Congress was dated July 22, 1996. And it was
signed by 12 Members of the Los Angeles County Delegation. And
it inquired about an application filed with the FCC requesting
the assignment and authority to use vacant public land mobile
services for police and safety organizations.
And I guess it's been a long time. I'm wondering if you can
give me a status report. As explained to me in my reading, you
have indicated that the refarming procedures would probably
adequately address the issue. And I'm told that these reframing
procedures are suddenly off in the horizon, at least two or
three years down the road.
I'm wondering if, one, the delegation could get a response
and what you can tell me about these refarming procedures. And
secondly, I'm told that these small agencies that have come
together in safety agencies would probably have to acquire
additional equipment to use the frequencies that you're talking
about.
Mr. Hundt. The South Bay Group, which is the group that
you've just mentioned, Congressman, as far as we can tell, is
asking to use frequencies that are among those that are going
to be subject to one of the upcoming auctions. So, we have a
conflict between their desires and the mandate of Congress to
auction really as much spectrum as can reasonably be found, on
which topic we work closely with NTIA.
We do think that this refarming procedure ultimately will
create more capacity for public safety, but probably my biggest
and most immediate hope for the public safety community is that
the Commission successfully allocate some of the unused TV
channels in the 60s.
We are working very closely with the public safety
community. The hope is that these 60s channels that are not
currently used can in significant part be reallocated to the
public safety community. And that would be a tremendous advance
for the community.
That comes out of an advisory committee that in fact we
first discussed under Mr. Rogers' Chairmanship some time ago
and that led to very positive results. So, in candor, I can't
give South Bay any particular good news on this topic. If I
recall correctly, some of this was mentioned in a letter to
Congresswoman Harman.
[The information follows:]
[Pages 1087 - 1088--The official Committee record contains additional material here.]
Mr. Hundt. I'll make sure that you're copied on that,
Congressman. And I'll also follow-up otherwise to see if there
is better news that can be found on this topic. I think I
should probably be saying to the South Bay Group that their
needs will much more likely be met by the unused 60s if the
Commission votes in this way very soon.
Mr. Dixon. Well, as you know, Ms. Harman has been very
active in this. But I guess Ms. Harman would ask you, but when?
I mean how long is it going to take to do this refarming? Are
the Spectrums that are being auctioned off going to be
auctioned off tomorrow or six years from now? It is my
understanding that they were wondering if they could use them
in the interim and that you had given one exemption to this
along those lines, I believe in New York.
So, it isn't that the problem won't eventually be addressed
in the future, it's how long is the future? Is it during your
term there or is it tomorrow? That seems to be the frustration
here.
Mr. Hundt. Well, it certainly needs to be somewhere
between those two dates. And hopefully within the next two
months. Let me, if I can, respond to you more directly soon
after this hearing.
Mr. Dixon. I would appreciate it because there does seem
to be an extended period of time here. If you would get in
contact with me, I would appreciate it.
Mr. Hundt. Thank you.
Mr. Dixon. Thank you, Mr. Chairman.
fcc jurisdiction
Mr. Rogers. Thank you. Mr. Latham.
Mr. Latham. Thank you very much, Mr. Chairman. Having just
come in a few minutes ago and heard the end of your
conversation with Mr. Forbes, I personally take it somewhat as
an offense, and I think any Member of Congress would take it as
an offense, for someone to say that there is no forum for these
things to be brought up.
I would suggest that maybe you talk to Mr. Kennedy about
his bill in Congress. There is a proper forum for these types
of things. And there is a bill being proposed right now. So, to
say that there is no forum available to the American people I
think is somewhat offensive to any Member of Congress.
Mr. Hundt. Well, no offense is meant, but what I thought
we were discussing were the administrative agencies and the
difference between the FTC and the FCC, and which agency has
the responsibility over broadcasters' use of the spectrum. And
that's only the FCC. No other agency has authority over
broadcasters' use of the spectrum.
The FTC's jurisdiction goes to the advertiser, not to the
broadcaster's use of the public's airwaves. I certainly did not
mean Congress is not a forum. I've met with Congressman Kennedy
repeatedly on this topic. I beg your pardon. I thought we were
discussing the agencies.
And I certainly would be the first to encourage Congress to
have hearings on this subject. Indeed, Congressman Kennedy and
I have talked about that very subject.
free television advertisement for candidates
Mr. Latham. The President earlier this week introduced an
initiative to give candidates free time on television. I guess
I would go back to a point that's been made here already.
You've got enough to do without initiating another new program.
It appears to me it's almost some kind of leverage, or some
other term you would want to use, for broadcast licenses. Do
you think there is a problem with access to political
advertising?
Mr. Hundt. Congressman, you're probably not going to like
this answer, but yesterday in a hearing Senator McCain asked me
to promise that we would indeed commence an inquiry or a
rulemaking on this very topic. I said that I would do it.
Mr. Latham. That's not answering my question. Do you
believe there is a problem to that?
Mr. Hundt. That certainly was Senator McCain's view.
Mr. Latham. What do you think?
Mr. Hundt. I think we haven't commenced the notice. And we
haven't gathered the information. We ought to serve the role
that we're asked to play and make the kind of record and be a
forum for public debate. I don't mean to say we're the only
one.
Mr. Latham. Do you support the Administration's proposal?
Mr. Hundt. The Administration hasn't made any specific
proposal to us except they would like us to hold a proceeding
in which we would take comment. And yes, I think we should hold
a proceeding and take comment from anyone whether it says there
is or there is not a problem. Making that record is one of our
functions.
Mr. Latham. How would you go about determining which
candidates get free time and which don't?
Mr. Hundt. Well, we have seen, as anyone in the public has
seen, several different proposals, including the so-called
Taylor-Orenstein Time Bank Proposal. What I would imagine,
thinking of what I said to Senator McCain yesterday, is that we
would have a Notice of Proposed Rulemaking or inquiry.
We would lay out all the proposals that we know of, and we
would ask people to tell us whether they were good or bad,
which is what we normally do, you know, literally more than 100
times a year on various subjects. And everyone would be able to
participate.
And I would think you would not want any Commissioner to
have a pre-conceived opinion on this topic. I certainly don't
have a pre-conceived opinion. Yes, I do absolutely think that
we can have a better system in this country. I think we're the
only country on the planet that makes people running for public
office raise so much money to buy time on television.
Mr. Latham. Where is the authority for the FCC to
institute campaign finance reform?
Mr. Hundt. I don't mean to say that it's campaign finance
reform. But I do mean to say that it's access to media reform.
And the answer to that is in the Telecommunications Act.
Mr. Latham. Access to media reform?
Mr. Hundt. It is certainly a part of the McCain-Feingold
Bill. And Senator McCain, obviously one of the proponents of
that bill, does have a free time provision in that bill which--
--
Mr. Latham. Isn't that a bill that could come before
Congress to be voted up or down by Congress to be vetoed or
signed by the President rather than having it go through a
rulemaking process?
Mr. Hundt. That could happen. But it is also the case that
the campaign access part of that bill could come from
regulation at the FCC.
Mr. Latham. After the bill was passed.
Mr. Hundt. No, sir. I don't mean to say that.
Mr. Latham. I would question if there is any authority to
do that. Just to take this to the absurd, I mean the people
that make bumper stickers, shouldn't they make free bumper--TV
time and advertising is a commodity that these stations sell.
It is the only way that they generate money; not different
than a company that makes bumper stickers or makes the pencils
you give away or buttons, whatever. And I really think that at
some point it becomes ridiculous. You can stretch it as far as
you want to.
Mr. Hundt. I'm sure that any idea, however meritorious,
could be stretched to the point of being ridiculous. And lots
of my ideas in my life, people have said have been stretched to
that particular point. But with respect to this, I would only
say that the amount of time necessary to accommodate all of the
political advertising in this country last year is, as far as
our rough calculations indicate, about 1.5 percent on an
annualized basis of all the advertising time in this country; a
very, very trivial number relative to the size of advertising
in this country.
Mr. Rogers. Let me interrupt you gentlemen. We have a vote
on the Floor with about six minutes left. We will stand in a
brief recess and return shortly.
[Recess.]
Mr. Rogers. The Committee will come to order.
Now, Secretary Irving, you've been sitting there quietly
and nicely.
Mr. Irving. It was very restful, Mr. Chairman.
Mr. Rogers. Well, we're not going to let you get away with
it.
Mr. Irving. I can hope.
spectrum management
Mr. Rogers. Now, the last two years both the committee and
NTIA have worked to get other agencies to pay for the spectrum
services that you provide these other agencies. Last year, at
the Administration's request, we included language to ensure
that Federal agencies would reimburse you for the costs you
incur. How much of your budget is dedicated to that activity?
Mr. Irving. About $15 million of our total expenses is in
our spectrum management activity. I could come up with an exact
dollar figure.
Mr. Rogers. How much do you expect to collect in fees in
1997?
Mr. Irving. Roughly, $7.5 million.
Mr. Rogers. How much does your budget assume you will
collect in fiscal year 1998?
Mr. Irving. I'm sorry. In 1997 it was $5 million. In 1998,
it will be $7.5 million.
Mr. Rogers. But you've only reduced your direct
appropriation by roughly $1 million. What are you planning to
use the additional $1.5 million for?
Mr. Irving. Mr. Chairman, as you might recall last year we
had an $800,000 reprogramming just to get to a flat line level.
In addition, we have some significant new spectrum
responsibilities. We've got to find spectrum to give to my
friend Mr. Hundt for private purposes.
dod joint spectrum management center
We have an initiative with the Defense Department called
the 21st Century Joint Spectrum Management System that will be
very resource intensive. Mr. Chairman, we have been either flat
or declining for the last several years. And there are several
other initiatives with regard to our national activities, but
also in our domestic activities we would be able to undertake.
I'll give you one example. We have not been able to
reinstitute our falling through the net. Two years ago we gave
a study that was very well-received on the Hill and very well-
received across the country with regard to what's happening
with universal service.
That was not a new initiative. Two years later the world
has changed. But we have no idea how it has changed with regard
to telecommunications, technology penetration in rural areas
and inner city areas, by demographics. We'd like to be able to
do that kind of work.
These resources would allow us to do more work. I think the
President believes that what we're doing is important for the
nation. But there is a lot of important research we need to do
and he wants to give us additional resources to undertake our
responsibilities.
Mr. Rogers. Now, you're going to use some of that money or
more to help fund the $12 million DOD Spectrum Management
Center?
Mr. Irving. We would use some of that to work with the
Department of Defense. We would not pay for the $12 million DOD
Center. We believe that we do have a role. We believe that what
DOD has suggested will have some major benefits.
We can come up with a common format domestically and
internationally with regard to new data bases for spectrum
users. We think that's important. But we certainly don't intend
to pay the full $12 million. But the Department of Defense is
our largest client I guess I should say.
Mr. Rogers. You see, this is not even in your budget
request.
Mr. Irving. No. It is not.
Mr. Rogers. I don't know what the center is. I don't know
what you're going to spend our money for because you didn't
show it in your budget request.
Mr. Irving. We will be happy to work with the Committee.
It really is to improve and enhance existing programs. But I do
want to be clear on one point which is $800,000 of the $2.5
million not being reduced is only money that will keep us level
because we had to get funds reprogrammed last year to stay
there.
Mr. Rogers. What is this center?
Mr. Irving. This center is not our initiative. It's a DOD
initiative. We've been working with them to develop software.
They are now moving forward. We've said we would work with
them. We've made no commitment of any money at this time. If we
had additional resources, we would be likely to provide some
resources.
Mr. Rogers. What is this center?
Mr. Irving. DOD is creating software for management of
spectrum across the Defense Department. We wanted to work with
them. We think it's important. They are our biggest customer.
Mr. Rogers. What is it?
Mr. Irving. It is software to provide a secure, faster,
more efficient method for managing spectrum. Beyond that, it's
conceptual in nature. We've been working with them. It does not
exist yet. They would like for it to exist. We believe it's a
good idea as we move forward.
Mr. Rogers. Well, are you going to put money in it?
Mr. Irving. If we have resources, we will talk to them
about putting money in it. We are not going to fund the $12
million. That's not our responsibility. But we do work closely
with them.
Mr. Rogers. You'd be taking money from your base program
to put into that center?
Mr. Irving. We would, with the consultation of Congress,
be willing to work with them. My colleagues at NTIA have just
informed me that there is something called the Department of
Defense Joint Spectrum Management Center. But what we're
talking about is not a center, but a system that will be
implemented by that center.
We would work with them as we work with other entities.
I'll give you an example with regard to the Public Safety
Wireless Advisory Committee. We use resources jointly with our
sister agency the FCC or brother agency, the FCC. I'm not sure
of the gender of an agency. But we worked together to come up
with a report. We would work with the Department of Defense
using resources to come up with a more effective, more
efficient, 21st Century management scheme to be desktop, to be
faster, to be more efficient, and to be exportable. In this new
era, we all have to find out ways to do spectrum management
better.
Mr. Rogers. Well, we want to talk to you about that.
Mr. Irving. And I'm always delighted to talk to you, Mr.
Chairman. And I hope to know more when I talk to you next.
Mr. Rogers. I do too.
Mr. Irving. Thank you, sir.
Mr. Rogers. I mean, DOD has got plenty of money.
Mr. Irving. They have a lot more than I have.
Mr. Rogers. You said it.
Mr. Irving. Yes, sir.
Mr. Rogers. And we give you your money based on lots of
ideas. We did not give you your money based on that idea,
whatever it is.
Mr. Irving. Well, I will be sure to inform my spectrum
managers of that and have them report to the Department of
Defense spectrum managers on that and I think they'll
understand the message being sent.
Mr. Rogers. It may be a good idea. I just don't know what
it is. I don't think you do either.
Mr. Irving. I don't either. And I'll get back to you.
Mr. Rogers. So, here we are talking about things neither
one of us know anything about.
Mr. Irving. I have that problem on a constant basis at
home.
Reimbursable services
Mr. Rogers. Well, you're spending about $14 million on
these services you provide for other agencies. You're only
getting back, only expect to get back $7.5 million, a little
over half, next year. You've got about a third of it this past
year. Do you ever intend to pursue full cost recovery?
Mr. Irving. We're hoping to get up to about 75 percent, Mr.
Chairman.
Mr. Rogers. Why can't they pay you now 100 percent?
Mr. Irving. Well, as you may recall, Mr. Chairman, it was
hard enough getting $5 million this year. We've only received
$2.5 million. The first year we asked for $1 million and we got
$186,000. This year we asked for $5 million. With your
assistance, we got $2.5 million. We expect to get the other
$2.5 million.
Promissory notes have been received that we will get all $5
million. We are trying to ramp up and we're trying to make sure
that the agencies work with us in a cooperative spirit. My
sense is that if we tried to go after too much too fast, it
would be more difficult.
But we do think we'd like to get the 75 percent. And I'd
like to explain why we don't want to go to 100 percent. With
our clients, we have to make policy determinations. And to the
extent that they pay the entire cost of it, it would be much
more difficult for us to make sure that they understand that
there are some times when the President, or Congress, or NTIA
have to make some determinations they just won't like.
When somebody pays you your entire fee, they kind of feel
they can tell me what I'm going to do. We want to have some
independent objective opportunities to tell them this is what
the President thinks. This is what the Administration as a
whole thinks.
Since some of our clients pay a lot more than other of our
clients, we would start really tilting the balance. The other
thing is some of the things we do in spectrum management
benefit the entire country. And we don't think it is
necessarily fair to put all of that on our spectrum clients.
But we do think we should get the 75 or 80 percent. We
expect to get there and to have a schedule in the budget
submission by the President for a ramp-up to that level.
Mr. Rogers. On collecting those promissory notes that
they've signed for you, maybe you ought to hire the GSA to
enforce some of these.
Mr. Irving. It's a good idea. I can call Mr. Barrum. He
used to be my boss. And I'll be happy to call on him.
Mr. Rogers. Yes. I mean, Chairman Hundt is probably
acquainted with those GSA enforcers or will be.
Mr. Hundt. Apparently all I know how to do is spend their
money, Mr. Chairman.
digital television-public safety spectrum allocation
Mr. Rogers. Now, Chairman Hundt, in your statement, you
indicate that following the FCC's decision on digital
television allocation and service rules, FCC will immediately
reallocate a portion of the spectrum, in particular channels 60
through 69, for public safety use. Could you give us a
description of that proposal? I know we've referred to it
somewhat today.
Mr. Hundt. Yes. To a degree, Mr. Chairman, this is a draft
proposal. The actual item to be voted on by the Commission
indeed is being finished up even as we're speaking here today.
So, it will go soon to the Commissioners. I'm sure you're well
aware, Mr. Chairman, that I can't speak for the Commission as a
whole at this stage in the proceeding.
If it develops in the way that I personally hope, the
outcome will be that the digital television licenses are issued
to today's broadcasters, but that the channels in the 60s that
are not now used by any TV licensees won't be needed for
digital television. Therefore, some of them could be used
across the country for public safety purposes.
I don't remember the precise number of the channels. It's
something like three or four of the channels could be used for
that purpose under the proposal that soon will be presented to
the Commissioners at the FCC.
Mr. Rogers. When do you expect to resolve the issue?
Mr. Hundt. I would be hopeful that we would vote quickly
about this. I certainly don't want to restrict my colleagues'
right to debate, discuss, and deliberate over this particular
issue.
Mr. Rogers. What kind of impact will this have on the
broadcasters that currently hold that piece of spectrum?
Mr. Hundt. As to broadcasters who right now have a channel
in the 60s, they would be grandfathered. It would have no
impact on them. We're talking only about channels in the 60s
that are theoretically allocated to broadcasting but are not
assigned to any broadcaster. So, they are unused. We would need
to have a proceeding to reallocate them to public safety. But
that's what we could and I hope will decide to do.
