[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
                                ________

                                 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
                                ________

         Printed for the use of the Committee on Appropriations
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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