Mr. Rogers. Will this solve the problem of spectrum needs
for public safety in the major metropolitan areas where
spectrum congestion problems are the greatest, do you think?
Mr. Hundt. It will not completely solve the problem.
Particularly in urban areas the need for wireless communication
is likely to be greater precisely because of population density
and because of the greater volume of public safety
communications generally.
Also because some of the 60s are used in the urban areas.
So, we will need to do other things as well and we plan to do
so. Right now I'm forgetting the other spectrum that is on this
short list. By number I'm forgetting the megahertz number for
it. But there is another proposal under works for public safety
as well.
Mr. Rogers. You don't recollect? Can staff help us with
that?
Mr. Hundt. Can I get back to you on that?
Mr. Rogers. Yes.
[The information follows:]
Question. In addition to granting public safety users
access to portions of the spectrum previously allocated to TV
Channels 60-69, what other proposals are there for granting
additional spectrum to public safety users?
Answer. The Public Safety Wireless Advisory Committee
(PSWAC) recommended that the FCC consider the reallocation of
channels that may become available from private radio services
as a result of the FCC's refarming mandates. The PSWAC also
recommended that the 4635-4685 MHz band be allocated for public
safety systems.
digital television spectrum allocation
Mr. Rogers. Now, how many broadcasters are currently using
any of these channels we're talking about? And where are they?
Mr. Hundt. I beg your pardon?
Mr. Rogers. And where are they concentrated?
Mr. Hundt. Where are they concentrated?
Mr. Rogers. Yes.
Mr. Hundt. Mr. Markey reminded me that the Boston Red Sox
are shown on one of the 60s in Boston.
Mr. Rogers. That's no big deal. If it's the Cincinnati
Reds, then we've got a problem.
Mr. Hundt. I will look into that. The answer is that there
are 97 full service broadcasters on these channels today. There
are approximately 211 TV markets. So, that means, you know,
we're talking here about ten channels. That means on average
about 9.5 out of the 10 are not being used. So, the bulk is not
being used.
The current proposal that we will be kicking around at the
Commission would be to have an auction for some of it and to
have some of them be allocated to public safety. A few of these
channels will have to be given over for DTV, but only a very
few according to our engineers.
Mr. Rogers. I saw a newspaper account, I think it was
yesterday, and I don't have it before me so I can't cite
specifically. But the gist of the story was that there was some
concern that you would coerce broadcasters who are seeking the
HDTV Spectrum into giving free advertising to political
campaigns. In other words, the President's proposal on free
time. Do you have a comment on that?
Mr. Hundt. Yes. I think that's what we should do, and
again, I can't speak for the whole Commission, but my own view
is that what we should do is we should have the digital TV
licenses be issued promptly, subject to resolution of the last
issues that seem to still be in debate. Probably the two
principle ones are the build-out requirements. How soon will
people who get these licenses build them out?
And the second issue that characteristically has been
debated is the degree to which these licenses are subject to
the public interest. But with respect to digital television,
Congress gave us very clear guidance in the Telecommunications
Act that these DTV licenses are subject to the public interest.
I think a reasonable way to go is to make it clear that
they are so subject and to identify that really no options are
closed in this respect, but not to try to resolve with any
detail at this time the nature of those public interest
obligations, consistent with what I said to Senator McCain at
his hearing yesterday.
I think we should have a subsequent proceeding and take
comments from everyone. And if we came up with a rule that gave
specific meaning to the public interest requirement, it then
would be applied. But meanwhile, in the next month or so, we
would have gotten the DTV licenses out. And people could start
building these systems, and we could keep the world lead in
digital terrestrial television. I'm speaking for myself here.
But something like that would be the way I think we should go.
free tv advertising for political candidates
Mr. Rogers. Well, would you define public interest to
include free TV ads for candidates in campaigns? Is that a part
of your definition?
Mr. Hundt. It could. That, for example, is the legal basis
for the free time part of McCain/Feingold or the discounted
time part of Congressman Shays' bill. In other words, there are
a number of pieces of legislation under discussion that have
free time proposals. And they all stem, in my view as a lawyer,
from the public interest standard in the 1934 Communications
Act.
Mr. Rogers. Well, suppose we didn't pass anything in the
Congress on this subject, would you still have the FCC on its
own decide that this is or isn't a public interest issue?
Mr. Hundt. We have the lawful authority to do so. We would
of course have to do so by way of an open and public
rulemaking.
Mr. Rogers. I suspect that might cause a little bit of
controversy.
Mr. Hundt. I suspect that's right.
Mr. Rogers. Which would be new to you.
Mr. Hundt. It would be new to me; at least a new
controversy.
spectrum auctions
Mr. Rogers. Now, as both of you know, the Administration's
fiscal year 1998 budget assumes $36.1 billion in revenue to be
derived from auctioning additional large portions of the
spectrum. How confident are each of you that you will be able
to identify the necessary spectrum for auction without
negatively impacting federal and non-federal users? Secretary
Irving.
Mr. Irving. I'm fairly confident that we can. I believe
there is a strong desire for wireless technology in this
country. I believe that our proposal to auction off the analog
spectrum at an early date, while controversial, will derive
significant revenue for the American taxpayer. And I believe
working together, the FCC and NTIA can identify the spectrum
and that we will have market value that will reach that $36.1
billion.
Mr. Rogers. We're talking about the non-broadcast spectrum.
Mr. Irving. I think it's non-broadcast spectrum, but part
of the President's assumption is that we will move to digital
television and we will take back spectrum. And we will auction
that spectrum, for about $36.1 billion, which assumes a give
back of existing analog broadcast spectrum and sale of that.
Mr. Rogers. Chairman Hundt.
Mr. Hundt. I would say that there are approximately 300
spectrum bands below four gigahertz, of which only 12 have been
auctioned so far. Now, the 12 that have been auctioned are very
likely the ones that will generate the largest amount of money
in any auction. But I think it's certainly appropriate for us
to continue, in conjunction with Congress and the Department of
Commerce, to examine all of the bands and to try to find
reasonable opportunities for auction in all of those bands.
effects of auctioning some spectrum bands
Mr. Rogers. Would you anticipate that more Federal
Government users may have to move as a result of the proposal?
And if so, what would the cost be?
Mr. Hundt. I should probably refer that to the Assistant
Secretary.
Mr. Irving. It is our hope and expectation we won't have
to move a significant number of Federal Government users. One
of the things that is happening and one of the things we want
to thank you for, Mr. Chairman, is your willingness to work
with us on a proposal to ensure reimbursement for Federal
Government users.
With the spectrum we've already given to the FCC, we have
an estimated $500 million that it would cost these agencies to
move so that private sector entities could use that spectrum.
The cost of that move would have to be appropriated by Congress
unless it's reimbursed by the private parties who are going to
benefit from it. We think it's better public policy that those
people who are going to benefit pay for the move. We have draft
legislation from last year, and the legislation that we will
have this year would require such reimbursement. We don't want
to have to appropriate it. Let the people using it pay for
that.
Mr. Rogers. Mr. Taylor.
bechtel decision
Mr. Taylor. In 1993 the Bechtel case decision struck down
the provisions in the FCC rules that gave a preference to
applicants for radio station licenses who planned to have the
owner integrated into the day-to-day management of the station.
And a number of FM station license cases were ongoing at the
FCC.
I have some in my district. These pending cases were thrown
into sort of a hiatus pending the FCC's revision of the rules.
Now over three years have passed since the Bechtel decision,
but the FCC has failed to issue revised rules. There is a
thought that maybe the FCC is trying to wait out to make
settlements in the interior or the owners have to come to
settlements, since that's the only way they can find any sort
of finalization to their situation.
Could you tell us why the FCC has failed to revise the
proceeding rules after the Bechtel decisions? How many
application cases have not been finalized when the Bechtel case
was decided? Did the FCC decide in any of those cases to change
the interim operator?
Mr. Hundt. I'm not sure that I have the specific data that
you've requested. If I can beg your indulgence, I'd like to get
that to you extremely promptly after this hearing. Generally
speaking, you were certainly right that a great deal of time
has passed since the Bechtel decision.
We have had a great deal of difficulty at the FCC trying to
figure out a workable method of getting these licenses out.
Most recently we received a letter from Senator McCain asking
us to hold this matter so that he could introduce legislation
that would, if passed, permit us to hold an auction among
mutually exclusive applicants for these licenses.
If I remember correctly, his letter and the proposed
legislation suggests that simply the highest bidder would get
those licenses. We don't now have, as I know you know
Congressman, the legal authority to conduct an auction when the
license is allocated for broadcast.
bocs cellular separate subsidy rule
Mr. Taylor [Chairman]. Of course, we had asked over a year
ago for the rules and nothing had happened. I was beginning to
wonder. I can tell you that there is one in my district and I
know there are others. I would like to have that information
and I'll submit in writing some other questions to go with it.
I don't know, maybe you've been too busy implementing the
Telecommunications Bill. That's been quite a long time also.
But let me put some other questions while I have the chance.
But let me ask about in November 1995 the U.S. Court of Appeals
for the Sixth Circuit found that the FCC's ruling on
elimination of the Bell Operating Companies Cellular Separate
Subsidy Rule to be arbitrary and capricious.
In its ruling the Court instructed the FCC to review its
decision promptly, ``Because the disparate treatment afforded
the Bell Operating Companies' impacts on their ability to
compete in the ever evolving wireless communications
marketplace.''
And when you testified before this Committee last May, I
was here six months after the Court's action. We asked you when
you could expect the FCC to honor the Court's admonition. And
you responded that you hoped to issue a proposed rulemaking on
the subject in the next ten days.
This action took place about two months later. And six
months later the FCC still has not issued a final ruling on the
matter. It's been a year and four months I believe. Do you take
seriously that ruling? And when can we expect the final
decision? Have you lost a lot of folks over that way? What has
been the reasoning? Can you give us some idea of when we might
expect a final decision?
Mr. Hundt. Between May and June; in those two months.
Mr. Taylor. This is this year?
Mr. Hundt. Yes. The notice went out as we said when this
was last alluded to. And we did make the record. We're
proceeding to a conclusion. Assuming the Commission deliberates
promptly on this topic, the final order should be done in May
or June.
public broadcasting
Mr. Taylor. Let me ask one further question of the panel.
The National Telecommunications Information Administration
administers grants to the local Public Broadcasting Stations.
Rural stations in my district are heavily dependent on the PTFP
grants to provide services to local communities.
In addition, the matching grants provide valuable funds for
repair and replacement of equipment that keeps public
broadcasting on the air and provides local programming for the
community. Could you tell us why the Administration has zeroed
this out in fiscal year 1998?
Mr. Irving. It was a question of priorities, Mr. Taylor.
Congressman, this is an issue every year before this Committee.
And it's a tough one for me every year. The President strongly
supports the Public Broadcasting System, but in the better part
of this year, he felt that he just couldn't justify a
continuation.
When PTFP was initially inaugurated it was intended to
build-out the Public Broadcasting System across this country.
We're at 95 percent penetration for Public Television and 90
percent penetration for Public Radio. The President felt that
his job was basically done. And that the other authorizations
and appropriations for CPB and Public Broadcasting would be
adequate to do the job that needs to be done.
I understand the strong feelings and sentiments of this
Committee. I hear it and will report back, but what my
President has said in his budget is that he couldn't justify
funding it again this year.
Mr. Taylor. You wouldn't mind if we looked at some items
with a different view toward priority.
Mr. Irving. I believe that----
Mr. Taylor. Perhaps the Legal Service Corporation is one
of the programs that could have a little lower priority. That
isn't a question.
Mr. Irving. Thank you, sir.
Mr. Taylor. I won't put you on that spot.
Mr. Irving. Thank you very much. I'm rarely speechless,
but I was just then. So, thank you.
Mr. Taylor. I understand. I will submit some more
questions in writing.
Mr. Taylor. Congressman, do you have questions?
public broadcasting
Mr. Mollohan. Thank you, Mr. Taylor. Sir, let me ask you
some follow-up questions on PTFP. You point out that your
President didn't feel it was meritorious to fund it or to
request funding for it.
Mr. Irving. I'm not quite sure how to answer that.
Mr. Mollohan. Well, just try answering it straightforward.
What was your request to OMB?
Mr. Irving. I believe we did make a request to OMB. I
believe the request was for $15 million.
Mr. Mollohan. So, it was OMB that cut it to zero?
Mr. Irving. I don't know that it was OMB. I don't know at
what level that decision was made.
Mr. Mollohan. When it came back from OMB it was zero?
Mr. Irving. I'm not certain. I want to make certain that I
don't misspeak in terms of what the Department forwarded to
OMB. Yes, it came back from OMB with zero and sent from the
Department at $15 million.
international telecommunication Union
Mr. Mollohan. Okay. Well, I'm pleased to hear there is a
reservoir of support for the program on the Committee. I don't
know whether this has been covered since I've been out, but you
have proposed to take funding from PTFP as an offset to support
the telecommunications union conference. How much is that
offset?
Mr. Irving. It's the reprogramming of $1.5 million. We
have a commitment through a memorandum of understanding with
the State Department that we will contribute half of the money
needed of $14 million between now and Fiscal Year 1999 for this
conference.
Mr. Mollohan. Half of the public money?
Mr. Irving. Half of the public money of $14 million. $7
million will come from the Department of State, $7 million will
come from Commerce, approximately $1.5 million in the first
year.
Mr. Mollohan. Did you have this request in last year?
Mr. Irving. We had a $1.5 million request in last year.
There were discussions about this. I have never been able to
track the torturous path of those discussions. But there was a
discussion of that in this Committee.
Mr. Mollohan. I'm advised that we did not fund it.
Mr. Irving. I believe that's correct. My problem is that I
am told by the Department that I do have to fund it. We have an
understanding with State that we will share the funding. When
the Department looks for money, it's in NTIA's appropriation
because the MOU is between Commerce and State.
Mr. Mollohan. Well, you'd have to get a reprogramming.
Mr. Irving. We've made a request for reprogramming to the
Committee.
Mr. Mollohan. I'm just saying that if that reprogramming
wasn't approved, you wouldn't be able to fund it; would you?
Mr. Irving. If you reject the reprogramming, we have to
come back with some other alternative because I don't think we
have a choice as a Department but to pay the money. In other
words, the Department has an obligation with the State
Department to pay the money.
And the U.S. Government has an obligation to the ITU to
move forward. And so I've got to find some way the Department
of State and the Department of Commerce can fund $3 million.
Somewhere in the Department we have to find out how.
Mr. Mollohan. I would be interested to hear the Chairman's
attitude about that. But before you go committing the United
States to this $1.5 million, $14 million, I think you should
have sought approval from the Appropriations Committee.
Mr. Irving. Can I make a statement on that, Mr.
Congressman?
Mr. Mollohan. Please.
Mr. Irving. In 1992, a bill was introduced and passed, a
resolution, asking the President to bid for the ITU and it is
our understanding it would cost the U.S. Government and
taxpayers some money. In 1993, the then-Chairman of the
authorizing committee, not the Appropriations Committee, Mr.
Hamilton, sent a letter to the President. In 1994, Vice
President Gore, on behalf of the President, extended the
invitation to the International Telecommunication Union, an
organization of 184 members. And I'm now in 1997 with an
obligation that we've taken in what we thought, in good faith,
with the approval of Congress.
But Congress did speak earlier and say go forward with
this. That was with the understanding that it would be Federal
fees to offset the cost.
Mr. Mollohan. Well, I'm particularly not pleased with the
recommended offset. Would you have another recommendation for
an offset?
Mr. Irving. If this offset is rejected, we will have to go
back and find the money somewhere else.
Mr. Mollohan. I'm inviting you to suggest another one here
at the hearing.
Mr. Irving. I don't have one on the top of my head, sir. I
don't have any other money in my account that could do it. And
I'd have to talk to others in the Department. We went for the
available funds I had that might be able to do it on-hand today
that wouldn't require significant RIFs and other dislocations
within the Department. That was all I had that I could put
forward. I will talk to my superiors at the Department.
Mr. Mollohan. I want to express appreciation to you for
requesting from OMB funding for the PTFP program.
Mr. Irving. You understand I'm not entirely pleased that I
had to admit that here. But, yes, sir. I appreciate that.
Mr. Mollohan. Well, almost every witness that testifies
here says what they requested of OMB. So, that's nothing.
Mr. Irving. That's the first time I had to do that. It's a
liberating experience. Thank you, sir.
Mr. Mollohan. Okay, Mr. Chairman, thank you.
Mr. Rogers [Chairman]. Mr. Forbes.
national congress for community and economic development
Mr. Forbes. I thank you, Mr. Chairman. Mr. Irving, I
certainly appreciate your being here today and some of the
insights that you've shared with us. I want to compliment NTIA
frankly for the creative and productive partnership that you
folks have developed with the National Congress for Community
and Economic Development; that non-profit group that's working
very closely with the poorest urban and rural communities to
develop telecommunications type jobs.
I've been very, very impressed with some of the information
I've gotten over the last several months about the success of
this program in Summerville, Massachusetts; Tampa, Florida, and
other communities around the country. As I understand it the
Community Development Corporation services somewhere in the
neighborhood of 5,000 individuals with the potential of, if fully
operational, servicing some 11 million people across the country.
This innovative partnership between your agency and the
Community Economic Development folks seems to have already
started to bear fruit with the training, I guess, in fiber
optic installation, and telecommunications job training, and
the like.
I know that the Secretary of Commerce, Mr. Daley, is
expected to release a report sometime in the next month or so
to the President about some ideas to address welfare and the
goal of all of us I think to find gainful employment for people
who are currently on welfare and those hopefully that will be
moving off.
My question gets I guess to more importantly do you oppose
the extension of this program or am I misinformed?
intergovernmental personnel act
Mr. Irving. You're not misinformed. We have loaned an
employee to NCCED through an Intergovernmental Personnel Act.
We have assigned one of NTIA's staffers to the National
Congress for Community Economic Development for a two-year
period.
Mr. Forbes. Is that Dr. Anderson?
Mr. Irving. That's Dr. Anderson. We made a commitment that
we would permit Dr. Anderson to be there for 18 months, with a
six-month extension. Then Congress asked us for an additional
one-month extension which we granted so she could close up. My
problem is I have a shortage of resources and additional
responsibilities.
I have spent almost $200,000 in two years for this program.
And I'm losing an FTE. I'm in an agency that has fewer than 50
FTEs for policy. One of those FTEs is Dr. Anderson. If I lose
that employee, I lose 2 percent of my capacity at a time when
my responsibility has been leveraged 80 to 100 percent with the
new international activities. I just simply can't afford an FTE
at the time I made the commitment, we thought we could honor it
and we did. We did everything we could to be helpful.
I don't have $170,000 to go to NCCED for another two years
to have an employee who is not directly related to the mission.
I don't have the luxury of doing something tangential to my
mission anymore. The office she comes from is principally
involved in domestic telecommunications policy development. And
I need more people, not fewer people. And I don't think we've
got resources for more people.
Mr. Forbes. I guess it just occurs to me as the President
has made obviously a very deep commitment to finding ways in
which all of us, not just government agencies, but private
sector as well can work to find opportunities for people as
they move off of welfare. And this is a wonderful success
story.
And it's beginning to blossom and take off. I think many of
us, as the Telecommunications Act was being debated and finally
passed and signed into law by the President, held great hope
that there would literally be millions if not tens of millions
of jobs created over the next decade in the United States.
And of course we're seeing that here, thanks to your
wonderful leadership, in allowing this individual to help get
this program going. It's a win-win. It's a success story all
the way around. The President has made a commitment to finding
opportunities to hire people, particularly in our poorest
communities. One person who is the linchpin in this program
being taken back, doesn't it run counter to the goal that the
President has laid out?
Mr. Irving. No. I would disagree with that. We had a very
clear mandate and a mission for that assignment. The goals of
that assignment have been met. There may be additional things
they'd like to do, and I wish them well. A part of what we do
in NTIA with the grants programs is we have a number of
economic development grants all over the country that do
exactly what NCCED is doing.
We're going to get hundreds of grants that I'd love to be
able to fund this year. I simply don't have the resources to
fund them. I don't know how I make a decision that my core
mission which is helping to make sure that the
Telecommunications Act works for every American person is less
important than having one organization when it's costing me an
FTE.
I have taken a reduction in FTEs over the last several
years, and it cost NTIA $170,000 to fund Dr. Anderson over two
years. I don't have that. If I had additional resources, if I
wasn't so resource-constrained we could have this discussion.
When I did this in 1994, I was not aware of what my Fiscal
Years 1995-98 appropriations levels would be.
And had I known, I don't know that I would have entered
into the agreement. But I simply don't have the resources. I
have so many filings that need to be filed at the FCC. We have
so much work that needs to be done on universal service. We
have so many priorities. And when a mission is done and you've
fulfilled what you've asked somebody to do, generally they come
back and do the job they're being paid by the American taxpayer
to do.
This is a part of what Dr. Anderson can and should do, not
the totality of what she can and should do. I think as a matter
of the agency, I've got to establish priorities. I've done
everything they've asked except extend it for a longer than
one-month period. They asked for six months. I gave it. They
asked for further, I gave another month so she could wind down.
But now I have needs that aren't being met because of the
absence of a person in my policy shop, one of my most senior
people. And if she decides she wants to stay with the Council,
I'll understand that. But I'll still have to bring in a senior
person who can do policy work at the level for which she was
hired.
Mr. Forbes. So, am I correct in understanding then it's
not just about FTEs, it's about an expertise that an individual
has that can serve the broader mission?
Mr. Irving. It's about FTEs, and resources, and expertise,
and priorities that I think any manager has to establish. I
have literally a lot of things I wish I wasn't kept from doing.
I just can't do them all. And this is one organization that for
two years we had a partnership. There may be a number of things
we can do with NCCED with my TIIAP program.
I have a number of people in my agency who, if I don't have
to give them up full-time, and lose an FTE and spend $170,000,
might be able to devote some of their attention and some of
their skills to helping NCCED.
But I can't give somebody full-time status and spend
$170,000 over two years on a repeated basis when my total S&E
budget is approximately $20 million. I would have spent
$200,000 over two years. That's a significant portion. I don't
have that many policy people.
Mr. Forbes. I appreciate that.
Mr. Irving. I'm trying to be very candid. And I'm just
trying to do the best I can with what I've got. I just ain't
got very much; excuse the fractured English.
Mr. Forbes. I appreciate that. I thank you very much for
your candor. Thank you, Mr. Chairman. I have additional
questions if I might submit them for the record, Mr. Chairman.
Mr. Rogers. Certainly.
Mr. Forbes. Thank you.
public safety spectrum allocation
Mr. Rogers. Let me take you back a minute and finish up
with the hearing with spectrum auctions. One of the major
concerns, as you know of this Committee has been that the
spectrum needs of public safety be accommodated as we go
through this.
As you both know, the Public Safety Wireless Advisory
Committee Study indicated that public safety may need an
additional 70 megahertz of spectrum over the next 15 years.
Does the Administration's proposal set aside any additional
spectrum to meet that long-term public safety requirement? Who
would like to respond?
Mr. Irving. I'll start. With regard to our use of the
spectrum, we believe we can adequately ensure that the Federal
public safety users will have adequate spectrum. I will not
compromise on that. We are working hard not to compromise on
that. I don't believe that our spectrum proposal requires
anything other than absolute fidelity to that standard.
Mr. Rogers. What about the State and local public safety.
I'll let the Chairman answer that since he has responsibility
for State and local.
Mr. Hundt. You referenced, Mr. Chairman, the Public Safety
Wireless Advisory Committee Report, which we agree with you was
a terrific document. I think that it does describe the needs of
the public safety community. We are just taking them step-by-
step.
First, we've got to get these 60s as we were calling them
reallocated. Second, we have to otherwise meet the rest of the
needs. But we certainly share with you a major commitment to
this particular goal. We will find a way to balance the auction
demands with the need to make sure that the public safety
community is accommodated.
The public safety community obviously is not appropriate to
put into an auction context, because then they'd just be
spending public money to have the dollars go right back to the
public anyhow.
Mr. Rogers. Well, does the Administration's proposal set
aside any additional spectrum to meet that long-term public
safety need?
Mr. Hundt. I shouldn't respond about the Administration's
proposal.
Mr. Irving. I don't think we make any specific set aside,
but I think we believe we have adequate head room to ensure
that public safety needs are met. We are not going to just
gouge spectrum to the private sector at the risk of public
safety. I believe if we started to do that, Members of Congress
would ensure that we didn't.
But I will assure you, the President believes strongly that
we have to make sure that there is public safety spectrum. I'll
give you one example. Recently, Vice President Gore came out
with some airline safety initiatives. If we're going to have
increased airline safety, the FAA is going to have to have
adequate spectrum to do that. We're fully aware of that. We're
not going to give away spectrum. We're going to save lives. I
fly too much. Too many of my friends in Washington fly back and
forth through the country to not have the adequacy of spectrum
for our FAA use.
Mr. Rogers. Well, I think we're going to need some more
assurance than just----
Mr. Irving. Mr. Chairman, tell me what assurances you need
and I will do everything I can to get them.
Mr. Rogers. I think we need to know that we need the space
set aside. It needs to be set aside. The Public Safety Wireless
Advisory Committee study indicates an additional 70 megahertz.
Who am I to argue. It's a technical question. But until we know
better, I think we'd better not just hope that we can set that
aside, but that it shall be and is hereby set aside.
Mr. Irving. What I think we can pledge to do is what we
pledged two years ago when we were sitting in a slightly
smaller room. We talked about the Chairman and I working
together to give you the assurances you needed on that. I think
the Chairman and I would be happy to work together to see what
we can cobble together to give you the assurances you want with
regard to public safety needs.
Mr. Hundt. I think, Mr. Chairman, at the risk of stating
the obvious, that you're making a point that needs to be
balanced against the auction pressure, which obviously,
typically addresses budget needs. And I think you're sending a
very strong message. Possibly Secretary Irving can help carry
that back to the budget folks that he's dealing with.
Mr. Rogers. Well, I think we need this and it needs to be
done. How soon can we have that kind of an assurance?
Mr. Irving. That, I would like to get back to you on after
talking to the Chairman and my staff. I just don't have a clear
answer on what it's going to take. I think it is going to be a
significant undertaking.
Mr. Rogers. Well, we look forward to hearing that
assurance and that commitment in the next month.
Mr. Irving. You will have the commitment as to when within
the next month as long as you are not asking me to figure out
where the 70 megahertz are within the next month. That would be
difficult. I have no idea how long a task that is. I don't want
to commit that we can do it in a month because some of the
public safety needs are local and Federal.
Mr. Rogers. Well, we've got to have this before there is
any decision to auction.
Mr. Irving. Well, I need to talk to OMB. I need to talk to
my Federal managers and to the Chairman and figure out where we
can go. Can I make those calls and see what we can cobble
together? I don't want to constrain the President and his
budget, but I hear your strong message. I want to see what I
can do.
Mr. Rogers. Well, we can talk more about it. I realize I'm
putting you on the spot here this minute. But it's something
that we need to get resolved before the auction gets in place.
Mr. Irving. Understood.
spectrum auctions and public safety costs
Mr. Rogers. Now, in your testimony both of you indicated
the need to come up with some kind of financing mechanism to
help offset the cost to meet public safety needs. Chairman
Hundt, you talked about creating a trust fund. Mr. Secretary,
you talked about a system of reimbursements. Could each of you
explain your proposal briefly and indicate how they might
differ one from the other.
Mr. Irving. Mine goes strictly to Federal Government
users. If I have to move somebody from the Defense Department,
the FAA, or Treasury out of a band, and they have to buy new
equipment, they generally don't have the appropriated funds to
do that.
We think that the cost of that equipment should be borne by
the private sector entity coming into that band. We've
estimated up to $500 million of cost to the Federal taxpayer if
we don't get such reimbursement. We think it makes more sense
for the private sector entity that's going to benefit from this
spectrum to bear that cost. It really is very different from
that which I think the Chairman is talking about.
Mr. Hundt. The letter from Senator McCain to which I
earlier alluded where he suggests that we hold certain
licensing processes until we can have an auction is also a part
of a suggestion by Senator McCain that auction money would be
diverted to public safety purposes. I think this is a terrific
idea.
We can find some auctions that we weren't otherwise
lawfully able to hold and then have the money be targeted to
public safety purposes. We accomplish a lot of goals at the
same time.
Mr. Rogers. How much money do you think it will take?
Mr. Hundt. That, I don't have an answer for you right now.
I'll look into it. I'm not sure I'm the right person to fully
answer that question.
Mr. Rogers. Well, the Secretary said that for the Federal
purposes you thought $500 million.
Mr. Hundt. Roughly, $500 million is a figure that I know
I've been briefed on.
Mr. Rogers. For the Federal?
Mr. Hundt. Yes.
Mr. Rogers. And for the other who could tell us that? Give
us a----
Mr. Hundt. Probably the Advisory Committee's personnel;
although the Committee itself is coming to a conclusion. But we
would rely on what the State and local agencies would report to
us.
Mr. Irving. Mr. Chairman, could I ask one question. When
you talk about 70 megahertz, and that as I understand----
Mr. Hundt. May I interrupt you?
Mr. Irving. Oh, please.
Mr. Hundt. I'm just advised, for the record, that Senator
McCain's estimate was $750 million.
Mr. Rogers. Is that for Federal, State, and local?
Mr. Hundt. For everything.
Mr. Rogers. $750 million?
Mr. Hundt. Yes.
Mr. Irving. Okay. Let me change that. My $500 million has
not been segregated out from public safety. It's all Federal
users. So, it's all Federal users in the $500 million, not just
public safety. His $750 million I guess includes both Federal,
State, and local public safety.
Mr. Rogers. Does yours include DOD?
Mr. Irving. It includes everyone; all Federal users.
Mr. Rogers. And what portion of your calculation is DOD?
Mr. Irving. I can figure that out. I can get that number
for you. I don't have it right now.
Mr. Rogers. Maybe you can give me a rough ballpark.
Mr. Irving. I don't know.
Mr. Rogers. Half?
Mr. Irving. I've been here all day and I don't want to
continue.
Mr. Rogers. You get that for me.
[The information follows:]
SUMMARY OF FEDERAL REALLOCATION COSTS
[In millions of dollars]
------------------------------------------------------------------------
Estimated
Federal agency Reallocation approach reallocation
cost
------------------------------------------------------------------------
Agriculture................... Replace 580 Forest 48
Service fixed
microwave links.
Army.......................... Change frequencies and 33
realign 260 Corps of
Engineers fixed
microwave links.
Increase training
expenses for tactical
radio relay systems.
Commerce...................... Redesign and replace 33-55
NOAA nationwide
radiosonde network.
Energy........................ Replace 30 fixed \1\ 3-10
microwave links.
Justice....................... Convert 560 FBI fixed 144
microwave links to
commercially
available service.
Replace 90 INS fixed
microwave links.
Change frequencies
and realign 500 DEA
transportable video
links.
Treasury...................... Replace Secret Service 1
fixed microwave and
air/ground video
links.
Interior...................... Change frequencies and 8-13
realign or replace
135 microwave links.
Air Force..................... Redesign radar, \2\ 60
telemetry and weapon
control systems.
Redesign integrated
instrumentation
systems.
Transportation................ Replace 150 FAA and \3\ 115
Coast Guard fixed
microwave links.
Redesign software for
44 joint FAA/AF air
traffic control
radars (ARSR-4). Add
filters to older FAA
air traffic control
radars.
Navy.......................... Develop and possibly \4\ 30-113
retrofit various
weapon control
systems.
------------------------------------------------------------------------
\1\ The higher range is required if an exception is not provided to
other Federal agencies carrying DOE electrical power distribution
information.
\2\ Costs could increase by up to $123 million if unacceptable
interference to or from non-Federal systems necessitates major
hardware changes or replacement of Air Force telemetry and data link
systems.
\3\ Costs could increase by up to $500 million if unacceptable
interference to or from non-Federal users necessitates major hardware
changes or replacement of joint FAA/AF ARSR-4 radars.
\4\ Costs could increase by up to $63 million if unacceptable
interference to or from non-Federal users necessitates retrofit of
Navy carrier landing system radars.
Source: Spectrum Reallocation Final Report, February 1995.
Mr. Irving. Sir, I will get that for you, and
expeditiously.
Mr. Rogers. Mr. Chairman.
Mr. Hundt. I'm not exactly sure what Senator McCain's
sources are, but we will find out what we can and report it to
you.
[The information follows:]
Public Safety Funding
Question. What is the basis for Senator McCain's estimate
of $750 million?
Answer. While we would not presume to speak for Senator
McCain, it may be that this estimate is based on rough
estimates of the value of the broadcast spectrum at channels
60-69 and calculating a fair amount (10%) to be used by public
safety.
Mr. Irving. Can I raise one issue that I was starting to
raise with regard to the 70 megahertz?
Mr. Rogers. Yes.
Mr. Irving. As I understand it, as we understand an
additional 70 megahertz may be needed over the next 15 years,
but 25 megahertz would likely be over the next five years. Over
the next 15 years, it's very hard to figure out what the
technology will even be that public safety users might need.
And trying to pull out 70 megahertz is an awesome task.
The budget focuses on the next five years. It may be a more
manageable task and probably a task that is even doable is to
look at the 25 megahertz over five years as opposed to 15 years
and 70 megahertz. I just don't know how I can figure out what a
particular public safety user is going to have for technology
in the year 2012. My arithmetic came in handy I think.
Mr. Rogers. Well, whatever it is, and I'm certainly in no
position to give it even a ballpark figure. I just don't know.
But we need some authoritative number that is protective of the
public safety.
Mr. Irving. We can work on that, but I made a commitment to
try to work on the 70 megahertz. And I'm a little concerned
that since that's a 15-year program, that's going to be harder
to do than trying to find 25 megahertz over five years.
Mr. Rogers. I'd be happy with anything.
Mr. Irving. Okay. I'll get you something. I guarantee it
will be better than just anything. Sorry about that. It will be
a quality product when delivered.
[The information follows:]
[Pages 1110 - 1113--The official Committee record contains additional material here.]
Mr. Rogers. I'm really getting concerned about people
reading the transcript of this hearing.
Mr. Irving. I hope my mama never does, I swear.
Mr. Rogers. I mean if somebody from Mars was reading this
transcript, that would make news.
Does the Administration's budget assume these costs on the
public safety spectrum and your auction proposal?
Mr. Irving. No. It does not.
Mr. Rogers. Why not?
Mr. Irving. It's not a cost to the Treasury directly. What
has traditionally happened is we've given spectrum over to the
FCC and we've told people to move. And then they have to go
back to their appropriators.
But until they are told to move and where to move, there is
no way to figure out what the appropriated level has to be.
We're trying to make sure that it doesn't have to be scored by
making sure that people are reimbursed by those who would use
these spectrum bands.
Mr. Rogers. Mr. Mollohan, do you have anything further?
Mr. Mollohan. No, sir.
Mr. Rogers. We will have further questions that we will
submit for the record. We would appreciate your responding to
any Member of the Committee.
Thank you for being here today. Thank's for pairing
together. I think it's worthwhile for us to have both of you at
the same table at the same time because your work is
complementary with an ``e'' and an ``i.''
Mr. Irving. Thank you.
Mr. Rogers. So, I thank you for being here today. Stay in
touch.
Mr. Hundt. Thank you very much, Mr. Chairman.
Mr. Rogers. Thank you.
[Pages 1115 - 1240--The official Committee record contains additional material here.]
Tuesday, April 8, 1997.
U.S. DEPARTMENT OF COMMERCE, NATIONAL OCEANIC AND ATMOSPHERIC
ADMINISTRATION
WITNESS
D. JAMES BAKER, UNDER SECRETARY FOR OCEANS AND ATMOSPHERE
Mr. Rogers. Testifying before the Subcommittee this
afternoon is Dr. James Baker, the Under Secretary for Oceans
and Atmosphere at the Department of Commerce.
The hearing today will focus on the National Oceanic and
Atmospheric Administration which is over 50 percent of the
Department of Commerce budget. Unlike most other agencies in
the Department of Commerce, NOAA's appropriation has not been
reduced.
In fact, since fiscal year 1996, NOAA's operating budget
has increased by 8 percent at the hands of this Subcommittee
and the Senate. In order to fund that increase other Commerce
agencies, by and large, have taken larger reductions.
For fiscal year 1998, NOAA is requesting $2.1 billion of
which $1.97 billion is direct appropriations and would
represent a 4 percent increase. Fiscal year 1998 will bring
with it another year of budget constraints. We need to
prioritize your request and look for ways to find budgetary
savings so that we can most efficiently allocate the limited
resources this Subcommittee will have.
Dr. Baker, we will proceed with your opening statement, and
ask that, if possible, you try to limit your remarks to five
minutes. We will make your written statement a full part of the
record.
Opening Statement
Dr. Baker. Thank you, Mr. Chairman and Members of the
Subcommittee for this opportunity to testify on the 1998 budget
request for the National Oceanic and Atmospheric
Administration. Our 1998 budget provides resources to maintain
essential services, facilitate continuing progress in critical
investment areas and to address statutory obligations.
NOAA has provided the United States with the most advanced
weather and climate prediction system in the world. We provide
the scientific base for managing natural resources and solving
environmental problems. Our comprehensive system for acquiring
observations provides the environmental information that are
critical to the safe conduct in daily life and basic
functioning of a modern competitive economy.
Of the total $2.1 billion that we request, $1.5 billion are
in the Operations, Research and Facilities account and $503.5
million are in a new Capital Assets Acquisitions account, and
$7 million are for Fisheries Funds and other special accounts.
Our budget is allocated according to strategic plan
element. The first of these is advanced short-term warnings and
forecasts. During this past year, the Nation continued to
experience the benefits of weather service modernization. The
next step is the launch of our GOES satellite on April 24th
which will provide an on-orbit spare to prevent the one GOES
situation that we had a few years ago. These improvements can
be directly attributed to saving lives and reducing the effects
of natural disasters.
With new technologies warnings were issued for the recent
tornadoes in Arkansas, somewhere between 18 and 32 minutes
prior to impact. The losses suffered by the people of Arkansas
and other States would have been much worse without these
technologies and the people behind them.
We are required in Fiscal Year 1997 to reduce weather
service staffing. Of the 272 positions required to be reduced
by October 1st of this year, only 132 encumbered positions
remain. These will be eliminated by the use of a RIF for 16
positions out of 200 requested; 49 reassignments; 57 buyouts;
and 10 optional retirements.
We request $1.2 billion to address this strategic goal, an
increase of about $40 million over the 1997 enacted number.
This goal represents the largest portion of NOAA, more than
half of our activity.
As you know, the satellite estimates within this request
will be updated shortly and we will be in contact with you on
the revised numbers.
Advances in technology have allowed the polar satellites to
continue to exceed their expected lifetimes. We have also been
recently informed by NASA that they are reducing their internal
requirement for forward funding. We are reviewing this in the
context of our programs. However, at this time, we believe the
current level of forward funding should be maintained.
The second of our strategic plan elements is implementing
seasonal to interannual forecasts, the El Nino phenomena. Our
goal here is to introduce an operational program for the
systematic production of regionally accurate climate forecasts,
primarily for agriculture.
In 1966, we developed and implemented an improved version
of a couple of forecast models for El Nino resulting in skill
improvements over the entire record from 1981 to the present.
We request $115 million to address this strategic goal.
Our third strategic goal under assessment is predicting and
assessing decadal to centennial change. Our goal here is to
provide accurate measurements of the changing environment and
to develop the science that is necessary for policy decisions.
In 1996, we documented a decrease in tropospheric levels of
an ozone-depleting substance, the first time observation that
demonstrates the emergent effectiveness of the Montreal
Protocol on stratospheric ozone. We have also refined and
improved our models of climate change. To accomplish this goal,
we are requesting a total of about $91 million.
Of other interest to the committee under NOAA's
environmental assessment and prediction goal is to promote safe
navigation. We appreciate that over the past several years the
Committee has been very supportive of our nautical charting
capabilities. Ninety percent of the cargo that comes into the
country comes through the nation's ports. We request $85
million to address this strategic goal, a net decrease of $7
million from 1997 but it does represent an increase of $7
million in the base mapping and charting functions within the
National Ocean Service. The decrease is due to a transfer of
aeronautical charts to the Department of Transportation.
The first of the strategic goals under environmental
stewardship is build sustainable fisheries. We continue to make
progress towards rebuilding and maintaining the health of U.S.
fisheries. Successful efforts in this goal will add billions of
dollars to the economy over the next 10 years. We request $332
million for this goal.
The second of the stewardship plan elements is recover
protected species which is concerned with the conservation of
the nation's living marine resources. NOAA requests $70 million
to address this strategic goal.
The third strategic goal under stewardship is to sustain
healthy coasts which focuses on improving our understanding of
the way that coastal eco-systems function, coupled with an
ability to predict responses of eco-systems to human activities
and to take appropriate action. In August of 1996, President
Clinton announced a bold new initiativechallenging the Federal
Government, States and the Congress to protect all communities from
toxic pollution. NOAA has a key role in this interagency initiative,
designed to make coastal waters safe and clean for all Americans by the
year 2000.
We have the capacity to meet this challenge by expanding
three of our existing programs within the National Ocean
Service: the coastal monitoring and assessment program, the
coastal zone management program and the coastal resources
coordination program.
This past year, we have increased the pace of coastal
habitat restoration with 50 projects benefiting 40,000 acres in
partnership with Federal, State and local agencies, industry
and non-governmental organizations.
We request $212 million to address this strategic goal, a
net increase of about $19 million over Fiscal Year 1997.
Before I conclude, Mr. Chairman, I would like to state the
NOAA recognizes that we have had serious problems in the past
with responding to congressional inquiries, report requests and
providing written answers to questions in a prompt manner. I
would like to assure you that I take this problem seriously. We
have instigated several steps to ensure that you have requested
material as quickly as we can provide it.
In conclusion, let me say that every day in some way every
person in the United States uses the services that are provided
by NOAA. We welcome the coming discussion on our goals,
priorities and operations with Congress, our constituents and
the public.
Thank you.
[The statement of Dr. Baker follows:]
[Pages 1244 - 1277--The official Committee record contains additional material here.]
national Weather service
Mr. Rogers. Thank you, Dr. Baker, for your testimony. And
let me say that this has been a busy agency of late with all of
the natural disasters that are occurring, even as we speak,
around our country. It seems like we are having more than
usual. Perhaps that is not the case, but it seems like that is
the case. Maybe we are just learning more about them than we
used to, perhaps, or because we have got a full-time channel on
television that does nothing but broadcast weather information.
As you have indicated, this Committee and the Congress have
been tremendously supportive of the National Weather Service.
In Fiscal Year 1997, at a time when most other agencies were
being cut, particularly in the Commerce Department, this
Committee made National Weather Service funding a priority,
practically above anything else.
In Fiscal Year 1997, we gave a $32 million year increase
over Fiscal Year 1996 for the National Weather Service while
other agencies were actually being cut. Over the last several
years, we have invested $4.5 billion in weather service
modernization.
And like many other Members, therefore, Dr. Baker, I was
disturbed to read in the Washington Post this Sunday that the
National Weather Service has a $40 million budget shortfall
this year. In Fiscal Year 1997, we provided a $10.9 million
decrease from the Administration's request for operations and
directed that all of those reductions be taken not from the
field but from headquarters.
So, how can the budget for the National Weather Service be
up to $40 million short, given those facts?
Dr. Baker. Well, Mr. Chairman, I was also disturbed to see
the articles that have been reported. When I discussed with the
Weather Service the ways in which they could live within the
budget that had been provided, I insisted that there be no
reduction in warning capability, no jeopardizing of public
safety, no reduction of staffing at weather forecast offices
and weather forecast centers, and no change in the plans for
modernization. And the Weather Service leadership told me that
they could live within those guidelines and they provided the
changes, the way in which they could live within their budget.
They provided me the statements that they could do that.
I was very surprised to see in the paper some others who
disagreed with that and, as you can see, in the Post article,
my answer to the reporter who asked me about the impacts, I
said, absolutely not. We will not jeopardize public safety nor
reduce warning services.
And I want to say I greatly appreciate, we all appreciate
what this Committee has done for the support of modernization
of the National Weather Service, the $4.5 billion of money that
comes at very tough budget times and the continued support of
this Committee for the big systems because it is putting the
new technical systems in place that allows us to do
modernization and to reduce the number of weather stations and
the number of people, finally, that will be providing the
weather services.
Mr. Rogers. Did the Administration fail to request
sufficient funding in 1997 to ensure that the National Weather
Service could fulfill its public safety mission?
Dr. Baker. No, sir. We believe that the Administration's
request was fully consistent with meeting public safety
concerns.
Mr. Rogers. Do you believe that the reductions in the
National Weather Service have jeopardized public health and
safety?
Dr. Baker. No, sir. And as I stated to the press my view is
absolutely not. I should say to be complete, that certain cuts
have been taken by the National Weather Service which we view
as temporary cuts. That is we have delayed the purchase of some
spare parts. We have deferred some maintenance. These are
things that we can handle over a short time but that accounts
for the funds that we have requested for restoration of base in
1998.
Mr. Rogers. Is the Weather Service complying with the
congressional direction that we have made that $10.9 million
reduction be taken from headquarters as opposed to field
operations?
Dr. Baker. Yes, sir. As I have looked at that, I believe
they have complied with those guidelines.
Mr. Rogers. That same Washington Post article quotes a memo
sent to you by some senior Weather Service managers which
blames these budget shortfalls, among other things, for the
recent $300 million crop loss in Florida, as well as the deaths
of three Coast Guard crew members, off the coast of Washington.
You responded to that memo in what fashion?
Dr. Baker. Mr. Chairman, I was very upset to see that, the
linkage between budget cuts and those issues and I responded
back with a memo to those four Weather Service employees
stating that their memo was inaccurate and the facts were that
the fruit frost forecast failure was, in fact due to a blown
forecast. We simply did not get it right. Neither did the
private sector. This often happens and it is something we have
to live with.
In the case of the buoy off of Oregon, that was a fully
funded buoy. The only reason it was not maintained is because
the weather had been so bad that the guys could not get out
there to fix it. I would be happy to provide my memo for the
record.
Mr. Rogers. Would you do that, please?
Thank you.
[The information follows:]
[Pages 1280 - 1282--The official Committee record contains additional material here.]
Mr. Rogers. Now, how did those senior officials come up
with such a charge?
Dr. Baker. I cannot answer that question. I can only
respond to what I have, but as I can say, I responded very
strongly to their statement.
Mr. Rogers. Well, those people, maybe they should tell us
how they came up with such information. Am I correct that the
names that you sent your memo to, are those the ones who made
these changes or made these statements?
Dr. Baker. Yes, sir.
Mr. Rogers. Do you mind if I name their names?
Dr. Baker. No.
Mr. Rogers. Louis J. Boezi, Deputy Assistant Administrator
for Modernization. Ronald McPherson, Director of the National
Centers for Environmental Prediction. Douglas H. Sergeant,
Director of the Office of Systems Development. Thomas D.
Potter, Director of the National Weather Service Western
Region.
So, there memo to you or this statement in the press that
they blame these events on cutbacks is not only inaccurate, it
was outlandish, was it not?
Dr. Baker. Yes, sir.
Mr. Rogers. What are you going to do about it?
Dr. Baker. As I say, I have responded to this and we are
looking into the actions that can be taken under the rules of
the Federal Government.
Mr. Rogers. Well, if there are any problems with public
safety that need to be addressed can they be handled within
NOAA or the Department of Commerce's existing resources?
Dr. Baker. Mr. Chairman, I do not believe, and I have
stated this to the press, that we have problems with either
public safety or warning capabilities. The Weather Service has
an excellent record in this regard. We have looked at the
details of the actions that they have taken and we do not
believe that we are jeopardizing public safety in any way.
Mr. Rogers. Mr. Mollohan?
Mr. Mollohan. Than, you, Mr. Chairman.
Mr. Chairman, if I can pick up a little bit on your
questions.
Welcome to the hearing, Dr. Baker.
I want to express the Chairman's and the Committee's
appreciation for the good work you do and the importance of
NOAA. Following up on the Chairman's questions there is a
natural concern by the Committee about this issue given the
articles and the circumstances which are the foundation for the
articles.
We are listening to this concern being expressed from a
number of difference places. I understand that the National
Weather Service, itself, has expressed concerns. The Chairman
asked you if you thought that the cuts would undermine your
ability to forecast and predict weather. I think your answer to
his questions are, no, you did not think they would.
At the same time, there are expressions from credible
sources that would suggest that they might. This is your
opportunity to explore that in depth and explain to the
Committee why there is a disparity of information on that
point.
Mr. Friday, who is the head of the National Weather
Service, is reported to have expressed concern. I am quoting
here from a Christian Science Monitor article that says, ``From
the midwest tornado belt to university labs, scientists say
funding cuts are now reaching the point where they are
imperiling the nation's ability to do adequate weather
prediction and are undercutting efforts to advance science.''
The same article cites concerns that the magnitude of the
cuts proposed by the Administration and Congress required Mr.
Friday to look elsewhere. It insinuates that the pressure
caused him to cut the National Hurricane Center in Miami and
the Storm Prediction Center in Norman. Specifically a source
speaking about Norman's capability suggested that by cutting
out two overnight outlets to take advantage of the most current
weather observations and computer modeling, emergency planners
would be deprived of key information that will reduce their
lead time in preparing for storms. I guess that is the only
specific citing of how these cuts might imperil prediction and
safety.
I would like for you to speak to the broader issue and why
there sounds like there is some discrepancy in the view of
different people who have this responsibility within NOAA.
Dr. Baker. Well, let me make three points about that
Congressman Mollohan. First of all, we all recognize that
weather forecasting is an inexact science. We will never
forecast or warn for every storm that occurs, simply because we
are not good enough to do that.
We are, in fact, number two, learning to live with
downsizing in all our our agency. And, as I said, I had put
specific rules on the Weather Service as they went through the
process of taking the cuts. And the cuts that they picked were
ones that they chose to do but the ground rules were that we
would have no reduction of our warning capability and we would
not jeopardize public safety.
Now, we are, in fact, reducing some of the services that we
provide because as we have less money, we do fewer services.
And, in fact, we are not doing as much research in our weather
activity as the scientists would like us to do. There are more
things that we could do. But we have to have a set of
priorities and our priority is number one, we do not reduce
public safety below what we are currently doing. No degradation
of weather services.
And, in fact, over the past few years, we have greatly
improved all of these systems. We are better in terms of lead
time. We have fewer false alarms. We are doing better in terms
of flood forecast and hurricane landfall.
All of these can be documented. And we will maintain that
level of warning services but we will have some fewer analyses.
At the Hurricane Center, for example, we have two
meteorologists who will be leaving who are not involved in
warning services, but we have 30 meteorologists still on board.
Five of the six people who work overnight will be on the desk
at night. And when we have a large hurricane approaching we
augment the Hurricane Center as we augment other centers to
maintain a full range of public safety activities and we work
very closely with the emergency managers as we do this.
So, I am convinced on looking at the details and on talking
to Joe Friday that we do not have an impact on public safety or
on our warning problems. But, as I say, we will have somewhat
fewer services and we are not doing as much research and we are
downsizing somewhat faster that we had originally planned.
So, I think that is felt throughout the Weather Service.
Mr. Mollohan. I hear you. And at the same time I have read
these articles and they seem to be somewhat at odds with what
you saying. Can you understand how we might be confused as to
what appears to be conflicting information on the point?
Dr. Baker. Well, let me just return to the Hurricane Center
for a moment and then I can ask Joe Friday to address the
Norman situation.
But at these centers we do both short-term and long-term
forecasting and we put out warnings and we put out long-term
outlooks. And if, when we take some downsizing, we take the
downsizing in terms of the services and the long-term outlooks
and we make sure that we preserve the warning services. To have
two meteorologists leave, who are not involved in hurricane
warning, but still have the full set of people available as we
have the hurricanes come in to me means that we can still
maintain those warning services.
Joe, maybe you could address the tornado, Norman situation.
Mr. Mollohan. Yes. Let me just specifically speak to that
quote I think I read, did I not? Where it said, by cutting out
two overnight outlooks the emergency planners will be deprived
of key information that will reduce the lead-time for preparing
for storms. That is a pretty serious observation if it is
accurate.
Dr. Friday. Let me start by putting all of these cuts into
perspective. I think it is very important that one does that.
Mr. Mollohan. This is your chance to do that.
Dr. Friday. The President's proposal for modernizing the
Weather Service and beginning the downsizing program recognized
the fact that we were, indeed, making a great deal of progress
in modernization. Indeed, as Dr. Baker has pointed out, it made
substantial improvements in all aspects of weather forecasting.
In the last three years, the hurricane warning accuracy has
been improved by over 20 percent. We are now able to predict
the 24-hour landfall in hurricanes, 25 miles more accurately
than we were two years ago and we expect to be able to do that
even more with the addition of the G-4 aircraft that we have on
board now.
The rest of the warning program for flash floods, for river
floods, for severe storms, for tornadoes and the like also have
been improving. So, as a result of that, the President proposed
we streamline our modernization program even more and out of
the proposed portions of the reduction of our operational
budget in the last year, there was a proposal to reduce that by
$7.4 million and go ahead and close those offices where there
was no controversy as far as the closing and not have to
continue to pay rent and utilities as we have to do as we go
through the certification process.
In the process of deliberation on the Hill, the decision
was made to accept the reduction, but not allow us to
accelerate the formal process of certification. We still had to
keep everything open. So, in addition then, the direction to
take the $10.5 million out of the National Capital area in
explicit response to the Department of Commerce IG's report to
streamline the national headquarters, we have been taking that
action as well.
The other portion of the President's reduction was the
various odds and ends of streamlining actions that we are all
being asked to go through. So, the increase in the AWIPS system
to finish the modernization was vital for the rest of it. It
was a total program.
Faced with the actions that we have, the $17 million
administration proposal, the $10.5 million additional direction
to take it out of the headquarters, and the fact that we, as
all agencies, must absorb the pay increase areas, and when we
are dealing with a 5,000-person organization absorbing the pay
increase for that at a 3 percent pay raise is the equivalent of
reducing the staff by 150 people or finding other ways of
making that type of reduction.
In an operational organization such as the Weather Service
the ongoing degradation as a result of that ongoing absorption
of pay raises and other things will eventually lead to a much
smaller Weather Service than we have now.
I also want to set the record straight with respect to the
letter written by the four individuals. The two weather events
that were mentioned in that letter were examples of the fact
that weather can have very serious impacts.
There was nothing in the letter that directly identified
those as being related to budget cuts and, indeed, everyone
knew they were not. But the fact is, is that there are several
people that are very concerned about that. When we went through
the budget reductions the entire senior management of the
Weather Service did what I believe is a very responsible job in
looking at the entire programs and given the conditions, given
the hand that we had been dealt, given the conditions that had
been placed on us we looked at the national capital region and
we tried to identify all of those areas that were the lowest
priority to take out.
We did try to maintain the activities associated with the
modernization because that is the best chance of ensuring that
we maintain the best weather service in the world. I believe we
have that now and I believe everyone, I certainly am committed,
Dr. Baker is committed, Secretary Daley is committed to
maintaining that as the best weather service in the world.
We looked at the various items that we had to do and we
identified those lower priority items that had the minimal
impact upon the warning program and the forecasting program.
After we had gone through all of the actions in the
headquarters, eliminated the southern regional management
headquarters in Ft. Worth and taken a very limited number of
positions out of the operational activities associated with the
National Centers for Environmental Prediction, we did not
reduce the staff in the 119 Weather Forecast Offices around the
country. We did not reduce the staff at the River Forecast
Centers.
We still could not make ends meet. I mean $40 million is 10
percent of my O&M budget. At that time then, we began to do
things that none of us liked to do, absolutely not, and certain
things that we cannot sustain on an ongoing basis including
terminating some training programs this year. Trying to
reengineer it to make it easier to train and cheaper to train
in the future, but we still are not there yet and we are
working on that very rapidly at the present time, but we have
terminated some of the training programs. That is not going to
hurt us today, probably not going to hurt us tomorrow. But a
year from now it will start to have an impact and we have got
to make sure that we are able to do that.
Secondly, we indicated changing the pattern at which we
maintain equipment, doubling the time between some of the
preventive maintenance. Doubling the time between oil changes,
if you would, in your car. And if we are lucky, we will get
away with that, we will not have to worry about replacing the
engine. But that cannot go on forever either.
And, then finally looking at the spare parts that we have
in the spare parts inventory. That is a quick way of coming up
with real cash in a hurry. But, again, by short-changing your
spare parts inventory it is, again, not a sustainable pattern
for a very long period of time. So, we have to worry about that
as well.
Those are portions of the temporary reductions that are
absolutely critical that be restored and that is included in
this $10.8 million request that we are asking for restoration
of base.
With respect to the specific reductions of the National
Hurricane Center, at the Storm Prediction Center and at the
Aviation Weather Center in Kansas City, those were identified
as being the lowest priority products and services that we were
generating and did not directly impact upon the warning program
for those centers.
All of these centers provide valuable advice to all 119 of
our offices around the country, as well as to every radio and
television station that carries weather reports. That is what
these folks do. They support that particular activity. It is
that kind of activity that we looked at. With respect to the
Storm Prediction Center, we are reducing some of the routine
products in summaries that we send out.
If there is a major outbreak, we are going to continue to
upgrade that system. We are going to continue to update as
needed, as we do now. And we are going to be monitoring this
throughout this entire season as we implement these reductions
to ensure that we really have not jeopardized the warning
program of this country.
Mr. Mollohan. Thank you.
Thank you, Mr. Chairman.
Mr. Rogers. Mr. Skaggs?
Mr. Skaggs. Thank you, Mr. Chairman. Dr. Baker, I would
invite you to refresh our recollection. The Weather Service
sort of led the pack in having established its own
modernization and staff reduction pattern even before we got
into the current performance review and budget driven process,
and maybe we need to have a little bit of that recent but
forgotten context established as well.
Dr. Friday. A very brief sketch: The planning for the
modernization began in the early 1980s with an identification
of the needs of this country as far as severe weather was
concerned--an analysis by the research community, literally
through the National Academy of Sciences as to what we could do
to best serve, to improve weather forecasting, moving into the
next millennia.
That served as the foundation, the basis of our movement
forward, as far as improving weather service, going into the
short range weather prediction, improving the storm forecasting
and the like.
The modernization plan was presented--was approved by the
Administration and presented to Congress in the spring of 1989.
We began at that time with the implementation of the
modernization. In that time period, now, between 1991 and the
present, we have installed 162 of the new next generation
weather radars around the country that have been a very
significant improvement to our overall program.
A lot of this work was done--a lot of the research work was
done a Norman, Oklahoma, at the National Severe Storms
Laboratory of NOAA's, and also at the Environmental Research
Laboratory of NOAA in Boulder, Colorado. That's where most of
the work leading to this whole modernization was completed.
We've completed the new offices. We've completed a
substantial portion of the training of the individuals. We have
doubled the lead time on tornado warnings and flash flood
warnings and so forth.
Mr. Skaggs. If I could interrupt, what I wanted to
understand is that the Weather Service has, at its core, a
major investment in technology and infrastructure and had a
significant reduction of personnel to begin with before we got
into the current attrition. Is that accurate?
Ms. Josephson. The current----
Mr. Skaggs. Could you identify yourself?
Ms. Josephson. Diana Josephson, Deputy Under Secretary at
NOAA. The Administration does have a streamlining effort, which
NOAA is part of, and for the Weather Service, because they were
already in the streamlining effort which had been agreed to
previously, we expected that, and we had further reduction by
1999 of six percent, where the rest of NOAA is at 16 percent.
Mr. Skaggs. They'd already been giving at the office, and
then had to eat the salary adjustment on top of that.
Ms. Josephson. Yes. Now, this funding cut right now is
requiring them to dislocate.
Mr. Skaggs. Okay. Let me get to some other topics in this
round. I'm interested, Dr. Baker, in whatever opportunities you
may have during the budget formulation process at the
Department to compare your apples to others' oranges.
noaa as a doc priority
And, for instance, have you had the opportunity to make the
case that NOAA's needs may have a justification that is
superior to, say, the next increment of X million dollars going
to ATP.
Do you ever have an opportunity to have those trade-off
conversations on a policy level with your colleagues from other
parts of the Department, and if not, why not, and if you do,
how do they go?
Dr. Baker. This is a good question, Congressman Skaggs. We
do have a very open budget process, both within NOAA as we
discuss the various elements of things that we do, and make our
decisions about what should be supported, and in the Department
of Commerce. We certainly have an opportunity to make the case
for the programs that we have, and why we think they are
important.
In the end, the Secretary of Commerce looks at all of the
programs and makes a decision. We certainly have an input into
that. We make our input, and the process then goes from the
Department of Commerce to OMB. We have an opportunity at that
time to make our input to OMB, and we discuss----
Mr. Skaggs. I understand that. I'm talking about the
intramural process within the Department, and your opportunity
to challenge each other's assumptions on the relative merits of
funding, given how tight everything is. I asked the Secretary
when he was before us a few weeks ago how he sized up this
issue in a zero or negative sum game. We'd all love to do a lot
of different things, but are we short-changing critical
research activities with the Department, for nice-to-do but not
as essential partnering, such as applied technology programs
with private industry in the ATP program, for instance?
Dr. Baker. Well, the Department has a strategic planning
process, and we participate in that process. I know that the
Secretary is very interested in seeing a stronger interaction
across the Department as we look at ways that programs
interact.
I think that we've tried to have a collegial discussion,
but it's not the leaders of the various organizations who in
the end make the decisions about the budget. The Secretary
looks at the budget inputs, and then he makes the decision
about how that happens.
Mr. Skaggs. You're unwilling to take the first step down
that primrose path with me, so I won't push you further on it.
I just think it is something we need help in thinking our way
through, because we're in a tough situation here, and I
understand that you want to respect the jurisdictions and the
sensibilities of your colleagues.
But I just look at what's happening, whether in the Weather
Service or elsewhere in NOAA compared to the nice-to-do stuff
somewhere else in the Department. Or maybe we should be looking
at how you all compare to what we need to be doing for the
Census.
But ultimately these are our judgments, but we sure would
profit from a little bit of the sense of the to-ing and fro-ing
that went on within the Department as well.
Dr. Baker. Well, Congressman Skaggs, I'm a big supporter of
the Department of Commerce in all their programs. [Laughter.]
And I can--and one of the reasons is that I came to this
job as NOAA administrator, knowing that NOAA was in the
Department of Commerce, but not really knowing that much about
the Department of Commerce. And what I have learned in my four
years there is the importance of the programs of the Department
of Commerce, and how there are the programs in my view that
will really drive what happens in the 21st century.
And you look at the Technology Administration, the Economic
Development Administration, International Trade, NOAA. To me,
when these programs are put together in the right way, you
really have----
Mr. Skaggs. Don't leave NIST out.
Dr. Baker. Technology Administration, that was included.
And, you know, we've had very close interactions with NIST, and
they've been very important in modernization. So the more I
look into it, the more synergies I see.
And so it would be difficult for me to say you should fund
this instead of that. In fact, I was always a big supporter of
Ron Brown's budget for the Department of Commerce, which was
even more than you're seeing now.
Mr. Skaggs. I think I'm out of time for this round,
probably.
Mr. Rogers. I could understand your saying the Secretary of
Commerce, you support his request. [Laughter.]
awips
Mr. Rogers. Now, the Weather Service's AWIPS program. Let's
talk about that just a minute. If I can simplify it somewhat,
it is the software of the huge modernization of the Weather
Service, which includes the radars and so on.
The AWIPS, as I understand it, is the software machinery
that makes it go. Four years behind schedule. $200 million in
cost overruns. You had to completely restructure the program,
the second major restructuring in two years.
Are we finally on track with AWIPS?
Dr. Baker. Yes, sir. I believe we are on track with AWIPS.
It's a critical program for the Weather Service, as you
mentioned. It involves both software and the hardware of work
stations. And I have been looking very closely at this program,
because when I came into NOAA, the program was having many
difficulties.
At that time I asked the Weather Service and Diana
Josephson and our Systems Acquisition Office to look at a
different way of managing this program. With the full support
of the Inspector General and the Department of Commerce Budget
Office, we developed an incremental build approach which
allowed us to build one part, see how it works, build a second
part, see how that works and so on so that wedidn't have a
majority difficulty on our hands.
We restructured the program to do that. We have come up
with a number that we believe that we can live with. In fact, I
have promised to live within that number of $550 million for
the total cost of the program, and said that if it runs over
that we would find the money somewhere else within NOAA.
We have run a risk reduction program called Weather
Forecast Office--Advanced through our Forecast Systems
Laboratory. They have, in fact, come up with software
development that will allow us to replace some of the original
plans that were there.
I am fully convinced that we are on track with this
program. I have agreed to live within a cap. We have a limited
deployment during this year when we will have a year long test
of the system to make sure that we are doing that.
But I can say already the systems that we have out are
proving their worth. For example, last year we had a major
snowstorm in Kansas City, and we were able, using AWIPS, we
were able to forecast the total amount of snow in the storm
during the storm--the first time ever. A major achievement. It
could not have been done without the ability of the AWIPS
program to bring all of the data on to a single work station.
We got much higher resolution satellite data. The people in
the field love it, and we are correcting things as we go now
during this year. We believe we will be fully on track with
this program.
I fully agree with you. This program is over budget. It's
behind schedule. But I believe we're on track now.
Mr. Rogers. You know, last year we were very upset to learn
that the program was not going to come in within the $525
million cost that you had testified to, and we were troubled by
NOAA's failure to notify the Committee of major problems in
that program.
Then after much discussion last year--I must say vigorous
discussion--we agreed to allow you to go forward with a limited
deployment, while you perfected the system, provided certain
conditions on program costs and consultations with this
Committee were met.
And you assured us last year as part of the limited
deployment discussion that the AWIPS system, if you were given
the extra $25 million, you would finish it at $550 million,
period. If it cost a penny more, you'll eat it out of your
budget somewhere else. We finally were going to put a cap on it
and get it over with.
And that's the deal, still, is it not?
Dr. Baker. Yes, sir.
Mr. Rogers. Now, what major milestones must be reached
before the decision to buy additional AWIPS systems beyond the
limited number of 21 systems that we've agreed to? And how do
you plan to consult with us about those milestones?
Dr. Baker. Mr. Chairman, let me say first of all that we
plan to consult continually with you, and if we are not doing
that, I hope you will let us know. But it is our intent,
certainly, to be fully transparent about the way in which we
move ahead with the AWIPS program.
This limited deployment phase, we'll be testing the first
phase of the system, and if that all works--right now we have
no problems there, no major problems. Everything seems to be
working. We're sending out software changes from our central
headquarters. That is all working very well.
Then we have a series of builds that will improve our
communications network, our message handling systems, our
monitoring and control capabilities. Until finally, when we
have the final build in place, each of the stations will be
able to communicate with all the other local stations as well
as with our centers and with the satellites.
Each of these things will be done. And I think we have
provided, and we'll continue to provide the milestones and
details as part of the record.
Mr. Rogers. Well, just to point out to you, of the $50
million increase that we gave NOAA, the entire agency in fiscal
year 1997, of that $50 million, $32 million of it went to the
Weather Service and most of that went for AWIPS.
So we will have invested $4.5 billion in modernization of
the Weather Service, and this final chunk of that
modernization, the AWIPS system, really is the keystone to it,
is it not?
Dr. Baker. Yes, sir.
Mr. Rogers. And here we are, waiting. We have installed
Doppler radars all over. How many?
Dr. Baker. There's 162 total that NOAA will have in the
end. And 123 I think now.
Mr. Rogers. New radars.
Dr. Baker. Right.
Mr. Rogers. Apparently working fine.
Dr. Baker. Right.
Mr. Rogers. And we've invested tons of money in getting
this system up and going, and here we are, waiting. We've been
waiting two years on the AWIPS. We're two years behind schedule
with it now, not to mention the money.
When can we expect full deployment of AWIPS?
Dr. Baker. The full deployment of AWIPS will be finished in
June of 1999. But each of the builds, that is, each of the
deployments will add additional capabilities. And let me say,
Mr. Chairman, that even though we do not have AWIPS established
around the country, we are already benefitting from the new
technology of the radars and of the satellites, and of the new
computers that this Committee has very strongly supported.
That information is already being used, and is the reason
that we've been able to improve our warning times.
Mr. Rogers. Now, when we get AWIPS up and running, we'll be
able to reduce personnel? Correct?
Dr. Baker. That's right. That's part of the overall
modernization of the Weather Service.
Mr. Rogers. Does that have anything to do with the slowness
of the development of AWIPS?
Dr. Baker. I don't think there's a connection there.
Mr. Rogers. Anybody else want to comment?
Dr. Baker. Joe Friday?
Mr. Rogers. You may as well stay at the table, Joe.
Dr. Friday. The delay in AWIPS has nothing to do with the
fact that we're planning on reducing down to a 4,678 as the
end-state staffing. We have those plans under way at the
present time, and we're moving very rapidly toward doing that,
on track, on target.
If I understood your question, you were asking, are we
deliberately delaying AWIPS so that we don't have to reduce the
staff. And the answer is absolutely not.
Mr. Rogers. I didn't ask that question, but it close.
So when will AWIPS be fully deployed, and when can we
expect to see staffing reductions as a result of that
modernization?
Dr. Friday. As Dr. Baker pointed out, the last AWIPS system
will be deployed in June of 1999, according to the present
schedule.
The staffing reductions and the final activities should
take place by the year 2000, to 2001, depending on the final
transition and the final certification of office closures.
And the last of the office closures we are currently
expecting to take place in the year 2000.
Mr. Rogers. Now, how will the world change, for those of us
watching television, and looking out the window at the weather,
how will the world change for us when you're fully deployed
with AWIPS, Doppler radars, and the full modernization?
Dr. Friday. You visited your office in Jackson, and you see
how we are operating at the present time, with the fact that
the forecasters deal with an old, 1981 data system called AFOS,
the blue machines that are there. They have a separate display
for the NEXRAD radar system, and as good as it is, it's
separate from the rest of the systems.
And the satellite display comes in still on a small PC type
of system, off in the corner. Those forecasters that are on
duty there literally have to run back and forth between those
three pieces of equipment, and go to still another piece of
equipment to compose the weather warningsand to compose the
forecasts that support the people in Jackson, and, indeed, throughout
all of eastern Kentucky.
Once AWIPS is installed, all of this information will be
immediately at their disposal, so that they will be able to
provide a more effective forecast package, and with improved
accuracy, based on all of the studies that have been done to
date.
Mr. Rogers. Now, Dr. Baker, your budget request includes
almost $11 million in fiscal year 1998 for improvements to the
NEXAD and the ASOS programs. To date we've already invested
over $900 million in those two programs, and we are struggling
to just complete the original modernization program, which now
won't be done until fiscal year 1999, when AWIPS is fully
deployed.
Given the Weather Service's problems in delivering AWIPS,
shouldn't we be concentrating all of our efforts on AWIPS
instead of embarking on new upgrades for NEXRAD and ASOS
systems which have just been installed?
Dr. Baker. Mr. Chairman, let me say that it's very
important that we continue to monitor how these systems are
working, and in some cases the improvements are necessary in
order to keep them going.
But, Joe, let me turn to you for an answer to that.
Dr. Friday. All of these are improvements that need to be
made on the system to improve the maintainability, the
reliability of the system. And in the case of ASOS, to answer
some of the questions that the present sensors are simply not
capable of answering, including improvements as far as freezing
rain is concerned. The present sensors are not quite capable of
detecting that to the extent that the human observer could in
the past.
We're working with the aviation community to identify the
highest priority actions that need to be corrected there, to
make these stand-alone systems much more acceptable to the
aviation community, and to cover their areas of concern as far
as public safety is concerned.
You are quite correct that we have, indeed, spent $900
million on these two systems, as an integral part of the
modernization. And the amount that we're asking for ongoing
maintenance actions on those to insure that they do not become
irrelevant or obsolete is very minimal for any sort of major
program of this nature.
Mr. Rogers. Well, given our budget constraints that we're
still under, and that we'll be for some time, particularly this
coming year, AWIPS needs a $17 million increase. Shouldn't we
give AWIPS a higher priority than NEXRAD or ASOS?
Dr. Friday. They're all number one priorities.
Mr. Rogers. If you've got to choose between one or the
other, which is a real possibility, which one do you want to
choose? Which one do you want us to fund or not fund, if it
comes down to that, and it very well may?
Dr. Baker. We can provide an answer for the record for
that. We'd have to go back and look at the range of priorities
but we're certainly willing to provide an answer to you, Mr.
Chairman.
Mr. Rogers. Fine.
[The information follows:]
NOAA's FY 1998 Budget Request outlines the priorities of
the agency. One of the agency's priorities continues to be, as
established by NOAA's Strategic Plan, the Advance Short-Term
Warning and Forecast Services Goal, which is inclusive of
activities that support the completion the National Weather
Service (NWS) modernization. The NWS modernization continues to
be of the highest priority to NOAA. The NWS modernization has
enjoyed bi-partisan support through its evolution and is now
approaching completion. The United States is currently reaping
the benefits of many the in-place components of the NWS
modernization--increased lead times and accuracy for tornado,
severe thunderstorm, and flash flood warnings; and increased
accuracy of landfall of hurricanes resulting in saving of
lives, avoidance of property damage and mitigated impacts for
weather-sensitive sectors of the economy. Completion of all
system acquisition elements of the modernization is critical in
order to fully realize an effective integrated modernized NWS.
All remaining system acquisition activities are integral to
completing the modernization, and play a key role in either
acquiring observations, processing data, and disseminating
information. A portion of the required outstanding system
acquisition activities will improve maintainability and
reliability of the systems as well as avoid systems
obsolescence. Reduced/delayed funding for any of the 1998
system acquisitions will result in reduced system effectiveness
and increase the overall cost of each systems acquisition and
operations.
The FY 1998 budget requests for the NWS systems in the
Capital Acquisition Account are vital to sustaining the
progress made so far toward the goals of the NWS. Both the ASOS
and NEXRAD requests under product improvement will allow NOAA
to sustain the improvement realized so far in providing
operational warning and forecast services and to keep these
systems technologically current so they can evolve gradually as
technology changes.
The ASOS Product Improvement Program will fund such
critical needs as the field implementation of an enhanced
precipitation identifier. In addition to rain and snow, this
will allow ASOS to also detect drizzle, very light rain, hail
and ice pellets. It will fund the on-going development of an
all-weather precipitation accumulation gauge, allowing ASOS to
accurately measure the liquid equivalent of snow and sleet. An
ice free wind sensor is also under test which will allow ASOS
to continue reporting wind speed and direction, in support of
air safety, under adverse conditions. A sunshine sensor, aimed
at providing much needed climatic data, is also planned for
implementation.
The NEXRAD product improvement is critical to fully
utilizing the WSR-88D data for improved warnings and forecasts
in the AWIPS era. The initial data processing capability of the
WSR-88D is insufficient to host the scientific advances in
weather radar algorithms that have occurred since the 1980s-era
design of NEXRAD. Additionally, the proprietary nature of the
hardware and software of the WSR-88D computer platforms is
increasing the risk and cost of long term operation of these
systems. Overall, the NEXRAD Product Improvement initiative
will enable the following: (1) provide for cost effective long
term operations and system evolution, (2) improve WFO severe
weather warning through fully integrated use of radar data with
other hydro meteorological data within AWIPS, and (3) speed the
introduction of new science into field operations. Further,
these and other NEXRAD product improvement actions will extend
the useful life of the NEXRAD system, delaying and possibly
avoiding the expense of a major systems acquisition for a
future replacement system.
The requested increase for AWIPS will bring us closer to
achieving fully the goals of the Modernization. This increase
will allow us to begin nationwide deployment of AWIPS with
vastly improved capabilities to integrate, manipulate and
display modernization data. This will begin the era of improved
efficiencies in providing operational forecasts and warnings.
In addition, the increase will allow us to complete and field
the fourth software build, which contains all the capabilities
necessary to commission AWIPS and begin the process of
decommissioning the various legacy systems being replaced. The
increase also will fund development efforts on the final
software builds which, when completed early in FY 99, will
allow us to attain target staffing levels and begin to operate
fully and efficiently as planned in the field office
restructuring.
The priority is to complete the National Weather Service
Modernization program. All these elements are critical to doing
this.
Mr. Rogers. Mr. Forbes.
Mr. Forbes. Thank you, Mr. Chairman.
I have a number of questions which I would like to submit
for the record, with the Committee's indulgence.
Dr. Baker. We'd be happy to answer those for you.
Brown Tide/Algae Bloom
Mr. Forbes. One thing I would like to mention, though. I
appreciate your being here today, Dr. Baker. There's a
phenomena in my part of the world, on Long Island, that's known
as brown tide, that's an algae bloom that is not dissimilar to
the red tide phenomena that other parts of the Nation have been
experiencing.
And there has been commitment by your agency to help in the
research of that, and I sincerely appreciate that, and this
Committee has been most supportive of that in the past.
I did notice, though, that there was a $600,000 reduction
in that very important research. And again, in comparison to
some of the things the Chairman has been discussing, certainly
it's not as monumental, perhaps, but it's certainly in an area
that's of vital interest to the fishing industry, the shell
fish industry in my area, and they've suffered multi-million
dollar losses over the past decade because of this brown tide
phenomena.
Could you speak to that, Dr. Baker, a little bit, about the
priority of this research?
Dr. Baker. Well, Congressman Forbes, this is something that
is of high priority to us. And it's a huge problem, not only in
the United States, but around the world. I think every country
that has a coast line has experienced some kind of brown tide
or red tide from these harmful algae blooms.
And as we see more human influence on the ocean, which
changes the relation of the nutrients that are in the water, we
see other kinds of organisms grow, and interestingly, it turns
out that many of these organisms are poisonous.
The fresh water that comes from the Mississippi floods, for
example, has produced a change in nutrients in the Gulf of
Mexico which has led to many new kinds of red tide. So this is,
I think, a very serious problem. And we've had to cut back on
some of our national programs because of budget constraints. We
simply can't do everything.
But I have asked our inter-agency process to see if we
can't find a way of highlighting this subject for fiscal year
1999 as part of an overall natural disaster initiative.
Because it seems to me we shouldn't have natural disasters
that are only those caused by weather or earthquakes, but
biological disasters, like those harmful algae blooms--one was
just recently written about in this recent book called, And the
Waters Turned to Blood, which was a story about the red tide--I
think is something that we have to take seriously.
And you will see now during the next year a very strong
emphasis on including harmful algae blooms as part of the
natural disaster initiative. It's something I'm very concerned
about.
Mr. Forbes. I appreciate that very much. As I said, I'll
submit the balance of my questions for the record, Mr.
Chairman. Thank you.
Mr. Rogers. Thank you. Mr. Mollohan.
Research for New Life Forms
Mr. Mollohan. Thank you, Mr. Chairman. Dr. Baker, do you
have a request in your budget proposal for research of new life
forms?
Dr. Baker. We do have in our budget--and I have to say for
the first time from the Administration in a long time--support
for the National Undersea Research Program. And in that program
and in the ongoing funded Vents program, we, in fact, carry out
research and support technology that studies these areas under
the ocean that, in fact, have led to new kinds of life forms
that don't live on photosynthesis, but live on chemical
synthesis.
Really, a fascinating subject, and one that I think is
definitely worth studying. And, as I say, for the first time
the administration has put funding in for that program, not as
much as the Congress had last year, but I think recognizing the
importance of that kind of work.
Mr. Mollohan. What was your request?
Dr. Baker. I think our request is $5.4 million.
Mr. Mollohan. Is that a collaborative effort with other
agencies?
Dr. Baker. This effort that goes on is, in fact, very
collaborative with the Navy and with the National Science
Foundation. The Navy maintains some of these underwater
vehicles, and the National Science Foundation also does that,
and our work is very supportive of that kind of inter-agency
activity.
Also the States. The States that have such programs also
support this activity.
Airport Weather Services
Mr. Mollohan. There's a proposal, I understand, from the
Federal Aviation Administration to take over the responsibility
for providing the trained meteorologists at the Nation's 21
airports. Would you comment on that proposal? Up to this point
you've been supplying those meteorologists and the FAA has been
paying you $10 million for that.
What is your opinion on how that service should be
provided?
Dr. Baker. Let me give you a general point, and Joe Friday
may have some specifics. But as you know, the Weather Service
and the Federal Aviation Administration work in partnership to
provide aviation weather services to the aviation community.
The FAA defines the requirements, and the Weather Service
provides the best possible meteorological data, and forecast
and warning services. As you mentioned, the FAA is currently
conducting a review of their aviation weather service's
requirements.
Based on the results of that review, the Weather Service
will continue to provide the best quality services. But any
proposed changes will be jointly reviewed by the Weather
Service and by the FAA. But, Joe, do you have an additional
comment on that?
Dr. Friday. I think that summarizes it. We've been doing
this for the FAA for the last decade and a half--two decades.
And it's been critical. It followed some major airline
accidents back in the 1970s that this whole process started, to
make sure that the latest weather information was available to
the air traffic controllers.
FAA is looking at their overall budget patterns, and
they're trying to see if there is a less expensive way of still
providing that information, and we're working together to make
sure that adequate information for the protection of life and
property is provided.
Mr. Mollohan. Do you have any thoughts about how that can
best be provided?
Dr. Friday. FAA's big problem right now is that they could
save a million and a half dollars if they didn't have to worry
about the fact that they're paying our agency to do it for
them. And they're looking at ways of maybe doing it themselves.
My suggestion is simply hire the meteorologists themselves,
as opposed to having the Weather Service do that. That would
save the Department of Commerce and NOAA overhead.
Mr. Mollohan. I'm sorry. Your proposal is to do that?
Dr. Friday. No. My informal suggestion to them was to do
that. They're looking at that as one of the possibilities and
one of the options, to keep meteorologists on board.
Mr. Mollohan. So it was your suggestion that instead of
paying NOAA to do that, the FAA hire the meteorologists
themselves?
Dr. Friday. They're looking at several options, sir.
They're----
Mr. Mollohan. I know. But was it your suggestion that they
do that? I'm just trying to sort that out.
Dr. Friday. No. What the FAA is doing now was not my
suggestion. I have provided some alternative issues, in order
to maintain meteorologists providing that information.
Mr. Mollohan. What was your recommendation to the FAA?
Dr. Friday. The FAA was saying that they do not wish to
continue to pay the overhead charges----
Mr. Mollohan. I've come to that part. I'm asking what was
your recommendation.
Dr. Friday. And they're trying to do that with their own
technicians. My proposal to them informally was to take our
meteorologists, transfer them to the FAA, so that they no
longer have to pay us for that kind of activity.
Mr. Mollohan. I see. So they would just get a pay check
from a different agency.
Dr. Friday. That's correct.
Mr. Mollohan. So beyond the financial considerations
associated with that recommendation, what are the other
considerations, such as safety and being able to provide the
information? Do you think that the FAA taking over this
responsibility themselves is the best solution?
Dr. Friday. The National Airspace System is FAA's
responsibility, and we are responding to their requirements for
providing information at this time. As Dr. Baker indicated,
they are trying to reassess exactly what their requirements
are, and we will continue to support them to the maximum extent
possible.
I don't think any of us want to see aviation safety
endangered.
Mr. Mollohan. I'm sure you don't.
Dr. Friday. And we're trying to work to make sure that
whatever system is in place does provide the best weather
information necessary.
Mr. Mollohan. When do you think a decision will be made
about this?
Dr. Friday. They're planning a pilot study to begin
sometime within the next month or two and run for 120 days, and
we're working with them at this stage trying to get that pilot
study under way.
I expect that their recommendations will be completed by
the end of this fiscal year.
Mr. Mollohan. Thank you, Mr. Chairman.
Mr. Rogers. Mr. Skaggs.
INTER-AGENCY AGREEMENTS
Mr. Skaggs. Thank you, Mr. Chairman. I was interested in
some of the inter-agency arrangements as well, both with NOAA
as a recipient, and NOAA as a donor. And I'm just wondering,
what proportion of your budget overall now depends upon
contributions coming in from other agencies of the Government?
Dr. Baker. Congressman Skaggs, we can provide that number.
[The information follows:]
[Page 1299--The official Committee record contains additional material here.]
Dr. Baker. Do you have a rough number?
Mr. Moxam. We run approximately $350 million a year in
reimbursable work with other agencies. Not all of that is
joint, but that's how much we get from other agencies.
Mr. Skaggs. So roughly 15 percent of your budget? Something
like that?
Mr. Moxam. It changes from year to year, sir. It depends on
participation, for example, in the major systems, like we were
with, I believe the Air Force, on the NEXRAD radar, for
example.
STREAM GAUGE MONITORING
Mr. Skaggs. And the obverse of that, how much of what you
get do you use to help other agencies with programs that they
run? For example, do you all give anything to USGS for its
stream gauge monitoring efforts?
Dr. Baker. I think the answer to that specific question
about the river gauge efforts is no, but, Andy, do you know the
answer to that?
Mr. Moxam. No, sir. I don't know the answer to that. We can
provide that for the record.
Mr. Skaggs. If you could provide that. That would be fine.
[The information follows:]
In two river basins, the Colorado and Susquehanna, funds
have been appropriated to the NWS to provide an enhanced river
and flood forecasting service. To provide these enhanced
services it was necessary to enhance the stream gauge network
which is operated by the USGS. The NWS does provide funds to
the USGS for these enhanced networks but only in these two
river basins. The total amount transferred from the NWS to the
USGS is approximately $500 thousand per year.
Mr. Skaggs. I just wanted to lay the predicate for a
discussion of the dynamics of all of this, and how well we are
able to rationalize these overall decisions when you all end up
being the beneficiary of a good deal of pass-through money, and
some of what is appropriated to you is passed through to
others. It's a little hard to get a handle on all of that, and
make sure that we really have the full picture as well as see
whatever the difficulties it presents to you to have 15 percent
of your budget in an unsettled state, even after you get your
appropriation from us.
But that may not elicit any comment from you.
Dr. Baker. Well, I think what we have tried to do is work
very closely with other agencies on problems of joint interest,
for example, river forecasting. And with the USGS having a
responsibility for maintaining and operating the river gauges,
for NOAA having the responsibility for the models that actually
do the river level forecasting itself. You have to have the
data, you have to have the models.
And as we go forward, what we have tried to do is put joint
proposals in so that as we upgrade the system for monitoring
the rivers, the USGS part, we are, at the same time, using the
models in the best possible way.
So we have a very close collaboration with USGS. In that
case, we have our funding, they have their funding, but we make
sure that it is coordinated.
Mr. Skaggs. As it happens USGS is having to back off its
stream gauging program in part for reasons having to do with
the money that they get from the Corps of Engineers and others.
And I didn't know whether you were playing in that poker game
or not.
Dr. Baker. We are, and what we have tried to do is to use
our models to show the importance of having those river gauges
in place, so that USGS has a stronger case to make as it tries
to make sure that it maintains its network of gauges.
Mr. Skaggs. And at this point, is it more important to have
the model or to have the gauges?
Dr. Baker. You have to have both. In fact, it's been a very
exciting thing. Right now we are doing something that has not
been done before. We're taking what we call quantitative
precipitation forecasts, that is, the radar data, using a
NEXRAD radar. It tells us how much precipitation is falling
right now. Using that precipitation falling, we can the use
the--add to that the river level gauge, and we can say the
rainfall plus where the river is now is going to give us a
better flood forecast than if we just had the river level.
And adding that in has given us much better flood
forecasts, so that the joint activity give you, gives the
emergency manager something that's much better than he had
before.
solar max
Mr. Skaggs. I'll look forward to that information for the
record as well. The Solar Terrestrial Services and Research and
Space Environment Center are flat funded essentially for 1998
over 1997 in your request.
We're coming up on a solar max even here soon. Are we going
to be prepared to do what we need to do to give the kind of
information to both NASA and the Air Force and many of the
ground-based communications, electric power people? Are we on
top of where we need to be to get ready for that solar max
event?
Dr. Baker. We have a good system for warning us of
outbursts from the sun, and it is in place, and it will be
ready for the increase that we except now as we come up to the
year 2000 from the solar cycle.
The flat funding of the Space Environment Center means that
we can't do all the research that we think would be valuable to
do, and there are some interesting things that can be done, but
we can't do everything. We recognize that.
But as far as the warning goes, providing the warning, and
when will the NASA satellite be up?
Mr. Thomas. It's launched in August, and it will be
positioned next January.
Mr. Skaggs. And how far away is L-1?
Dr. Baker. NASA is launching a satellite that will have on
it some warning instruments, and we have added to that the
capability of getting realtime information, and the satellite
is going out to a point in space that is actually a place that
is stable. I think it's 50,000 kilometers beyond the
geostationary satellites.
Sit out there, and it will provide us an excellent new and
early warning for solar outbursts. So this is a new step, and
that is joint between NASA, Air Force, and NOAA.
Mr. Skaggs. This is a the point that makes it stationary,
as between the sun and the earth?
Dr. Baker. Yes. As between the sun and the earth and the
moon and the planets. There are few places out there where the
gravity is exactly zero. And you stick a satellite right there
and it doesn't move. L-1 it's called.
Mr. Skaggs. So, are you sanguine about NOAA being able to
meet the real challenges being presented by this solar cycle
event upcoming and its implications for power,
telecommunications and NASA?
Dr. Baker. We'll do the warning, but there are a lot of
interesting things to be done about learning how the sun works
and trying to predict outbursts. This is something that we have
not been able to fund. And it would not be fair to the
researchers if I didn't say that.
Mr. Skaggs. Which gets us back to the compared to what
problem, which, obviously compared to other things in NOAA you
are comfortable that you've made the right prioritization. And
you won't opine as to compared to other things within the
Department of Commerce, so we will let that go.
global climate dynamics and warming
What's the current state of play on our understanding of
global climate dynamics and global warming? Where are we after
the last international conference sort of consolidated the
consensus of the prediction?
Dr. Baker. Well, as far as the things that we understand
well, the CO2 and other gases that cause enhanced
greenhouse warming continues to rise. The NOAA measurement of
both carbon dioxide, methane and other sulphur and nitrogen
oxides continue to go up.
The models have been improved, that is, the models do a
better job now of showing what happened in the past as well as
forecasting into the future. So we have made confidence in the
models.
The information that we have shows that other things being
equal, we will have continued global warming. There has been
warming since about 1850. It's gone up from 1850 to 1940, and
went down from 1940 to 1980. It's going back up again.
So we are seeing continued warming. That warming is not yet
out of the range of climatic variability. But many of the
patterns are very important. That is, we are now seeing for the
past seven or eight years, we are seeing more rain fall in
extreme events, somewhat more active hydrological cycle, more
droughts, more storms.
These things are consistent with what the models are
telling us. We are also seeing patterns of change that are
consistent with what the models say. So I would say that today
compared to a year or two ago we have more confidence that what
the models predict, that is, both global and regional climate
change, is upon us, and that it is more likely that it has been
caused by human influence.
And this is exactly what the international body of
scientists said as they looked at the evidence. But each day,
as we see new results, they are consistent.
Mr. Skaggs. Thank you, Mr. Chairman.
Mr. Rogers. Tell me now, are you able to look into the
heavens and look at a comet and tell us whether or not there's
a solid object trailing the comet? [Laughter.]
Dr. Baker. Trailing the comet. Well, there are good systems
up there. I imagine there's some system up there that could
tell you that.
Mr. Rogers. There's some people down here that could tell
you that. [Laughter.]
satellite funding
Mr. Rogers. Now, let's talk about the satellites program
for a minute and bookkeeping. Just so we are talking about the
same subject, NASA procures both the polar and the GOES
satellites for you.
In 1997, NOAA carried significant unobligated balances--
$162 million, even though we were told repeatedly that you
would spend all of your money. Of that unobligated amount,
about $76 million are due to an Inspector General audit which
found that NOAA had been obligating funds to NASA for polar
satellites well in excess of actual funding needs.
And by sending the money to NASA, it's possible that we
could be told that the money was obligated, thus avoiding the
possibility that we would either reduce the appropriation
request or rescind the unobligated monies.
What's most troubling was the discovery that in fiscal year
1994, not only did NOAA provide funds in excess of its needs
for the polar program, but NOAA sent $26 million to NASA from
another NOAA program which NASA had no role in.
And that was done, I would think, to avoid having to report
that fact to the Committee that the money had not been
obligated.
NOAA had planned to retrieve those funds back from NASA,
when it needed it for its own program. If that's true, that was
a deliberate attempt to hide unobligated balances from this
Committee. We ran across something like that with NIST last
year.
After the practice was discovered, NOAA complied with the
IG's recommendation not to send the money to NASA and to report
the money as unobligated balances.
As a result, your 1998 request for satellites was
significantly reduced by the Department and OMB. But that's not
the end of the story. Last week we were briefed by the GAO that
there could be as much as $74 million in additional reductions
which could be taken from the 1998 request for satellites
without any impact on the program, because NASA had changed
their funding policies.
They used to require a three month forward funding. Now
they're dropping that back to a month. According to GAO, if you
adopted NASA's policy, the fiscal year 1998 budget request
could be cut by $74 million without any programmatic impact.
We first had indications from NOAA that you were likely to
adopt NASA's policy, but last Friday it seemed like you were
beginning to back away. Where are we on that? Why can't we do
that, just adopt NASA's policy and save everybody a lot of
money?
Dr. Baker. Mr. Chairman, as you know, we are blessed with
this technology advance that has allowed the satellites to last
longer than had been originally expected, and we have been
trying to adjust our funding to meet that expected lifetime.
And our adjustments have not been as fast as the satellites
have lived, and we've ended up transferring more money to NASA
than has been needed several times, and I recognize that.
We've been very open about the money that we have
transferred for satellites, and where it is, and how it's been
used. And we have tried now, and we are succeeding, I believe,
in finding a way to better track that money so we know
exactly--we're trying to get NASA to give us better estimates
of what is actually required and making sure that we transfer
only the money that NASA really needs.
So in general I think that we have a situation where we are
trying to correct that. But we've been open about what has
happened.
However, I fully agree with you about--I think it's $26
million of polar ground systems money. It's not satellite
money. It was, in fact, transferred to NASA to avoid carryover.
This was a mistake. It should not have been done. I apologize
for that.
I have been taking steps to make sure that we do not do
that again. This is not something that I intended to do, and I
apologize that that happened.
As I said, on the funding that goes to NASA for satellites,
all that money is used for satellites and used for appropriated
items. GAO has suggested that NOAA reduce the forward funding
that we give to NASA from three months of funding down to one
month of funding. That's where the money that you mentioned
comes from.
The system that we have is a somewhat slow system. We're
concerned that if we only had one month to forward funding to
NASA it's possible a contractor could run out and we wouldn't
be able to get money there soon enough, because of the
processing time of interagency funds.
And we may need to get money to a contractor rapidly,
because we may need to replace a satellite quickly. So we are
currently looking at the situation, about how to respond to the
GAO recommendation of reducing the NASA forward funding from
three months down to one month, because that would save money.
At the same time, we have a responsibility to make sure
that we have money available so that the contractors could
build the satellites at the right time.
Mr. Rogers. But, Dr. Baker, we've always worked with you on
those things. When you've got a problem, we always find a way
to work it out. Don't try to hide these monies. There is no
such thing in here as advance appropriation. We appropriate one
year at a time.
What you are doing when you pay NASA monies that they are
not yet asking for is really deceiving the Committee and
causing us to give you something we don't give anybody else,
and that's advance appropriations. If you've got a problem
somewhere down the pike, we go to the one month advance to
NASA, which would save us $74 million in 1998, if you hit a
snag along the way on a satellite problem, or a contractor
problem, we can handle that with a reprogramming or some other
procedure.
But do not attempt to deceive the Subcommittee on your
funding request. Number one, we're going to find out about it.
And, number two, we're going to be mad as heck about it.
And that's what happened at NIST last year. They tried some
of these little tricks to deceive the Subcommittee, and they
paid dearly for it. And so will you.
So let's adopt this NASA policy. We can save $74 million.
If you need money later on, for God's sakes, come and see us.
We can talk about it. What do you say?
Dr. Baker. I agree that the one month will save $74
million. There is no question about that. I have to say there
is some risk in doing this, but I understand what you are
saying, and we're certainly willing to sit down with you and
NASA and to work out a way of saving the maximum amount of
money possible.
Ms. Josephson. Can I just add something? We're moving to
fixed price contracts on the geostationary satellites. This is
the next generation, which will start in 1998. And in a fixed
price contract, if we can't get money--if we can't get money to
NASA on time, and they can't get money to the contractor, then
they have to begin to take actions under the contract and that
causes extra costs.
I just want the Committee to be aware that we are shifting
the contract type. Because previously we haven't had fixed
price contracts. But in the next satellite round, we are going
to that. Do you want to add anything more?
Mr. Winokur. No. I think that's quite accurate. We are in
the process of discussing with NASA what this really means, and
to look, as Dr. Baker says, at what the minimum amount of money
is that is required. NASA has imposed this policy on their
internal programs, and now are imposing it on external
programs, and we just need to understand that impact.
Mr. Rogers. If NASA can live with that, why can't NOAA?
Mr. Winokur. The difference is we're an operational
program. And if we break a contract, that implies additional
costs. NASA is not flying an operational system. So if there's
a delay in one of their satellites the impact is small compared
to the way in one of our satellites.
Mr. Rogers. The only way there would be a break in the
program is if the government shuts down. And we all know that
doesn't happen. [Laughter.]
Mr. Winokur. The other point is that in the case of NASA,
when funds are appropriated, those funds go directly to NASA
via OMB, I guess. In our case, it's money coming to NOAA via
OMB, and then going through NOAA to NASA, and then to the
contractor. So there's an extra delay.
Mr. Rogers. Well, the system is not so rigid, though, that
we can't work it in order to save this $74 million. I mean it's
bureaucratic gobblygook that we can work with.
Mr. Winokur. I think certainly we are prepared--we
understand we need to save money, and we are prepared to sit
down with NASA and work out what the minimum amount of forward
funding is required, to shift this policy and then to adjust to
that shift.
noaa facility at goddard space flight center
Mr. Rogers. Now, you are requesting the $110 million over
the next three years to construct a new consolidated NOAA
headquarters facility out at NASA's Goddard Space Flight Center
in Maryland that will house some of NOAA's headquarters
operations, including NESDIS and some Weather Service programs
which are currently, I'm told, in four different locations.
Normally you go through the GSA process. But this time
you're asking for direct appropriations from us to build that
yourself. Normally, going through GSA, any up front
construction costs are paid out of the Federal Buildings Fund,
not out of our allocation on this Subcommittee, which as you
know is limited.
Why aren't you going through GSA?
Dr. Baker. Mr. Chairman, let me ask Diana Josephson who has
been involved in the details of doing that to comment.
Ms. Josephson. We have had discussions with GSA, but they
informed us that they could not handle this within their budget
constraints. And so as a result, OMB agreed. OMB determined
that this amount should be in our budget, not in the GSA
budget.
Mr. Rogers. Why did they say they couldn't handle it?
Mr. Kammerer. It was a matter of priority for them. With
all the things that they've got, Federal courts, and all the
other things that GSA builds. It's a matter of priority.
Ms. Josephson. Our difficulty is we have a deadline of
2001. We have a lease which expires on the World Weather
Building in 2000, I think it is, and there are one year
extensions. But GSA has told us because of the condition of the
building they will not renew the lease.
So we have a timeline. If we don't start this move in 1998,
we will not make the end date. We also have--we're talking
about moving super computers from FB-3. We're talking about
moving the NESDIS computing facilities. All of that has to be
synchronized----
Mr. Rogers. But GSA says it's not that important, I gather.
GSA says we've got a lot more important things to do. That's
what they said. Right?
Mr. Kammerer. GSA has basically said that they will give us
their authority to build the building. That their Federal
Buildings Program is not set at this time in such a state that
we would reach the upper level of their program by the time
that we need that building. That the lease will run out before
that.
Mr. Rogers. They said go ahead and build it, you've got my
permission, if you've got the money to build it? Is that what
they said more or less?
Ms. Josephson. Well, they plan--well, they would be
involved.
Mr. Rogers. In what way? Money? Advice?
Ms. Josephson. Right.
Mr. Rogers. But no money. Dr. Baker, if GSA, who builds the
Government's buildings for us say this doesn't make their
priority list, how can we find $110 million in our very limited
budget to build that building, if GSA says it's not that
terribly important?
Dr. Baker. Mr. Chairman, we have to find new space, because
our lease runs out in Camp Springs. So we have to find space
for our operational activities.
Mr. Rogers. Have you explored other possibilities?
Ms. Josephson. Yes.
Dr. Baker. Yes. We've looked at a number of other
possibilities.
Ms. Josephson. We did a study which I think the Committee
has a copy of which shows that this is the cheapest approach.
Third party financing is the next least expensive. And leasing
is the most expensive.
Mr. Rogers. But you're talking about a single big new
building, is what you're looking at. I'm asking are there other
options, other than building or leasing a single big new
building, to satisfy the deadline that you're up against
without going the whole hog?
Dr. Baker. Well, I think our view was we have to house the
people, and we felt that in the long run housing our satellite
operations on the Goddard site will allow us to develop
synergies with NASA, and I think in the long run may help us to
save money, because I think we may be able to find some ways
that we can work more closely with NASA on satellite
activities.
Ms. Johnson. This building is part of their earth sciences
complex, where they have all their earth science scientists and
research base, and operations for EOS. And then since NOAA's
operational satellites, we are planning to fly some of the EOS
sensors on an NPOES, potentially.
We're talking about research in satellite command and
control, having our research people together with NASA's
research people, which we feel will provide synergy.
There is space there. The Federal land is free. And it's
already owned by the Federal Government. The utilities are all
in up to the building. The EIS is already done. So there are
some major costs which have already--which NASA has already
invested in which reduces the cost of this approach, and then
provide a big program benefit because of the co-location of our
people with their peers at NASA.
And that's the program justification for doing this.
Mr. Rogers. Have you looked at possibilities of leased
space outside of Silver Spring or Goddard?
Ms. Josephson. Yes, we did.
Dr. Baker. We did look into leased space, but it came out
as more expensive.
Mr. Rogers. Well, I mean, the military is down-sizing all
over Virginia over here, and I suspect perhaps Maryland, too.
But especially Virginia. There's got to be a lot of leased
space available in the neighborhood.
Dr. Baker. We did at least one study on the military
buildings.
Ms. Josephson. Yes. We looked at White Oak. There are
special requirements for this building, because of the computer
requirements. And also the satellites, because you have to be
in a quiet--in order to receive the microwave signals, you have
to be in a quiet, from a radio point of view, a quiet part of
town. It's not that easy.
One of the problems with Silver Spring has always been the
fact that it's very noisy in that sense, in that particular
technical sense.
Mr. Rogers. Well, it would be wise, I would think, to have
contingency plans. Mr. Mollohan?
streamlining noaa
Mr. Mollohan. Thank you, Mr. Chairman. Dr. Baker, you are
involved in a streamlining effort. Would you care to comment on
that for the committee, how you are getting along with that,
and your progress to date, and what remains to be done.
Dr. Baker. Yes, sir. We have been a participant from the
very beginning in streamlining NOAA. The Weather Service, as
was mentioned, the Weather Service is one of the first parts of
that. Our target for 1999 is to drop from more than 14,000
people down to 12,248. We are on target. In fact, I think we
are a little bit ahead of target in doing that.
And so we will have dropped our work force by 14 percent by
1999 from the 1993 levels. So this means we will have
eliminated 2,061 full time equivalents through phased annual
reductions.
And I believe that we have been able to maintain our
essential services and activities in NOAA as we go through that
process.
nautical charting
Mr. Mollohan. Thank you. As far as how we are to map the
ocean floor, and where to do that, whether to contract it out.
What role should the Federal Government have. Could you comment
on your feeling about that, and how that is expressed in your
budget request before the committee this year?
Dr. Baker. Well, two points, Congressman Mollohan. One is
that this is a very important activity. Ninety percent of the
trade that comes into the United States comes in on ship
bottoms. And is it's very important that we have measurements
of the shape of the ocean floor near the coast. And this is the
NOAA responsibility to do that mapping.
We carry this our currently with our own ships and
expertise. But since the time that I have been here I have
encouraged the National ocean Service to look very carefully at
ways that we could do this outside, do this with the private
sector.
I think it's very important, since we have the
responsibility to provide charts with a government label that
we do this in the best and most accurate way so it's important
for us to have the expertise in house.
At the same time, the ability to map the ocean bottom is
something the private sector has because of work in seismic and
oil exploration. And so we have been working very hard to work
with contractors to see what the private sector can do.
And, in fact, we've had at least two contracts put out. We
are looking for more contracting in this round of the budget,
and I think we're getting a much better sense of where the
private sector can go.
I know that Stan Wilson who is the director of the National
Ocean Service has said that he believes that we can move at
least to 50 percent of that mapping and charting being done by
the private sector.
At the same time, I think it's very important, since we
have the government responsibility for providing this
information, that we be smart buyers, that we know how it
works, and that we also have expertise with the new technology,
and so we have requested the ability to have that new
technology so that we can do that.
I think a partnership with the private sector is the right
way to go. Maybe in the long run, the private sector does most
of this, but I think as we make that transition it's very
important for us to be able to continue to provide high quality
information.
We are regularly in lawsuits with companies that find that
there was something wrong on a chart. And so it's very
important that we are able to maintain our expertise and
provide the best possible data.
Mr. Mollohan. What is a potential role for the private
sector?
Dr. Baker. Well, the private sector can have a very broad
role. All the way from running a ship, and the crew on the
ship, and taking the data and then making the maps.
Mr. Mollohan. Are you doing any of that?
Dr. Baker. We are asking now--we have some contracts, and
we have private contractors who are taking the data. At the
moment I don't think we have any private contractors making
maps. Actually taking the data, is that right?
Dave Evans from the Ocean Service.
Mr. Evans. That's correct. We do have contractors who are
helping with a certain amount of the compilation of the data,
and also for helping to maintain the data bases upon which the
charts are based.
The ultimately responsibility for preparing the charts,
though, is really fundamentally the government's
responsibility. We are trying to maximize the amount of private
sector involvement that we can bring all the way through this
process while still exercising an appropriate amount of
oversight to, frankly, protect the Treasury against serious
consequences of losing a lawsuit.
Mr. Mollohan. Have you done studies on this and generated
reports which consider what is an appropriatecontracting role
and where the limits ought to be drawn?
Dr. Baker. We'll have a report. In fact, a mapping and
charting plan will be presented on April 24th at the hearing of
the House Subcommittee on Fisheries, Conservation, Wildlife and
Oceans, that will give a detailed report on NOAA's hydrographic
activities.
What we are doing, the different efforts we have with the
private sector, and what the results have been. So we'll have a
report out at that time.
Mr. Mollohan. Thank you, Mr. Chairman.
Closing Statement
Mr. Rogers. Well, we thank you for your testimony here
today, all of you, and your appearance here today. Dr. Baker,
the Weather Service modernization--and, Dr. Friday--is terribly
important to all of us, obviously.
A couple of weeks ago we had a very severe tornado warning
where I live at home, and we were forced to take to the
basement of our neighbors to be sure, because they had spotted
a tornado just in the next community.
And it was comforting to have the radio there listening to
your personnel from the Jackson Weather Station in Eastern
Kentucky watching the new NEXRAD radar that was keeping an eye
on those tornadoes. And it's amazing how far you and we have
come in a short span of time in predicting killer weather.
So we appreciate what you are doing. We want you to do it
as economically as you can do it, but as they say, just do it.
Dr. Baker. Yes, Mr. Chairman.
Mr. Rogers. Thank you.
[Pages 1310 - 1384--The official Committee record contains additional material here.]
W I T N E S S E S
----------
Page
Alvarez, Aida.................................................... 751
Baker, D.J....................................................... 1241
Barshefsky, Ambassador Charlene.................................. 591
Daley, Hon. W.M.................................................. 1
DeGeorge, Frank.................................................. 290
Ehrlich, E.M..................................................... 933
Eizenstat, S.E................................................... 629
Good, M.L........................................................ 337
Hundt, R.E....................................................... 1037
Irving, Larry.................................................... 1037
Landefeld, J.S................................................... 933
Lehman, B.A...................................................... 337
Miller, M.E...................................................... 629
Reinsch, W.A..................................................... 703
Riche, M.F....................................................... 933
Singerman, P.A................................................... 751
Webber, Paul, III................................................ 751
I N D E X
----------
DEPARTMENT OF COMMERCE
Secretary of Commerce
Pages
2000 Census.....................................................179-181
Advanced Technology Program............................178-179, 186-187
Anti-dumping Policies...........................................170-171
Biography of Hon. William M. Daley, Secretary of Commerce........ 22
Blue Fin Tuna...................................................188-189
Commerce Administrative Management System (CAMS):
Cost and Implementation...................................... 184
Scheduling................................................... 185
Commerce Department Budget-In-Brief..............................23-164
Computer Problems in the Year 2000............................... 185
Export Assistance Centers........................................ 170
Improvements to the 1990 Census.................................183-184
John Huang Issue................................................. 175
Manufacturing Extension Partnership (MEP)........................ 177
MBDA vs. SBA..................................................... 176
Minority Business Development Agency and Small Business
Administration Coordination Efforts...........................176-177
National Oceanic and Atmospheric Administration.................187-188
National Telecommunications and Information Administration....... 177
Non-market Economies............................................171-172
Opening Remarks by Chairman Rogers............................... 1
Opening Statement of Hon. William M. Daley, Secretary of Commerce 1-6
Opportunities For Small- or Medium-sized Business...............169-170
Prepared Statement of Hon. William M. Daley, Secretary of
Commerce....................................................... 7-21
Privatization of the Patent Office..............................173-174
Publication of Patent Applications at 18 Months.................174-175
Questions Submitted by Congressman Regula.......................286-289
Questions Submitted by Congressman Rogers:
General Departmental........................................190-275
Implementation of the Government Performance and Results Act.
276-283
Questions Submitted by Congressman Taylor.......................284-285
Reduction of Political Positions................................166-167
Sampling........................................................181-183
Security Clearances:
Policy....................................................... 178
Procedures..................................................172-173
General.....................................................165-166
Trade Missions..................................................167-169
Inspector General
1998 Budget Request.............................................. 322
AWIPS...........................................................317-318
Biography of Frank DeGeorge, Inspector General................... 315
CAMS............................................................. 331
Capital Asset Acquisition Account...............................329-331
Decennial Census................................................322-323
Employee Complaint............................................... 329
Foreign Commercial Services.....................................323-328
National Forecast Lab...........................................318-319
NOAA:
Boulder Lab.................................................319-322
Weather Satellites..........................................316-317
OIG Staffing..................................................... 329
Opening Remarks by Chairman Rogers............................... 290
Opening Statement of Frank DeGeorge, Inpector General...........290-295
Questions Submitted by Congressman Forbes.......................332-335
Statement of Frank DeGeorge, Inpector General...................296-314
Science and Technology
Advanced Technology Program.....................................364-493
ATP Funding.....................................................371-372
Basic Research vs. Applied Technology...........................374-376
Biography:
Dr. Mary Lowe Good..........................................362-363
Bruce Lehman................................................. 355
Budget Deficit Reduction vs. Patent Pendency....................446-448
EPSCOR Program..................................................373-374
Fee Generation..................................................454-455
House Resolution 400............................................. 441
Legislative Changes to Operate as a PBO.......................... 456
Manufacturing Extension Partnership Program.....................451-454
NIST Program Turnover...........................................448-449
OMB Request.....................................................455-456
Opening Remarks by Chairman Rogers............................... 337
Overview........................................................484-487
Bruce Lehman, Commissioner of Patents.......................356-357
Mary Lowe Good, Under Secretary for Technology..............337-340
Patent Reexamination Procedures...................444-445, 457, 458-459
Patent Pendency........................................442-444, 457-458
Performance-Based Organization..................................441-442
Privatization..............................................440, 459-461
Questions Submitted by Congressman Rogers.......................462-586
Questions Submitted by Congressman Forbes.......................587-589
Reimbursable Projects...........................................449-451
Reducing PTO Appropriation......................................445-446
Statement:
Bruce Lehman................................................358-361
Dr. Mary Lowe Good..........................................341-354
Stimulating Technology..........................................372-373
Technology Programs.............................................. 370
Technology Development Stimulation............................... 440
The Visiting Committee on Advanced Technology Annual Report.....377-439
Office of The United States Trade Representative
Barshefsky, Honorable Charlene, Ambassador, Office of the United
States Trade Representative:
Opening remarks.............................................. 591
Prepared remarks............................................. 595
Biography.................................................... 604
China:
Accession to WTO............................................. 616
Trade deficit with........................................... 606
Latham, Honorable Tom, Member U.S. House of Representatives,
questions submitted by......................................... 626
Renewal of Fast Track Authority.................................. 610
Restructing of USTR Agriculture Office........................... 615
Rogers, Honorable Harold, Member U.S. House of Representatives,
questions submitted by......................................... 620
Subsidization of Pork Exports.................................... 616
Steel Industry:
Multilateral Specialty Steel Agreement....................... 615
Unfair Trade Practices....................................... 608
1916 Anti-dumping Laws....................................... 614
WTO and the Helms-Barton Act..................................... 612
Trade Compliance Unit............................................ 606
Trade Promotion and Enforcement
Additional Anti-dumping and Countervailing Responsibilities.....658-660
Administrative Charges Paid to State Department.................660-667
Agriculture Export Promotion........................................660
Biography:
Marcia E. Miller............................................. 657
Bruce Lehman................................................647-648
Commitment to Small- and medium-sized Business..................665-666
Duplication Between ITA and ITC.................................. 660
Measuring Small Business Export Sales...............................672
NEC Computer Case...............................................668-669
Opening Remarks by Chairman Rogers............................... 629
Opening Statement:
Stuart Eizenstat, Under Secretary of Commerce for
International Trade.......................................629-634
Marcia E. Miller, Chairman, International Trade Commission.........
649-651
Participation in Trade Missions.....................................673
Questions from Congressman Forbes...............................695-702
Questions from Congressman Scaggs................................ 678
Questions from Congressman Rogers...............................682-694
Re-Write of Rules For Trade Missions............................673-675
Spending on Advocacy............................................. 671
State Department Economic Officers and Commercial Service
Officers......................................................660-665
Statements:
Marcia E. Miller............................................652-656
Stuart Eizenstat............................................635-646
US and FCS Staffing.............................................669-671
USTR Support....................................................676-681
WTO Membership for China........................................675-676
Bureau of Export Administration
Biography of William A. Reinsch.................................712-713
BXA Accomplishments.............................................714-720
Chemical Weapons Convention Increase............................721-722
Chemical Weapons Convention.........................................731
Consolidation of Agency Export Control..........................725-726
Encryption Budget................................................ 730
Encryption Increase.............................................722-723
Encryption......................................................727-730
Enforcement...................................................... 721
Export Control Reform...........................................724-725
Lack of Authorization............................................ 724
Opening Statement of William A. Reinsch, Under Secretary for
Export Administration.......................................... 704
Passage of the Chemical Weapons Treaty..........................726-727
Questions Submitted by Congressman Forbes.......................746-749
Questions Submitted by Congressman Rogers.......................734-745
Refocusing Resources............................................. 721
Seizure and Forfeiture Authority................................. 723
Statement of William A. Reinsch.................................704-711
Streamlining and Downsizing...................................... 731
Terrorism.......................................................731-733
Business and Economic Development
Agency Streamlining.............................................851-853
Biography of Ms. Alvarez........................................773-774
Biography of Paul Webber III..................................... 838
Biography of Phillip A. Singerman................................ 818
Duplication and Coordination Among Programs.....................843-846
EDA Defense Economic Adjustment.................................853-856
Opening Statement of Mr. Phillip Singerman, Assistant Secretary,
EDA...........................................................775-813
Opening Statement of Ms. Alvarez, Administrator, US Small
Business Administration.......................................751-754
Opening Statement of Paul Webber III, Acting Deputy Director,
MBDA..........................................................819-820
Prepared Statement of Mr. Singerman.............................813-817
Prepared Statement of Ms. Alvarez...............................755-772
Prepared Statement of Paul Webber III...........................820-837
Proposed Changes to the SBA 7(A) Program........................841-842
Public Works Program Performance Evaluation.....................778-812
Questions Submitted by Chairman Rogers..........................858-910
Questions Submitted by Congressman Dixon........................929-931
Questions Submitted by Congressman Forbes.......................911-928
SBA Asset Sales.................................................. 848
SBA Delta Loan Program..........................................842-843
SBA Disaster Loan Request.......................................849-850
SBA Portfolio Management........................................850-851
SBA Regional Office Staffing..................................... 846
SBA Subsidy Rate Calculations...................................846-847
SBA (FLA) Program...............................................839-840
Small Business Development Centers..............................848-849
Department of Commerce Statistical Programs
1998 Dress Rehearsal vs. 1995 Test............................... 987
2000 Dress Rehearsal............................................981-987
Address Lists...................................................991-992
BEA Funding...................................................... 993
BEA-National Economic Accounts..................................992-993
Biography of Dr. Martha Farnsworth Riche......................... 957
Biography of Everett M. Ehrlich.................................. 938
Biography of J. Steven Landefeld................................. 962
Census 2000 Dress Rehearsal...................................... 981
Census of Mineral Industries....................................975-977
Conclusions.....................................................996-997
Consumer Price Index............................................993-994
Content of Census Forms.......................................... 970
Decennial Census Address List...................................989-991
Decennial Census Direct Contact.................................973-974
Decennial Census Forms..........................................964-969
Decennial Census Forms..........................................987-988
Decennial Census Methodology....................................974-975
Decennial Census Outreach and Promotion.........................988-989
Decennial Census Sampling.......................................963-964
Decennial Census Sampling.......................................977-980
Decennial Census Sampling.......................................994-995
Error Rates.....................................................972-973
Opening Statements by Dr. Martha Farnsworth Riche, Director,
Bureau of the Census..........................................939-941
Opening Statements by Mr. Everett M. Ehrlich, Under Secretary for
Economic Affairs..............................................934-935
Prepared Statement by Dr. Martha Farnsworth Riche...............942-956
Prepared Statement of Everett M. Ehrlich........................936-937
Prepared Statement of J. Steven Landefeld.......................958-961
Questions Submitted by Congressman Forbes.....................1023-1027
Questions Submitted by Congressman Rogers......................998-1023
Questions Submitted by Congressman Skaggs.....................1028-1035
Response Rate...................................................970-972
Sampling......................................................... 981
Waivers for Enumerators on Public Assistance....................995-996
TELECOMMUNICATION ISSUES
Subjects of Discussion During Hearings:
Bechtel Decision..........................................1098-1099
BOCS Cellular Separate Subsidy Rule.......................... 1099
Digital Television Spectrum Allocation....................1096-1097
FCC Jurisdiction............................................. 1089
FCC Jurisdiction and Alcohol Advertising.................
1082-1085..............................................
FCC Relocation Costs......................................1078-1080
Free Television Advertisement for Candidates........1097, 1090-1091
Intergovernmental Personnel Act...........................1103-1105
International Telecommunication Union.....................1100-1102
Long Distance Competition.................................1080-1082
National Congress for Community and Economic Development...........
1102-1103
Opening Statement of:
Chairman Hundt, FCC......................................
1037-1039..............................................
Mr. Irving, NTIA.........................................
1056-1058..............................................
Chairman Rogers..........................................
1037...................................................
Public Broadcasting.......................................1099-1100
Public Safety Spectrum Allocation..............1085-1089, 1105-1106
Digital Television--Public Safety Spectrum Allocation....
1095-1096
Spectrum Auctions and Public Safety Concerns.............
1106-1109..............................................
Reimbursable Services........................................ 1094
Spectrum Auctions:
Auctions Debt Collections Transfer....................... 1085
Effects of Auctioning Spectrum Bands..................... 1098
Spectrum Auctions, effect on users.......................
1097-1098..............................................
Spectrum Management.......................................1091-1092
DOD Joint Spectrum Management Center.....................
1092-1094..............................................
Telecommunications Act Implementation........................ 1078
Materials Provided for the Hearing Record:
Biographical Sketch of Chairman Hundt.....................1054-1055
Biographical Sketch of Mr. Irving.........................1076-1077
Letter to Congresswoman Harman from Chairman Hundt........1087-1088
Prepared Statement of Chairman Hundt......................1040-1053
Prepared Statement of Mr. Irving..........................1059-1075
Public Safety Funding........................................ 1108
Public Safety Spectrum Use..........................1114, 1110-1113
Public Safety Spectrum Allocation............................ 1096
Summary of Federal Reallocation Costs........................ 1108
Questions Submitted by Congressman Rogers:
FCC Staffing Requirements................................
1115-1117, 1121-1166...................................
Telecom Rulemaking.......................................
1117...................................................
Relocation to Portals....................................
1117-1118..............................................
Public Safety Spectrum Needs.............................
1118-1119..............................................
Spectrum Auction Debt.................................... 1120
Government Performance and Results Act...................
1167-1172..............................................
Spectrum Fees............................................
1173-1175..............................................
Privacy Initiative....................................... 1175
Public Safety Spectrum Needs............................. 1176
Questions Submitted by Congressman Kolbe:
Leased Access............................................
1177-1180..............................................
Questions Submitted by Congressman Taylor:
FCC's Cellular Separate Subsidiary Rule.................. 1180
Deregulation.............................................
1181-1182..............................................
CMRS Safeguards..........................................
1182-1183..............................................
Outsourcing Auctions..................................... 1183
Speeding the Auction Process.............................
1183-1184..............................................
Bechtel vs FCC...........................................
1184-1186..............................................
Distilled Spirits Advertising............................
1186-1187..............................................
Lutheran Church--Missouri Synod Case..................... 1187
PTFP Grants.............................................. 1188
Questions Submitted by Congressman Regula:
Area Code Relief.........................................
1189-1191..............................................
Questions Submitted by Congressman Forbes:
Distilled Spirits Advertising............................
1192-1194..............................................
National Congress for Community Enconomic Development....
1195-1240
National Oceanic & Atmospheric Administration
Airport Weather Services......................................1296-1298
AWIPS.........................................................1290-1295
Biography of Dr. D. James Baker.................................. 1277
Brown Tide/Algae Bloom........................................1295-1296
Closing Statement................................................ 1309
Global Climate Dynamics and Warming...........................1302-1303
Inter-Agency Agreements.......................................1298-1300
National Weather Service......................................1278-1288
Nautical Charting.............................................1308-1309
NOAA as a DOC Priority........................................1288-1290
NOAA Facility at Goddard Space Flight Center..................1305-1307
Opening Statement of Dr. D. James Baker, Under Secretary for
Oceans and Atmosphere.......................................1241-1243
Prepared Statement of Dr. D. James Baker......................1244-1276
Questions Submitted by Congressman Forbes.....................1377-1380
Questions Submitted by Congressman Rogers.....................1310-1377
Research for New Life Forms...................................... 1296
Satellite Funding.............................................1303-1305
Solar Max.....................................................1301-1302
Stream Gauge Monitoring.......................................1300-1301
Streamlining NOAA.............................................1307-1308